Bank ordered to pay City over flawed water treatment plant

THE latest chapter in a continuing High Court saga over the City of Windhoek’s deeply troubled Goreangab Water Reclamation Plant was closed this week with an order that Standard Bank South Africa must pay a financial guarantee of N$3,015 million to the City.

In terms of a judgement handed down by Judge Sylvester Mainga on Monday, Standard Bank SA has been ordered to honour a bank guarantee of N$3 015 869 that it issued in favour of the Council of the Municipality of Windhoek in December 2002. The bank also has to pay 20 per cent annual interest on that amount from July 12 last year, which was the date when the City finally called up the guarantee and the bank refused to pay out the money.The interest would amount to about N$400 000 by now.GUARANTEE ‘CONTAINED ERROR’ Judge Mainga also ordered Standard Bank SA to pay the costs of the case between it and the City, including the costs of two instructed counsel who had represented the city in the matter, which was argued in the High Court on January 31.The bank claimed that the guarantee it had issued to the City contained an error that warranted the bank’s refusal to pay out the money.Even if there was an error in the document, Judge Mainga found, the bank still had to meet its obligations in terms of the guarantee, unless it was able to prove that there was clear evidence of fraud on the City’s part when it presented the guarantee for payment.The bank did not allege fraud on the part of the City, though.The case that the City brought against the bank is a sequel to an agreement for the construction of a new water-purification plant that the City concluded with a South African company, DB Thermal, in May 1999.DB Thermal was supposed to design and build the plant, which was supposed to be completed and handed over to the City by late September 2000, at a total cost of some N$92 million.The plant was handed over in early August 2002 – almost two years late.A range of problems with the plant were detected when it was supposed to start delivering its promised daily production of 21 000 cubic metres of purified water, the City is claiming in various court documents that form part of still-continuing, multi-million-dollar litigation over the plant.The City claims that the plant had basic design faults that prevented it from producing the quantity of water it was supposed to.Furthermore, the City says it was discovered that substantially larger quantities of chemicals would have to be used in the purification process than DB Thermal had stated would be the case.The City is still suing DB Thermal and its former directors for close to N$52 million over the claimed flaws and shortcomings in the plant.The City has undertaken to deduct from this amount any guarantees honoured by Standard Bank SA.These deductions would include the N$3,015 million at stake in the case that Judge Mainga dealt with, another N$6,2 million that the bank has already paid, as well as a performance guarantee of N$6,2 million that the same bank had issued.The performance guarantee has also been the subject of litigation between the City and DB Thermal in South Africa.There, DB Thermal tried, but failed, through a case in the Witwatersrand Local Division of South Africa’s High Court, to prevent Standard Bank South Africa from paying out the N$6,2 million that it had guaranteed would be paid as soon as the City made a declaration that DB Thermal had failed to perform the contract for the construction of the plant.The City’s Public Relations Officer, Liz Sibindi, said yesterday that the plant was operating, but not all the problems had been solved.The plant is now producing 15 000 cubic metres of purified water a day, and it is anticipated that it would be able to push up production to its intended design level of 21 000 cubic metres a day as soon as all problems with its Pressure Switch Adsorption (PSA) system have been resolved, the City stated.The PSA system is a component of the plant that is supposed to produce oxygen, which is used to generate ozone that is used in one of the plant’s purification stages.It has been one of the main problem areas of the plant, and the City claimed that it would cost an estimated N$5,5 million to replace it.The bank also has to pay 20 per cent annual interest on that amount from July 12 last year, which was the date when the City finally called up the guarantee and the bank refused to pay out the money.The interest would amount to about N$400 000 by now.GUARANTEE ‘CONTAINED ERROR’ Judge Mainga also ordered Standard Bank SA to pay the costs of the case between it and the City, including the costs of two instructed counsel who had represented the city in the matter, which was argued in the High Court on January 31.The bank claimed that the guarantee it had issued to the City contained an error that warranted the bank’s refusal to pay out the money.Even if there was an error in the document, Judge Mainga found, the bank still had to meet its obligations in terms of the guarantee, unless it was able to prove that there was clear evidence of fraud on the City’s part when it presented the guarantee for payment.The bank did not allege fraud on the part of the City, though.The case that the City brought against the bank is a sequel to an agreement for the construction of a new water-purification plant that the City concluded with a South African company, DB Thermal, in May 1999. DB Thermal was supposed to design and build the plant, which was supposed to be completed and handed over to the City by late September 2000, at a total cost of some N$92 million.The plant was handed over in early August 2002 – almost two years late.A range of problems with the plant were detected when it was supposed to start delivering its promised daily production of 21 000 cubic metres of purified water, the City is claiming in various court documents that form part of still-continuing, multi-million-dollar litigation over the plant.The City claims that the plant had basic design faults that prevented it from producing the quantity of water it was supposed to.Furthermore, the City says it was discovered that substantially larger quantities of chemicals would have to be used in the purification process than DB Thermal had stated would be the case.The City is still suing DB Thermal and its former directors for close to N$52 million over the claimed flaws and shortcomings in the plant.The City has undertaken to deduct from this amount any guarantees honoured by Standard Bank SA.These deductions would include the N$3,015 million at stake in the case that Judge Mainga dealt with, another N$6,2 million that the bank has already paid, as well as a performance guarantee of N$6,2 million that the same bank had issued.The performance guarantee has also been the subject of litigation between the City and DB Thermal in South Africa.There, DB Thermal tried, but failed, through a case in the Witwatersrand Local Division of South Africa’s High Court, to prevent Standard Bank South Africa from paying out the N$6,2 million that it had guaranteed would be paid as soon as the City made a declaration that DB Thermal had failed to perform the contract for the construction of the plant.The City’s Public Relations Officer, Liz Sibindi, said yesterday that the plant was operating, but not all the problems had been solved.The plant is now producing 15 000 cubic metres of purified water a day, and it is anticipated that it would be able to push up production to its intended design level of 21 000 cubic metres a day as soon as all problems with its Pressure Switch Adsorption (PSA) system have been resolved, the City stated.The PSA system is a component of the plant that is supposed to produce oxygen, which is used to generate ozone that is used in one of the plant’s purification stages.It has been one of the main problem areas of the plant, and the City claimed that it would cost an estimated N$5,5 million to replace it.