Gwanda solar project contract binding – court

THE High Court has ruled in favour of Intratrek Zimbabwe in a legal case in which the company sought an order declaring the contract with Zimbabwe Power Company (ZPC), for the construction of the 100 megawatts Gwanda Solar project, valid and binding between the parties.

Consequent to the declaration of the validity of the Engineering, Procurement and Construction Contract, Intratrek Zimbabwe also sought an order for specific performance.

Alternatively, Intratrek Zimbabwe and its managing director Wicknell Chivayo, made a US$25 million damages claim for breach and repudiation of contract by the Zimbabwe Power Company (ZPC).

This followed a fully contested trial that lasted one month in September 2022.

The parties had signed the contract agreement subsequent to a successful tender bid for the engineering, procurement and construction of the 100-megawatt Gwanda Solar Power Station Project, which Intratrek Zimbabwe was awarded as the lowest compliant bidder to specification out of six bidders at a cost of US$173 million.

In his judgment, Justice Siyabonga Paul Musithu, criticised ZPC for frustrating it’s contractor, which won the project after an open tender having gone through a fair and thorough process sanctioned by the then State Procurement Board SPB), now Procurement Regulatory Authority of Zimbabwe.

After the tender award by SPB, Cabinet subsequently approved the project for implementation in phases starting with 10MW and then the balance of 90 MW, but still ZPC allegedly ignored all ministerial directives from its principal shareholder the Government.

This was despite the fact that Zimbabwe was and continues to face crippling power shortages due to critically low water levels in Lake Kariba, a 1 050MW hydropower plant and the country’s largest source of electricity.

“After the defendant’s appeal to the Supreme Court against the High Court judgment by Justice Chitapi, and following the granting of leave to execute the same judgment, there were several interventions by the Ministry of Energy and Power Development nudging the parties towards finding common ground in order to fully implement the project.

“Perhaps more telling is the (former minister of energy’s) letter to the executive chairman of Zesa Holdings of June 15, 2020. The letter expressed reservations with the entity’s resolutions, which were at variance with Government’s policy direction on the matter concerning the project.

“The letter noted that the Government had recommended that contracting parties reconcile their differences and implement the project as directed by the High Court judgment. In fact, the minister construed Zesa Holdings’ intransigence as a clear objection to the Government’s directive on the matter,” Justice Musithu said.

He added that Zesa Holdings had been directed to act as a matter of urgency to comply with the Government’s position to implement power generation initiatives aimed at addressing the power challenges facing the country.

“While the letters were directed to Zesa Holdings, which is not a party to the contract, it is of course common cause that the defendant is a subsidiary of Zesa Holdings. The Government of Zimbabwe is the principal shareholder through the Ministry of Energy.

“What is clear is that even the ministry was frustrated with the manner in which the defendant was conducting itself in the implementation of the project.

“The record of proceedings is teeming with correspondence from the Ministry of Energy inviting the contracting parties to meetings whose main agenda was the project. All these efforts were meant to find common ground to ensure implementation of the project,” the judge noted.

He said this followed several correspondences from the ministry and meetings involving its officials over concerns raised by Intratrek regarding ZPC’s “diffidence and lackadaisical approach to the implementation of the project and funding agreement”.

“That the ministry had to write such a strongly worded letter to the defendant’s holding company speaks volumes about the insincerity of both defendant and the holding company. The defendant did not place evidence before this court to show the measures it took in response to the plaintiff’s complaints or to comply with its own ministry’s directive on the matter given the Government’s interest in the project,” Justice Musithu said.

He said certain provisions of the contract obliged the parties to use reasonable endeavours to ensure the satisfaction of the conditions precedent. The same provisions prevented the party causing delays to the project from terminating the contract while the cause of delay “subsisted”.

The High Court judge also noted that even the Ministry of Finance and Economic Development had taken a keen interest in the matter after awarding the Gwanda solar project national project status back in 2016.

The ministry also wrote a letter of intent in March 2016 for the issuance of a sovereign guarantee for the project noting it would “reduce the electricity deficit and contribute towards socio-economic development of our (then) country as enshrined in our economic blueprint (Zim-Asset).

Further, the judge rebuked ZPC over its intransigency regarding funding overtures by Intratreks technical partner CHiNT Electric, which indicated “our drive to expedite all outstanding issues under this contract is compelled and complemented by His Excellency, your President of the Republic of Zimbabwe Cde ED Mnangagwa’s recent visit to the People’s Republic of China and clarion call to accelerate the progress of the project”.

The Chinese firm also expressed its readiness to process the advance payment guarantees required by Zesa so it would release the funding required to finance pre-commencement works for the Gwanda project.

ZPC had terminated the contract on the grounds that Intratrek had failed to fulfill the conditions precedent to the implementation and enforcement of the contract, which were supposed to be satisfied within 24 months.

Notably, though, the parties had signed an addendum to the agreement on October 23, which stated new provisions to the contractual agreement between the parties. But Zesa still proceeded to purportedly terminate the contract on the basis of the original agreement.

“Further, even though the defendant had the sole discretion to extend the period that election could only be exercised through an amendment to the contract, consistent with clause 6. The court, therefore, determined that the purported extension of the conditions precedent satisfaction period was inconsistent with provisions of the contract and consequently a nullity”.

“Any communication, therefore, imputing the termination of the contract to that date, on account of the failure to satisfy the conditions precedent would be of no legal force, the contract remained valid and extant,” Justice Musithu said.

The judge also ruled against ZPC on the basis that the company was culpable for causing delays in the completion of the conditions precedent after causing the arrest of Intratrek managing director Wicknell Chivayo.

“In view of the foregoing observations, there is clearly a case for finding in favour of the plaintiff (Intratrek) on the basis of the doctrine of fictional fulfillment. The defendant purposely prevented or frustrated the fulfillment of the condition precedent pertaining to the signing of the financing agreements. In terms of clause 5 of the contract, the right to terminate the contract by either party is not absolute.”

The judge also railed on the witness provided by ZPC in the matter for deferring most questions asked on the issue to the accounting officer while noting the witness’s participation in the project was very minimal. “His evidence was therefore not helpful at all,” the judge determined.

According to the joint report done by ZPC and Intratrek, all pre-commencement works equivalent to the advance payment of US$5 million dollars were completed and ZPC owes Intratrek US$693 000 dollars with work valued at US$1,191 million dollars not paid for and yet to be executed.

Intratrek had sought a declaration that the procurement contract for Engineering, Procurement and Construction (EPC) of the 100MW Gwanda Solar Project (ZPC 304/2015) as amended was valid and binding between the parties.

Consequent to the declaration, Intratrek applied for a decree of specific performance, in the alternative damages for breach of contract in the sum of US$25 million. The company claimed it would have made a return on investment profit of US$22 million.

ZPC resisted the claim and initially counterclaimed for a declaration that the EPC contract was invalid as the conditions precedent were not satisfied.

It also claimed damages for breach of contract predicated on alleged misrepresentation in the sum of US$93 million and a further US$3,3 million.

However, at the commencement of the trial, ZPC withdrew its allegations of misrepresentation and the allied damages claim.

The judgment handed down yesterday morning by Justice Priscilla Munangati-Monongwa read the “EPC contract is hereby declared valid and extant.

An order for specific performance is hereby issued. ZPC’s claims in reconvention are hereby dismissed.”

Intratrek Zimbabwe was represented by Advocate Lewis Uriri and Advocate Taona Nyamakura instructed by Manase & Manase Legal Practitioners while ZPC was represented by Advocate Daniel Tivadar instructed by Muvingi and Mugadza Law Firm.-ebusinessweekly