Nssa loses Housing Corporation of Zimbabwe guarantee revocation bid

HARARE - Zimbabwe's High Court has prevented the National Social Security Authority (Nssa) from “fraudulently invoking” a $16 million performance bond or guarantee from Zimnat Lion Insurance Company (Zimnat) issued over Housing Corporation of Zimbabwe (HCZ)’s Caledonia project.

The development not only comes as HCZ chairman Adam Molai and parties including ex-authority chairman Robin Vela face purported fraud charges, but Justice Esther Muremba’s provisional order has virtually affirmed the validity of the contract between the real estate developer and the compulsory pension fund, and that this was essentially a commercial dispute – still pending at the commercial arbitration centre.

“Pending determination of the matter… an interim order is hereby granted in the following terms: The second respondent (Nssa) be and is hereby interdicted, and restrained from seeking to execute on its letter of demand in relation to the performance bond or receiving any payment from the guarantor and first respondent (Zimnat)..,” she said, adding the bond issue and clause was added into the bipartite agreement for “the benefit of Nssa as the developer was guaranteeing the fulfilment of the contract”.

“The guarantor (Zimnat) be… interdicted and restrained from making any payment to the beneficiary (Nssa) under, and in terms of the performance bond..,” Muremba said, noting further that “there were serious disputes even on the commencement date between HCZ and Nssa”, and the final order or relief sought was to declare that “the letter of demand… calling on the performance bond dated 25 July 2018 and received by Zimnat on 6 August 2018 was fraudulently issued..”

According to state papers, the parties entered into a written off-taker contract on July 14, 2017 and whereby Stephen Duggan’s company was to acquire land, and develop 8 000 low-cost houses by 2021, which were to be sold to the state-run institution as part of its efforts to help government deliver tens of thousands of high-density units by end of this year.

Under the ambitious project, which was part of Harare’s command housing initiative, Nssa was to deliver – through its National Building Society and directly – 10 000 housing units by December 2017, and via five housing developments worth a cumulative $78 million.

Hence, the state-run institution roped in private sector players to escalate the delivery of 600 houses in Dzivaresekwa through Tinashe Nhete’s N-Frays, Globeny Construction’s Gweru cluster, another lot by Tarcon in Marondera, a Mutare complex of 1 000 units and similar number in Zvishavane by SMM Holdings Limited.

And despite having been given some 53 completed units – as part of the developer’s first phase commitment of 250 houses – on March 15 this year, Nssa inexplicably wrote to Zimnat on July 25 to demand payment of the compensation fee and which was challenged by HCZ on August 07.

“It is the applicant’s contention that Nssa’s letter of demand calling on the performance bond is fraudulent and marred with falsehoods because it (Duggan’s company) has delivered some housing units... It averred that there was never… communication by Nssa saying that the applicant had failed to deliver in terms of the contract and that it was going to call on the bond,” Muremba’s order stated.

“Now that the dispute has been referred to arbitration, the balance of convenience favours the granting of the interdict because… it means financial consequences to the applicant,” it said, adding HCZ had resorted to legal action – which was permitted according to clause 27:11 of the principal agreement – since the guarantor had not given any assurances that it was not going to pay the aggressor.

While the court papers expressly acknowledge that the parties had initiated commercial arbitration proceedings between August 10 and 20 this year, Nssa chose to ignore this and push for a cancellation of the Caledonia deal, which also gave rise to the alleged criminal charges against Molai, Vela and others.

“In view of the foregoing… l am inclined to grant the interdict the applicant is seeking. It is alleging fraud on the part of Nssa. In the meantime… the granting of the interdict as it will ensure that the status quo ante is maintained until a determination is made on the issue. Allowing Zimnat to pay on the performance bond has financial consequences to the applicant, which will be called on to make good the loss that will be suffered by Zimnat,” Muremba said.

“There is, therefore, a well-grounded apprehension of irreparable harm if the interim relief is not granted and the ultimate relied is granted. There’s no satisfactory remedy available to the applicant. If an injury, which could give rise to a claim in law is apprehended, the person against whom an injury is… committed is not compelled to wait for the damage and sue afterwards for compensation. He can move the court to prevent any damage being done to him,” she said, in the temporary ruling and in which she also complained about “painful, argumentative and unnecessarily lengthy or wordy” pleadings.

Even, though, a lot of the issues around the Caledonia case form much of the charges against Molai and company, Muremba’s interim order – and potential outcome of the arbitration process – have the prospect of hobbling the Zimbabwe Anti-Corruption Commision’s case against the Harare businessman.

While the judge also makes a strong observation, if not case, that the parties had a subsisting contract backed up by a $16 million security guarantee, the statements somehow buttress Vela’s recent claims – in a voluminous letter to President Emmerson Mnangagwa – that:

“The developer provided a third party institutional (Zimnat) performance guarantee… for funds advanced to it altogether with a caveat on the land, which had a value of some $30 million. In total – Nssa has tangible security of some three times the amount of $16 million released. All requisite approvals were in place,” he said.

Meanwhile, the former Nssa chairman says the decision to invest in affordable housing was actually in line with its delivery mandate and strategies to boost cash-flows.

This also comes as the authority’s asset base and investment income has grown two-fold to nearly $50 million, and the South African-based businessman has insisted that he had “no direct involvement in selecting development partners or suppliers as this was the work of management”. - Financial Gazette

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