The government is dangerously close to having the arms deal cancelled, after ignoring court orders for a second time.

The department of finance is still refusing to hand over its entire arms deal affordability study to the head of the SA branch of Economists Allied for Arms Reduction (Ecaar).

In 2000 Ecaar filed an application in the Cape High Court to have the loan agreement on which the multi-billion rand arms deal is based declared null and void. Ecaar head Terry Crawford-Browne said in his affidavit that South Africa could not afford the deal. He cited the estimated value of the rand against foreign currency and the present socio-economic situation in the country.

The government then failed to file their reasons for defending the application in time. This was followed by a threat from Ecaar's legal team of the time to apply for a summary hearing - which would have meant that the case would be heard without government's input.

This was narrowly averted by the government filing their court papers, which contained affidavits from Finance Minister Trevor Manuel and department of finance director-general Maria Ramos, setting out their defence to Ecaar's court action.

While preparing for the legal battle ahead, Ecaar's lawyers identified certain documents referred to by Manuel and Ramos in their affidavits. They wanted to see these original documents and asked the court to order the department of finance to make them available.

The court dismissed their request for several of the documents, but agreed that the department of finance should give the complete affordability study done about the arms deal to Ecaar.

The minister of finance has, however, until now only agreed to make it available to Ecaar's legal team for perusal, saying that the document is highly confidential and sensitive in nature.

Crawford-Browne then filed an application to have government held in contempt of court.

This resulted in 28 pages out of what is a document estimated to be 700 pages long, being made available to Ecaar.

"They excluded all the warnings by the task team of foreign exchange and other financial risks and socio-economic consequences of the arms deal," Crawford-Browne said this week.

This led to a second application filed by Ecaar's legal team on Friday. This gave government five days to comply or face the possibility of the court barring them from defending the main court case.

This could automatically lead to Ecaar's application to have the financial basis of the arms deal declared void, being successful.

"At last we're making progress, and are hopeful the litigation will all be completed before the end of the year. Meanwhile, remember that the arms deal is certainly not yet paid for, and it can still be cancelled," Crawford-Browne said.

Ecaar's legal team will argue that the constitution should take precedence over treaties and contracts. If the loan agreements, that form the financial basis of the agreement, are subsequently cancelled, the taxpayer would not carry the costs of the cancellation penalties, Crawford-Browne said.

Instead, the costs would be carried by the European export companies involved in the deal.

He further explained that they, however, do not know if there are additional penalties that Manuel agreed to in the acquisition agreements - as Ecaar had not been able to get access to these.

He said that the scenario would be much worse if South Africa found itself unable to pay for the arms deal. "We will have to pay billions and billions - all our gold and export earnings will go towards paying for the penalties," he said.

The government has until Friday to respond.

With acknowledgements to Estelle Ellis and the Cape Times.