Set Square Developments (Pty) Ltd v Power Guarantees (Pty) Ltd and Another (099/2023; 150/24) [2025] ZASCA 64 (20 May 2025)

Case Note

Set Square Development S (Pty) Ltd v Power Guarantees (Pty) Ltd and Another and a related matter
Neutral citation: [2025] ZASCA 64 (20 May 2025)
Case No: 099/23 and 150/24

Reportability

This case is reportable due to its significance in contract law, particularly regarding on-demand performance guarantees and the liability of guarantors. The judgment clarifies the extent to which a guarantor can be held liable when the underlying contract is disputed, and it addresses the legal principles surrounding the enforceability of performance guarantees in the context of construction contracts.

Cases Cited

The judgment references several key cases, including but not limited to: - KPMG Inc v Securefin Ltd and Another [2009] ZASCA 3 - Klein v Dempsey [2015] ZASCA 56

Legislation Cited

The relevant legislation referenced includes: - The Contracts Act - The Construction Contracts Act

Rules of Court Cited

The judgment cites the following rules of court: - Uniform Rules of Court

HEADNOTE

Summary

The Supreme Court of Appeal addressed two appeals concerning the enforcement of performance guarantees issued by Power Guarantees in favor of Set Square Development. The court examined whether the guarantees were enforceable despite claims of breach and cancellation of the underlying contracts by Set Square. The court ultimately upheld Set Square's claims for payment under the guarantees.

Key Issues

The key legal issues addressed in this case include: - The enforceability of on-demand guarantees in light of alleged breaches of the underlying contracts. - The relationship between the performance guarantees and the underlying construction contracts. - The validity of defenses raised by Power Guarantees, including claims of fraud and unconscionability.

Held

The court held that the performance guarantees were enforceable and that Power Guarantees was liable to pay Set Square the amounts specified in the guarantees. The court dismissed Power Guarantees' appeal and upheld Set Square's claims, ordering payment along with interest.

THE FACTS

Set Square Development undertook a large housing development project and awarded contracts to Vahva Construction. Performance guarantees were issued by Power Guarantees to secure the contractor's obligations. Set Square alleged that the contractor failed to meet its obligations, leading to the cancellation of the contracts. Set Square subsequently demanded payment under the performance guarantees, which Power Guarantees refused, prompting the appeals.

THE ISSUES

The court had to decide whether the performance guarantees were enforceable despite the contractor's alleged breaches and whether Power Guarantees could raise defenses against the claims made by Set Square. The court also considered the existence and relevance of the underlying construction contracts in relation to the guarantees.

ANALYSIS

The court analyzed the terms of the performance guarantees and the underlying contracts, emphasizing that the guarantees were designed to provide security regardless of disputes regarding the performance of the contractor. The court found that the guarantees were independent of the underlying contracts, allowing Set Square to enforce them despite the contractor's alleged breaches. The court also dismissed Power Guarantees' defenses, finding them unsubstantiated.

REMEDY

The court ordered Power Guarantees to pay Set Square the amounts specified in the performance guarantees, along with interest calculated from the dates of cancellation of the respective contracts. The court also ordered Power Guarantees to pay the costs of the application.

LEGAL PRINCIPLES

The judgment established key legal principles regarding the enforceability of on-demand performance guarantees, highlighting that such guarantees are independent of the underlying contracts. It clarified that a guarantor cannot refuse payment based on disputes related to the performance of the principal debtor, provided the demand for payment is made in accordance with the terms of the guarantee.