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[2022] ZAGPJHC 389
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Uitspan Colliery (PTY) Ltd v Lombard Insurance Company Ltd (24814/2020) [2022] ZAGPJHC 389 (25 May 2022)

IN
THE HIGH COURT OF SOUTH AFRICA
GAUTENG
LOCAL DIVISION, JOHANNESBURG
CASE
NO: 24814/2020
REPORTABLE:
YES
OF
INTEREST TO OTHER JUDGES: YES
REVISED:
NO
25
May 2022.
In
the matter between:
UITSPAN
COLLIERY (PTY) LTD
Applicant
and
LOMBARD
INSURANCE COMPANY LTD
Respondent
SUMMARY
Contract
– Interpretation of Demand Guarantee – on contextual
interpretation having regard to purpose of guarantee,
written consent
of the mine owner is not a peremptory requirement for purposes of
enforcing the guarantee.
JUDGMENT
KATHREE-SETILOANE
J:
[1]
The
applicant,
Uitspan Colliery (Pty) Ltd (“applicant”) seeks payment
from Lombard Insurance Company Ltd (“respondent”)
in the
amount of R10 000 000.00 on the basis of a financial guarantee
(“guarantee”) issued by the respondent in favor
of the
applicant for the rehabilitation of land disturbed by mining.
[2]
On 23 July 2020 the applicant duly claimed
the guaranteed amount. The respondent, however, denies liability on
the basis that the
applicant’s demand for payment under the
guarantee does not comply with the requirements of the guarantee
because it was
not accompanied by written consent from the mine
owner, African Coal Trading Pty Ltd (“ACT”).
Terms of the Guarantee
[3]
The material terms of the guarantee are as
follows:
FINANCIAL
GUARANTEE FOR THE REHABILITATION OF LAND DISTURBED BY MINING
(EXECUTION OF ENVIRONMENTAL MANAGEMENT PLANS/PROGRAM)
1.
Concerning
the responsibility in terms of the
Mineral and Petroleum
Resources Development Act 28, 2002
, which is incumbent on
AFRICAN COAL TRADING
(PTY) LTD
(hereinafter referred to
as ‘the mine owner’)
to execute the
environmental management plan / programme   approved in
terms of the provisions of the said Act for the
mine known as
UITSPAN COLLIERY
situated in the
Magisterial District of
WITBANK
Province
MPUMALANGA
, we
the undersigned … in our capacities as
UNDERWRITING
MANAGER: LOMBARD GUARANTEE
and
LEGAL MANAGER: LOMBARD
GUARANTEE
and as duly authorised representatives of
LOMBARD INSURANCE
COMPANY LIMITED (Reg. No. 1990/001253/06)
(hereinafter referred to
as “the Guarantor”)
confirm that the amount
of
R 10 000 000.00 (Ten Million Rand Only)
is available to you
for the purpose of executing the said environmental management plan /
programme.
2.   The
Guarantor, who hereby waives the advantages of the exceptions,
non
numerate pecuniae, non causa debiti, excussionis et divisionis
,
the meaning and the consequences of which is known to the Guarantor,
undertakes to pay to you the said sum of
R 10 000 000.00 (Ten
Million Rand Only)
upon receipt of a written claim from you
together with written   consent from African Coal Trading
(Pty) Ltd if (in your
opinion and discretion) the mine owner fails or
remains in default to execute the said environmental management plan
/ programme,
or if he ceases mining/prospecting operations, or if his
estate is sequestrated, or if he should hand over his   estate

in terms of the Insolvency Acts which are applicable in the Republic
of South Africa, or if the Guarantor gives written notice
to you in
terms of Clause 5 of this agreement. The said claim may be instituted
by you at any stage commencing from the date of
signature of this
guarantee.
3.   The said
amount of
R 10 000 000.00 (Ten Million Rand Only)
may be held
by you on the condition that you, after having complied with all the
provisions of the said environmental management
plan / programme,
will give account to the Guarantor of how the amount was appropriated
and repay any unappropriated amount to
the Guarantor.
4.   This
undertaking is neither negotiable nor transferable and -
a)
must be returned to the Guarantor when
giving account to the
Guarantor in terms of Clause 3 above,
b)
shall lapse on the granting of a closure
certificate in terms of the
Mineral and Petroleum Resources Development
Act, 2002 (Act 28 of
2002)
and
(c) shall not be
construed as placing any other responsibility on the Guarantor other
than the paying of the guaranteed amount.
5.   The
Guarantor reserves the right to withdraw from this guarantee after
having given you at least
three months
written
notice in advance of his intention to do so.
Common
Cause Facts
[4]
The applicant is the registered mining right holder over portions of
a
farm upon which the mine is located (“the Mine”). It
appointed Iningi Coal (Pty) Ltd (“Iningi”) as manager
of
the Mine. Iningi and the applicant contracted with ACT to undertake
the mining of the coal at the Mine.
[5]
As contractor, ACT undertook in terms of clause 16 of the Mining
Agreement
certain rehabilitation obligations in respect of the Mining
Area. In terms of clause 16.2 of the Mining Agreement, the applicant

as the holder of the mining right, is obliged to make financial
provision for the rehabilitation in compliance with the provisions
of
the
Mineral and Petroleum Resources Development Act 28 of 2002
, as
amended (“MPRDA”) and the MPRDA Regulations.
[6]
Clause 16.4 of the Mining Agreement requires ACT, as the contractor,
to
make payment of R20.00 per tonne of coal, mined on the Mining Area
and weighed over  the weigh bridge, into a nominated attorneys

trust account in terms of section 78(2)(A) of the Attorneys Act “…
for the sole purpose of Rehabilitation for final
closure”.
[7]
Clauses 16.1 and 16.7 of the Mining Agreement imposed express
obligations
on  ACT to rehabilitate the Mining Area. Its
“
Rehabilitation Obligations”
are defined in clause
1.1.43 of the Mining Agreement.
[8]
ACT, however, failed to comply with its obligations in terms of
clause
16.4 of the Mining Agreement to pay the required amounts into
the trust account. It also failed to perform its rehabilitation
obligations
under the Mining Agreement.
[9]
However, as an  interim measure, ACT procured the guarantee from
the respondent which is central to this application. The guarantee
did not amount to a discharge of ACT’s obligations, but
was
rather additional security for its failure to comply with its
obligations, in terms of clause 16.4 of the Mining Agreement
,
to pay the required amounts into the nominated attorney’s
trust account.
[10]
As a result of ACT’s breach, the applicant cancelled the Mining
Agreement   on
10 July 2020. At that date, ACT was indebted
to the applicant in terms of clause 16.4 of the Mining Agreement in
an amount of R28,040,000.00
based on 1,402,000 tonnes of coal
invoiced up to 31 May 2020.
[11]
ACT was insolvent and was placed under provisional liquidation by
order of Court on 14
July 2020.
[12]
The applicant presented the guarantee to the respondent for payment
on 23 July 2020. The
respondent disputed that the applicant had
complied with the terms of the guarantee because there was no
accompanying written consent
from ACT as purportedly required in
terms of clause 2 of the guarantee.
Issue
for determination
[13]
The only issue for determination is whether the applicant’s
demand for payment under
the guarantee complied with the requirements
of the guarantee. This calls for the interpretation of the guarantee.
Parties
contentions
[14]
The respondent denies liability on the basis
that
the claim was not accompanied by the written consent from ACT. It
contends that the
express term of the guarantee provides that
the respondent must receive a claim together with the written consent
from ACT. The
applicant, on the other hand, contends that it is not a
requirement of the guarantee that the written consent of ACT be
provided.
Such an interpretation, so it argues, would completely
undermine and negate the whole purpose of providing the guarantee
which
was to secure the rehabilitation obligations of ACT, as in the
absence of the consent of ACT the guarantee could never be called
up.
Nature
of Guarantee
[15]
In
Compass
Insurance Co Ltd v Hospitality Hotel
Developments
(Pty) Ltd
,
[1]
the SCA held that the terms of the guarantee itself will determine
its nature, and that the guarantee in that case was “an

independent contract” that had to be fulfilled on its terms.
[16]
It is common cause that the guarantee in this application is a demand
guarantee which is
an independent contract that requires fulfilment
on its terms. Particularly, once its terms have been fulfiled by the
applicant,
there is no entitlement on the part of the guarantor (the
respondent in this case) to enquire whether there is a liabity. In
other
words, there can be no inquiry into the merits of the
applicant’s claim for payment under the guarantee.
Interpretation
of the Guarantee
[17]
As held in
Bombardier
Africa Alliance Consortium v Lombard Insurance Company Ltd and
Another,
[2]
the terms of the guarantee in question must be interpreted in
accordance with the interpretative approach articulated in
Natal
Joint Municipal Pension Fund v Endumeni Municipality
.
[3]
This approach was more recently summarised by Wallis JA in
Commissioner,
South African Revenue Service v United Manganese of Kalahari (Pty)
Ltd
as
follows:
[4]
“
An objective
unitary process where consideration must be given to the language
used in the light of the ordinary rules of grammar
and syntax; the
context in which the provision appears; the apparent purpose to which
it is directed and the material known to
those responsible for its
production. … That inevitable point of departure is the
language used in the provision
under consideration.”
[18]
As explained by Wallis JA in
Endumeni
:
“
[18] …The
present state of the law can be expressed as follows: interpretation
is the process of attributing meaning to the
words used in a
document, be it legislation, some other statutory instrument, or
contract,  having regard to the context provided
by reading the
particular provision or provisions in the light of the document as a
whole and the circumstances attendant upon
its coming into existence.
Whatever the nature of the document, consideration must be given to
the language used in the light of
the ordinary rules of grammar and
syntax; the context in which the provision appears; the apparent
purpose to which it is directed
and the material known to those
responsible for its production. Where more than one meaning is
possible each possibility must be
weighed in the light of all these
factors. The process is objective, not subjective. A sensible meaning
is to be preferred to one
that leads to insensible or unbusinesslike
results or undermines the apparent purpose of the document. …”
[19]
In terms of the financial guarantee, the respondent (as guarantor)
confirmed that
the amount of R10,000,000.00 (Ten Million Rand)
was available to the applicant for the purpose of executing the
approved environmental
management plan which was to be executed by
ACT on the Mine.
[20]
The guarantee
distinguishes between the requirement  of the demand and
the events which would entitle the applicant to make  a claim.

In terms of clause 2 of the guarantee, the respondent undertakes to
pay to the applicant the sum of R 10 000 000.00 upon receipt
of a
written claim from the applicant together with written   consent
from ACT if in the applicant’s opinion  and
discretion one
of the stated events has occurred, namely:
20.1
If ACT fails or remains in default
to execute the environmental
management plan/programme; or
20.2
If ACT ceases mining/prospecting operations;
or
20.3
If ACT’s estate is sequestrated;
or
20.4
If ACT should hand over its estate
in terms of the Insolvency Acts
which are applicable to the RSA; or
20.5
If the guarantor (the respondent)
gives notice in terms of clause 5
to withdraw from the guarantee.
[21]
The respondent contends that, on a plain grammatical meaning of
clause 2, the respondent
would only be liable to pay in terms of the
guarantee if an event, as contemplated in clause 2 of the guarantee,
has occurred and
the applicant has made a claim accompanied by the
written consent of ACT. It contends, in this regard, that the written
consent
of ACT is a peremptory requirement.
[22]
The applicant, to the contrary, contends for a disjunctive
interpretation of clause 2 of
the guarantee. It submits that clause 2
of the guarantee contemplates different scenarios triggering an
obligation on the part
of the respondent to make payment. These
scenarios, so it argues, are expressed disjunctively and include not
only a demand on
the respondent accompanied by the written consent of
ACT but also, and independently, ACT’s failure to execute the
environmental
management plan/programme or remaining in default of
such obligations, or in the event of ACT ceasing mining/prospecting
operations
or in the event of ACT’s estate being
“
sequestrated
”  or in the event of its estate
being handed over in terms of the applicable insolvency laws of the
Republic. Each one
of these categories, according to this argument,
would be sufficient to trigger an obligation to make payment under
the guarantee
otherwise there would be an uncommercial and insensible
result.
[23]
The contention thus advanced is that it could not conceivably have
been contemplated that,
in the event for instance of ACT being
liquidated or surrendering its estate in terms of the insolvency
laws of the Republic,
that it would be required to provide
consent for the enforcement of the guarantee. The purpose of the
guarantee, so the applicant
points out, was to provide security and
in the event of ACT withholding such consent for any reason
whatsoever, there would be
no security afforded by the guarantee. The
applicant contends that this is the insensible and absurd result that
would flow from
the interpretation which the respondent contends for.
[24]
As I
understand it, the applicant’s argument is that the trigger
events are independent from the requirement that the claim
must be
accompanied by the written consent of ACT. On this interpretation,
the words “upon receipt of a written claim from
you together
with written consent from African Coal Trading (Pty) Ltd”
would, in itself, constitute a trigger event for the
purpose of
rendering the respondent liable. I disagree as a written claim and
written consent from ACT constitute the requirements
of the demand,
and are directly and expressly linked with each trigger event through
the use of the word “if,” which
means “on the
condition or supposition that or in the event that”.
[5]
[25]
The crucial question, however, is whether written consent from ACT is
a peremptory requirement
of the quarantee. For the purposes of
interpreting the guarantee in a manner that is sensible and
businesslike, and promotes the
purpose and object of the guarantee,
it is important to have regard to the context in which the guarantee
was issued by the respondent
and the objective circumstances, i.e.
the written Mining Agreement with the rehabilitation obligations
undertaken by ACT.
[26]
The purpose of the guarantee was clearly to provide security in
the event that ACT
does not comply with the terms of the
environmental management plan. The respondent argues that written
consent from ACT is a mandatory
requirement as there is no other
alternative objective criterion specified in the guarantee (such as
for instance an independent
minining surveyor or a court order) to
determine whether one of the specified trigger events has taken
place.
[27]
If the purpose of requiring written consent from ACT is to confirm
that a trigger event
in clause 2 of the guarantee has occurred, then
it is understable why this may be a requirment in relation to the
first two trigger
events, namely that in the discretion of or opinion
of the applicant ACT “has failed or remains in default to
execute the
environmental management plan or that it has ceased
mining/prospecting operations on the Mine. Where the happening of
these events
are based on the applicant’s subjective view, and
are not objectively ascertainable, then the need for securing ACT’s

written consent may serve as an important check and balance. Consent
may, however, be unnecessary where it is objectively ascertainable

and/or common cause (as it is in this case) that ACT has, for
instance, failed to execute the environmental management plan.
Securing
written consent from ACT would be superfluous in this
situation.
[28]
Equally, the written consent of ACT would be unnecessary in relation
to the remaining trigger
events listed which are objectively
ascertainable, such as ACT being liquidated or surrendering its
estate in terms of the insolvency
laws of the Republic, or that
the respondent (guarantor) has given notice in terms of clause 5 to
withdraw from the guarantee.
It is inconceivable that written consent
was contemplated for the enforcement of the guarantee in these
specific circumstances.
[29]
To read the words ““upon receipt of a written claim from
you together with
written consent from African Coal Trading (Pty)
Ltd” as signifying that written consent is mandatory even where
the specified
trigger event is objectively ascertainable, would
negate the very purpose of the guarantee which is to provide security
to the
applicant in the event that one of the specified trigger
events occurs. This phrase must not be interpreted in isolation but
must
be considered in the context of: (a) the whole guarantee itself;
(b) ACT’s obligations under the Mining Agreement to make

financial provision for the rehabilitation of the Mine; (c) ACT’s
obligations under the MPRDA to execute the rehabilitation
plan for
the Mine, and (d) the purpose of the guarantee which is to provide
security to the applicant in the event that ACT fails
to comply with
its rehabilitation obligations in terms of the rehabilitation plan.
[30]
Construed in context, the requirement for written consent in clause 2
of the guarantee
is directory and not peremptory. To interpret this
requirement as peremptory would lead to an insensible or
unbusinesslike result
and undermine the apparent purpose of the
guarantee. For one, ACT would be able to thwart the enforcement of
the guarantee by simply
withholding its consent. Should ACT do this,
there would be no security afforded by the guarantee despite its core
purpose which
is to provide security.
[31]
Upon ACT being placed under provisional winding-up on 23 July
2020, ACT’s directors
became
functus officio
and no
longer had any authority to act on behalf of ACT,
inter alia
,
to provide any written consent. The respondent asserts that the
applicant must seek the written consent from the liquidator. This

contention is without foundation, in particular because a liquidator
cannot volunteer written consent as it has no power to do
so.
Moreover, even if authorised to do so by creditors and members,
persuading a liquidator to provide consent would require going
into
the merits of the claim. This would be impermissible, given that we
are concerned here with a demand guarantee.
[32]
Moreover, ACT has already been placed under final winding-up order
since 7 September 2020.
Given this state of affairs, it is unclear on
what basis the applicant could get an order to compel the Sheriff of
the Court to
provide written consent. Thus, to interpret the
requirement of written consent to be mandatory in these circumstances
would negate
the very purpose of the guarantee as the applicant would
be left with no remedy at all, despite the fact that it is
objectively
ascertainable that ACT has been wound up by an order of
court, and that it has failed to execute the rehabilitation plan for
the
Mine.
[33]
To sum up, on a contextual interpretation that promotes the
purpose of the guarantee,
it is not a mandatory requirement of the
guarantee that the applicant’s demand must be accompanied by
the the written consent
of ACT. Accordingly, the applicant has
complied fully with the terms of the guarantee and is entitled to
judgment in terms of the
notice of motion.
Costs
[34]
The applicant seeks costs against the respondent on
a punitive scale,
on the basis that it has not raised genuine opposition to the
applicant’s claim. The applicant is not entiled
to a costs
order on a punitive scale as given the inelegance of the wording of
the guarantee, the respondent was entitled to contend
that the
requirement of written consent is mandatory. Furthermore, that it
raised a meritless challenge to the authority of the
deponent to
depose to the founding affidavit on behalf of the applicant does not,
in my view, warrant a punitive costs order against
the respondent.
Order
[35]
In the result, I make the following order:
35.1
The respondent is directed to make
payment to the applicant in the
amount of R10 000 000.00 (ten million Rands) together with interest
thereon at the rate of 8.75%
per annum as from 23 July 2020 to date
of payment in accordance with the financial guarantee number M-71101.
35.2
The respondent is directed to pay the costs of the application
F
KATHREE-SETILOANE
JUDGE
OF THE HIGH COURT
GAUTENG
LOCAL DIVISION JOHANNESBURG
Counsel
for the applicant:
Mr A Subel SC
Instructed
by
: TWB -

Tugendhaft Wapnick Banchetti and Partners
Counsel
for the respondent
:
Mr AN Kruger
Instructed
by:
Frese Gurovich Attorneys
Date
of hearing
:

27 February 2022
Date
of Judgment
:

25 May 2022
(Handed
down electronically by email to the parties’ legal
representative
and
by being uploaded to
CaseLines
).
[1]
Compass
Insurance Co Ltd v Hospitality Hotel
Developments
(Pty) Ltd
2012 (2) SA 537
(SCA) para 15.
[2]
Bombardier
Africa Alliance Consortium v Lombard Insurance Company Ltd
2021
(1) SA 397
(GP) at p 403
[3]
Natal
Joint
Municipal
Pension Fund v Endumeni Municipality
2012
(4) SA 593
(SCA), para 18. Approved by the Constitutional Court in
Airports
Company of South Africa
v
Big Five Duty Free (Pty) Ltd and Others
2019
(5) SA 1
(CC) para
29.
[4]
Commissioner,
South African Revenue Service v United Manganese of Kalahari (Pty)
Ltd
2020
(4) SA 428
(SCA) para 8.
[5]
“if” means “on the condition or supposition that
or in the even that” (Oxford English Dictionary).