About SAFLII
Databases
Search
Terms of Use
RSS Feeds
South Africa: North Gauteng High Court, Pretoria
SAFLII
>>
Databases
>>
South Africa: North Gauteng High Court, Pretoria
>>
2019
>>
[2019] ZAGPPHC 251
|
|
Investec Bank Ltd v Lombard Insurance Company Ltd and Another (69330/2018) [2019] ZAGPPHC 251 (26 June 2019)
IN THE HIGH COURT OF SOUTH AFRICA
(GAUTENG DIVISION, PRETORIA)
(1)
REPORTABLE:
YES
/NO
(2)
OF INTEREST TO
OTHER JUDGES:
YES
/NO
(3)
REVISED
Case number: 69330/2018
Heard on: 19 June 2019
Date of judgment: 26 June 2019
In
the matter between:
INVESTEC
BANK LTD
Applicant
and
LOMBARD
INSURANCE COMPANY LTD
First Respondent
ESOR
UITVLUGT (PTY)
LTD
Second Respondent
JUDGMENT
SWANEPOEL
AJ:
INTRODUCTION
[1] Applicant
("Investec") seeks payment from first respondent
("Lombard") of the sum of R 20 million pursuant to what
applicant alleges is a performance guarantee issued by Lombard
to
Investec. A brief summary of the facts is as follows:
1.1 On 18 March 2013
Investec sold an immovable property, Portions 109 and 110,
and the
Remaining Extent of Portion 1 of the Farm Uitvlugt 434 to second
respondent ("Esor"), the latter then being known
as
Manuscape (Pty) Ltd.
1.2 It was envisaged
by the parties to the agreement that Esor would develop the
property,
and to that end, clause 7 of the agreement contained the following
provisions:
"The purchaser will improve the Property by the
installation of Internal services with
a
minimum cost of R 20 000
000.00
(TWENTY MILLION RAND) of which at least R 10
000 000.00
(TEN
MILLION RAND) will be installed by no later than 31 December 2013 and
the balance by no later than 31 December 2014. The purchaser
will
provide proof of these improvements
as
and
when the work is completed.(sic)"
1.4 The aforesaid
clause was inserted, presumably because partial payment of the
purchase price of the property would be effected upon transfer of
each individual stand, and Investec was keen to see to it that
the
development came to fruition as soon as possible.
1.5 It is common cause
that the contract lapsed for non-compliance with certain
suspensive
conditions, but was revived by a further agreement. This resulted in
the property only being transferred on 15 January
2014, instead of by
28 February 2013, as envisaged by the parties. Due to the provisions
of clause 12 of the agreement the time
for performance in terms of
clause 7 was therefore extended.
1.6 One of the
preconditions to transfer being effected to Esor, was that the latter
would have to provide a demand guarantee to Investec, guaranteeing
the performance of Esor's obligations arising from clause 7
of the
agreement. Consequently, on 14 October 2013 Lombards, acting at the
behest of Esor, issued a document titled "Performance
Bond".
It is this document that is at the heart of the dispute between the
parties.
THE
PERFORMANCE BOND
[2] Clause 1.2
of the performance bond/guarantee reads as follows:
"It is
a
condition
of the Agreement that the purchaser provides
a
demand guarantee for the due and proper
performance by it of its obligations in terms of Clause
7
of the Agreement"
[3]
Clause 2 provides:
"2.0
UNDERTAKING
2.1
The
Guarantor hereby undertakes to pay the Seller forthwith on receipt of
written notice from the Seller that the Purchaser has
defaulted in
terms of its obligations in terms of Clause
7
of the Agreement
up to
a
maximum of R 20 000 000.00 (Twenty million Rand)
2.2
Payment
will be made by the Guarantor, irrespective of the reason which
caused the Purchaser to default and the Guarantor waives
any defense
which the Purchaser may have against the Seller's claim.
2.3
The
Guarantor hereby renounces each and every benefit which might
otherwise be available in law against the Seller in particular
the
benefits of excussion and division, cession of action, being sued
together and the right to claim accounting from the Seller
before
making payment, with the Guarantor acknowledges that it knows and
understands the meaning and full force and effect of such
benefits."
[4] The
relevant portion of clause 3 reads:
"3.0
GENERAL
3.1 The Seller has the absolute
right to arrange its affairs with the purchaser in any manner which
the Seller
deems fit and without being advised thereof the Guarantor
shall not have the right to claim its release on account of any
conduct
alleged to be prejudicial to the Guarantor. Without
derogating from the foregoing any compromise, extension of the
construction
period, indulgence, release or variation of the
Purchaser's obligations shall not affect the validity of this
guarantee.
3.2 ……..
3.3
This
guarantee shall become effective upon registration of the properties
referred to in Clause 1.1 above into the name of the Purchaser.
Such
guaranteed amount shall be reduced over the period based on work
certified for Internal Services
as
per Clause
7.
3.4
This
guarantee is neither negotiable nor transferable, and shall remain
valid until the Purchaser's obligations in terms of Clause
7
have
been fulfilled under the Agreement or upon payment of the Guarantee
in terms of this agreement."
[5]
On 14 August 2018 Investec gave notice to Lombard that it was
exercising
its rights arising from the guarantee, and it claimed
payment of the sum of R 20 million. It stated:
"Manuscape has failed to comply with its
obligations in terms of the heads of agreement, more in particular
its obligations
in terms of clause
7
thereof
which provides that the purchaser would improve the property in
question by the installation of internal services with the
minimum
cost and deadlines
as
indicated
in the said clause
7
of
the agreement."
[6]
Lombard expressed the view, in a letter dated 21 August 2018, that
clause
7 required the installation of the first tranche of services
to the value of R 1O million by 15 October 2014 (the adjusted date
due to the delay in transfer). In view of the fact that more than
three years had elapsed since the date when those improvements
were
due, so the thinking went, Investee's right to claim against the
performance guarantee for those particular services had prescribed.
Lombard agreed that the claim for the services due by 31 December
2014 (with the date adjusted to 15 October 2015) had not prescribed,
and it duly paid R 10 million to Investec.
[7]
Investec took the view that Lombard's liability under the guarantee
was
absolute and unconditional, and that the obligation to pay stood
wholly independent of the underlying contract. It asserted that
the
liability under the performance guarantee could thus not have
prescribed. That is the dispute that stands to be resolved.
[8] In argument
Mr. Mc Aslin, counsel for Lombard, pointed out that one should
not
take it for granted that the document is necessarily a
demand/performance guarantee in the true sense of the word, in other
words, that it created a liability independent of the underlying
contract. It was argued that the reference to clause 7 of the
underlying agreement in the performance bond meant that one had to
refer to clause 7 to determine what obligation was being guaranteed.
The fact that the performance bond referred to clause 7 of the
underlying agreement, it was submitted, took the performance
guarantee
out of the realm of a pure guarantee that stood independent
of the underlying agreement. According to Lombard, because the
obligation
to develop the property was, in terms of the underlying
agreement, to be performed by a certain date, the right to demand
payment
on the performance guarantee would arise on that date, and
would prescribe three years thereafter.
PERFORMANCE
BOND
[9] A
performance guarantee is the same as a construction guarantee in our
law, and they are the same as performance or construction bonds as
they are referred to in English law. (
See:
Minister of
Transport and Public Works, WC v Zanbuild Construction (Pty) Ltd
2011
(5)
SA
528
(SCA).
The first
question to determine is whether the "performance bond", as
the document is titled, is in its nature a true
performance
guarantee, which creates obligations for the guarantor independent of
the underlying agreement, or whether it is in
the nature of a
suretyship which guarantees the principal's contractual obligations,
and would therefore require reference to the
underlying contract to
determine what those obligations were.
[10]
I was pointed to the judgment of
Voss/oh Aktiengesellschaft v
Alpha Trains (UK) Limited
[2010] EWHC 2443
(Ch)
in which
Blackburn J examined the difference between a suretyship (to which he
sometimes refers in the judgment as a guarantee)
and an indemnity (a
performance bond or guarantee in our parlance). The test to determine
the nature of the document is stated
as follows:
"Because the parties are free to make any
agreement that they like, each case must depend upon the true
construction of the
actual words in which the surety's obligations is
expressed . This involves 'construing the instrument in its factual
and contractual
context having regard to its commercial purpose', a
task which the court approaches 'by looking at it as a whole without
any preconception
as to what it is.
' "
[11] It has often been held that in
interpreting a contract, a court must objectively consider the
ordinary grammatical meaning of the words used by the parties. In
Sassoon Confirming and Acceptance
Co
(Pty)
Ltd v Barclays National Bank Ltd
1974 (1) SA 641
(A)
it was
stated that:
"The first step in construing a contract is to
determine the ordinary grammatical meaning of the words used by the
parties
(Jonnes v Anglo African Shipping Company (1936) Ltd
1972 (2)
SA 827
(AO) at 834 E). Very few words, however, bear a single meaning
and the 'ordinary' meaning of words appearing in
a
contract will necessarily depend upon the
context in which they are used, their interrelation, and the nature
of the transaction
as it appears from the entire contract."
(See also:
Trinity Asset Management (Pty) Ltd v
Grindstone Investments 132 (Pty) Ltd
[2017] ZACC 32
at par.
55)
[12] In
Vossloh
(supra
at par. 21) a suretyship is described as a contract by which one
person agrees to answer for the existing or future liability of
another, the principal, by which the surety's liability is in
addition to, and not in substitution of, the liability of the
principal.
The surety promises the creditor that it will be
responsible for the due performance of the principal's obligations,
should the
principal fail to perform them. In contrast to a
suretyship stands the performance guarantee or
performance/construction bond.
The latter's essential distinguishing
feature is, in the words of Blackburne J, that the liability of the
guarantor is a primary
obligation, which is wholly independent of the
liability of the principal. Whatever disputes may arise from the
underlying transaction
are of no moment to the liability of the
guarantor under the performance bond. Payment by the guarantor is due
once demand is made
in the form envisaged by the performance
guarantee.
[13] As pointed out in
Lombard
Insurance Company Ltd v Landmark Holdings (Pty) Ltd:
"The bank's liability to the seller is to honour
the credit. The bank undertakes to pay provided only that the
conditions specified
in the credit are met. The only basis upon which
the bank can escape liability is proof of fraud on the part of the
beneficiary."
(See also:
Minister of Transport (supra at 532
CJ;
Dormell Properties 282
CC
v Renasa Insurance
Co
Ltd
and others NNO
2011 (1) SA 70
(SCA) at 90 I to 91 A); Edward Owen
Engineering Ltd v Barclays Bank International Ltd
[1978] 1 All ER 976
(CA));
[14] The purpose of a
performance/payment guarantee is to assure a contracting party that
it will
be paid, or that it will receive value for its performance.
The party requiring a performance guarantee wants to be unaffected by
controversies or disputes that are extraneous to the performance
guarantee.
(See:
Toopvar Investment (Pty) Ltd and others
v Guardrisk Insurance
Co
Ltd and another, an
unreported case of the Gauteng Local Division, case number 24787/2018
dated 26 April 2019)
[15] The performance guarantee in this
instance specifically records that Lombard undertakes, upon
written
notice by Investec that Esor has defaulted on its obligations in
terms of clause 7 of the agreement, to effect payment
up to a maximum
of R 20 million. Payment is due irrespective of the reason for Esor's
default, and whatever defence Esor may have,
is not available to
Lombard. Investec has the absolute right to arrange its affairs with
Esor in any manner as it deems fit, and
Lombard is not entitled to
claim its release on account of any prejudicial conduct. A
compromise, extension of the construction
period, indulgence, release
or variation would not affect the validity of the guarantee.
[16] The aforesaid clauses clearly
place an independent and primary obligation on Lombard to pay
up to R
20 million to Investec, upon proper demand having been made. The
wording of the document also accords with the nature of
the
transaction. Quite often, in contracts of this nature, performance
guarantees are required by either one of the parties.
[17] There was some debate by Mr Mc
Aslin as to whether the word "notice" in clause 2.1
has the
same connotation as the word "demand". The suggestion is
that because the word "notice" is used, as
opposed to
"demand" the guarantee is not a performance guarantee. This
is, in my view, semantics. If the guarantee fulfils
the requirements
set out above, it is a performance bond.
[18] My view is that the underlying
contract has no effect on Lombard's liability to Investec, unless
fraud is shown, which is not the case in this instance. Any defence
that Esor might have had, including that the claim has prescribed,
is
not at Lombard's disposal. My view is strengthened by the matter of
Casey and Another v FirstRand Bank Ltd
2014 (2)
SA
374
(SCA).
In this case the Court was faced with
very similar facts. FirstRand had extended credit to Casey, which had
been secured by a letter
of credit which was payable on demand of
FirstRand, stating that:
"Kimberley Roller Mills (Pty) Ltd has not met
his/its obligation to First National Bank of Southern Africa Ltd in
respect of
the facilities granted by First National Bank of Southern
Africa Ltd."
[19] Casey sought an order declaring
that the debt due to FirstRand had prescribed due to it not
having
been claimed within three years. In finding that the claim for
payment by the guarantor had not prescribed, Swain AJA remarked
as
follows:
"The inherent flaw in this argument
is
that it
seeks
to
equate the legal standing of
a
letter
of credit with
a
suretyship.
As
pointed out in
Loomcraft and in arts 3 and 9 (a) of the UCP,
a
letter of credit is wholly independent of the
underlying contract between the customer of the bank and the
beneficiary. It establishes
a
contractual
obligation on the part of the issuing bank to pay the beneficiary in
accordance with its terms. An irrevocable letter
of credit is not
accessory
to the
underlying contract and
is
distinguishable
in law from a suretyship which is accessory to the principal
obligation.
"
[20]
The authorities are therefore clear: The guarantor is not entitled to
raise any defence that
the party to the agreement would have had.
Prescription might well have commenced running in respect of a claim
by Investec against
Esor, when the dates for performance came and
went, and a claim by Investec as against Esor might have prescribed,
but that does
not affect Lombard's liability under the guarantee.
Lombard must pay a guarantee of this nature in accordance with its
terms.
(See:
FirstRand Bank Ltd v Brera Investments
CC
2013 (5) SA
556
(SCA) at 558
H)
[21] Mr Mc Aslin asked rhetorically,
when then, if the date for performance in terms of the agreement
were
not the date on which prescription commenced, would the right to
claim against the performance guarantee prescribe. He suggested
that
the guarantee might be enforceable forever, which is off course not
desirable from a policy point of view. My view is that
the answer
lies in the reading of the performance guarantee itself.
[22] Section 12 (1) of the Prescription
Act, Act 68 of 1969 reads:
"(1) Subject to the provisions of
subsections (2), (3) and (4), prescription shall commence to run as
soon
as
the debt is
due."
[23] What the words "debt is due"
means, has been the subject of many judgments. In
Standard Bank
of South Africa Ltd v Miracle Mile Investments
67
(Pty)
Ltd
2017 (1) SA 185
(SCA)
the position laid down in
Truter
v Deysel
[2006] ZASCA 16
;
2006 (4) SA 168
(SCA)
was confirmed, that a debt is
due when it is claimable by a creditor, and conversely, is payable by
the debtor.
[24] In
Standard Bank of SA Ltd v
Oneanate Investments (Pty) Ltd
1995 (4) SA 510
(C)
it was
held that a loan without agreement as to when it is to be repaid is
payable upon demand, which means that it becomes repayable
immediately when it is incurred. However, an exception to the general
rule was noted in
De Bruyn v Du Toit
[2015] ZAWCHC 20
where
it was held that where the parties agree that the giving of notice is
a condition precedent to a claim, and is thus a necessary
ingredient
to a creditor's cause of action, the running of prescription would
only commence when notice is given. Parties are entitled,
in entering
into an agreement, to determine when prescription will commence
running, even if the agreement operates to the detriment
of one of
the parties
(See:
Barkhuizen v Napier
[2007] ZACC 5
;
2007 (5) SA 323
CC
at 341
C
to
D).
This
principle was affirmed by Mojapelo AJ, writing for the minority of
the Constitutional Court in
Trinity
(supra at par.
47):
"Where there is such
a
clear and unequivocal intention, the demand
will be
a
condition
precedent to claimability,
a necessary
part
of the creditor's cause of action, and prescription will only begin
to run from demand. This, in my view,
is
not
an incident of the creditor being allowed to unilaterally delay the
onset of prescription. It
is
the
parties, jointly and by agreement seriously entered into, determining
when and under what circumstances or conditions
a
debt shall become due."
[25] Cameron J, writing for the
majority in
Trinity
(at par 124) makes the same point:
"For the parties to delay prescription is
simple. They just have to say so. But they must say so."
[26] Having pointed out that the
parties to an agreement can agree on when prescription will commence,
I turn once again to the guarantee. Clause 3.4 specifically states
when the guarantee will lapse, and at the risk of repetition,
I quote
it again:
"This guarantee is neither negotiable nor
transferable, and shall remain valid until the Purchaser's
obligations in terms of
Clause
7
have
been fulfilled under the Agreement or upon payment of the Guarantee
in terms of this agreement."
[27] In my view the parties agreed that
the guarantee would only lapse once one of two scenarios
have
occurred, either Esor had complied with its obligations, or payment
had been effected in terms of the guarantee. It did not
lapse, as
Lombard argues, three years after performance in terms of the
agreement became due. Consequently I find that Investee's
right to
claim in terms of the guarantee had not prescribed when demand for
payment was made.
[28] There was some debate about
whether the debt was divisible. However, in view of my finding,
I do
not have to deal with these submissions. It was pointed out to me in
the papers that the claim was currently not for R 20
million, but for
R 10 million, Lombard having already paid the balance to Investec.
[29]
I therefore make the following order:
29.1
First Respondent shall pay the sum of R 10 000 000.00
(ten million rand) to Applicant, plus
mora
interest
thereon at the rate of 10% per annum from 28 August 2018 to date of
payment;
29.2
First Respondent shall pay the costs of the
application.
J.J.C. Swanepoel
Acting
Judge of the High Court,
Gauteng
Division, Pretoria
Counsel
for Applicant:
Adv P. Ellis SC
Attorney
for Applicant:
Adams & Adams
Counsel
for First Respondent:
Adv C. Mc Aslin
Adv N. Makhaye
Attorney
for First Respondent:
Frese Moll & Partners