Brief Summary

Execution — Payment Guarantee — The Development Bank of Southern Africa (DBSA) sought payment from Hollard Insurance Company Limited under an advance payment guarantee after GS Group defaulted on its obligations. The court had to determine whether DBSA's demand for payment was compliant with the terms of the guarantee and whether Hollard was liable to pay the certified amount due to DBSA.

Comprehensive Summary

Summary of Judgment

1. Introduction

This judgment concerned two consolidated motion applications heard in the Gauteng Division of the High Court, Johannesburg. The first application (case number 096485/2023) was brought by the Development Bank of Southern Africa (DBSA) against Hollard Insurance Company Limited (Hollard) as first respondent and G5 Group (Pty) Ltd (formerly known as NJR Projects (Pty) Ltd) as second respondent. DBSA sought payment under an advance payment guarantee issued by Hollard in relation to an advance payment made to the contractor under a construction contract.

The second application (case number 008205/2024) was brought by Hollard against NJR Projects (Pty) Limited, Mr Nhlabanele Jeophrey Ramahlaleroa, and Mr Pheane Edwin Sodi, seeking to enforce payment obligations arising from an advance payment guarantee, a performance guarantee, and associated indemnity and suretyship instruments. The second application followed a Part A order previously granted; the court dealt with Part B. During the hearing it emerged that NJR Projects had been liquidated, and the adjudication in Part B ultimately proceeded only in relation to Mr Sodi, with an existing payment order already granted against Mr Ramahlaleroa.

The general subject-matter of the consolidated dispute was the enforceability of on-demand construction guarantees (specifically an advance payment guarantee and a performance guarantee), the alleged non-compliance with guarantee demand procedures, allegations that the advance payment had been fully recouped, and an allegation that DBSA’s claim under the advance payment guarantee was tainted by fraud. In the second application, the further subject-matter was the enforcement of indemnity and suretyship obligations after Hollard had been called upon to pay DBSA.

2. Material Facts

DBSA is a public entity established under the Development Bank of Southern Africa Act 13 of 1997 and operates, among other functions, through its Infrastructure Delivery Division as an implementing agent for state infrastructure projects. During 2018 DBSA issued a tender (RFP 167/2018) for construction works at the Parys Department of Correctional Services. GS Group (Pty) Ltd, later referred to as G5 Group (Pty) Ltd, was appointed as contractor for a contract value recorded as R282,736,949.24 (including VAT), and a JBCC principal building agreement was concluded around 7 March 2019.

The contractor requested an advance payment to procure materials to meet timelines. DBSA required an advance payment guarantee, and Hollard issued the guarantee in DBSA’s favour. The guarantee recorded, among other items, a guaranteed sum of R23,060,000.00, a guarantee expiry date of 31 October 2022, and a recoupment regime reflected as commencing in May 2021 for 18 months, with a stated monthly recoupment figure of R1,281,111.11, and with an express note that where recoupment amounts or periods are irregular, a schedule should be attached. The guarantee set out a demand process requiring a first demand to the contractor, followed (after seven calendar days) by a demand to the guarantor, and contemplated provision of a recovery statement and payment certificate; it also stated that payment by the guarantor was due within seven days of receipt of the first written demand to the guarantor. The guarantee further provided that DBSA had an “absolute right” to arrange its affairs with the contractor and that the guarantee would be treated as a liquid document for purposes of obtaining a court order.

It was common cause that the contractor defaulted in relation to repayment/recoupment of the advance payment. DBSA recovered R10,931,544.09, leaving a balance claimed under the guarantee. On 11 October 2022, DBSA issued a notice of default to the contractor under the construction agreement, with notice of intended termination if default persisted. On 17 October 2022, the principal agent issued interim payment certificate no. 48 reflecting a negative certified amount of minus R11,547,075.65, indicating indebtedness by the contractor to DBSA in that amount.

DBSA issued demands in October 2022 seeking to call on the advance payment guarantee. A demand was emailed to Hollard on 28 October 2022, and DBSA also sent a demand to Hollard’s physical address on 31 October 2022. The demand documentation included correspondence to the contractor dated 21 October 2022 and a subsequent letter dated 25 October 2022 said to rectify an error in the earlier letter, together with interim payment certificate no. 48 reflecting the negative certified amount.

Hollard disputed liability on three grounds material to the first application. First, it alleged DBSA’s demand was non-compliant with the guarantee procedure and irregular in timing and supporting documentation, including an assertion that the recovery statement was only supplied after expiry and that recoupment should have been monthly. Second, it contended the advance payment had been fully recouped, relying on an interpretation of certificate 48. Third, it contended DBSA’s claim was tainted by fraud, pointing to discrepancies between different versions of certificate 48 and associated documents.

In the second application, it was undisputed that on 6 February 2018 NJR Projects, represented by Mr Ramahlaleroa and Mr Sodi, executed a deed of indemnity in favour of Hollard and that both individuals also executed a deed of suretyship and indemnity. Hollard issued a performance guarantee in favour of DBSA on or about 18 January 2019 for R28,273,694.93, and later issued the advance payment guarantee in February 2021 for R23,060,000.00.

DBSA made a demand on Hollard under the advance payment guarantee, triggering Hollard’s recourse claims in the second application. On 12 December 2023, DBSA further demanded payment from Hollard under the performance guarantee in the amount of R28,273,694.93, arising from NJR’s failure to complete the construction work and DBSA’s termination of the contract. During the hearing, NJR Projects’ liquidation was noted, and the court recorded that an order for payment had already been granted against Mr Ramahlaleroa, leaving the adjudication in Part B focused on Mr Sodi’s liability.

3. Legal Issues

In the first application, the central legal questions were whether Hollard was obliged to pay DBSA R11,547,075.65 (with the order later reflecting R11,547,075.00) under the advance payment guarantee, notwithstanding Hollard’s objections. This required determination of whether DBSA’s demands were procedurally compliant with the guarantee, whether the advance payment had been fully recouped such that Hollard’s liability had diminished to nil, and whether the claim fell within the fraud exception to the enforcement of autonomous guarantees.

These questions were principally questions of application of law to fact, with some issues of contractual interpretation (a legal question informed by context and wording) and evaluative findings on whether the papers permitted an inference of fraud and whether the procedural steps required by the guarantee were met.

In the second application, the central legal questions were whether Mr Sodi, as a signatory to a deed of indemnity and suretyship, was liable to Hollard for amounts Hollard was exposed to pay (or had to pay) under the advance payment guarantee and performance guarantee, and whether technical objections raised by Mr Sodi could defeat Hollard’s claim. This again involved application of legal principles concerning autonomous guarantees, the limited role of underlying contractual disputes, and the enforceability of indemnity and suretyship undertakings.

4. Court’s Reasoning

Interpretation and procedural compliance under the advance payment guarantee

The court addressed Hollard’s contention that DBSA’s demand was non-compliant, including allegations of premature demand, inadequate documents, irregular recoupment scheduling, and expiry of the guarantee before proper documentation was furnished. DBSA’s case was that its letter to the contractor dated 21 October 2022 constituted the first written demand contemplated by the guarantee, and that by 28 October 2022 the seven-day period had elapsed for purposes of calling on Hollard.

The court accepted DBSA’s explanation for the follow-up letter dated 25 October 2022, treating it as a rectification of a typographical error rather than a withdrawal of the earlier demand or a non-compliant reset of the process. The court considered the correction non-sinister and not prejudicial to Hollard, emphasising that both notices were received before 31 October 2022.

On the alleged unilateral change of recoupment terms, the court referred to an interpretive approach favouring a sensible and businesslike meaning, citing Natal Joint Municipal Pension Fund v Endumeni Municipality 2012 (4) SA 593 (SCA). It reasoned that the guarantee itself contemplated the possibility of irregular recoupment amounts or periods and required an attached schedule in such cases, which undermined the suggestion that only the fixed monthly recoupment reflected in the guarantee could apply in practice. The court also relied on the guarantee clause providing that DBSA had the absolute right to arrange its affairs with the contractor, which the court treated as including the ability to alter the recoupment regime as between employer and contractor without releasing the guarantor.

Regarding the complaint that the recovery statement was not attached or was provided late, the court accepted DBSA’s stance that payment was due within seven days of the demand to the guarantor and that the payment certificate constituted a liquid document under the guarantee’s terms. The court’s reasoning treated Hollard’s procedural objections as insufficient to defeat the call in the circumstances described in the papers.

Full recoupment contention

Hollard argued that interim certificate 48 showed the advance payment of R23,060,000.00 as fully recovered and that the guarantee, being an advance payment guarantee rather than a performance guarantee, was limited to repayment of that advance within the recoupment period.

The court rejected Hollard’s interpretation of full recoupment. It relied, among other considerations raised on the papers, on DBSA’s criticism of Hollard’s reading of the certificate and on the fact that the contractor (G5 Group) did not deny indebtedness. The court further considered DBSA’s supplementary affidavit point that Hollard itself claimed R39 million in the second application, which amount was stated to include the R11,547,075.00 claimed by DBSA, and treated this as undermining the proposition that DBSA had already recovered the full advance payment.

In addition, the court again referred to the guarantee clause giving DBSA an “absolute right” to arrange its affairs with the contractor, treating Hollard’s “full recoupment” argument as unsustainable on the papers and concluding that the contention had to fail.

Fraud allegation and the autonomy principle

Hollard’s fraud allegation was based on asserted discrepancies between two versions of interim payment certificate 48, including changes in item descriptions, the identification of architects, VAT differences, and the implication that one version suggested full recovery whereas another suggested otherwise. DBSA responded that the alterations were made by the principal agent at DBSA’s request to provide clarity and did not alter the certified amount due; DBSA supported this with confirmatory affidavits from individuals employed by the principal agent.

The court applied the fraud exception principles as articulated in Guardrisk Insurance Company Ltd and Others v Kentz (Pty) Ltd [2014] ZASCA 182, [2014] 1 ALL SA 307 (SCA), including the propositions that fraud is a narrow exception, the party alleging fraud bears the onus on a balance of probabilities, fraud is not lightly inferred, and that mere error, misunderstanding, or oversight—even if unreasonable—does not amount to fraud. The court also referenced the statement that it is insufficient to show incorrectness; knowledge of incorrectness and bad faith are required.

On that basis, the court held that the papers did not justify an inference that DBSA intended to defraud Hollard. The court treated DBSA’s explanations as consistent with error correction and clarification rather than fraudulent misrepresentation, and it noted that the contractor did not dispute the entries relied upon. The court further referred to Set Square Developments (Pty) Ltd v Power Guarantees (Pty) Ltd and Another [2025] ZASCA 64; 2025 (6) SA 552 (SCA) for the proposition that courts will not, save for proof of fraud, consider underlying contractual disputes when faced with an on-demand or unconditional guarantee, as doing so would undermine the autonomy of such guarantees.

The court therefore concluded that fraud had not been proved and that the autonomy of the guarantee remained operative. Hollard was found liable to pay DBSA under the advance payment guarantee.

Second application: indemnity/suretyship enforcement and the performance guarantee

For Part B of the second application, the court recorded that NJR Projects had been liquidated and that an order for payment had already been granted against Mr Ramahlaleroa, leaving only Mr Sodi’s liability for determination.

In relation to the advance payment guarantee component, the court reasoned that Mr Sodi’s defences mirrored Hollard’s defences in the first application. Since Hollard’s defences failed and Hollard was held liable to DBSA, the court concluded that Mr Sodi was liable to Hollard for the amount claimed in respect of the advance payment guarantee, namely R11,547,075.65.

In relation to the performance guarantee, the court dealt with technical objections advanced on Mr Sodi’s behalf, including contentions that Hollard had not shown the guarantees were issued on a written request by NJR and that NJR did not acknowledge receipt of a default payment notice. The court considered these objections inadequate on the papers, noting that Hollard alleged the guarantees were issued at the contractor’s request and annexed the written request in reply, and that there was no stated requirement for an acknowledgement signature where DBSA was satisfied with service and annexed the notice in its demand.

The court rejected the proposition that cancellation of the construction contract automatically cancelled the performance guarantee. It treated the applicable principle as settled: cancellation of the building contract does not automatically cancel an autonomous, on-demand performance guarantee. The court relied on Lombard Insurance Co Ltd v Landmark Holdings (Pty) Ltd and Others 2010 (2) SA 86 (SCA) for the principle that the guarantor’s obligation is independent of disputes under the underlying contract and that the only basis to escape liability is proof of fraud by the beneficiary. The court observed that fraud was not established in relation to the performance guarantee call.

Accordingly, the court held that Mr Sodi was liable to Hollard in respect of the sums claimed, and it granted a costs order against him, including the costs of two counsel where employed.

5. Outcome and Relief

In case number 096485/2023, the court ordered Hollard to pay DBSA R11,547,075.00 under the advance payment guarantee dated 21 February 2021 within seven days of the order. Hollard was further ordered to pay interest on that amount at the prescribed rate, calculated from 31 October 2022 (the date of demand) to the date of final payment. The respondents were ordered to pay DBSA’s costs on the party-and-party scale on Scale C.

In case number 008205/2024, the rule nisi issued on 23 April 2024 in respect of the first respondent was extended to 9 March 2026 at 10h00, and Hollard’s claim against the first respondent was postponed sine die with no order as to costs. The third respondent, jointly and severally with the second respondent (the one paying the other to be absolved), was ordered to pay Hollard R39,820,769.93, together with interest at 12.5% per annum from 30 January 2024 to date of final payment. The third respondent was also directed to pay Hollard’s costs on Scale C, including the costs of two counsel where so employed.

Cases Cited

Natal Joint Municipal Pension Fund v Endumeni Municipality 2012 (4) SA 593 (SCA)

Guardrisk Insurance Company Ltd and Others v Kentz (Pty) Ltd [2014] ZASCA 182, [2014] 1 ALL SA 307 (SCA)

Loomcraft Fabrics CC v Nedbank Ltd and Another 1996 (1) SA 812 (A)

Set Square Developments (Pty) Ltd v Power Guarantees (Pty) Ltd and Another [2025] ZASCA 64; 2025 (6) SA 552 (SCA)

Botha v Smuts and Another [2024] ZACC 22; 2024 (12) BCLR 1477 (CC); 2025 (1) SA 581 (CC)

Lombard Insurance Co Ltd v Landmark Holdings (Pty) Ltd and Others 2010 (2) SA 86 (SCA)

Legislation Cited

Development Bank of Southern Africa Act 13 of 1997

Constitution of the Republic of South Africa, 1996 (section 239)

Rules of Court Cited

No rules of court were expressly cited in the judgment.

Held

The court held that Hollard was liable to DBSA under the advance payment guarantee for the certified indebtedness reflected in interim payment certificate 48, and that Hollard’s defences based on alleged procedural non-compliance, alleged full recoupment, and alleged fraud were not sustained on the papers. The court treated the alleged irregularities and discrepancies as insufficient to establish fraud, applying the narrow fraud exception applicable to autonomous guarantees.

The court further held that, in the related recourse proceedings, Mr Sodi remained liable to Hollard under the deed of indemnity and deed of suretyship and indemnity, including for amounts arising from Hollard’s exposure under both the advance payment guarantee and the performance guarantee. Technical objections raised to Hollard’s claim did not defeat enforcement, and cancellation of the underlying construction contract did not, by itself, extinguish the independent obligation arising under the performance guarantee.

LEGAL PRINCIPLES

The judgment applied the principle that an on-demand guarantee (including construction-related guarantees) is treated as autonomous from the underlying construction contract, and that disputes about performance or cancellation under the building contract do not, without more, relieve the guarantor of its independent payment obligation where the guarantee’s demand requirements are met.

The judgment applied the principle that the fraud exception to enforcement of an autonomous guarantee is narrow. Fraud must be proved by the party alleging it, on a balance of probabilities, and will not be lightly inferred. The judgment applied the further principle that mere error, misunderstanding, or oversight, even if unreasonable, does not amount to fraud, and that it is insufficient to show that a beneficiary’s contention is wrong; knowledge of falsity and bad faith are required.

The judgment also applied the interpretive approach that contractual provisions should be construed to prefer a sensible, businesslike meaning over an interpretation producing insensible or unbusinesslike results, in assessing the guarantee’s recoupment provisions and the effect of clauses permitting irregular schedules and allowing the employer to arrange its affairs with the contractor.

Development Bank of Southern Africa v Hollard Insurance Company Limited and Another (096485/2023 ; 008205/2024) [2026] ZAGPJHC 30 (15 January 2026)