IN THE HIGH COURT OF SOUTH AFRICA
(GAUTENG DIVISION: PRETORIA)
(1) REPORTABLE: NO
(2)
(3) REVISED
23 MARCH 2026
DATE
Case number: 0207 40/2023
In the matter between:
ELASAH RISK CONSULTANTS (PTY) LTD
FUSION GUARANTEES (PTY) LTD
and
First Applicant
Second Applicant
NATIONAL CREDIT REGULATOR First Respondent
THE FINANCIAL SECTOR CONDUCT AUTHORITY Second Respondent
PRUDENTIAL AUTHORITY Third Respondent
IN RE:
THE FINANCIAL SECTOR CONDUCT AUTHORITY
and
ELASAH RISK CONSULTANTS (PTY) LTD
FUSION GUARANTEES
Applicant
First Respondent
Second Respondent
2
THE NATIONAL CREDIT REGULATOR
THE PRUDENTIAL AUTHORITY
Third Respondent
Fourth Respondent
JUDGMENT
MINNAARAJ
Introduction:
(1] The first applicant ("Elasah") is seeking declaratory relief in the following
terms:
a. The Insurance Act 18 of 2017 ("the Insurance Act") does not apply
to a guarantee with the features set out below.
b. An issuer of such a guarantee is not obliged to be licensed as an
insurer under section 5( 1) of the Insurance Act.
c. The issuing of such a guarantee does not amount to conducting
insurance business under the Insurance Act.
The features of the said guarantees being:
(a) The overlap of three agreements:
(i) One, between a principal and a contractor;
(ii) Two, between the contractor and a guarantor;
(iii) Three, between the guarantor and the principal.
(b) The absence of one or more of the essentials of a contract of
indemnity insurance between the principal and the contractor,
3
the contractor and the guarantor and the guarantor and the
principal.
The essentials of the type of insurance being:
(i) The requirement of a premium;
(ii) The spreading of risk;
(iii) The indemnification of the principal for loss or damage;
(iv)A policy of insurance.
(c) The presence of the essentials of a money loan or credit
agreement as understood under the National Credit Act 34 of
2005 ("the NGA").
d. Costs in the event of opposition ("the Elasah application").
[2] On 29 October 2024, the second applicant ("Fusion") was granted leave
to intervene in Elasah's application. Fusion seeks an order in terms of
the declarators being sought by Elasah.
[3] The first respondent, the National Credit Regulator ("the NCR"),
delivered an answering affidavit but did not submit heads of argument or
appear at the hearing of the application. The NCR's affidavit was
submitted not to oppose the application but to assist this court in
interpreting the NCA's provisions.
[4] The application is opposed by the second and third respondents. The
second respondent is the Financial Sector Conduct Authority ("FSCA").
The third respondent is the Prudential Authority ("Prudential").
4
[5] At the hearing of the application, Fusion presented a draft order, in terms
of which it sought a declarator that:
a. Fusion's current guarantees exemplified by annexures FA22,
CA2, RA1, RA2 and RA3:
1. Are not guarantees as defined by Schedule 2, Table 2,
Class 13 of the Insurance Act; and
ii. Are not non-life policies as defined in section 1 of the
Insurance Act; and
iii. Do not constitute insurance business as defined in section
1 of the Insurance Act.
[6] Apart from presenting the draft order to the court, Fusion took no formal
steps to alter or amend its stance that it aligned itself with the declarators
sought by Elasah. The approach adopted by Fusion to seek relief in
terms of the draft order was heavily criticised by counsel for both the
FSCA and Prudential, on the basis that the contents of the draft order
bear no relation to the relief that Fusion prayed for and constitute an illicit
attempt by Fusion to obtain relief to which it is not entitled. It was only in
reply that Fusion's counsel sought an amendment from the bar on the
basis that both the FSCA and Prudential knew what Fusion's approach
was and that what was set out in the proposed draft order should not
come as a surprise to them. Fusion's attempt to introduce the draft order
without a proper amendment to what it prayed for is flawed, and as such,
the draft order is rejected.
5
[7] The FSCA lodged a counter application, seeking the following relief:
a. Declaring that the guarantees currently being issued by Fusion,
and identified in its founding affidavit ("the Fusion Guarantees'),
constitute non-life insurance as defined in section 1 of the
Insurance Act.
b. Declaring that the issuing by Fusion of the Fusion Guarantees
constitutes the conduct of insurance business as defined in
section 1 of the Insurance Act.
c. Declaring that by issuing the Fusion Guarantees without a license
to conduct insurance business, Fusion is acting in breach of
section 5(1) of the Insurance Act.
d. Interdicting Fusion from issuing the Fusion Guarantees.
e. Declaring that the construction guarantees identified by Elasah in
its founding affidavit ("the Elasah Guarantees") constitute non-life
insurance policies as defined in section 1 of the Insurance Act and
that the issue of such guarantees constitutes the conduct of
insurance business as defined in section 1 of the Insurance Act.
f. Declaring that the issue of the construction guarantees in the
absence of a licence issued in terms of the Insurance Act to
conduct insurance business constitutes a breach of section 5(1)
of the Insurance Act and is, in consequence, unlawful.
g. Costs of suit and the costs of counsel on Scale C.
6
[8] The counter application is opposed by Elasah and Fusion. Prudential
delivered a notice to abide by the court's decision in the counter
application.
[9] The spectrum of the applications relates to the interpretation of the
Insurance Act, Elasah's locus standi, the binding nature of the judgments
in Becker and Another v Registrar of Financial Service Providers and
Others (61274/2015) [2017] ZAGPPHC 926 (30 November 2017) (per
Rip AJ) ("Becker") and Fern Finance and Another v Financial Services
Tribunal and Others 2022 (JDR) 3092 (GP) (as per Potterill J) ("Fern
Finance'? on the Insurance Act and the applicability of the provisions of
the Insurance Act on the Fusion guarantees and the construction
guarantees relied on by Elasah.
The Insurance Act:
[1 0] The Insurance Act commenced on 1 July 2018. The purpose of
the Insurance Act is to provide for a legal framework for the prudential
regulation and supervision of insurance business in the Republic that is
consistent with the Constitution of the Republic of South Africa, 1996,
and promotes the maintenance of a fair, safe and stable insurance
market; to introduce a legal framework for microinsurance to promote
financial inclusion; to replace certain parts of the Long-term Insurance
Act, 1998 ("the L TIA'?, and the Short-term Insurance Act, 1998 ("the
ST/A'?; and to provide for matters connected therewith.
7
[11] Section 3 of the Insurance Act provides that the objective of the
Insurance Act is to, in a manner consistent with the Constitution of the
Republic of South Africa, 1996, promote the maintenance of a fair, safe
and stable insurance market for the benefit and protection of
policyholders, by establishing a legal framework for the prudential
regulation and supervision of insurers and insurance groups that-
(a) facilitates the monitoring and the preservation of the safety
and soundness of insurers;
(b) enhances the protection of policyholders and potential
policyholders;
(c) increases access to insurance for all South Africans;
(d) promotes broad-based transformation of the insurance
sector; and
(e) contributes to the stability of the financial system in
general.
[12] Section 5(1) of the Insurance Act provides that no person may
conduct insurance business in the Republic unless that person is
licensed under this Act.
[13] Section 1 of the Insurance Act contains the following relevant
definitions:
a. 'insurance business' means life insurance business or non-life
insurance business conducted or regarded as being conducted in
the Republic, and includes reinsurance business.
8
b. 'insurance policy' means a life insurance policy or a non-life
insurance policy.
c. 'insurer' means a person licensed to conduct insurance business
under this Act, and includes, unless specifically otherwise
provided for in this Act, Lloyd's, a Lloyd's underwriter and a
reinsurer.
d. 'non-life insurance business' means any activity conducted with
the purpose of entering into or meeting insurance obligations
under a non-life insurance policy.
e. 'non-life insurance policy' means any arrangement under which a
person, in return for provision being made for the rendering of a
premium to that person, undertakes to meet insurance obligations
that fully or partially indemnifies loss on the happening of an
unplanned or uncertain event, other than-
(a) a life event; or
(b) a death event or disability event not resulting from
an accident,
and includes a renewal or variation of that arrangement;
f. 'insurance obligations' means all obligations (other than the
obligations of the policyholder), whether those obligations
constitute an obligation to pay one or more sums of money,
render services or meet any other obligations, under or arising
from insurance policies, and, in respect of life insurance policies,
includes any guarantees and discretionary participation features.
9
g. 'premium' means any direct or indirect, or partially or fully
subsidised, consideration given or to be given in return for an
undertaking to meet insurance obligations.
[14] Section 1 of the Insurance Act does not contain a definition of a
'guarantee'.
[15] Schedule 2 of the Insurance Act deals with classes and
subclasses. Table 2 of Schedule 2 deals with classes and sub-classes
of insurance business.
[16] In terms of Item 13 of Table 2, the description of the "Guarantee"
class reads as follows:
"Covers loss resulting from-
• insolvency;
• the direct and indirect failure of a person to discharge
an obligation;
• suretyship offered as part of normal business activities,
other than a guarantee issued by a Bank registered under
the Banks Act, 1990." (my emphasis)
[17] Neither the cover of a loss resulting from insolvency nor
suretyship applies to the guarantees applicable in this case. The only
loss that might find application in this case is the loss resulting from the
direct or indirect failure of a person to discharge an obligation.
10
Elasah's locus standi:
[18] Elasah is a financial services provider (FSP) that specialises in
intermediary and advisory services related to demand guarantees, the
subject of the present application. According to Elasah, its principal
function is to arrange guarantees (referred to as "construction
guarantees", "performance guarantees" or "on-demand guarantees") for
potential contractors in the construction industry, mostly but not
exclusively, in the municipal sector. Elasah, as an FSP, markets and
sells guarantors' products.
[19} The tripartite relationship in guarantees comprises the employer,
the contractor, and the guarantor. Elasah is not a 'guarantor' because it
does not issue guarantees; it merely arranges them. Elasah's is a
consultancy business that advises on and arranges guarantees on
behalf of its clients, namely the contractors in the tripartite relationship.
[20] According to Elasah, the "formal view" is that the FSCA and
Prudential adopted the view that all guarantors have to be registered as
insurers under the Insurance Act. Elasah refers to this approach as the
'formal view'. Elasah brought the application to challenge the formal view
and to obtain clarity on whether the demand guarantees are subject to
the Insurance Act and whether the guarantors must be registered as
insurers under it.
11
[21] Elasah's case is that it has a direct legal interest in determining
whether a guarantor must be an insurance company or may be a
regulated credit provider. The overriding reason for this approach is to
enable Elasah to provide clients with legally sound and valid advice.
[22] Both the FSCA and Prudential challenged Elasah's locus standi
to have lodged this application. According to the FSCA and Prudential,
Elasah does not have an adequate interest in the subject matter of the
litigation, that being a direct interest in the relief sought. It is their
contention that Elasah's interest in the issue is remote, abstract,
academic and hypothetical. According to Prudential, the real thrust of
Elasah's application is to protect its indirect financial interest within the
construction guarantee business. It is the case of both the FSCA and
Prudential that Elasah's interest is not a legal interest for the purposes
of satisfying the requirement of locus standi.
[23) For a party to be clothed with locus standi, it is required that a
person who has approached the court seeking relief from it have an
interest in the sense of being personally adversely affected by the wrong
alleged.1
[24] In Firm-O-Seal CC v Wynand Prins/oo & Van Eeden Inc and
Another 2024 {6) SA 52 (SCA) at para 6, it was recently confirmed that
locus standi in iudicio is an access mechanism controlled by the court
1 Natal Fresh Produce Growers Association and Others v Agroserve Pty Ltd and Others 1990 ( 4) SA
749 N at 758G - 759E
12
itself.2 The Supreme Court of Appeal reiterated that generally, the
requirements for locus standi are these:
a. The plaintiff must have an adequate interest in the subject matter
of the litigation, usually described as a direct interest in the relief
sought;
b. The interest must not be too remote;
c. The interest must be actual, not abstract or academic; and
d. It must be a current interest and not a hypothetical one.3
[25] Standing is thus not just a procedural question; it is also a
question of substance, concerning the sufficiency of a litigant's interest
in the proceedings.4 The sufficiency of the interest depends on the
particular facts in any given situation.5 The real enquiry is whether the
events constitute a wrong against the litigant. 6
[26] In Lebashe Financial Services (Pty) Ltd v Prudential Authority &
Others 2023 (2) SA 130 (SCA) at paras 23 - 26, the Supreme Court of
Appeal said the following on locus standi:
"[23] As I have said, Lebashe had been granted leave to intervene in the
liquidation applications by agreement and obtained leave from the High
Court to appeal to this court. That, however, did not relieve Lebashe of
2 Watt v Sea Plant Products Bpk and Others [1998] 4 All SA 109 (C) at 113H.
3 Four Wheel Drive Accessory Distributors CC v Rattan NO 2019 (3) SA 451 (SCA) ([2018] ZASCA
124) para 7.
4 Wessels en Andere v Sinodale Kerkkantoor Kommissie van die Nederduitse Gereformeerde Kerk,
OVS 1978 (3) SA 716 (A) at 725H; Cabinet of the Transitional Government for the Territory qf South
West Africa v Eins 1988 (3) SA 369 (A) at 388B - E.
5 Jacobs en 'n Ander v Waks en Andere 1992 (]) SA 521 (A) ([1991] ZASCA 152) at 534D; Gross and
Others v Pentz 1996 (4) SA 617 (A) ([1996] 4 All SA 63) at 6328- D.
6 Muller v De Wet NO and Others 2001 (2) SA 489 (W) ([2000] 3 All SA 620).
13
the duty to satisfy this court that it has locus standi to obtain the relief
that it seeks on appeal. That is so for two main reasons. The first is that
the respective tests are not identical. Germane to the second, are the
oft-repeated dicta that the scarce resources of this court should not be
expended on deciding abstract or academic issues.
[24] As Harms JA said in Gross and Others v Pentz 1996 (4) SA 617 (A)
([1996] 4 All SA 63) at 632C:
'The question of locus standi is in a sense a procedural matter, but it is
also a matter of substance. It concerns the sufficiency and directness of
interest in the litigation in order to be accepted as a litigating party. '
See also Sandton Civic Precinct (Pty) Ltd v City of Jhb and Another 2009
(1) SA 317 (SCA) ([2009] 1 All SA 291; [2008] ZASCA 104) para 19.
Although there are no hard-and-fast rules in this regard, the general rule
is that a direct and existing interest in the relief is required. A direct
interest is one that is not too far removed, and an existing interest is one
that is not abstract, academic or hypothetical. See Cabinet of the
Transitional Government for the Territory of South West Africa v
Eins 1988 (3) SA 369 (A) at 3888 - H; Jacobs en 'n Ander v Waks en
Andere 1992 (1) SA 521 (A) ([1991] ZASCA 152) at 534A-E; and Public
Protector v Mail & Guardian Ltd and Others 2011 (4) SA 420 (SCA)
([2011] ZASCA 108) para 29.
[25] The winding-up orders in respect of the insurers do not, of course,
operate against Lebashe. What then is Lebashe's interest in having the
liquidation orders overturned? Lebashe is a creditor of BIG. I accept that
it is also the majority shareholder of BIG, which holds the shares in the
14
insurers. These were the only factors referred to by counsel for Lebashe
when this court raised this issue during argument. On this basis,
however, Lebashe is only a creditor and shareholder of the holding
company of the insurers. As such, there are no legal relationships
between Lebashe and the insurers. Lebashe has no rights to a preferred
legal process of dealing with the undisputed insolvency of the insurers,
even though it may have an indirect financial or commercial interest
therein. In my view, Lebashe's interest is too indirect and insufficient to
clothe it with locus standi in the appeal.
[26] The High Court ought to have considered these matters in
determining whether leave to appeal should be granted. And, quite
frankly, that should have resulted in a refusal of leave to appeal. It follows
that the appeal must fail for this reason alone. Ordinarily that would have
been the end of the matter. However, the remaining issues have been
fully argued, are novel and are likely to arise in the future. In the
circumstances, I regard it in the interests of justice to determine the
remaining issues."
[27] It is Elasah's case that they are entitled to the declaratory relief to
get legal certainty to properly advise their clients. Elasah is, in essence,
a torchbearer to challenge, according to it, the official view held by the
FSCA and Prudential, namely that all guarantors must be registered as
insurers under the Insurance Act. In its replying affidavit, Elasah states
that it "... has a legal interest in the classification of the relationship
between the parties, which is dependent upon whether the guarantor
15
must be an insurance company ("official view'J or whether it may be a
credit provider. As a FSP, Elasah markets and sells the products of
product suppliers, i.e., the guarantors, and it makes a world of difference
to Elasah whether the product supplier falls in one or the other category."
[28] Elasah is seeking declaratory relief in terms of section 21 (1 )(c) of
the Superior Courts Act 10 of 2013. This section grants the court the
power in its discretion, and at the instance of any interested person, to
enquire into and determine any existing, future, or contingent right or
obligation, notwithstanding that such person cannot claim any relief
consequential upon the determination.
[29] Declaratory orders are discretionary and flexible. In Rail
Commuters Action Group v Transnet tla Metrorail 2005 (2) SA 359 (CC)
at para 107, the Constitutional Court stated:
"It is quite clear that before it makes a declaratory order a court
must consider all the relevant circumstances. A declaratory order
is a flexible remedy which can assist in clarifying legal and
constitutional obligations in a manner which promotes the
protection and enforcement of our Constitution and its values.
Declaratory orders, of course, may be accompanied by other
forms of relief, such as mandatory or prohibitory orders, but they
may also stand on their own. In considering whether it is desirable
to order mandatory or prohibitory relief in addition to the
declarator, a court will consider all the relevant circumstances."
16
[30] An application for a declaratory order is a two-stage approach.7
First, the court must be satisfied that the applicant has an interest in an
existing, future or contingent right or obligation. Second, if the court is
satisfied that such an interest exists, it must be considered whether or
not the order should be granted.
[31] In Milani and Another v South African Medical and Dental Council
1990 (1) SA 899 (T) on page 902, an 'interested person' was defined as
a person who has a legal interest in the subject-matter of the action
which could be prejudicially affected by the judgment of the Court.
[32] Since Elasah is merely arranging guarantees, there is no
requirement in law for Elasah to be registered under the Insurance Act
to provide its consultancy services in the form of arranging construction
guarantees. There can thus be no wrong against Elasah, and whether
or not the Insurance Act apply is of no direct concern to Elasah.
[33] Elasah has failed to allege, or make out, a case that a right it is
meant to enjoy is infringed by the law, or that the application is brought
in terms of section 38 of the Constitution, which deals with the
enforcement of rights.
7 Cordiant Trading CC v Daimler Chrylser Financial Services (Pty) Ltd 2005 (6) SA 205 (SCA) at
para 18; Pasiya and Others v lithemba Gold Mining (Pty) Ltd and Others 2024 (4) SA 118 (SCA) at
para 46 to 51
17
[34] Apart from seeking legal advice from this court, it is difficult to
comprehend how Elasah could have an adequate interest in the subject
matter of the litigation. The mere fact that Elasah brought the application
does not, in itself, confer on E!asah the requisite standing. Elasah's
interest in the issue before the court is remote, abstract, academic and
hypothetical. Elasah has no direct interest in the outcome of these
proceedings. On the contrary, Elasah's interest is an indirect financial
one. Elasah's interest is plainly not a legal interest for the purposes of
satisfying the requirement of locus standi.
[35] It follows that Elasah lacks the required locus standi, and, on this
premise, Elasah's application must fail.
(36] The lack of locus standi would have been the end of the matter.
However, since Fusion joined the proceedings and the remaining issues
have been fully argued, are novel, and are likely to arise in the future, it
would be in the interests of justice to determine them.
Res iudicata:
[37] Section 5(1) of the Insurance Act provides that no person may
conduct insurance business in the Republic unless that person is
licensed under this Act.
[38] In both Becker and Fern Finance, the Court dealt with the STIA,
the predecessor of the Insurance Act.
18
[39] Before its repeal, section 7(1) of the STIA prohibited anyone from
carrying on any short-term insurance business without being registered,
or deemed to be registered, to do so.8
[40] The STIA defined short-term insurance business as "the business
of providing or undertaking to provide policy benefits under short-term
policies". Section 1 of the STIA defined short-term policies to include
guarantee policies. To issue guarantee policies, therefore, an entity had
to be registered, or deemed registered, for that purpose.
[41] In Becker, a decision by the Appeal Board of the Financial
Services Board (the predecessor of the FSCA) was taken on review.
The court was called upon to determine whether guarantees were issued
in contravention of section 7 of the STIA. Rip AJ held as follows at para
3.9:
"It would appear to me that the submission on behalf of the
Respondents that whether or not they could also constitute
suretyships was not decisive of the matter is correct. The issue
was whether or not they constituted guarantees as defined in
terms of the ST/A."
8 Section 7(1)(a) of the STIA: "No person shall carry on any kind of short-term insurance business,
unless that person is registered or deemed to be registered as a short-term insurer and is authorized to
carry on the kind of short-term insurance business concerned under this Act."
19
[42] Rip AJ considered the nature of the guarantees issued by Fusion
in Becker and found that the "guarantees" Fusion issued on behalf of its
underwriter could plainly only fall within the ambit of the term policies as
contemplated in the STIA definition of guarantee policy.9 Rip AJ further
found that Fusion's guarantees were, in fact, "guarantee policies"
contemplated by the STIA.10
[43] In Fem Finance, the issue before the court was whether Fern
Finance's business was subject to regulation by the STIA or the NCA. In
paragraph 7 of her judgment, Potterill J relied on the ratio in Becker as
follows:
"In Becker ... the court rejected the argument that an entity had to
be registered in terms of the NGA or the ST/A. If the services
rendered fell under ST/A, registration with the NGA did not
exclude registration with ST/A. I agree with this ratio. "11
[44] Neither Becker nor Fem Finance were overturned on appeal, and
as such, these decisions stand as authority.
[45] According to Elasah and Fusion, both Becker and Fem Finance
relate to the STIA, which has been repealed and replaced by the
Insurance Act. Fusion further contends that the erstwhile guarantees
forming the subject matter in Becker were of a different nature from the
9 Becker at para 3.12.1
10 Becker at para 3.12.3
11 Fern Finance at para 7
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current Fusion guarantees, and that they were interpreted through the
lens of the STIA. As such, there is presently no precedent for the
question that this court is asked to answer.
[46] Section 12(2) of the Interpretation Act 33 of 1957 provides:
'(2) Where a law repeals any other law, then unless the contrary
intention appears, the repeal shall not-
( a) revive anything not in force or existing at the time at which
the repeal takes effect; or
(b) affect the previous operation of any law so repealed or
anything duly done or suffered under the law so repealed;
or
(c) affect any right, privilege, obligation or liability acquired,
accrued or incurred under any law so repealed; or
(d) affect any penalty, forfeiture or punishment incurred in
respect of any offence committed against any Jaw so
repealed; or
(e) affect any investigation, legal proceeding or remedy in
respect of any such right, privilege, obligation, liability,
forfeiture or punishment as is in this subsection mentioned,
and any such investigation, legal proceeding or remedy may be
instituted, continued or enforced, and any such penalty, forfeiture
or punishment may be imposed, as if the repealing law had not
been passed.' (my emphasis)
21
[47) Both the STIA (section 7(1)(a)) and the Insurance Act (section
5(1) require that entities offering guarantee policies be registered. This
requirement was therefore not repealed by the Insurance Act. The
Insurance Act does not express a contrary intention to that found and
decided in the STIA as to which entities offering guarantees must be
registered.
[48] Prudential is correct in its approach: the Insurance Act did not
repeal the requirement that entities offering guarantee policies be
registered. Section 5(1) of the Insurance Act is clear on this requirement.
[49] No material difference can be found between guarantee policies
under the STIA and non-life policies under the Insurance Act. The
requirement in section 5(1) of the Insurance Act is the same as the one
which existed under section 7(1 )(a) of the STIA.
[50] I agree with Prudential's approach that, from both Becker and
Fem Finance, it is clear that the issue of registration under either the
NCA or the Insurance Act depends on the facts of each guarantee
agreement, and that registration with one is not exclusive of the other.
[51] Becker and Fem Finance remain applicable, and I am bound by
these decisions.
22
[52] The Insurance Act did not introduce a new legal concept in the
form of non-life insurance business. Therefore, the jurisprudence
developed and applied in relation to guarantee policies under the STIA
continues to apply to non-life insurance policies under the Insurance Act.
The Fusion application and the counter application:
The Fusion application:
[53] The motivation behind Fusion's application to intervene in the
Elasah application was premised on the risk that it might be found that
Elasah lacked the requisite standing in law to seek the relief sought by
Elasah. As already found by me, this risk has become a reality.
[54] According to Fusion, the question of whether the issuance of the
type of guarantee and the agreements entered into between contractors
and guarantors constitute insurance business as defined in the
Insurance Act is of existential importance to Fusion.
(55] Fusion was the subject of various investigations under the STIA.
One of the investigations culminated in the Beckerdecision, which found
that the guarantees issued by Fusion on behalf of its underwriter fall
squarely within the ambit of the term "policies" as contemplated by the
STIA definition of "guarantee policy". I pause to state that Fusion was
the second applicant in Becker, whilst the deponent to Fusion's
23
affidavits, Me Ilse Becker, was the first applicant. Neither Fusion nor Me
Becker is thus a stranger to the issue to be determined by this court.
[56] Fusion states that its product is a secured loan transaction
whereby a credit facility is granted to a contractor providing security in
the form of, inter alia, indemnities, company-to-company sureties,
director's personal sureties, cession of the contractor's debtor's book,
the pledge and cession of cash collateral and/or any other securities
requested or required by Fusion.
[57J Fusion is a registered credit provider that, according to it,
complies with all its obligations under the NGA Fusion explains that it
provides credit to its clients (the contractors) after a rigorous credit
check. Fusion further explains how credit costs are calculated and what
they entail.
[58] For the services it provides, Fusion charges the contractor a fee
for the credit it extends. These fees are stipulated in a pre-agreement
statement and quotation for credit facilities and credit agreements, the
credit agreement and the compliance report. According to Fusion, a
credit provider's presentation of a guarantee confirms that an extensive
analysis of the contractor's creditworthiness has been conducted and
that the contractor is good for the amount of the applied-for guarantee
and can pay. These fees are stipulated in the pre-agreement statement
and quotation for credit facilities, the credit agreement, the quarterly
24
returns, and the annual compliance report. Fusion attached examples of
a pre-agreement statement, quotation, and credit agreement ("FA23"
and "FA24" to its founding affidavit).
[59] Fusion's case is that it does not indemnify a contractor. In the
event that Fusion is called upon by an employer to make good on its
guarantee, the contractor inures to back-to-back liability to pay Fusion
the guarantee amount, together with interest and other agreed charges,
as permitted by the NCA. This is the moment when the credit is actually
provided, and interest begins to accrue. The facilities are utilised by the
contractor to pay their contract works insurance premiums, appoint
engineers, pay legal costs, or pay a demand call from an employer. If
any amount is discharged from the facility and Fusion is called upon by
an employer to make good on its guarantee, the contractor will have 90
days to repay Fusion, plus interest. If there is a failure to do so, Fusion
can call on the securities provided under the facility agreement. Fusion
contends that the facility thus operates like an overdraft facility or credit
card facility. Once any amount is discharged from the facility, the credit
is provided; the contractor is thus never indemnified.
[60] I interpose to remark that Fusion's comparison of its guarantees
with an overdraft facility or a credit card is intriguing. Why then make any
reference to a guarantee being issued and engage in years of litigation
on the STIA, and now on the Insurance Act, where, as Fusion wants this
court to believe, the whole transaction is as simple as merely providing
25
credit to a contractor, which credit is available as and when the credit is
required by the contractor. The only logical conclusion is that the intricate
environment applicable to these guarantees, the specific requirements
laid down for guarantees, the complex tri-party relationship involved in
the guarantee, and the strict necessity that the contractor should perform
to the satisfaction of the employer imply and require more than just a
credit facility. Fusion's comparison of the guarantees it provides to its
clients as merely constituting a simple credit agreement or facility is
therefore rejected.
[61] Once a facility limit is approved and granted, Fusion issues a
guarantee to a nominated beneficiary or employer. The guarantee is an
undertaking by Fusion to pay an agreed amount to an employer upon
demand and the production of prescribed documentation. It is Fusion's
case that the guarantees issued by it are based on the principle of
independence and that its obligation to an employer is not based on
proof of any loss or other prejudice or on any legal liability owing by the
contractor to the employer, but based purely on compliance with the
contractual requirement as set out in the guarantee. Annexure "FA22" is
the only example of such a guarantee attached to Fusion's founding
affidavit.
[62] It is prudent to note that "FA22" was issued on 29 May 2017. This
guarantee was issued prior to the Becker decision, which was delivered
on 30 November 2017. In Becker, it was pertinently held that the
26
guarantees issued by Fusion fall within the ambit of the term policies
contemplated in the definition of a guarantee policy in the STIA. Despite
this judgment, Fusion still elected to place reliance on 'FA22' to ask for
an order that it be declared that the Fusion guarantees do not constitute
insurance business as defined in Table 2(13) of Schedule 2 of the
Insurance Act. "FA22" was further issued prior to the implementation of
the Insurance Act.
[63] One can only assume that Fusion realised this mistake and then
attempted, in the replying affidavit, to introduce more up-to-date
guarantees. These up-to-date guarantees are attached as "RA 1 ", "RA2"
and "RA3". These guarantees are dated 20 December 2024, 21 June
2024 and 30 September 2024, respectively. All these guarantees were
issued after the intervention application was lodged in April 2024. It is
trite that a party is not entitled to introduce new matter in a replying
affidavit. As such, the guarantees attached to the replying affidavit are
not properly before the Court and cannot be included in any relief sought
by Fusion.
[64] Fusion expands on the possibility that, as part of its security
obligations, a contractor may be required to deposit collateral for any
payment due to the employer for the duration of the guarantee. This
collateral is held in a separate account from Fusion's funds and is not
treated as income; it is held in trust for the contractor. When the
guarantee is cancelled in due course, which, according to Fusion,
27
happens in the vast majority of cases, the amount with interest is repaid
to the contractor. Fusion emphasises that the collateral is held
separately from its funds, unlike that held by Insurance Companies.
[65] This collateral business model was in place when the STIA was
still applicable and prior to the Becker decision. Fusion states that, in
2010, it appointed Cornerstone Investments (Pty) Ltd ("Cornerstone"), a
licensed FSP fund manager, to manage any funds paid to Fusion by a
contractor as collateral under the credit agreement. Cornerstone
charges fees for its management services, which are disclosed to the
contractor in both the facility agreement and the credit agreement. If
Fusion must make a payment to an employer, it withdraws the collateral
for the contractor. It is stated that the collateral fund is not a fund from
which demands are paid.
[66] Fusion explains that when a contractor enters into a written credit
agreement with Fusion, the contractor nominates a beneficiary (the
employer) and provides Fusion with its banking details. Should Fusion
be required to make a payment to the employer, the contractor must
repay Fusion this amount, together with interest and costs.
[67] On the guarantee, Fusion states that a contractor who has been
awarded a tender by an employer will approach Fusion with its letter of
appointment. The appointment letter indicates which standard
agreement governs the relationship between the contractor and the
28
employer (generally the GGG 2010, GGG 2015, JBGG 2014, or the
FIDIG 2018/2020 agreement). The guarantee must comply with the
general conditions of the contract as set out in the specific agreement
entered into by the contractor. According to Fusion, it will release the
guarantee to the employer if the contractor has complied with all of
Fusion's security requirements and has paid all amounts due under the
credit agreement.
{68] Once a demand is made, Fusion has to validate the demand by
having regard to the payment certificates to determine which amounts
have been deducted by an employer, and which amounts are still due
for payment by an employer. Fusion is entitled to dispute an employer's
demand on the grounds of fraud or breach of contract, resulting in the
contractor's inability to finalise the project.
[69] Fusion remains adamant that, upon scrutiny of the agreements
attached to its founding affidavit, it is clear that the agreements
concluded by Fusion are credit agreements.
[70] On the aspect of collateral, it is Fusion's case that a contractor
has more protection under the NGA than under the Insurance Act, as the
furnishing of collateral is tightly regulated by the NGA.
[71] On the "official view" that all guarantors have to be registered as
insurers under the Insurance Act and its predecessor (the STIA), it is the
29
case of Fusion that the setting up of a guarantee is not the provision of
insurance, either at common law or as defined in the STIA or the
Insurance Act but that it is instead a form of money lending. According
to Fusion, classifying guarantees and the underlying agreements
between the guarantor and the contractor as contracts of insurance,
rather than credit agreements, gives rise to anomalies. One such
anomaly is that FSP's are compelled to misrepresent to their clients (the
contractors) the nature of the guarantee transactions. The transactions
have to be explained in insurance terms, whilst that is not the case.
These misrepresentations directly breach the professional obligations of
FSP's. According to Fusion, it is unethical, immoral, and illegal to say
that a client is purchasing insurance policies while the contractor is
entering into a secured loan transaction.
[72] Fusion contends that the guarantees are based on the principle
of independence, which effectively means that the guarantor's obligation
to the principal is not based on proof of any loss or other prejudice or on
any legal liability owing to the contractor, but on compliance with the
contractual compliance requirements, which are set out in the
guarantee. The guarantor's obligation is independent of the rights and
obligations between the contractor and the principal.
[73] According to Fusion, the only type of insurance that may be
applicable in the circumstances of a guarantee is indemnity insurance.
30
Fusion's case is that guarantee facilities have none of the features of
insurance:
a. There is no sharing or spreading of risk in a guarantee situation.
An insurer pays the insured from its own resources, built up by
pooling premiums. In the case of a guarantee, there is only a
passing-on liability, so the guarantor always remains financially
neutral. Once the guarantor pays the principal, the contractor
pays the guarantor.
b. There is no indemnification. In an insurance situation, the insured
must first suffer a loss for which the insurer is indemnified before
the insurer is obliged to pay. The amount equals the loss suffered.
In the case of a guarantee, the principal is entitled to demand
payment without having suffered any loss. The payment must be
made on demand, and the principle of independence precludes
any investigation into liability or loss.
c. There is no subrogation. In the case of insurance, the insurer
steps into the shoes of the insured and may sue a third party that
caused the insured's loss in the name of the insured. With a
guarantee, the guarantor may recover payment from the
contractor, not because the contractor caused the principal loss,
but because of the agreement between the guarantor and the
contractor.
d. Insurance is generally not concerned with the financial ability or
creditworthiness of a policyholder and/or its insured, nor how well
a claim can be secured by a policyholder. Insurance coverage is
31
extended upon payment of the premium. The insured person
must perform first by paying the premium. The insurer performs
thereafter. No question of affordability, overindebtedness, or
ability to pay arises in the insurance relationship. This is different
in the case of a guarantee. The contractor submits a facility
application to a guarantor for a guarantee. The guarantor
performs extensive credit checks and financial analyses to
determine whether the contractor will be able to pay the guarantor
when the guarantor pays the principal. The guarantor always
demands security. No premium is paid, no policy is entered into,
and no subrogation arises. No risk is transferred to the insurer.
[7 4] Fusion is adamant that none of the essentials in the Insurance
Act (as referenced by Fusion as a policy, a premium, and indemnification
of loss) is found in a construction guarantee or a guarantee facility. It is
Fusion's case that the references in the Insurance Act to guarantees are
references to indemnity insurance and not to a construction guarantee.
[75] It is the FSCA's case that the relief sought in the Elasah
application is academic and circular and that the Fusion relief is not
competent.
[76] The genre of guarantees that Fusion seeks to exclude from the
purview of the Insurance Act is called "construction guarantees". A
construction guarantee refers to an undertaking by a guarantor (which is
32
almost invariably a registered insurer, and sometimes a registered bank)
to pay a specified amount of money to an employer (e.g. a municipality
seeking construction services) in the event of an unplanned or uncertain
event or risk occurring, such as a contractor defaulting. Such payment
is, however, made upon the employer's fulfilment of the requirements for
the guarantor's demand set out in the guarantee.
[77] The party required by its construction contract or arrangement to
obtain and pay for the construction guarantee is the contractor. Under
the construction contract, the employer is the beneficiary of the
construction guarantee. The aim of a construction guarantee is to enable
the employer to expedite or complete the construction project, or to be
compensated, should the contractor be unable or unwilling to perform.
That breach by the contractor is the insured risk or interest covered by
the guarantee. The loss that is being indemnified here is the loss of the
employer that may result from such failure by a contractor.
[78] The crisp question before this court, as asked by Fusion, is
whether construction guarantees are regulated by the NGA to the
exclusion of the Insurance Act. The apposite question is whether the
construction guarantee falls within the ambit of the Insurance Act. In
Becker, it was made clear that the NGA does not exclude the Insurance
Act. Fusion and Me Becker were aware of this position, and by bringing
the Fusion application, they ignored the precedent set by this court.
33
[79] The question is therefore not whether an undertaking is a credit
facility or a guarantee policy. Rather, the question under the current
legislative regime is whether the construction guarantee in question
qualifies as a non-life insurance policy, more specifically, a guarantee
policy under Schedule 2, Table 2 of the Insurance Act. If the answer to
this question is affirmative, it follows that the Fusion- and Elasah
application must be dismissed and the counter application granted.
[80] I agree with the FSCA's contention that, although Becker was
delivered in respect of the STIA and considered whether the guarantees
issued by Fusion fell within the ambit of the STIA, the principles
endorsed by the court apply equally to the Insurance Act. Stated
differently, this principle is unaffected by differences between the
Insurance Act and the STIA regarding guarantees. In any event, there is
no substantial difference in relation to guarantees between the
Insurance Act and the STIA that would render the jurisprudence
established under the STIA inapplicable to the Insurance Act. A
guarantee under the STIA included "a contract in terms of which a
person, other than a bank, in return for a premium, undertakes to provide
policy benefits if an event, contemplated in the policy as a risk relating
to the failure of a person to discharge an obligation, occurs". The
indemnification of loss has been specifically referred to in the Insurance
Act, but that does not bolster or detract from the jurisprudence
established by Becker.
34
[81] Fusion relies in part on the notion that the contractor is the
guarantor's "counter-guarantor", in an attempt to locate construction
guarantees outside the Insurance Act. According to Fusion, this feature
means that there is no indemnification of loss. This conceptualisation is
stated as follows in paragraph 20 of the founding affidavit:
"Once the guarantor has paid the principal the amount claimed on
demand, the guarantor is entitled to recoup payment from the
contractor by virtue of the terms of the contract concluded
between the guarantor and the contractor. Between the
contractor and the guarantor, as shown above, various
contractual stipulations are included to ensure that the guarantor
is secured. . .. "
[82] There is no description of what is contained in the "terms of the
contract", or the "various contractual stipulations", nor does Fusion state
whether the contract between the contractor and the guarantor is a
guarantee, suretyship or some other contract.
[83] The essence of Fusion's contention is that a counter-guarantee is
not a feature of an insurance contract. According to the FSCA, that is of
no consequence, and Fusion's argument is misconceived.
[84] The relationship between the contractor and the guarantor, and
in terms of which the former agreed to indemnify the latter against any
loss it may suffer if the guarantee is called up, is extraneous to the
35
question whether the contract between the guarantor and contractor, in
terms of which the guarantor issues a guarantee in favour of the
employer, constitutes a non-life insurance policy for the purposes of the
Insurance Act.
[85] Fusion and Elasah further contend that construction guarantees
do not fall within any of the requirements under the definition of
guarantees under Schedule 2, Table 2 of the Insurance Act, being:
a. Loss as a result of insolvency;
b. Suretyship; or
c. The direct or indirect failure of a person to discharge an obligation.
[86] Construction guarantees fall under the Insurance Act because
they meet the requirements of non-life insurance policies and
guarantees under Schedule 2, Table 2 of the Insurance Act. These
policies come about in the following circumstances:
a. When entering into a construction contract with the contractor, the
employer requires the contractor to provide a construction
guarantee. The purpose of this guarantee is to indemnify the
employer against losses arising from a breach of the construction
contract that might come about as a result of the contractor's
default.
b. In order to meet that obligation, the contractor concluded a
contract with the guarantor in terms of which the guarantor
undertakes to indemnify the employer against losses that might
36
come about as a result of the contractor's default. The guarantor
undertakes this obligation in exchange for a premium, paid either
by the contractor or a third party. It is not a requirement of the
Insurance Act that the contractor pay the premium to the
guarantor.
c. The guarantor in return undertakes to pay the employer a
specified or limited amount on the occurence of a default by the
contractor, In other words, the guarantor provides a guarantee to
the employer in terms of which the guarantor undertakes to pay
the employer up to a maximum guaranteed amount on the
occurence of the default by the contractor subject to terms relating
to the demand for payment.
[87] It is important to note that the potential loss indemnified under the
guarantee is not the contractor's, but the employer's. The construction
contract between the contractor and the employer anticipates that the
employer may suffer a loss as a result of the contractor's conduct giving
rise to the risk insured against (default). An important feature of the
definitions under the Insurance Act mentioned above is that the Act does
not stipulate who must pay the premium or consideration, nor does it
require that the person paying the premium be the one who faces the
risk of loss and suffers the indemnified loss.
[88] A counter-guarantee is a collateral, independent arrangement
between the guarantor and the contractor that permits the guarantor to
37
seek reimbursement from the contractor in the event that it (the
guarantor) has to honour its insurance obligations (typically obligations
to pay the employer) vis-a-vis the employer. Even if the counter
guarantee is required by the guarantor (insurer), the employer's loss and
the obligations to indemnify the loss are unrelated to and unaffected by
this extraneous collateral arrangement.
[89] The counter-guarantee argument raised by Fusion, and the
position as discussed in the previous paragraphs, is by no means novel.
The 2015 Appeal Board decision given by retired Supreme Court of
Appeal Judge Howie, which was confirmed by Becker, specifically found
at paragraph 30 that the existence of a counter-guarantee "does not
render the definition of guarantee policy inapplicable to the guarantees
issued by Fusion ... "
[90] The court held in Becker, as confirmed in Fem, that whether a
contract to provide a construction guarantee falls under the STIA or the
Insurance Act depends on the contract's features. One must therefore
interrogate the agreement itself. It is irrelevant whether the arrangement
is or may be something else (such as a suretyship or a credit agreement
under the NCA). The question is whether it is insurance.
[91] In relation to the direct or indirect failure of a person to discharge
an obligation, relying on what Fusion and Elasah call the "principle of
independence", they contend that the guarantee stands independent of
38
the relationship between the employer and the contractor. It is not a
requirment that there be a failure by the contractor to discharge an
obligation: ''The guarantor must respond and make payment not
because of any loss suffered, not because of the failure to discharge an
obligation, not because there is causation between the loss and failure
to act positively, but only because the undertaking is to make payment
on demand, usuaul/y if the prescribed documents are presented."
[92] According to Fusion and Elasah, this (new) feature takes
construction guarantees outside the ambit of "guarantees" as defined in
Schedule 2, Table 2 of the Insurance Act, i.e., covering loss resulting
from the direct or indirect failure of a person to discharge an obligation.
[93] It is incorrect to say that the liability of a guarantor to an employer
under a construction guarantee is wholly independent from the liability
of the contractor under the construction contract. The guarantee is, after
all, a guarantee for performance by the contractor under the construction
contract. Payment under the guarantee will be made only if the employer
produces the prescribed documents, which may include a payment
certificate or a certificate of practical completion, evidencing the amount
due by the contractor to the employer. The loss is this amount, resulting
from the contractor's failure.
39
(94] The so-called "principle of independence" is not a feature of the
guarantee issued by Fusion. The example of a guarantee attached to
Fusion's affidavit as "FA22" states the following in paragraph 5:
"5. . .. the Guarantor (Fusion) undertakes to pay the Employer
the Guaranteed Sum or the full outstanding balance upon
receipt of a first written demand from the Employer to the
Guarantor ... calling up this Performance Guarantee, such
demand stating that:
5. 1 the contract has been terminated due to the Contractor's
default, and the Performance Guarantee is called up in
terms of 5, or ... "
[95] The suggestion that an Elasah/Fusion guarantee will be paid on
demand for no reason or on the occurrence of an event that was planned
or certain when the construction guarantee was entered into is nowhere
relied on in any of the affidavits delivered by Elasah and/or Fusion or any
contract provided by them.
[96] In amplification, paragraph 2 of the performance guarantee,
under the heading "Period of Liability," stipulates that the guarantee
covers the entire project period. This is yet another indication that the
guarantor's obligations to the employer are linked to the contractor's
performance throughout the entire project period.
40
[97) Providers of non-life insurance in the form of construction
guarantees are required by law to be licensed under the Insurance Act
because those contracts constitute the provision of non-life insurance
policies as defined in the Insurance Act. This is not merely the "official
view" as referred to by Fusion, it is, in fact, the law.
[98) The correct question is whether particular construction guarantee
constitutes guarantee policies in respect of the STIA and non-life policies
under the Insurance Act. The deliberate setting up of a guarantee in the
context of what is contained in the Elasah application and in relation to
Fusion's business does not exclude the application of the Insurance Act.
[99) There can be no accurate generic description of construction
contracts. Contracts must be considered on their own terms. Some
contracts require that the work be completed before payment is made;
others provide for interim payments; and the variety of construction
contract forms is wide. Before this court are the applications by Fusion
and Elasah, which require consideration.
[100] The presence of a counter-guarantee by the contractor does not
convert a guarantee policy into something else. In short, it does not
remove the indemnification-of-loss element, as the loss indemnified
remains the loss the employer paid before any bi-party counter
guarantee obligation comes into being.
41
[101] Construction guarantees in the context of the Elasah application
and with regard to Fusion's business are insurance policies if they
indemnify a loss which the employer might suffer because the contractor
fails to perform in terms of the relevant construction contract. This is the
"unplanned or uncertain event" in the definition of non-life insurance
policy.
[102] It is not required that the terms "policies" and "premiums" be used.
If the guarantee conforms to the definition of a non-life insurance policy,
it will constitute such a policy irrespective of the terminology used in the
documentation or how it may be called colloquially.
[103] Similarly, if a consideration conforms to the definition of
"premium", being "any direct or indirect, or partially or fully subsidised,
consideration given or to be given in return for an undertaking to meet
the insurance obligations", then it is a premium, notwithstanding whether
it is called a fee or by another name. Fusion is mistaken to say that these
terms are unknown in the "guarantee industry". The guarantor in Fusion,
being Fusion, which dealt with construction guarantees in the
construction industry, specifically used the term "premium".12
[104] Fusion's attempt to place its current guarantees before this court
to obtain validation of those guarantees and to escape the obligations
imposed on it by the Insurance Act. As the purpose of the Insurance Act
12 Fusion at para 3.10
42
is the same as the purpose of the STIA, this attempt by Fusion must fail,
and the Fusion application must be dismissed.
The counter application:
[105] In terms of the provisions of section 152 of the Financial Sector
Regulation Act 9 of 2017, the FSCA lodged its counter-application to
obtain a declarator that the Fusion guarantees constitute non-life
insurance policies as defined in section 1 of the Insurance Act and that
the issuing of the Fusion guarantees constitutes the conduct of
insurance business as defined in section 1 of the Insurance Act.
[106] Section 152(1) of the Financial Sector Regulation Act 9 of 2017
permits the FSCA to institute proceedings in the high court for an order
to ensure compliance with financial sector law. In terms of section
152(2), the court may grant such an order, even if there is another
remedy available, if:
a. It is apparent that the person against whom proceedings have
been instituted is engaging in or proposes (intends) to engage in
conduct that contravenes a financial sector law.
b. The person against whom proceedings have been instituted has
previously engaged in such conduct; or
c. There is a risk of significant or irreparable harm, prejudice, or
damage if the person engages in conduct that contravenes a
financial sector law.
43
[107] It is the FSCA's case that Fusion is acting in contravention of
section 5(1) of the Insurance Act by issuing Fusion guarantees without
authorisation to do so. Similarly, it is contended that the construction
guarantees identified by Elasah in its founding affidavit in the main
proceedings constitute non-life insurance policies as defined in section
1 of the Insurance Act and that their issuing constitutes the conduct of
insurance business as defined in section 1 of the Insurance Act. The
FSCA's case is that the issuing of construction guarantees without
authorisation to conduct insurance business constitutes a breach of
section 5( 1) of the Insurance Act and therefore unlawful.
[108] Apart from the declarators sought, the FSCA also seeks an order
interdicting Fusion from issuing the Fusion guarantees.
[109] The question is whether the Fusion guarantees and the
construction guarantees (as referred to by Elasah in its founding
affidavit) satisfy the definition of guarantees in the Insurance Act. The
answer to this question, as already discussed above, is that it indeed
satisfies the definition of a guarantee.
[11 0] It is Fusion's case that the type of guarantees resorting under the
Insurance Act are those that cover loss and are separate and distinct
from the guarantees issued by Fusion. Fusion contends that the current
Fusion guarantees constitute a product offering that does not seek to
44
cover loss, are not Class 13 guarantees, need not be issued by a
licensed insurer, and may be issued by an entity such as Fusion.
[111] In the guarantees relied on by Fusion, all payments are subject to
demand. Fusion's contractual obligation to pay is triggered by receipt of
the demand and/or documents mentioned in the guarantee, without any
loss requirement or assessment. According to Fusion, its guarantees do
not give rise to insurance obligations covering loss caused by defined
events; consequently, as scrutiny of Fusion's guarantee wordings
shows, they neither cover nor inquire into loss. It is Fusion's case that
the current Fusion guarantees are independent of the relationship
between employer and contractor and are not concerned with the
establishment of loss; its obligation arises from its contractual obligation
to pay irrespective of whether loss has occurred.
[112] It is the submission of Fusion and Elasah that the contract
between the contractor and the guarantor does not constitute a contract
of insurance under the common law, and it does not meet the
requirements of the Insurance Act. Rather, it satisfies all the essential
elements of a common law loan agreement and complies with the NCA's
provisions.
[113] On an analysis of the definition of a 'non-life insurance policy' in
section 1 of the Insurance Act, a non-life insurance policy has the
following attributes:
45
a. The payment of, or arrangement to pay, a premium;
b. An undertaking to meet an insurance obligation;
c. The indemnification of loss; and
d. The occurrence of an uncertain risk.
[114] A 'premium' is defined as consideration given, whether directly or
indirectly, and whether partially or fully subsidised, in return for an
undertaking to meet insurance obligations.
[115] 'Insurance obligations' are defined as all obligations (other than
the obligations of the policyholder), whether those obligations constitute
an obligation to pay one or more sums of money, render services or
meet any other obligations, under or arising from insurance policies,
and, in respect of life insurance policies, include any guarantees and
discretionary features.
[116] A 'policy holder' is defined as a person (or its successor in title)
who enters into an agreement with an insurer, for the provision of a life
insurance policy or a non-life insurance policy.
[117] The inquiry into whether the issue of the Fusion guarantees and
the construction guarantees relied on by Elasah constitute insurance
business as defined in the Insurance Act is a factual one. This is the
case that the FSCA must meet to obtain the declarators in the counter
application.
46
[118] In the paragraphs hereunder, I address the Fusion guarantees
and the construction guarantees relied on by Elasah, and analyse them
against the definition of a 'non-life insurance policy' in section 1 of the
Insurance Act.
Payment of premiums:
[119] Fusion relies on charging a "contractor fee" for its services and
remains adamant that it is not a premium. It is irrelevant whether Fusion
labels this payment as a contractor fee for the alleged credit it extends.
[120] In terms of the definition of 'premium' in section 1 of the
Insurance Act, it means any direct or indirect, or partially or fully
subsidised, consideration given or to be given in return for an
undertaking to meet insurance obligations.
[121] Fusion provided a full explanation of the elaborate process
involved prior to issuing the Fusion guarantees. For me, it is clear from
all the considerations given by Fusion prior to what it describes as a
credit facility that the fee payable to Fusion satisfies the definition of a
premium under the Insurance Act.
An undertaking to meet an insurance obligation:
[122] In its founding affidavit, Fusion describes its undertaking as an
undertaking by Fusion to pay an agreed amount to an employer upon
47
demand and the production of prescribed documentation. This
description is consistent with what is contained in paragraph 4 of the
guarantee attached as "FA22".
[123] I agree with the FSCA that the requirement of "an undertaking to
meet insurance obligations" is therefore satisfied, because it is an
undertaking to pay the employer a sum of money in terms of an
agreement which meets the requirement of the definition of a non-life
policy, and more particularly a guarantee policy referred to in Table 2 to
Schedule 2 to the Act.
The indemnification of loss:
[124] As an example, prayer 5 of "FA22" reads as follows:
"5 ... the Guarantor (Fusion) undertakes to pay the Employer the
Guaranteed Sum or the full outstanding balance upon receipt of
a first written demand from the Employer to the Guarantor ...
calling up this Performance Guarantee, such demand stating that:
... 5. 1 the contract has been terminated due to the Contractor's
default and that the Performance Guarantee is called up, or .... "
[125] Fusion clearly undertakes to indemnify loss or liability where a
contractor concludes a contract with Fusion, in terms of which Fusion
undertakes to indemnify the employer (which is a third party) against
specified losses that might come about as a result of the contractor's
default.
48
The occurrence of an uncertain risk:
[126] Logically, the occurrence of an uncertain effect would, by all
probabilities, be the default on the part of the contractor.
[127] "FA22" record this as the event of the contract being terminated
due to the contractor's default ("failure to perform an obligation") or the
grant of a provisional or final sequestration or liquidation order against
the contractor ("insolvency").
[128] I am satisfied that Fusion's current guarantee business reveals
that the guarantees issued by Fusion meet the criteria for non-life
insurance business as defined by the Insurance Act. As such, Fusion
must be registered as a licensed insurer under the Insurance Act, and it
therefore operates in breach of section 5(1) of the Insurance Act.
[129] Elasah failed to provide any meaningful response to the FSCA's
counter application, as Elasah's answering affidavit is virtually a
verbatim repetition of what is contained in its founding affidavit. Elasah
failed to provide any meaningful response to the FSCA's counter
application. I am, in any event, satisfied that the construction guarantees
that Elasah refers to in its founding affidavit are non-life insurance
policies. To highlight this conclusion, "JCR8" and "JCR11" attached to
Elasah's founding affidavit make reference to the terms "premium" and
"policy" and are signed by "underwriters". Elasah's allegation that there
49
is a counter-indemnity relationship between the guarantor and the
contractor is misplaced and finds no application herein.
[130] On a reading of the papers, in conjunction with the provisions of
section 152 of the Financial Sector Regulation Act 9 of 2017, I am
satisfied that the FSCA has satisfied the requirement for a final interdict.
[131] As to costs, all parties employed two counsel. Such employment
was justified in this application. I am further of the view that costs on
Scale C would be appropriate.
Order:
Consequently, I make the following order on the main application:
1. The application is dismissed.
2. The first and second applicants in the main application, jointly and
severally, the one paying the other to be absolved, are to pay the costs
of the main application, which costs are to include costs as occasioned
by the employment of two counsel.
The following order is made in the counter application:
1. It is declared:
1.1 The guarantees currently being issued by the second respondent
and identified in its founding affidavit ("the Fusion Guarantees")
constitute non-life insurance as defined in section 1 of the
Insurance Act.
1.2 The issuing by the second respondent of the Fusion Guarantees
constitutes the conduct of insurance business as defined in
50
section 1 of the Insurance Act.
1.3 By issuing the Fusion Guarantees without a license to conduct
insurance business, the second respondent is acting in breach of
section 5(1) of the Insurance Act.
1.4 The construction guarantees identified by the first respondent in
its founding affidavit ("the Elasah Guarantees") constitute non-life
insurance policies as defined in section 1 of the Insurance Act,
and the issue of such guarantees constitutes the conduct of
insurance business as defined in section 1 of the Insurance Act.
a. Issuing construction guarantees in the absence of a licence
issued in terms of the Insurance Act to conduct insurance
business constitutes a breach of section 5( 1) of the Insurance Act
and is, in consequence, unlawful.
2. The second respondent is interdicted from issuing the Fusion
Guarantees.
3. The first and second respondents in the counter application, jointly
and severally, the one paying the other to be absolved, are to pay the
costs of the counter application, which costs are to include costs as
occasioned by the employment of two counsel.
Minnaar AJ
Acting Judge of the High Court
Gauteng Division, Pretoria
Heard on
For the first applicant
Instructed by
For the second applicant
Instructed by
For the first respondent
For the second respondent:
Instructed by:
For the third respondent:
Instructed by:
Date of judgment
51
: 22 October 2025
: Adv P F Louw SC with Adv N Daniels
: L Cirone Attorneys at Law
: Adv E van Vuuren SC with Adv N Daniels
: CHM Attorneys
: No appearance
: Adv C Loxton SC with Adv N Muvangua
: Norton Rose Fullbright South Africa Inc
: Adv V Maleka SC with Adv L Mtukushe
: MacRoberts Attorneys Inc
: 23 March 2026