The High Court in Pretoria has ordered Guardrisk Insurance to pay a construction guarantee of more than R15 million to NAD Property Income Fund.
NAD and Belo and Kies Construction (Pty) Ltd (BK) concluded a joint building construction contract. Pursuant to the contract, BK in 2017 arranged for Performance and Custom Bond Services (Pty) Ltd (PCBS) to issue the guarantee on behalf of Guardrisk. The beneficiary was NAD.
Certain disputes arose between the parties that were submitted to arbitration. In August 2020, by agreement between NAD and BK, an interim award was published. In terms of the award, NAD undertook not to call up the guarantee until its disputes with BK had been resolved by way of arbitration, including any appeal proceedings.
BK was liquidated in June 2022. The following month, NAD delivered a demand for payment under the guarantee.
Guardrisk refused to pay, and NAD sought to enforce payment by applying to the High Court. Guardrisk, PCBS, and the liquidators of BK were cited as the respondents.
NAD said the final liquidation of BK was a new and self-standing trigger that entitled it to payment from Guardrisk.
The judgment summarised the defences raised by the respondents as follows:
- By agreeing to the award, NAD and BK agreed their disputes would be determined before the guarantee may be called.
- The settlement between NAD and BK was concluded in contemplation of the possible liquidation of BK.
- The liquidation of BK may have interrupted the pending arbitration, but it did not put an end to any disputes.
- The liquidation of BK did not mean it was indebted to NAD.
- NAD must be held to the agreement it concluded with BK.
- It was absurd of NAD to call up the payment as though the award did not exist.
Judge Noluntu Bam found there was no merit to any of the defences raised by the respondents.
A guarantee establishes a separate and distinct cause of action and does not admit of extraneous defences. In this case, the separate and distinct cause of action was BK’s liquidation, and the extraneous agreement was no defence to NAD’s call for payment.
That there may be disputes that must be resolved was irrelevant to the requirements of calling up payment under the guarantee, Judge Bam said.
The submission that the award was issued in contemplation of the liquidation of BK was also not a defence. In fact, Judge Bam said, this point supported NAD’s cause because it may be inferred that notwithstanding the contemplated liquidation, the parties chose not to include the liquidation in the award.
NAD could not unilaterally amend the terms of the guarantee without involving Guardrisk, which was not a party to the undertaking that was turned into an award.
Judge Bam ordered Guardrisk to pay NAD R15 179 698, plus interest calculated from seven days from the date of demand to the date of final payment.
The respondents were ordered to pay NAD’s costs.
