Case Notes: Construction of demand guarantees gone awry: Minister of Transport and Public Works v Zanbuild Construction

• Jurisdiction: South Africa
• Date: 25 May 2019
• Author: Michelle Kelly-Louw
• Pages: 404-417
• Published date: 25 May 2019

CONSTRUCTION OF DEMAND

GUARANTEES GONE AWRY: MINISTER OF

TRANSPORT AND PUBLIC WORKS v

ZANBUILD CONSTRUCTION

MICHELLE KELLY-LOUW

Professor, University of South Africa

I INTRODUCTION

The term ‘construction guarantee’ is generally used to describe a

primary (independent) undertaking given by a guarantor (often a bank)

to a third party (benef‌iciary) in respect of obligations of a principal

(bank’s customer) to that third party (benef‌iciary). The guarantor of this

type of undertaking promises or gives a primary (independent) or direct

undertaking to perform in accordance with the guarantee, irrespective

of whether or not the principal’s (customer’s) obligation is enforceable.

However, in Minister of Transport and Public Works, Western Cape, and

Another v Zanbuild Construction (Pty) Ltd and Another 2011 (5) SA 528

(SCA), a case involving ‘two construction guarantees’ – one for

R1 181 104, 80 and the other for R1 106 500 – the Supreme Court of

Appeal illustrated that it is not the name or label (title or heading) that is

given to a payment obligation or undertaking (instrument) that deter-

mines whether it is accessory or independent in nature, but rather its

substance and construction that does. In List v Jungers 1979 (3) SA 106

(A) 118C–E, Diemont JA mentioned:

‘It is, in my view, an unrewarding and misleading exercise to seize

on one word in a document, determine its more usual or ordinary

meaning, and then, having done so, to seek to interpret the

document in the light of the meaning so ascribed to that word.

Apart from the fact that to decide on the more usual or ordinary

meaning of a word may be a delicate task . . . it is clear that the

context in which the word [that is, guarantee] is used is of prime

importance.’

II ACCESSORY GUARANTEES VERSUS INDEPENDENT

(PRIMARY) GUARANTEES

In South African law, the words ‘guarantee’ and ‘suretyship’ have often

been used as synonyms and referred to interchangeably by legal writers

404

(2013) 25 SA Merc LJ 404

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