FirstRand Bank Ltd v Brera Investments CC

• Jurisdiction: South Africa

FirstRand Bank Ltd v Brera Investments CC
2013 (5) SA 556 (SCA)

2013 (5) SA p556

Citation	2013 (5) SA 556 (SCA)
Case No	385/2012; [2013] ZASCA 25
Court	Supreme Court of Appeal
Judge	Lewis JA, Ponnan JA, Malan JA, Theron JA and Plasket AJA
Heard	March 4, 2013
Judgment	March 25, 2013
Counsel	FJ Steyn for the appellant.; LJ Morison SC and X Stylianou for the respondent.

Flynote : Sleutelwoorde F

Engineering and construction law — Building contract — Construction guarantee G — Interpretation — Guarantee in favour of subcontractor — Guarantee providing that guarantor would incur liability to subcontractor if guarantor received certain documents relating contractor's failure to furnish payment certificate by due date — Whether guarantor liable under guarantee if such event occurred but payment certificate subsequently furnished — Well established that guarantees must be paid according to their terms — Guarantor's liability not affected by events occurring after due date.

Headnote : Kopnota

H The court a quo had ordered the appellant (FirstRand) to pay a sum of money to the respondent (Brera) in terms of a payment guarantee the former had issued to the latter. The guarantee consisted of an undertaking by FirstRand to make payment to Brera (a subcontractor) of an amount of money on the I happening of specified events. One such event — and the one the court a quo held had triggered FirstRand's liability — was failure by the contractor concerned to issue a payment certificate timeously. In relevant part the guarantee provided for an undertaking by the guarantor (FirstRand) —

'to pay the (s)ubcontractor the demanded sum upon receipt of . . . (a) first written demand issued by the (s)ubcontractor to the (g)uarantor J . . . stating that a period of seven (7) calendar days has elapsed

2013 (5) SA p557

since . . . written demand [by the subcontractor to the contractor to A issue a payment certificate] . . . and that the payment certificate has still not been issued'.

Brera had called up the guarantee on 15 April 2011 but payment was not forthcoming, and on 14 July 2011 the high court application was launched. However, on 25 August 2011 the contractor issued a payment certificate; B not for the amount demanded but for a lesser amount — the certificate stating that the balance was disputed and not certified. FirstRand argued that the use of word 'still' in the guarantee had the effect that its liability was based on the continued failure to issue a payment certificate, so that when such certificate was issued Brera's entitlement to demand payment would fall away and it would only be entitled to the certified sum, if any. FirstRand C also relied on the majority decision in Dormell Properties 282 CC v Renasa Insurance Co Ltd and Others NNO 2011 (1) SA 70 (SCA) ([2011] 1 All SA 557) as authority for the proposition that it was entitled to rely on events that occurred after demand for payment was made. On appeal, the Supreme Court of Appeal

Held: The event on which liability depended was set out in the guarantee as D 'upon receipt' of the documents identified. The obligation to pay arose the moment those provisions were met and not on the continued failure of the principal agent to issue the payment certificate. The words 'and that the payment certificate has still not been issued' did not detract from this conclusion; the use of the word 'still' simply meant that the payment certificate was not issued within the required seven-day period. As to E FirstRand's reliance on the majority judgment in Dormell's case, that case was distinguishable and, in any event, the better approach was that of the minority decision. (Paragraphs [9] – [10] at 561A – 562D.)

The guarantee in question — consisting as it did of an undertaking to make payment of an amount of money on the happening of a specified event — F was of the same nature as a performance guarantee, performance bond or letter of credit. The autonomy of a guarantee of this nature was well recognised; it must be paid according to its terms. It was only where fraud was involved that the issuing institution may decline liability, and in the present case no such issue arose. (Paragraphs [2] and [11] – [12] at 558F – 559A and 562D – H.) The appeal was accordingly dismissed. G

Cases Considered

Annotations

Case law

Southern Africa

Compass Insurance Co Ltd v Hospitality Hotel Developments (Pty) Ltd H 2012 (2) SA 537 (SCA): referred to

Dormell Properties 282 CC v Renasa Insurance Co Ltd and Others NNO 2011 (1) SA 70 (SCA) ([2011] 1 All SA 557): distinguished and doubted

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

Loomcraft Fabrics CC v Nedbank Ltd and Another 1996 (1) SA 812 (A) ([1996] 1 All SA 51): referred to

Minister of Transport and Public Works, Western Cape, and Another v Zanbuild Construction (Pty) Ltd and Another 2011 (5) SA 528 (SCA): referred to

Phillips and Another v Standard Bank of South Africa Ltd and Others 1985 (3) SA 301 (W): referred to. J

2013 (5) SA p558

England A

Edward Owen Engineering Ltd v Barclays Bank International Ltd [1978] QB 159 (CA) ([1978] 1 All ER 976; (1977) 3 WLR 764): referred to.

United States of America

Sztejn v J Henry Schroder Banking Corporation (1941) 31 NYS 2d 631: B applied.

Case Information

FJ Steyn for the appellant.

LJ Morison SC and X Stylianou for the respondent.

An appeal from the South Gauteng High Court, Johannesburg (Nicholls J C sitting as court of first instance).

Order

The appeal is dismissed with costs.

Judgment

Malan JA (Lewis JA, Ponnan JA, Theron JA and Plasket AJA D concurring):

[1] This is an appeal against the judgment and order of Nicholls J that the appellant (FirstRand) pay a certain amount to the respondent, Brera Investments CC, in terms of a payment guarantee issued...