Lombard Insurance Co Ltd v Landmark Holdings (Pty) Ltd and Others

• Jurisdiction: South Africa
• Judge: Navsa JA, Nugent JA, Lewis JA, Jafta JA and Ponnan JA
• Judgment Date: 01 June 2009
• Docket Number: 343/08
• Hearing Date: 21 May 2009
• Counsel: P Stais SC (with CJ McAslin) for the appellant. PJ Berthold SC for the respondents.
• Court: Supreme Court of Appeal

Navsa JA: E

[1] This appeal, with the leave of the court below, turns on the interpretation and application of certain documents. The background is set out hereafter.

[2] The appellant company (Lombard) is registered as a short-term insurance company in terms of the Short-term Insurance Act 53 of 1998 F and is thus entitled to issue guarantee policies as defined in that Act. [1] During 2002 the appellant issued a construction guarantee on behalf of Landmark Construction (Pty) Ltd (Landmark), a construction company, in favour of the South African Maritime Training Academy (the Academy). The basis for the guarantee was a construction contract [2] concluded between Landmark and the Academy, with the latter being G the employer and the former the contractor. The building work undertaken was a two-storey training centre for the Academy. In terms of the construction contract the principal agent was Herbert Penny (Pty) Ltd (HP).

[3] The construction contract records that the Academy shall have the H right to select security for the fulfilment of the contractor's obligations. Clause 14.5 of the contract records that the security 'shall be for the due fulfilment of the contractor's liability in terms of the agreement'. The guarantee referred to in para [2] above was the security selected by the

Navsa JA

A Academy. It is in the form of a variable construction guarantee in terms of which the maximum liability is limited to the diminishing amounts of the guaranteed sum in relation to certificates of completion, as provided for in the guarantee itself.

[4] Subject to the maximum liability provided for, Lombard bound itself B as principal debtor in favour of the Academy. It undertook to pay the Academy, on demand, the guaranteed sum or the full outstanding balance upon the happening of either of two eventualities, namely, default by Landmark resulting in cancellation, or a liquidation order being granted against Landmark.

C [5] The following clause in the guarantee is of importance:

'3.

The Guarantor hereby acknowledges that:

3.1

Any reference in this Guarantee to the Agreement is made for the purpose of convenience and shall not be construed as any intention whatsoever to create an accessory obligation or any intention whatsoever to create a suretyship.

3.2

D Its obligation under this Guarantee is restricted to the payment of money.

3.3

Reference to a practical completion certificate or to a final completion certificate shall mean such certificate as issued by the Principal Agent.'

E [6] On 14 October 2003 HP issued a certificate of practical completion, but prior to that Landmark was placed in liquidation.

[7] On 17 March 2004 the Academy called up the guarantee, recording in its demand that Landmark had been placed in liquidation, that a final completion certificate had not been issued and that consequently an F amount of R241 429,77 was due to it by Lombard, purportedly the value of work done post the issue of the practical completion certificate.

[8] Prior to all of this, during April 1999, the first respondent, Landmark Holdings (Pty) Ltd (LH), executed a document entitled...