• On 8 December 2025, the SCA handed down a decision in the above matter which draws into sharp focus the need to plead one’s case properly from inception.
• Ezindaleni Power Solutions CC (“Ezindaleni“) concluded a master rental agreement with Centrafin (Pty) Ltd on 9 May 2019 (the “Agreement“). The Agreement was for the rental of certain office equipment with a monthly rental fee payable. In terms of the Agreement, Ezindaleni’s existing three members, Mr Patel, Mrs Kilfoil and Mr Kilfoil (“the members“) undertook to be liable as co-principle debtors in favour of the landlord for Ezindaleni’s obligations in the event of cancellation thereof. The Agreement was ceded several times, and ultimately landed with South African Securitisation Programme (RF) Ltd (“SA Securitazation”) as the substituted landlord.
• On 5 February 2021 SA Securitization issued summons against the members of Ezindaleni, seeking payment as against them on the basis of Ezindaleni’s failure to make payment under the Agreement.  Ezindaleni was not cited
• The Agreement contained an acceleration clause which gave rise to liability on the part of Ezindaleni and the members for additional sums, however those sums were only claimable as against the members in the event that the Agreement had been cancelled.
• Notably, in its particulars of claim SA Securitization averred that “pursuant to the provisions of the agreement, [SA Securitization] cancelled the agreement, alternatively hereby cancels same.“.
• It is common cause that prior to the issue of the summons, no notice of termination of the contract had been sent to Ezindaleni or the members, at the domicilium address contained in the Agreement.
• One of the primary defences raised by the members was that cancellation had not occurred and that the act of cancellation was, in terms of the Agreement, a prerequisite for a claim for accelerated payments and pre-estimated liquidated damages.
• At the trial, the evidence of SA Securitization ‘s sole witness, Ms Moloi, was that SA Securitization conceded that an entitlement to claim payment of accelerated rentals could only arise in the event of cancellation of the Agreement, and that notice of cancellation had only been provided on service of the summons – of course, Ezindaleni had not been cited in those proceedings.
• What is more, in the course of cross-examination, it emerged that:
  • Ezindaleni had in fact been placed into liquidation the middle of 2020;
  • SA Securitization had directed correspondence to the liquidators of Ezindaleni shortly thereafter enquiring whether in terms of section 37 of the Insolvency Act, 2024 of 1936 the liquidators would elect to continue with the Agreement; and
  • no response had been received despite the passage of months, and the liquidators made no such election.
• On hearing this and the remaining evidence in the trial, the High Court ruled that service of the summons on the defendants did constitute cancellation of the Agreement, thereby entitling SA Securitization to payment.
• Mr Patel took the ruling of the court a quo on appeal, Mr and Mrs Kilfoil elected not to do so.
• SA Securitization defended the appeal but altered its position, abandoning reliance on alleged cancellation and instead relying on the operation of section 37 of the Insolvency Act which had emerged under cross examination, asserting that the agreement was deemed to have been terminated as a result of the liquidators not having responded to the enquiry. They also, somewhat opportunistically raised a further argument that if it was found that the Agreement had not been cancelled and the evidence regarding the liquidators’ election was not accepted, then the Agreement was still extant, thereby entitling SA Securitization to all amounts due under the rental agreement up to that point in time.
• On consideration of the appeal, the appeal was upheld by the SCA on the basis that section 37 was not relied upon by SA Securitization in the formulation of its pleaded case in the summons. Similarly, reliance on an alternative framework for the claiming of monies in the event that cancellation had not occurred, had also not been pleaded.
• The fact of the matter is that the act of cancellation of the rental agreement was never communicated to the controlling mind of Ezindaleni who at all relevant times after mid-2020, had been the liquidators of that entity.
• It seems in this matter that material facts have been overlooked in the formulation of the pleaded case. So that even though matters had emerged in evidence, this did not give rise to an ex post facto entitlement to reformulate the case before the SCA on different grounds to those contained in the pleadings.
• The judgment of the SCA stated (at para 23) “If we accept, as we must, that the liquidators did not elect to continue with the rental agreement, then SA Securitisation could not, many months after the lapse of the three month period provided by section 37(2) of the Insolvency Act, purport to cancel the agreement. It had already been terminated by law. Ms Moloi, on her own evidence, was aware of this fact. The High Court failed to appreciate the consequence of its finding that the agreement was deemed to have been terminated in terms of section 37(2), when it confirmed the cancellation of the agreement by SA Securitisation. It strikes me as bizarre that SA Securitisation’s claim was not premised on the fact that Ezindaleni had been liquidated, as specifically provided by clause 8 of the rental agreement. Instead, it was formulated without reference to the liquidation of Ezindaleni”.
• In conclusion, the SCA stated “The purpose of requiring parties to set out their case in the pleadings is to allow the other party to know what case it must meet and to answer that case appropriately. In this instance, the operation of s37 raises issues which have not been addressed at all on the record before us. This is therefore not the sort of case where we can accept that those issues are fully ventilated and that no prejudice would flow from adjudicating the matter upon the newly advanced basis. It follows that the appeal must succeed.“.
• Because Mr Patel was the only party challenging the ruling, the court a quo’s ruling in relation to the other two defendants was not replaced.
• This being a salient reminder to all practitioners to properly plumb the depths of their clients’ cases before running a trial, if needs be amending pleadings at suitable junctures so as to allow the proper ventilation of all issues.

The post The Need to Plead Properly – Patel vs South African Securitisation Programme (RF) LTD & Others (790/2024) [2025] SASCA 186 appeared first on Werksmans Attorneys.

The construction industry in South Africa has been faced with a number of challenges in recent years which has inhibited its ability to grow. The output of the industry contracted by 4.2% in 2024,[1] which is synonymous with a wider trend of declining growth witnessed in the sector since 2009.[2] In addition to its economic struggles which it shares with the rest of the country, being one of South Africa’s most carbon intensive sectors, the construction industry also faces challenges in its transition to lower carbon generation. In this regard green building has emerged as a vital tool to not only bringing sustainability into the industry space, but also to inspire its growth.

There have been a number of reasons for the sluggish performance of the South African construction industry in recent years. These include –

1. the stalling of infrastructure projects by various criminal gangs collectively referred to as the ‘construction mafia’ which intimidate and threaten employees, demand payment of protection money and demand stakes in projects.[3] This has threatened international investment in local infrastructure projects;[4]
2. the industry’s heavy dependency on imported materials, with approximately half of all materials used in the industry being imported into the country.[5] With recent changes in international tariffs, the industry is at risk of further serious disruption;
3. a skilled labour shortage and the need for more engineers and other qualified artisans such as welders, electricians and carpenters.[6]

While the sector seeks to get its economic performance back on track, it must now also deal with the challenge of becoming more environmentally sustainable. At present, the industry is responsible for 23% of the country’s emissions with the production of materials accounting for a further 5%.[7] As such, the construction industry is earmarked as a sector which will have to become accountable for its carbon emission use and must embark upon serious planning and reporting which will be required under the regulations to be published in terms of the Climate Change Act 22 of 2024.[8] Construction also consumes the majority of the country’s raw materials and produces significant waste.[9] In an attempt to mitigate the harsh environmental impact of the industry, the concept of green building has emerged.[10] Green building involves eliminating or reducing the negative impacts of a project, and creating benefits for the environment through resource efficiency.[11]

Existing green building practices and trends can be found in different spaces in South Africa.

• Green building in South Africa is primarily guided by the Green Building Council South Africa (“GBCSA“) which was established in 2007[12] and offers certification for green buildings through the Green Star Certification, Net Zero and EDGE. [13] It also gives input to the South African Government on the development of policy regarding green building.
• From a regulatory perspective,
  • the SANS 10400-XA, created by the South African Bureau of Standards, regulates the sustainability and energy consumption of buildings and requires energy efficient designs; and
  • the regulations[14] published under the National Energy Act 34 of 2008, require buildings over certain sizes, by December 2025 to display an energy performance certificate at the entrance of the building.

However, despite green building having the potential to transform the construction industry from a sustainability perspective, and despite middle and upper classes being prepared to pay more for sustainable housing[15] and a growing demand from companies, including both lessors and lessees, for green buildings[16] its uptake in South Africa has been low compared to international levels.[17]

This as yet unmet demand is only expected to grow based on the various legal developments taking place in South Africa:

• South Africa is moving towards compulsory ESG reporting. The Companies and Intellectual Property Commission (“CIPC“) published Notice 6 of 2025 wherein it stated that it has conducted public consultation on implementing compulsory sustainability reporting in South Africa and has joined a steering committee with the Department of Trade Industry and Competition which was established to consider implementing the ISSB Sustainability Disclosure Standards in South Africa.
• At a municipal level, green buildings are becoming essential with four of South Africa’s municipalities, being the City of Cape Town, City of Johannesburg, City of Tshwane and eThekwini Municipality, developing policies which will require all new buildings to be net zero carbon from 2030 and for all buildings to be net zero carbon by 2050.[18] The City of Johannesburg is currently looking at measures to monitor and implement such a policy.[19] The requirement for all new buildings in these areas to be net zero carbon in the next five years will significantly drive the demand for green building, especially if other municipalities follow suit.

As reporting obligations and compliance requirements increase, green building will inevitably become the path to building owners improving their ESG standing and tenants preferring to occupy green buildings to offset their emissions.[20]

The construction of green buildings is not a process which necessarily comes at a greater cost either. Real cost savings can be achieved due to the energy efficient nature of green buildings which outstrip the additional costs required to construct such buildings.[21] Green buildings are naturally more energy efficient, both in terms of energy costs upfront, and in ongoing operation/consumption of energy. The additional investment in green building certification also leads to higher sale value and rental income.[22]

There is also scope to grow demand through marketing initiatives to address the lack of awareness of the benefits of green building in certain sectors.

Green building is also an avenue where green loans can be utilized as part of the growing sustainable finance market in South Africa.[23] The construction of a green building that meets certain standards or is certified in terms of a certification system such as Green Star or EDGE, qualifies as a green project according to the Loan Market Association.[24] This type of funding provides certain benefits to borrowers such as a lower interest margin making the funding cheaper.[25]

Conclusion

The stagnating construction industry is therefore perfectly poised to springboard off what will surely be a market opportunity to construct buildings for which consumers are willing to pay a premium, can be financed under favourable conditions and which will now also become a pre‑requisite under reforms in the regulatory and legislative environment which is geared to address South Africa’s International Climate Commitments.[26]

If construction companies can tap into and broaden the existing demand, there is scope for large gains to be made at both company and industry level.

With a growing demand internationally for investment in sustainable projects,[27] green building represents an opportunity to attract much needed local and foreign investment into domestic construction projects.

[1]       KH Plant “2025 outlook for the South African construction industry” https://www.khplant.co.za/blog/2025-outlook-for-the-south-african-construction-industry/#:~:text=The%20South%20African%20construction%20industry%20has%20seen%20slow%20but%20steady,construction%20industry%20is%20for%202025 [accessed 28 July 2025] (“2025 Outlook“)

[2]       Phayane-Shakhane S “Transforming South Africa into a major construction hub” (October 2024) https://journals.co.za/doi/pdf/10.10520/ejc-civeng_v32_n9_a3#:~:text=THE%20CURRENT%20STATE%20OF%20THE,labour%2C%20and%20reduced%20job%20creation [accessed 5 August 2025] page 6

[3]       Bekker G “The construction industry in South Africa – caution and optimism” (4 June 2024) https://www.up.ac.za/graduate-school-of-technology-management/news/post_3232518-the-construction-industry-in-south-africa-caution-and-optimism [accessed 5 August 2025]

[4]       2025 Outlook

[5]       RIB “South Africa’s state of construction: problems, possibilities, and the road ahead” (12 March 2025) https://www.rib-software.com/en/news/south-africa-state-of-construction#:~:text=generate%20original%20ideas.-,A%20Sector%20Under%20Pressure,more%20vital%20than%20ever%20before [accessed 28 July 2025]

[6]       As above

[7]       Emere CE et al “Critical regulatory characteristics for sustainable building construction in South Africa” (21 February 2025) https://www.researchgate.net/publication/389222447_Critical_Regulatory_Characteristics_for_Sustainable_Building_Construction_in_South_Africa/link/67dccbe4e2c0ea36cd8727f7/download [accessed on18 August 2025] page 2

[8]       On 1 August 2025 the Draft National Greenhouse Gas Carbon Budget and Mitigation Plan Regulations were published which identify, inter alia, cement, glass, iron, steel and brick production as activities which require mandatory allocation of a carbon budget

[9]       Emere CE et al “Critical project delivery strategies for sustainable building construction in South Africa” (27 March 2025) https://www.frontiersin.org/journals/built-environment/articles/10.3389/fbuil.2025.1566468/full [accessed on 18 August 2025] page 2

[10]      https://www.gbcsa.org.za/what-is-a-green-building/#:~:text=They%20preserve%20precious%20natural%20resources,harvesting%20for%20non%2Dpotable%20requirements [accessed 26 August 2025]

[11]      As above

[12]      https://www.gcbsa.org.za/about/ [accessed 26 August 2025]

[13]      https://www.gbcsa.org.za/why-certify/#:~:text=Green%20Star%20certification,applied%20to%20multiple%20building%20typologies [accessed 26 August 2025]

[14]      GN 700 of 8 December 2020: Regulations for the Mandatory Display and Submission of Energy Performance Certificates for Buildings, 2019 [accessed 26 August 2025]

[15]      As above

[16]      Terblanche R et al “Implementing and operating net zero buildings in South Africa” (2025) https://journal-buildingscities.org/articles/549/files/684015cda1877.pdf [accessed 25 August 2025] page 266 (“Net zero buildings in South Africa“)

[17]      Weach M et al “Willingness of end users in embracing sustainable housing in South Africa” (23 October 2023) https://wiredspace.wits.ac.za/server/api/core/bitstreams/a6bc723d-9f5c-4880-b4ba-d2b5076b6d5e/content [accessed 25 August 2025] page 209

[18]      https://www.cityenergy.org.za/net-zero-buildings/ [accessed 2 September 2025]

[19]      Sustainable Energy Africa “Net zero carbon and green buildings implementation and monitoring in the City of Joburg” (25 September 2024) https://www.cityenergy.org.za/wp-content/uploads/2025/05/NZC-buildings-policy-implementation_Case-study_final.pdf [accessed 2 September 2025] page 3 – a building is net zero carbon if the building produces renewable energy to meet the energy it consumes

[20]      The greenness of the building in which the lessee operates may affect its scope 2 emissions, being the emissions which the company indirectly causes and which comes from the energy it uses and purchases [National Grid “What are scope 1, 2 and 3 carbon emissions” (1 July 2024) https://www.nationalgrid.com/stories/energy-explained/what-are-scope-1-2-3-carbon-emissions [accessed 29 August 2025].[20] If a company occupies a building which makes use of renewable energy, this will reduce its scope 2 emissions

[21]      Net zero buildings in South Africa page 258

[22]      Oguntona OA et al “Benefits and drivers of implementing green building projects in South Africa” (2019) https://iopscience.iop.org/article/10.1088/1742-6596/1378/3/032038/pdf [accessed 2 September 2025] page 3

[23]      Beck N “Evolving sustainable finance” (9 June 2024) https://www.rmb.co.za/news/evolving-sustainable-finance [accessed 2 September 2025]

[24]      Green loans are a type of finance where the proceeds of such loans are exclusively applied to green projects. Loan Market Association “Green loan principles” (26 March 2025) https://www.lma.eu.com/application/files/1917/4298/0817/Green_Loan_Principles_-_26_March_2025.pdf [accessed 2 September 2025] page 2 and 3

[25]      https://www.consumer-rights.org/finance/the-pros-and-cons-of-green-lending/ [accessed 2 September 2025]

[26]      As a signatory of the Paris Agreement South Africa aims to reach net zero emissions by 2050. https://www.wri.org/news/statement-south-africas-climate-commitment-much-more-ambitious [accessed 29 September 2025]

[27]      Morgan Stanley “Sustainable signals, understanding individual investor’s interests and priorities” (2024) https://www.morganstanley.com/content/dam/msdotcom/en/assets/pdfs/MSInstituteforSustainableInvesting-SustainableSignals-Individuals-2024.pdf [accessed on 2 September 2025]

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On Monday, 27 January 2025, while global news headlines flooded with the Expropriation Bill being enacted a few days prior, President Cyril Ramaphosa also quietly signed the Housing Consumer Protection Bill (“the New Act“) into law, which warrants commendation.

The Housing Consumers Protection Measures Act, 95 of 1998 commenced on 4 June 1999 (“the 1999 Act“) and was hailed as a significant step towards enhancing the quality and safety of residential construction in South Africa[1].

The 1999 Act envisaged the provision of protection for housing consumers and to establish and provide for the functions of the National Home Builders Registration Council (“NHBRC“).

Under the Act, the NHBRC was tasked, among other things, to create a fund, the purpose of which would, not unlike the Attorneys Fidelity Fund, protect consumers from egregious losses in the event of improper building practices. The NHBRC would be responsible for overseeing, against payment of an enrolment fee, the registration of homes and their inspection and certification upon completion. With these fees (which are tariff based), the fund was established

The 1999 Act banned the construction of homes by persons not registered with the counsel and did not permit such persons to receive payment for the construction of a home unless registered with the NHBRC (against pain of a fine or imprisonment) . The Act also entitled housing consumers to raise claims against the fund administered by the NHBRC in circumstances where “major structural defects” manifested during the first five year period from the date of occupation of the home, or a shorter period (12 months) in relation to roof leaks attributable to workmanship, design or materials in the event that the home builder did not when called upon to do so.

In terms of the general Regulations promulgated under the 1999 Act on 1 December 1999  (“The Regulations“) (just over 25 years ago) regulation 13 provides: “The maximum amount that may be expended by the Council … is the selling price of the home as declared by the homebuilder at the time of the enrolment of the home, up to a maximum amount of R500 000.00″.

And what then is a “major structural defect”? The Regulations also spelled out the technical requirements for structural strength and integrity, serviceability, fire safety, stormwater disposal, design, construction and materials (albeit at a fairly general level, and therefore open to some interpretation).

Over the 25 years since the 1999 Act came into law, it was amended three times. However over time, the NHBRC and the Department of Human Settlements identified challenges which negatively impacted the NHBRC’s mandate. The Regulations have also not been updated since 1999.

Among other things, the New Act repeals the 1999 Act and introduces:

• enhanced accountability and rigour
  • the application of the Public Finance Management Act to the NHBRC, it’s board members and the funds managed by it;
  • a code of conduct for NHBRC members, homebuilders, developers and other industry role players);
  • a more detailed procedure relating to the registration of homebuilders (enhanced requirements for the registration, status, cancellation or suspension and grading of homebuilders and related record keeping by the NHFC); and
  • for financial institutions, estate agents, and conveyancers – who are all now individually required to ensure compliance with the New Act, including, in particular, in relation to the enrolment of the home being built/renovated with the NHBRC.
• enhanced transparency
  • improved rigour in relation to record keeping by the NHBRC; and
  • the application of the Promotion of Access to information Act 2 of 2000. 
• enhanced recourse for consumers
  • the extension of roof warranty claims from 12 months to two years, 
  • repairs, renovations, alterations and extensions to existing homes (and not only new builds) are now included in the NHBRC’s region of oversight; and
  • personal liability for the members, directors or trustees of a homebuilder;  
• an enhanced social and commercial environment
  • the creation of an enabling environment for new entrants to the home building industry by the introduction of contractual provisions that ensure their sustainability in the market; and
  • economic transformation of the industry through the introduction of a warranty fund surplus to be used in relation to developmental programmes for the homebuilding industry.
• other
  • A requirement that both builders who undertake home building as a business, and owner-builders, must register with the NHBRC; and
  • The fund now being referred to as the “home warranty fund“, with the NHBRC now being empowered to underwrite this fund as well.

Based on the transitional provisions of the New Act, any complaint initiated under the old Act will now continue under the New Act, with the fund under the old Act continuing to exist in the form of the “home warranty fund”. Furthermore, any regulations made under the old Act will, to the extent that they are consistent with New Act, remain valid, presumably until new Regulations can be promulgated.

Regulations and other directions under the New Act will include inter alia

• the maximum threshold for claims which can be made by housing consumers (this is currently only R500 000 under the existing Regulations);
• the applicable fees for enrolment and registration
• the codes of conduct; and
• the Home Building Manual which will set out the Technical requirements for the structural integrity of a home.

Realistically, any major structural defect will cost a lot to address. R500 000 may have been a lot in 1999, but with the ever-changing value of money over time, this amount is not always going to satisfy, or even come close to satisfying, the costs of serious structural defects in today’s terms. According to inflationdata.org, in today’s terms, the value of R500 000 in 1999 would translate to approximately R1,800 000. That is more than triple the original amount, and even that is unlikely to satisfy the costs of a very serious structural defect.

The above thresholds and guidelines will need to be enhanced and updated, but the promulgation of the New Act is certainly a positive development in the home building environment.

[1] Celebrating 21 years of Assuring Quality Homes – NHBRC : National Home Builders Registration Council

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First introduced to Parliament in February 2022, the Climate Change Bill was passed by the National Assembly in October 2023 and by the National Council of Provinces in April 2024 without amendments and has today been assented to by President Ramaphosa and promulgated into law (the Climate Change Act).

The Climate Change Act is South Africa’s response to its signature and ratification of the Paris Agreement whose main objective is to develop an international climate change regime under the United Nations Framework Convention on climate change by setting out a comprehensive framework to guide efforts to limit greenhouse gases (GHGs) and to meet the associated challenges posed by climate change by ensuring a just transition towards a low carbon global economy and society.

Since the early 1990’s South Africa’s national average temperature has increased at a rate which is more than twice that of the global temperature.

This comes as no surprise as South Africa’s economy and power generation system is largely dependent on the production and sale of coal.

South Africa also has a carbon-intense energy infrastructure mainly due to the materials utilised for the construction of infrastructure (eg, bricks, cement, steel and other manufactured components which are high in carbon). Coal and carbon are high emitters of GHGs which contribute directly to the increases in the Earth’s temperature.

Given that the construction sector contributes to as much as 37% of global GHGs, this legislation will inevitably have a direct impact on the construction sector going forward.

Within one year of the Climate Change Act coming into operation, the Minister of Forestry, Fisheries and the Environment is required to publish a list of GHGs which the Minister reasonably believes cause or could be the potential cause of climate change.

We outline some of the more important provisions of the Climate Change Act below which we believe will impact on the construction sector:

Sectoral emissions

The Climate Change Act seeks to meet its objectives by regulating the emission of certain GHGs by imposing, amongst others, sectoral emission targets in section 22, carbon budgets in section 24 and sanctions for persons who fail to comply with the aforementioned targets and budgets which can be found in section 32.

Carbon Budgets and Mitigation Plans

Section 24 of the Climate Change Act provides for the allocation, by the Minister, of a carbon budget to all persons who engage in activities which emit or have the potential to emit GHGs (designated emitters), which will be published within a year of enactment.

The carbon budget allocated to designated emitters will remain the same for three successive five year periods, and a limit will be set for the GHG which may be emitted in the first five year period.

A designated emitter can make a request to the Minister for same to be reviewed. Alternatively, under certain circumstances to be prescribed by the Minister, a designated emitter may apply for the revision or cancellation of a carbon budget.

Designated emitters must submit a GHG mitigation plan which the Minister must consider and approve. The mitigation plan must contain the mitigation measures the designated emitter will take to ensure that it does not exceed its carbon budget.

The designated emitter must also ensure the proper implementation of the mitigation plan once it has been approved by the Minister.

Where it appears that a designated emitter is failing or will fail to stay within the allocated carbon budget, the designated emitter must provide the Minister with further measures it intends to take to ensure that it remains within the allocated budget.

The implications of this layer of regulatory management and reporting will inevitably mean that the costs of doing business where emissions are involved, will increase to include the costs of third parties, probably independent, and probably in due course accredited, with appropriate skills to assess emissions budgets, to generate emission mitigation plans, and to review and report on performance relative to budget.

Failure to comply

Not only will there be a cost implication for compliance, there will also be significant cost implications for non-compliance.

Section 32 of the Climate Change Act makes it clear that failure to submit a GHG mitigation plan to the Minister for approval is categorised as an offence which renders a party liable to a fine not exceeding R5 million or to imprisonment not exceeding 5 years for a first conviction and R10 million fine or imprisonment of 10 years in a subsequent conviction. The matter is evidently one which is to be taken seriously.

Taxation

In addition to the consequences visited upon businesses under the Climate Change Act it is apposite to note that the Carbon Tax Act 15 of 2019, another one of South Africa’s responses to the climate change objectives under the Paris Agreement, must also not be forgotten.

Section 3 of the Carbon Tax Act states that a person is subject to carbon tax “if that person conducts an activity in the Republic resulting in greenhouse gas emissions equal to or above the threshold determined by matching the activity listed in the column “Activity/Sector” in Schedule 2 with the number in the corresponding line in the Schedule”. Construction is listed on that schedulewith a threshold of 10MW (th).

Conclusion

It is crucial for industry players to seriously consider and map out their strategies to manage the implications of GHGs and to prepare for the future. One way in which this can be done is to properly consider the impact of the lifecycle of the infrastructure from inception (i.e. design process) to the end of life phase (repurposing and recyclability of the materials used).

Whilst passing some responsibility on to one’s supply chain is one strategy to manage emissions targets, and choosing more sustainable building materials is another, given the rigours of the Climate Change Act and the Carbon Tax Act, it will not be a case of simply passing on the buck – there are changes in behaviour required at every level in sustainable supply chains. 

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Bonifacio and Another V Lombard Insurance Company Limited Case No.: 247/2023

The nature of guarantees has once again been dealt with decisively by the Supreme Court of Appeal (SCA) this time in the matter between Bonifacio and another v Lombard (“Bonifacio“).

A guarantee is an obligation to make payment upon the occurrence of an event. The court in Bonifacio reiterated the position held in Loomcraft Fabrics CC v Nedbank Ltd and another [1996] 1 All SA 51 (A) and confirmed in Lombard Insurance Co Ltd v Landmark Holdings(Pty) Ltd [2009] 4 All SA 322 (SCA) that the nature of this obligation is “wholly independent of any underlying contract“.[1] The court dealt with issues of guarantee, indemnity, the dependency of the liability and the effect of fraud.

Facts

In 2009, DBT Technologies (Pty) Ltd (“DBT“) was subcontracted to perform work at Eskom’s Kusile Power Plant. DBT in turn subcontracted some of this work to Tubular Construction Projects (Pty) Ltd (“TCP“). As security for its performance obligations to DBT, TCP provided an on-demand performance guarantee in favour of DBT. This guarantee was issued by Lombard Insurance Company Limited (“Lombard“), the respondent in the Bonifacio for an amount of R128 375 851.20 and was payable to DBT on written demand in the event of a breach of the subcontract by TCP (“the guarantee”).

In 2019 the appellants indemnified Lombard for all liability and expenses whatsoever in terms of the guarantee, and in their turn agreed to pay, on demand, any sum of money which Lombard may be called upon to pay under the guarantee.

On 13 January 2020 DBT made demand for payment from Lombard of the full amount then payable under the guarantee. Lombard in turn demanded payment from the appellants for the same amount. When payment was initially withheld by Lombard, DBT brought proceedings against Lombard and TCP in the High Court. Lombard and TCP defended the matter, alleging fraud on the part of DBT in exercising the guarantee. Lombard then joined the appellants amongst others as third parties to the proceedings calling for them to be declared jointly and severally liable for the amounts claimed under the guarantee.

After being joined to the proceedings, the appellants did not file any affidavits or take any further steps. TCP was later liquidated, and Lombard entered into a settlement agreement with DBT whereby the sum claimed by DBT was reduced to R100 million and paid by an order of court dated 1 February 2021.

What remained was the third party proceedings between Lombard and the appellants. The appellants then sought condonation for the late filing of answering affidavits  and raised defences of fraud as against  DBT, that they had been released from their obligations, that they had lost the right to contest DBT’s claim and a defence of estoppel.

The  Court a quo held that it was not required to make a finding of fraud, dismissed the remainder of the defences, and declared the appellants jointly and severally liable to Lombard  for the settled amount with interest.

On Appeal

On Appeal the appellants argued that Lombard could not claim indemnity in terms of the third party procedure the appellants were entitled to contest DBT’s claim which was compromised by the settlement. The appellants also contended fraud on the part of DBT in making the call on the guarantee, which was an allegation which in their view remained unresolved.

The SCA found that liability under a guarantee could only be avoided if fraud manifested on the part of the beneficiary. By extension of that same reasoning, liability could only be avoided under the indemnity if there was fraud on the part of both DBT and Lombard. The appellants’ case was that Lombard did not properly investigate the claim under the guarantee. The court however held that it is not the obligation of the guarantor to investigate the underlying contractual position as between DBT and TCP when a valid claim had been made in terms of the guarantee.

The court also held that the High Court was correct in not deciding the issue of fraud after the settlement had been made an order of court, as DBT was no longer a party to the proceedings and the decision as to alleged fraud on its behalf could not be made in its absence.

In respect of the procedural defence of its rights being compromised by the settlement, the court held that the appellants were vested with procedural rights when the third party notices were served which  included the right to contest the claim of DBT against Lombard. The settlement did not remove those rights, rather the appellants simply failed to exercise them while DBT was still a party to the proceedings and failed to reintroduce them to the proceedings when opposing the claims by Lombard.

During the argument the appellants asserted that their liability to Lombard was first dependant on a court reaching a definitive finding that Lombard was liable to DBT. The court dismissed this argument too, stating that the terms of the indemnity were not dependent on a finding of a court to that effect.

The appeal was accordingly dismissed with costs.

[1] Bonifacio and Another V Lombard Insurance Company Limited para 16.

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Introduction

• On 9 February 2024, the Supreme Court of Appeal in the case of Cohen v Absa Bank Limited [1] delivered a judgment in which it had to consider whether a surety could rely on the remedies provided section 31(2) of the Insolvency Act 24 of 1936 (“the Insolvency Act”).

• Section 31(2) of the Insolvency Act states as follows

“any person who was a party to a collusive disposition is liable to make good any loss thereby caused to the insolvent estate in question and shall pay for the benefit of the estate by way of penalty such sum as the court may adjudge, not exceeding the amount by which he would have benefited by such dealing if it had not been set aside; and if he is a creditor he shall also forfeit his claim against the estate”

Facts of the Case

• Cohen, had stood as surety for AMU in respect of a loan agreement concluded between Absa and AMU.
• As security for the loan, Absa registered a mortgage bond over the hotel and penthouses.
• AMU defaulted on its repayments and as a lifeline to AMU, Absa extended the deadlines for repayment and restructured the loan agreement on condition that inter alia, AMU would sell the penthouses and pay the proceeds to Absa.
• Despite the lifeline provided by Absa, AMU was unable to make payment of its debts, consequently, AMU was placed in liquidation.
• Absa lodged and proved a claim in AMU’s insolvent estate.
• The liquidators of AMU published a second and final liquidation and distribution account (“L&D Account”) evidencing a shortfall of R380 million to Absa.
• Pursuant to the publication of the L&D Account Absa instituted proceedings against Cohen based on the suretyship agreement executed by Cohen in favour of Absa.
• Cohen defended the action proceedings on the basis that the sale of the penthouses was a collusive disposition between Absa and AMU.

Legal Issue

• The court had to determine whether a surety has the requisite locus standi to invoke the provisions of section 31(2) to avoid liability to a creditor after the primary debtor has been liquidated.

Cohen’s Argument

• Cohen argued that Absa’s claim against AMU was forfeited as the sale of the penthouses constituted a collusive disposition which had the result of preferring one of AMU ‘s creditors over the others which subsequently meant that Absa had forfeited its claim in terms of section 31(2).
• Cohen contended that his obligations to Absa in terms of the suretyship agreement had been extinguished.

Absa’s Argument

Absa argued inter alia that it was the only creditor that could have been reasonably affected by the sale of the penthouses as it held a mortgage bond over the penthouses which entitled it to the proceeds of the sale of the penthouses; furthermore, the restructuring of the loan agreement and  sale of the penthouses was not for fraudulent purposes but rather to provide AMU with an opportunity to trade out of its financial distress.

The Court’s Decision

The court held that:

• section 31 is part of those provisions of Insolvency Act which address inter alia dispositions without value, undue preferences, collusive dealings and the procedures to be followed to set aside such improper dispositions.
  • the purpose of the disposition sections of the Insolvency Act is to empower a trustee or liquidator, to act against parties listed in those sections for the setting aside of improper dispositions and to obtain the remedies therein.
  • these remedies are only available to a liquidator or trustee who has secured an order setting aside the improper dispositions.
  • only a trustee or liquidator of the insolvent estate has locus standi to bring such proceedings unless the trustee or liquidator fails to do so in which case a creditor may bring the proceedings in the liquidator’s or trustee’s name subject to indemnifying the liquidator or trustee.
  • the default position where a liquidator, trustee or creditor fails to bring proceedings setting aside the improper disposition is that such disposition remains valid.
  • no liability or penalty can be imposed if the improper disposition is not set aside, consequently a creditor cannot forfeit its claim where the collusive disposition has not first been set aside.
  • the Insolvency Act does not afford a shield to a surety who seeks to escape liability on the basis that the insolvent primary debtor colluded with a creditor prior to its liquidation in a manner set out in section 31. Only the liquidator and not a third party, such as a surety has locus standi to rely on the remedies provided in section 31.

Conclusion

It is crucial to note that section 31(2) is only available to the liquidator or trustee (or a creditor in the case that the trustee or liquidator fails to act) in circumstances where the liquidator or trustee has first obtained an order setting aside the collusive disposition.

Where the collusive disposition has not been set aside, the remedies which flow from section 31(2) cannot be relied upon.

A third party such as a surety cannot invoke the provisions of section 31(2) to escape liability from its suretyship obligations. Accordingly, a surety can still be held liable where the primary debtor has gone into liquidation, unless the liquidator, trustee or creditor has obtained an order setting aside the collusive disposition and the creditor has forfeited its claim.

[1] [2024] ZASCA 16

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Emontic Investments (Pty) Ltd v Bothomley and Others[1]

Introduction

A Parate Executie clause is generally regarded as an impermissible contractual provision which envisages a secured creditor disposing a secured asset through a private sale when the debtor defaults, without recourse to a court – a so-called “self help” or “summary execution” clause. Such a clause is generally recognised as being contra bonos mores and unenforceable absent the debtor’s consent to the seizure and sale of the asset in question[2].

In an insolvent situation, a secured creditor is often in possession of an asset belonging to the insolvent which serves as security, by virtue of for instance pledge or a landlord’s hypothec which makes the realisation of the asset by the creditor more practically achievable. This much is recognised by the provisions of section 83 of the Insolvency Act 24 of 1936 (“the Insolvency Act”), with the proviso at section 83(10) that requires the net proceeds of the sale by a secured creditor of its secured asset to be made to the liquidator so that the liquidator may account for those proceeds in the insolvent estate’s liquidation and distribution account, to be approved in due course by the Master, before the creditor can be paid out of the proceeds of that asset.

In other words, a process of court-driven oversight is required with respect to the allocation of proceeds from such a sale (regardless of whether the asset is movable or immovable).

In January 2024, the Supreme Court of Appeal handed down judgment on consideration of section 83(10) of the Insolvency Act.

Facts of the Case

• The appellant, Emontic Investments (Pty) Ltd (“Emontic”) is the owner of immovable property, a farm situated in Heidelberg where Montic Dairy Proprietary Limited (in liquidation) (“Montic”) conducted its business prior to its liquidation.
• In June 2016, Montic was placed in final liquidation. At the time of its liquidation Montic was indebted to Emontic in excess of R5,000,000.00 in respect of unpaid rental (“the historical rental claim“).
• In November 2016, 5 months after Montic was placed in liquidation its liquidators notified Emontic of the termination of the lease agreement effective from the end of November 2016.
• Emontic lodged and proved its claim, which was for the historical rental, but also for the post-liquidation rental amount owed to it by Montic from date of liquidation until termination of the lease (“the administration rental“), and as security for its claim it relied on the common law landlord’s lien over the movables which were situated on the farm.
• Prior to the second meeting of creditors Emontic notified Montic’s liquidators that it would be selling the movable property over which it held as security in accordance with the provisions of section 83 of the Insolvency Act.
• Pursuant to the sale of the movable property, Emontic refused to pay over the net proceeds received from the sale of the movable property despite demand. It paid some of the proceeds, but only after it had exercised set off of its claims against the proceeds.

Legal Issue

The court had to determine whether a creditor who had relied on and realised its security in terms of section 83(3) of the Insolvency Act could apply post-liquidation set-off against the net proceeds which are to be paid to the liquidator pursuant to the realisation of the security. Could they in effect retain the proceeds of the sale, even though they had valid claims and security for them?

Emontic’s Argument

1. Emontic argued that administrative rental ought to be classified as an expense incurred in the realisation of the property and must therefore be subtracted from the gross proceeds of the secured assets sold by it in determining the net proceeds.
2. Emontic further argued that it had the right to set off the administration rental from the net proceeds of the sale before making payment to the liquidators.

The Court’s Decision

The court was having none of it and held that:

the wording of s 83(10) was explicit and unambiguous and required payment to the liquidator “promptly“, and “whenever a creditor has realised his security“, and did not permit set off to operate against a liquidators claim for payment under that section (for any part of the claim in question).

1. the obligation imposed on a creditor under s83(10) to pay over the net proceeds of the realised asset and the obligation of the trustee to pay the creditor his preferent claim out of such proceeds are not reciprocal obligations.
2. Emontic’s argument of set-off was legally unsustainable as section 83(10) makes it clear that a creditor who has realised assets must promptly pay the net proceeds of the realisation to the liquidator and consequently does not permit set off to operate against a liquidator’s claim for payment of the net proceeds.
3. the claim of each creditor had to be dealt with as it existed at the issue of the order placing the company in liquidation.
4. common law set-off could not operate because the condition that both debts were payable by and to the same persons was absent – the administration rental had to be paid out of the free residue of the estate, whereas the historical rental had to be paid from the proceeds of the assets securing the claim.
5. the liquidators were obliged to recover the proceeds from the sale of the assets by Emontic, and it was legally impermissible for them to agree to Emontic retaining any portion of the proceeds of its realised security.
6. a creditor who refuses to pay over the net proceeds to the liquidator even after demand, shall be guilty of an offence.

Conclusion

The SCA has thus reaffirmed the position that once a concursus creditorum has been established no single creditor can enter into a transaction in respect of the estate to the prejudice of the general body of creditors.

A creditor who chooses to rely on, and realise its security is obliged to pay over all the net proceeds of the sale to the liquidator, who shall then account for the asset and the creditor’s claims. All claims and assets must be properly accounted for in a liquidation.

From the aforegoing it is apparent that the principal that a party, however secure their claim, cannot simply avail themselves of their due without a measure of appropriate oversight. The avoidance of any self help/parate executie behaviour is securely entrenched embedded in our insolvency law.

[1] [2024] ZASCA.

[2] Juglal  NO &  another  v Shoprite  Checkers  (Pty)  Ltd  t/a  OK  Franchise Division 2004 (5) SA 248 (SCA); SA Bank of Athens Ltd v Van Zyl 2005 (5) SA 93 (SCA)

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Interest stops running when the unpaid interest equals the amount of the outstanding capital claim. This principle is referred to as the in duplum rule.

The in duplum rule is founded on public policy considerations. In Paulsen and Another v Slip Knot Investments 777 (Pty) Limited [2015] ZACC 5 (“the Paulsen case”), the Constitutional Court stated ,

“the purpose of [in duplum] is to protect debtors from being crushed by the never-ending accumulation of interest on an outstanding debt“[1].

The Constitutional Court went further and highlighted the general economic status quo in South Africa which reflects an inequality of arms between debtors and creditors.

The in duplum rule is not, however a linear matter of restricting a creditor from claiming more on the debt than twice the capital.

Notably:

• interest pending litigation is treated separately to interest after judgment has been obtained
• the law views the legal (prescribed) rate of interest differently to contractual rates of interest, and as such, may treat in duplum differently.

In duplum pending litigation

The in duplum rule operates whilst legal proceedings are pending. In other words, up to the point of judgment, interest accrues until it reaches the cap.

This issue was explored in the Paulsen case where Madlanga J considered the interests of debtors and creditors in circumstances where a debtor litigated vexatiously with a view to hitting the cap on interest long before judgment could be reached, thereby precluding further recovery.

It was established in this matter that notwithstanding the complaint, interest is capped in accordance with the in duplum rule. It was suggested by the court that in such circumstances, a party with a claim could have recourse to reprieve under summary judgment proceedings, alternatively by means of punitive costs awards.

In duplum post-judgment

In terms of the common law, once judgment has been handed down, the original debt and interest awarded on that debt (capped at the value of the original debt) is at that point consolidated, and interest is accrued, post-judgment, on the new consolidated amount[2].

Therefore, the in duplum rule does not preclude a creditor from claiming more than double the original debt. In other words, the creditor can claim:

• the original debt
• interest accrued on the original debt both before and after the institution of legal proceedings up to the point of judgment; and
• interest accrued on the combined sum of the above two amounts until the judgment debt (plus this further interest on it) is settled in full.

A most recent example of the application of the in duplum rule as described above, is found in the SCA matter of MEC: Police, Roads and Transport Free State Provincial Government v Bovicon Consulting Engineers CC and Another[3].

In this case, an amount of R 1,171,774.83 was owed to Bovicon by the MEC. Bovicon instituted legal proceedings for this outstanding amount and the interest on 19 August 2014. Interest was claimed at the then legal rate of 15.5%.

On 12 September 2019, the interest became equal to the value of the original debt and the amount due to Bovicon was capped by the in duplum rule at R 2,343,549.66.

On 5 December 2019, judgment was handed down in favour of Bovicon and the MEC was ordered to pay the R1,171,774.83  plus interest (duly capped).

Seven months after the judgment was handed down, the MEC paid an amount of R 2,343,549.66 to Bovicon. Bovicon contended that it was entitled to further post-judgment interest in the amount of R 220 332.09.

The MEC, when challenging a writ for the recovery of this sum, was directed to make payment of the additional post judgment interest sum, together with further interest on the post judgment interest sum.

In duplum and the Prescribed Rate of Interest Act 55 of 1975 (“the Act”)

Where the interest on a debt is not specified by agreement or legislation, then it attracts mora interest under the Act. The in duplum rule does not necessarily apply to mora interest.

Acting Judge Kendall traversed the issue in Da Cruz[4]. Firstly having regard to the purpose of mora interest, he noted that mora interest has a compensatory element and “is awarded as compensation for loss of damage resulting from default” and in this regard differs from contractual interest.

Secondly, he pointed out that section 1(1) of the Act expressly provides that courts have a discretion to determine the applicable interest where special circumstances allow for such.

It is for these reasons that Acting Judge Kendall concluded that mora interest is distinguishable from contractual interest and on this basis, that mora interest may be precluded from the scope of application of the in duplum rule[5].

Whilst his finding in this regard does not going so far as to suggest that there is no cap on mora interest, it does leave the door open to a court, in the exercise of its discretion, allowing interest to accrue beyond the limitations of in duplum.

It is apparent therefore that the in duplum rule is not as straightforward as it might, at first glance, appear. It is, in fact most interesting.

[1] Paulsen and Another v Slip Knot Investments 777 (Pty) Limited [2015] ZACC 5

[2] Da Cruz v Bernardo [2022] 1 All SA 414 (GJ);

[3]  (278/2022) [2023] ZASCA 99 (14 June 2023)

[4] Ibid

[5] Paragraph 57.5 of his judgment

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The Critical Infrastructure Protection Act, 8 of 2019 (“CIPA“) and the National Infrastructure Plan (“NIP“), to be gazetted under the National Infrastructure Development Act, 23 of 2014, are two pieces of legislation that could be essential in the fight against, and the prevention of, construction site extortion syndicates, colloquially known as the ‘construction mafia’.

The Critical Infrastructure Protection Act

CIPA repeals the National Key Points Act, 102 of 1980 in its entirety and while not being fully operational as yet, the majority of its provisions came into effect on 30 April 2022 with the full act to be proclaimed law in due course.

Unlike its predecessor, CIPA does not merely focus on securing a select list of landmarks, but rather aims to secure sites, projects and developments in the interest of the economy, public safety and the continuous provision of basic public services.

In furtherance of its aims, CIPA falls within the purview of the Department of Police and not the Department of Defence and while the Minister of Police (the “Minister“) still has a discretion in declaring a site Critical Infrastructure (as defined in CIPA), CIPA makes provision for interested parties to apply to have a site declared Critical Infrastructure and a multi-disciplinary council (the “Critical Infrastructure Council“) to advise and make certain recommendations to the Minister.

CIPA categorically sets out the procedures, requirements and factors to be considered when declaring a site Critical Infrastructure.

The owner of the Critical Infrastructure, which in most instances would be the state, has the responsibility of ensuring that the necessary measures are in place to protect and secure the Critical Infrastructure, but the Police Commissioner can and should (in the event that the owner fails to secure the site) take this responsibility upon itself, at the cost of the owner.

The Minister published, for public comment, the Interim Critical Infrastructure Regulations on or about 22 April 2022 (“Interim Regulations“).

In terms of the Interim Regulations, the Minister, inter alia –

• establishes the Critical Infrastructure Council and sets out its functions and procedures; and
• establishes and sets out the functions of the Critical Infrastructure Protection Regulator, a body that is to ensure the maintenance of the administrative systems and procedures necessary for the implementation and enforcement of CIPA.

CIPA contemplates that the Critical Infrastructure Council should be made up of, inter alia, various delegates from the Justice, Crime Prevention and Security Cluster as well as the Department of Public Works.

Accordingly, considering all of the above and seeing that CIPA envisions a more transparent process for the identification and declaration of Critical Infrastructure and the fact that breaching the provisions of CIPA by, inter alia –

• hindering, obstructing or disobeying a person in control of a Critical Infrastructure in taking in relation to the security of any critical infrastructure;
• gaining access to critical infrastructure without the consent of the security manager or person in control of that Critical Infrastructure;
• damaging, endangering or disrupting Critical Infrastructure or threatening the safety or security at Critical Infrastructure or part thereof;
• threatening to damage Critical Infrastructure; or
• colluding with or assisting another person in the commission, performance or carrying out of an activity referred to above,

would result in an in offence punishable by a fine and/or imprisonment, it is possible for contractors and/or the state to apply to have a specific construction project or site declared Critical Infrastructure. If successful, the enforcement of CIPA and the regulations thereunder as highlighted above, could assist in staving off construction site extortion.

The National Infrastructure Plan

 On or about 21 October 2022, the Minister of Public Works, gazetted phase 2 of the Draft National Infrastructure Plan (“Draft NIP 2050 Phase 2“), for public comment by 9 December 2022. For the purposes of this article, we will discuss certain provisions in the section entitled “Cross-Cutting Support to the Infrastructure Plan – Crime and Corruption”.

In the Draft NIP 2050 Phase 2, it is submitted that the challenges posed by infrastructure-related crime in South Africa appears to be more severe than in other jurisdictions, therefore, the continued reassessment of risks and strategic responses becomes a necessity. Four types of infrastructure-related threats are identified, as follows –

1. “Crime affecting the provision of infrastructure, especially corruption in the procurement process and in the extortion of service providers”;
2. “Crime directed at infrastructure itself, especially theft of copper and steel”;
3. “theft of infrastructure services, such as non-payment of electricity or water”; and
4. “Crime directed at users of infrastructure”.

The fact that the interest and incentives of State-Owned Enterprises (“SOEs“) are not aligned with that of the public is highlighted as a factor that contributes to the high levels of infrastructure-related crime.

The Draft NIP 2050 Phase 2 stipulates that the cost of these crimes are borne by the public rather that the state as the owner of the infrastructure and because SOEs are not cost-minimising businesses, they tend to under-invest in the protection of their assets.

The Draft NIP 2050 Phase 2 also makes no secret of the fact that extortion usually occurs at the point of delivery and this could lead to delays, non-delivery of products and higher project costs.

The Draft NIP 2050 Phase 2 proposes, inter alia, that there must be a demonstrated capacity to successfully identify, arrest and prosecute offenders, and there must be integrity of internal controls in institutions that own or provide infrastructure to reduce corruption and complicity with criminality and infrastructure must be physically secured and protected from violence, vandalism and theft.

It is envisioned that by enforcement of the NIP, the aforegoing will be achieved as follows –

• state infrastructure entities will be held to account for having robust internal controls to reduce the opportunity for corruption and collusion between syndicates and rogue state representatives
• owners of infrastructure will be required to protect it from theft and destruction; and
• more technologically advanced strategies to protect infrastructure will be implemented.

Conclusion

There is clear synergy between CIPA and the NIP as ventilated by the Draft NIP 2050 Phase 2.

The ever-growing threat posed by construction site extortion syndicates will continue to negatively affect the economy and disturb public safety unless it is subdued with the appropriate countermeasures.

In this article, we highlighted how CIPA and the NIP, in their current form, could be used as the appropriate countermeasures, but like many other things, it will all depend on the resilience and strength of state institutions.

by Kyle Grootboom, Candidate Attorney

reviewed by Jennifer Smit, Director and Head of the Construction and Engineering Practice

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It has long been held, per Loomcraft Fabrics CC v Nedbank Ltd and another [1996] 1 All SA 51 (A) (the Loomcraft case), that a demand guarantee is akin to an irrevocable letter of credit, which establishes a contractual obligation on the part of the bank to pay the beneficiary on the occurrence of a specified event, and is wholly independent of the underlying contract in terms of which the guarantee is supplied by way of security.

It is also established law, that the only basis upon which a party may seek to interdict the payment of sums claimed on an on-demand guarantee, is that of fraud on the part of the beneficiary.

That position was recently further cemented in the case of Exxaro Coal Mpumalanga (Pty) Ltd v TDS Projects Construction and Newrak Mining JV (Pty) Ltd and Another (Case no 169/2021) [2022] ZASCA 76 (27 May 2022) which came before the Supreme Court of Appeals (SCA) for purposes of a ruling concerning whether strict compliance with the stipulations in an on-demand guarantee was required in order to succeed in securing an interdict against payment on a guarantee.

The appeal was brought by Exxaro Coal Mpumalanga (Pty) Ltd (Exxaro) against a judgment of the Gauteng Division of the High Court, Johannesburg (High Court) which had found that strict compliance with the terms of the guarantee by the guarantor bank was necessary, and as such TDS Projects Construction and Newrak Mining JV (Pty) Ltd (TDS Projects) sought and successfully obtained an interdict in the court a quo

The background is typical of a construction project:

In 2018, Exxaro and TDS Projects concluded a written agreement for the construction of the mechanical and electrical plant, civil, building, and engineering works for Exxaro (the contract).

In terms of the contract, TDS Projects was required to secure its obligations to Exxaro in the form of a performance guarantee in an amount of approximately R 32 million (guaranteed amount). The guarantee was issued by Absa Bank Limited (Absa) and was subject to the following terms:

• the guaranteed amount would be paid to Exxaro on receipt by Absa of a written demand stating that such an amount was due and payable;
• written demands would be signed by a person warranting that he/she was duly authorised to do so;
• the guarantee would expire on a specified date (expiry date) and any claim and statement would have to be received by Absa before the expiry date; and
• after the expiry date, the guarantee would lapse and any statement received thereafter would be ineffective.

On 10 June 2020, prior to the expiry date and after Exxaro terminated the contract due to alleged breaches by TDS, Exxaro sent a demand to Absa claiming payment of the guaranteed amount (first demand). Absa rejected the first demand on the basis that the sum was ‘deemed unfit for processing’. Exxaro sent another demand (second demand) claiming the reduced sum of approximately R 22 million.

Interdict application

TDS Projects then brought an interdict application in which it sought to interdict Exxaro from demanding, and Absa from paying any amounts under the guarantee, pending an order declaring the first and second demands (demands) invalid.

In support of its application TDS Projects alleged inter alia that:

1. the demands by Exxaro were fraudulent (the ground of fraud);
2. the demands did not comply with the terms of the guarantee (the technical grounds) as the demands:
   • were not signed by a person warranting that they had the authority to do so;
   • failed to state the amount claimed was due and payable; and
   • did not indicate the respects in which TDS Projects had breached the contract.

The court a quo did not deal with the allegations of fraud, as it was of the view that the non-compliance with the terms of the guarantee was dispositive of the matter.

On appeal, TDS abandoned the grounds of fraud and persisted with the technical grounds as constituting the basis for the grant of an interdict. In rejecting this and reaffirming the position that the guarantee, the SCA undertook a pragmatic interpretation of the demands. To support its approach the SCA relied on the Loomcraft case

The SCA considered the requirements to grant a final interdict and held that non-compliance with the terms of the guarantee by Exxaro in making its demands did not constitute a violation of any of TDS Project’s rights TDS would always retain its rights to proceed with a damages claim against ABSA should it so wish and as such had a satisfactory remedy available to it.

The SCA accordingly found that the court a quo had erred in granting the interdict in TDS Project’s favour and the appeal was upheld. The line of authorities confirming the autonomy of guarantees.

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