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Note: Edison Jehamo Power Proprietary Limited (Contractor) contracted with City Power Johannesburg (Principal) to perform work on transmission lines. Contractor subcontracted with Quanta International Limited (Subcontractor) for portions of the project. The subcontract provided that Subcontractor would advance money to Contractor to enable it to perform certain work under the main contract. Subsequently, Subcontractor delegated its obligations under the subcontract to All Teckline Contractors Incorporated (Assignee/Beneficiary). When Assignee/Beneficiary advanced ZAR 12,500,000 to Contractor/Applicant, Contractor/Applicant obtained a “payment guarantee” from Mutual and Federal Insurance Company Limited (Guarantor)in favor of Assignee/Beneficiary to secure the loan.

When Contractor/Applicant defaulted on the loan, Assignee/Beneficiary demanded payment from Guarantor, which dishonored. Assignee/Beneficiary then sued Guarantor for a money judgment for payment of ZAR 7,500,000 plus interest for wrongful dishonor. The High Court of South Africa, Gauteng Local Division, Johannesburg, Nkosi, AJ., ruled in favor of Assignee/Beneficiary.

Guarantor claimed that none of Assignee/Beneficiary’s demands for payment had been made in writing as required by the guarantee. Guarantor also claimed that Assignee/Beneficiary’s demand should have indicated that the amount was payable to Assignee/Beneficiary, as opposed to saying it was payable to “us”. The Judge ruled that the demands had been submitted on Assignee/Beneficiary’s letterhead, which included the company’s name, address, and registration number. Looking to the information included on the letterhead, the Judge opined that payment to “us” clearly referred to Assignee/Beneficiary.

Two third parties, Mr. Vathasallum Reddy (First Third Party) and Power Network Contractors (Pty) Ltd (Second Third Party)had issued indemnities and suretyships in favor of Guarantor. Guarantor joined their action in the event that Assignee/Beneficiary prevailed and Guarantor was required to pay. In addition to the “counter indemnity” First Third Party signed a deed of suretyship agreeing to “bind myself/ourselves, as surety/sureties for and co-principal debtor/s jointly and several with the [Contractor] to the [Guarantor].”

Both Third Parties claimed that they had not given the consent required for conditions in the subcontract, and that the subcontract was therefore not valid. Both Third Parties argued that Assignee/Beneficiary was aware they had not consented to the conditions and nevertheless drew on the guarantee, which they claimed was fraudulent. The Judge ruled that the obligation to pay was “wholly independent of the underlying contract”, and that Third Parties had no valid defense against Guarantor’s claims for indemnification.

[KEC]

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