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To assure payment, Seller/Beneficiary required a guarantee and provided the terms of the guarantee based on a standard company template, which stated, “Payment shall be made under this guarantee upon receipt by the Guarantor, at the above stated address, of the Beneficiary’s first written demand”. The only address stated above the clause was Seller/Beneficiary’s own place of business. Lombard Insurance Company Ltd (Guarantor) issued a guarantee in the amount of ZAR 60,500,000 in favor of Seller/Beneficiary.

Separately, Buyer/Applicant provided Guarantor with a Counter Indemnity, providing that Buyer/Applicant would reimburse, on demand, any sum that Guarantor may have been called upon to pay under the guarantee, “whether or not [Buyer/Applicant] admitted the validity of such claims against the [Guarantor]”. Apparently, Surety made an undertaking with Guarantor to be liable for Buyer/Applicant’s obligations under the Counter Indemnity, although the case does not explain its detail.

When Buyer/Applicant failed to pay for an oil purchase, Seller/Beneficiary drew on the guarantee. However, Seller/Beneficiary sent its demands to Guarantor’s business address, where they were received and honored by Guarantor shortly thereafter.

Guarantor, in turn, demanded reimbursement from Buyer/Applicant under the Counter Indemnity. When Buyer/Applicant failed to pay, Guarantor sued Surety for reimbursement of payments made to Seller/Beneficiary. The High Court of South Africa, Gauteng Local Division, Johannesburg, Maier-Frawley, J., ruled in favor of Guarantor, ordering Surety to reimburse Guarantor for amounts paid to Seller/Beneficiary under the guarantee.

Surety argued that Seller/Beneficiary’s demands on Guarantor were “not in compliance with the terms of the guarantee solely by reason of the fact that the demands were received by the [Guarantor] at its . . . business address”. Surety argued thatGuarantor wrongfully honored the demands and therefore Buyer/Applicant had no legal liability to reimburse Guarantor.

The Judge ruled that Seller/Beneficiarymade “sufficient compliance with the terms of [the guarantee]”, despite not following the precise terms of the guaranteerequiring thatpresentation be made at Seller/Beneficiary’s place of business.The Judge reasoned that the purpose of a presentation is to inform the recipient that payment is being demanded. In this case, the Guarantor received the presentation, and the place it was received did not impact the rights or interests of the parties involved. The Judge found it significant that the guarantee was issued usingSeller/Beneficiary’s standard company text, i.e. Buyer/Applicant did not negotiate the terms for presentationor any other terms of the guarantee.This failure to negotiate indicated to the Judge that receipt of presentation was the essential requirement and “Once [presentation] is in fact received, where and even how it was received holds little if any significance ‘in the grand scheme of things’”.

Comment:The address requirement clearly represents a mistake resulting from the use of a standard form without carefully proof-reading the text. It makes no sense for the Beneficiary to present a demand on a guarantee to itself.

[EHM]

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