Civil Engineering May 2022 | Vol 30 No 4

30 May 2022 Civil Engineering interest and costs, ordered that the name of the Employer recorded in an on-demand variable construction performance guarantee (the “Guarantee”) be rectified to correctly record the name of the Plaintiff. The Guarantee had incorrectly described “the Employer” (and beneficiary of the Guarantee) as “Clarion Investments (Pty) Limited”, omitting the “49” from the name of the Employer, “Clarion Investments 49 (Pty) Limited”. The Guarantor refused to make payment pursuant to a demand made by the Employer on the Guarantee on the basis that the de- mand was not in compliance with the terms of the Guarantee. The Employer accordingly instituted provisional sentence proceed- ings against the Guarantor for payment in terms of the Guarantee and for an order that the Guarantee be read, alternatively rectified, to correctly record the employer as “Clarion Investments 49 (Pty) Limited”. The provisional sentence procedure allows a plaintiff with a liquid document constituting prima facie proof of indebtedness to obtain a speedy judgment with a view to avoiding a lengthy trial procedure. The Guarantor argued that the Employer’s demand for payment in terms of the Guarantee was not in strict compli- ance with the terms of the Guarantee, as the demand had not been made by “the Beneficiary” (the Employer) described in the Guarantee, and that the certificate of practical completion (enclosed with the demand) contained the same mistake in re- lation to the description of “the Employer”. On this basis, the Guarantor contended that there was no obligation on it to make payment in terms of the Guarantee. The Employer argued that the error in the Guarantee was the result of a bona fide mutual mistake, and that it had always been the common continuing intention of all the parties that the Guarantee was to be issued in favour of “the Employer”, as recorded in the underlying construction contract and in fulfilment of the contractor’s obligations in terms of the underlying contract to provide security to the Employer. The Employer accordingly contended that the Guarantee should be read in accordance with this intention, and alter- natively and to the extent necessary, be rectified to reflect such common mutual intention as at the time that Guarantee was issued. The Guarantor denied that it had erred in its recording of the definition of “the Employer” and contended that the Employer’s prayer for rectification of the Guarantee was not a competent remedy to be sought by way of the provisional sentence procedure, as the Employer was required to resort to extrinsic evidence to prove its case. The court disagreed with the Guarantor’s arguments. The court held that an order for rectification was compe- tent in terms of the provisional sentence procedure in the circumstances, and that on the evidence (regard being had to the allegations made in the provisional sentence summons, read together with the underlying construction agreement): “The common continuing intention of the plaintiff, the beneficiary under the guarantee that procured the guarantee, and the defendant, that gave the guarantee, was quite obviously that the guarantee should be issued in favour of whomever was the employer in terms of the building contract, not who was defined as the employer, but who was in fact the employer. To my mind that suffices for purposes of rectification”. The court found that, “the only conclu- sion is that the plaintiff’s description in the construction guarantee is incorrectly recorded, as a result of the error bona fide pleaded in the provisional sentence summons, and should be read accordingly, alternatively, rectified”. The court accord- ingly ordered that the Guarantee be recti- fied to read “Clarion Investments 49 (Pty) Limited” and that provisional sentence be granted against the Guarantor for payment in the amount of R3 701 112.59, together with interest and costs. COMMENT AND ANALYSIS The judgment bears on what is known as the “strict compliance” defence and whether this defence, in relation to on-demand guarantees, is part of South African law. The South African courts have gener- ally steered away from deciding whether strict compliance with the terms of the guarantee is required in order for a demand to be considered compliant. The courts have instead addressed the compli- ance aspect as a matter of interpretation, in each case, with reference to the specific terms of the guarantee in question. The court, in this judgment, takes this aspect further, remarking that: “ Construction guarantees play an important role. They are intended to facilitate important aspects of the relationship between Employer and Contractor. The Contractor agrees to provide a guarantee to enable the Employer to complete the works in the event of the Contractor’s default. Obvious errors and trivialities should not be elevated to points of substance . A Plaintiff, armed with what is prima facie a liquid document, is entitled to the long-established expeditious remedy of provisional sentence. The only basis upon which the bank can escape liability is proof of fraud on the part of the benefi- ciary…. ” (authors’ emphasis added) Importantly, the court imported, in the context of on-demand guarantees, the long-standing principle in South African law that, “the law does not concern itself with trivialities” in stating that, “Obvious errors and trivialities should not be elevated to points of substance”. The decision of the court, while not a decision of an appeal court, is of significance in that it questions yet again whether the doctrine of strict compliance has any place in South African law. At the very least, the judgment serves to limit the scope of application of the “doctrine of strict compliance”.  The first three topics in the booklet are outlined in the January/February (Vol.30, No.1), March (Vol.30, No.2), and April (Vol.30, No.3) issues of Civil Engineering respectively. The remaining topic will be published in a future issue of Civil Engineering . To access the full publication visit https:// www.ensafrica.com/uploads/newsarticles/0_ ensafrica%20insurance%20newsletter%20final.pdf . The court found that, “the only conclusion is that the plaintiff’s description in the construction guarantee is incorrectly recorded, as a result of the error bona fide pleaded in the provisional sentence summons, and should be read accordingly, alternatively, rectified”.