*|MC:SUBJECT|*

CAASA NEWSLETTER OCTOBER 2025

The motivation behind this monthly newsletter is to provide better and more frequent communication to CAASA members, and to solicit suggestions and responses to the contents. We need input from you to ensure that the content of this newsletter, our webinars and annual conference remain both topical and relevant.

Any comments, suggestions or proposals please forward to secretary@adjudicators.co.za

CONTENTS:
Development Bank of Southern Africa v Fusion Guarantees (Pty) Ltd and Reity Trading Enterprises CC
CAASA Annual Conference

DEVELOPMENT BANK OF SOUTHERN AFRICA V FUSION GUARANTEES (PTY) LTD AND REITY TRADING ENTERPRISES CC

The Development Bank (DBSA) instituted legal proceedings against Fusion Guarantee as the 1st Defendant for the amount of R 3,370,640.74 based on a performance guarantee issued by Fusion on behalf of Reity, the 2nd Defendant.

DBSA had awarded a contract to Reity in joint venture with Phumi HD Construction CC for alterations and additions at the New Waban Senior Secondary School in the Eastern Cape.

The conditions of contract were the JBCC Series 2000 Principal Building Agreement Edition 4.1 which required the contractor to provide a variable or fixed construction guarantee in accordance with Clause 14 of the Contract. The fixed guarantee was issued by the 1st Defendant.

The contractor struggled to carry out and complete the works, and, despite the completion date being extended, failed to meet the extended date. As a result DBSA elected to terminate the contract, issue a new tender and appoint a new contractor. DBSA exercised its rights under the guarantee and called on Fusion to pay the guaranteed amount. Fusion refused to pay, claiming it had never issued the guarantee to Reity and therefore had no liability towards DBSA.

At trial the Principal Agent testified that initially he had difficulty obtaining the guarantee from Reity. When he did receive the guarantee he noted it had an expiry date. He engaged directly with Fusion to remove the expiry date. He then received a copy of the amended guarantee directly from Fusion and passed this on to DBSA.
DBSA’s legal advisor testified that Reity had handed him a copy of the guarantee but he had never had sight of the original.

The general manager of Fusion did not dispute that there were discussions between Reity and Fusion on the provision of a guarantee. She confirmed that the guarantee was issued, signed and embossed but thinks it may have been retained by Fusion because the contractor had not paid the full premium or fulfilled the suspensive conditions . She was not aware that the original guarantee was never handed over, or who had subsequently cancelled the guarantee (the original had a “cancelled” stamp), or even when it was cancelled and why.

The court had to consider 2 issues:

Whether the guarantee was issued at all; and
Whether DBSA can rely on a guarantee, the original of which was never issued.

Fusion’s position was that in order for a beneficiary to receive rights and obligations under a guarantee the original document must be in the possession of the beneficiary. Absent possession the beneficiary has no rights.

The Judge disagreed with Fusion’s argument. It was common cause that the document in DBSA’s possession was a copy of the original. The document itself, the signatures, Fusion’s emblem and the embossment were not in dispute.

The Judge went on to state “the techniques generally used by the courts in resolving factual disputes of this nature are as set out by the SAC in Stellenbosch Farmers Winery Group Limited and Another v Martell et Cie and Others. The Court must make a finding on (a) the credibility of the factual witnesses, (b) their reliability and (c) the probabilities, and finally, in the light of (a), (b) and (c) whether the applicant has succeeded in discharging his onus”.

DBSA pointed out the following facts: although a copy there is no dispute that it was signed, stamped and embossed on the same day the contractor paid the premium. Fusion signed the guarantee, emailed a copy to the contractor who then forwarded the copy to DBSA. The guarantee did not have “cancelled” stamped on it. Furthermore Fusion’s general manager does not know who cancelled the guarantee, or when it was cancelled or why it was cancelled. Therefore there is no evidence that the guarantee was cancelled after it was emailed.

It was highly probable that the contractor never collected the original guarantee since the site was handed over and payments made based on the copy in DBSA’s possession.

Fusion argued that the wording of the guarantee clearly states ”Please note that a claim under this guarantee will only be honored on submission of the original guarantee document which bears the Fusion embossed seal.” It did not issue the original guarantee and as such no agreement between Fusion and DBSA was established.

The Judge was of the opinion that the probabilities suggested that Fusion issued the guarantee. The contractor was fully aware that the delivery of the guarantee was a material and essential requirement of the agreement. The indisputable evidence placed in front of the court was that the contractor approached Fusion to secure the guarantee and paid the premium on 11 July 2014. Fusion prepared the guarantee on the same day and it was duly signed. On the same day a copy was sent to the contractor and DBSA.

In the Judge’s mind the question of whether the guarantee was the original or a copy has no bearing. Fusion knew that it had handed the contractor a copy and kept the original for reasons it could only know. Fusion cannot issue the guarantee, keep the original and then insist that DBSA provide the original when claiming.

Fusion cannot rely on its submission that the contractor did not fulfill the suspensive conditions. Fusion prepared the guarantee and provided a copy to the contractor. Had the suspensive conditions not been fulfilled it would never have issued the guarantee.

In light of all the above it was the judge’s finding that Fusion issued the guarantee and that the copy of the guarantee is deemed to be the original guarantee.

A further complication was that DBSA only made the call on the guarantee after the termination of the contract and the completion of the works by the new contractor. DBSA averred that Clause 33.0 of the JBCC PBA [Recovery of Expense and Loss] does not limit its ability to call on the guarantee only while the contract was still in existence.

The wording of the guarantee in Clause 2 recorded “The Guarantor………undertakes to pay the Employer the amount guaranteed, during the period when the claim was received by the Guarantor, on receipt of a written demand from the Employer, or his designated official , to do so and which demand the Employer, or his designated official, may make if the Employer has the right of recovery against the contractor in terms of Clause 3.0 of the contract.”

In applying the principles of interpretation the judge found that the only sensible interpretation was that Fusion was liable to DBSA for the guaranteed amount, in accordance with the payment certificate issued by the principal agent under Clause 33.0

Some considerations

Guarantees are important security instruments and must be treated as such.
It is important to check the wording of the guarantee to ensure that it complies with the pro forma in the tender enquiry.
Make note of any expiry dates and make sure the guarantee is extended prior to the expiry date.
Ensure that it is formally delivered to the Employer/Engineer by way of a signed receipt. Find out where it will be held and by who when it comes to applying for the return of the guarantee.
At Medupi Power Station Eskom misplaced a number of guarantees resulting in contractors having to continue to pay premiums long after the Performance Certificate was issued.

CAASA ANNUAL CONFERENCE 2025

Please remember the 13th November as the date for our annual conference. It will be held in the afternoon at the Houghton Golf Club. While attendance will be both in person and virtual we encourage members to attend on the day.

Discussion topics include

A Comparative Overview of Adjudication Frameworks Internationally and Africa Wide, Dispute Avoidance in the Context of Adjudication,
Interim Binding vs Final Decisions, and
Digital Transformation in Construction Disputes.