03 Sep Just what the High Court prescribed
– A party may call up a Guarantee in instances where more than three years had passed since the date of the underlying contractual breach
On 26 June 2019, the Pretoria High Court handed down a judgment in a matter in which the Court had to determine whether a party may call up a demand guarantee in instances where the underlying contractual basis for the guarantee may have prescribed.
Investec Bank Ltd (Investec) had entered into an agreement in terms of which it sold immovable property to Esor Uitvlugt (Pty) Ltd (Esor). This agreement required Esor to improve the property by installing internal services with a cumulative value of R20,000,000 by certain dates (Obligation). As a precondition to the agreement, and in order to secure Esor’s performance, the agreement required that Esor provide a demand guarantee in favour of Investec for the due and proper performance of the Obligation.
Esor subsequently approached Lombard Insurance Company Ltd (Lombard) who issued a performance guarantee in favour of Investec (Guarantee). The Guarantee provided that Lombard undertook to pay Investec the guaranteed sum upon receiving written notice from Investec that Esor had defaulted in performing its Obligation.
As at 14 August 2018, Esor had not performed its Obligation and it was at this point that Investec made its demand in terms of the Guarantee for payment of the guaranteed amount from Lombard. This date was more than 3 years after a portion of the Obligation, thus the trigger event for calling up the Guarantee, was to be performed by Esor.
Lombard’s Counsel argued, amongst other things, that Investec’s right to call up a portion of the guaranteed sum had prescribed due to the lapsing of three years since Esor’s default in performing the Obligation as contained in the underlying agreement.