Court name
Supreme Court
Case name
Standard Bank of South Africa Ltd v Council of the Municipality of Windhoek
Media neutral citation
[1970] NASC 24
Judge
Maritz JA










IN
THE SUPREME COURT OF NAMIBIA


CASE
NO: SA 11/2006


DATE:
26 OCTOBER 2015


REPORTABLE


In
the matter between:


STANDARD
BANK OF SOUTH AFRICA
LTD
....................................................................Appellant


And


COUNCIL
OF THE MUNICIPALITY OF
WINDHOEK
.................................................Respondent


Coram:
MARITZ JA, STRYDOM AJA and DAMASEB AJA


Heard:
18 October 2006


Delivered:
26 October 2015


APPEAL
JUDGMENT


MARITZ
JA (STRYDOM AJA and DAMASEB AJA concurring):


[1]
The appellant, Standard Bank of SA Ltd (the Bank), issued a
'Retention Money Guarantee' on 19 December 2002 to the respondent,
the City of Windhoek (the City), for the payment of up to N$3 015
869. The guarantee, according to its terms, was payable upon the
City's first written demand and declaration that DB Thermal (Pty) Ltd
(Thermal) had failed to rectify defects in terms of a contract
concluded between the City and Consortium Stocks Structures (Pty) Ltd
(Stocks) on 15 October 1999 for the construction of the Goreangab
Water Reclamation Plant under Contract No CW 025/97. The City
accepted the guarantee on the terms issued but, when it demanded
payment thereunder on 12 July 2004, the Bank refused to pay the
guaranteed amount or any part thereof.


[2]
Aggrieved by the Bank's refusal, the City
claimed payment of the guaranteed amount, interest and costs from the
Bank in proceedings brought on notice of motion in the High Court.
The Bank opposed the application on a number of grounds: that the
City failed to establish a case for the relief claimed in the
founding papers; that the City's demand for payment did not conform
with or fulfil the requirements or conditions of the guarantee; that
the guarantee did not correctly reflect the common intention of the
parties and stood to be rectified, alternatively, that it was void
and of no effect as a result of a
bona
fide
unilateral mistake by the Bank.
The Bank, therefore, lodged a counter-application in which it sought
rectification of the guarantee; and a declarator to the effect that
the guarantee was void and costs. At the hearing of the main and
counter-applications, the Bank also sought condonation for the late
filing of a supplementary affidavit and an order referring material
factual issues apparent from the affidavits to trial, alternatively,
for cross-examination of certain deponents on those issues.


[3]
The High Court (per Mainga J) did not refer
the issues raised in the application to trial or cross-examination;
dismissed the counter-application; refused condonation for the late
filing of the supplementary affidavit and ordered the Bank to pay the
amount of N$3 015 869 as well as
mora
interest at a rate of 20% per annum from 12 July 2004 to date of
payment and costs to the City, such costs to include the costs
consequent upon the employment of two instructed counsel, the costs
of the counter-application and that of the application for
condonation. This order is the subject matter of the appeal.


[4]
The main issue on appeal is - as it was in
the court below - whether the City is in law entitled to payment by
the Bank of the retention money guarantee issued on 19 December 2002.
Mr Botes, appearing for the Bank, contends, on essentially the same
grounds as those advanced in the court below, that it was not. Dr
Henning SC (assisted by Mr Heathcote), seeking to support the order
of the High Court on behalf of the City, forcefully argued that the
Bank was obliged to honour the guarantee upon receipt of the City's
demand and declaration. Before I turn to the conflicting contentions
advanced by counsel, it is necessary to summarise the broader factual
context within which the issues must be determined. I shall also
expound on the summary of facts when dealing with specific matters
later in the judgement.


[5]
The City, desirous to extend its capacity
to reclaim water, called for tenders to construct, as a turnkey
project, a water purification plant at Goreangab near Windhoek
capable of delivering 21 000 m³ water of a defined quality per
day. Thermal and Stocks were interested in the tender and, to that
end, concluded a consortium agreement on 12 October 1998. In terms
thereof, they agreed to prepare and submit a tender for the supply of
all equipment, labour and materials for the design, manufacture and
proposed construction of the Water Reclamation Plant as contemplated
in the tender documents. They also agreed to participate in all the
rights and obligations arising out of or in connection with the
consortium agreement but recorded that their respective participation
would be several and that all profit and loss, provision of plant,
personnel and equipment, provision of funds and liabilities of any
kind would have to be directly related to works attributable to each
of them. It was further agreed that Thermal would be the designated
leader of the consortium.


[6]
The tender, submitted on 26 November 1998
by the executive director of Thermal, referred to and included the
consortium agreement. The tender was formally accepted on behalf of
the City and, in a letter addressed to Thermal on 10 May 1999, it was
required to sign the contract agreement and return it to the City
within 28 days. The letter of agreement subsequently signed, records
that the agreement was one between the City and Thermal, leader of
the consortium. The letter also incorporates, amongst others, the
tender, the letter of acceptance and the conditions and special
conditions of contract in the agreement. It is of some relevance to
the contentions advanced by counsel that the general conditions of
contract defines the 'contractor' referred to in the contract as 'the
person whose Tender has been accepted by the Employer . . . .' Given
the provisions of the consortium agreement earlier referred to as
regards the severability of rights, duties and obligations between
the parties to that agreement, it is only appropriate at this point
to draw attention to clause 1.14 of the general conditions of
contract. The sub-clause provides that 'if the contractor is a
joint-venture (or consortium) of two or more persons, all such
persons shall be jointly and severally liable to the employer for the
fulfilment of the terms of the contract'. It further provides that
'such persons shall designate one of them to act as leader with
authority to bind the joint-venture (or consortium) and each of its
members'.


[7]
The City avers that, although it was
entitled to retain 10% of the contract price during the retention
period, it nevertheless paid the full contract price to Thermal. It
claims to have done so in terms of the oral agreement concluded
between representatives of the City and Thermal at the end of October
2002. In terms of that agreement Thermal, in turn, had to furnish the
City with a retention guarantee equivalent to 10% of the contract
price. Inasmuch as the Bank was not privy to the oral agreement, it
did not take issue with the allegation. Its counsel submitted during
argument that the retention money was in any event payable to Thermal
in terms of clause 13.4.1 (g) of the special conditions of contract
'against a bank guarantee' after final acceptance of the
construction. Whatever the underlying cause for the issuing thereof
may be, it is common cause that the Bank furnished the City with two
retention money guarantees, the sum of which was equivalent to 10% of
the contract amount paid over by the City as retention monies to
Thermal. The first guarantee, stated according to its terms to be for
10% of Thermal's 'portion in terms of the consortium agreement' (ie
N$6 203 231), was issued on 13 December 2002 by the Bank to the City
on the instructions of Thermal.  The essential terms of that
guarantee were drafted and communicated by Thermal to the Bank as an
annexure to a telefax dated 20 November 2002. The second guarantee,
dated 19 December 2002, was issued by the Bank at the behest of
Stocks. It was for N$3 015 869, stated to be 10% of Stocks’
'portion in terms of the consortium agreement'.


[8]
By and large the second guarantee is
formulated exactly the same as the first one, that is, except for
certain deliberate changes brought about by the Bank on the express
written instructions of (or on behalf of) Stocks. What happened,
according to the Bank, is that Stocks effected a number of
handwritten changes on a copy of the Thermal guarantee to capture
what the bank considered to be its guarantee obligations to the City
for the repayment of its portion of the retention money. The amended
draft was telefaxed on its behalf by WBHO Construction Cape (a
division of Stocks' holding company, WBHO Construction (Pty) Ltd)
with an express instruction that the Bank should issue a retention
guarantee to the City 'as per the attached draft'. One of a number of
important changes to Thermal's guarantee that the Bank was instructed
to effect for purposes of Stocks' guarantee related to the contents
of the written declaration that the City would be required to make
upon its demand for payment. The guarantee issued at the behest of
Thermal required that the City's demand be supported by a declaration
by the City to the effect that 'DB Thermal (Pty) Ltd has failed to
rectify defects in terms of the aforementioned contract.' Stocks'
mandate to the Bank (as reflected in the handwritten amendments of
Thermal's guarantee) required that the name 'Stocks Structures (Pty)
Ltd' be substituted for that of 'DB Thermal' in the quoted phrase. An
employee of the Bank, who was charged to execute the mandate of
Stocks, utilised an electronic version of the Thermal guarantee,
which had been saved on the Bank's computer system, to produce the
guarantee sought to be issued for and on behalf of Stocks. The
employee implemented all the amendments contained in Stocks' draft
except the one that I have mentioned.


[9]
The Bank avers that it was the common
continuing intention of the parties that the guarantee in question
should have been one which provides for payment to be made in the
event that Stocks fails to rectify defects in terms of the contract;
that it should have been obvious to the City on receipt of the
guarantee that it contained an error and that the guarantee must be
rectified to reflect the true intention of the parties. In the
alternative, it claims that the guarantee was issued in that form
because of a mistake on the part of the Bank and that the latter
should accordingly be entitled to avoid that provision of the
guarantee on the grounds of a unilateral mistake. Stocks brought the
error to the Bank's attention during June 2004. As a result, the Bank
addressed a letter to the City on 24 June 2004 in which it stated
that it had amended the Stocks guarantee to record that it would be
payable upon the City's declaration that Stocks, and not Thermal, had
failed to rectify the defects. The City strongly protested the
purported amendment through its lawyers. Given the protest, the Bank
accepted that it was not unilaterally entitled to amend the
guarantee. Shortly thereafter, on 12 July 2004, the City demanded
payment of the guarantee (as well as payment of the one issued at the
behest of Thermal). The demand was accompanied by a written
declaration that Thermal had failed to rectify defects in terms of
the contract; that the claims of the City arising from that failure
constituted an amount of N$11 598 945, exceeding the total of the two
guarantees and calling upon the Bank to make payment in the sum of
N$9 219 100, being the aggregate of the two guarantees issued by it
on behalf of Thermal and Stocks respectively. The Bank honoured the
guarantee of N$6 203 231 issued on the instructions of Thermal but
refused payment of the demand based on the guarantee issued to the
City on the behalf of Stocks.


[10]
I pause here to point out that the
exposition of events as set out above has drawn on allegations of
fact apparent from the affidavits filed by or on behalf of the
parties. It must be apparent that these events created multiple
contractual and other legal relationships between persons or
individuals to which only some - and not others - were privy to. This
should be borne in mind when examining the conduct and decisions of
parties at the time. The City, for example, was a stranger to the
contractual relationships between the Bank and its clients; the terms
of the mandate that they had given to the Bank; the circumstances
that had given rise to the formulation of the two guarantees and the
eventual issuing thereof in their stated terms. The Bank, on the
other hand, was not privy to the consortium agreement between Stocks
and Thermal or to the agreement(s) between Thermal and the City or
Stocks and the City. Hence, it could not answer to the allegations as
regards the conclusion, terms and conditions or execution thereof. In
the normal course of its business, the Bank does not involve itself
in the execution of contracts concluded by its clients with third
parties. Its duty was to issue the guarantees in question in
accordance with its mandate and to honour the terms of the agreements
which had come into existence between it and the City by virtue of
the latter's acceptance of the guarantees.


[11]
The Bank honoured the guarantee that it had
issued at the behest of Thermal upon presentation by the City. What
remains is to ascertain whether, given the rights and obligations of
the respective parties created by the guarantee issued on the
instructions of Stocks, the City was also entitled to the payment
thereof. In the determination of those rights and obligations it will
be necessary to consider the terms of the guarantee, the legal
character thereof, the legal principles applying to guarantees of
that nature and the factual matrix within which it was given as
summarised above, due regard being had to the considerations of
privity.


[12]
The most salient provisions of the
guarantee read as follows:


'Our
Retention Money Guarantee Number 212199205G108108


1.
On 10.15.1999 you concluded with Consortium
Stocks Structures (Pty) Ltd (contractor) a contract number CW 025/97
for new Goreangab Water Reclamation Plant at a total price of
N$92,191,004.00 . . . Stocks Structures (Pty) Ltd portion in terms of
the consortium agreement amounts to $30,158,699.00 . . . .


2.
. . . .


3.
According to the provisions of the contract
the contractor is obliged to provide a retention guarantee in the
order of 10% of the contract price being N$3,015,869 . . . .


4.
We, the undersigned, Standard Corporate and
Merchant Bank, a division of the Standard Bank of South Africa Ltd,
waiving all objections and defences under the aforementioned
contract, hereby irrevocably and independently guarantee to pay on
your first written demand any amount up to a total of $3,015,869 . .
. against your written declaration that DB Thermal (Pty) Ltd has
failed to rectify defects in terms of the aforementioned contract.


5-7.
. . .


8.
No variations to the terms and/or conditions on this guarantee are
permitted without prior written agreement of all the contracting
parties who are legally bound thereby.


9.
This guaranteed conforms to the International Chamber of Commerce
Uniform Rules for Demand Guarantees number 458.


10-11. 
. . . .


Signed
. . . etc.'


(I
have added paragraph numbers to the text for reference purposes.)


[13]
Although
labelled a 'retention money guarantee', it is important that the
guarantee's substance and legal character must be ascertained from
its formulation, purpose, effect and application. The exigencies and
necessities of commerce, especially the need for risk aversion (by
transferring the risks associated with non-performance from an
unsecured person to a more reliable 'paymaster'[1])
and the commercial demand to secure prompt and full payment for
goods, services or credit (by creating an independent, primary
obligation to pay when the conditions for payment prescribed in the
instrument are satisfied) have forged a number of different,
innovative solutions and commercial instruments in recent times,
especially in the area of bank guarantees. Thus, a wide range of
different bank guarantees, each of a unique legal character and
fitting a particular commercial niche, are being used on a daily
basis. The question is: How is the guarantee at bar to be classified
and what is the legal character of guarantees falling within that
category?


[14]
It
is evident from the provisions of para 9 of the Stocks guarantee that
it is part of a broader genus of guarantees, classified as 'demand
guarantees'[2] as contemplated
in the ICC's Uniform Rules for Demand Guarantees No 458.  That
it should be so classified is also apparent from the provisions of
para 4 defining the nature of the demand – and so too, the
guarantee's irrevocability and autonomy – a characteristic
shared with guarantees falling within this category.


[15]
So
classified, the Stocks guarantee falls to be distinguished from
conventional bank guarantees such as sureties, where the liability of
the guarantor is ancillary to that of the principal, who remains
primarily liable to the creditor. By contrast, it is a fundamental
characteristic of demand guarantees that they are enforceable on
their own terms, independently from the rights and obligations
created by the underlying contract. This characteristic makes demand
guarantees desirable legal instruments of security in a number of
different commercial areas (such as
tender
guarantees, performance guarantees, retention guarantees, advance
payment guarantees and maintenance guarantees - to name a few),
particularly in contracts awarded by institutions and, often, in the
area of cross-border trade.[3]
It
is therefore important to understand that this judgment focuses on
demand guarantees generally and, in particular, the guarantee issued
by the Bank. It must not be construed to apply to other types of bank
guarantees.


[16]
Although
sweeping categorisations by label must be avoided and the legal
character of each guarantee must be ascertained with reference to its
terms, purpose, effect and application, the different types of demand
guarantee share many common attributes. They all contemplate payment
of an obligation by the guarantor upon demand made by the
beneficiary. As such, they are 'readily, promptly and assuredly
realisable' and accord the beneficiary 'a means of immediate
compensation without the need to go through arbitration, negotiation
or litigation',[4] not unlike
the position as regards documentary letters of credit. It is widely
recognised in international case law that, except for certain nuanced
differences[5], instruments of
this nature (most often in the form of performance guarantees) are
similar in effect to letters of credit and, importantly for purposes
of the discussion that follows, are founded on essentially the same
legal principles. Those principles, fundamental to the law relating
to letters of credit are twofold: (i) the autonomy of the credit and
(ii) the doctrine of strict performance.[6]


[17]
Dr
Henning forcefully emphasised the importance and application of the
autonomy-principle to the Stocks guarantee with reference to
quotations from a number of South African cases, such as
Phillips
& another v Standard Bank of South Africa Ltd & others
,[7]
Ex
parte Sapan Trading (Pty) Ltd
[8]
and, in particular,
Loomcraft
Fabrics CC v Nedbank Ltd & another
.[9]
An exposition of this principle is also given in
Lombard
Insurance Co Ltd v Landmark Holdings (Pty) Ltd & others
,[10]
where the South African Supreme Court of Appeal said the following:


'The
guarantee by Lombard is not unlike irrevocable letters of credit
issued by banks and used in international trade, the essential
feature of which is the establishment of a contractual obligation on
the part of a bank to pay the beneficiary (seller). This obligation
is wholly independent of the underlying contract of sale and assures
the seller of payment of the purchase price before he or she parts
with the goods being sold. Whatever disputes may subsequently arise
between buyer and seller is of no moment insofar as the bank's
obligation is concerned. The bank's liability to the seller is to
honour the credit. The bank undertakes to pay provided only that the
conditions specified in the credit are met. The only basis upon which
the bank can escape liability is proof of fraud on the part of the
beneficiary. This exception falls within a narrow compass and applies
where the seller, for the purpose of drawing on the credit,
fraudulently presents to the bank documents that to the seller's
knowledge misrepresent the material facts.'


[18]
Some
of these authorities refer to and rely on excerpts from the opinions
of Lord Denning M R on the autonomy of these instruments in
Edward
Owen Engineering Ltd v Barclays Bank International Ltd
[11]
and
Power
Curber International Ltd v National Bank of Kuwait SAK.
[12]
In the
Edward
Owen

case, he said of performance bonds (labelled 'performance guarantees'
in this jurisdiction) the following:


'All
this leads to the conclusion that the performance guarantee stands on
a similar footing to a letter of credit. A bank which gives a
performance guarantee must honour that guarantee according to its
terms. It is not concerned in the least with the relations between
the supplier and the customer; nor with the question whether the
supplier has performed his contracted obligation or not; nor with the
question whether the supplier is in default or not. The bank must pay
according to its guarantee, on demand if so stipulated, without proof
or conditions. The only exception is when there is a clear fraud of
which the bank has notice.'


[19]
I
did not understand Mr Botes to cavil with the importance or
application of this principle to the guarantee in question. His
argument is based on the application of the second principle
underpinning these instruments, ie the doctrine of strict
performance. The principle, as applied to letters of credit, entitles
the bank to reject documents which, upon reasonably careful
examination, do not strictly conform with the terms of the credit or
do not contain all the particulars specified in the credit.[13]
Inasmuch as the performance-requirement in letters of credit requires
the production of documents conforming with the terms of the credit
and the payment obligation of demand guarantees is triggered by a
demand for payment which, in this instance, must be accompanied by a
declaration of the basis on which the demand is made,[14]
courts have recognised that the principle of strict compliance may
not apply with equal force to these two classes of instruments. The
difference in approach is highlighted in the 'Law of Guarantees'[15]
as follows:


'In
Siporex Trade SA v. Banque Indosuez
[1986] 2 Lloyd's Rep 146 at 159, Hirst J observed that there was a
substantial difference between letters of credit and performance
bonds, since in the former case exact compliance with documentary
requirements is imperative but in the latter, precise wording may not
be essential. In that particular case, for example, the guarantee
required a “declaration to the effect” that a certain
event had occurred. This distinction was endorsed by Staughton L J in
IE Contractors Ltd v Lloyds Bank and
Rafidain Bank
[1990] 2 Lloyd's Rep 496
at 500, subject to the caveat that
the
degree of compliance required by each particular bond always depends
on its true construction
.' (Emphasis is
mine.)


[20]
This
distinction may, therefore, be more apparent than real: 'the degree
of compliance required by a performance bond may be strict, or not so
strict. It is a question of construction of the bond'.[16]
It is not so much that there is one rule for the one and another for
the other, but rather that demand guarantees tend to have 'less
exacting provisions with regard to precisely what documents or
statements are to be submitted in order to make the issuer liable to
pay.'
Ibid.


[21]
This principle, it seems, underpins the
Bank's contentions that the City failed to establish a case for the
relief claimed in the founding papers and that its demand for payment
did not conform with or fulfil the requirements or conditions of the
guarantee. Relying on the well-established rule that the applicant
has to make out his case in his founding affidavit, the Bank's
counsel drew attention to the City's statement that the construction
agreement was concluded between the City and Thermal on 10 May 1999
that Stocks was appointed by Thermal, the leading contractor, to do
work on the purification plant. He refers to various quotations from
the affidavits lodged on behalf of the City in support of the
contention that, according to the latter, it only entered into a
contract with Thermal and with no one else. The guarantee on which
the City relies for payment, however, refers in the first paragraph
thereof to a contract concluded by it with 'Consortium Stocks (Pty)
Ltd' on '10.15.1999'. Because the guarantee requires that the demand
for payment should be accompanied by a written declaration 'that D B
Thermal (Pty) Ltd has failed to rectify defects in terms of the
aforementioned contract', he contends that it is clear on any
construction of the guarantee that the phrase 'aforementioned
contract' in para 4 thereof refers to the contract mentioned in the
first paragraph, ie the one concluded by the City with 'Consortium
Stocks (Pty) Ltd' on '10.15.1999'.  He also urged the court to
consider that the relationship between the Bank and Stocks is based
on the contract and mandate which the latter had given to the Bank to
issue the guarantee in question and contends that, if the bank were
to pay the guarantee without the conditions of payment in the
guarantee having been complied by the City, the Bank may lose its
right to be indemnified by Stocks.  He submits that, on the
City's own version, its claim must fail for want of proof that the
condition for payment as specified and contained in the guarantee has
been fulfilled.


[22]
Dr
Henning conceded on behalf of the City that the description of the
parties to the contract and the date of the contract in para 1 of the
guarantee are incorrect. These incorrect references matter not, he
argues, because the demand cites the reference number of the contract
(CW 025/97). In support of this contention, he seeks support from
examples in other or related areas of the law and, on the basis
thereof submits that the description of the parties and the date of
the contract were superfluous; because a false or inaccurate recital
will not invalidate an arbitration award; because a wrong reference
does no harm; because the description in a recital does not impose
contractual obligations and because it is analogous to a situation
where a testator makes a mistake in the description of the
beneficiary, but no uncertainty exists as to whom he intended.[17]


[23]
A
bank's obligation to honour a demand guarantee arises only as and
when the beneficiary seeks payment in
accordance
with the terms of the guarantee
.
It must be borne in mind that guarantees are issued by banks to
beneficiaries on specific terms mandated and approved by their
clients (often referred to as 'account parties'). Although banks may
generally be inclined to honour such guarantees on demand to protect
their commercial reputation, those considerations are counterbalanced
by the need not to compromise the rights and interests of their
clients beyond the parameters of the commitments acceded to in the
demand guarantee.  As it is, demand guarantees, by their nature
and application, impose heavy risks on account parties (such as
Stocks). (a) The autonomous nature of demand guarantees deprive them
of the right to resist payment of the guarantee on grounds which
would otherwise be well-founded had the demand been based on the
underlying agreements – the obligation to pay demand guarantees
is not even extinguished if the underlying agreement is cancelled on
valid grounds.[18] (b) In the
absence of fraud, the question whether or not there has been
compliance with the requirements of the demand guarantee by the
beneficiary, is apparently for the bank alone to determine when the
demand is made and it is not open for the account party to seek an
interdict to restrain the bank from paying on grounds of
non-compliance with the required demand.[19]
(c) The counter-indemnity sought from an account party by the bank
issuing a demand guarantee will invariably be on wider terms than the
liability of the bank under the guarantee itself.[20]
(d) The account party is financially exposed to the possibility of
unfair demand or abuse of the guarantee;[21]
etc.


[24]
These
considerations highlight the place and importance of the principle of
strict compliance to demand guarantees, subject, of course, to 'the
caveat that the degree of compliance required by each particular bond
always depends on its true construction'.[22]


[25]
When
faced with a demand for payment, it seems to me that a bank has a
general[23] duty towards the
client on whose mandate it had issued a demand guarantee, first, to
construe the guarantee and assess what the beneficiary has to do so
as to make a valid demand under it and, then, to assess the demand
and, if required, associated declaration in order to determine
whether the beneficiary has complied with those obligations. It is to
these considerations that I shall turn next.


[26]
On the face thereof, the Stocks guarantee
is clear: the written demand for payment must be accompanied by a
declaration that 'Thermal' has failed 'to rectify defects in terms of
the aforementioned contract'. The requirement does not use words that
introduce any uncertainty about the contract under which the
obligation to rectify the defects must arise. Neither does it allow
for a demand based on a failure to rectify defects in terms of any
other contract. The phrase 'aforementioned contract' refers to the
one described in the first paragraph of the guarantee, ie the one
concluded on '10.15.1999' by the City with 'Consortium Stocks
Structures (Pty) Ltd (contractor) a contract number CW 025/97 for New
Goreangab Water Reclamation Plant at a total price of NAD
92,191,004.00 . . . .' This is also the contract, according to para 3
of the guarantee, from which Stocks' obligation to provide the
retention guarantee arose in the first instance.  The Bank,
therefore, had the right and duty to require that the demand and
declaration would be based on the failure to rectify defects in terms
of the contract so defined. In construing the guarantee in the manner
it did and, in particular, by identifying the operative contract for
remedial work as the one defined in the first paragraph of the
guarantee, there are two further considerations that are of some
import.


[27]
The first is this: the Bank states that it
did not see a copy of the contract in terms of which the guarantee
had to be presented to the City. It did not concern itself with the
execution of the underlying contract. As is the usual practise in the
banking industry, it did not even enquire into the circumstances that
gave rise to Stocks' obligation to present the guarantee. The Bank
simply acted on the mandate of Stocks to issue a guarantee to the
City in the terms provided to it in writing by Stocks. Except for the
alleged erroneous reference to Thermal, instead of Stocks, in para 4
of the guarantee (with which I shall deal with later in the
judgment), the issued guarantee recites the terms of the mandated
guarantee requested by Stocks exactly.  None of these assertions
are disputed by the City. The Bank was therefore not in possession of
the underlying written contract from which it could verify the
correctness of the particulars conveyed to it in Stocks' mandate
about the identity or description of the parties to the contract; the
date of the contract; the number of the contract; the works to which
the contract related; the identity of the party obliged to effect the
retention work; the obligation to provide a guarantee (or if it arose
from the contract at all); etc. It merely acted on the premise that
the mandate of Stocks correctly captured its contractual guarantee
obligations to the City and that, should the City not be satisfied
with the terms of the guarantee issued on that premise by the Bank,
it would refuse to accept the guarantee and insist that a guarantee
should be provided on the terms agreed on in the underlying contract.


[28]
The second point of import follows from the
first: The Bank issued the guarantee to the City on 19 December 2002.
It was entitled to assume that, if the City was not satisfied that
the terms of the guarantee accorded with the obligations of the
contractor in terms of the underlying agreement, it could refuse to
accept the guarantee on the issued terms. That is not what the City
did. It tacitly accepted the guarantee on the terms it was issued: it
did not object to the guarantee's terms during the period of 18
months that preceded the eventual demand for payment on 12 July 2004;
it opposed the Bank's attempt during June 2004 to unilaterally
rectify the mistake of its employee (by retaining the reference to
Thermal in para 4 of the electronic copy of the Thermal guarantee; it
refused to consent to the amendments proposed by the Bank on 7 July
2004 to the terms of the guarantee by substituting that reference for
one to Stocks and it demanded payment of the guarantee on 12 July
2004.


[29]
From the Bank's point of view, the
underlying contract in terms of which defects to the construction
work had to be repaired was correctly defined by Stocks in its
mandate and the description of that contract in the guarantee was
accepted as such by the City. In construing the guarantee and
assessing what the City had to do so to make a valid demand under it,
the Bank was entitled to require, in addition to the demand, a
declaration by the City that Thermal failed to rectify defects in
terms of the contract which the City concluded on '10.15.1999' with
'Consortium Stocks Structures (Pty) Ltd (contractor) a contract
number CW 025/97 for New Goreangab Water Reclamation Plant at a total
price of NAD92,191,004.00'  The contract's definition is a
collective of at least 4 descriptive elements: the date and the works
to which it relates.


[30]
The second stage of the strict
compliance-assessment was for the Bank to assess the City's demand
and declaration in order to determine whether the City had complied
with its demand-obligations as required by the guarantee. The City's
demand for payment refers only to a contract number and the works to
which it relates. No mention was made by the City in the demand to
the date of, and parties to, the contract in terms of which the
defects had to be remedied.  It is clear, however, from the
accompanying declaration that the City does not refer to or, for that
matter, rely on obligations arising from a contract concluded between
it and 'Consortium Stocks Structures (Pty) Ltd' on '10.15.1999' for
Thermal's failure to rectify the defects thereunder – as the
guarantee states. The City's demand is based on Thermal's failure to
rectify those defects under a contract with the same number concluded
between the City and DB Thermal (Pty) Ltd on 10 May 1999 in respect
of the works.  According to the City's declaration, Thermal's
obligation to rectify defects to the works arose from the latter
contract.


[31]
Dr
Henning submits that it matters not if the date and parties to the
contract relied on in the demand and declaration are different from
those that are part of the contract's definition in the guarantee.
The contract number being the same, particulars of the date and
parties in the recital-portion of the guarantee were superfluous, he
submits on the authority of Voet 35.1.4.[24] 
In Title 1 of Book 35, Voet deals with the conditions, descriptions,
causes and purposes 'of those things which are written in a last
will'. In s 4 thereof he deals with, qualifies and illustrates the
application of the
falsa
demonstratio non nocet

– rule to testamentary bequests. If a superfluous 'description
has been attached to the thing bequeathed that it can still be known
without it of what thing the testator was thinking, then it is very
true that a legacy is by no means spoilt by the false description',
he commented. He explains that the 'reason for this appears to be
that whatever is added for the purpose of description to a thing
already enough described is added to no purpose, and must be
considered as though it had not been written; and superfluous writing
does no harm to a legacy.'  He illustrates the comment with a
number of examples.[25]


[32]
Whatever weight may be accorded to Voet's
comments on the law relating to testamentary succession, they fall to
be distinguished from the case at bar both on principle and in
substance.


[33]
As
Corbett[26] noted, in dealing
with the principles applicable to the interpretation of wills, there
are important differences between wills and contracts that 'affect
the process of interpretation'. Referring to those differences, he
continues:


'This
explains why since time immemorial judges have adopted a benevolent
approach in interpreting wills. They will do their best to ascertain
the testator's true intention, however poorly expressed, and will not
invalidate a disposition on grounds of uncertainty unless perplexity
leaves them no other choice. It also explains why, in the
interpretation of a will the courts will try harder to unravel the
testator's subjective intention from its objective manifestation than
in the interpretation of a contract. As Mr Justice Van den Heever put
it in
Crookes NO v Watson:


In
interpreting and putting into effect the provisions of a will the
testator's wishes are of paramount importance . . . whereas a
contracting party is sternly held to his intention as expressed.”


And
later:[27]


'As
Jarman said
in words upon which it would be difficult to improve:


In
the construction of wills the most unbounded indulgence has been
shown to the ignorance, unskillfulness, and negligence of testators:
no degree of technical informality, or of grammatical or
orthographical error nor the most perplexing confusion in the
collocation of words or sentences, will deter the judicial expositor
from diligently entering upon the task of eliciting from the contents
of the instrument the intention of its author, the faintest traces of
which will be sought out from every part of the will and the whole
carefully weighed together . . . .”'


[34]
This
'benevolent approach' of 'unbounded indulgence' which is inherently
part of the principles applicable to the interpretation of wills is
so self-evidently distinguishable from the principle of strict
compliance as applied to demand guarantees that it does not justify
further elaboration. The distinction applies with equal force to the
support counsel sought to glean from two other comparisons applicable
to the interpretation of testamentary dispositions in the law of
succession, ie from instances where the testator made a mistake in
the description of the beneficiary but no uncertainty exists as to
whom he intended[28] and the
application of the
falsa
demonstration non nocet
-rule
in that area of the law.[29]


[35]
The distinction is not only one of
principle, but also of substance. Contracts are generally referred to
or described by reference to the names of the parties thereto. In the
circumstances of this case, the reference in the guarantee to Stocks
as a party to the underlying contract was of particular relevance and
importance to the Bank. Stocks, either directly or indirectly,
mandated the Bank to issue the guarantee. In the mandate, Stocks
identified itself as the party who had contracted with the City;
defined the limited extent of its liability as a portion of the total
contract price; acknowledged that its obligation to provide the
guarantee and to rectify defects arose from the terms and provisions
of the contract so concluded by it with the City. Although the City
was not privy to the terms of the mandate, all of these mandated
provisions were repeated in the guarantee – to which the City
raised no objection and required no correction for a period of
approximately 18 months. Stocks was also the Bank's client from whom
or on whose behalf the Bank required a counter-indemnity for the
issuing of the guarantee. It should also be noted that, although the
City's demand avoided any reference to the date and parties to the
contract (referring only to a contract number and nature of the
works), its accompanying declaration expressly relies on the
obligations that arose from a differently dated contract concluded by
the City with another person, ie Thermal. It, therefore, is not a
case where the contract's date and the name of the other contracting
party have been omitted but the contract has otherwise been
sufficiently identified – in this instance it is expressly
stated in the declaration that the contract had been concluded by the
City with a different person on a different date.


[36]
Does the reference to the contract number
and the works to which it relates in the demand so clearly identify
the contract described in the guarantee that a reference to the names
of the parties to - and the date of - the contract was not only
unnecessary but that they were so superfluous that the Bank had to
disregard the statement in the declaration that the contract relied
on was concluded between different parties on a different date? I
shall deal with the significance of the contract number first and
then turn to the identification of the works. There is no evidence
that the Bank or Stocks were aware of the protocol followed by the
City in the numbering of contracts it concludes with suppliers or
service providers. They did not know – and neither does the
court - whether every contract bears a unique number or sequential
number. Are the numbers of all the contracts relating to the same
project not perhaps the same? Is contract number not referring to the
number of the budget vote under which the expenses for multiple
contracts have been authorised? Does the number not perhaps refer to
the City departments responsible for the administration of the
contract? Considering these uncertainties from the Bank's point of
view, sight should not be lost of the fact that the City
simultaneously demanded payment of Thermal's guarantee where the same
contract number was used to refer to a contract concluded by the City
with 'Consortium D B Thermal (Pty) Ltd and Stocks Structures (Pty)
Ltd' dealing exclusively with Thermal's guarantee obligations in
respect of its portion of the works. On the face of the two
guarantees under which the demand was made, there were at least two
contracts with identical numbers but concluded between different
parties with the City and relating to distinctive portions of the
work involved in the construction of the new Goreangab Water
Reclamation Plant. This illustrates why a mere reference in the
demand to the same contract number and works could not be regarded by
the Bank, upon a reasonable construction thereof, as sufficiently
clear to disregard as superfluous the assertions in the accompanying
declaration that the contract underpinning the demand was concluded
on a different date by different parties.


[37]
Counsel
for the City also submits that the date of and description of the
parties to the contract in the guarantee should be disregarded
because 'the description on the recital does not impose contractual
obligations' and, by analogy, because 'a false or inaccurate recital
will not invalidate an arbitration award'. For the first of these
contentions he relies on
Consol
Ltd t/a Consol Glass v Twee Jonge Gezellen (Pty) Ltd &
another
.[30]
In that case the South African Supreme Court of Appeal had to
determine whether an introductory sentence to a claims clause
regarding
Consol's
manufacturing procedures and techniques imposed an obligation on
Consol
or whether it was merely a recital in the nature of a preamble or an
introduction to the operative provisions of the claims clause. Brand
JA, who wrote for the Court, recognised[31]
that –


'(p)rovisions
are sometimes inserted in written contracts by means of recitals or
preambles which create no obligations for any of the contracting
parties. The purpose of such provisions is, for example, to serve as
an introduction to the rest of the contract or to record good
intentions or pronouncements of good faith. The question whether a
provision constitutes a mere recital, on the one hand, or a
contractual obligation, on the other, is dependent upon the intention
of the parties. Such intention is to be found in the language of the
stipulation itself, read in its proper context and construed in
accordance with the recognised tenets of construction. Consequently,
an answer can rarely be transposed from one case to another unless
their facts are almost identical. Nevertheless, considerations
underlying the decisions in comparable cases may serve as useful
guidelines.'


After
an analysis of the contract the court concluded that, unlike other
sentences in the contract commencing with the words 'while' or
'whilst' or 'notwithstanding' - which are indicative of an
introductory nature - the sentence in question contains a positive
statement of fact relating to matters which could, in the ordinary
context, be expected to form the subject matter of a contractual
obligation undertaken by
Consol.
It, therefore, concluded that the first sentence in the claims clause
imposed a contractual obligation.


[38]
The description of the underlying
construction contract in the first paragraph of the guarantee is, in
my view, an essential part of the substance of the guarantee. Without
that description, it will not be possible to give content to the
multiple references to the contract in the text of the guarantee and,
in particular, the obligation 'to rectify defects in terms of the
aforementioned contract'. The phrase 'aforementioned contract' can
only be understood if and when regard is had to the description of
that contract in the first paragraph of the guarantee. The
description of the contract entered into between the City and Stocks
is part of a positive factual statement in that paragraph and the
reference to 'contract' in the guarantee as a whole. It is not simply
a phrase which has been included to record 'good intentions or
pronouncements of good faith' and is not preceded by words of an
introductory nature such as 'whereas', 'while' or 'whilst'. As it is,
the contract number on which the City relies for the identification
of the underlying contract in its demand for payment is part of that
description.  It would be a gross instance of selective reading
if only one or two of the descriptive elements of the contract in
that paragraph is read as part of the substance of the guarantee and
the other descriptive elements are disregarded as part of a recital.


[39]
The
case of
Fisher's
Executors v Dickinson and Brown
[32]
on which counsel relies for the second contention (ie that a false or
inaccurate recital will not invalidate an arbitration award) may be
distinguished on the same basis. In that matter, an arbitrator's
award was preceded by a recital in the following terms: 'And whereas
the said parties did continue "as partners in terms of the said
deed until the death of the said Robert Harry Underwood Fisher on or
about the 9
th
October, 1910."' The executors sought an order to make the
arbitration award an order of court but, in a counter-application the
respondent prayed that the award should be set aside because it was
bad in law. The respondent contended that the factual conclusion
evidenced in the quoted passage was wrong. The court dismissed the
counter-application because it disagreed with the interpretation that
the respondent sought to attach to the quoted finding but, in an
obiter
remark, referred in passing to authority in which it was held that a
false or inaccurate recital would not invalidate an award. This case,
dealing with the interpretation of awards in the law for arbitration
– and in
obiter
remarks referring to the effect of incorrect factual findings
incorporated in the recital on the validity of an arbitrator's award
– is distinguishable from the case at hand for a number of
reasons: the description of the underlying contract is not part of a
recital, as I have held earlier; the description of the contract in
the guarantee was not based on any factual findings but on the Bank's
mandate; unlike an arbitrators award, which is normally[33]
final and binding as between the parties to the arbitration, the City
was at liberty to reject the guarantee if it was not satisfied that
the contract was correctly described therein.


[40]
In the result, I cannot accept the
contentions advanced on behalf of the City that, in determining
whether the demand and accompanying declaration conformed to the
requirements of the Stocks' guarantee under which payment was sought,
it was irrelevant or unnecessary for the Bank to consider that the
demand and supporting declaration were based on a contract concluded
between the City and Thermal on 10 May 1999 whereas the obligations
for which the Bank assumed liability in terms of the guarantee
related to the rectification of defects in terms of a contract
concluded by the City with Stocks on '10.15.1999' (ie 15 October 
1999, being the only sensible date discernable from the format used).
 Not only was the Bank entitled to assess whether the demand and
declaration complied with the terms of the guarantee, but it also had
a responsibility towards its client, Stocks, to do so. The Bank's
assessment was a necessary incidence of the principle of strict
compliance as applied to demand guarantees generally and to the
guarantee in question in particular. So assessed, the Bank was
justified in concluding that the demand and declaration did not
comply with the terms of the guarantee, reasonably construed. The
Bank was entitled to refuse payment of the guarantee.


[41]
It is for the same reasons that I must also
agree with the Bank's contentions that the City failed to make out a
case for the payment of the guarantee in its founding papers: the
demand for payment does not comply with the requirements of the
guarantee. This conclusion is different to the one reached by the
court
a quo.
It is different because, although the court below extensively and
with reference to a number of authorities considered the principle of
autonomy and the fraud exception to the principle, it did not
consider the principle of strict compliance as it applies to the
guarantee or to financial instruments of this nature. The principle
of autonomy does not exclude the application of the principle of
strict compliance and the one does not derogate from the other at
all: the latter, it seems, is a necessary corollary of the former to
ensure that the independent payment obligation created by the
guarantee does not extend to obligations for a bank (and, indirectly,
for an account party) beyond the terms thereof.  Had the court
below applied the principle of strict compliance to the guarantee in
question, as it should have, the result may well have been different.
In the result, the appeal against the part of the order for payment
of the guaranteed amount and interest thereon must succeed.


[42]
The court a
quo
also dismissed the Bank's
counter-application. The primary relief sought by the Bank in the
counter-application is for rectification. The court reasoned that,
even if the reference to Thermal in the fourth paragraph of the
guarantee was by error, the error was irrelevant because the Bank
could 'only escape liability of the guarantee in question once there
is clear evidence of fraud on the part of the applicant in presenting
the guarantee for payment'.  The reasoning of the court suggests
(a) that fraud is the only exception to a bank's obligation to pay a
demand guarantee and (b) that in the absence of fraud, it is not
possible to rectify the terms of a guarantee.


[43]
It
is well-recognised that demand guarantees and other financial
instruments of a like nature have assumed an extremely important
status in modern commerce.[34]
Hence, 'the importance of allowing banks to honour their obligations
under irrevocable credits without judicial interference' has been
emphasised in the
Loomcraft
case:[35]


'In
Intraco Ltd v Notis Shipping Corporation
(The Bhoja Trader
) [1981] 2 Lloyd's Rep
256 (CA) Donaldson LJ, after upholding the refusal of the Court below
to interfere with the seller's right to call upon a bank to make
payment under its guarantee where fraud was not involved, observed at
257:


Irrevocable
letters of credit and bank guarantees given in circumstances such as
that they are equivalent to an irrevocable letter of credit have been
said to be the lifeblood of commerce. Thrombosis will occur if,
unless fraud is involved, the Courts intervene and thereby disturb
the mercantile practice of treating rights thereunder as being
equivalent to cash in hand."


Lord
Denning MR in
Power Curber International
Ltd v National Bank of Kuwait SAK

[1981] 3 All ER 607 (CA) at 613b sounded a similar warning:


"No
foreign seller would supply goods to that country on letters of
credit because he could no longer be confident of being paid. No
trader would accept a letter of credit issued by a bank of that
country if it might be ordered by its courts not to pay.”'


[44]
The
Bank does not allege that the City has acted fraudulently in any way.
It is therefore not necessary to decide the fraud exception or to
determine the scope of its application.[36]
In the absence of supporting allegations, it is also not necessary to
decide whether there are not further exceptions to the principle of
autonomy, such as 'restrictions in the underlying contract' about the
circumstances under which a beneficiary may demand payment of the
guarantee or 'statutory unconscionability'[37]
to the payment thereof. There may be further exceptions that the
courts may wish to consider in future: Will a bank be obliged to
honour a guarantee when it later becomes apparent to it that,
notwithstanding the seemingly innocent description of the performance
required in the demand and/or declaration, the performance
contemplated will actually constitute a criminal act? For these
reasons, I do not think it is prudent that we should stifle the
further development of law in this area of commerce, if necessary, by
endorsing an approach that will limit the exceptions to one only, ie
fraud.


[45]
Even
if I were to accept that fraud is the only exception, as the court
below held, that limitation does not bear on the question whether the
guarantee may not be rectified in appropriate instances. Fraud
constitutes an exception to the autonomy of the credit created by the
guarantee, whereas rectification is directed at the formulation of
the terms of the credit. Andrews & Millett[38]
propose the following as regards the rectification of guarantees:


'Although
there may be no reason in principle why the doctrine of rectification
should not be used to make good omissions in a written guarantee in
the same way as in any other type of contract, it may be that in
practice the prerequisites for the remedy are difficult to establish
in this particular context, where particular care is likely to be
taken to avoid depriving a defendant of a legitimate statutory
defence. It is rarely the case that the written guarantee is merely a
reflection of a pre-existing agreement which has been concluded
orally; on the contrary, it is generally the intention of the parties
that there should be no binding agreement until the guarantee is
signed.'


[46]
These
comments also illustrate the difficulty for the Bank to obtain
rectification in this case. Even if I were to assume (without
deciding) for purposes of this judgment that a demand guarantee may
be rectified, the question remains whether the Bank made out a
sufficient case to justify rectification of the guarantee by the
substitution of Stocks for a reference to Thermal in para 4 of the
guarantee. It has been held in
Denker
v Cosack & others
[39]
that the following facts must be alleged and proved in an application
for rectification:


'(a)
an agreement between the parties which had been reduced to writing;


(b)
that the written document does not reflect the common intention of
the parties correctly. In
Benjamin v
Gurewitz
1973 (1) SA 418 (A) at 425H
Van Blerk JA says that in reforming an agreement all the Court does
is to allow to be put in writing what both parties upon proper proof
intended to be put in writing and erroneously thought they had (cf
Meyer v Merchants' Trust Ltd
1942 AD 244 at 253);


(c)
an intention by both parties to reduce the agreement to writing;


(d)
that there was a mistake in the drafting of the document. See
Von 
Ziegler & another v Superior Furniture Manufacturers (Pty) Ltd

1962 (3) SA 399 (T) at 411F-H. Rectification and unilateral mistake
are mutually exclusive concepts. See
Sonap
Petroleum (SA) (Pty) Ltd (formerly known as Sonarep (SA) (Pty) Ltd) v
Pappadogianis
1992 (3) SA 234 (A);


(e)
the actual wording of the agreement as rectified. See
Levin
v Zoutendijk
1979 (3) SA 1145 (W) at
1147H-1148A.'


[47]
The Bank, admittedly, had no prior
negotiations or agreement with the City to issue a guarantee in
specific terms – neither was it a party to a tripartite
agreement of sorts with the City and Stocks to issue a guarantee in
those terms. The facts demonstrate that the Bank, acting on the
request of Stocks, issued the guarantee to the City. The City, by its
conduct, tacitly accepted the terms of the guarantee. There is no
factual basis for an allegation of a common intention prior to the
issuing of the guarantee between the City and the Bank. In the
circumstances, the prayer for rectification in the
counter-application was rightly refused – albeit for different
reasons.


[48]
The
alternative prayer for a declaration of invalidity based on
justus
error

is equally without merit. The question when an error can be said to
be
justus
for the purpose of entitling a person to repudiate his or her
apparent assent to a contractual term was answered by Fagan CJ in
George
v Fairmead (Pty) Ltd

as follows: [40]


'As
I read  the decisions, our courts, in applying the test, have
taken into account the fact that there is another party involved and
have considered his position. They have, in effect, said: Has the
first party the one who is trying to resile been to blame in the
sense that by his conduct he has led the other party, as a reasonable
man, to believe that he was binding himself? . . . If his mistake is
due to a misrepresentation, whether innocent or fraudulent, by the
other party, then, of course, it is the second party who is to blame
and the first party is not bound. . . .' (References omitted.)


In
Total
Namibia (Pty) Ltd v OBM Engineering Petroleum Distributors CC
[41]
this court approved the following approach by the South African
Appellate Division in
Sonap
Petroleum (SA) (Pty) Ltd (formerly known as Sonarep (SA) (Pty) Ltd) v
Pappadogianis
,[42]
to this question:


'.
. . the decisive question in a case like the present is this: did the
party whose actual intention did not conform to the common intention
expressed, lead the other party, as a reasonable man, to believe that
his declared intention represented his actual intention? . . . To
answer this question, a three-fold enquiry is usually necessary,
namely, firstly was there a misrepresentation as to one party's
intention; secondly, who made that representation; and thirdly, was
the other party misled thereby? . . . The last question postulates
two possibilities: was he actually misled and would a reasonable man
have been misled?'


[49]
The City states that it accepted that the
guarantee was correctly worded when it received it. I am also
satisfied on the evidence that a reasonable person in the position of
the City would have accepted that the guarantee correctly
communicated the Bank's intention and commitment to pay the
guaranteed amount upon demand and against the City's written
declaration that the Thermal (not Stocks) has failed to rectify the
defects in terms of the construction contract referred to therein.
The principal concerns that the City had at the time the guarantee
was issued related to the work that Thermal still had to do and for
which it had already received payment. The City was uneasy about
delays, the suitability of the installed filtration system to serve
its intended use, its design and capacity – to name a few –
all of which fell within the ambit of Thermal's obligations. In terms
of clause 1.14 of the general conditions of the contract, to which I
have already referred, Stocks and Thermal were jointly and severally
liable for the fulfilment of the terms of the contract. The City,
therefore, had reasonable cause to accept that Stocks would assume
joint and several liability for Thermal's obligation to rectify the
defects. From the City's point of view, it was no mistake for para 4
of the guarantee to refer to Thermal instead of Stocks. I find no
substantiation on the affidavits for the contention that the City was
aware (or should reasonably have been aware) that the Bank had made a
mistake in the formulation of para 4 of the guarantee and that,
instead of enquiring about the formulation, the City sought to snatch
a bargain. The 'mistake,' on which the Bank relies, was entirely of
its own making and neither knowledge of nor fault for it can be
imputed to the City.


[50]
The counter-application was not conditional
upon any findings of the High Court in the main application. The
court, therefore, had to deal with it, irrespective of its findings
in the main application. For the reasons given above, the court was
correct in dismissing the counter-application with costs, inclusive
of the costs of two instructed counsel.


[51]
The
Bank is also aggrieved about the High Court's refusal to remit the
factual issues between the parties for evidence or cross-examination.
Mr Botes submits that there is a real possibility that the Bank,
through oral evidence and/or cross-examination will be able to
establish fraud on the part of the City. The Bank's answering
affidavits do not allege or rely on any fraudulent conduct on the
part of the City. Absent any assertion or factual substantiation to
that effect in the Bank's affidavits, the purpose of the application
was essentially to broaden the scope of the issues to include the
fraud-exception and hope that evidence may be elicited at the hearing
in substantiation thereof. The object of the rule allowing for
referrals to trial or cross-examination should not be abused to
facilitate fishing excursions of this nature.[43]
In my view the court exercised its judicial discretion correctly in
refusing the referral and I find no reason to interfere with it.


[52]
The High Court also refused to condone the
late filing of a supplementary affidavit by the Bank's legal
practitioner of record. I am satisfied that, had the Bank timeously
required and, to the extent required, enforced discovery of the
documents referred to in the City's affidavits in terms of rule
35(12) of the High Court Rules, all the relevant documents referred
to in that affidavit could have been placed much earlier before the
court. In any event, having been discovered as such, the documents of
relevance were before the court without the need of a supplementary
affidavit. In the circumstances, I do not propose to set aside the
dismissal of the application for condonation by the court below.


[53]
It follows from the reasons given above
that I propose that the appeal succeed in part and be dismissed in
part. The costs of the appeal must be determined with that result in
mind. Although the Bank is substantially successful as far the High
Court's order in the main application is concerned, considerable
time, industry and argument have been devoted to deal with the
court's order in the counter-application.  In that respect –
and in respect of the appeal against the refusal of the court below
to refer the factual issues to trial and to grant condonation for the
late filing of a supplementary affidavit – the appeal falls to
be dismissed. In the view I take, it will serve the interests of
fairness if no order as to costs is made in the appeal, with the
exclusion of the costs occasioned by the application for condonation
and reinstatement of the appeal, which was made at the hearing of the
appeal.


[54]
In the premises, the following order is
made:


1.
The appeal succeeds in part and is dismissed in part.


2.
Paragraph 1 of the order of the High Court made on 6 March 2006 under
Case No (P) A 383/2004 is confirmed.


3.
Paragraphs 2, 3 and 4 of that order are set aside and the following
order is substituted:


'2.
The main application is dismissed.


3.
The applicant pays the respondent's costs in the main application,
such costs to include the costs of instructed counsel.


4.
The respondent pays the applicant's costs in the counter-application,
the application for condonation for the late filing of the
supplementary affidavit and the application for referral to
evidence/cross-examination, such costs to include the costs of two
instructed counsel.'


4.
Aside from the order of costs made at the hearing in the application
for condonation and reinstatement of the appeal, no order of costs is
made in the appeal.


MARITZ
JA


STRYDOM AJA


DAMASEB AJA


APPEARANCES


APPELLANT: L C
Botes


Instructed by
Ellis & Partners


RESPONDENT: P
J v R Henning SC (with him R Heathcote)


Instructed by
Fisher, Quarmby & Pfeifer






[1]
See: Clive M. Schmitthoff, Schmitthoff's
Export
Trade: The Law and Practice of International Trade
,
(9 ed), 1990 p 449.



[2]
Sometimes, depending on the jurisdictional connection in
international commerce, also referred to as 'standby letters of
credit, unconditional performance bonds, bank guarantees, banker's
undertakings and independent or first demand guarantees' which,
although differently labeled, 'commonly describe the same type of
obligation serving the same commercial purpose' as pointed out by
Dixon,
'As
good as cash? The diminution of the autonomy principle
',
(2004) Australian Business Law Review 32(6), pp 391-406 para 2.2.
'Whilst standby letters of credit are a by-product of the American
system, performance bonds are essentially a product of the English
legal system. Bank guarantees and banker's undertakings are, in
turn, a product of the European system.'




[3]
Compare the remarks of Andrews and Millettt,
Law
of Guarantees
,
3 ed, (2000 Sweet & Maxwell) on performance guarantees (or
bonds) at p 481: 'Performance bonds (or similar instruments) have
assumed an extremely important status in modern commerce. They
perform the role of an effective safeguard against non-performance,
inadequate performance or delayed performance. The underlying
commercial purpose of a performance bond is to provide a security
which is to be readily, promptly and assuredly realisable when the
prescribed event occurs.'




[4]
Dixon,
ibid.




[5]
For
instance, that the issuing bank's liability in the case of a demand
guarantee is triggered by a demand for payment, rather than the
production of documents - as is the case in a letter of credit
transaction. Compare also Dixon,
op
cit
,
para 3.2.




[6]
Schmitthoff,
op
cit

404.




[7]
1985(3)
SA 301 (T) at 303 and 304.




[8]
1995(1)
SA 218 (W) at 223J-224B.




[9]
1996(1)
SA 812 (AD) at 815 and 816.




[10]
2010
(2) SA 86 (SCA) para 20. See also
Coface
South Africa Insurance Co Ltd v East London Own Haven t/a Own Haven
Housing Association

2014 (2) SA 382 (SCA) for a discussion and application of this
principle with reference to a number of cases in that jurisdiction.




[11]
[1978]
1 All ER 976 (CA); (1977) 3 WLR 764.




[12]
[1981]
3 All ER 607 (CA); (1981) 1 WLR 1233.




[13]
Schmitthoff,
op
cit
at
p 406




[14]
Compare Dixon,
op
cit
,
para 3.2




[15]
Andrews and Millettt,
supra,
at p 480




[16]
Per Staughton LJ in
I.E.
Contractors' Ltd v Lloyds Bank PLC

and
Rafidain Bank
,
[1990] 2 Lloyd's Rep 496 at 501.




[17]
He refers to the following authorities in support of those
contentions: Voet 35.1.14;
Fisher's
Executors v Dickinson and Brown
,
1914 NPD 505 at 512; Claassen,
Dictionary
of Legal Words and Phrases
,
2 ed, Vol 2, F8-F9; Voet 35.1.3; Corbett
et
al
,
The
Law of Succession in South Africa
,
475,
Consol
Ltd t/a Consol Glass v Twee Jonge Gezellen (Pty) Ltd & another
,
2005 (6) SA 1 (SCA), 8-10, paras 13-19.




[18]
Compare the minority view in
Dormell
Properties 282 CC v Renasa Insurance Co Ltd & others NNO

2011 (1) SA 70 (SCA) which was approved by the South African Supreme
Court of Appeal in the
Coface
case,
supra,
paras 22 – 26.




[19]
Andrews and Millet,
op
cit
,
p 480: 'The question whether or not there has been compliance is a
matter for the Bank alone to determine at the time when a demand is
made. It is not open to the account party to seek an injunction to
restrain the Bank from paying on grounds of non-compliance. This was
established in the case of
Ermis
Skai Radio & Television v Banque Indosuez SA & another

(unreported, Commercial Court, Thomas J, February 26, 1997). Thomas
J held that there was no basis for the implication of a term into
the contract between the Bank and the beneficiary that the latter
should not make a demand for sums which it did not honestly believe
were due. He also held that a stranger to the contract, such as the
account party, had no
locus
standi

to restrain the bank from paying on the grounds of non-fulfillment
of a term of the guarantee.'




[20]
Ibid,
p 490: 'As a condition of giving a performance bond, the bank or
surety company will invariably require a counter-indemnity from the
person whose performance it secures. The indemnity is likely to be
couched in wider terms than the bond itself, requiring the account
party to pay the bank whatever amount it actually pays under the
bond, rather than requiring him to indemnify the bank in respect of
such sums as it may be obliged to pay, because the latter form would
enable the account party to question the basis of payment.'




[21]
Ibid,
p494: 'The nature of performance bonds clearly leaves them open to
abuse by an unscrupulous beneficiary.' Compare also: Schmitthoff,
op
cit
,
p 452.




[22]
Andrews & Millett,
supra,
p 480.




[23]
Subject
to contractual exclusions agreed to between a bank and its client.




[24]
In his
'Commentarius
ad Pandectas'
,
Gane's translation (Vol V), Butterworth & Co (Africa) Ltd, 1956.




[25]
'Instances would be if he bequeaths "the home-born slave
Stichus" when Stichus had been bought, or the other way round;
or bequeaths him as having been bought from Maevius, when he had
been bought from someone else; or bequeaths certain purple clothes
"which were bought and gotten for the benefit of my wife",
when such clothes were in existence, but had not been gotten for the
use of his wife.'




[26]
Corbett
et
al
,
The
Law of Succession in South Africa
,
2 ed, (Juta 2001) at p 448.




[27]
Ibid,
p 459




[28]
Also referred to in Voet 35.1.3,
supra
and by Corbett,
op
cit
,
p 475.




[29]
As discussed by Claassen,
Dictionary
of Legal Words and Phrases
,
2 ed, Vol 2, F8-F9.




[30]
2005 (6) SA 1 (SCA) paras 13 – 19.




[31]
Para 13.




[32]
1914 NPD 505 at 502.




[33]
Absent misconduct or irregularities that may give rise to the review
thereof.




[34]
Andrews & Millett,
op
cit,

p 481.




[35]
Supra,
at p 816G – 817A.




[36]
As Dixon, supra, points out, the  approach of the House of
Lords in
United
City Merchants (Investments) Ltd v Royal Bank of Canada

[1983] 1 AC 168 seems to limit the fraud exception to 'fraud in the
documents' rather than 'fraud in the underlying transaction'.




[37]
Dixon,
ibid,
discusses these exceptions with reference to authorities in paras 4
and 5 of his article.




[38]
Op
cit
,
at p 62.




[39]
2006
(1) NR 370 (HC) at 373E–G. See also
T
Scheffler t/a Night Watch Services v Institute for Management
Leadership Training

1997 NR 50 (HC) at 52A–D and the approval of this approach by
this court in
Namibia
Broadcasting Corporation v Kruger & others
,
2009 (1) NR 196 (SC).




[40]
1958
(2) SA 465 (A) at 471B–D




[41]
As yet unreported judgment of this court in Case No SA 9/2013 handed
down on 30 April 2015.




[42]
1992 (3) SA 234 (A) at 239J–240A. The Bank also relies on this
authority in argument (particularly at p 235B) where the court said:
'If the offeree realises (or should, as a reasonable man), realised
that there is a real possibility of a mistake, he has a duty to
speak and to enquire whether the intention expressed was the actual
intention. Whether or not there is a duty to speak would obviously,
depend upon the facts of the case. The snapping of a bargain,
however, in the knowledge of the possibility that the declared
intention did not represent actual intention, would not be
bona
fide

Where an offeree is alive to the real possibility of a mistake and,
failing in his duty to speak and enquire, decides instead to snatch
a bargain, there is no consensus, thus, no binding agreement.'




[43]
See:
Hopf
v Pretoria City Council

1947 (2) SA 752 (T) where Roper J said at 768: 'In the circumstances
personal examination of the councilors would only be undertaken with
the object, or in the hope, of eliciting from them admissions which
might supplement the allegations in the petition. In other words, it
would amount to a fishing excursion. In my view this is not the true
function of the Rule, and accordingly I am not prepared to accede to
the application.'