Compass Insurance Company Ltd v Hospitality Hotel Developments (Pty) Ltd

Hospitality Hotel Developments (Pty) Ltd undertook a hotel upgrade and engaged a contractor, who in turn appointed a subcontractor to install IT systems. Compass Insurance Company Ltd issued a construction (performance) guarantee in favour of Hospitality Hotel for the subcontractor’s performance, in the amount of R1 444 428.51, expiring on 30 April 2008. The subcontractor breached the contract and was provisionally liquidated by court order on 23 April 2008. On 25 April 2008 Hospitality Hotel demanded payment under the guarantee but failed to attach a copy of the provisional liquidation court order as expressly required by clause 4.2 of the guarantee. Compass Insurance refused payment. The High Court compelled payment, holding that subsequent furnishing of the order constituted sufficient compliance. Compass Insurance appealed.

The appeal was upheld with costs. The order of the High Court was set aside and replaced with an order dismissing the application with costs.

The case affirms the autonomous nature of performance guarantees in South African law and confirms that a guarantor is entitled to insist on compliance with express documentary requirements. It underscores that courts will not relax clear conditions in demand or performance guarantees, and that non-compliant demands will not trigger liability, particularly after expiry of the guarantee.