Lombard Insurance Company Limited v City of Cape Town

The City of Cape Town’s predecessor, the Cape Metropolitan Council (CMC), awarded a tender for civil engineering works (contract WW38/99). The tender was submitted by a joint venture between Labor Construction Company (Pty) Ltd and South African Focus Projects. Lombard Insurance Company issued an institutional guarantee in favour of CMC guaranteeing the performance of Labor alone, described as ‘the contractor’, for a specified sum. Thereafter, CMC concluded the construction contract not with Labor alone but with the joint venture. When Labor was placed under provisional liquidation, CMC called up the guarantee. Lombard refused payment, contending that the guarantee covered only a contract concluded between CMC and Labor as sole contractor, not a joint venture.

The appeal was upheld with costs (including costs of two counsel). The order of the High Court was set aside and replaced with an order dismissing the City of Cape Town’s action with costs.

The case is important for clarifying the interpretation of institutional guarantees in South African law, particularly where construction contracts are performed through joint ventures. It confirms that guarantees are to be strictly construed according to their wording and that a guarantor is not liable for obligations of a joint venture unless this is expressly provided. The judgment has practical significance for insurers, contractors, and public authorities when structuring and calling up performance guarantees.