Set Square Developments (Pty) Ltd v Power Guarantees (Pty) Ltd and Another and a related matter

Set Square Developments (Pty) Ltd was the employer on a large housing development project and contracted Vahva Construction (Pty) Ltd to perform various construction works in different phases. As security for the contractor’s performance, Power Guarantees (Pty) Ltd issued three on-demand performance guarantees in Set Square’s favour. Set Square cancelled the underlying construction contracts at different times, alleging contractor default, and made written demands under all three guarantees, attaching notices of termination as required. Power Guarantees refused payment, raising defences based on the alleged non-existence or mismatch of the underlying contracts, mistake, fraud, and unconscionability. The Gauteng High Court partially upheld Set Square’s claim (one guarantee) but dismissed claims under the other two. Both parties appealed to the Supreme Court of Appeal.

The appeal by Power Guarantees (case 150/24) was dismissed with costs. Set Square’s appeal (case 099/23) was upheld with costs. The High Court’s order was substituted with an order directing Power Guarantees to pay Set Square the full amounts due under all three performance guarantees, together with interest and costs.

The judgment reinforces South African jurisprudence on the autonomy of on-demand performance guarantees and limits judicial interference to the narrow fraud exception. It confirms that guarantors may not rely on disputes about the underlying construction contracts, mistake, or alleged unconscionability to resist payment where the demand complies with the terms of the guarantee.