Minister of Transport and Public Works, Provincial Government of the Western Cape v Zanbuild Construction (Pty) Ltd and Another

The Western Cape Department of Transport and Public Works concluded two identical JBCC-based construction contracts with Zanbuild Construction (Pty) Ltd for the building of pathology laboratories at Worcester and Paarl hospitals. Zanbuild procured two bank guarantees from Absa Bank Ltd, each equal to 10% of the contract value, as security for performance. The guarantees allowed Absa to withdraw on 30 days’ notice, while permitting the employer to recover amounts owing and due by the contractor at expiry of the notice period. In August 2008 Absa gave notice of withdrawal. Before expiry of the notice period, the Department demanded payment of the full guaranteed amounts, alleging Zanbuild was in default. At that time the construction contracts had not yet been cancelled and the Department did not have any quantified monetary claim against Zanbuild. Zanbuild obtained an interdict in the High Court preventing payment under the guarantees. The Department appealed to the Supreme Court of Appeal.

The appeal was dismissed with costs, and the interdict preventing payment under the guarantees was upheld.

The case is significant for South African construction and commercial law because it clarifies that the classification of construction guarantees depends strictly on their wording. It reinforces the distinction between on-demand guarantees and conditional guarantees/suretyships, and cautions employers against assuming that all bank-issued construction guarantees are callable on demand without proof of underlying liability.