Dormell Properties 282 CC v Renasa Insurance Company Limited

Dormell Properties 282 (Pty) Ltd engaged Synthesis Projects Cape (Pty) Ltd as building contractor for a shopping centre development project. Renasa Insurance Company issued a JBCC Series 2000 construction guarantee in favour of Dormell Properties 282 (Pty) Ltd. Before the building contract was signed, the company was converted to a close corporation (Dormell Properties 282 CC) on 26 January 2007. The building contract was signed on 14 February 2007 between the CC (employer) and Synthesis (contractor). However, all three guarantees issued by Renasa identified the company (not the CC) as the employer/beneficiary. Construction delays occurred, and when Synthesis refused to extend the guarantee beyond 28 February 2008, Dormell purported to cancel the building contract on 28 February 2008 and demanded payment under the guarantee on the same day. Renasa refused payment, claiming the guarantee had expired at midnight on 27 February 2008 and that the CC was not the named beneficiary. Synthesis claimed Dormell's cancellation was itself a repudiation. Subsequently, an arbitrator found that Dormell had wrongfully repudiated the contract and Synthesis was entitled to cancel.

• Whether the construction guarantee could be rectified to reflect Dormell Properties 282 CC (the close corporation) as the employer/beneficiary instead of Dormell Properties 282 (Pty) Ltd (the company)
• Whether the guarantee expired at midnight on 27 February 2008 or at the end of 28 February 2008, and whether the civil method of computation of time applies to a fixed expiry date
• Whether a construction guarantee can be enforced by an employer after an arbitrator has found that the employer wrongfully repudiated the building contract
• Whether enforcement of the guarantee would be academic or contrary to good faith given the arbitration award

The appeal was dismissed. The respondents' application to place the arbitration award in evidence was granted. Dormell was ordered to pay the respondents' costs from 16 October 2009 (including two counsel). The respondents were ordered to pay Dormell's costs until 15 October 2009 (jointly and severally). The court a quo's order was set aside and substituted with an order that the respondents pay Dormell's costs in that court (jointly and severally, including two counsel).

1. Rectification of a written contract does not require proof of an antecedent agreement; common continuing intention of the parties that was incorrectly reduced to writing due to mutual mistake is sufficient, provided such intention is proved clearly and convincingly. 2. The civil method of computation of time (excluding the first day and including the last) applies only where a period of time must be calculated. Where a contract specifies a fixed date for expiry or performance, that entire date is available and no computation is required. 3. Under s 21A of the Supreme Court Act, a court has discretion to refuse relief where granting an order would have no practical effect. Where an arbitration award establishes that an employer wrongfully repudiated a building contract, enforcement of a construction guarantee called up on the basis of contractor default would be academic because the employer would immediately have to repay the guaranteed sum, as the guarantee is intended to fund completion after contractor breach, not to provide funds after employer breach.

Cloete JA (dissenting) made important observations about construction guarantees: (1) Construction guarantees create three separate legal relationships (employer-contractor, employer-guarantor, contractor-guarantor) and the guarantee is autonomous from the building contract. (2) Following Lombard Insurance Co Ltd v Landmark Holdings and Loomcraft Fabrics CC v Nedbank Ltd, guarantees must be honored on proper demand regardless of disputes in the underlying contract; the only defense is fraud. (3) An arbitration award between employer and contractor is res inter alios acta as regards the guarantor and does not affect the guarantor's obligation. (4) It is not bad faith for an employer to enforce a guarantee after an arbitration finds the cancellation wrongful, because the employer need not prove entitlement to cancel as a precondition to enforcement. (5) Guarantee proceeds are not ring-fenced solely for completion costs but can satisfy amounts owing by the contractor at cancellation. The minority would have held that enforcement would have practical effect because outstanding claims existed against the contractor.

This case is significant for several reasons: (1) It confirms that rectification of written contracts does not require proof of an antecedent agreement - common intention provable by other means suffices (applying Meyer v Merchant's Trust in the construction guarantee context). (2) It clarifies that the civil method of time computation applies only where a period must be calculated, not where a contract specifies a fixed expiry date. Where a deadline falls on a specific date, the full day is available. (3) It addresses the tension between the autonomous nature of construction guarantees (which are independent of the underlying contract and enforceable on demand) and principles preventing academic litigation under s 21A. (4) The majority and minority judgments reflect different approaches to whether post-demand events (like arbitration awards) can defeat enforcement of on-demand guarantees. The case highlights the distinction between construction guarantees and the underlying building contracts, and the limits of the principle that guarantees must be honored regardless of disputes about the principal contract.