Exxaro Coal Mpumalanga (Pty) Ltd v TDS Projects Construction and Newrak Mining JV (Pty) Ltd and Another

On 12 July 2018, Exxaro Coal Mpumalanga (Pty) Ltd (Exxaro) and TDS Projects Construction and Newrak Mining JV (Pty) Ltd (TDS) entered into a written construction contract. TDS procured a performance guarantee from ABSA Bank Limited (ABSA) for R32 082 012.90, with an expiry date of 19 June 2020. The guarantee required written demands signed by an authorised person stating the amount was due and payable. On 9 June 2020, Exxaro terminated the contract alleging breaches by TDS. On 10 June 2020, Exxaro made a first demand on ABSA for the guaranteed amount, which ABSA deemed unfit for processing. On 19 June 2020, Exxaro made a second demand for a reduced amount of R22 165 055.66. TDS applied to the high court for an interdict preventing ABSA from paying under the guarantee, arguing the demands were fraudulent and did not comply with the guarantee terms. The high court declared the demands invalid and granted the interdict. Exxaro appealed.

• Whether the requirements for a final interdict were satisfied, particularly whether TDS established injury
• Whether TDS had an alternative satisfactory remedy
• Whether a demand guarantee can be interdicted on grounds other than fraud
• Whether non-compliance with the terms of a guarantee constitutes a violation of the contractor's right justifying an interdict

The application for leave to appeal was granted with costs. The appeal was upheld with costs. The order of the high court was set aside and replaced with an order dismissing the original application with costs.

The binding legal principles established are: (1) To obtain a final interdict preventing payment under a demand guarantee, an applicant must establish a clear right, an injury actually committed or reasonably apprehended, and the absence of another adequate remedy. (2) Where a bank pays under a demand guarantee when not legally obliged to do so (due to non-compliance with guarantee terms), the contractor has a complete defence to any claim arising from such payment, which constitutes an alternative satisfactory remedy precluding the grant of an interdict. (3) Non-compliance with the terms of a demand guarantee by the beneficiary making the demand does not constitute a violation of the contractor's rights that would justify an interdict. (4) Save in exceptional cases involving fraud, South African courts should not interfere with banks honouring their obligations under demand guarantees, consistent with international banking practice.

The court noted that it was unnecessary to consider Exxaro's counter-application (which sought to compel TDS to provide a new or revised guarantee) in light of the conclusion reached on the main appeal. The court also did not find it necessary to deal with the nature of the alleged breaches by TDS that led to Exxaro terminating the contract, as these were not material to determining whether the interdict should have been granted. While the court referenced the high court's reliance on State Bank of India regarding the banker-client relationship of mandate, it did not need to express a view on whether this was the correct legal basis for determining compliance with guarantee terms, as the appeal was decided on other grounds.

This case reinforces fundamental principles regarding demand guarantees and performance bonds in South African law. It clarifies that interdicts to prevent payment under demand guarantees will only be granted in exceptional cases involving fraud, not merely on grounds of technical non-compliance with guarantee terms. The judgment upholds the sanctity of demand guarantees and the principle that banks should honour their obligations under such guarantees to maintain commercial certainty and South Africa's alignment with international banking practices. It also reinforces the strict requirements for final interdicts, particularly the need to establish actual injury and the absence of alternative remedies. The case emphasizes that contractors who dispute demands under performance guarantees have adequate remedies through defending any subsequent claims rather than seeking to prevent payment through interdicts.