[MEDIA SUMMARY] Eskom Holdings Soc Limited v Hitachi Power Africa (Pty) Ltd & another

Mizuho Corporate Bank Limited of Japan (the Bank) issued guarantees in favour of Eskom to secure performance by Hitachi under a construction contract for the construction of Works at the Medupi Power Station in Limpopo Province. Hitachi provided six guarantees drawn on the Bank, three of which were in the sums of R300,384,946.13, £21,273,236.13 and US$445,838.25, amounting to a total South African Rand value of over R600 million. Disputes arose between the parties concerning Hitachi's performance of its obligations under the construction contract. Eskom alleged that Hitachi had been guilty of material and ongoing breaches of the construction contract and failed to perform their contractual obligations timeously. Eskom presented the three guarantees to the Bank for payment. Hitachi launched an urgent application in the South Gauteng High Court seeking to interdict Eskom from demanding payment of the guarantees and to revoke any demand made, contending that Eskom was required to give prior notice before making demand. The High Court granted the relief sought by Hitachi, refusing to allow Eskom to demand payment of the guarantees.

• Whether the demand guarantee issued in favour of Eskom was, on a proper interpretation of its terms, an 'on demand' guarantee or a conditional guarantee
• Whether Eskom was required to give notice to Hitachi prior to making demand on the guarantees
• Whether disputes between Eskom and Hitachi under the construction contract affected the Bank's obligation to pay under the guarantee

The Supreme Court of Appeal upheld Eskom's appeal against the order of the South Gauteng High Court. Eskom was found to be entitled to demand payment of the guarantees issued by the Bank at the instance of Hitachi.

An 'on demand' or 'call guarantee' is independent of the underlying contract and the guarantor's obligation to pay the beneficiary is an autonomous obligation. Disputes between the parties to the underlying contract do not affect the guarantor's obligation to make payment under an on demand guarantee. Where a guarantee does not expressly require notice prior to demand, no such requirement can be implied or imposed by the court. The terms of a demand guarantee must be interpreted according to their plain meaning, and courts should not read additional conditions into the guarantee that are not expressly provided for in its terms.

The judgment does not contain extensive obiter dicta. The media summary focuses on the core legal principles relevant to the decision. Any observations beyond the ratio would require access to the full judgment rather than this media summary.

This case is significant in South African commercial and banking law as it clarifies the distinction between 'on demand' or 'call guarantees' and conditional guarantees. It affirms the principle that on demand guarantees are independent of the underlying contract and that the guarantor's obligation to pay is not affected by disputes between the parties to the underlying contract. The judgment reinforces the autonomous nature of demand guarantees and the principle that courts should not impose contractual requirements (such as notice) that are not expressly provided for in the guarantee instrument. This provides certainty in commercial transactions, particularly in construction and infrastructure projects where demand guarantees are commonly used as security instruments.