Millenium Aluminium and Glass Services CC and Others v Group Five Construction (Pty) Ltd and Another

Group Five Construction (Pty) Ltd appointed Millenium Aluminium and Glass Services CC as a subcontractor for the Pearls of Umhlanga – Pearl Sky project in Durban under the JBCC Series 2000 Nominated/Selected Sub-contract Agreement. As part of its obligations, Millenium was required to provide a performance guarantee in favour of Group Five Construction, which it obtained from Constantia Insurance Company Limited (Guarantee 117929J). Group Five Coastal (Pty) Ltd, acting as agent for Group Five Construction, issued a payment certificate on 25 April 2018 to Millenium for R12,239,967.24, which was not paid. Group Five Coastal sent a written demand to Millenium on 18 May 2018, and when payment was not forthcoming, made a demand on Constantia on 28 May 2018 in terms of clause 4.2 of the guarantee. Constantia refused to pay, and Group Five Construction approached the high court seeking payment. The payment certificate was issued by Group Five Coastal under its new trading name, Group Five KZN (Pty) Ltd. Millenium opposed the application, arguing that no proper demand was made because the payment certificate was issued by Group Five KZN, an entity not party to the construction contract or guarantee, and that the guarantee's jurisdictional requirements were not met. Constantia joined Millenium, Mr Mohanlall Bridgenun (second appellant), and Fast Track Contracting Africa (Pty) Ltd (third appellant) as third parties based on indemnity and suretyship agreements.

• Whether Group Five Construction complied with the requirements of the construction guarantee when demanding payment from Constantia
• Whether the payment certificate issued by Group Five KZN (formerly Group Five Coastal) satisfied the jurisdictional requirements of clause 4 of the guarantee, despite being issued by an entity with a different trading name than that specified in the guarantee
• Whether strict compliance with the terms of a demand guarantee is required
• Whether the use of a copy of the guarantee instead of the original affects the validity of the claim

The appeal was dismissed with costs. The high court order was upheld, requiring: (1) Constantia to pay Group Five Construction R1,419,364.09 plus costs; (2) declaring that the third parties (appellants) are obliged, jointly and severally, to indemnify Constantia; (3) ordering the third parties to pay Constantia R1,419,364.09 together with interest at 10% per annum from 18 May 2020 to date of final payment; and (4) ordering the third parties to pay all costs on an attorney and client scale incurred by Constantia.

A demand guarantee must be paid according to its terms and the real issue is whether there was compliance with the terms of the guarantee, which requires interpretation of the particular guarantee, rather than strict and precise compliance in all respects. Where an agent acts on behalf of a principal as specified in a guarantee, and the payment advice clearly identifies the contract and parties, the jurisdictional requirements of the guarantee are met even if the agent uses a different trading name than originally specified in the guarantee. A demand guarantee is an independent agreement that must be performed according to its terms and liability under it is not affected by the relationship between other parties to the underlying transaction. The purpose of a construction guarantee is to enable the contractor to obtain payment from the guarantor in the event of default by the subcontractor, and this commercial purpose should inform interpretation of the guarantee's requirements.

The Court noted that Millenium was opportunistic in arguing that the high court should not have granted relief because a copy rather than the original guarantee was submitted, given that Millenium's own director had returned the original guarantee to Constantia for cancellation. The Court assumed in favour of Millenium that the point raised for the first time on appeal was a legal point that could be considered, but found it had no merit. The Court also noted that the high court had erroneously included prayers 1 and 2 in its order, which Group Five Construction had abandoned.

This case clarifies the application of demand guarantee principles in South African construction law. It establishes that demand guarantees are independent agreements that must be performed according to their terms, but are not subject to strict and precise compliance in all respects. The case confirms that the interpretation of a demand guarantee is what matters, not technical formalism. It provides guidance on when an agent's actions on behalf of a principal will satisfy guarantee requirements, and emphasizes the commercial purpose of performance guarantees in construction contracts. The judgment reaffirms the principles established in cases such as OK Bazaars (1929) Ltd v Standard Bank of South Africa Ltd, Lombard Insurance Co Ltd v Landmark Holdings (Pty) Ltd, and First Rand Bank Ltd v Brera Investments CC regarding the nature of demand guarantees as independent undertakings not affected by the underlying contractual relationship.