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Fast Track Contracting (Pty) Ltd v Constantia Insurance Company and others

6 February 2019

On demand bonds consist of an undertaking by a guarantor to make payment of an amount of money on the happening of a specified event. A guarantee is an agreement independent of a construction contract between the parties and must be performed according to its terms. It is only in the most exceptional circumstances that a court will interfere with the guarantor’s obligations to pay.

In this case, the applicant, Fast Track Contracting (Pty) Ltd (“Fast Track”) sought an interdict preventing Constantia Insurance Company Limited (“Constantia”) from paying out a construction guarantee in favour of Group Five Coastal (Pty) Ltd, acting as agent for Group Five Construction (Pty) Ltd (collectively referred to as “Group Five”).

During April 2018, Group Five Coastal sent an e-mail to Fast Track, attaching a payment certificate which showed an amount due to Group Five KZN. Fast Track was to effect payment within 21 days. Fast Track failed to make payment of the certified amount.

Resultantly, Group Five called upon Constantia (the guarantor) to make payment to it in the sum of approximately R2.2 million. Fast Track disputed the entitlement of Group Five to call up the guarantee and launched an application in the Johannesburg High Court.

Fast Track did not allege any fraud on behalf of Group Five but rather argued that Group Five had failed to comply with clause 4 of the guarantee in that no binding payment advice was issued in favour of the contractor specified in the guarantee. In the building contract and the guarantee, the contractor was described as Group Five Coastal, acting as agents for Group Five Construction. Group Five Coastal had, however, subsequently changed its name to Group Five KZN.

The court considered that companies are entitled to change their registration names and that such company exists continuously, unless it is removed from the register. The court held that Group Five KZN is therefore Group Five Coastal and thus the call on the guarantee was proper and compliant with clause 4 of the guarantee.

Author: Kelly Stannard