## Facts

- Kristabel Developments (Pty) Ltd (“Kristabel”) engaged a building contractor under a construction contract that required the contractor to procure a performance (credit/payment) guarantee in Kristabel’s favour.
- Credit Guarantee Insurance Corporation of Africa Limited (“CG”) issued the on-demand guarantee securing Kristabel’s entitlement to payment upon presentation of specified documents.
- The guarantee required Kristabel, to obtain payment, to submit a written demand to CG stating that Kristabel had cancelled the construction contract due to the contractor’s default, and to attach a copy of the notice of cancellation to the demand.
- On or about 30 April 2014, Kristabel cancelled the construction contract for the contractor’s default and issued a written cancellation notice to the contractor.
- Kristabel sent copies of the cancellation notice to CG and to CG’s attorneys, and also copied them on related email communications about the cancellation.
- On 4 June 2014, Kristabel delivered a formal written demand to CG for payment under the guarantee. The demand stated that a copy of the cancellation notice was attached, but the cancellation notice was not in fact attached to that demand letter.
- CG rejected the demand on the basis that Kristabel had not complied with the guarantee’s express documentary requirement to attach the cancellation notice.
- Kristabel maintained that it had complied because the contract had been cancelled before the demand and CG already had the cancellation notice in its possession prior to the demand.
- During subsequent exchanges, CG made a part-payment of roughly half the amount claimed, while also contending that discussions and correspondence constituted a settlement that replaced (novated) the guarantee obligations.
- Kristabel brought application proceedings in the High Court to compel payment of the outstanding amount under the guarantee.

## Issues

1. Whether a demand under the on-demand guarantee was invalid because Kristabel did not attach the cancellation notice to the demand letter, even though CG had received the cancellation notice before the demand.
2. Whether the guarantee required literal, simultaneous presentation of the cancellation notice with the demand, or whether prior delivery that achieved the document’s purpose was sufficient in the circumstances.
3. Whether CG, by making a substantial part-payment without contemporaneously raising the missing-attachment point, elected to treat the demand as valid and waived reliance on that defect.
4. Whether any post-demand correspondence and part-payment constituted a settlement agreement that novated and replaced CG’s obligations under the guarantee.

## Decision

- The court granted relief enforcing Kristabel’s claim under the guarantee and rejected CG’s defences.
- The court held that Kristabel’s demand was enforceable despite the missing attachment because CG had already received the cancellation notice and was dealing with it; insisting on re-attaching the same document in these circumstances was an overly formal approach.
- In the alternative, the court held that CG’s part-payment in response to the demand, without raising the documentary objection at the time, amounted to an election to treat the demand as compliant and a waiver of the right to rely later on the missing attachment to refuse payment of the balance.
- The court rejected the novation defence, finding no clear agreement showing an intention to extinguish and replace the guarantee obligations with a new settlement obligation.

## Legal Principles

- An on-demand construction guarantee is payable against presentation of the documents specified in the instrument, rather than proof of the contractor’s default (subject to recognised limits such as fraud).
- Documentary requirements in demand guarantees are normally applied strictly, but interpretation of the requirement must account for the function the document serves and the context in which the demand is made.
- Where the guarantor already received the required cancellation notice before the demand and the demand clearly relies on that cancellation, prior delivery may satisfy the requirement in the circumstances, even if the demand letter did not physically include the attachment.
- Novation is not lightly inferred; it requires a clear, unequivocal intention to substitute a new obligation for an existing one.
- Waiver/election may arise where a party faced with a choice between inconsistent positions (pay or reject for noncompliance) chooses to pay (even in part) without raising the objection, thereby abandoning the right to rely on that objection later.

## Conclusion

Kristabel Developments v. Credit Guarantee enforced an on-demand construction guarantee where the beneficiary’s demand omitted a required attachment, holding that prior delivery of the cancellation notice to the guarantor (and the guarantor’s conduct in making part-payment without raising the defect) meant the guarantor could not refuse the balance on the basis of the missing attachment, and finding no settlement that replaced the guarantee obligations.


Kristabel Developments v. Credit Guarantee, Case number: 23125/2014 (2015)