THE SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
Not Reportable
Case no: 169/2021

In the matter between:
EXXARO COAL MPUMALANGA (PTY) LTD                  APPLICANT

and

TDS PROJECTS CONSTRUCTION AND
NEWRAK MINING JV (PTY) LTD                     FIRST RESPONDENT

ABSA BANK LIMITED                                        SECOND RESPONDENT

Neutral citation: Exxaro Coal Mpumalanga (Pty) Ltd v TDS Projects
Construction and Newrak Mining JV (Pty) Ltd and
Another (Case no 169/2021) [2022] ZASCA 76 (27 May
2022)
Coram:
SCHIPPERS, NICHOLLS, GORVEN and MABINDLA-
BOQWANA JJA and MEYER AJA
Heard:
6 May 2022
Delivered: 27 May 2022

Summary: Civil Procedure – interdict to stop payment of demand guarantee
– whether requirements for a final interdict satisfied – injury not established
– alternative satisfactory remedy available.

ORDER

On appeal from: Gauteng Division of the High Court, Johannesburg
(Lamont J, sitting as a court of first instance):
The application for leave to appeal is granted with costs.
The appeal is upheld with costs.
The order of the high court is set aside and replaced with the following
order:
‘The application is dismissed with costs.’

JUDGMENT
Mabindla-Boqwana JA (Schippers, Nicholls and Gorven JJA and Meyer
AJA concurring)

[1] This is an application for leave to appeal by the applicant, Exxaro Coal
Mpumalanga (Pty) Ltd (Exxaro) against the judgment of the Gauteng Division
of the High Court, Johannesburg (the high court) and, if successful, the
determination of the appeal itself. The application was referred for oral
argument in terms of s 17(2)(d) of the Superior Courts Act 10 of 2013.

[2] The facts of this case are uncomplicated. On 12 July 2018, Exxaro and
the first respondent, TDS Projects Construction and Newrak Mining JV (Pty)
Ltd (TDS), entered into a written agreement for the construction of the
mechanical and electrical plant, civil, building and engineering works in
respect of a project described as the ‘Tunnel Development (Drill and Blast)
and Infrastructure Development’ concerning Exxaro’s Matla Coal Mine North
West Access Project (the contract).

[3] TDS procured a performance guarantee for the due fulfilment of its
obligations in the amount of R32 082 012.90, as required by the contract. The
guarantee was issued by the second respondent, ABSA Bank Ltd (ABSA), on
22 August 2018, subject to the following material terms: (a) the guaranteed
amount would be paid to Exxaro on receipt by ABSA of a written demand
stating that such an amount was due and payable; (b) written demands would
be signed by a person who warranted that he/she was duly authorised to do
so; (c) the guarantee would expire on 19 June 2020 (the expiry date) and any
claim and statement would have to be received by ABSA before the expiry
date; and (d) after the expiry date, the guarantee would lapse and any
statement received thereafter would be ineffective.

[4] On 9 June 2020, Exxaro sent a letter to TDS terminating the contract
with immediate effect on the basis that TDS had committed breaches which it
failed to remedy. TDS denies having committed those breaches. The nature of
those alleged breaches need not be dealt with in this judgment. On 10 June
2020, Exxaro sought to invoke its rights under the guarantee by sending a
demand to ABSA claiming that the guaranteed amount had become payable

as a result of TDS’s failure to perform in terms of the contract (the first
demand). In response, ABSA advised Exxaro that the demand was ‘deemed
unfit for processing’ by ABSA on various bases, which are also not necessary
to state. This was followed by a letter from Exxaro suspending the first
demand. On 19 June 2020, Exxaro sent another letter to ABSA retracting the
suspension and claiming a lesser amount of R22 165 055.66 (the second
demand). Save for this lesser amount, the second demand was identical to the
first.

[5] On 25 June 2020, TDS applied to the high court for an interim order
interdicting Exxaro from demanding, and ABSA from making payment of any
amount under the guarantee to Exxaro, pending determination of the relief
sought in Part B of the application. In Part B, TDS sought an order declaring
that the demands made by Exxaro for payment of the guarantee were invalid,
and a final interdict preventing ABSA from making payment of any amount
under the guarantee. Exxaro opposed the application and lodged a counter-
application to compel TDS to provide a new or revised guarantee on the basis
of an alleged agreement TDS had allegedly reneged on. The high court was
only called upon to determine Part B of the application. Although ABSA
abided the court’s decision, it filed an affidavit to state its position.

[6] The grounds for the interdict were as follows. TDS alleged that ‘the
first and second demands were fraudulently made’ and that it had ‘a clear right
to prevent [Exxaro] from unlawfully benefiting under the guarantee’. It further
alleged that the demands did not comply with the terms of the guarantee in
that they were not signed by a person warranting that they had authority to do

so; they failed to state that the amount claimed was due and payable; and they
did not indicate the respects in which TDS had breached the contract. As such,
ABSA was not legally obliged to honour the guarantee since its terms
governing the demand had not been met.

[7] The harm or injury that TDS allegedly would suffer if the interdict was
not granted, was stated as follows:
‘[T]he second respondent [ABSA] will make payment of the full amount under the
guarantee to the first respondent [Exxaro], notwithstanding the absence of any entitlement
whatsoever on the part of [Exxaro];
the applicant [TDS], having been subject to a fraudulent call, will suffer severe financial
prejudice in relation to the trigger of counter-guarantees and immediate liability under
circumstances where there would otherwise be none (and ought to be none having regard
to the absence of an entitlement on the part of [Exxaro]);
the foregoing would trigger events of default in respect of [TDS’s] various facilities and/or
contracts, the dire consequences of which would include the cancellation of such contracts
and/or immediate calling up of such facilities when they would not otherwise have been an
immediate liability…’
This was all that was said. These assertions were not based on any evidence
as to the consequences, if any, that the honouring of the demand by ABSA
would have on TDS.

[8] TDS then alleged that it had no other satisfactory remedy. It claimed
that its damages, which were not confined to the amount paid under the
guarantee, were impossible alternatively extremely difficult, to quantify and
would in all likelihood be recovered well into the distant future, whilst its
business would be crippled or destroyed in the interim.

[9] The high court stated that it was unnecessary to deal with the allegations
that the demand for payment of the guarantee was fraudulently made, because
the non-compliance with the terms of the guarantee was dispositive of the
matter. Relying on State Bank of India and Another v Denel SOC Limited and
Others (State Bank of India),1 the high court held that TDS was entitled to
raise the issue of non-compliance with the demand, on the basis of a contract
of mandate (the banker-client relationship). Consequently, the high court
granted an order declaring the demands to be invalid and of no force or effect.
It refused Exxaro’s counter-application on the basis that there were disputes
of fact which could not be resolved on the papers and further, that there was
an arbitration provision in the contract to deal with the dispute concerning the
counter-application.

[10] It was common cause between the parties that the performance
guarantee issued by ABSA is a demand guarantee. As was held in Loomcraft
Fabrics CC v Nedbank Ltd and Another (Loomcraft)2 and numerous cases that
followed it, a demand guarantee is akin to an irrevocable letter of credit, which
establishes a contractual obligation on the part of the bank to pay the
beneficiary on the occurrence of a specified event, and is wholly independent
of the underlying contract of sale between the buyer and the seller. The bank
will escape liability only upon proof of fraud on the part of the beneficiary.3

1 State Bank of India and Another v Denel SOC Limited and Others [2014] ZASCA 212; [2015] 2 All SA
152 (SCA) para 27.
2 Loomcraft Fabrics CC v Nedbank Ltd and Another [1996] 1 All SA 51 (A); 1996 (1) SA 812 (A) at 815G-
J; Lombard Insurance Co Ltd v Landmark Holdings (Pty) Ltd and Others 2010 (2) SA 86 (SCA) para 20;
Coface South Africa Insurance Co Ltd v East London Own Haven t/a Own Haven Housing Association 2014
(2) SA 382 (SCA) paras 10-13.
3 Loomcraft fn 2 above.

The importance of allowing banks to honour their obligations under
irrevocable credits without judicial interference, was stressed in Loomcraft,
where it was stated that an interdict by the buyer to restrain a bank from paying
under a letter of credit would not be granted save in the most exceptional
cases.4

[11] Counsel for TDS conceded that no case of fraud was made out in the
founding affidavit. In its supplementary founding affidavit, TDS alleged that
the focal point of the application was ‘whether there exists a compliant
demand for payment under the guarantee’. Thus, the case made out by TDS
was non-compliance by Exxaro with the terms of the guarantee.

[12] The question, therefore, is whether TDS was entitled to an interdict on
this basis. The requisites for the grant of a final interdict are trite: a clear right;
an injury actually committed or reasonably apprehended; and the absence of
another adequate remedy.5

[13] In my view, TDS failed to establish any injury ie ‘something actually
done which is prejudicial to or interferes with the applicant’s right’.6 The
alleged injury was firstly, founded on ‘a fraudulent call’ on the guarantee,
which – it was conceded – had not been established. Secondly, the terms of
the banker-customer relationship between TDS and ABSA, the content of the
counter-guarantees that allegedly would have resulted in ‘immediate liability’

4 Loomcraft fn 2 above at 816D-H.
5 Setlogelo v Setlogelo 1914 AD 221.
6 V & A Waterfront Properties (Pty) Ltd and Another v Helicopter & Marine Services (Pty) Ltd and Others
2006 (1) SA 252 (SCA) para 21.

to TDS, and the ‘default in respect of various facilities’ that would be
triggered, were not pleaded. In short, no evidence was presented as to the
existence or nature of the relationship between TDS and ABSA, or what
obligations would arise if ABSA honoured the performance guarantee.

[14] More fundamentally, however, if ABSA were to honour the guarantee
when the demand to do so did not comply with the terms of the guarantee,
TDS would have a complete defence to a claim by ABSA based on its having
done so. The only basis on which any liability of TDS might arise, whether to
ABSA or any other party, would be if ABSA was lawfully obliged to honour
the guarantee. The entire argument before us was that the demand made of
ABSA was not lawful since it did not comply with the terms of the guarantee.
Consequently, non-compliance with the terms of the guarantee by Exxaro in
making its demand is not a violation of any right of TDS. Neither will payment
of the guarantee by ABSA result in a violation of a right of TDS. Indeed, this
was conceded by counsel for TDS. That being the case, TDS could not show
that it would sustain any injury if ABSA honoured the guarantee when not
obliged to do so.

[15] What is more, any contractor that has given a performance guarantee
and which is in the same position as TDS, ‘. . . would have its ordinary
contractual remedy against [the guarantor]’.7 In this matter, the remedy is a
complete defence to any claim founded on the honouring of the guarantee
when ABSA was not obliged to do so. This accords with the principle stated

7 Loomcraft fn 2 above at 823H-823I.

in State Bank of India8 that ‘South African courts, like their international
counterparts, should jealously guard the international practice that banks
honour the obligations they have assumed in terms of guarantees issued by
them’ save in exceptional cases where fraud is involved. Otherwise viewed, it
would mean that every contractor in the position of TDS, could simply seek
an interdict in circumstances where it has a satisfactory remedy available to
it. This is a further reason why the interdict ought not to have been granted.
In this regard the high court erred.

[16] By reason of the conclusion to which I have come, it is unnecessary to
consider the counter-application. There is no reason why costs should not
follow the result.

[17] For those reasons, the following order is made:
The application for leave to appeal is granted with costs.
The appeal is upheld with costs.
The order of the high court is set aside and replaced with the following
order:
‘The application is dismissed with costs.’

_________________________
N P MABINDLA-BOQWANA
JUDGE OF APPEAL

8 State Bank of India fn 1 above paras 6-7.

Appearances:

For applicant:

F G Barry SC
Instructed by:

DLA Piper South Africa (RF) Inc, Sandton
Webbers Attorneys, Bloemfontein.

For first respondent:

A Bester SC (with him D Hodge)
Instructed by:

Tiefenthaler Attorneys, Johannesburg
Honey Attorneys, Bloemfontein.
THE SUPREME COURT OF APPEAL OF SOUTH AFRICA
MEDIA SUMMARY OF JUDGMENT DELIVERED IN THE SUPREME COURT OF
APPEAL

From:
The Registrar, Supreme Court of Appeal
Date:

27 MAY 2022
Status:
Immediate
The following summary is for the benefit of the media in the reporting of this case and does not form part of
the judgments of the Supreme Court of Appeal

Exxaro Coal Mpumalanga (Pty) Ltd v TDS Projects Construction and Newrak Mining JV (Pty) Ltd and
Another (Case no 169/2021) [2022] ZASCA 76 (27 May 2022)
Today the Supreme Court of Appeal (SCA) delivered a judgment granting the application for leave to
appeal brought by the applicant, Exxaro Coal Mpumalanga (Pty) Ltd (Exxaro) and upholding the appeal
with costs against a decision of the Gauteng Division of the High Court, Johannesburg (the high court).
The first respondent, TDS Projects Construction and Newrak Mining JV (Pty) Ltd (TDS), sought an
order in the high court, interdicting Exxaro from demanding payment and the second respondent, ABSA
Bank Ltd (ABSA), from making payment under a demand guarantee it had procured for due fulfilment
of its obligations, in terms of a contract it had with Exxaro. The grounds for the interdict were that the
demands made by Exxaro were: (a) fraudulently made; and (b) non-compliant with the terms of the
guarantee.
Having been conceded on behalf of TDS that a case of fraud was not made out on the papers, the
question before the SCA was whether TDS was entitled to a final interdict on the basis that Exxaro’s
demands were non-compliant with the terms of the guarantee.
The SCA restated the principle that a demand guarantee is akin to an irrevocable letter of credit, which
establishes a contractual obligation on the part of the bank to pay the beneficiary on the occurrence of
a specified event, and is wholly independent of the underlying contract of sale between the buyer and
the seller. The bank will escape liability only upon proof of fraud on the part of the beneficiary, which as
conceded on behalf of TDS, was not established in this case.
As to whether the requisites of a final interdict were met, the SCA held that TDS failed to establish any
injury. No evidence was presented as to the existence or nature of the relationship between TDS and
ABSA or what obligations would arise if ABSA honoured the performance guarantee. More
fundamentally, if ABSA were to honour the guarantee when the demand to do so did not comply with
the terms of the guarantee, TDS would have a complete defence to a claim by ABSA based on its
having done so. The only basis on which any liability of TDS might arise, whether to ABSA or any other
party, would be if ABSA was lawfully obliged to honour the guarantee. Consequently, non-compliance
with the terms of the guarantee by Exxaro in making its demand was not a violation of any right of TDS.
Neither would payment of the guarantee by ABSA result in a violation of a right of TDS. Furthermore,
like any contractor in its position, TDS would have a contractual remedy available to it, against the
guarantor. The SCA accordingly found that the high court erred in granting the interdict in TDS’s favour.

~~~~ends~~~~