10 June 2024

International Cases

Bonifacio and Another vs. Lombard Insurance Company

South Africa



Liability on the guarantee could be avoided, if there was fraud on the part of the beneficiary

Present appeal considers whether the first Appellant, Jorge Alexandre Da Costa Bonifacio, and the second Appellant, Sergio Rui Da Costa Bonifacio (Appellants), are liable to indemnify the Respondent, Lombard Insurance Company Limited (the Respondent), for a payment it made to DBT Technologies (Pty) Ltd (DBT). The payment was made in respect of a guarantee which the Respondent had issued for the due performance of the obligations of Tubular Construction Projects (Pty) Ltd (TCP) to DBT. The high court) found that, the Appellants were so liable.

The only basis upon which liability on the guarantee could be avoided, would be if there was fraud on the part of the beneficiary. That would require proof that DBT had presented a written demand, which it knew misrepresented the true facts when it submitted the demand drawing on the guarantee. As has been said, fraud, if established, ‘unravels everything’. No court will give effect to a fraud.

The Supreme Court of Appeal in its judgment confirmed the autonomous nature of a performance guarantee. Liability based on such guarantee depends on compliance with the terms of the guarantee and is not affected by any alleged breach of the terms of the underlying agreement in respect of which it was issued, unless the demand for payment was tainted by fraud.

It found that, there was no legal impediment to Lombard compromising on its liability to DBT. It also found that notwithstanding Lombard’s settlement of DBT’s demand, the Bonifacios had appropriate procedures available to them to have raised the issue of fraud on the part of DBT for determination, but that they had failed to do so. No evidence of fraud on the part of Lombard had been adduced before the court, and that the issue of any fraud on the part of DBT, had not been properly raised for determination. Finally, it concluded that the claim for an indemnity was, based on the terms of the indemnity and a proper interpretation of the affidavits, not conditional. Appeal dismissed.

Tags : Payment Indemnity Claim

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