In a recent judgment in the matter Lombard Insurance Company Limited v The Commissioner for the South African Revenue Service (Case No. 7177/2022, Gauteng Division, Pretoria), the importance of the wording of a guarantee issued to the South African Revenue Service (“SARS”) came to the fore.

Sabila Air & Sea (Pty) Ltd (“Sabila”), a licensed clearing agent and remover of goods in bond, held deferment accounts at several Customs offices across South Africa. Lombard Insurance issued six deferment guarantees in favour of SARS as security for those accounts. When Sabila was liquidated in 2018, SARS called up all six guarantees and demanded payment of approximately R10 million from Lombard Insurance. A dispute arose as to the proper interpretation of the guarantees, resulting in Lombard Insurance approaching the High Court in Pretoria seeking appropriate declaratory relief.

The relief sought in the High Court proceedings included whether the guarantees were port-specific; whether the liability ceased under section 99(5) of the Customs & Excise Act, 1964 (“the Act”); and whether the debt was prescribed.

The key findings can be summarised as follows:

1. Where a guarantee is linked to the deferment account at a specific port, the question is whether such guarantee also covers liability at a different port. The court held that each guarantee covers liability arising only at the specific port or Customs office named in that guarantee. SARS cannot aggregate all guarantees to satisfy a composite debt, nor can it apply a guarantee issued in respect of, say, the Cape Town office to settle liabilities arising at the Durban or Port Elizabeth offices.
   
   The court rejected SARS' argument that the port reference was merely an administrative or risk-assessment tool with no limiting effect. The Court also held that SARS’ interpretation is "manifestly artificial and implausible," noting that each guarantee carries a discrete maximum amount tied to Sabila's exposure at a particular port. The contra preferentem rule reinforced this conclusion, since SARS itself prescribed the wording of the guarantees.
    
2. Lombard also argued that Sabila's liability had ceased by operation of section 99(5) of the Act, which provides a two-year limitation period for certain liabilities of clearing agents. The court declined to grant a declarator on this issue, primarily because the factual record was insufficient and the motion court was not the appropriate forum to resolve the underlying factual disputes.
    
3. Lombard furthermore argued that its own contractual liability under the guarantees had prescribed independently after three years in terms of section 11(d) of the Prescription Act. The court rejected this, confirming the well-established principle that a surety's accessory obligation cannot prescribe before that of the principal debt. Since the underlying customs duty and VAT debts attract a 30-year prescription period under section 11(a)(iii) of the Prescription Act (as debts "in respect of taxation"), Lombard's liability remained very much alive.
    
4. In the papers Lombard disputed that VAT was covered by the guarantees. Where guarantees refer to "duties and taxes," both customs duty (under the Act) and VAT on importation (levied under the Value-Added Tax Act) fall within the ambit of the guarantees.

What is also important to note is that although labelled as "Suretyship (Guarantee)" or "Guarantee for Payment," the court found that all six instruments bear the hallmarks of suretyships — accessory obligations dependent on the principal debt owed by Sabila. This is relevant because a surety's liability rises, which also has implications for prescription as referred to above.

Takeaways from the judgment is that depending on the wording of a guarantee, the guarantee can be port- or branch-specific instruments. An insurer cannot be compelled to meet claims that arose at a port not covered by the particular guarantee presented.

Licensees should therefore ensure that they have adequate cover in place at each port where they operate. On the other hand, SARS should not assume that a large guarantee at one port will compensate for inadequate cover at another port. If the wording of a guarantee refers to a specific port, that guarantee remains tied to the liabilities of the deferment account at the specific office named therein and not to satisfy a consolidated debt.