IS IT A GUARANTEE OR A SURETYSHIP? AN ANALYSIS OF STANDARD BANK OF SOUTH AFRICA LTD v WARDKISS PROPERTY HOLDINGS (PTY) LTD
‘There is a saying that if it looks like a duck, walks like a duck and quacks like a duck, then it just may be a duck. This is the duck test, a humorous term for a form of inductive reasoning’. These were the words of Bezuidenhout J in the recent Pietermaritzburg High Court case of Standard Bank of South Africa Ltd v Wardkiss Property Holdings (Pty) Ltd (19 December 2023) where the issue for determination was whether a security document entitled ‘Guarantee’ was in fact a guarantee or a suretyship.
The Bank provided funding and the collateral required was a Guarantee to be signed by the respondent. The Guarantee was signed electronically which is permissible with Guarantees but not with suretyships due to an antiquated law dealing with suretyships which requires a suretyship to be signed in wet ink.
When a claim was made on the Guarantee for payment, the defence raised is that notwithstanding the document being called a Guarantee it was in fact a suretyship and should have been signed in wet ink and was therefore invalid and the Bank was not entitled to claim payment.
The Court scrutinized the document and noted one of the defining features with a Guarantee is that it guarantees as a principal and independent obligation (and not merely as ancillary obligation as with suretyships) payment to the Bank. It was also noted that the Guarantee was valid and effective regardless of the validity or enforceability of the debts that it was guaranteeing.
An interpretation of a contract is done by looking at the language used and the context and purpose of the document. By applying these tests, the Judge came to the conclusion that ‘it looks like a guarantee, it behaves like a guarantee, and in my view, it is a guarantee’.
Being a Guarantee (as opposed to a suretyship) it did not have to been signed by way of an advanced electronic signature and an electronic signature rendered it valid and the Bank was entitled to claim payment under the Guarantee.