The Johannesburg High Court was invited to enforce a demand guarantee in the form of a performance bond because allegations relating to fraud had not been adjudicated on and this would be left to a parallel arbitration process.

That is not the correct approach to these matters. The cause of action arose from a guarantee issued in terms of a construction contract. There were allegations of breach and non-compliance with the construction contract including allegations of fraud. Because there was a parallel arbitration dealing with these issues the court said the Arbitration Tribunal was the appropriate forum to adjudicate on the factual issues.

The right approach to a demand guarantee has been laid down in a number of cases. The guarantee must be enforced unless there is evidence of fraud. The court in Engala Africa v Lombard Insurance Company Limited should have made a decision whether fraud had been proved and enforced or not enforced the guarantee accordingly.

The matter is on appeal.