The guarantor in Raubex Construction (Pty) Ltd v Bryte Insurance Company alleged that payment under a guarantee was not due because of fraud on the part of the beneficiary. A mere error, misunderstanding or oversight, however unreasonable, does not amount to fraud and is insufficient to show that the contentions of the beneficiary are deliberately incorrect. The guarantor has to go further and show that the representor advanced the contentions in bad faith knowing them to be incorrect.
The Supreme Court of Appeal re-affirmed that the onus is on the guarantor to prove the fraud. Factual allegations have to be proved that lead to a conclusion of fraud.
The guarantee in question was a retention guarantee under a construction contract which the parties expressly stated was to be ‘unconditional’ and not ‘affected or diminished by any disputes, claims or counterclaims between the main contractor and the subcontractor’. It was therefore not an accessory obligation to the construction contracts.
The retention money was retained for work which remained outstanding on the date of the taking-over certificate and for defects and damage which existed after that date. Upon the issue of the completion certificate the main contractor was entitled to require the subcontractor to complete any work which was outstanding on the date stated in the certificate of completion and was entitled to incur the cost of completing the work itself if the work was not done. That cost was therefore found to be the amount guaranteed (though without a detailed analysis of the evidence) and the guarantor was ordered to pay that sum in terms of the guarantee.
The court suggested a few times in the judgment that ‘fraud is not easily inferred’ implying that there is some additional onus to establish fraud. This is not good law. All civil disputes are decided on the balance of probabilities.