This judgment dealt with an application based upon a deed of suretyship and indemnity executed by the respondents in favour of the insured. The deed of surety and indemnity had its genesis in a guarantee issued by the insurer to an airline in favour of Airports Company South Africa SOC Limited, the beneficiary.
The insurer, consequent upon the debtor’s breach of its obligations under the agreement, made payment to the beneficiary as demanded.
The airline was placed into business rescue.
The respondents failed to make payment under the suretyships and indemnities they had provided to the insurer.
Default judgment was obtained against all the respondents except for the second respondent, who opposed the application.
One of the defences raised by that respondent was that the National Credit Act (“NCA”) applied to the transaction. Insofar as Section 4(2)(c) of the NCA removed the protection of natural persons consumers under the NCA (the second respondent was a natural person) that was discriminatory and the relevant section fell to be declared invalid in terms of Section 172 of the Constitution. In order to impugn the provisions of Section 4(2)(c) of the NCA the court had to find that the deed of suretyship and indemnity should be regarded as a “credit guarantee” to which the NCA applies.
Section 8(5) of the NCA provides that “(5) An agreement irrespective of its form, but not including an agreement contemplated in sub-section (2), constitutes a credit guarantee if, in terms of that agreement, a person undertakes or promises to satisfy upon demand any obligation of another consumer in terms of a credit facility or credit transaction to which this Act applies.”
Having regard to Section 8(3) and 8(1) read with 8(4) of the NCA, the court said that it could not find that the deed of suretyship and indemnity executed by that respondent should be regarded as a “credit guarantee” to which the NCA has application. In doing so the court had regard to the relationship between the insurer and the airline, it being common cause that:
“54.1 The first to fourth respondents executed a deed of suretyship and indemnity in favour of the applicant in terms of which they, as co-indemnifiers with FBC, indemnified the applicant against any loss it may sustain consequent upon the issuing of any guarantee by the applicant on behalf of or at the behest of FBC.
54.2 FBC made application to the applicant for a guarantee.
54.3 At clause G of the application for a guarantee, which is titled “Declaration”, it is recorded, inter alia, that “I/We [FBC] agree in consideration of the fact that Santam Limited has consented to act as surety, to pay the premium in respect of each guarantee that Santam Limited may provide me/us [FBC] with at inception date of such guarantee. Should a guarantee, following the lapse of one year from the inception date, still be required by the employer (beneficiary)[ACSA]. I/we [FBC] furthermore agree to pay Santam Limited all renewal premiums for the subsequent years at renewal date, until I/we [FBC] can provide satisfactory proof to Santam Limited that the guarantee is no longer required”
The Short-term Insurance Act defines a “guarantee policy” to mean “[a] contract in terms of which a person, other than a bank, in return for a premium, undertakes to provide policy benefits if an event, contemplated in the policy as a risk relating to the failure of a person to discharge an obligation occurs and includes a reinsurance policy in respect of such a policy.
Section 8(2) of the NCA provides that an agreement irrespective of its form is not a credit agreement if it is a policy of insurance or credit extended by an insurer solely to maintain the payment of premiums on a policy of insurance. It was clear to the court that the airline had been issued with a policy of insurance.
In terms of Section 8(2) of the NCA a policy of insurance is not a “credit agreement” and therefore the NCA did not apply.
The South African court authority is clear that if the NCA does not apply to the principal debtor, it does not apply to the surety of co-principal debtor.
The court accordingly held that there was no basis in fact or in law for the constitutional challenge.