In December 2024, the High Court held that reasons for non-performance are irrelevant considerations when a guarantor claims payment under counter-indemnities and suretyships executed in its favour.
The applicant insurer issued a guarantee in favour of a beneficiary on behalf of a contractor who was constructing a water pipeline for the beneficiary. The guarantee secured the performance of the contractor via-a-vis the beneficiary. The contractor as counter-indemnitor undertook to indemnify the insurer against claims that arose from the guarantee. The second to seventh respondents bound themselves as sureties and co-principal debtors, jointly and severally with the counter-indemnitor for its liability to the applicant under the indemnity.
The counter-indemnitor alleged that due to unrest in the local community, it became impossible to perform its obligations in respect of the construction of the water pipeline, as a result of which the contract with the beneficiary was terminated.
The beneficiary called on the insurer to honour its obligations under the guarantee. Once the insurer complied and launched an application against the counter-indemnitor and sureties based on the counter-indemnity and suretyship agreements executed in favour of the insurer. The respondents opposed the application based on impossibility of project performance.
The counter-indemnitor conceded that the insurer’s claim was based on an indemnity contract independent of the construction contract with the beneficiary. The court held that the terms of the construction contract between counter-indemnitor and the beneficiary had no bearing on the obligations between the insurer and the counter-indemnitor. The guarantee issued by the insurer was to safeguard the beneficiary in the event of default by the counter-indemnitor as contractor, irrespective of its reasons for non-performance.
Once the conditions of the guarantee were complied with, the counter-indemnitor’s liability to the insurer was triggered. Failure on the part of the contractor as counter-indemnitor to perform was one of the conditions of the guarantee that in turn triggered the counter-indemnitee The condition did not require the beneficiary to provide any reasons for the counter-indemnitor’s non-performance as contractor when demanding payment from the insurer. The reason for terminating the construction contract was irrelevant and the insurer’s claim against the counter-indemnitor and sureties succeeded.