In October 2025, the High Court held (yet again) that a contractor cannot go behind a compliant demand under an on-demand guarantee in the absence of proof of fraud by the beneficiary.

The applicant was appointed by the Western Cape Government (the second respondent) to provide road rehabilitation services for two stretches of roads. The contract prices were R96 million and R184 million, and the applicant was obliged to obtain performance bonds in an amount equal to 5% of the value of each contract. The insurer (first respondent) issued performance guarantees for both contracts.

The guarantees were called, after which the applicant urgently sought an interdict to prevent the Western Cape Government from calling up the guarantees pending resolution of the underlying issues. The insurer agreed to abide by the decision of the court, while the Western Cape Government opposed the application.

The applicant argued that the guarantees were conditional (rather than on-demand) and that the conditions for calling on the guarantees were not met. Alternatively, if the guarantees were found to be on-demand guarantees, the demands made by the Western Cape Government were fraudulent, because the construction contracts had not been validly cancelled.

The court held the guarantees were on-demand guarantees: a compliant written demand obliged payment without adjudicating the underlying cancellation dispute at this stage. The guarantee did not require proof of a valid cancellation and that separation reflects the autonomy of demand guarantees. The court said that there would be no purpose in having a guarantee if the defaulting party could raise defences relating to their failure to comply with their underlying obligations as these are separate issues that have nothing to do with the performance guarantee. The construction contract provided for dispute resolution mechanisms and arbitration, which is where the validity of cancellation fights belongs.

A call on an on-demand guarantee can only be interdicted in exceptional cases of clear fraud by the beneficiary in their calling upon the guarantee. Fraud must be distinguished from an “innocent” breach of the underlying contract. A mere breach does not necessarily amount to fraud. The applicant in this case was unable to prove fraud as they (i) treated alleged invalid termination/mistake as ‘fraud’, (ii) didn’t identify who supposedly acted fraudulently, and (iii) overlooked that even if Western Cape Government misapprehended its rights, that is an underlying contractual dispute, not fraud for guarantee purposes.

The applicant argued that in the absence of fraud, the common law should be developed to accommodate an unconscionability exception. The court noted that the common law did not need development, since the Constitutional Court had already stated that any contract contrary to the public interest will not be enforced. Further, the issue of unconscionability could only notionally arise if the guarantees were not on-demand guarantees and if the validity of the cancellation of the underlying contracts were relevant, which it was not in this case.

The application to interdict the calling on and payment of the guarantees was dismissed.

Imvula Roads and Civils (Pty) Ltd and Others v Hollard Insurance Co. Ltd and Another