A performance guarantee may be enforceable even where the beneficiary holds only a copy of the guarantee, if the evidence shows that the guarantee was issued and intended to operate.

In a 2025 High Court judgment, an employer awarded a construction contract to a contractor acting through a joint venture. Under the contract, the contractor was required to procure a performance guarantee in the employer’s favour to secure its contractual obligations. The contractor approached a guarantor to issue the required guarantee.

The contractor failed to complete the works, despite having been granted an extension. The employer cancelled the contract and appointed a replacement contractor to complete the works at additional cost. It then called on the performance guarantee.

The guarantor disputed liability, contending that it had never issued the guarantee. Its case was that the guarantee never came into legal existence because the original guarantee document had not been delivered to the employer. According to the guarantor, delivery of the original document was required for the guarantee to be valid and binding.

The court rejected this argument. It was common cause that the employer was in possession of a copy of the guarantee and that the authenticity of the document itself was not disputed. The sole issue was whether the guarantee had in fact been issued.

On the evidence, the objective facts pointed clearly to issuance. The guarantee was prepared, signed, and embossed on the same day that the contractor paid the guarantor a fee of R97 000 for its issue. A copy of the guarantee was provided to the contractor and forwarded to the employer shortly thereafter.

The guarantor sought to rely on a “cancelled” stamp appearing on the document, but was unable to explain who applied the stamp, when it was applied, or on what basis the guarantee was allegedly cancelled. There was also no evidence that either the contractor or the employer had been notified of any cancellation.

The court found that the probabilities overwhelmingly favoured the conclusion that the guarantee had been issued. The contractor was aware that provision of the guarantee was a prerequisite to commencing the works and would not have been permitted to proceed without furnishing it. The timeline showed that the contractor approached the guarantor, paid the required fee, and that the guarantee was prepared and signed soon thereafter.

The court rejected the notion that the guarantor could rely on its own internal conduct to avoid liability. A guarantor cannot issue a guarantee, provide copies to the contractor and employer, retain the original document, and then escape liability by insisting that the beneficiary produce the original. In the absence of any evidence of cancellation communicated to the parties who relied on the guarantee, it remained binding.

The guarantor was accordingly held liable to pay under the performance guarantee.

Development Bank of Southern Africa v Fusion Guarantees (Pty) Ltd and Another