A January 2026 High Court judgment confirmed, yet again, that an insurer issuing an advance payment guarantee is obliged to honour a demand for payment where the demand complied with the terms of the guarantee. Disputes over payment certificates are managed under the construction contract. The court reaffirmed the autonomous nature of demand guarantees and confirmed that only established fraud will justify refusal to pay.

The dispute arose from a construction project in terms of which the employer advanced R96 084 931.40 to the contractor to facilitate performance of the works. The advance was secured by an advance payment guarantee in the same amount, issued by the insurer. In terms of the construction contract, the advance was to be recouped progressively through deductions and reflected in interim payment certificates.

Consequent to the contractor’s default and the termination of the construction contract, the employer determined that R62 347 518.20 of the advance payment remained outstanding and unrecovered. The employer issued a demand against the contractor for repayment of this amount. When payment was not made within the contractual cure period, the employer issued a demand to the insurer under the advance payment guarantee for the outstanding amount.

The insurer refused to honour the demand. It contended that the advance had already been fully recouped, that the guarantee had expired, and that the employer had departed from the agreed recoupment mechanism. Central to its defence, it alleged inconsistency between earlier and later payment certificates, which it argued demonstrated that the demand was false and made in bad faith.

The court rejected these arguments. It found that the demand complied strictly with the wording of the guarantee and was made within its validity period. The payment certificates relied upon by the employer consistently reflected that the advance had not been fully recovered. Although later certificates clarified certain entries, they did not alter the certified amounts or misrepresent the financial position. The court held that such clarification did not invalidate the demand and did not constitute fraud.

Importantly, the court held that the guarantee did not require the employer to prove the precise mechanics of recoupment as a precondition to payment. The insurer’s obligation arose once the employer certified that a balance of the advance remained unpaid and made a compliant demand. Disputes relating to the correctness of payment certificates or the calculation of recoupment were matters between employer and contractor and did not affect the insurer’s liability under the guarantee.

The court emphasised that fraud in the context of demand guarantees requires clear proof that the beneficiary knowingly presented materially false documents with intent to deceive. The alleged errors, inconsistencies, or subsequent adjustments in payment certificates fell well short of this threshold.

The insurer was accordingly ordered to pay R62 347 518.20 under the advance payment guarantee. The court also confirmed the insurer’s entitlement to enforce related indemnities and suretyships against the contractor’s principals following payment.

[Development Bank of Southern Africa v Hollard Insurance Company Limited and Another]