Demand Guarantees in the Construction Industry: Recent Developments in the Law Relating to the Fraud Exception to the Independence Principle

Author Cayle Lupton

ISSN: 1996-2185 Affiliations: Assistant lecturer in Mercantile Law, University of Johannesburg. Source: South African Mercantile Law Journal, Volume 31 Issue 3, 2019, p. 399 – 416


Over the last decade or so, South African courts have had to decide many cases relating to demand guarantees. This article is, however, concerned with recent case law that dealt with fraudulent calls on demand guarantees in construction disputes. In dealing with this development, the article explores, in the first instance, the construction context and the main legal features of demand guarantees (documentary compliance and independence). It then deals with the fraud exception to the independence principle. Against this background, recent South African case law (Phenix Construction and Group Five) that explored the parameters and standard of proof of this exception, is evaluated. Then the principle of documentary compliance and bad or good faith on the part of the beneficiary is evaluated with regard to their respective relations to the fraud exception. In this respect, attention is paid to the judgments of the High Court and the Supreme Court of Appeal in Raubex Construction v Bryte Insurance. The article concludes with a brief reflection on the principles analysed in the case law, and confirms that the recent developments in the law relating to fraud are in alignment with international trends.