Distinguishing between the legality of a guarantor and surety
In the recent court case, Standard Bank of South Africa v Wardkiss Property Holdings (Pty) Ltd (9324/22) [2023] ZAKZPHC 153, the KwaZulu Natal High Court, Pietermaritzburg was tasked with differentiating between the legalities of a guarantor and a surety.
Standard Bank of South Africa (the Applicant) provided Wardkiss Property Holdings (Pty) Ltd (the Respondent) with a facility which required the Respondent to provide a guarantee as security. The Respondent was unable to meet its payment obligations in terms of the facility. The Applicant subsequently instituted a claim for payment in terms of the guarantee.
The Respondent contended that the security upon which the Applicant relied on was not a guarantee but rather a suretyship, which by law, must be signed in wet ink to be valid. Whereas a guarantee can be signed electronically and not by way of an advanced electronic signature as envisaged in the Electronic Communications and Transactions Act 25 of 2002 (the ECTA), for it to be valid.
In dismissing the claim, the Court placed emphasis on the content of the guarantee rather than its title. The Honourable Judge considered the duck test,’’ There is a saying that if it looks like a duck, walks like a duck and quacks like a duck, then it just may be a duck’’. The Court further took into consideration that the guarantee stated that it is not merely an ancillary obligation, as would be the case in respect of a suretyship and that the guarantee also clearly sets out that it shall be effective regardless of the validity or enforceability of the debts of the Respondent.
The Court held that the Applicant was entitled to payment in terms of the guarantee and concluded that “it looks like a guarantee, it behaves like a guarantee and in my view it is a guarantee’’ which meant that it was not necessary for the guarantee to be signed by way of an advanced signature as contemplated in the ECTA. The Respondent was ordered to pay costs in the matter.
1.C F Forsyth and J T Pretorius Caney`s: The Law of Suretyship in South Africa 6 ed (2010) at 28-29 2.Ibid at 33
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