In South Africa, banking and finance transactions often involve suretyships and guarantees. A guarantor's obligation depends on what the guarantee says. It is usually couched in terms which render it as an obligation independent of the debtor, to indemnify the creditor for losses due to the debtor’s non-performance, and guarantors commit to paying upon a specified event. In contrast, a surety promises the creditor that the debtor will pay and a surety's liability arises only if the debtor breaches the contract, stepping in to fulfill the debtor’s obligations if they fail to do so. Also, the rights of those who provide sureties are well settled in our law.
In Nedbank Limited v Xanita (Pty) Ltd, the Western Cape High Court examined whether the principal debtor is by operation of law indebted to the guarantor for the amounts paid in terms of the guarantee. In this case, the plaintiff issued two on-demand guarantees to Absa. Mr. Beattie, a director at Xanita at the time, provided a counter guarantee (back-to-back guarantee) in favour of the plaintiff, binding himself personally. After Mr. Beattie's estate was sequestrated, the plaintiff sought to recover repayment from the defendant (as principal debtor) following Absa's call on the guarantees.
The High Court held that there is no authority for the proposition that the principal debtor must reimburse the guarantor or the counter guarantor. The High Court found that the plaintiff was aware of the circumstances before issuing the guarantee and had relied on Mr. Beattie’s security rather than binding the defendant. Consequently, the High Court dismissed the plaintiff's claim that, as a guarantor, it had a right of recourse against the defendant as the principal debtor, akin to a surety's rights, because there is no such right available to guarantors unless they provide for it in the document.
This is likely not the last we will hear on this matter. It will be interesting to see how the Supreme Court of Appeal rules on this point of law.
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