, BAN5902 ASSIGNMENT 1 2026 ANSWERS - DUE DATE 30 JUNE 2026
Critical Discussion of the Supreme Court of Appeal Decision in *Set Square Developments
(Pty) Ltd v Power Guarantees (Pty) Ltd and Another 2025 (6) SA 552 (SCA): On-
Demand/Performance Guarantees and Their Relevance to Banking Law
(a) Facts of the Case
The matter in Set Square Developments (Pty) Ltd v Power Guarantees (Pty) Ltd and Another
arose from a contractual dispute involving construction agreements and the operation of on-
demand performance guarantees. Set Square Developments entered into construction
arrangements with Vahva Construction for certain projects and, as part of these agreements,
three on-demand performance guarantees were issued by Power Guarantees in favour of Set
Square. These guarantees served as financial security intended to protect Set Square against
potential losses arising from non-performance or breach of the construction contracts.1
Subsequently, disputes emerged between the parties concerning the execution of the
construction work. Set Square alleged that Vahva Construction had breached its contractual
obligations and consequently terminated the agreements. Following cancellation, Set Square
sought payment under the performance guarantees and submitted demands in accordance
with the requirements stipulated within the guarantee instruments themselves. However,
Power Guarantees refused payment and argued that the guarantees could not be enforced
because of alleged inconsistencies and issues relating to the underlying contracts. It further
attempted to rely on allegations of fraud and unconscionability as grounds for refusing
payment.2
The matter therefore required the court to determine whether a guarantor may rely on
disputes relating to the underlying contract to avoid payment under an on-demand guarantee,
despite the established legal principle that such guarantees are generally autonomous
obligations.
1
Set Square Developments (Pty) Ltd v Power Guarantees (Pty) Ltd and Another 2025 (6) SA 552 (SCA) paras 3–15.
2
Set Square (n 1) para 20.
Critical Discussion of the Supreme Court of Appeal Decision in *Set Square Developments
(Pty) Ltd v Power Guarantees (Pty) Ltd and Another 2025 (6) SA 552 (SCA): On-
Demand/Performance Guarantees and Their Relevance to Banking Law
(a) Facts of the Case
The matter in Set Square Developments (Pty) Ltd v Power Guarantees (Pty) Ltd and Another
arose from a contractual dispute involving construction agreements and the operation of on-
demand performance guarantees. Set Square Developments entered into construction
arrangements with Vahva Construction for certain projects and, as part of these agreements,
three on-demand performance guarantees were issued by Power Guarantees in favour of Set
Square. These guarantees served as financial security intended to protect Set Square against
potential losses arising from non-performance or breach of the construction contracts.1
Subsequently, disputes emerged between the parties concerning the execution of the
construction work. Set Square alleged that Vahva Construction had breached its contractual
obligations and consequently terminated the agreements. Following cancellation, Set Square
sought payment under the performance guarantees and submitted demands in accordance
with the requirements stipulated within the guarantee instruments themselves. However,
Power Guarantees refused payment and argued that the guarantees could not be enforced
because of alleged inconsistencies and issues relating to the underlying contracts. It further
attempted to rely on allegations of fraud and unconscionability as grounds for refusing
payment.2
The matter therefore required the court to determine whether a guarantor may rely on
disputes relating to the underlying contract to avoid payment under an on-demand guarantee,
despite the established legal principle that such guarantees are generally autonomous
obligations.
1
Set Square Developments (Pty) Ltd v Power Guarantees (Pty) Ltd and Another 2025 (6) SA 552 (SCA) paras 3–15.
2
Set Square (n 1) para 20.
