UNIVERSITY OF SOUTH AFRICA (UNISA)
College of Law
⋄
BAN5902 — ASSIGNMENT 01
Analysis of Set Square Developments (Pty) Ltd v Power Guarantees (Pty) Ltd
⋄
Module Code: BAN5902
Module Name: Banking Law 1
Assignment No.: Assignment 01
Due Date: 30 June 2026
Semester: Semester 1, 2026
Submitted in partial fulfilment of the requirements for Banking Law 1
at the University of South Africa.
,UNISA | BAN5902 Set Square Developments Case Analysis
Question (a): Facts of the Case [2 Marks]
Set Square Developments (Pty) Ltd (Set Square), acting as employer, engaged Vahva Construc-
tion (Pty) Ltd (the contractor) to carry out construction and remedial works on a large low-income
housing project known as the E930: Lethabong Housing Development in Gauteng.1 The project
was divided into three phases, and a separate building agreement governed each phase. All
three contracts were concluded under the JBCC Principal Building Agreement framework.2
As security for the contractor’s performance obligations under each phase, the contractor
procured three on-demand performance guarantees from Power Guarantees (Pty) Ltd (the
guarantor). The guarantees were designated PWR 111504, PWR 111632, and PWR 111623,
relating to Phases 3, 2, and 2.2 of the development respectively.3 Each guarantee obliged the
guarantor to pay Set Square the full guaranteed amount upon receiving a compliant written
demand, specifically, a demand stating that the construction contract had been cancelled due to
the contractor’s default and enclosing the relevant notice of termination.
Between December 2020 and March 2021, Set Square cancelled all three construction agree-
ments, citing the contractor’s default and, in respect of Phase 2.2, the contractor’s repudiation
of the contract.4 Set Square subsequently made written demand on the guarantor for payment
under each of the three guarantees, attaching the corresponding termination notices as required.
Power Guarantees refused to honour any of the demands, compelling Set Square to pursue
legal proceedings in the Gauteng Division of the High Court, Pretoria. The High Court granted
payment only under the second guarantee, while dismissing the claims under guarantees one
and three.5 Both parties then appealed to the Supreme Court of Appeal (SCA).
Question (b): Legal Issues and Relevant Arguments [2 Marks]
Three interconnected legal questions formed the core of the SCA’s inquiry.
First, the SCA had to decide whether the autonomous nature of on-demand guarantees
precluded any inquiry into the underlying contractual dispute between Set Square and the
contractor, particularly Set Square’s justification for cancelling the construction agreements.6
Set Square argued that the guarantor’s liability arose simply upon receipt of a compliant written
demand and that the guarantor had no standing to interrogate the merits of the termination.
1
Set Square Developments (Pty) Ltd v Power Guarantees (Pty) Ltd and Another 2025 (6) SA 552 (SCA) para 3
(hereinafter Set Square).
2
Set Square (n 1) para 4.
3
Set Square (n 1) paras 9–11.
4
Set Square (n 1) paras 12–13.
5
Set Square (n 1) para 2.
6
Set Square (n 1) para 2.
Page 1 of 8
,UNISA | BAN5902 Set Square Developments Case Analysis
Power Guarantees countered that the circumstances described in clause 5.1 of each guarantee,
namely a genuine termination due to the contractor’s default, had not arisen and that Set Square
therefore had no enforceable right to call up the guarantees.7
Second, Power Guarantees challenged whether the underlying construction contracts actually
existed as described in the guarantees. It argued that two of the guarantees referenced a
different edition of the JBCC agreement from the contracts actually concluded by the parties,
rendering those guarantees unenforceable for want of a valid underlying agreement.8
Third, Power Guarantees raised a fraud exception, contending that Set Square had knowingly
misrepresented material facts to obtain payment, including that the employer had not completed
an acceptance form for one contract and that the guarantees referenced construction agree-
ments different from those actually signed.9 The guarantor also raised unconscionability in the
alternative, arguing that treating the guarantees as autonomous instruments independent of the
underlying contracts would produce an unconscionable outcome.10
Key Distinction
An on-demand guarantee creates a primary, independent obligation on the part of the
guarantor to pay upon a compliant demand. This differs fundamentally from a suretyship
(or conditional guarantee), where the guarantor’s liability is accessory to, and dependent
on, the beneficiary proving breach under the underlying contract.11
Question (c): Decision and Reasons of the Court [3 Marks]
The SCA upheld Set Square’s appeal in respect of guarantees one and three, and dismissed
Power Guarantees’ cross-appeal relating to guarantee two. The guarantor was accordingly
ordered to pay the full guaranteed amounts under all three guarantees, together with interest.12
(c.1) The Autonomy Principle
Drawing on the well-established South African position confirmed in Lombard Insurance Co Ltd
v Landmark Holdings (Pty) Ltd and Others,13 the SCA reaffirmed that an on-demand guarantee
is functionally analogous to an irrevocable letter of credit issued by a bank. The guarantor’s
7
Set Square (n 1) paras 14–15.
8
Set Square (n 1) para 16.
9
Set Square (n 1) para 17.
10
Set Square (n 1) para 18.
11
Lombard Insurance Co Ltd v Landmark Holdings (Pty) Ltd and Others 2010 (2) SA 86 (SCA) at 97E–H; W Gerber,
The South African Law of Bankers’ Commercial Credits (2nd edn, Juta 2013) 45.
12
Set Square (n 1) para 1.
13
2010 (2) SA 86 (SCA) at 97.
Page 2 of 8
, UNISA | BAN5902 Set Square Developments Case Analysis
obligation to pay arises from the terms of the guarantee instrument alone, independently of the
underlying contract.14 The court found that the guarantor’s role, once a compliant demand is
received, is simply to pay. It is not entitled to delay payment by probing whether the employer’s
stated reasons for cancellation are substantively correct.15
(c.2) Existence of the Underlying Contracts
The SCA rejected the argument that the discrepancy in the edition of the JBCC agreement cited
in the guarantees rendered the underlying contracts non-existent. The court found that both
Set Square and the contractor had implemented and performed under these contracts without
dispute. A contractor who executes work under an agreement cannot later deny its existence
simply because a related guarantee references a slightly different contract description.16 The
SCA found a sufficient correlation between the contracts and the guarantees to sustain Set
Square’s demands.17
(c.3) Fraud and Unconscionability Defences
The SCA found no factual basis to support fraud. Power Guarantees failed to demonstrate that
Set Square had made any deliberate misrepresentation or had acted with intent to deceive
when calling up the guarantees.18 The court noted that the fraud exception operates only where
a beneficiary has knowledge of clear fraud at the time of the demand and sets out to exploit the
guarantee as a vehicle for that fraud. No such evidence was placed before the court.19
On unconscionability, the SCA declined to recognise it as an independent exception to the
autonomy principle. The court found no South African authority supporting unconscionability as
a ground for resisting payment under an on-demand guarantee, and the defence had not been
properly pleaded in any event.20
Banking Law Insight
In banking law, on-demand guarantees function as the contractual equivalent of irrevo-
cable letters of credit. Banks that issue such instruments as guarantors face the same
autonomous payment obligation. This decision confirms that a bank-guarantor cannot
14
Set Square (n 1) para 24.
15
Set Square (n 1) para 25.
16
Set Square (n 1) para 30.
17
Set Square (n 1) para 31.
18
Set Square (n 1) para 35.
19
Set Square (n 1) para 36.
20
Set Square (n 1) para 37; Imvula Roads and Civils (Pty) Ltd and Others v Holland Insurance Co Ltd and Another
(2024-104602) [2025] ZAGPJHC 12 para 41.
Page 3 of 8
College of Law
⋄
BAN5902 — ASSIGNMENT 01
Analysis of Set Square Developments (Pty) Ltd v Power Guarantees (Pty) Ltd
⋄
Module Code: BAN5902
Module Name: Banking Law 1
Assignment No.: Assignment 01
Due Date: 30 June 2026
Semester: Semester 1, 2026
Submitted in partial fulfilment of the requirements for Banking Law 1
at the University of South Africa.
,UNISA | BAN5902 Set Square Developments Case Analysis
Question (a): Facts of the Case [2 Marks]
Set Square Developments (Pty) Ltd (Set Square), acting as employer, engaged Vahva Construc-
tion (Pty) Ltd (the contractor) to carry out construction and remedial works on a large low-income
housing project known as the E930: Lethabong Housing Development in Gauteng.1 The project
was divided into three phases, and a separate building agreement governed each phase. All
three contracts were concluded under the JBCC Principal Building Agreement framework.2
As security for the contractor’s performance obligations under each phase, the contractor
procured three on-demand performance guarantees from Power Guarantees (Pty) Ltd (the
guarantor). The guarantees were designated PWR 111504, PWR 111632, and PWR 111623,
relating to Phases 3, 2, and 2.2 of the development respectively.3 Each guarantee obliged the
guarantor to pay Set Square the full guaranteed amount upon receiving a compliant written
demand, specifically, a demand stating that the construction contract had been cancelled due to
the contractor’s default and enclosing the relevant notice of termination.
Between December 2020 and March 2021, Set Square cancelled all three construction agree-
ments, citing the contractor’s default and, in respect of Phase 2.2, the contractor’s repudiation
of the contract.4 Set Square subsequently made written demand on the guarantor for payment
under each of the three guarantees, attaching the corresponding termination notices as required.
Power Guarantees refused to honour any of the demands, compelling Set Square to pursue
legal proceedings in the Gauteng Division of the High Court, Pretoria. The High Court granted
payment only under the second guarantee, while dismissing the claims under guarantees one
and three.5 Both parties then appealed to the Supreme Court of Appeal (SCA).
Question (b): Legal Issues and Relevant Arguments [2 Marks]
Three interconnected legal questions formed the core of the SCA’s inquiry.
First, the SCA had to decide whether the autonomous nature of on-demand guarantees
precluded any inquiry into the underlying contractual dispute between Set Square and the
contractor, particularly Set Square’s justification for cancelling the construction agreements.6
Set Square argued that the guarantor’s liability arose simply upon receipt of a compliant written
demand and that the guarantor had no standing to interrogate the merits of the termination.
1
Set Square Developments (Pty) Ltd v Power Guarantees (Pty) Ltd and Another 2025 (6) SA 552 (SCA) para 3
(hereinafter Set Square).
2
Set Square (n 1) para 4.
3
Set Square (n 1) paras 9–11.
4
Set Square (n 1) paras 12–13.
5
Set Square (n 1) para 2.
6
Set Square (n 1) para 2.
Page 1 of 8
,UNISA | BAN5902 Set Square Developments Case Analysis
Power Guarantees countered that the circumstances described in clause 5.1 of each guarantee,
namely a genuine termination due to the contractor’s default, had not arisen and that Set Square
therefore had no enforceable right to call up the guarantees.7
Second, Power Guarantees challenged whether the underlying construction contracts actually
existed as described in the guarantees. It argued that two of the guarantees referenced a
different edition of the JBCC agreement from the contracts actually concluded by the parties,
rendering those guarantees unenforceable for want of a valid underlying agreement.8
Third, Power Guarantees raised a fraud exception, contending that Set Square had knowingly
misrepresented material facts to obtain payment, including that the employer had not completed
an acceptance form for one contract and that the guarantees referenced construction agree-
ments different from those actually signed.9 The guarantor also raised unconscionability in the
alternative, arguing that treating the guarantees as autonomous instruments independent of the
underlying contracts would produce an unconscionable outcome.10
Key Distinction
An on-demand guarantee creates a primary, independent obligation on the part of the
guarantor to pay upon a compliant demand. This differs fundamentally from a suretyship
(or conditional guarantee), where the guarantor’s liability is accessory to, and dependent
on, the beneficiary proving breach under the underlying contract.11
Question (c): Decision and Reasons of the Court [3 Marks]
The SCA upheld Set Square’s appeal in respect of guarantees one and three, and dismissed
Power Guarantees’ cross-appeal relating to guarantee two. The guarantor was accordingly
ordered to pay the full guaranteed amounts under all three guarantees, together with interest.12
(c.1) The Autonomy Principle
Drawing on the well-established South African position confirmed in Lombard Insurance Co Ltd
v Landmark Holdings (Pty) Ltd and Others,13 the SCA reaffirmed that an on-demand guarantee
is functionally analogous to an irrevocable letter of credit issued by a bank. The guarantor’s
7
Set Square (n 1) paras 14–15.
8
Set Square (n 1) para 16.
9
Set Square (n 1) para 17.
10
Set Square (n 1) para 18.
11
Lombard Insurance Co Ltd v Landmark Holdings (Pty) Ltd and Others 2010 (2) SA 86 (SCA) at 97E–H; W Gerber,
The South African Law of Bankers’ Commercial Credits (2nd edn, Juta 2013) 45.
12
Set Square (n 1) para 1.
13
2010 (2) SA 86 (SCA) at 97.
Page 2 of 8
, UNISA | BAN5902 Set Square Developments Case Analysis
obligation to pay arises from the terms of the guarantee instrument alone, independently of the
underlying contract.14 The court found that the guarantor’s role, once a compliant demand is
received, is simply to pay. It is not entitled to delay payment by probing whether the employer’s
stated reasons for cancellation are substantively correct.15
(c.2) Existence of the Underlying Contracts
The SCA rejected the argument that the discrepancy in the edition of the JBCC agreement cited
in the guarantees rendered the underlying contracts non-existent. The court found that both
Set Square and the contractor had implemented and performed under these contracts without
dispute. A contractor who executes work under an agreement cannot later deny its existence
simply because a related guarantee references a slightly different contract description.16 The
SCA found a sufficient correlation between the contracts and the guarantees to sustain Set
Square’s demands.17
(c.3) Fraud and Unconscionability Defences
The SCA found no factual basis to support fraud. Power Guarantees failed to demonstrate that
Set Square had made any deliberate misrepresentation or had acted with intent to deceive
when calling up the guarantees.18 The court noted that the fraud exception operates only where
a beneficiary has knowledge of clear fraud at the time of the demand and sets out to exploit the
guarantee as a vehicle for that fraud. No such evidence was placed before the court.19
On unconscionability, the SCA declined to recognise it as an independent exception to the
autonomy principle. The court found no South African authority supporting unconscionability as
a ground for resisting payment under an on-demand guarantee, and the defence had not been
properly pleaded in any event.20
Banking Law Insight
In banking law, on-demand guarantees function as the contractual equivalent of irrevo-
cable letters of credit. Banks that issue such instruments as guarantors face the same
autonomous payment obligation. This decision confirms that a bank-guarantor cannot
14
Set Square (n 1) para 24.
15
Set Square (n 1) para 25.
16
Set Square (n 1) para 30.
17
Set Square (n 1) para 31.
18
Set Square (n 1) para 35.
19
Set Square (n 1) para 36.
20
Set Square (n 1) para 37; Imvula Roads and Civils (Pty) Ltd and Others v Holland Insurance Co Ltd and Another
(2024-104602) [2025] ZAGPJHC 12 para 41.
Page 3 of 8
