UNIVERSITY OF SOUTH AFRICA
College of Law
⋄ ⋄ ⋄ ⋄ ⋄ ⋄ ⋄ ⋄ ⋄⋄
BAN5902: Banking Law 1
Assignment 01 — Semester 1, 2026
⋄ ⋄ ⋄ ⋄ ⋄ ⋄ ⋄ ⋄ ⋄⋄
BAN5902
Module Code:
Banking Law 1
Module Name:
Analysis of Set Square Developments
Assignment Topic: Case 2025
Assignment 01
Assignment Number:
30 June 2026
Due Date:
10
Total Marks:
Submitted in partial fulfilment of the require-
ments for Banking Law 1 — UNISA 2026
,UNISA | BAN5902 Set Square Developments Case Analysis
Critical Discussion: Set Square Developments (Pty) Ltd v Power Guarantees (Pty)
Ltd and Another 2025 (6) SA 552 (SCA)
(a) Facts of the Case
Set Square Developments (Pty) Ltd (Set Square) undertook a large government-
subsidised housing project designated E930: Lethabong Housing Development, situated
in Gauteng. Set Square appointed Vahva Construction (Pty) Ltd (the contractor) to
perform construction and remedial works across three distinct phases of the project.
Each phase was governed by a separate building agreement: a first contract for Phase
2 (described as contract 5200/3 Phase 2), a second for Phase 3 (contract 5200/3 Phase
3), and a third for Phase 2.2 (contract 5200/3 Phase 2.2, which involved the construction
of 158 subsidised housing units). As security for the contractor’s performance under
each agreement, the contractor arranged for Power Guarantees (Pty) Ltd (the guarantor)
to issue three on-demand performance guarantees in favour of Set Square. These were
respectively designated PWR 111504, PWR 111632 and PWR 111623.1
The contractor repeatedly failed to meet its contractual obligations. Set Square con-
sequently cancelled each of the three underlying agreements and, following those
cancellations, submitted formal written demands to Power Guarantees in February and
March 2021, calling on all three guarantees for payment of the guaranteed amounts.2
Power Guarantees refused to pay. Set Square then brought proceedings in the Gauteng
Division of the High Court, Pretoria, where Kumalo J ordered payment under only one
guarantee (PWR 111632) and dismissed the claims under the remaining two. Both
parties appealed to the Supreme Court of Appeal (SCA), with Set Square appealing
the dismissal of the two outstanding claims and Power Guarantees cross-appealing the
order that had gone against it.
(b) Legal Issue(s) and Relevant Arguments
Three principal legal questions arose before the SCA. First, whether the on-demand
character of the three guarantees prevented the court from inquiring into the validity
of Set Square’s cancellation of the underlying contracts. Second, whether the under-
1
Set Square Developments (Pty) Ltd v Power Guarantees (Pty) Ltd and Another (099/2023 and
150/24) [2025] ZASCA 64; 2025 (6) SA 552 (SCA) (20 May 2025) para 3.
2
Ibid paras 12–13.
Page 2 of 8
,UNISA | BAN5902 Set Square Developments Case Analysis
lying construction contracts actually existed and, if so, whether they were inextricably
linked to the guarantees so as to render the guarantees conditional rather than au-
tonomous. Third, whether Power Guarantees’ defences of fraud and unconscionability
were sustainable.3
Power Guarantees advanced several interconnected arguments to resist payment. On
the first guarantee (PWR 111504), the guarantor contended that the contract referenced
in the guarantee (described as the JBCC Principal Building Agreement Edition 6.2
of March 2018) differed materially from the contract actually concluded between the
parties (which was under JBCC Series 2000 Edition 4.1 of March 2005), so the triggering
condition in clause 5.1 of the guarantee had not been satisfied. A similar mismatch
argument was raised regarding the third guarantee (PWR 111623). Power Guarantees
also argued that the contracts and the guarantees were inextricably linked and could
not be treated as independent instruments.4
Set Square’s position, by contrast, was straightforward: once a conforming written
demand is submitted under an on-demand guarantee, the guarantor’s obligation to pay
arises immediately, without any entitlement on the guarantor’s part to investigate the
merits of the underlying contractual dispute. Set Square maintained that the guarantees
were autonomous primary obligations, not conditional suretyships.5
Key Distinction
On-Demand Guarantee vs Conditional Suretyship. An on-demand or perfor-
mance guarantee imposes a primary, independent obligation on the guarantor to
pay upon receipt of a compliant demand, without proof of the principal debtor’s
breach. A conditional suretyship, by contrast, is accessory: liability depends
on the surety’s beneficiary proving actual breach of the underlying obligation.
The distinction is determined by the wording of the instrument, construed in its
commercial context.a
a
Lombard Insurance Co Ltd v Landmark Holdings (Pty) Ltd and Others 2010 (2) SA 86 (SCA)
94.
3
Ibid para 3.
4
Ibid paras 3–4.
5
Ibid.
Page 3 of 8
,UNISA | BAN5902 Set Square Developments Case Analysis
(c) Decision and Reasons of the Court
The SCA upheld Set Square’s appeal (case number 099/2023) and dismissed Power
Guarantees’ cross-appeal (case number 150/2024). Payment was accordingly ordered
under all three guarantees, with interest.6
On the autonomy principle, the court reaffirmed the well-established position that an
on-demand guarantee operates independently of the underlying contract. Where a
guarantor accepts a primary obligation to pay on demand, that obligation crystallises
as soon as a demand is made in the form prescribed by the instrument, and the
guarantor cannot lawfully refuse payment by pointing to alleged defects or disputes in
the underlying contract.7
Turning to the contract description mismatch, the SCA found that there was no genuine
dispute between Set Square and the contractor about which agreements had actually
been concluded or performed. The discrepancy in the edition numbers of the JBCC
agreement was a typographical or administrative error and did not constitute a substan-
tive defence. Because neither the employer nor the contractor disputed the existence or
identity of the underlying agreements, the guarantor could derive no benefit from the
inconsistency.8
On the fraud exception, the SCA found that Power Guarantees had placed no factual
basis before the court to support any suggestion that Set Square had made a dishonest
or knowingly false demand. To succeed on fraud, a party seeking to interdict or resist
payment must demonstrate clear and unambiguous evidence of fraud; a bare allegation
or suspicion is wholly insufficient.9
The court declined to recognise unconscionability as a freestanding defence to payment
under an on-demand guarantee. The unconscionability argument had not been properly
pleaded and, in any event, the SCA found no authority in South African law recognising
it as an independent ground for escaping liability under such an instrument.10
6
Set Square Developments (n 1) operative order para 2–3.
7
Ibid para 20; see also Lombard Insurance (n 6) 94.
8
Set Square Developments (n 1) paras 24–27.
9
Ibid para 31.
10
Ibid para 35; see also the discussion in Imvula Roads and Civils (Pty) Ltd and Others v Holland
Insurance Co Ltd and Another (2024-104602) [2025] ZAGPJHC 12 (14 January 2025) para 19.
Page 4 of 8
, UNISA | BAN5902 Set Square Developments Case Analysis
(d) Critical Discussion
The Set Square judgment is, on the whole, a well-reasoned application of established
principles, and there is much to commend in its approach. Yet the decision is not without
points of tension worth examining.
Strengths of the reasoning. The SCA’s firm reaffirmation of the autonomy principle is
commercially sound. On-demand guarantees serve the same function as letters of credit
in international banking practice: they provide the beneficiary with liquid, prompt security
that does not become hostage to the merits of an underlying dispute.11 Were courts to
routinely allow guarantors to resist payment by raising questions about the underlying
contract, the commercial utility of these instruments would be fundamentally undermined.
Parties would be unable to rely on them as near-cash equivalents, increasing transaction
costs and risk in the construction and banking sectors alike.
The court’s handling of the contract edition mismatch is also defensible. Reading the
guarantee instruments in their full context, and taking judicial notice of the fact that
neither the employer nor the contractor contested the identity of the contracts, the
SCA correctly declined to allow a pure paper discrepancy to defeat claims where the
substantive reality was clear. A more formalistic approach would have elevated form
over substance to the point of injustice.12
Points of critique. The court’s categorical rejection of unconscionability as a defence
merits closer examination. The SCA stated that it found no authority recognising this
exception, but the absence of prior authority is not, in itself, a conclusive reason to
reject a developing legal principle.13 South African courts have, in recent years, been
willing to develop the common law in line with constitutional values, including good faith
and public policy. The question of whether a wholly unconscionable demand, made
in circumstances of manifest injustice, could constitute a basis for relief was arguably
worthy of more extended engagement than the judgment provides. That said, the court’s
caution is understandable: opening the exception to include unconscionability risked
creating a broad and ill-defined gateway for recalcitrant guarantors to delay legitimate
11
See the analogy drawn in Lombard Insurance (n 6) 94 and affirmed in Coface SA Insurance Co Ltd v
East London Own Haven 2014 (2) SA 382 (SCA).
12
Set Square Developments (n 1) para 27.
13
Ibid para 35.
Page 5 of 8
College of Law
⋄ ⋄ ⋄ ⋄ ⋄ ⋄ ⋄ ⋄ ⋄⋄
BAN5902: Banking Law 1
Assignment 01 — Semester 1, 2026
⋄ ⋄ ⋄ ⋄ ⋄ ⋄ ⋄ ⋄ ⋄⋄
BAN5902
Module Code:
Banking Law 1
Module Name:
Analysis of Set Square Developments
Assignment Topic: Case 2025
Assignment 01
Assignment Number:
30 June 2026
Due Date:
10
Total Marks:
Submitted in partial fulfilment of the require-
ments for Banking Law 1 — UNISA 2026
,UNISA | BAN5902 Set Square Developments Case Analysis
Critical Discussion: Set Square Developments (Pty) Ltd v Power Guarantees (Pty)
Ltd and Another 2025 (6) SA 552 (SCA)
(a) Facts of the Case
Set Square Developments (Pty) Ltd (Set Square) undertook a large government-
subsidised housing project designated E930: Lethabong Housing Development, situated
in Gauteng. Set Square appointed Vahva Construction (Pty) Ltd (the contractor) to
perform construction and remedial works across three distinct phases of the project.
Each phase was governed by a separate building agreement: a first contract for Phase
2 (described as contract 5200/3 Phase 2), a second for Phase 3 (contract 5200/3 Phase
3), and a third for Phase 2.2 (contract 5200/3 Phase 2.2, which involved the construction
of 158 subsidised housing units). As security for the contractor’s performance under
each agreement, the contractor arranged for Power Guarantees (Pty) Ltd (the guarantor)
to issue three on-demand performance guarantees in favour of Set Square. These were
respectively designated PWR 111504, PWR 111632 and PWR 111623.1
The contractor repeatedly failed to meet its contractual obligations. Set Square con-
sequently cancelled each of the three underlying agreements and, following those
cancellations, submitted formal written demands to Power Guarantees in February and
March 2021, calling on all three guarantees for payment of the guaranteed amounts.2
Power Guarantees refused to pay. Set Square then brought proceedings in the Gauteng
Division of the High Court, Pretoria, where Kumalo J ordered payment under only one
guarantee (PWR 111632) and dismissed the claims under the remaining two. Both
parties appealed to the Supreme Court of Appeal (SCA), with Set Square appealing
the dismissal of the two outstanding claims and Power Guarantees cross-appealing the
order that had gone against it.
(b) Legal Issue(s) and Relevant Arguments
Three principal legal questions arose before the SCA. First, whether the on-demand
character of the three guarantees prevented the court from inquiring into the validity
of Set Square’s cancellation of the underlying contracts. Second, whether the under-
1
Set Square Developments (Pty) Ltd v Power Guarantees (Pty) Ltd and Another (099/2023 and
150/24) [2025] ZASCA 64; 2025 (6) SA 552 (SCA) (20 May 2025) para 3.
2
Ibid paras 12–13.
Page 2 of 8
,UNISA | BAN5902 Set Square Developments Case Analysis
lying construction contracts actually existed and, if so, whether they were inextricably
linked to the guarantees so as to render the guarantees conditional rather than au-
tonomous. Third, whether Power Guarantees’ defences of fraud and unconscionability
were sustainable.3
Power Guarantees advanced several interconnected arguments to resist payment. On
the first guarantee (PWR 111504), the guarantor contended that the contract referenced
in the guarantee (described as the JBCC Principal Building Agreement Edition 6.2
of March 2018) differed materially from the contract actually concluded between the
parties (which was under JBCC Series 2000 Edition 4.1 of March 2005), so the triggering
condition in clause 5.1 of the guarantee had not been satisfied. A similar mismatch
argument was raised regarding the third guarantee (PWR 111623). Power Guarantees
also argued that the contracts and the guarantees were inextricably linked and could
not be treated as independent instruments.4
Set Square’s position, by contrast, was straightforward: once a conforming written
demand is submitted under an on-demand guarantee, the guarantor’s obligation to pay
arises immediately, without any entitlement on the guarantor’s part to investigate the
merits of the underlying contractual dispute. Set Square maintained that the guarantees
were autonomous primary obligations, not conditional suretyships.5
Key Distinction
On-Demand Guarantee vs Conditional Suretyship. An on-demand or perfor-
mance guarantee imposes a primary, independent obligation on the guarantor to
pay upon receipt of a compliant demand, without proof of the principal debtor’s
breach. A conditional suretyship, by contrast, is accessory: liability depends
on the surety’s beneficiary proving actual breach of the underlying obligation.
The distinction is determined by the wording of the instrument, construed in its
commercial context.a
a
Lombard Insurance Co Ltd v Landmark Holdings (Pty) Ltd and Others 2010 (2) SA 86 (SCA)
94.
3
Ibid para 3.
4
Ibid paras 3–4.
5
Ibid.
Page 3 of 8
,UNISA | BAN5902 Set Square Developments Case Analysis
(c) Decision and Reasons of the Court
The SCA upheld Set Square’s appeal (case number 099/2023) and dismissed Power
Guarantees’ cross-appeal (case number 150/2024). Payment was accordingly ordered
under all three guarantees, with interest.6
On the autonomy principle, the court reaffirmed the well-established position that an
on-demand guarantee operates independently of the underlying contract. Where a
guarantor accepts a primary obligation to pay on demand, that obligation crystallises
as soon as a demand is made in the form prescribed by the instrument, and the
guarantor cannot lawfully refuse payment by pointing to alleged defects or disputes in
the underlying contract.7
Turning to the contract description mismatch, the SCA found that there was no genuine
dispute between Set Square and the contractor about which agreements had actually
been concluded or performed. The discrepancy in the edition numbers of the JBCC
agreement was a typographical or administrative error and did not constitute a substan-
tive defence. Because neither the employer nor the contractor disputed the existence or
identity of the underlying agreements, the guarantor could derive no benefit from the
inconsistency.8
On the fraud exception, the SCA found that Power Guarantees had placed no factual
basis before the court to support any suggestion that Set Square had made a dishonest
or knowingly false demand. To succeed on fraud, a party seeking to interdict or resist
payment must demonstrate clear and unambiguous evidence of fraud; a bare allegation
or suspicion is wholly insufficient.9
The court declined to recognise unconscionability as a freestanding defence to payment
under an on-demand guarantee. The unconscionability argument had not been properly
pleaded and, in any event, the SCA found no authority in South African law recognising
it as an independent ground for escaping liability under such an instrument.10
6
Set Square Developments (n 1) operative order para 2–3.
7
Ibid para 20; see also Lombard Insurance (n 6) 94.
8
Set Square Developments (n 1) paras 24–27.
9
Ibid para 31.
10
Ibid para 35; see also the discussion in Imvula Roads and Civils (Pty) Ltd and Others v Holland
Insurance Co Ltd and Another (2024-104602) [2025] ZAGPJHC 12 (14 January 2025) para 19.
Page 4 of 8
, UNISA | BAN5902 Set Square Developments Case Analysis
(d) Critical Discussion
The Set Square judgment is, on the whole, a well-reasoned application of established
principles, and there is much to commend in its approach. Yet the decision is not without
points of tension worth examining.
Strengths of the reasoning. The SCA’s firm reaffirmation of the autonomy principle is
commercially sound. On-demand guarantees serve the same function as letters of credit
in international banking practice: they provide the beneficiary with liquid, prompt security
that does not become hostage to the merits of an underlying dispute.11 Were courts to
routinely allow guarantors to resist payment by raising questions about the underlying
contract, the commercial utility of these instruments would be fundamentally undermined.
Parties would be unable to rely on them as near-cash equivalents, increasing transaction
costs and risk in the construction and banking sectors alike.
The court’s handling of the contract edition mismatch is also defensible. Reading the
guarantee instruments in their full context, and taking judicial notice of the fact that
neither the employer nor the contractor contested the identity of the contracts, the
SCA correctly declined to allow a pure paper discrepancy to defeat claims where the
substantive reality was clear. A more formalistic approach would have elevated form
over substance to the point of injustice.12
Points of critique. The court’s categorical rejection of unconscionability as a defence
merits closer examination. The SCA stated that it found no authority recognising this
exception, but the absence of prior authority is not, in itself, a conclusive reason to
reject a developing legal principle.13 South African courts have, in recent years, been
willing to develop the common law in line with constitutional values, including good faith
and public policy. The question of whether a wholly unconscionable demand, made
in circumstances of manifest injustice, could constitute a basis for relief was arguably
worthy of more extended engagement than the judgment provides. That said, the court’s
caution is understandable: opening the exception to include unconscionability risked
creating a broad and ill-defined gateway for recalcitrant guarantors to delay legitimate
11
See the analogy drawn in Lombard Insurance (n 6) 94 and affirmed in Coface SA Insurance Co Ltd v
East London Own Haven 2014 (2) SA 382 (SCA).
12
Set Square Developments (n 1) para 27.
13
Ibid para 35.
Page 5 of 8
