IIG Capital LLC v Van der Merwe (2008)
There were sufficient indications in the wording of a guarantee of the borrower's obligations in a loan agreement to displace the strong presumption against giving the words "on demand" in a guarantee the effect of creating an independent primary obligation outside a banking context.
The appellants (V) appealed against the upholding ((2007) EWHC 2631 (Ch), (2008) 1 All ER (Comm) 435) of an order for summary judgment made against them in respect of a claim brought by the respondent (G). G had entered into a loan agreement with a company (H). V were directors of H and had executed deeds of guarantee in favour of G. Clause 4.2 of the guarantee provided that "A certificate in writing signed by a duly authorised officer...stating the amount at any particular time due and payable by the Guarantor...shall, save for manifest error, be conclusive and binding on the Guarantor for the purposes hereof." G subsequently demanded from H the sum due under the loan agreement. Neither H nor V paid the sum claimed and, before the master, V had sought to rely in defences available to H, arguing that H had a complete answer to the claim. G's case was that on the true construction of the deeds of guarantee, they excluded the forms of defence available to a guarantor where his liability was secondary, and it submitted that on the true wording of the guarantees, V were obliged to pay as principal obligor monies certified as due by duly authorised officers of G.
The court was not persuaded that H would not be bound to indemnify V. Where a loan agreement required the giving of guarantees, whether on-demand guarantees or secondary liability guarantees, a call and payment of what was found to be due from the guarantors would lead almost certainly to a right of indemnity from the company if the guarantee had to be paid. Even if there was no express contract negotiated between V and H, it was strongly arguable that V would have a remedy against H, and if H refused to seek return of the overpayment, V would have a right of subrogation by which they could force G to repay sums found to have been overpaid. If, however, the guarantees did not require payment of the certified sum, then no difficulty arose, and leave to defend had to be given so that the defences that H could raise could be considered at a trial. If the guarantees by their true language did not require payment, then it was for V to protect themselves against that eventuality. There was a strong presumption against the guarantees being demand bonds or guarantees, and the documents had to be looked at as a whole, Marubeni Hong Kong & South China Ltd v Mongolia (2005) EWCA Civ 395, (2005) 1 WLR 2497 applied. Clause 4.2 of the guarantee put the matter beyond doubt: any presumption was clearly rebutted. Apart from manifest error, V had bound themselves to pay on demand as primary obligor the amount stated in a certificate, pursuant to Clause 4.2, Bache & Co (London) Ltd v Banque Vernes et Commerciale de Paris SA (1973) 2 Lloyd's Rep 437 CA (Civ Div) and Trafalgar House Construction (Regions) Ltd v General Surety & Guarantee Co Ltd (1996) AC 199 HL considered.