Van Der Merwe v IIG Capital LLC (2007)


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 a decision of the master to grant the respondent company (C) summary judgment on its demand for payment under a guarantee. V operated a company (H) that had entered into a loan agreement with C, a United States company. V had signed a document described as a guarantee that recorded: the grant of the loan facility to H of $23million; that it was a condition precedent to the grant of the facility that V enter into the guarantee of H's obligations under the loan agreement; and that the "Guaranteed Monies" were payable by V "upon demand". The "Guaranteed Monies" were defined as all moneys and liabilities that were or might at any time be due, owing, payable or expressed to be due, owing or payable to C from or by H. C subsequently demanded over $30million from H said to be due under the loan agreement.. H did not pay, and C certified that the amount requested was due and payable by V under the guarantee. V did not pay and C applied for summary judgment on its claim for payment under the guarantee. V sought to raise defences that could have been raised by H in resisting a demand made against it for repayment under the loan agreement. The master summarised C's case as being that liability under the guarantee arose upon service on V of a demand in proper form, without the need to prove any liability under the underlying loan agreement. He took into account the fact that V were private individuals, rather than banks, which brought into play "a strong presumption" against interpreting the guarantee as if it were a performance bond or on demand guarantee issued by a bank, but held that there were sufficient indications in the wording of the guarantee construed in its factual and commercial context to displace that presumption. The master therefore concluded that the terms of the guarantee prevented V from relying on the defences sought, and that once C had certified what was due under the guarantee V were contractually bound to pay the amount certified. Summary judgment was accordingly granted. V contended that the master had been wrong to displace the presumption.


Outside a banking context there was a strong presumption against giving the words "on demand" in a guarantee the effect of creating an independent primary obligation, Marubeni Hong Kong & South China Ltd v Mongolia (2005) EWCA Civ 395, (2005) 1 WLR 2497 applied. In the instant case, where V were individuals and company directors, not especially wealthy so that there could have been no expectation that they would be able to satisfy even a proportion of any demand made on the guarantee, and were in another jurisdiction to C, the presumption referred to in Marubeni applied. However, the definition of "Guaranteed Moneys" in the guarantee had included not only moneys that H actually owed C but also moneys "expressed" to be due, owing or payable. The liability of V was not necessarily co-extensive with that of H. A certificate in the prescribed form had also been agreed to be conclusive and binding on V save in the case of manifest error, which had not arisen. Those features of the guarantee were sufficient to displace the presumption in Marubeni, and the master had been entitled to come to the conclusion he had.

Appeal dismissed