IIG Capital LLC v Van Der Merwe & Anor

The nature of a guarantee depends on its construction as a whole, not its label. In a non-banking transaction there is a strong presumption against construing a guarantee as a demand bond, but clear operative language can rebut it.

Language making the guarantor a principal obligor, requiring unconditional payment on demand of sums due or expressed to be due, and making a lender’s certificate conclusive save for manifest error, creates a primary obligation to pay the certified sum. A guarantor cannot resist that demand by relying on defences available to the borrower, except for manifest error within the certificate mechanism.

IIG Capital LLC financed Hurst Parnell Imports and Exports Ltd under a loan agreement governed by New York law. The appellants, who were directors of the borrower, executed identical deeds described as guarantees and governed by English law.

After demanding repayment from the borrower and appointing administrators, IIG certified the sum due from each appellant and demanded payment. The appellants contended that the deeds imposed only secondary liability, allowing them to rely on the borrower’s asserted New York-law defence. Master Teverson entered summary judgment for IIG. Lewison J dismissed the appellants’ appeal: [2007] EWHC 2631 (Ch). The central issue was whether the deeds required payment of the certified sum as a primary, on-demand obligation.

1. Appeal dismissed. The court upheld summary judgment for IIG. The deeds required the appellants to pay the sum certified by IIG, subject only to manifest error.
2. The court applied the constructional approach explained in Marubeni Hong Kong and South China Limited v Mongolian Government [2005] 1 WLR 2497. A guarantee outside the banking context carries a strong presumption against a demand-bond construction. The instrument must nevertheless be construed as a whole and without preconceptions. Clear and unambiguous operative language may displace that presumption.
3. Here, clause 2.1 made each appellant a principal obligor, and not merely a surety. It required unconditional payment on demand of guaranteed monies, defined to include sums due or expressed to be due from the borrower. Clause 4.2 then made a certificate by an authorised officer of IIG conclusive and binding, save for manifest error. Those provisions put the matter beyond doubt: the appellants undertook a primary obligation to pay the certified amount.
4. The clauses preserving the guarantee and the document’s description as a guarantee did not outweigh that clear language. The appellants therefore could not postpone or defeat IIG’s claim by advancing the borrower’s potential defences to liability under the loan agreement.
5. A manifest error must be obvious or readily demonstrable without extensive investigation. Unlike the instrument considered in Invensys plc v Automotive Sealing Systems Ltd, the certificate was not required to give reasons which could be examined for that purpose. The appellants had not established such an error.
6. Waller LJ considered it likely that guarantors who paid under such a loan-related guarantee would have an indemnity or subrogation-based route to recover an overpayment, but treated the precise mechanism as unnecessary to the construction issue. Any application for a stay pending resolution of an asserted overpayment claim had not been made.

1. Court of Appeal (Civil Division). Dismissed the appellants’ second appeal and upheld summary judgment for IIG.
2. High Court, Chancery Division. Lewison J dismissed the appellants’ appeal from the Master: [2007] EWHC 2631 (Ch).
3. Master Teverson. Entered summary judgment for IIG for US$31,882,541.96 against the appellants.