Berghoff Trading Ltd & Ors v Swinbrook Developments Ltd & Ors

A guarantor’s ordinary right to indemnity, and a co-obligor’s ordinary right to contribution, are subject to the parties’ contract. Where financing arrangements expressly contemplate that a partner’s sale proceeds will be paid directly to the creditor to discharge partnership liabilities, they may exclude any further cross-liability between the partnership and the partner. A purported reimbursement right must also be analysed at the point of sale. If accrued, it passes with the transferred rights; if arising only afterwards, a retiring partner cannot enforce it as a right acquired in its former capacity.

Rosserlane Consultants Limited, formerly the general partner of Caspian Energy Group LP, appealed against summary judgment dismissing its counterclaim against Caspian and its purchasers. The counterclaim sought an indemnity or contribution for loan liabilities discharged from the proceeds of a forced sale of the partnership interests, or repayment of an interest-free loan said to arise under a written resolution.

Mr Justice Teare held that the contractual arrangements gave Rosserlane no real prospect of success. The central issues were whether ordinary indemnity or contribution rights survived the financing arrangements and whether any right under the resolution survived the sale, assignment and retirement documentation.

1. The appeal was dismissed. Rosserlane had no real prospect of succeeding at trial on its counterclaim.

2. Ordinarily, a guarantor may obtain an indemnity from the primary obligor, and a co-obligor who pays the common debt may obtain contribution. Those rights are displaced or qualified by the parties’ contractual arrangements. The Loan Agreement, Security Agreement and Participation Agreement had to be read together.

3. The Security Agreement expressly described each chargor, including Rosserlane, as a primary obligor. More importantly, the Participation Agreement contemplated throughout that the partnership interests would be sold and that the sale proceeds would be paid directly to the bank, first in discharge of the finance liabilities. The proceeds were therefore the agreed source of repayment. In that special arrangement, Rosserlane could not establish any further common-law or equitable indemnity or contribution from Caspian.

4. The written Resolution did not alter that conclusion. Its authenticity and effectiveness as an instrument of Caspian could not be finally determined summarily, but it ignored the agreed structure under which the proceeds went directly to the bank. It did not reflect an ordinary indemnity or contribution. The point was supportive rather than independently decisive.

5. Even assuming a repayment right under the Resolution, the sale documentation prevented Rosserlane from enforcing it. An accrued right passed to the buyers as an accrued benefit or right. A right arising only after completion could not be enforced by Rosserlane, because it had ceased to be general partner and had released its further rights and claims. The right could not straddle the sale.

Lady Justice Arden and the Master of the Rolls agreed with Lord Justice Rix.

• Court of Appeal (Civil Division): The appeal from summary judgment was dismissed. Lord Justice Rix gave the substantive judgment; Lady Justice Arden and Sir Anthony Clarke MR agreed.
• Queen’s Bench Division, Commercial Court: Mr Justice Teare granted summary judgment against Rosserlane on the basis that its counterclaim had no real prospect of success.