Carey Value Added, S.L. v Grupo Urvasco, S.A.

A guarantee described as imposing primary obligations is not necessarily a demand bond. The court must construe the instrument as a whole, considering its language and commercial context. Outside banking transactions, there is a strong presumption against treating an instrument as an on-demand bond. A certification clause stating that an amount is conclusive evidence does not, without clear language, make the certificate conclusive as to the existence or enforceability of the underlying debt. Ambiguities in a conclusive evidence clause are resolved in favour of the guarantor. Where substantial disputes remain about the underlying liability and the guarantee is not clearly an independent demand obligation, summary judgment should be refused.

The claimant sought summary judgment for approximately €55.4 million under a Deed of Guarantee and Indemnity given by the defendant for the obligations of its subsidiary under a loan agreement. The underlying transaction also included a sale and purchase agreement giving the subsidiary a contractual right to rescind and avoid repayment if the lender failed to advance an agreed tranche.

The defendant argued that the guarantee was co-extensive with the subsidiary’s liability, and that the subsidiary’s alleged rescission and claims for damages created substantial issues concerning indebtedness and set-off. The central issue was whether the deed operated as an independent demand bond or as a secondary guarantee.

1. Application dismissed. The defendant showed a real, meaning realistic rather than fanciful, prospect of successfully defending the claim. Summary judgment was therefore unavailable.

2. The question was one of construction of the deed as a whole. The expressions “primary obligor”, “on demand” and “indemnity” were not decisive by themselves. Primary and secondary liability describe the nature of an obligation but do not determine its content.

3. On-demand guarantees and performance bonds are specialised instruments analogous to irrevocable letters of credit. Their character depends on the wording and context of the particular instrument. The transaction was outside the banking context, attracting the strong presumption identified in Marubeni. That presumption was not rebutted.

4. The definition of “Guaranteed Obligations” referred to the obligations of the subsidiary under the transaction documents. Clause 2.1(c) made the defendant responsible for the subsidiary’s failure to perform those obligations, while clause 2.1(d) limited the indemnity to the amount recoverable under the transaction documents. This language indicated co-extensive liability rather than the unqualified liability of a demand bond.

5. Clause 20.6 made Carey’s certification of a “rate or amount” conclusive evidence only of the matters to which it related. Unlike the clause in IIG Capital LLC v van der Merwe, it did not state that the amount was “due and payable”. It was properly construed as referring to the amount advanced, not conclusively establishing liability. Conclusive evidence clauses are strictly construed, and ambiguity is resolved in favour of the guarantor.

6. Clause 20.4 was capable of excluding the primary debtor’s right of set-off. However, the subsidiary’s rescission right under clause 6.17 of the sale and purchase agreement raised a substantial issue. It was arguable that rescission was distinct from unenforceability, illegality or invalidity for the purposes of clause 6(g), and that, if rescission were established, no liability under the deed would remain.