Crown Aluminium Ltd v Northern & Western Insurance Company Ltd & Anor

A guarantee must be construed commercially. Where literal wording produces absurdity or incoherence, it should yield to business common sense. Compliance with notice requirements depends on the guarantee properly construed, including the documents that define the guaranteed obligation. A guarantor may waive defects by unequivocally asserting an inconsistent contractual right or promising payment in circumstances inducing reasonable reliance. An experienced professional who gives advice knowing that a third party will rely on it may owe that party a duty of care. Damages for negligent advice are assessed by reference to the loss of recoverability, not automatically to the guaranteed sum.

Crown supplied goods to a company within the Metic Group and obtained three trade credit guarantees from Northern & Western Insurance Company Ltd. After non-payment, Crown made calls under the guarantees. The guarantor declined liability and took no part in the proceedings after being debarred from defending. Crown claimed the guaranteed sums from the guarantor and, alternatively, damages from Cambridge Risk Advisors Ltd for negligent advice concerning the form and supporting documents for the calls.

The central issues were whether the calls complied with the guarantees, whether any defects had been waived, whether Cambridge owed Crown a duty of care, and how any loss would be measured.

1. Construction and compliance. The guarantees were to be construed according to their commercial purpose. Under the first guarantee, the obligation was to pay the single sum identified in Bill of Exchange CA1 on 16 April 2009. The underlying contracts and earlier invoice dates did not determine liability. The equivalent provisions in the second and third guarantees likewise made the specified sums payable by the dates stated in those guarantees or their schedules. The only supporting documents required for the first call were the guarantee and relevant invoices. The notice sufficiently stated the claim and non-payment, and its reference to the guarantee value identified the sum claimed.
2. Service and waiver. NWIC expressly waived service at its Nevis address by arranging for notices to be sent through Camrisk. Its conduct in requiring Crown to enforce the guarantee was inconsistent with treating apparent defects in the first notice as invalid. Its unequivocal promise to pay the second claim, and subsequent statement that it would honour the claims absent suspected fraud, waived objections to the notices under the second and third guarantees. Waiver by election requires an unequivocal communication by a party with knowledge of the relevant facts and, probably, its legal rights. Waiver by forbearance requires conduct reasonably understood as a promise, reliance, and detriment sufficient to make revocation unjust.
3. Third guarantee. Payment of the guarantee fee was not expressed to be a condition precedent. NWIC bore the burden of proving non-payment or valid cancellation, and failed to do so.
4. Camrisk. Crown proved a duty of care in relation to Camrisk’s advice. Camrisk’s broker had special skill, knew that Crown would rely on the advice, and was better placed to assess what NWIC would accept. The claim nevertheless failed because the calls were valid and Crown obtained judgment against NWIC.
5. Damages observation. If liability against Camrisk had arisen, Crown would have had to prove both what it would have recovered from NWIC with valid calls and the extent to which Camrisk’s negligence impaired recovery. The damages would be the difference between those amounts, assessed at trial. This analysis was academic on the facts.

Crown succeeded against NWIC for £187,268, plus interest and costs. The claim against Camrisk was dismissed. Costs were reserved for further argument.