Greene King Plc v Quisine Restaurants Ltd & Anor

Whether a notice covenant in a guarantee arrangement is a condition precedent depends on construction of the agreement as a whole. A guarantee making liability conditional on the assignee’s default, coupled with a separate covenant to use reasonable endeavours to give notice after two months’ arrears, does not ordinarily make notice a precondition to liability. The court must consider whether the notice obligation was fundamental to the bargain, including its wording, structure, purpose, practical benefit and the proportionality of discharge. Breach of a non-fundamental or innominate term releases guarantors only if sufficiently serious. A notice clause intended to warn a guarantor and permit informal steps to limit exposure will not ordinarily discharge the guarantee.

Greene King plc claimed rent and service-charge arrears from Quisine Restaurants Ltd and Mr Nazar Shasha under guarantees given when the underlease was assigned to Stephen Dite. The licence to assign required Greene King to use all reasonable endeavours to notify Mr Shasha whenever rent was more than two months in arrears.

The High Court found that Greene King had breached that obligation but held that it was neither a condition precedent nor a condition of the contract, and that no loss had been proved. The appellants challenged their continuing liability on the basis that the breach discharged them from the guarantees. The central issue was the contractual effect of the notice obligation.

1. Disposition. The appeal was unanimously dismissed. The breach of the notice obligation did not release Quisine Restaurants Ltd or Mr Shasha from their guarantees.
2. Construction of the guarantees. The guarantee was not expressly conditional on Greene King’s performance of the notice obligation. The assignee’s default was the only express condition of Quisine’s obligation to pay. The reference to rents was unqualified in both relevant parts of the Schedule. Consistently with McGuiness v Norwich and Peterborough Building Society [2011] EWCA Civ 1286, one covenant created liability in damages and the other created liability in debt for the arrears. The notice covenant could not be read as an additional precondition to liability.
3. Timing and contractual status. Liability arose during the first two months after rent fell due, before the notice obligation operated. Treating notice as a condition precedent would therefore be incoherent. If the clause could affect an existing liability, it would operate as a condition subsequent. That construction was not supported by the language or structure of the licence.
4. Authorities. Eshelby v Federated European Bank Ltd [1932] 1 KB 423 was distinguishable because notice there was an express condition within the guarantee and had to be given within a specified period. Ankar Pty Ltd v National Westminster Finance (Australia) Ltd (1987) 162 CLR 549 concerned obligations that were the surety’s substantial quid pro quo and gave it materially greater protective options. The special principles concerning suretyship did not require clause 8 to be treated as a condition where the contractual factors pointed otherwise.
5. Condition and innominate term arguments. Clause 8 was expressed as an obligation to use reasonable endeavours, was designed to give Mr Shasha warning and information, and conferred its benefit on him alone. His practical options were limited, and treating breach as releasing both guarantors would be disproportionate and inconsistent with the contractual structure. The clause was therefore not a condition. The breach was also insufficiently serious to discharge the appellants as breach of an innominate term. The appellants accordingly had no defence to the claim.

1. Court of Appeal (Civil Division), [2012] EWCA Civ 698: unanimously dismissed the appeal by Quisine Restaurants Ltd and Mr Nazar Shasha.
2. High Court of Justice, Chancery Division, Cardiff District Registry: HHJ Milwyn Jarman QC ordered the appellants to pay £361,261.46 for rent and service-charge arrears. He found a breach of the notice obligation, awarded nominal damages on the counterclaim, but rejected the argument that the breach discharged the guarantees.