Cluttons LLP v Regis Group Ltd

A guarantee of a transferee’s due performance of obligations undertaken by a transferor may be enforced by an assignee of the guarantee’s benefit, even where the underlying liability remains with the transferor. The assignee may recover the transferor’s loss where it has discharged that loss, rather than only loss suffered in its own right. A party which assumes responsibility for performing contractual obligations and indemnifying the original contracting party may also become subrogated, on payment, to the original party’s rights against the defaulting contractor and its guarantor.

Regis Group Ltd guaranteed the due performance by Equity Asset Management Ltd of obligations arising under a 2002 business sale agreement with an unincorporated surveying firm. The agreement included obligations concerning the management of Trinity House’s property portfolio. Those obligations were not novated, so the surveying firm remained liable to Trinity House.

In 2005 the firm transferred its business to Cluttons LLP. The transfer included the benefit of relevant contracts, guarantees and indemnities, and required the LLP to assume specified liabilities and perform outstanding contractual obligations. After Trinity House’s claim was settled by payment made by the LLP, the LLP sought recovery from Regis under the guarantee. The Recorder gave judgment for the LLP. The central issue was whether the LLP could enforce a guarantee given to the firm and recover the sum paid to settle the firm’s liability.

1. The appeal was dismissed. The underlying liability to Trinity House remained with the firm. That did not determine the appeal because Regis had guaranteed Equity’s due performance of obligations which Equity was to perform vicariously on the firm’s behalf.
2. Regis was ultimately liable for any shortfall in Equity’s performance, subject to enforcement by a person entitled to sue under the guarantee. Clauses 2.1.5 and 2.1.9 of the 2005 Business Transfer Agreement operated to assign the benefit of the guarantee to the LLP. As equitable assignee, the LLP was entitled to enforce it.
3. The LLP’s recovery was not based on loss suffered by the LLP in its own right. It was entitled to recover because it had satisfied the firm’s loss by paying the sum required to settle Trinity House’s claim against the firm. That was the loss which Regis was obliged to indemnify.
4. The same result followed independently from subrogation. By assuming responsibility for the client contracts and acting as guarantor of their due performance, the LLP became subrogated, after payment, to the firm’s rights against Equity and any guarantor of Equity’s obligations. Regis was such a guarantor.
5. The Chancellor gave the judgment. Lord Justice Patten and Lord Justice McFarlane agreed.

• Court of Appeal (Civil Division): Appeal by Regis Group Ltd dismissed. The court upheld the Recorder’s judgment in favour of Cluttons LLP for £114,664.
• Central London Civil Justice Centre: Mr Recorder Bowdery QC gave judgment for Cluttons LLP on 23 November 2011, holding that the LLP could enforce the guarantee and recover sums paid in settlement of Trinity House’s claim.