KfW v Singal

A guarantee instrument must be characterised by its actual terms. It may combine secondary guarantee obligations with primary indemnity or debt obligations. A see to it obligation is breached when the principal debtor fails to perform, whereas a conditional payment obligation requires a demand if the contract so provides. A primary indemnity does not require a demand unless its terms require one.

Where a guarantee contains effective waivers and provisions disapplying co-extensiveness, insolvency or alteration of the principal debtor’s obligations will not necessarily affect the guarantor’s liability. English law will not give effect to a foreign insolvency law purporting to discharge English-law obligations. Summary judgment is appropriate where the defence has no realistic prospect of success and the evidence permits proper determination without a trial.

KfW and KfW IPEX-Bank sought summary judgment against Sanjay Singal under three guarantee and indemnity agreements. Mr Singal had guaranteed obligations owed by Bhushan Power & Steel Limited under facility and individual loan agreements. The claims, in USD and EUR, were approximately £150 million.

Mr Singal did not participate in the application. The claims raised issues concerning English jurisdiction clauses, service and validity of demands, the characterisation of the guarantees, the effect of BPSL’s Indian insolvency process, and the application of the summary judgment test.

1. The court granted permission to amend the Particulars of Claim to correct figures and reduce the claim. Service of the proceedings and application was valid under the agreed contractual method and CPR 6.11.

2. The guarantees contained valid exclusive English jurisdiction agreements. The claims arose in connection with the guarantees. Article 25 of the Brussels Regulation Recast prevented a forum non conveniens challenge. In any event, the contractual waiver of inconvenient forum objections was effective because no unforeseen circumstances existed.

3. Applying the principles in Easyair v Opal, the court considered whether there was a realistic, rather than fanciful, prospect of a successful defence. It did not conduct a mini-trial, but could decide a short point of law or construction where the evidence was sufficient.

4. The guarantees were hybrid instruments. Their obligations had to be characterised from their wording without preconceptions. Clause 2.1 was a see to it obligation, breached when BPSL failed to perform its payment obligations, giving rise to damages. Clause 2.2 was a conditional payment obligation sounding in debt, and a demand was required because the clause expressly required one. Clause 2.3 was a primary indemnity sounding in damages; no demand was required, although it was subordinate to clauses 2.1 and 2.2.

5. Clauses 5, 6 and 8 broadly displaced the co-extensiveness principle and permitted the claimants to proceed directly against Mr Singal. At least two valid demands had been made under clause 2.2. The first was effective because the service provision was permissive and actual receipt occurred. The second remained valid despite minor inaccuracies in the figures.

6. The Indian insolvency process did not discharge or alter Mr Singal’s English-law liabilities. The contractual wording addressed insolvency, alteration, release and unenforceability. Under the Rome Convention and Rome I, alteration or discharge was governed by the law applicable to the guarantee. English law did not recognise a foreign insolvency discharge of English-law obligations.

7. Mr Singal had no real prospect of successfully defending the claims. Summary judgment was entered for the claimants in the sums claimed, including principal, contractual and default interest, enforcement costs and the unpaid commitment fee.