Brown-Forman Beverages Europe Ltd v Bacardi UK Ltd

A surety obligation is characterised by construing the agreement as a whole. A provision which is primary and independent may be an indemnity, while a secondary obligation remains a guarantee. The rule in Holme v Brunskill applies to guarantees, but not to properly characterised indemnities. A valid equitable set-off does not, before final determination, make the underlying debt irrecoverable or constitute a default for these purposes. A corporate guarantor’s consent to a variation may be inferred, but only where the relevant individual had actual or ostensible authority to act for the company. Materiality under the rule in Holme v Brunskill is assessed strictly: the creditor must show that the variation was plainly immaterial or could not increase the surety’s risk.

BFBE claimed approximately £51.5 million from BUKL under a parent surety arrangement securing obligations of Bacardi-Martini Limited under a cost-sharing agreement. BML had refused payment while relying on an equitable set-off defence, and the underlying dispute had been referred to arbitration.

The court tried preliminary issues concerning the construction of the indemnity in clause 6.2 and paragraph 5 of Schedule 6.2, the effect of the equitable set-off, and whether a later addendum varied the underlying agreement so as to discharge BUKL under the rule in Holme v Brunskill.

1. Clause 6.2. The third sentence created a free-standing primary indemnity, distinct from the guarantees in paragraphs 1–4 of Schedule 6.2. It covered consequential losses suffered by the specified parties, not the unpaid sums themselves. In any event, no obligation arose while BML was entitled validly and in good faith to rely on an equitable set-off equal to or exceeding BFBE’s claim.
2. Paragraph 5. Paragraph 5 was a separate and independent primary indemnity. Its scope was confined to obligations due from BML which were not enforceable against or recoverable from BML because of a legal disability, incapacity or other relevant fact or circumstance. A valid equitable set-off did not trigger it. The claim was not irrecoverable merely because enforcement was temporarily prevented pending agreement, judgment or an arbitral award.
3. Holme v Brunskill. The rule discharging a surety following a material variation applied only to secondary guarantee obligations. It did not apply to the primary indemnities in clause 6.2 or paragraph 5. The question had to be determined separately for each distinct surety obligation.
4. Consent. Consent to a variation may be inferred for a company as well as an individual, but the person giving consent must have actual or ostensible authority. BFBE had neither pleaded nor proved such authority for the directors who signed the addendum on behalf of BML. BUKL therefore had not been shown to have consented.
5. Materiality. The rule in Holme v Brunskill imposes a strict test. The creditor must show that the alteration was self-evidently unsubstantial or could not in any circumstances increase the surety’s risk. The addendum altered the personnel and cost-recovery structure and had the capacity to increase BUKL’s exposure. BFBE had not established that it was immaterial. Issues 4, 5 and 6 were resolved in BUKL’s favour; Issue 7 was resolved in BFBE’s favour. The parties were to address the consequential order after hand-down.

First-instance determination of preliminary issues in a Commercial Court claim. No appellate history was stated in the judgment.