Black & Veatch Corporation v KazStroyService Global BV

A parent company guarantee must be construed as a whole. Wording requiring a guarantor to perform or procure performance of the subsidiary’s obligations may create secondary liability under a see to it guarantee, rather than a primary obligation to perform the underlying contract.

Where liability is secondary, the principle of co-extensiveness applies. The guarantor may rely on defences available to the principal, including an equitable set-off where the relevant legal system recognises it. The contractual expression “a right in defense of liability” was wide enough to include such a defence.

The claimant sought payment under a parent company guarantee given by the defendant in respect of obligations owed by its subsidiary under an Indian-law consortium agreement. The defendant relied on the subsidiary’s cross-claims as defences, including equitable set-off.

By consent, the court determined preliminary questions concerning the character of the guarantee, the construction of the defence provision, the application of Indian law, the effect of contractual clauses concerning joinder and remedies, and whether the pleaded cross-claims could operate as equitable set-off.

1. Character of the guarantee. Reading the guarantee as a whole, including its recital and continuing-guarantee provisions, the obligation to perform or discharge the subsidiary’s obligations was a mechanism for making the guarantor liable when the subsidiary failed to perform. It did not give the beneficiary an option to require the guarantor itself to take over performance. The liability was therefore secondary: paras [52]-[62].
2. Co-extensiveness. The second sentence of paragraph 2 made express the ordinary principle that a secondary guarantor’s liability cannot exceed that of the principal. It did not otherwise restrict that principle: paras [66]-[67].
3. Equitable set-off. The words “a right in defense of liability” bore their natural meaning and included a right to rely on equitable set-off. The relevant question was whether the subsidiary could rely on that defence, not whether the guarantor had an independent right. The court rejected the contention that the provision was limited to defences extinguishing the subsidiary’s liability immediately: paras [68]-[76], [84]-[92].
4. Indian law and application. Whether the subsidiary could rely on equitable set-off was governed by Indian law. The English court had to consider how an Indian court or tribunal would exercise the relevant discretion. The material factors included the close connection between the claims, whether it would be inequitable to adjudicate the main claim without the cross-claim, and whether determination would require a protracted inquiry. The claims and cross-claims arose from the same agreements and project and were sufficiently connected. The subsidiary could therefore rely on them as an equitable set-off: paras [93]-[112].
5. Contractual provisions. Clause 13.3 of the consortium agreement did not prevent reliance on the cross-claims. It was directed to third-party proceedings and was permissive. Clause 14.5 did not exclude equitable set-off. The agreement reserved contractual claims and damages for breach, and contained no clear wording waiving their use as a defence: paras [113]-[129].
6. The preliminary questions were answered accordingly. The court declined to answer the academic question concerning the general character of equitable set-off in Indian law: para [130].