Active Media Services Inc v Burmester, Duncker & Joly GmbH & Co Kg & Ors

A completion guarantee must be construed by its contractual language and commercial context. Where completion requires commercially acceptable quality and delivery requires specified materials and a notice by a stated date, a sales agent cannot extend the guarantee beyond an agreed long-stop date without the required written variation. A backdated acceptance does not cure the guarantor’s failure. A beneficiary may lose the right to claim through election, waiver by estoppel, estoppel by convention or acquiescence where, knowing of the breach, it supports continued completion and exploitation on another footing and the guarantor relies to its detriment. An authorised intermediary’s knowledge may be imputed to the beneficiary. Deliberate destruction of disclosure documents and failure to call material witnesses may justify adverse inferences.

Active invested US$2.4 million in the production of an animated film and was a beneficiary under a completion guarantee given by the Guarantor Defendants. The film was not completed or delivered by the contractual long-stop date. The producer, sales agent and bond monitor subsequently used backdated delivery and acceptance notices while third-party funding was obtained and the film was completed for a later release.

Active eventually claimed reimbursement under the guarantee against the Guarantor Defendants and advanced an alternative claim against DDI. The central issues were the construction of the guarantee, the effect of the notices, imputation of M3’s knowledge, the consequences of document destruction and missing witnesses, and whether Active was barred by election, estoppel, waiver or acquiescence.

1. Construction. The court applied the principles in Arnold v Britton [2015] UKSC 36, Wood v Capita Insurance Services Limited [2017] UKSC 244, Rainy Sky SA v Kookmin Bank [2011] UKSC 50 and Re Sigma Finance Corp [2009] UKSC 2. Completion required, among other matters, commercially acceptable technical quality. Delivery required timely tender of all asterisked materials and service of a Delivery Notice.
2. The 90-day extension created an absolute long-stop date of 28 August 2017. DDI could not extend the guarantee beyond that date without a written amendment signed by all parties. The Schedule 4 arbitration mechanism was limited to disputes following an Objection Notice and was not a precondition to liability where delivery had not occurred but the sales agent purported to accept it. Physical acceptance or exploitation could not cure the guarantor’s breach.
3. The court preferred contemporaneous documents to unreliable recollections, applying Gestmin SGPS SA v Credit Suisse (UK) Ltd [2013] EWHC 3560 (Comm). M3 acted as Active’s agent in receiving and communicating information. Its knowledge was therefore imputed to Active under El Ajou v Dollar Land Holdings plc [1994] 2 All ER 685.
4. The court applied the principles concerning absent witnesses in Wisniewski v Central Manchester Health Authority [1998] P.I.Q.R P324 and the document-destruction principles discussed in Douglas v Hello! [2003] EWHC 55, Dadourian Group v Simms [2009] EWCA Civ 169 and Earles v Barclays Bank [2009] EWHC 2500. A fair trial remained possible, so the claim was determined on the merits with adverse inferences.
5. Active knew that the film had not been completed and delivered, but chose to support its completion and exploitation in 2018 rather than call on the guarantee. That conduct amounted to an election and established waiver by estoppel, estoppel by convention and acquiescence. The requirements in Tinkler v HMRC [2019] EWCA Civ 1392 and Ted Baker Plc v Axa Insurance UK Plc [2017] EWCA Civ 4097 were satisfied.
6. Active’s claim against the Guarantor Defendants was dismissed. The alternative claim against DDI also failed. Even assuming DDI had breached a duty concerning acceptance or objection, Active could not establish loss because it would have pursued the same 2018 completion and exploitation strategy.

not stated in the judgment.