RS Luxembourg II, SARL & Anor v Deburo Real Estate Holding Gmbh

A contractual loan-to-value condition in a guarantee required strict compliance with the agreed valuation mechanism. Contract-compliant valuations had to exist for each relevant property. The court could not ignore missing valuations because the properties appeared to be of little value, imply a good-faith estimate, or invoke impossibility.

The condition operated as a brake on liability, rather than merely on the method of enforcement. If it was unsatisfied when proceedings were issued, the claim would fail at that stage. However, a later demand satisfying the condition could support a new cause of action introduced by amendment, avoiding the need for fresh proceedings.

The claimants sought €14 million from the defendant under a guarantee and indemnity securing borrowings by companies in the defendant’s group. An earlier summary judgment decision left only the operation of the guarantee’s loan-to-value condition for trial.

The issues were whether the condition was satisfied despite missing or allegedly defective property valuations, whether waiver or estoppel affected the valuation requirements, and whether the condition had to be satisfied when the original proceedings were issued or could be satisfied by a later demand and amendment.

1. Valuation requirements. The contractual definitions of “Loan to Value”, “Valuation” and “Valuer” required contract-compliant valuations for every relevant property. Strict compliance was necessary. The court rejected the proposed implication of a term allowing a good-faith estimate and rejected reliance on impossibility because the valuations could have been obtained. Missing valuations could not be disregarded as de minimis.
2. Individual properties. The Bonn report was a contractual valuation because the reliance letter meant it was addressed to, and could be relied upon by, the lender. The valuation for Emmastraat 210 was proved to satisfy the contractual requirements. No waiver by Deburo was established for the two Enschede properties because the relevant requests came from the borrower, not the guarantor. The court expressed no concluded view on whether the Bonn representation extended to Deburo or made reliance on strict contractual rights inequitable.
3. Effect of the condition. The words “may be claimed” and “make a claim” were not confined to issuing court proceedings. The condition was a condition precedent to liability and protected the guarantor substantively.
4. Later demand and amendment. Although a claim issued before satisfaction of the condition would have to be dismissed, the court accepted the principle that an amendment may introduce a later-arising cause of action where justice permits. The Second Guarantee Demand and the amendment relying upon it therefore constituted a valid claim for the purposes of the condition. Counsel were directed to draw up an order.

First-instance decision. The judgment records that HHJ Pelling KC had earlier dismissed all defences save the issue concerning the loan-to-value condition.