Chugga Chugg Pty Ltd v Privinvest Holding SAL

A contractual guarantee must be construed according to its wording and commercial context. A guarantee securing repayment obligations may be a secondary-liability instrument even though payment is required on demand, where liability depends on the underlying obligor’s breach and specified conditions for establishing it.

Where a guarantee distinguishes between contested and uncontested breaches, those concepts may cover the whole field. Once arbitration proceedings have begun, a claim remains contested unless admitted or determined, and subsequent non-participation does not convert it into an uncontested claim. A final unappealable default award may satisfy the contractual requirement for establishing liability.

Renunciation requires a clear, absolute and unequivocal intention not to perform. A conditional wish to terminate if acceptable terms can be agreed is insufficient. Continued contractual performance may also amount to affirmation when assessed objectively and in context.

The claimant procured the construction of a superyacht by Nobiskrug GmbH under a contract governed by English law. The defendant, Nobiskrug’s parent company, issued a guarantee securing performance and repayment obligations up to €9,955,000.

Following delays and financial concerns during the Covid-19 pandemic, the claimant explored terminating the construction contract. Nobiskrug later alleged that the claimant had renounced the contract and purported to terminate it. The claimant subsequently terminated for Nobiskrug’s material breach.

An arbitral tribunal rejected Nobiskrug’s claim and awarded the claimant repayment of sums paid under the contract. The claimant then demanded payment under the guarantee. The central issues were whether the claimant had renounced the contract, whether Nobiskrug had affirmed it, and whether the guarantee was a demand guarantee or a conditional guarantee of secondary liability.

1. Renunciation. The claimant’s communications in April 2020 conveyed a wish to terminate if an acceptable financial arrangement could be reached. They did not communicate a clear, absolute and unequivocal decision not to perform. The objective test was therefore not satisfied. The claimant had not renounced the contract.
2. Subsequent conduct. Alternatively, if there had been an earlier renunciation, the claimant repeatedly stated that it wished to continue, demonstrated its ability to meet immediate payment obligations and continued performance-related activity. Those matters rendered any continuing renunciation equivocal. A refusal to provide a non-contractual personal guarantee or release negotiated escrow security did not demonstrate an intention not to perform.
3. Affirmation. Further and alternatively, Nobiskrug affirmed the contract. Its project team continued to perform, dealt with design matters, reopened the yard, carried out steel-cutting and issued project information. Conduct must be assessed as a whole, taking account of the innocent party’s reasonable time to elect. There is no automatic safe period during which conduct cannot be affirmatory. The reservation of rights made on 25 May 2020 came too late.
4. Construction of the guarantee. The guarantee was, in principle, a classic secondary-liability or see-to-it guarantee, not an unconditional demand guarantee. Clause 2 nevertheless constituted an agreed mechanism for establishing Nobiskrug’s underlying liability. Satisfaction of its requirements made the guarantee practically similar to a conditional demand bond.
5. Contested and uncontested breaches. The words covered the whole field. Once arbitration had commenced, the claim remained contested unless positively admitted or determined by the tribunal. Withdrawal, default, or non-participation did not remove contestation where the claim remained live on the pleadings. A final unappealable default award could satisfy clause 2.
6. The insolvency administrator’s admission of the claim bound Nobiskrug and the claimant for insolvency purposes but did not alter the status of the claim in the arbitration. The Second Award was a final unappealable award and, together with the claimant’s written demand, satisfied clause 2.
7. The claim succeeded. The question of interest was left for further submissions.