IIG Capital LLC v Van Der Merwe
| Jurisdiction | England & Wales |
| Judge | THE HONOURABLE MR JUSTICE LEWISON |
| Judgment Date | 13 November 2007 |
| Neutral Citation | [2007] EWHC 2631 (Ch) |
| Court | Chancery Division |
| Docket Number | Appeal Ref: CH/2007/APP/0637 |
| Date | 13 November 2007 |
[2007] EWHC 2631 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Royal Courts of Justice
Strand, London, WC2A 2LL
The Honourable Mr Justice Lewison
Appeal Ref: CH/2007/APP/0637
Case No: HC07C00272
Mr Matthew Collings QC and Mr Adam Smith (instructed by HL Miller & Co.) for the Defendants/Appellants
Mr Paul McGrath and Mr Jeremy Brier (instructed by Jones Day) for the Claimant/Respondent.
Hearing dates: 15 th October 2007
Approved Judgment
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
Mr. Justice Lewison:
Introduction
Mr and Mrs Van Der Merwe have been in business together for 30 years. They began their business careers in South Africa but moved to the UK in 2002. Before their move they had formed a company, together with other investors, to market flowers and to export vegetables abroad. On their move to the UK they bought a company called Hurst Parnell & Co Ltd, which was in the vegetable business. But they realised that its business had not been well run. So in 2004 they formed a new company called Hurst Parnell Import & Export Ltd (“HPIE”) to import fresh fruit and vegetables under the “Fair Lady” brand. Mr and Mrs Van Der Merwe are directors of HPIE. It is registered in England and Wales.
In 2004 Mrs Van Der Merwe came across IIG Capital LLC (“IIG”), a company registered in New York and carrying on business there. She understood that it was interested in financing business start ups by trade finance and invoice discounting. IIG began affording finance to HPIE. However, the relationship had its ups and downs and Mr and Mrs Van Der Merwe transferred HPIE's business to Barclays. But in 2006 IIG recaptured HPIE's financing and a series of documents were entered into. All the documents were executed on the same day: 30 June 2006. One of those documents is at the heart of this dispute.
The first of the relevant documents is a loan agreement made between IIG and HPIE. The loan agreement contains a number of warranties given and obligations undertaken by HPIE. These include (for example) warranties about the accuracy of HPIE's accounts and financial statements (clause 8); obligations to provide regular accounts (clause 10.1); obligations to maintain insurance (clause 10.1.9); obligations not to enter into transactions otherwise than in the normal course of business (clause 11.4) and not to make loans to affiliates (clause 11.6). Clause 27.1 of that agreement said that the agreement was to be governed by New York Law. The second of the relevant documents was a debenture granted over the assets of HPIE. The third was a document described as a guarantee and signed by Mrs Van Der Merwe. I will refer to it as the guarantee, without prejudice to the contention of either party. Mr Van Der Merwe signed an identical document, although it was not in evidence.
On 12 January 2007 IIG demanded US$30,303,576 from HPIE said to be due under the loan agreement; and on the same day appointed administrators over HPIE. HPIE did not pay the amount demanded; and on 16 January 2007 IIG sent letters to Mr and Mrs Van Der Merwe reciting the failure of HPIE to pay and certifying that the amount due and payable by each of them under the guarantee was US$30,303,576. The letter demanded payment within 2 days. Mr and Mrs Van Der Merwe have not paid.
The principal issue I have to decide is whether, in resisting IIG's demand for payment under the guarantee, Mr and Mrs Van Der Merwe are entitled to raise defences that could have been raised by HPIE in resisting a demand made against it for repayment under the loan agreement. It is accepted that if they can, then whether those alleged defences are good ones can only be decided at trial. However, on an application for summary judgment Master Teverson decided that the terms of the guarantee prevented Mr and Mrs Van Der Merwe from relying on such defences. He held that once IIG had certified what was due under the guarantee Mr and Mrs Van Der Merwe were contractually bound to pay the amount certified. Mr and Mrs Van Der Merwe appeal against that decision, with the Master's permission.
The terms of the guarantee
The guarantee begins by describing itself as “THIS GUARANTEE” and Mrs Van Der Merwe is described as “the Guarantor”. Recital (A) records the grant of the facility to HPIE (described as “the Borrower”) of US$23,000,000. Recital (B) says that it was a condition precedent to the grant of the facility that the “Guarantor enters into this Guarantee of the obligations of the Borrower to the Lender under the [Loan] Agreement”. Recital (C) says that the guarantee is an “all monies” guarantee.
The document contains a single definition in clause 1.2. The defined term is “Guaranteed Monies” and the definition is:
“(i) all moneys and liabilities (whether actual or contingent) which are now or may at any time hereafter be due, owing, payable, or expressed to be due, owing or payable, to the Lender from or by the Borrower (ii) all interest…costs, commissions, fees and other charges and expenses which the Lender may charge against the Borrower; and (iii) all legal and other costs, charges and expenses which the Lender may incur in enforcing or obtaining, or attempting to enforce or obtain, payment of any such moneys…”
Clause 2 contains the main payment obligation and reads:
“In consideration of the Lender agreeing to enter into the Agreement, the Guarantor as principal obligor and not merely as surety unconditionally and irrevocably:
2.1 guarantees to the Lender the due and punctual payment of the Guaranteed Moneys and agrees that, if at any time or from time to time any of the Guaranteed Moneys are not paid in full on their due date … it will immediately upon demand unconditionally pay to the Lender the Guaranteed Moneys which have not been so paid
2.2 As an original and independent obligation under this Deed, the Guarantor shall
2.2.1 indemnify the Lender and keep the Lender indemnified against any loss … incurred by the Lender as a result of a failure by the Borrower to make due and punctual payment of any of the Guaranteed Monies …”
Clause 3 is headed “Preservation of Guarantee” and provides:
“3.1 The Lender shall be at liberty without thereby affecting its rights hereunder at any time at its absolute discretion and with or without the consent or knowledge of or notice to the Guarantor:
3.1.1 to give time to any Obligor for the payment of all or any sums due or payable under the Agreement or any other Finance Document;
3.1.2 to neglect or forbear to enforce payment of all or any sums due or payable under the Agreement or any other Finance Document and (without prejudice to the foregoing) to grant any indulgence or forbearance to and fail to assert or pursue or delay in asserting or pursuing any right or remedy against any Obligor thereunder;
3.1.3 to accept, vary, exchange, renew, abstain from perfecting, or release any other security now held or to be held by it for or on account of the Financial Indebtedness;
3.1.4 to amend, add to or vary the terms of the Finance Documents;
3.1.5 to compound with, accept compositions from and make any other arrangements with any other Obligor.
3.2 This Guarantee and the rights of the Lender hereunder shall not be affected by:
3.2.1 the appointment of a receiver, trustee or similar officer of any other Obligor, its undertaking or all or any of its or his asset.
3.2.2 Any alteration of the status of any other Obligor or any defective or irregular exercise of the powers of the Borrower to raise finance
3.2.3 The insolvency, bankruptcy, death, incapacity, winding up, liquidation or dissolution of any other Obligor;
3.2.3 Any failure by the Lender to take any other security for all or any part of the indebtedness agreed to be taken by the Lender pursuant to the Finance Documents or any total or partial invalidity, voidability or unenforceability of any such security;
3.2.4 The doing by the Lender of anything referred to in clause 3.1 above; or
3.2.5 Any other act or circumstance which (apart from this provision) would or might constitute a legal or equitable defence for or discharge of a surety or guarantor,
and this Guarantee may be called and/or enforced without steps or proceedings first being taken against any other Obligor.”
Clause 4.2 provided that:
“A certificate in writing signed by a duly authorised officer or officers of the Lender stating the amount at any particular time due and payable by the Guarantor under this Guarantee shall, save for manifest error, be conclusive and binding on the Guarantor for the purposes hereof.”
Clause 5 said that the guarantee was “a continuing guarantee” and would remain in force until all sums “due from the Borrower under the Finance Documents have been paid in full”. Clause 7.3 prevented the Guarantor from asserting any set-off against the Borrower. Finally, clause 14 said that the guarantee was to be governed by English law.
The Master's judgment
The Master summarised IIG's case as being that liability under the guarantee arose upon service on Mr and Mrs Van Der Merwe of a demand in proper form, without the need to prove any liability under the underlying loan agreement. His general approach to construction was that he should construe the guarantee in its factual and commercial setting without any preconceptions as to what it was. Having said that, he took into account the fact that Mr and Mrs Van Der Merwe were private individuals rather than banks. This brought into play “a strong presumption” against interpreting the guarantee as if it were “a performance bond or on...
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