Commercial Court rules on effect of conclusive evidence clause in Deed of Guarantee

23/07/10

In Carey Value Added S.L. v Grupo Urvasco SA [2010] EWHC 1905 (23 July 2010), the Commercial Court has ruled on the effect of a conclusive evidence clause in a Deed of Guarantee.  The claim was for some €55 million allegedly due under a guarantee covering (among other things) the repayment obligations of Grupo Hotelero Urvasco SA, the developer of a hotel and apartment block on the site of the former Marconi building on the Strand (latterly Citibank House).

The borrower disputed its liability to repay on the ground of alleged breaches by Carey of the Loan Agreement and other matters, and it instituted separate proceedings in the Commercial Court in July 2009 for a declaration of non-liability.

Carey nevertheless brought a claim under the Deed of Guarantee, asserting (on the basis of IIG Capital v Van Der Merwe [2008] 2 All ER (Comm), CA) that the Deed of Guarantee constituted an on demand bond, mainly because (i) the Guarantor had agreed to be responsible ‘as primary obligor' and (ii) the instrument contained a conclusive evidence clause.

Blair J agreed with Carey that the crucial point was the effect of the conclusive evidence clause, which stated that any certification or determination by Carey of a rate or amount was conclusive evidence of the matters to which it related.  Carey's demand under the Deed of Guarantee had certified the amount due from the borrower and this (so Carey submitted) entitled it to judgment for the amount of the demand regardless of any disputes between itself and the borrower.

This construction of the conclusive evidence clause was rejected by Blair J, who held that the word ‘amount' meant ‘amount advanced' not ‘amount due and payable' (the words ‘due and payable' being absent unlike the equivalent clause in the IIG case).  Accordingly Blair J refused summary judgment.

The decision provides another example of the need for extreme caution in the drafting of conclusive evidence clauses in contracts of guarantee, if they are to be included at all.

The judgment is here.