REFUND GUARANTEES

1st Edition, 2015

Presumption against the imposition of primary liability

Introduction
6.1 For the reasons explained in Chapter 5 there is a presumption that where an instrument is issued by a bank or other financial institution, or
by an insurer or professional bond issuer, relating to an underlying transaction between parties in different jurisdictions, which contains an
undertaking to pay ‘on demand’ and does not contain clauses excluding or limiting the defences available to a surety, it will be construed as a
demand guarantee. Different considerations apply where the issuer of such an instrument is not a bank or other financial institution, an insurer
or professional bond issuer.

Marubeni Hong Kong and South China Limited v the Mongolian Government
6.2 As will be explained below, in Marubeni Hong Kong and South China Limited v the Mongolian Government,1 the Court of Appeal held
that where a guarantor is not a bank, there is a strong presumption against giving the words ‘on demand’ the effect of creating an independent
primary obligation.
6.3 In that case, Marubeni Hong Kong and South China Limited (“Marubeni”), entered into a Deferred Payment Sales Contract with Buyan
Holding Company Limited (“Buyan”), a Mongolian company, for the purchase by Buyan of machinery, equipment and materials for a
cashmere processing plant. The first instalment of the price was to be paid within 60 days and the remaining amount was to be paid in 12 equal
semi-annual instalments.
6.4 The contract provided for a document, described as a ‘guarantee’, to be issued by the Mongolian central bank on behalf of the
Mongolian Government (the defendant) in the form set out in a schedule to the contract. A letter in somewhat modified form in favour of
Marubeni was issued by the Mongolian Minister of Finance dated 11 May 1996 (“the MMOF Letter”).
6.5 The MMOF Letter contained the following relevant provisions:
‘To: MARUBENI HONG KONG LTD
In consideration of you entering into the Deferred Payment Sales Contract …. (hereinafter called the “agreement”) with Buyan Holding
Company Ltd, … (hereinafter called the “Buyer”) for sales and purchase of a textile plant the contact [sic] price of which is United States
Dollars Eighteen Million Eight Hundred Eleven Thousand Six Hundred Seventy (USD18,811,670), the undersigned Ministry of Finance of
Mongolia unconditionally pledges to pay to you upon your simple demand all amounts payable under the Agreement if not paid when the same
becomes due (whether at stated maturity, by acceleration or otherwise) and further pledges the full and timely performance and observance by
the Buyer of all the terms and conditions of the Agreement. Further Ministry of Finance undertakes to hold indemnify and hold you harmless from
and against any cost and damage which may be incurred by or asserted against you in connection with any obligations of the Buyer to pay any
amount under the Agreement when the same becomes due and payable (whether at stated maturity, by acceleration or otherwise) or to perform or
observe any term or condition of the Agreement or in connection with any invalidity or unenforceability of or impossibility of performance of any
such obligations of the Buyer.
This covenant shall come to force from the date of implementation of this agreement and remain in full force and effect until all amounts due to
you by the Buyer under the Agreement have been paid in full and all the terms and conditions of the Agreement have been fully performed and
observed by the Buyer.
The Ministry of Finance hereby waives any right to require you to proceed against the Buyer or against any security received from the Buyer or
any third party or to pursue any other remedy available to you.’

6.6 The letter contained an express English jurisdiction clause and it was common ground between the parties that the proper law of the
MMOF Letter was English law.2
6.7 On the same day as the MMOF Letter was issued, the Deputy Minister of Justice of Mongolia signed a ‘Legal Opinion’ addressed to
Marubeni in which he stated his opinion that the ‘Guarantor’ had full power and authority to enter into the guarantee (“the MMOJ Letter”).
6.8 Marubeni subsequently alleged that the buyers repeatedly failed to pay instalments due under the sales contract and made demands
under the MMOF Letter. No payment was made and Marubeni issued proceedings against the Mongolian Government under the guarantee.
The Mongolian Government argued that the MMOF Letter was, upon its true construction, a guarantee properly so-called and that its
obligations as guarantor had been discharged by material variations to the sales contract which were made without its consent.
6.9 Cresswell J at first instance considered five issues, four of which concerned questions of actual/ostensible authority.3

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6.10 The fifth issue for decision, which is relevant to the discussion in this chapter, was whether the Mongolian Government’s obligations
were discharged as a result of refinancing agreements between the claimant and Buhan in February 1998 and April 1999. In particular:
(1) Whether on a true construction of the MMOF letter, the defendant had undertaken a primary liability so that the rule in Holme v Brunskill4
had no application.
(2) If the answer to (1) above was no, whether the refinancing packages involved any material variation in the transaction to which the guarantee
related, such as to result in the discharge of the entirety of the defendant’s obligations under the MMOF letter.
6.11 As to (1), Cresswell J held that, on the true construction of the MMOF Letter, the Mongolian Government did not undertake a primary
liability and the MMOF Letter was therefore not to be classed as a first demand bond.5
6.12 The MMOJ Letter, which contained numerous references to ‘guarantor’ and ‘guarantee’ was to be read with the MMOF Letter. The
MMOF Letter provided that the defendant had agreed to pay ‘all amounts payable under the agreement if not paid when the same becomes
due’ and, since the defendant’s obligation was by reference to the liabilities of Buyan, it had therefore assumed a secondary liability. Cresswell
J pointed out that there was no principal debtor clause in the guarantee and taking this and the other points mentioned above into account, he
concluded that the ‘main burden’ of the instrument was a guarantee.6
6.13 As to (2), he held that the variations to the underlying contract which arose as a result of the refinancing in February 1998 and April
1999, when taken together, were ‘not insubstantial and were prejudicial’ to the Mongolian Government. He therefore held that the Mongolian
Government was discharged from its liability under the guarantee under the rule in Holme v Brunskill.
6.14 Marubeni appealed to the Court of Appeal. The central issue on appeal was whether the MMOF Letter was an unconditional
independent promise by the Mongolian Government to pay on demand all amounts payable under the Deferred Payment Sales Contract (ie a
primary obligation instrument or ‘demand bond’), or a secondary obligation instrument.
6.15 Marubeni argued that the wording of the MMOF letter should be interpreted against the background of previous authorities which
treated similar wording as giving rise to an independent primary obligation.7 It placed reliance upon the wording of the first promise, under
which the obligation of the Mongolian Government was expressed to be ‘unconditional’ and the fact that the trigger for payment was a ‘simple
demand’. Further, the express waiver of any right to require Marubeni to proceed against the buyer or against any security was said by
Marubeni to be inconsistent with the idea that the Mongolian Government should be able to avail itself of defences available to the buyer.
6.16 The Mongolian Government contended that reliance on the authorities cited was misconceived, since they all related to irrevocable
instruments issued by banks. The Mongolian Government was not a bank, nor was it in the business of providing irrevocable financial
instruments in return for a fee or commission. It submitted that outside of the banking context, the courts had not been willing, in the absence
of clear words, to interpret documents in which a party undertakes obligations in relation to an agreement between two other parties as
imposing an unconditional primary liability.8
6.17 Carnwath LJ gave the leading judgment of the Court of Appeal (with which Sir Martin Nourse and Waller LJ agreed) and rejected
Marubeni’s appeal. He held that the MMOF Letter was a guarantee properly so-called (ie a secondary liability instrument) that had been
discharged by a material variation to the underlying sales contract made without its consent.
6.18 In dismissing the appeal, Carnwath LJ took as his starting point the fact that the MMOF Letter was not a banking instrument and was
not described either on its face or in the supporting MMOJ Letter, in terms appropriate to a demand bond or something having similar legal
effect. He noted that the MMOJ described it as a guarantee and whilst the terminology was not conclusive, he agreed with Cresswell J that if
Marubeni had wanted the additional security of a demand bond, one would have expected them to have insisted on appropriate language to
describe it both in the instrument itself and in the MMOJ.
6.19 He held that it cannot be assumed that cases relating to banking instruments, such as demand guarantees, provide any useful guidance
when construing guarantees given outside the banking context.9 Such cases provide no useful analogy for interpreting a document which was
not issued by a bank and which contains no overt indication of an intention to create a performance bond or anything analogous to it.10 He held,
therefore, that the absence of such language, in a transaction outside the banking context, created a ‘strong presumption’ against the
interpretation that it imposed a primary liability.
6.20 He then considered whether there were sufficient indications in the wording of the instrument to displace that presumption. In this
regard Marubeni relied upon the words ‘unconditionally pledges’ and ‘simple demand’. Carnwath LJ noted, however, that these words were
qualified by wording which indicated that the obligation only arises if ‘the amounts payable under the agreement (are) not paid when the same
becomes due’. He agreed with Cresswell J that this wording was appropriate to a secondary obligation, that is, one conditional upon default by
the buyer. Although in Esal similar wording was held insufficient to displace the ordinary effect of what was admittedly a performance bond,
in Marubeni the starting point was different and there was no reason for reading the words other than in accordance with their ordinary
meaning.
6.21 He was reinforced in this view by the express pledge of ‘… the full and timely performance and observance by the buyer of all the
terms and conditions of the agreement’, which it had not been suggested indicated anything other than a secondary obligation.11
6.22 Although it is rare for refund guarantees to be issued other than by banks, insurance companies or other financial institutions, parties

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should be aware that, in such cases, different considerations apply. In particular, the absence of clear wording indicating an intention to create a
performance bond or demand guarantee outside of a banking context will lead to a strong presumption against the imposition of primary
liability.

IIG Capital LLC v Van der Merwe

6.23 The only reported case to date where the Marubeni presumption has been successfully rebutted is IIG Capital LLC v Van der Merwe.12
6.24 In that case, the defendants, Mr and Mrs Van der Merwe, were the sole owners of a company which borrowed money from IIG Capital
LLC (“IIG”) under a loan agreement which was governed by New York law. They each executed ‘deeds of guarantee’ in favour of the lender
which were governed by English law.
6.25 Lewison J described the relevant provisions as follows:13
‘… 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 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.”’

6.26 The company defaulted on its obligations under the loan agreement and IIG sent letters of demand to the defendants together with a
certificate of the amount due and payable by them. The defendants sought to rely on a defence available to the company that under New York
law there was an implied covenant of good faith and fair dealing, which would require IIG to have given reasonable notice of its demand and
that such notice had not been given.
6.27 The issue, therefore, was whether the defendants were entitled to rely upon the defence available to the company under New York law,
as a defence to IIG’s claim against them under the deeds of guarantee. If the deeds of guarantee were, upon their true construction, contracts of
indemnity as opposed to contracts of guarantee, the defendants would be unable to rely upon any defences which were available to the
company as principal debtor.
6.28 It was held by Master Teverson that the guarantee imposed a primary obligation upon the directors who had bound themselves to pay
on demand as primary obligors the amount stated in a certificate. This decision was upheld both by Lewison J and the Court of Appeal.
6.29 Waller LJ delivered the leading judgment in the Court of Appeal (with which Lawrence Collins and Rimer LJJ agreed). He said that
the question was what, on the true construction of the deeds of guarantee, the directors had agreed.14
6.30 Looking at the operative language of the deeds of guarantee, Waller LJ held that by clause 2.1 the guarantors agreed ‘as principal
obligor’ ‘not merely as surety’ that ‘if … the Guaranteed Moneys are not paid in full on their due date … immediately upon demand
unconditionally pay to the Lender the Guaranteed Moneys which have not been so paid’. The ‘Guaranteed Moneys’ were defined as ‘all
moneys and liabilities … which are now or may at any time hereafter be due, owing or payable or expressed to be due owing or payable, to the
Lender from or by the borrower …’. The obligation to pay moneys ‘expressed to be due’ ‘upon demand’ ‘unconditionally’ as ‘principal
obligor’ ‘not merely as surety’ indicated that the guarantors were taking on something more than a secondary obligation.
6.31 What put the matter beyond doubt was the conclusive evidence clause at clause 4.2. Waller LJ concluded that any presumption had by
the language used been clearly rebutted and, save in the case of manifest error, the guarantors had bound themselves to pay on demand as
primary obligor the amount stated in a certificate pursuant to clause 4.2.15

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6.32 Waller LJ pointed out, however, that context is important and that ‘even minor variations in language plus a different context can
produce different results’.16

Vossloh Aktiengesellschaft v Alpha Trains (UK) Ltd

6.33 In Vossloh Aktiengesellschaft v Alpha Trains (UK) Ltd,17 Alpha sought to rely upon the decision in IIG in contending that a guarantee
given by Vossloh in respect of the obligations of its subsidiary in connection with an agreement for the manufacture of railway engines was, in
fact, akin to a performance bond and that, as a result, the Marubeni presumption was rebutted.
6.34 The material terms of the guarantee were as follows:
‘2.1 … the Guarantor hereby unconditionally and irrevocably as a continuing obligation and as principal debtor and not merely as surety, as a
separate, continuing and primary obligation …
(a) guarantees to each Beneficiary the due and punctual observance and performance by each Guaranteed Party of each obligation owed by such
Guaranteed Party to that Beneficiary contained in the Relevant Documents to which that Guaranteed Party is a party;
(b) guarantees to each Beneficiary the due and punctual payment by each Guaranteed Party of all of its Secured Obligations;
(c) undertakes with each Beneficiary that whenever a Guaranteed Party does not pay any of the Secured Obligations as and when the same shall be
expressed to be due, the Guarantor shall forthwith on demand pay such Secured Obligations which have not been paid at the time such demand is
made,
(d) as a separate and independent stipulation, agrees that if any purported obligation or liability of the Guaranteed Party which would have been the
subject of this Guarantee had it been valid and enforceable is not or ceases to be valid or enforceable against a Guaranteed Party on any ground
whatsoever whether or not known to any Beneficiary, the Guarantor shall nevertheless be liable to the relevant Beneficiary in respect of that
purported obligation or liability as if the same were fully valid and enforceable and the Guarantor was the principal debtor in respect thereof and
shall be paid or caused to be paid by the Guarantor under this Guarantee upon demand; and
(e) as principal obligor and as a separate and independent obligation and liability, indemnifies each Beneficiary against any losses suffered by it from
time to time in connection with or as a direct or indirect result of the failure of a Guaranteed Party to duly and punctually perform its terms,
representations and warranties, conditions, covenants and obligations contained in the Relevant Documents to which it is a party or failure to duly
and punctually pay the Secured Obligations or as a result of the whole or any part of the Relevant Documents being or becoming void, voidable,
unenforceable or ineffective as against that Beneficiary for any reason whatsoever, irrespective of whether such reason or any related fact or
circumstance was known or ought to have been known to that Beneficiary…
3.1 All sums payable hereunder shall be paid on demand to such bank account as may be specified in any demand made by a Beneficiary
hereunder …
…
6.3 The Guarantor hereby waives any right it may have of first requiring a Beneficiary to proceed against or enforce any other rights or security
or claim payment from any person (including each Guaranteed Party) before claiming from the Guarantor under this Guarantee.
6.4 Subject to the terms of this Guarantee and in particular this Clause 6, the Guarantor shall be entitled to raise such defences which are
available to the Guaranteed Party under the Relevant Document only after the Guarantor has complied with Clause 2.l of this Guarantee.
However the Guarantor is not entitled to refuse payment or performance based on this right to reclaim.’
…
7 Demands under this Guarantee may be made from time to time and the liabilities and obligations of the Guarantor under this Guarantee may
be enforced, irrespective of
(a) whether any demands, steps or proceedings are being or have been made or taken against the Guaranteed Party and/or any third party; or
(b) whether or in what order any security to which a Beneficiary may be entitled in respect of the Secured Obligations and the other obligations
guaranteed hereunder is enforced.
…
11.2 A certificate of a Beneficiary setting forth the amount of any Secured Obligations not then paid by a Guaranteed Party shall be conclusive
evidence of such amount against the Guarantor in the absence of any manifest error.’

6.35 A dispute arose between Alpha and Vossloh’s subsidiary as to alleged defects in the railway engines and gearboxes and Alpha submitted
a demand to Vossloh pursuant to its guarantee claiming losses of €17 million. Vossloh commenced court proceedings to seek a declaration that
its liability under the guarantee was triggered only upon proof of breach of contract by its subsidiary.
6.36 The main issue to be determined, therefore, was the nature of Vossloh’s liability under the guarantee and upon what basis it could be
required to make a payment to Alpha.
6.37 Alpha contended that the guarantee was a performance bond because (1) Vossloh was referred to as the ‘principal debtor and not
merely as surety’ in clause 2.1; (2) amounts were expressed to be payable on demand in clause 3.1; (3) clause 6.3 contained a waiver of
defences provision which allowed Alpha to proceed against Vossloh without first having recourse to any other party; (4) Vossloh was
permitted by clause 6.4 to raise defences available to its subsidiary only after paying the guaranteed obligations; and (5) the conclusive
evidence – clause 7 (similar to that in the case of IIG) provided that Alpha’s certification of an amount was conclusive.
6.38 Vossloh argued that no liability arose unless its subsidiary was, in fact, in default of its obligations and that mere assertion of a breach
was not enough to trigger Vossloh’s obligations under the guarantee.

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6.39 The case was heard by Sir William Blackburne. As to (1) above, he held that the principal debtor wording in clause 2.1 was not
effective to convert obligations which are secondary in nature into primary obligations. He acknowledged that the words were capable of
having this purpose and effect, but it was difficult to see that this was the purpose in this case, because the draftsmen then went to the trouble
of setting out sub-clauses which had the appearance of secondary obligations.
6.40 As to (2), Sir William Blackburne held that the wording in clause 3.1 did not define the circumstances in which Vossloh’s liability
arose; instead it referred to liability which arises, if at all, under clause 2.1.
6.41 As to (3) and (4), Sir William Blackburne was not persuaded by the submissions on behalf of Alpha that sub-clause 6.3 indicated the
‘immediacy and primacy’ of Vossloh’s liability or that clause 6.4, which effectively stated ‘pay now argue later’ indicated primary liability. He
concluded that sub-clause 6.4 assumed that Vossloh may raise defences which the guaranteed party could have raised if the demand had been
addressed to it. Its purpose was simply to postpone the exercise of the right by Vossloh until after the demand had been met.
6.42 As to (5), Sir William Blackburne held that clause 7 did no more than state that Vossloh’s liability may be enforced whether or not the
beneficiary had pursued to any extent its rights against the guaranteed party. He rejected Alpha’s argument that when taken with clause 6.4,
clause 7 showed that in order to establish liability in Vossloh, it was unnecessary for the beneficiary to establish underlying liability on the part
of the guaranteed party.
6.43 Sir William Blackburne went on to observe that the conclusive evidence provision in clause 11.2 was of a kind commonly seen in
guarantees. He stated that the question was whether its reference to the certificate constituting ‘conclusive evidence … against the Guarantor in
the absence of any manifest error’ goes to the existence of the breach (ie liability) and not just to its monetary consequences. In his view, it was
confined to the latter. The reference to a certificate ‘setting forth the amount’ of the secured obligation in question did not, in his judgment,
have the effect (on its own or in combination with other clauses) of transforming the contract into a demand bond.
6.44 Sir William Blackburne, therefore, made the declaration sought on behalf of the claimant, concluding that the guarantee was a
guarantee properly so-called and not a performance bond. As the guarantee was given outside the commercial banking context, the Marubeni
presumption applied.

Carey
6.45 In Carey Value Added SL v Grupo Urvasco SA,18 the claimant made an application for summary judgment in respect of its claim under a
Deed of Guarantee and Indemnity (“the Deed”), seeking to argue that the Marubeni presumption should be rebutted in reliance upon the
decision in IIG.
6.46 In that case the defendant, Grupo Urvasco, had guaranteed the obligations of its subsidiary, Grupo Hotelero Urvasco SA (“GHU”),
under a loan agreement entered into between GHU as borrower and the claimant as lender for the development of a hotel and luxury
apartments in Central London.
6.47 The relevant terms of the Deed were as follows:
‘[Grupo Urvasco] irrevocably and unconditionally:
(a) guarantees to the Losan Entities [that is Carey] punctual and complete performance by the Obligors [that is Grupo Hotelero Urvasco] of the
Guaranteed Obligations; …
(c) undertakes with the Losan Entities to be responsible as primary obligor for any failure by an Obligor to perform, discharge or fulfil for whatever
reason any of the Guaranteed Obligations when due and promptly on demand by any Losan Entity:
(i) fully, punctually and specifically perform or procure to be performed the relevant Guaranteed Obligations as if it were itself a
direct and primary obligor to the Losan Entities in respect of such Guaranteed Obligations and be liable as if the Transaction
Documents had been entered into directly between the Guarantor and the Losan Entities;
(ii) pay the amount of any Guaranteed Obligation which has not been paid by the relevant Obligor and without any deduction or
withholding; and
(d) undertakes with the Losan Entities to indemnify any of them immediately on demand against any cost, loss or liability suffered and expenses incurred
by any Losan Entity:
(i) in consequence of an Obligor’s failure to perform any of its obligations under the Transactions Documents;
(ii) if any obligation guaranteed by the Guarantor is or becomes unenforceable, invalid or illegal.
The amount of the cost, loss or liability shall be equal to the amount which that Losan Entity would otherwise have been entitled to recover under
the Transaction Documents.’

6.48 As part of the transaction, Carey and GHU entered into a Sale and Purchase Agreement (“the SPA”) pursuant to which Carey was to
purchase shares in GHU’s subsidiary from GHU and was at liberty to apply any sums due under the loan agreement towards the purchase
price.
6.49 Clause 6.17 of the SPA provided as follows:
‘If the Purchaser [Carey] fails to advance any Tranche due to be advanced under and in accordance with the Loan and fails to remedy such
breach within a period of 30 days of notice from the Seller [Grupo Hotelero Urvasco] requiring such remedy, the Seller shall be entitled to

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rescind this Agreement by written [notice] to the Purchaser without liability of any kind on the Seller’s part under this Agreement. Upon such
rescission the Seller shall not be obliged to repay the Loan. In the event of delay on the part of the Purchaser in advancing any Tranche, the Long
Stop Date shall be extended by an equivalent period. For the avoidance of doubt, this Clause shall not apply in relation to the Initial Payment due
on Completion in respect of which Clause 5.6 shall apply.’

6.50 Between December 2007 and May 2008 Carey advanced approximately €49 million to GHU under the terms of the loan agreement. GHU
failed to make the repayments due under the loan agreement. Carey contended that it had no obligation to advance further tranches because of
GHU’s default in making repayments. GHU subsequently purported to rescind the SPA on the basis that the claimant had failed to advance
further tranches that it was obliged to advance under the loan agreement.
6.51 In November 2009, Carey demanded that GHU repay all sums outstanding under the loan agreement and also made a demand against
the defendant under the Deed.
6.52 In December 2009, Carey commenced proceedings against the defendant and sought summary judgment. It contended that the Deed
took effect as a performance bond which required payment to be made simply upon receipt of a demand and a certificate. On this basis, Carey
contended that no defences which were available to GHU were available to Grupo Urvasco in defence of the claim made by Carey under the
Deed.
6.53 The defendant submitted that the Deed did not give rise to obligations akin to a performance bond, but was a traditional contract of
guarantee. It asserted that GHU was not indebted to Carey in any amount in respect of the underlying loan agreement on the basis that (1) GHU
had rescinded the SPA, which discharged GHU from any liability to repay the loan and, alternatively, (2) that GHU had claims against Carey
for breach of the loan agreement which could be set off against the amounts due.
6.54 It was agreed for the purposes of the summary judgment application that if the liability imposed by the Deed was secondary in nature,
Grupo Urvasco could rely upon GHU’s defences. Carey’s case was that the demand as certified was conclusive in accordance with the
provisions of clause 20.6 which provided that ‘Any certification or determination by [Carey] of a rate or amount under any Transaction
Document or this deed is, in the absence of manifest error, conclusive evidence of the matters to which it relates’. As a result, Carey argued
that the demand as certified gave rise to liability under the Deed in a similar way to the IIG case.19
6.55 In order to resolve the application it was necessary for Blair J to determine the nature of the Deed.
6.56 Blair J recited the familiar test that the nature of the instrument is a matter of construction of the instrument as a whole without any
preconceptions as to what it is20 and referred thus to the Marubeni presumption:
‘It has also been held that the absence of language appropriate to a demand bond in a transaction outside the banking context creates a strong
presumption against the interpretation of the instrument as a demand bond (Marubeni at [30] and IIG at [8] to [9]). Plainly, the use of words
such as “on demand” do not in themselves have the effect of creating a demand bond (IIG [2008] 1 All E.R. (Comm) 435 at [25]). On the other
hand, the avowed purpose of the instrument (Hyundai Shipbuilding & Heavy Industries Co Ltd v Pournaras [1978] 2 Lloyd’s Rep 502 at 508)
and the overall context of the contractual arrangements (Centeon at p. 66) may be relevant in determining whether on-demand type liability has
been created. Outside the banking context, IIG is an example of a case in which, on the language in question, the presumption referred to in
Marubeni was rebutted.’21

6.57 Blair J then turned to consider the language of the Deed and sought first to identify the subject matter of the obligation. Grupo Urvasco
undertook to be responsible as primary obligor for any failure of GHU to discharge any of the ‘Guaranteed Obligations’ when due.
‘Guaranteed Obligations’ were defined as ‘all obligations of the obligors under or in connection with the Transaction Documents’. Blair J
held that this tended to suggest that the Guarantor’s liability was the same as that of the borrower22 and although clause 2.1(d) created an
obligation on Grupo Urvasco to indemnify Carey, that clause was qualified by the proviso that the amount in question shall be equal to the
amount that Carey would otherwise have been entitled to recover under the Loan Agreement. He held therefore that the language of clause
2.1(d) appeared to be the language of co-extensive liability and certainly not indicative of the unqualified liability which arises under a demand
bond.
6.58 The crucial point in the view of Blair J was the effect of the certification and conclusive evidence provision that: ‘Any certification or
determination by [Carey] of a rate or amount under any Transaction Document or this deed is, in the absence of manifest error, conclusive
evidence of the matters to which it relates.’23
6.59 Carey submitted that the reference to ‘amount’ in the certification and conclusive evidence provision meant the amount due. Grupo
Urvasco submitted that it meant the amount advanced. Blair J referred to the fact that the certificate in IIG was as to the ‘amount at any
particular time due and payable’ and noted that the words ‘due and payable’ were missing from clause 20.6 in the instant case. He held that
there was a major difference between a certificate as to ‘amount’ and a certificate as to ‘amount due and payable’ and that it was not
appropriate to construe the clause so as to include the absent words. He therefore construed it as referring to the amount advanced.
6.60 He also added, relying upon a statement in O’Donovan and Phillips24 that insofar as there is any ambiguity in clause 20.6, it should be
resolved in favour of Grupo Urvasco. On that basis also, he held that a certificate under clause 20.6 was not conclusive evidence as to liability.

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6.61 Blair J concluded that the presumption in Marubeni was not rebutted and that the defendant had a real prospect of successfully
defending the claim. He therefore refused Carey’s application for summary judgment.

Summary and conclusion

6.62 The main points of distinction between IIG on the one hand and Vossloh/Carey on the other are that (1) in IIG the guaranteed obligations
included ‘all obligations expressed to be due, owing and payable’, (emphasis added) whereas the wording of the guarantee in Vossloh referred
to ‘sums payable’ and in Carey to ‘all obligations … under or in connection with the Transaction Documents’; (2) the conclusive evidence
clause in IIG applied to certifications of amounts ‘due and payable by the Guarantor’ whereas in Vossloh the clause related only to ‘the
amount of any Secured Obligations…’ and in Carey to ‘a rate or amount under any Transaction Document or this deed’.
6.63 As to (1), the inclusion of the words ‘expressed to be’ made it clear in IIG that payment was to be made under the guarantee in respect
of sums which were stated to be owing, regardless of whether they were, in fact, owing. The Court of Appeal therefore upheld Lewison J’s
judgment at first instance that if an obligation was ‘expressed to be due…’ the guarantors were liable even if the principal debtor was disputing
the underlying transaction. In Vossloh and Carey, the reference to the obligations of the guarantees indicated that the guarantor’s obligations
were co-extensive with that of the principal debtor.
6.64 As to (2), in IIG the certificate was conclusive of the sums due and payable by the guarantor, whereas in Vossloh and Carey it was held
that the certificate was not conclusive evidence of the existence of the liability but only of its monetary consequences.25
6.65 The fact that there is only one reported decision to date in which the Marubeni presumption has been rebutted indicates that it is only in
exceptional cases, where clear wording is used which is consistent only with the imposition of primary liability, that an instrument will impose
a primary liability outside of a banking context.

1 [2005] EWCA Civ 395, [2005] 2 All ER (Comm) 288, [2005] 2 Lloyd’s Rep 231.
2 Ibid at [4].
3 See paragraphs 7.4 to 7.14 for an explanation of actual and ostensible authority.
4 (1878) 3 QBD 495; see also paragraphs 14.2 to 14.8 regarding the rule in Holme v Brunskill.
5 Marubeni Hong Kong and South China Limited v the Mongolian Government [2004] EWHC 472 (Comm), [2004] 2 Lloyd’s Rep 198
(QB) [140].
6 Ibid at [139].
7 The following cases were relied upon: Esal (Commodities) v Oriental Credit CA [1985] 2 Lloyd’s Rep 546; Siporex Trade SA v Banque
Indosuez [1986] 2 Lloyd’s Rep 146; IE Contractors v Lloyd’s Bank CA [1990] 2 Lloyd’s Rep 496; and Gold Coast Ltd v Caja de Ahorros del
Mediterraneo [2001] EWCA Civ 1806, [2002] 1 All ER (Comm) 142, [2002] 1 Lloyd’s Rep 617.
8 The following cases were relied upon by the Mongolian government: Stadium Finance Limited v Helm [1965] 109 SJ 471; General Surety
and Guarantee Co v Frances Parker Limited (1977) 6 Bld LR 16; and Trafalgar House Construction (Regions) Limited v General Surety &
Guarantee Co. Limited [1996] AC 199.
9 Supra n.1 at [23].
10 Supra n.1 at [28].
11 Supra n. 1 at [32].
12 [2008] EWCA Civ 542, [2008] 2 All ER (Comm) 1173, [2008] 2 Lloyd’s Rep 187.
13 Van der Merwe v IIG Capital LLC [2007] EWHC 2631 (Ch), [2008] 1 All ER (Comm) 435 [6]–[10].
14 Supra n. 12 at [30].
15 Ibid at [32].
16 Ibid at [20].
17 [2010] EWHC 2443 (Ch), [2011] 2 All ER (Comm) 307.
18 [2010] EWHC 1905 (Comm), [2011] 2 All ER (Comm) 140.
19 IIG Capital LLC v van der Merwe [2008] EWCA Civ 542, [2008] 2 All ER (Comm) 1173, [2008] 2 Lloyd’s Rep 187, discussed at
paragraphs 6.23 to 6.32 above.

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20 Gold Coast Ltd v Caja de Ahorros [2001] EWCA Civ 1806 [14]; Ibid at [7].
21 Supra n. 18 at [24].
22 See BOC Group plc v Centeon LLC [1999] 1 All ER 53 (QB) 67.
23 Supra n. 18 at [39].
24 The Modern Contract of Guarantee (English edn, Sweet & Maxwell 2003) paragraph 5–104.
25 Supra n. 17 at [50]; Supra n. 18 at [41].

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