Key developments in B&F case law—guarantees

Key developments in B&F case law—guarantees

Patrick Selley, bank guarantee & financial dispute specialist and consultant solicitor, Keystone Law, discusses the key cases and developments in relation to guarantees over the past 12 months.

What have been the key cases in this area over the past 12 months?

Ashwood Enterprises Ltd v Governor and the Company of the Bank of Ireland [2014] EWHC 2624 (Ch)

The rule in Holme v Brunskill (1878) 3 QBD 495 does not apply to ‘all moneys’ guarantees—whether a guarantee is in fact an ‘all moneys’ guarantee will depend on the interpretation of the guarantee itself and the surrounding circumstances (see Bank of Baroda v Patel [1996] 1 Lloyd’s Reports 391, where a separate facility letter was considered to be the principal document).

Recently, in National Merchant Buying Society v Bellamy [2013] EWCA Civ 452, [2013] 2 All ER (Comm) 674, the Court of Appeal found that the drafting of the guarantee had been clear and that it had been drafted to cover anything due or to become due, without limit. It was held that a contract of guarantee is first and foremost a contract and ought to be construed as such, thereby settling this issue (see Paget’s Law of Banking at c 18, pt 2).

In Ashwood, the High Court applied established principles of construction to determine the scope of an all monies clause in a third-party legal charge (TPLC). The court was required to determine preliminary issues concerning the claimants’ liability under a TPLC, which was an all monies clause expressed to secure the debtors’ obligations.

Where the court is asked to construe a provision in a contract that can have more than one possible meaning, the meaning that is consistent with commercial common sense is to be preferred (Rainy Sky v Kookmin Bank [2011] UKSC 50, [2012] 1 All ER 1137 followed). This decision is helpful in confirming that, akin to the decision inBellamy, unless the factual background to a contract shows that the ordinary meaning cannot be given to the words in the contract or that there is an ambiguity, the ordinary meaning of those words will prevail. Consequently, it stops references to negotiations and other background when interpreting a written contract.

Ramsay v Love [2015] EWHC 65 (Ch), [2015] All ER (D) 130 (Jan)

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About the author:

Miranda is a solicitor specialising in leveraged and acquisition finance. She trained at Hogan Lovells International LLP and qualified into the international banking and finance team. During her time at Hogan Lovells she worked on a variety of domestic and cross-border transactions, acting for both borrowers and lenders. She also experienced secondments to Barclays Bank PLC and Kaupthing Bank hf.