Jurisdiction(s):
United Kingdom

Guarantees—construction of ‘Significant Event’ clause: ceasing to be director (including on liquidation) triggers guarantor’s liability—Nirro Holdings SA v O’Brien [2021] EWHC 279 (Ch) (England and Wales)

Published on: 18 February 2021

Published by a LexisNexis Commercial expert

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Article summary

Nirro Holdings SA v Patrick O’Brien [2021] EWHC 279 (Ch) What are the practical implications of this case?

This decision illustrates how the court approaches construing contracts, and in particular how guarantees are read. The judge reviewed the general authorities on interpretation, examined the precise language of the guarantee signed by the surety, and assessed the situations that would engage an obligation to discharge the company’s liabilities as though the guarantor were the primary debtor. In Kookmin Bank v Rainy Sky SA [2011] UKSC 50 (at para [21]), Lord Clarke explained that construction is a single, integrated exercise: the court considers the words chosen and determines what a reasonable person — equipped with the background knowledge reasonably available to the parties at the time — would have taken them to mean. The court must take account of all relevant context. Where two readings are open, the court may prefer the interpretation that accords with business common sense and reject the rival reading. It weighed the factual matrix surrounding the agreement, the commercial setting, and the purpose of the bargain, to identify the events that would activate liability and require the guarantor to satisfy the company’s indebtedness. In Wood v Capita...

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