General average guarantees


Published: 15 September 2014

The Association is grateful to Kevin Cooper, Partner Ince & Co London, for contributing to this update.

The development

The Commercial Court in London has recently considered the issue of how the wording of a guarantee can be construed with respect to the obligation to pay.

On consideration, it was found that a guarantee which contained a clear promise to pay in a given set of circumstances would work in exactly such manner and it was not possible to qualify the terms of the undertaking.

In the case at hand it meant that once the conditions triggering the guarantee were met, the obligation to pay became enforceable. In effect the guarantee became an "on-demand" instrument.

While this decision was made in the context of a general average matter, the underlying reasoning of the court is of broader application.

In the attached article by Kevin Cooper of Ince & Co, these issues are explored in further detail and is of relevance to both those seeking a guarantee or of whom such a demand is made.

The advice

The key is to ensure that before signing off any on a document such as a guarantee, careful consideration is given to the exact terms and their impact.

The courts in London are unlikely to give much help or sympathy to a party that struck a clear commercial bargain, with full knowledge of the applicable terms, and later regrets the conditions of that bargain. Absent some very clear and strong reasons the court will hold the parties to the terms as agreed.

Over the years the Association has had to assist members on many occasions consider the terms of guarantees both sought and demanded. Whenever members face such a situation they would be well advised to contact the Association for assistance so that terms can be explained, and if necessary, re-worded, so that the final bargain is clear as to its effect.