27 March, 2012


This case concerned a loan guarantee and was not a construction case. However, a clause similar to the following in the guarantee is often present in demand bonds required by employers in construction projects:-


"A certificate signed by [the creditor] of the amount for the time being of the Indebtedness and/or the amounts due to [the creditor] shall be conclusive evidence for all purposes against [the guarantor] unless manifestly incorrect.” [Interpretation added.]
The guarantor disputed liability on the grounds that certain facts relating to the underlying contract were not disclosed to the guarantor and that the creditor had agreed a varied interest rate with the borrower.
The English Court of Appeal held that:
  1. A guarantee is not a contract of utmost good faith, but was a loan guarantee. Consequently, the creditor is not obliged to disclose all matters relevant to the surety's decision whether or not to enter the guarantee. There is no duty to disclose facts or matters which are not unusual features of the contractual relationship.
  2. The conclusive effect of a certificate did not preclude the guarantors from relying on the varied agreement. Conclusive evidence clauses were to be construed strictly, with any ambiguity resolved in favour of the guarantor. In the present case there was a manifest error as the amount certified was that due under the unvaried loan agreement, when it should in fact have been limited to the amount due under the loan agreement as varied.
The above principle should be equally applicable to demand bonds.


Leave a Reply

You must be logged in to post a comment.