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Multiplex Construction Europe Ltd v Dunne 2017 – what are you responsible for when providing a guarantee?

January 2018 - Issue 101

Following the recent and widely publicised collapse of the outsourcing giant Carillion, we are all too familiar with the commercial side effects of a company entering into financial difficulty. In an attempt to avoid these side effects it is not uncommon for a party in financial difficulty to be offered a ‘life raft’ in the form of an advance to assist with its financial problems. But are you sure of what you are responsible for when providing a guarantee?

Case facts

Multiplex Construction Europe (formerly Brookfield Multiplex Construction Europe Ltd) employed a concrete frame sub-contractor named Dunne Building and Civil Engineering Ltd (DBCE) to work on various construction projects.

DBCE entered into financial difficulty so Multiplex agreed to assist DBCE with its cashflow and provided an advance of £4 million under 2 agreements.  Mr Dunne, was owner of DBCE and its parent company, Dunne Group Ltd (DGL), and the agreements were entered into between Multiplex, Mr Dunne personally, DBCE and DGL. Mr Dunne was also named as guarantor.

DBCE was unable to solve its financial problems and DBCE and DGL were each subsequently placed into administration. Multiplex consequently sought recovery of the £4 million paid in advance by submitting a summary judgment application against Mr Dunne.

Was Mr Dunne personally liable?

The application was assessed on the proper construction of the agreement. Considering whether the agreement was a contract of indemnity or a contract of guarantee and as to whether Mr Dunne had a primary or secondary obligation.

The agreement, known as the ‘Advanced Payment Deed’ was reviewed and the court held that it was a contract of indemnity resulting in Mr Dunne having a primary obligation to pay the £4 million owed to Multiplex. The following supported this decision:

Mr Dunne raised in his defence an argument that he did not have a primary obligation to pay the £4 million and that he could rely on the set-offs and counterclaims of DBCE. The Honourable Mr Justice Fraser disagreed for the above reasons, but also disagreed with Mr Dunne’s argument regarding set-offs and counterclaims.

The agreement contained the following clause at 3.3:

“The liability of the Guarantor under this deed shall in no way be discharged, lessened or affected by:

       (i) an event of insolvency…

       (vii) any other act, event, omission or circumstances which but for this provisions might operate to discharge, lessen or otherwise affect the liability…”.

As a result of this clause 3.3 the court considered that there was no provision within the agreement to alter the amount owed under the payment advanced using a mechanism of set-off or counterclaims. Mr Dunne submitted that “as at the date of the administration, the value of DBCE’s outstanding applications for payment and work done exceeded the amount of the advance payment”. However the court rejected this defence.

Agreements purporting to be guarantees and/or indemnities are fertile ground for ambiguities and confusion. Guarantors and indemnifiers take on a serious financial risk in entering into such transactions – it is important to be aware of the implications of doing so. If you would like assistance in reviewing terms, please contact a member of our team on 01473 298121.

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