Parent company guarantees and termination: Chugga Chugg Pty Ltd v Privinvest Holding SARL [2025] EWHC 585

In Chugga Chugg Pty Ltd v Privinvest Holding SARL [2025] EWHC 585 (Comm), the claimant (“Chugga Chugg”) was the beneficiary under a parent company guarantee (“PCG”).

The PCG had been given by the defendant (“Privinvest”) in respect of Nobiskrug, a German subsidiary of Privinvest which had contracted to design, build and deliver a yacht for Chugga Chugg.

The PCG guaranteed the “due and punctual performance of all of [Nobiskrug’s] obligations under the Contract up to an aggregate maximum amount of €9,955,000 …”. In the case of a “contested” breach or termination of contract by Nobiskrug, Chugga Chugg needed to present the following documents to Privinvest before Privinvest would become obliged to pay under the PCG: (1) “a final unappealable award”; and (2) a written demand.

Disputes arose between Chugga Chugg and Nobiskrug. In April 2020, after a series of phone calls with Chugga Chugg’s representatives, Nobiskrug concluded that Chugga Chugg had renounced the contract (i.e. had shown an intention, by words or conduct, not to perform). On 8 June 2020, Nobiskrug served a notice accepting Chugga Chugg’s alleged renunciation. Nobiskrug brought an arbitration against Chugga Chugg the following day. For its part, Chugga Chugg denied having renounced the contract. Instead, in July 2020, Chugga Chugg served its own termination notice alleging that Nobiskrug was in material breach of contract.

The arbitrator made awards in favour of Chugga Chugg, but Nobiskrug became insolvent before the arbitrator gave the final award. On the strength of the awards, Chugga Chugg demanded payment from Privinvest under the PCG.

It was common ground that if Chugga Chugg had not renounced the contract in April 2020, and if Nobiskrug’s June 2020 termination notice was therefore invalid, then Chugga Chugg’s July 2020 termination notice was valid, with the result that Chugga Chugg’s claim should succeed.

The Commercial Court upheld Chugga Chugg’s claim. En route to that conclusion, the Court decided as follows:

1. The PCG gave rise to secondary, not primary, liability on the part of Privinvest. Before Chugga Chugg could claim payment, it needed to establish a breach of contract by Nobiskrug. In other words, the PCG was not an on-demand bond.
2. However, the distinction between primary and secondary liability made little practical difference. The provision of the PCG required Chugga Chugg, in the case of a “contested” breach or termination by Nobiskrug, to present “a final unappealable award” and a written demand to Privinvest. That procedure was all that Chugga Chugg needed to follow to trigger Privinvest’s liability under the PCG.
3. The calls in April 2020 did not prove that Chugga Chugg had renounced the contract. To succeed on this aspect, Nobiskrug needed to prove that it reasonably understood Chugga Chugg clearly and unequivocally indicated it was unwilling and/or unable to perform the contract, regardless of Chugga Chugg’s subjective intentions. The Court held that Chugga Chugg’s intention was to cancel the contract “if it could be done at an acceptable price”. That, said the Court, was insufficient for renunciation. In other words, it was not enough that Chugga Chugg had said that it “wanted out”. What was needed was an unequivocal refusal by Chugga Chugg to perform.
4. Chugga Chugg had followed the procedure to activate Privinvest’s liability under the PCG. Chugga Chugg had obtained a “final unappealable award” against Nobiskrug in the arbitration and it had made a written demand on Privinvest.

Comment:

This case is a useful reminder of the need to make it clear, when drafting a parent company guarantee, whether the guarantor’s liability is primary (i.e. on demand) or secondary. The decision also reiterates the fact that a renunciation of a contract must be unequivocal – merely exploring the possibility of terminating, provided the price is right, is not enough.

Related News, Insights & Events