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	England and Wales Court of Appeal (Civil Division) Decisions
You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> Greene King Plc v Quisine Restaurants Ltd & Anor [2012] EWCA Civ 698 (24 May 2012) URL: http://www.bailii.org/ew/cases/EWCA/Civ/2012/698.html Cite as: [2012] EWCA Civ 698

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IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
CARDIFF DISTRICT REGISTRY
HHJ MILWYN JARMAN QC
0CF30145

		Royal Courts of Justice Strand, London, WC2A 2LL
		24th May 2012

Lord Justice Patten :

1. This is an appeal by the first and second defendants, Quisine Restaurants Limited ("QRL") and Mr Nazar Shasha ("Mr Shasha"), against an order of His Honour Judge Milwyn Jarman QC dated 15^th July 2011 by which he ordered the appellants to pay to the respondent, Greene King plc ("GK"), the sum of £361,261.46 in respect of arrears of rent and service charges due under a lease of premises at 114-116 St Mary's Street, Cardiff.
2. The lease in question is an underlease dated 30^th November 2003 by which GK demised the basement premises in St Mary's Street to QRL for a term expiring on 27^th September 2032. Under clause 2 of the underlease a rent of £95,000 per annum (subject to review) was payable by equal quarterly payments in advance on the usual quarter days in each year. There were also provisions for the payment of a service rent which was payable on each succeeding quarter day following demand.
3. QRL is wholly owned and controlled by Mr Shasha. The demised premises are operated as a nightclub and Mr Shasha also ran (and still runs) another club in Swansea where he lives. In 2007 he decided to concentrate his business activities on the nightclub in Swansea and to dispose of the underlease of the Cardiff premises. On 28^th November 2007 the underlease was assigned with GK's consent to the third defendant, Mr Stephen Dite ("Mr Dite"). Mr Shasha was a guarantor for QRL in the underlease and as a term of the licence to assign both QRL and Mr Shasha entered into guarantees of the assignee's liabilities in respect of the rent and the tenant's covenants. They were released from their original covenants by the operation of s.5 of the Landlord and Tenant (Covenants) Act 1995 ("the 1995 Act").
4. Under paragraph 1 of the Schedule to the licence QRL covenanted and guaranteed to GK and its superior landlord that:

"1.1 the Assignee shall punctually pay the rents and perform and observe the covenants and other terms of the Underlease;

1.2 if the Assignee shall make any default in payment of the rents or in performing or observing any of the covenants or other terms of the Underlease, the Undertenant will pay the rents and perform and observe the covenants or terms in respect of which the Assignee shall be in default and make good to the Landlord and/or Tenant on demand and indemnify the Landlord and/or Tenant against all losses, damages, costs and expenses arising or incurred by the Landlord and/or Tenant as a result of such non-payment, non-performance or non-observance notwithstanding:

(a) any time or indulgence granted by the Landlord and/or Tenant to the Assignee or any neglect or forbearance of the Landlord and/or Tenant in enforcing the payment of the rents or the observance or performance of the covenants or other terms of the Underlease;

(b) that the terms of the Underlease may have been varied by agreement between the parties (but subject always to section 18 Landlord and Tenant (Covenants) Act 1995);

(c) that the Assignee shall have surrendered part of the Premises in which event the liability of the Undertenant under this guarantee shall continue in respect of the part of the Premises not so surrendered after making any necessary apportionments under section 140 Law of Property Act 1925;

(d) any other act or thing by which but for this provision the Undertenant would have been released."

5. Under paragraph 5 of the Schedule Mr Shasha guaranteed that QRL would comply with its obligations under the Schedule.
6. The licence to assign also contained in clause 8 a provision in these terms:

"The Tenant hereby undertakes with the Undertenant's Guarantor to use all reasonable endeavours to give written notice to the Undertenant's Guarantor each and every time the rents reserved by the Underlease are more than two months in arrear."

7. The Undertenant's Guarantor refers to Mr Shasha.
8. There were arrears of rent and service charge payments within the first few months following the assignment. The first two quarters' rent were met out of the rent deposit but thereafter neither the rent nor the service charges were paid on time and right through to October 2010 Mr Dite was unable to pay more than two or three thousand pounds per month against the rapidly increasing amount of arrears. By February 2008 the first quarterly instalment of rent due was more than two months in arrears (although eventually paid out of the deposit) and by Christmas of that year the arrears amounted to some £115,032.01. On 9^th December 2008 GK served on QRL and Mr Shasha a notice pursuant to s.17 of the 1995 Act in respect of the last six months' rent and interest amounting to £78,787.09. But no notice had yet been served under clause 8 in respect of all the accumulated arrears which had remained unpaid for at least two months.
9. Two further s.17 notices were served on the appellants on 17^th June 2009 and 26^th August 2009 in the sums of £59,570.35 and £27,312.50 respectively followed by five further notices between November 2009 and October 2010. Proceedings for the recovery of the arrears were issued on 21^st June 2010.
10. Mr Dite did not resist the claim but QRL and Mr Shasha disputed liability under their guarantees on a number of different grounds. They relied on a deed of variation in respect of the underlease and on an agreement between GK and Mr Dite for the payment of the arrears at a rate of £2,000 per week as having released them from the guarantees; and they alleged that GK had failed to mitigate. But their primary defence (and the only one which falls to be considered on this appeal) was that GK had acted in breach of its obligations under clause 8 of the underlease by failing to notify them whenever any instalment of rent became more than two months in arrears. This obligation is said to operate as a condition precedent to the liability of QRL under its guarantee so that a failure to provide notice as required bars recovery of the arrears in question. In the alternative, it is said that clause 8 constitutes a condition or fundamental term of the contract breach of which discharged the appellants from further liability under the guarantees. As an alternative to this, clause 8 is said to be an innominate term the breach of which in this case was sufficiently serious as to discharge the appellants from further liability.
11. The judge rejected all of these arguments. He held that GK had been in breach of clause 8 in failing to give Mr Shasha notice of the arrears as required but that the provision operated neither as a condition precedent to the appellants' liability nor as a condition:

"27. I am not satisfied in the end that this is a clause which gives rise to a condition which is precedent to the liability of Quisine or Mr Shasha. It does seem to me that the wording, had it been so fundamentally important, could have been put on the basis of a mandatory obligation rather than simply to use reasonable efforts. It is not couched in the language of the classic condition precedent, in my judgment.

28. Despite this, Mr Spackman submits that, even if it is not a condition precedent, it is a term which goes to the root of the contract for the reasons already submitted. On the other hand, Mr Clarke submits that the clause does not say whether the rent referred to is a sum of two months rent or any sum which is owed for more than two months. He pointed out that Mr Dite had already given a substantial rent deposit, so that arrears were not as high as the rent deposit when notice was first given. He submits, therefore, that there was no prejudice to Mr Shasha or Quisine. A lease could have been taken, but that was not done, under s.17 when the notice was eventually served in December.

29. In my judgment, I am not satisfied that this matter does go to the root of the contract, for reasons I have already referred to. It was intended to give Mr Shasha some comfort and some information as to what was going on but, in my judgment, it falls short of the sort of term which would be necessary in order to say that this went to the root of the contract."

12. He held that the breach or breaches of the obligation gave rise to a liability in damages but that, on the evidence, no loss had been proved:

"31. Mr Spackman submits, nevertheless, that if there was a breach which was not repudiatory, it is a breach which, nevertheless, entitles Mr Shasha to damages. Mr Spackman's primary submission under this head is that those damages would equate to the amounts which Greene King now claim. I am sure that now, looking back, Mr Shasha is convinced that, had he received a notice earlier on in 2008, he would have taken steps to remedy the situation, but I am not persuaded that in reality, at the time, that he is likely to have done so. The situation was that there were arrears of some £55,000 by mid March, but there was a payment made at the end of March and a further payment made by the end of June. Mr Shasha told me in evidence that he was very keen to sell the business at the premises and to have no further part in it. In my judgment, it is unlikely at that time, had he been told in March or June 2008 that there were sums, albeit less than appeared at December 2008, that he would have taken any further steps other than to persuade Mr Dite to pay the monies. The reason he did not take any steps at December 2008, in my judgment, was more likely to be because there were payments being made, albeit not in the full amounts, he, Mr Shasha, did not want any further involvement in the premises and it is unlikely he would have taken any further steps had he known of the true position earlier on."

13. He therefore ordered nominal damages on the appellants' counterclaim.
14. The challenge to the judgment on this appeal is limited to the judge's rejection of the argument that the breaches of clause 8 discharged QRL and Mr Shasha from liability either because compliance with clause 8 was a condition precedent to liability or a condition of the contract or because the breach itself operated to discharge the appellants (at their election) from further liability. GK has served a respondent's notice supporting the judge's order on the grounds that clause 8 operates in terms for the benefit of Mr Shasha alone and cannot therefore affect the liability of QRL and that, even if the breach entitled one or both of the appellants to avoid liability under the guarantees, they have, in the circumstances, either affirmed the guarantees or varied their right to terminate their liability.
15. The question whether clause 8 operates as a condition precedent to liability is, of course, one of construction of the contract but this is not one of those cases which necessitates a journey through the speeches in Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896 or any of the subsequent cases in which the decision has been considered. The licence to assign was a professionally drawn document between commercial parties and can be read with that context in mind.
16. Perhaps the first point to notice is that the guarantee of QRL (on which Mr Shasha's liability is dependent) is not in terms conditional on GK's performance of its obligations under clause 8. Literally construed, the guarantee consists of a covenant that Mr Dite will pay the rent and perform the tenant's covenants (paragraph 1.1) and a covenant on the part of QRL to pay the rents if Mr Dite fails to do so (paragraph 1.2). The first covenant creates a liability in damages on the part of the guarantor if the rent is unpaid: the second a liability in debt for an amount corresponding to the arrears: see McGuiness v Norwich and Peterborough Building Society [2011] EWCA Civ 1286.
17. Mr Cox QC submitted that the reference in paragraph 1.2 to "rents" falls to be construed as rents in respect of which a clause 8 notice has been given. But there are two obvious difficulties about that. The first is that this qualified meaning of "rents" does not fit easily into paragraph 1.1 of the Schedule where one would expect the word to have the same meaning as in paragraph 1.2. In paragraph 1.1 QRL covenants that Mr Dite will pay the rents and perform the covenants in the underlease. His liability in respect of the rents is unqualified by anything in clause 8 and the word "rents" in paragraph 1.1 must, I think, be read accordingly. In those circumstances, it is, I think, difficult to justify a different meaning of rents in the opening and the third lines of paragraph 1.2 even though the guarantor's obligation under that paragraph is conditional on a default by the assignee. In their context they are descriptive of the tenant's liabilities under the underlease. If the guarantor's obligation to pay the rent under paragraph 1.2 or to pay damages under paragraph 1.1 is to be made conditional on anything more than the assignee's own failure to pay one would expect it to be expressly stated in just the same way as the assignee's default is made an express condition of the guarantor's obligation to pay under paragraph 1.2.
18. The second difficulty about this construction of the word "rents" is that it does not cater for the position which obtains prior to the expiry of the two months following the due date for payment of the rent. Even if Mr Cox is right and GK's compliance with clause 8 operates as a condition precedent to liability under the guarantees, there is, on any view, a two month period in which the rent will be in arrears before clause 8 comes into operation. During that period the guarantees will be enforceable because the assignee will have failed punctually to pay the "rents". For this purpose, the word "rents" must again mean no more than the sums due from the assignee under the terms of the underlease.
19. Therefore if clause 8 is to have the effect contended for it must, in my view, operate outside rather than through the terms of the guarantees and ultimately I think Mr Cox accepted this. But this would have the consequence that what starts as an enforceable guarantee liability in the first two months of the arrears would then determine in the event that GK failed to use reasonable endeavours to give notice of the arrears once the two month period had expired. On analysis, this means that clause 8 operates more as a condition subsequent rather than as a condition precedent to liability.
20. In his skeleton argument Mr Cox refers to a number of authorities but he accepts that they are of limited value in construing the particular terms of the provisions under consideration. He does, however, rely on them to show that, in principle, a guarantee liability may be made conditional on the giving of notice or may be treated as discharged if notice is not given. In Eshelby v Federated European Bank Ltd [1932] 1 KB 423 an agreement for a contractor to carry out works for a company included a guarantee of payment both by an individual and by the defendant bank. The guarantee by the individual was in terms that:

"In consideration of the contractor and of the Bank at the request of the guarantor severally entering into this agreement, the guarantor hereby agrees with the contractor and by way of separate agreement hereby agrees with the Bank and undertakes as follows, that is to say: (a) That the company shall subject to the said works being duly executed in accordance with this agreement, duly and punctually make to the contractor the payments prescribed by clause 2 hereof, and that upon any default for three days or more on the part of the company (written notice of which shall be given by the contractor to the guarantor within six days of such default) in making any payment on the prescribed date he the guarantor will himself immediately make the payment so in default to the contractor."

21. As part of the same contract the bank guaranteed that it would make the payments due from the individual guarantor in the event of default by the guarantor "written notice of which shall be given to the Bank by the contractor within three days of such default".
22. The company failed to pay but the contractor did not give notice either to the guarantor or to the bank. Instead he sued them for the monies due. The Court of Appeal held that the bank was not liable both because the work had not been carried out in accordance with the agreement (which was a condition of liability under the individual guarantee) and also because the individual guarantor's liability (and therefore that of the bank) depended on the contractor having given notice of the company's default in payment. Greer LJ (at page 420) said that:

"Thus the event on which Taglioni has agreed to make the payment is not the default by itself on the part of the company but upon default six days' notice of which shall have been given to Taglioni by the appellant; and no such notice was ever given. The notice is just as much a condition on which Taglioni becomes liable as the default itself is. Inasmuch as the notice was never given there was no default on the part of Taglioni, and therefore the liability of the respondents never came into existence."

23. It is not difficult to see why the court construed the individual guarantee as contingent on the giving of notice. Notice had to be given within a specified period (6 days) of the company's default and was included not only as an express term of the guarantee but in particular as part of an express condition ("upon default") of the operation of the guarantee liability. Putting aside for the moment the fact that clause 8 does not in terms require notice to be given to QRL as opposed to Mr Shasha, the structure of the terms of the licence in this case is very different.
24. The second authority we were referred to is, at first glance, of more assistance to the appellants. In Ankar Pty Ltd v National Westminster Finance (Australia) Ltd (1987) 162 CLR 549 the High Court of Australia considered the effect of two clauses in a guarantee of a contract of hire. The relevant clauses provided that:

"8. Lombard agrees with the Depositor that it will use its best endeavours to ensure that the machinery referred to in the Schedule to the Lease Agreement shall remain in the possession of the Lessee and will notify the Depositor should the Lessee propose to sell or assign its interest in any of the said machinery.

9. Upon the Lessee being in default under the Lease Agreement Lombard shall agree to notify the Depositor whereupon Lombard and the Depositor shall consult with a view to determine what course of action will be taken by Lombard following such default and without limiting the generality of that action Lombard may at its option assign the Lease Agreement and any security held therefor to the Depositor."

25. The owner of the machinery failed to give notice under either clause. The majority of the court held that clauses 8 and 9 did not operate as conditions precedent to liability under the guarantee but were conditions the breach of which, at the surety's election, discharged it from further performance under the guarantee. Deane J held that the surety was automatically discharged in the event. Mason ACJ (at page 556) said that:

"10. In the context of suretyship contracts there has been a natural tendency to refer to the creditor's promise as a condition precedent rather than as a condition. This is because many guarantees are unilateral instruments, containing no promises on the part of the creditor except in so far as the recital of the consideration may refer to such a promise. See, for example, United Dominions Trust (Commercial) Ltd. v. Eagle Aircraft Services Ltd. (1968) 1 WLR 74; (1968) 1 All ER 104 which, though not involving a guarantee, concerned a unilateral undertaking. This tendency in no way affects the discussion in the preceding paragraph.

11. In deciding whether a promise has the status and effect of a condition, courts are not too ready to construe a term as a condition and, at least where other considerations are finely balanced, will hold that a term is of such a kind that breach of it does not give rise to an automatic right to rescind. This approach is explained by a preference for a construction that will encourage performance rather than avoidance of contractual obligations: Cehave N.V. v. Bremer m.b.H. (1976) QB 44, at pp 70-71; Bunge Corporation, at pp 715-716; pp 541-542 of All ER

12. Three factors favouring an interpretation of cll.8 and 9 that gives them the status of conditions may be mentioned. First, in the event of breach, neither clause is readily enforceable by way of an action for damages. Damages for breach would be difficult to prove. Secondly, the two clauses impose an obligation to give the surety notice and the purpose of imposing an obligation to give that notice is to enable the surety to take such action as it can to safeguard its position and its interests. Notice of default would alert the appellant to the immediacy of its risk, enable it to persuade the debtor to remedy the default and put possible alternative proposals to Lombard for its consideration. Notice of a proposed assignment would possibly enable the appellant to make suggestions for the disposition of the debtor's interest in the machinery to the best advantage. Thirdly, as Deane J. explains in his judgment, it was clearly disadvantageous to the surety to be faced with a situation in which it would be liable as surety for a lessee of equipment who no longer enjoyed possession of that equipment, notwithstanding that it remained liable to pay the rent.

13. On the other hand the provisions are not expressed to be conditions. No time is fixed within which notice is to be given (cf. Midland Counties Motor Finance Co. Ltd. v. Slade (1951) 1 KB 346, at p 351; United Dominions Trust (Commercial) Ltd.). And the language in which the clauses are expressed does not provide a clear indication that they were intended to be fundamental obligations or to operate as conditions.

14. If the contract in the present case were to be viewed as an ordinary contract without regard to its special character as a suretyship contract, we incline to think that the factors already mentioned would establish cll.8 and 9 to be conditions. It is necessary to take into account as well the special character of a suretyship contract and of the relationship that it creates between the parties. As appears later, when this is done, the relevant obligations in cll.8 and 9 are seen clearly to have the status of conditions. As a preliminary to a consideration of this matter it is necessary to examine the special principle, said to apply to a suretyship contract, that the surety is discharged from its obligations by the creditor's breach of that contract, so long at any rate as the breach materially prejudices the interests of the surety."

26. Deane J (at page 572) said that:

"15. The provisions of cll.8 and 9 of the Security Deposit Agreement make clear Ankar's concern to avoid a situation in which its liability as surety for Manufacturing as "lessee" in possession of the equipment had been transformed into a liability as surety for the performance by Manufacturing of its obligations under the lease in circumstances where Manufacturing had ceased to be entitled to possession of the leased machinery. The reason for that is not hard to discern. Obviously, in the latter situation, any rights of subrogation against Manufacturing would be of dubious value. Thus it was that cl.8 of the Security Deposit Agreement expressly required Lombard to use its best endeavours to ensure that the equipment remained in the possession of Manufacturing while cl.9 contemplated that, in the event of default by Manufacturing in performance of its obligations under the lease, Ankar might negotiate with Lombard for an assignment to it of Lombard's interest as lessor of the leased equipment. In that context, it simply could not be said that, viewed objectively, Lombard's departure from its obligations under cll.8 and 9 was not sufficiently serious to preclude the existence of the circumstances under which Ankar had agreed to be liable as surety. To the contrary, the failure to notify Ankar of Manufacturing's default (cl.9) and intended assignment (cl.8) precluded the circumstances existing in which Ankar could enjoy the agreed opportunity of attempting to avoid the very situation which it was obviously most concerned to avoid, namely, the situation in which it would be liable as surety for a lessee of equipment who remained liable to pay the rent for the equipment but no longer enjoyed the quid pro quo of possession of it. It follows that Lombard was not entitled to claim from Ankar, as surety, payment of the moneys owing to it by Manufacturing under the lease or to apply the amount deposited with it by Ankar in payment of those moneys. It may well be that this result in the instant case is open to the justified criticism that it is brought about by the application to a commercial transaction of a special rule which reflects a common law approach to sureties which is a survival "of the days when commercial dealings were simpler, when surety companies were unknown, when sureties were commonly generous friends whose confidence had been abused" (see Cardozo, The Nature of the Judicial Process, (1921), p 154 and cf. Midland Counties Motor Finance Co. Ltd. v. Slade (1951) 1 KB 346, at p 352). That special rule can however be excluded by contrary agreement of the parties to a commercial transaction if they so desire. The wider question whether the traditional special rules applicable to sureties should be made generally inapplicable to a guarantee given in a purely commercial context raises considerations of general policy which, in the context of settled law, are best left to the legislature to resolve."

27. It is unnecessary for the purposes of this appeal to consider in more detail the scope and operation of what the High Court described as the special principle applicable to contracts of guarantee which requires their terms to be strictly complied with and for there to be no material alteration in the obligations of the surety. Insofar as this had a bearing on the construction of the guarantee, it is clear from the judgment of the majority that it served merely to re-inforce their conclusions based on the purpose and importance to the guarantor of the due performance of the owner's obligations. It has not been suggested in argument that the fact that the contract is a guarantee requires the court to treat clause 8 of the licence as a condition even if all other relevant factors point to the opposite conclusion.
28. Mr Cox submits that many, if not most, of the factors taken into account in the passages quoted above can be related to the present case. Damages are difficult to prove and the giving of notice to Mr Shasha would have enabled him to protect his own interests (and that of his company) by chasing Mr Dite to make the payments due and, if necessary, by seeking to take over the lease and the running of the premises.
29. Largely for the reasons already stated, I am not persuaded that clause 8 can be construed as a condition precedent to QRL's liability under its guarantee. Unlike in Eshelby, the giving of notice is not expressed as a pre-condition to the operation of the guarantor's covenant but arises as a separate obligation on the part of GK in the main body of the deed. Coupled with the fact that the guarantor's liability arises and would be enforceable in the two month period following the contractual date for payment of the rent, this makes it impossible, in my view, to treat compliance with clause 8 as a condition precedent to liability under the guarantee. If Mr Shasha is to succeed it can only be on the basis that a breach of clause 8 by GK released him (and QRL) from further performance of the guarantee.
30. The treatment of clause 8 as a condition requires one to treat the performance of that obligation as fundamental to the bargain between the parties. In Ankar that conclusion was reached because the owner's obligations under clauses 8 and 9 were the quid pro quo of the guarantor's entry into the security deposit agreement under which it not only guaranteed the hirer's obligations for the term of the lease but also provided a deposit of $125,000 as security for the lease. It was therefore relatively easy to infer that the maintenance of the equipment in the possession of the hirer was of considerable importance to the guarantor coupled with the opportunity under clause 9 to take over ownership of that equipment under the lease.
31. In the present case there can be no doubt that clause 8 was inserted in order to impose upon GK a contractual obligation to use all reasonable endeavours to notify Mr Shasha of any occasion when the rent was more than two months in arrear. Prompt notice would doubtless have given Mr Shasha an early opportunity to bring such pressure as he might be able on Mr Dite to meet the arrears. But the options open to him were necessarily limited. Mr Dite (unlike QRL) was not subject to any form of legal control by Mr Shasha beyond being contractually liable to indemnify him and QRL in respect of any instalments of rent met under the guarantee. Unlike in Ankar there was no prospect of Mr Shasha acquiring the reversion on the underlease from GK and so terminating his liability under the guarantee. The most that might have been achievable was the re-assignment to QRL of the underlease (so as to facilitate its future assignment to a more creditworthy purchaser) but paragraph 2 of the Schedule already provides for QRL to accept a new underlease of the premises from GK in the event of a disclaimer on the bankruptcy of Mr Dite. And none of these measures would have had the effect of terminating QRL's liability to pay the rent for the remainder of the term.
32. I find it difficult, in these circumstances, to attribute to the parties to this transaction an intention to treat any breach of clause 8 as going to the root of the contract so as to entitle the defendants to be discharged from their liabilities as guarantors. Not only is that outcome disproportionate to the benefits which clause 8 was intended to achieve for Mr Shasha but it is also, I think, inconsistent with its terms. Although not conclusive in itself, the fact that the obligation under clause 8 was not absolute but one to use all reasonable endeavours to give notice carries with it a strong inference that the giving of notice was not regarded as fundamental to the continuation of the contractual relationship. But the other consideration which causes me to reject Mr Cox's submission that clause 8 operated as a condition is the fact that GK's covenant is with Mr Shasha alone. Unlike the judge, I do not accept that it can be treated as given to both defendants because of Mr Shasha's control of QRL. This is a professionally drawn document and the benefit of clause 8 is enjoyed by Mr Shasha alone.
33. What this, I think, indicates is that a breach of clause 8 was never envisaged as releasing either QRL or Mr Shasha from their guarantees. The structure of the licence is that QRL is primarily liable for the due performance of the tenant's covenants by Mr Dite. Mr Shasha's guarantee only operates in the event that QRL fails to perform its obligations as guarantor. He undertakes no direct responsibility to GK for the conduct of the assignee. If the purpose of clause 8 was to relieve Mr Shasha of any future liability under the guarantee then it is inexplicable why it failed to give similar protection to QRL in respect of its primary liability.
34. The conclusion which I draw from these considerations is that clause 8 was not intended to operate as a condition but was merely intended to give Mr Shasha warning of a problem with the assignee so as to enable him to take whatever informal steps were open to him to minimise his exposure. For the same reason, I reject Mr Cox's alternative submission that the breach of clause 8 as an innominate term was sufficiently serious as to entitle the defendants to be released from their guarantees. It follows that they have no defence to the claim.
35. I would therefore dismiss this appeal.

Lord Justice Rimer :

36. I agree.

Lord Justice Laws :

37. I also agree.