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Kiko UK Ltd v Jamino Ltd & Anor
Court of Appeal (Civil Division) — Summary of Judgment
Factual and Procedural Background
On 2 November 2016 the Appellant took a 10-year commercial lease of premises in The City. In or about September 2019 the Appellant assigned the lease to the First Defendant, a wholly-owned subsidiary of the Respondent. At the same time the Appellant entered into (i) a Guarantee and Indemnity executed by the Respondent (the "PCG") and (ii) an Authorised Guarantee Agreement ("AGA") under which the Appellant covenanted that the First Defendant would perform the tenant's obligations.
The First Defendant defaulted on the lease from 2021, causing the Appellant to discharge liabilities under the AGA. Proceedings were commenced by the Appellant on 17 January 2024. The First Defendant entered liquidation on 22 May 2024 and its liquidator disclaimed its interest in the lease on 28 June 2024 ("the Disclaimer"), with the effect described in section 178(4) of the Insolvency Act 1986. The landlord (Company A) required the Appellant to enter a new lease on the premises in July 2024; the new lease was completed on 15 November 2024.
The Appellant amended its claim to include historic and prospective costs of entering the new lease. The Appellant obtained summary judgment on part of its claim by a prior court judgment ([2025] EWHC 720 (Comm)). The balance of claims, including the claim for costs arising from entering the new lease, proceeded to trial before Judge Cadwallader, who rejected the Appellant's claim for those costs. The Appellant obtained permission to appeal to the Court of Appeal.
Legal Issues Presented
- Whether the Disclaimer constituted a "failure" by the Assignee within clause 3.2 of the PCG (i.e. a failure to pay rent or to observe or perform tenant covenants) such that the Respondent was obliged to indemnify the Appellant.
- Whether the Appellant's obligation to enter into the New Lease "arose from" any such "failure" so as to fall within the indemnity in clause 3.2.
Arguments of the Parties
Appellant's Arguments (Attorney Robb)
- The PCG was commercially intended to protect the Appellant from the risk of the Assignee's insolvency; the Disclaimer should therefore be treated as a "failure" under clause 3.2.
- Clause 4.1.8 of the PCG expressly indicates the parties did not intend disclaimer to discharge guarantor liability.
- The ordinary meaning of "failure" includes the Assignee's disclaimer of the lease; section 178(4) IA 1986 meant the lease continued to subsist between the other parties until the new lease, so the Assignee remained in breach up to that point.
- The Appellant's obligation to enter the New Lease "arose from" the Assignee's failure; commercial common sense supports a broad construction.
Respondent's Arguments (Attorney Cheng)
- The Disclaimer was not a "failure to pay rent or to observe or perform tenant covenants" and thus did not fall within clause 3.2.
- Clause 2.2 and the language of the PCG support the view that the PCG continues only until the lease ends and that disclaimer could terminate guarantor liability; the natural meaning of "failure" did not encompass disclaimer.
- The Appellant's obligations under the New Lease did not necessarily "arise from" any failure by the Assignee because the landlord could have sued the Assignee instead.
- It was open to the parties to agree that guarantor liability would terminate on disclaimer and clear words would be required to show otherwise.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Company D v Company E [2021] UKSC 1 | Principle of objective contractual interpretation—what a reasonable person with background knowledge would understand the language to mean. | The court applied this core interpretive principle in construing the PCG, emphasising context and commercial purpose. |
| Company F v Company G [1997] AC 70 | Effect of disclaimer under section 178(4) IA 1986: disclaimer determines the insolvent company's liabilities but does not affect rights or liabilities of other persons; guarantor generally is not released by disclaimer. | The court relied on the authority to support the commercial rationale that guarantor liability is not discharged by disclaimer absent very clear words to that effect. |
| Ex parte Company H; In re Company H (1881) 17 Ch D 746 | Illustrative authority cited for the proposition that it would be unexpected for a principal's insolvency to release a surety absent clear words. | Cited as authority supporting the need for clear words to relieve a guarantor of liability on disclaimer. |
| Company I v Company J [2009] EWCA Civ 283, [2009] BCC 730 | Statement that "very clear words are necessary" to limit a guarantor's liability so that it terminates on disclaimer or insolvency of the principal. | The court treated this as endorsing the high threshold for construing guarantees as terminating on disclaimer and found the PCG did not contain such clear words. |
| Judge Pelling judgment [2025] EWHC 720 (Comm) | Prior interlocutory judgment in the same proceedings granting summary judgment on part of the Appellant's claim. | Referenced as the source of partial summary judgment obtained by the Appellant; the present judgment addressed remaining issues on appeal. |
Court's Reasoning and Analysis
The Court focused on the proper construction of clause 3.2 of the PCG in its commercial context, applying the objective interpretation principles. The Court considered clause 4.1.8 and clause 2.2 of the PCG, the operation of section 178(4) IA 1986 and the authorities requiring clear words to relieve a guarantor on disclaimer.
The Court concluded that (i) the PCG was intended to protect the Appellant against liabilities resulting from the Assignee's insolvency; (ii) clause 4.1.8 supported the parties' intention that disclaimer would not discharge guarantor liability; and (iii) the PCG did not contain the "very clear words" necessary to show that the parties intended the Respondent's guarantee to terminate on disclaimer. Accordingly, the Court held that the Assignee's Disclaimer constituted a "failure" within clause 3.2.
On whether the Appellant's obligation to enter the New Lease "arose from" the Assignee's failure, the Court found a sufficiently close causal and substantive link: the Disclaimer was the reason the landlord required the Appellant to enter the New Lease and was the sole basis for that right under clause 4 of the AGA. Thus the New Lease obligations "arose from" the Assignee's failure within clause 3.2.
The Court noted that, because it concluded the Disclaimer was a "failure" and the New Lease obligations arose from that failure, it was unnecessary to determine the separate ground addressing the extent of indemnity for liabilities under the AGA.
Holding and Implications
The appeal was ALLOWED.
Direct effect: The Court determined that the Respondent is liable under clause 3.2 of the PCG to indemnify the Appellant for costs and liabilities arising from the Assignee's Disclaimer which gave rise to the Appellant's obligation to enter the New Lease. The Court invited the parties to agree the terms of an order, including the sums and interest to be included in judgment; if disagreement remains, parties are to provide written submissions.
No broader novel precedent was announced; the decision implements established principles on contractual construction and the effect of disclaimer on guarantor liability as applied to the facts of this case.
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