Guarantees: Rights Of Subrogation

The High Court has provided further guidance on when a guarantor may use its right of subrogation to recover monies paid under a guarantee, which will be useful to bankers providing and seeking guarantees and to insolvency practitioners interested in their implications.

This case serves as a helpful reminder of the fact that the right of subrogation may be waived by the conduct or the evidence of the intention of the parties and the court held here that, on the facts, such a waiver had occurred. Those providing guarantees should be careful to protect their position by ensuring that nothing in the terms of the original agreement or in their subsequent actions could act as a waiver. Equally, insolvency practitioners should be aware of the possibility that rights of subrogation claimed, whether by the company to which they are appointed or otherwise, may be challenged on the basis of the intentions and actions of the parties.