In London Arbitration 4/08 – 735 LMLN 3(2) – 23.1.08. the dispute arose under a Memorandum of Agreement between Claimant sellers and X, for a company to be nominated, whose performance was to be guaranteed by X. The MOA provided for a deposit of 10% of the purchase price to be paid by X, such deposit to be held on terms that it could only be released against the signatures or authorised signatories of both the Claimants and X. When the purchase price was not paid on the due date, the Claimants cancelled the MOA and claimed the deposit. The Claimants commenced proceedings against the nominated company, and obtained an award, but the company failed to comply with the direction in the Award to procure the giving of instructions to the bank holding the deposit to release it to the Claimants with interest. The Claimants therefore commenced arbitration proceedings against X, as guarantor, claiming damages equivalent to the sum of the deposit, or an order that X release or procure the release of the deposit. Issues concerned whether X retained, after the addendum naming the company as buyer, a liability under the MOA.

It was held that X were principals to the MOA when it was entered into, and were therefore party to the arbitration clause. It would be extraordinary to suggest that X’s obligations in respect of the deposit and the guarantee disappeared when the addendum was signed. Very clear words would have been needed to give that effect, and therefore was no cesser of liability provided for in the addendum. This meant that X remained bound by the MOA in respect of such matters.

As to the suggestion that X were entitled to have the substantive issues determined in proceedings to which they were a party, that was irrelevant in this case, as the Claimants were relying on X’s guarantee of due performance by the nominated company.