Appeal Court victory for Aberdein Considine client in commercial lease and parent company guarantee proceedings

Aberdein Considine has successfully led an appeal for Appellant, cosmetics brand Kiko UK Limited, in a significant Appeal Court decision concerning the scope of a parent company guarantee under a lease of commercial retail property.

The Appellant had assigned a commercial lease of London retail premises on Oxford Street to a subsidiary of the Respondent, Pianoforte Holding SpA. The Italian-based parent company agreed to indemnify Kiko in respect of the liabilities of its subsidiary. The guarantee from Pianoforte included an agreement to indemnify Kiko against “any costs and liabilities … arising from any failure by [the subsidiary] … to pay any of the rents reserved by the Lease … or … to observe or perform any of the tenant covenants of the Lease”. The landlord retained rights to pursue Kiko for any breaches of the assigned lease and a right to compel Kiko to enter into a new lease on the lease being disclaimed.

The subsidiary defaulted and entered liquidation leaving Kiko exposed to substantial liabilities to the landlord, who compelled Kiko to take a new lease following the liquidator’s disclaimer of the lease.

Before the lower court, Kiko had been wholly successful with its claims under the guarantee in respect of lease liabilities. It appealed the refusal of its claims associated with taking the new lease; focusing on the proper interpretation and commercial purpose of the guarantee.

Kiko relied on a provision in the guarantee that read: “The liability of the Assignee’s Guarantor shall not be reduced, discharged or otherwise adversely affected by… the disclaimer of the liability of the Assignee under the Lease”. Advancing the argument that, properly constructed, the subsidiary’s “failure” to pay rent under the lease, which was one of the situations covered by Pianoforte’s guarantee to Kiko, extended to a situation where the lease to the subsidiary had been disclaimed.

The Appeal Court held that the subsidiary’s disclaimer of the lease constituted a “failure” for the purposes of the guarantee. A guarantee of the type in question was intended precisely to protect the assignor (which had given its own guarantee to the landlord) from the insolvency of the principal debtor and should ordinarily have this effect, unless very clear words to the contrary were inserted (which was not the case). Pianoforte was therefore liable to indemnify Kiko in respect of its losses associated with the new lease.

The full judgment can be read here: Kiko UK Limited v Jamino Limited & Anor - Find Case Law - The National Archives

Both before the lower court and the Appeal Court, Euan McSherry, Head of Dispute Resolution at Aberdein Considine LLP, instructed, and worked closely with, the litigation team at Bermans LLP, headed by Andrew Koffman, and barrister John Robb, of Essex Court Chambers.

This decision will be welcomed by commercial tenants required to guarantee performance by a permitted assignee. Particularly those who promise to take a new lease if their assignee is put into liquidation and the liquidator disclaims the lease