European Union: Beware The Promise “To Procure”: The Risk Of Giving An Inadvertent Guarantee In English Law Contracts

Last Updated: 11 June 2009
Article by Chris Coulter and Michael Swinson


Two recent UK decisions have highlighted the risk of giving an inadvertent guarantee in a contract.  The cases turned on the use of the words "procure" and "ensure", and the court held that a promise by one party to "procure" or "ensure" that a third party does something (e.g., where one party to a software development contract agrees to procure that its subcontractors will comply with certain programming procedures or where one group company agrees to ensure that its affiliate properly performs certain services under an outsourcing contract) may in fact amount to a guarantee.  This can lead to serious consequences.  In particular, it might increase the scope of the "guarantor's" anticipated liability or even put it in default of its financing arrangements.

To avoid this risk, parties should try to avoid using words that may be misconstrued, such as "procure" and "ensure".  Where the intention is that one party will simply perform an administrative function to help arrange for a third party to satisfy a specified liability on its own behalf, then it is best to state this expressly, rather than rely on looser language.


The two cases in question are Nearfield Ltd v Lincoln Nominees Ltd and Associated British Ports v Ferryways NV and MSC Belgium NV.

In Nearfield, the High Court found that a promise by a company to "procure the payment" of a loan made to an affiliated company amounted to a guarantee of that loan.  In reaching its decision, the High Court rejected the company's argument that the obligation "to procure" was really a limited administrative obligation to facilitate the repayment.  Instead, the High Court said that the normal meaning of the word "procure" is to "see to it" and, therefore, the first company had promised to "see to it" that its affiliate repaid the loan.  In other words, the first company was guaranteeing the repayment.

In Associated British Ports, the Court of Appeal had to consider the proper construction of a contractual promise by MSC to ensure that its affiliate Ferryways (1) had sufficient funds and other resources to fulfil and meet its duties and liabilities under an agreement with Associated British Ports and (2) did promptly fulfil and meet all such duties and liabilities.  In interpreting this promise, the Court of Appeal adopted a similar approach to that of the High Court in Nearfield, saying that it created a "see to it" obligation and that, therefore, it was properly construed as a guarantee.  In other words, MSC would "see to it" that Ferryways would fulfil its liabilities and, therefore, its own liability would only be triggered if Ferryways failed to do so.  The secondary nature of its liability marked MSC as a guarantor (i.e., a guarantee will only bite if an underlying obligation is not discharged).

Decision & Implications

The clear message from these two decisions is that a promise by a company to "procure" or to "ensure" that a third party satisfies a specified liability may amount to a guarantee of that liability.  The practical consequence of this is that a company may be guaranteeing liabilities without realising it.  For example, within a small corporate group where group companies often act as a collective rather than as individual entities, it may not be unusual for one group company to promise to ensure that another group company performs certain obligations.  In so doing, the first group company may, without realising it, be guaranteeing the performance of those obligations.

The implications of this can be very serious:

  • Firstly, the company may be taking on more risk than it has been anticipating.  The company may think that its only obligation is to help arrange for the third party to satisfy the specified liability on its own behalf.  However, if the promise is construed as a guarantee, the company may in fact be required to satisfy the liability itself if the third party is unable to do so.  The situation may be further aggravated by the fact that the company is unlikely to have the contractual protections that it would normally seek when giving a guarantee (e.g., a right to approve any variations to the guaranteed liability).
  • Secondly, it may make the company's promise unenforceable and undermine the entire contractual arrangement of which it forms a part.  In particular:
    • Under the Statute of Frauds 1677, a guarantee will be unenforceable unless it is in writing and signed by the guarantor.  As such, where a verbal promise "to procure" is really a guarantee, it may not be enforceable.  When dealing with a small company group, it may not be uncommon for a representative of the head company to promise verbally to back up the obligations of its subsidiaries.  A verbal promise is difficult to enforce at the best of times, but it will be even more difficult if the promise is construed as a guarantee and, therefore, falls foul of the Statute of Frauds.
    • The company's constitution may restrict the company's power to give guarantees.  For example, board or shareholder approval may be required for the company to give a guarantee.  If the proper approval has not been obtained, then the company may be able to set aside the guarantee (though usually it will only be able to do so where the counterparty has acted in bad faith).
  • Thirdly, the guarantee might upset the company's finance arrangements.  For example, the company's loan agreements may be subject to a restrictive covenant prohibiting the company from giving any guarantees without the financier's prior consent.  In this case, if the company has inadvertently breached the covenant by giving a guarantee, the financier may claim that the company is in default and demand early repayment of the loan.  More likely, the financier will seize the opportunity to renegotiate the terms of the loan, using the threat of early repayment as leverage.

For these reasons, companies should take care when, as they may often be asked to do in a complex IT or outsourcing transaction, assuming any responsibility for a third-party liability.  Careful attention must be paid to the drafting, in particular when it comes to the use of words such as "procure" and "ensure", so that the extent and nature of the company's responsibility cannot be misinterpreted.

Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Morrison & Foerster LLP. All rights reserved

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Chris Coulter
In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.