Harvey v Dunbar Assets plc

Guarantee – Liability of guarantor – Appellant one of four intended guarantors under composite joint and several guarantee document – Respondent serving statutory demand in reliance on guarantee – One of named guarantors disputing liability on ground that his signature forged on guarantee – Whether that matter if proved also releasing appellant from liability – Whether liability of appellant under guarantee conditional on signature of all other intended guarantors – Appeal allowed In 2008, the respondent bank provided a £3.535m loan facility to a development company to finance a development of certain land in Sunderland. The appellant was one of four named guarantors of the company’s liabilities under the loan facility; the guarantee defined the guarantor as “every person liable under this Deed” and imposed a joint and several liability up to the sum of £720,000 plus interest. Clause 4(a)(iv) provided that the guarantor’s obligations would not be discharged, impaired or affected by “any failure to realise or fully to realise the value of or any release discharge exchange or substitution of any security taken in respect of the obligations of the Guarantor or the Principal Debtor to the Bank”. Clause 15(b) stated that the liability of a guarantor would not be avoided or invalidated by reason of any guarantee or charge by a co-surety being invalid or unenforceable. The development did not prove successful and the company failed to meet its liabilities to the respondent. In June 2011, the respondent served a statutory demand on the appellant and the other guarantors, pursuant to section 268(1)(a) of the Insolvency Act 1986, for the guaranteed sum and interest. The appellant’s application to set aside the demand was dismissed. Subsequently, one of the other named guarantors had the demand against him set aside by alleging that he had never signed the guarantee and that his apparent signature was a forgery. In the light of that matter, the appellant was given permission to appeal against the dismissal of his own application. The central issue on the appeal was whether, if the other guarantor’s signature were proved to be a forgery, that would have the consequence of releasing the other guarantors from liability also. Dismissing the appeal, the judge held that: (i) para 15(b) of the guarantee did not assist the respondent, since it did not apply where the other intended guarantor had never in fact given any guarantee; but (ii) the appellant would remain liable by reason of clause 4(a)(iv), which preserved the guarantors’ liabilities both individually and collectively in such circumstances. The appellant appealed. Held: The appeal was allowed. Whether a signatory to a guarantee had assumed liability under the document, in circumstances where other contemplated security had not been obtained, was essentially one of construction of the relevant guarantee against its admissible factual matrix. There was no absolute rule or enshrined principle of suretyship that, in all circumstances, non-signature by an intended surety resulted in the other intended sureties not being bound; all depended on the construction of the guarantee. However, it was a principle of suretyship that a surety was entitled to contribution from every co-surety, and to the benefit of every security held by the creditor, in respect of the debt. The surety should not be deprived of that right unless the guarantee so provided. If the form of the document, on its face, showed that it was intended to be a joint composite guarantee contained in a single document, which assumed that it would be signed by all the sureties named as such in the document, then the starting point in the construction exercise was that the validity of the guarantee was conditional on the signatures of all sureties and that liability as a guarantor would only be imposed on any individual signatory if all the named sureties did indeed sign: Evans v Bremridge (1855) 2 Kay & J 174, Hansard v Lethbridge (1892) 8 TLR 346, James Graham & Co (Timber) Ltd v Southgate Sands [1986] QB 80 and Capital Bank Cashflow Finance Ltd v Southall [2004] EWCA Civ 817; [2004] 2 All ER (Comm) 675 applied. The prima facie position in such cases was that the signatures of all the guarantors were an essential precondition to the liability of each individual guarantor. The next stage was to construe the guarantee as a whole, as part of one unitary exercise, against the admissible factual matrix, to ascertain whether any of its express or implied terms operated to exclude or disapply that prima facie result. It was open to the parties to agree that the absence of one or more signatures of the intended guarantors should not bring about the result that those who did sign were not bound. However, in the instant case, there was no express or implied provision in the guarantee to displace the prima facie position, arising from the fact that all four intended guarantors were intended to sign one composite joint and several guarantee, that the liability of each intended guarantor was conditional on the due execution of the guarantee by all the other intended guarantors. The definition of the guarantor as “every person liable under this Deed” presupposed that the person in question was indeed liable. In the instant case, the question was whether the appellant had ever become liable under the guarantee, or come within the definition of guarantor, in the first place. Clauses 4(a)(iv) did not assist the respondent since it only addressed the circumstances where a person already bound by the guarantee would, despite the normal rules of suretyship, not be discharged from an existing liability or have an existing liability “impaired or otherwise affected”. It could not be construed as permitting liability to be imposed on a person by deeming the conditions precedent to an intended guarantor’s liability to be satisfied where in fact they were not. Had the respondent wanted to ensure that the definition extended to a person who had contractually agreed to sign the guarantee but had not yet done so, or to a person who had actually signed the guarantee in circumstances where conditions precedent to his liability had not been satisfied, then that could and should have been expressly stated. Nor did clause 15(b) assist the respondent, for similar reasons. It assumed a situation where the appellant had an existing liability under the guarantee as a guarantor and a guarantee by any co-surety was invalid or unenforceable. It did not apply where the question was whether the appellant or another co-surety had ever been guarantors in the first place. Accordingly, if the signature of one of the intended guarantors had been forged, the appellant would not be liable under the guarantee. David Schmitz (instructed by Hindle Campbell, of North Shields) appeared for the appellant; Peter Arden QC and Joseph Curl (instructed by DLA Piper UK LLP) appeared for the respondent.   Sally Dobson, barrister