UK: Guarantee Not In Effect Until All Guarantors Sign

Harvey v Dunbar Assets Plc [2013] EWCA Civ 952

Harvey and three other individuals entered into a guarantee with Dunbar to secure the liabilities of a company to which Dunbar was loaning money in relation to a property finance project. The project was unsuccessful and Dunbar demanded repayment of the loan from the company. The company failed to repay the sum due, so Dunbar sought to enforce the guarantee.

Harvey applied to have the statutory demand made against him set aside, on the basis that one of the guarantors claimed his signature on the guarantee had been forged.

The district judge and Chancery Division refused to set aside the statutory demand and Harvey appealed to the Court of Appeal.

The Court of Appeal set aside the guarantee. There was an established principle of law in relation to guarantees that a guarantee which on its face has to be signed by specific named persons, will not be treated as having been entered into by any one of those persons until all of them have signed. This "rule" can be displaced if all the signatories consent, which requires express wording, clearly and unambiguously drafted. Whether or not a signatory to a guarantee has assumed liability under it was therefore essentially a matter of construction of the guarantee itself.

The guarantee here was clearly intended to be a joint composite guarantee contained in a single document. As a result, the starting point was that the signature of all four guarantors was an essential precondition to the liability of each individual guarantor. The next step was to see if any wording in the guarantee displaced this precondition. The court held there was nothing in the wording of the guarantee to do so and the statutory demand was therefore set aside.

Comment

If a guarantee is to be enforceable against individual co-guarantors in situations where the guarantee document has not been executed, or has not been executed properly, by one party, you need to ensure the guarantee obligations are drafted to be independent of the co-guarantors. Include express wording that each signatory shall be bound by the guarantee from the time it is signed by him/her even if other persons are named as signatories and expected to sign the guarantee but do not do so.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.