Author

Cheng Bray

Senior professional support lawyer

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Author

Cheng Bray

Senior professional support lawyer

Read More

10 March 2020

Lending Focus - March 2020 – 3 of 7 Insights

Guarantees, indemnities and oral agreements

  • QUICK READ

Facts

Bal Mohinder Singh (B) commenced proceedings against his son, Jasminder Singh, who was Chairman and CEO of the Edwardian Hotels Group. The Group includes the Radisson Blu Edwardian hotels and the prestigious May Fair hotel. B claimed that he had a right to partition certain properties owned by the Group because they were subject to a common inheritance constructive trust.

B was unable to fund the proceedings himself. Instead, his daughter's husband, Mr Abbhi (AB), agreed to finance the litigation, initially informally but then on the terms of a loan agreement dated 10 June 2012.

B's existing solicitor became ill. His barrister suggested that one of his contacts, Mr Slade (S), could take over the conduct of the litigation.

S alleged that at an initial meeting around 11 July 2013, AB and S discussed the fact that B could not pay S's fees. AB therefore agreed to pay S's fees and disbursements and no monies were taken on account. B signed S's retainer letter and the litigation went ahead. However, B lost in the High Court.

Following that, AB refused to settle S's fees, leaving some £317,000 outstanding. S commenced proceedings against AB.

High Court decision

AB contended that the oral bargain was never struck. On the facts, the judge was not persuaded of this.

AB then argued that the oral agreement was a guarantee, and that it fell foul of s4 Statute of Frauds 1677.

The judge, however, characterised the agreement as an indemnity which fell outside s4 and was therefore enforceable, despite the fact that it had not been put into writing.

AB appealed to the Court of Appeal.

AB's case

AB submitted that the arrangement was a 'see to it' guarantee, relying on Associated British Ports v Ferryways NV [2008] EWHC 1265 (Comm) and [2009] EWCA Civ 189.

The wording in the guarantee referred to in Associated British Ports read as follows:

"we assume full responsibility for ensuring (and shall so ensure) that, for seven years from the date of this letter the Company (i) has and will at all times have sufficient funds and other resources to fulfil and meet all duties, commitments and liabilities entered into and/or incurred by reason of the Agreement as and when they fall due and (ii) promptly fulfils and meets all such duties, commitments and liabilities."

AB submitted that similarly, his promise to pay was not actionable until B was in default under the retainer.

AB also criticised the 'judge's focus' on AB and his wife's personal interest in the outcome of the litigation.

Finally, he argued that his liability and B's liability to pay were co-extensive: he could not be liable to pay more than B. This reinforced the secondary nature of AB's liability.

Court of Appeal decision

Judgment in favour of S:

  • not every promise to pay another's debt falls within s4 Statute of Frauds
  • S, AB and B all knew that B would be unable to pay for the litigation from the outset; the only reason why the arrangements involved AB putting S in funds first was to avoid AB having a costs order made against him under s51 Senior Courts Act 1981
  • "a promise to put the plaintiff in funds in any event … is not such a promise as is within the Statute of Frauds" (see Guild & Co v Conrad [1894] 2 QB 885)
  • AB had given an indemnity, not a guarantee
  • AB's obligations under the oral agreement arose before there could possibly be any default on B's part; AB had to put B in funds before the due date – if he failed to do so, he was in breach. Ferryways could therefore be distinguished
  • the fact that AB was surety for a transaction in which he had a direct interest was an indication that his liability was intended to be original, ie a primary obligation (Andrews & Millet's Law of Guarantees cited).

Comment

Although S won, reducing the funding arrangements to writing would have been a more prudent initial course of action, putting the matter beyond doubt.

Deepak Abbhi v Richard John Slade [2019] EWCA 2175

In this series

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Patent-backed debt finance

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by Cheng Bray

Banking & finance

Legal opinions, jurisdiction clauses and Brexit

IN-DEPTH ANALYSIS

by Kate Bowden

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