GMAC Commercial Credit Development Ltd v Sandhu

A contractual notice requiring repurchase of receivables must comply with the agreement’s express requirements. Where the agreement requires identification of each receivable and its repurchase price, a global demand for all outstanding receivables and a single aggregate sum is insufficient.

A guarantee securing a debtor’s obligations does not ordinarily create an independent obligation on the guarantor. Ambiguous wording cannot be used to impose a freestanding liability where the guaranteed debtor has no corresponding obligation and the alleged balance cannot be ascertained from the contract.

GMAC claimed against two guarantors of obligations undertaken by Donnaway Ventures Ltd under an invoice discounting agreement and a deed of assignment. The High Court rejected several defences in the second action, including arguments concerning the validity of GMAC’s notice under clause 17 and the construction of clause 13 of the guarantees.

The first action had concerned whether the demands were premature. The Deputy Master entered judgment for GMAC, but the High Court judge held that defence good. In the second action, the judge rejected the remaining defences. The central issues on appeal were whether GMAC had served a valid repurchase notice and whether clause 13 imposed liability independently of any default by Donnaway.

1. Appeal allowed. The notices served under clause 17 of the invoice discounting agreement were invalid. Clause 17 contemplated a demand for repurchase of particular receivables, with sufficient detail of each receivable and the price at which it was to be repurchased. A demand for all outstanding receivables, stating only a global sum, did not satisfy that requirement.

2. The deficiency was both formal and substantive. The demand did not identify the individual debts required to be repurchased, and the aggregate figure had not been calculated by adding the contractual repurchase prices. It was instead a rough internal figure based on advances and an estimated charge.

3. Clause 13 of the guarantees did not create a freestanding obligation requiring the guarantors to pay any balance outstanding on 19 November 1999. The guarantees were expressed to secure obligations owed by Donnaway. The deed of assignment imposed no matching obligation on Donnaway to repay the balance by that date, and the contractual wording did not clearly identify the alleged asset purchase price or the agreement to which it referred.

4. Sir Anthony Evans agreed independently that the nature and amount of the alleged obligation could not be established from clause 13. The guarantee’s description and operative provisions precluded treating the final sentence as imposing an obligation unrelated to Donnaway’s liability.

5. The court did not finally determine the misrepresentation or undue-influence issues. The parties were not to be treated as bound by issue estoppel or res judicata on those matters. The second action was dismissed. The appeal was allowed with costs, subject to the order that the appellants receive 50 per cent of their costs in the second action, together with payments of £20,000 to the first defendant and £10,000 to the second defendant.

• Court of Appeal (Civil Division): Appeal allowed. The second action was dismissed, with the consequential costs and payment orders stated in the judgment.
• High Court of Justice, Queen’s Bench Division: Mr John Mitting QC, sitting as a Deputy Judge, rejected the defendants’ remaining defences in the second action, including the construction challenge to clause 17 and the clause 13 argument.
• Deputy Master: Judgment was entered for GMAC in the first action, subject to the subsequent High Court ruling that the demands in that action were premature.