Marsden v Elston & Anor

An express promise to procure the release of a surety from security may justify an implied obligation to use best endeavours, subject to the creditor’s willingness to release the surety. The court will not imply an undertaking to provide substitute security where that would guarantee the outcome and contradict the express qualification. Such an obligation goes beyond what is necessary to give the agreement business efficacy. A breach of a best-endeavours obligation does not itself establish substantial damages; causation and loss must be proved. A co-surety’s right of contribution arises by operation of law, is not a claim for damages, and is unaffected by mitigation principles or settlement offers.

Three directors established and operated a haulage company. In 1993, one director accepted a written redundancy package under which his personal guarantee and charge securing the company’s bank liabilities would be released, provided the bank was prepared to make that possible. The company and the two remaining directors were treated as parties to the agreement.

The claimant’s principal claim alleged an implied term requiring the defendants to use best endeavours to secure his release, including by providing substitute security. The Norwich County Court accepted that term and awarded £42,105.26, representing the loss suffered when the bank enforced the security. The claimant also advanced an alternative claim for contribution as a co-surety. The appeal concerned the parties to the contract, the proper scope of any implied term, proof of loss, and the effect of settlement offers on contribution.

Appeal allowed unanimously. The order awarding £42,105.26 and interest on the principal claim was set aside. A contribution award was substituted.

1. The company was plainly a party to the November 1993 agreement because the letter was on company paper and imposed obligations concerning salary, the director’s loan and the company car. The evidence also entitled the judge to find that the two appellants acted on their own behalf as co-sureties, whether or not they also acted as company agents. The court therefore proceeded on the footing that all three were parties.

2. The express term concerning release of the guarantee and charge was qualified by the bank’s preparedness to make release possible. An implied term requiring the company and the appellants to use best endeavours to procure release could properly be accepted. However, the pleaded term requiring substitute security was inconsistent with the express wording. It amounted to an assurance that release would be achieved and imposed an obligation of a different nature. It was therefore not necessary to give the agreement business efficacy and could not be implied.

3. The court did not need finally to determine whether a narrower best-endeavours obligation had been breached or caused loss. The evidence did not establish that breach caused the claimant’s loss, nor did it compellingly establish breach. Longmore LJ added that, since the bank had made clear that it would not release the charge, no substantial damages could arise merely from breach of a best-endeavours undertaking.

4. The alternative contribution claim succeeded. The right of contribution between co-sureties arose by operation of law and was not a claim for damages. Consequently, mitigation principles did not apply, and the bank’s offers to settle the liabilities were irrelevant to the contribution claim.

The claimant was awarded contribution of £8,251.49 with interest of £2,734.56. The appellants received 75% of their appeal costs, subject to legal aid assessment of the respondent’s costs.

• Court of Appeal (Civil Division) — In [2001] EWCA Civ 1746, the appeal was allowed. The award on the principal claim was set aside and judgment for contribution was substituted.
• Norwich County Court — On 10 October 2000, His Honour Judge Dedman gave judgment for the claimant for £42,105.26 with interest and costs, accepting the implied-term claim.