GMAC Commercial Credit Development Ltd v Sandhu & Anor

A guarantee may be rectified where convincing evidence shows that the written instrument records a shared mistake and identifies the wording the parties intended. The Statute of Frauds 1677 does not prevent rectification, since the rectified instrument satisfies the statutory writing requirement.

Abuse of process under the rule in Henderson v Henderson requires a broad, merits-based assessment of whether raising an issue later misuses the court’s process. A creditor taking a guarantee from an individual in a non-commercial relationship with the principal debtor must take reasonable steps to explain the risks. A non-reliance declaration may support evidential estoppel only if its requirements are pleaded and proved.

The claimant sought payment from two guarantors under guarantees given in connection with the transfer to Donnaway Ventures Ltd of obligations arising under an invoice discounting agreement with Palmier plc.

The applications concerned rectification of an erroneous liability cap, the effect of the Statute of Frauds 1677, alleged misrepresentations, construction of the transfer documents, abuse of process, and the enforceability of a guarantee given by a father for obligations of a company associated with his son.

The court also considered whether the claimant was entitled to summary judgment on particular defences under CPR Parts 3.4 and 24.

1. Rectification. The claimant was permitted to amend its pleading to allege that “Asset Purchase Price” in clause 13(b) of the guarantees was a mistaken reference to “Outstanding Prepayments”. The contemporaneous documents and evidence gave the rectification claim a real prospect of success.
2. Rectification of a guarantee is not barred by section 4 of the Statute of Frauds 1677. The court’s equitable jurisdiction to rectify an instrument is outside the statutory prohibition, and the instrument as rectified is in writing and signed.
3. The continuation of the invoice discounting agreement, together with GMAC’s arrangements under the deed of assignment, constituted valid consideration for the guarantees. The court therefore did not need to decide whether an unsupported guarantee under seal could be rectified against the guarantor’s wishes.
4. Rectification requires convincing evidence that the document says one thing when the parties intended it to say another, and what the intended wording was. The court declined to determine the separate consequence of clause 13(b) being meaningless because that issue was not properly before it for final determination.
5. Abuse of process and construction. Applying the broad, merits-based approach in Johnson v Gore Wood & Co [2002] 2 AC 1, it was abusive to raise successive formal objections to notices which could have been raised in the earlier proceedings. The existing-obligations argument was not abusive, but it had no real prospect of success.
6. Clause 2.2 of the deed of assignment transferred to Donnaway the role of Palmier under the invoice discounting agreement. Donnaway could therefore be treated as “the Client” for notices and demands. The clause 7.5 demand did not need to list each outstanding receivable because no such requirement appeared in the agreement.
7. The alleged misrepresentation defences could not be summarily dismissed. There were factual issues about the representations, their falsity and reliance. A non-reliance declaration could give rise to evidential estoppel only if the requirements identified in Lowe v Lombank Ltd [1960] 1 WLR 196 were pleaded and proved, including the representor’s belief in and reliance upon the declaration.
8. Following Royal Bank of Scotland Plc v Etridge (No. 2) [2002] AC 773, a creditor is put on inquiry where the relationship between surety and debtor is non-commercial and must take reasonable steps to explain the risks. Kewal had a real prospect of proving that his relationship with Donnaway was non-commercial. GMAC’s summary judgment application on that defence was dismissed.

First-instance judgment. The judgment records earlier proceedings and an appeal concerning the same guarantees, but this was a separate set of proceedings involving fresh demands.