Moat Financial Services v Wilkinson

A signed variation of a commercial loan facility can increase a guarantor’s liability where, read in context, the guarantor agrees that the facility’s existing terms and security requirements apply to the increased sum. The agreement need not expressly refer to the earlier guarantee if it clearly undertakes a new guarantee or incorporates, expressly or by implication, the documents identifying that security. A requirement that security be in a form and substance satisfactory to the lender is not necessarily uncertain; on the facts, the existing guarantee supplied the objective content. The guarantors’ maximum liability was therefore £250,000 plus interest. Questions about whether the guarantee was continuing or specific, and the possible application of the rule in Clayton’s Case, were left undecided.

Cartmells Ltd borrowed £100,000 from Moat Financial Services, secured by a personal guarantee given by David and Barbara Wilkinson. In 1999, a signed letter increased the facility to a sum not exceeding £250,000 and stated that the original terms and conditions remained in place. After the company entered insolvent liquidation, Moat claimed £250,000 plus interest from the guarantors.

Mr Recorder Field QC held that the guarantors’ liability remained capped at £100,000 and treated the guarantee as specific. Moat appealed, challenging both conclusions. The central issues were whether the 1999 letter increased the guarantors’ liability and whether the guarantee was continuing or specific.

1. Appeal allowed. The 1999 letter varied the facility letter by replacing the £100,000 facility with a facility of up to £250,000. By signing the letter in their own capacities and agreeing that all the original terms and conditions remained in force, the Wilkinsons accepted the varied security obligations, including the obligation to provide a personal guarantee for the increased facility.
2. The court construed the letter as a commercial contractual document, applying the established principles summarised by Lord Hoffmann in Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896. The commercial context supported the conclusion that the additional borrowing was intended to be secured.
3. Section 4 of the Statute of Frauds 1677 did not prevent enforcement. On a fair reading, the letter contained an agreement by the Wilkinsons to execute a new guarantee for liability up to £250,000. The requirement that the security be in a form and substance satisfactory to Moat was not inherently uncertain, particularly because the existing guarantee supplied the relevant form and substance.
4. Alternatively, if the 1999 letter operated as a variation of the earlier guarantee, section 4 was satisfied by incorporation by reference. The letter referred to the 1997 facility agreement, which referred to a personal guarantee. An express reference was unnecessary: an implied reference could suffice, applying Timmins v Moreland Street Property Company Limited [1958] Ch 110. The principle in Walsh v Lonsdale also supported treating the binding undertaking to execute the guarantee as performed.
5. The court declined to determine whether the guarantee was continuing or specific, or whether payments of £46,000 fell under the rule in Clayton’s Case, because those issues were unnecessary to the result. The matter was remitted to Bury County Court to determine the amount of interest if the parties could not agree. The respondents were ordered to pay the appeal costs, with no order as to costs below.

• Court of Appeal (Civil Division): Allowed the appeal and remitted the matter to Bury County Court to determine the amount of interest if the parties could not agree.
• Bury County Court: Mr Recorder Field QC held that the guarantors’ liability remained limited to £100,000 plus interest and treated the guarantee as specific.