Triodos Bank NV v Dobbs

A guarantee confined to liabilities arising under or pursuant to a specified loan agreement does not ordinarily extend to liabilities created by a substantially different replacement facility. A clause permitting amendments or variations without the guarantor’s consent covers changes properly characterised as variations, including a contemplated rescheduling. It does not cover new obligations outside the general purview of the original guarantee.

Clear words are required before a guarantor is taken to have accepted more onerous obligations imposed by a later agreement to which the guarantor was not a party. Estoppel by convention requires a sufficiently precise common assumption made by both parties. Where the guarantor gives evidence denying that assumption, the issue ordinarily requires a trial and cannot be resolved by an objective assessment on summary judgment.

The bank obtained summary judgment under a personal guarantee limited to £50,000. The guarantee secured liabilities arising under or pursuant to two loan agreements made in 1996 and permitted amendments or variations without reference to the guarantor. Those agreements were replaced by larger facilities in 1998 and by a £2.6 million facility in 1999.

His Honour Judge Havelock-Allan QC declared that the guarantee extended to borrowing under the 1999 facility and that the guarantor was estopped from denying its application. The guarantor appealed. The central issues were whether the later obligations fell within the guarantee on its proper construction and whether estoppel by convention could be established summarily.

1. Appeal allowed. Lord Justice Longmore, with whom Lord Justice Neuberger agreed, held that the 1999 facility was substantially more than an amendment or variation of the original loan agreements. Lord Justice Chadwick reached the same conclusion in a concurring judgment. The declarations made on summary judgment were set aside.

2. A material variation of the contract between creditor and principal debtor discharges the guarantor unless the guarantor assented to it or the guarantee permits it. Even advance assent to variations extends only to a varied contract remaining within the general purview of the original guarantee. A new contract requires a new guarantee.

3. The power to amend or vary was not confined to changes expressly contemplated by the original agreements. A formally new agreement could remain a permissible variation where, in substance, it merely implemented a contemplated rescheduling. Accordingly, the first 1998 agreement remained within the guarantee because it rescheduled existing indebtedness in the manner contemplated by the corresponding 1996 agreement.

4. The second 1998 agreement was outside the guarantee. It provided substantial new money for an additional phase of the development and imposed materially more onerous obligations. The 1999 facility was further removed from the original loans. It increased the maximum commitment to £2.6 million and financed obligations connected with a building contract. Those liabilities were not due under or pursuant to the 1996 agreements.

5. Per Chadwick LJ, a guarantor is not taken to accept liability for more onerous obligations subsequently agreed between lender and borrower, without further reference to the guarantor, unless the guarantee uses clear words. A monetary cap does not answer the point because increasing the principal indebtedness may materially increase the risk that the guarantor will have to pay the capped amount.

6. Estoppel by convention required a common and sufficiently precise assumption that the 1996 guarantee applied to the 1999 facility. The guarantor’s evidence expressly denied that assumption. The judge could not reject that evidence through an objective assessment on summary judgment. The bank could pursue the issue at trial if so advised.

7. The estoppel was relied upon defensively rather than as a cause of action. The guarantor therefore could not defeat it by reliance on the Statute of Frauds. That conclusion did not justify summary judgment because the necessary common assumption remained disputed.

1. Court of Appeal (Civil Division): The appeal was allowed. The declarations made by His Honour Judge Havelock-Allan QC on 26 March 2002 and the relevant part of Lewison J’s order of 19 May 2004 were set aside. The bank was left to pursue estoppel by convention at trial if so advised.

2. High Court, Queen’s Bench Division, Bristol District Registry: His Honour Judge Havelock-Allan QC gave summary judgment for the bank and declared that the guarantee extended to the 1999 facility and that the guarantor was estopped from denying its application. He granted permission to appeal but stayed the appeal pending related proceedings.

3. High Court: Lewison J subsequently rejected the guarantor’s allegations concerning the receivership and termination of the facility, apart from two breaches attracting nominal damages. Permission to appeal that decision was refused. Those merits proceedings did not resolve the present appeal concerning the guarantee declarations.