Moody & Anor v Condor Insurance Ltd & Anor

A guarantee contained in a deed may be enforceable by a non-party where the operative provisions create unilateral promises to that person. The analysis depends on the substance and purpose of the deed, not merely on the number of signatories or the use of the word “between”.

A commercial guarantor remains liable to an innocent creditor for the debtor’s default, including default caused by the debtor’s fraud, unless the guarantee excludes that risk. Unsubstantiated suspicions do not justify refusing summary judgment where the claimant has clearly established its entitlement.

The claimants sold their engineering company to the second defendant. Part of the price was left outstanding under loan notes, and the first defendant executed a guarantee of the second defendant’s payment obligations.

The second defendant defaulted. The claimants sought summary judgment against the guarantor. The guarantor argued that the guarantee was not enforceable by the claimants because they were not signatories, that alleged fraud by the debtor might permit the guarantee to be set aside, and that suspicions about the claimants required a trial.

1. Summary judgment. The court granted summary judgment under rule 24.2 of the Civil Procedure Rules 1998. The claimants had established their entitlement to payment, and the guarantor had shown neither a real prospect of successfully defending the claim nor another compelling reason for a trial.
2. Enforceability of the deeds. The fact that the Loan Note and Guarantee instrument and the guarantee were executed by both the debtor and the guarantor did not make the guarantee an ineffective deed inter partes. The court had to examine what the operative provisions sought to do. Those provisions were directed principally to promises by the guarantor to the noteholders, who were non-parties to the deeds. The use of “between” and the presence of an additional signatory could not defeat the evident substance and purpose of the transaction.
3. The reasoning was supported by Chelsea and Walham Green Building Society v Armstrong [1951] 1 Ch 853, which showed that a third party could enforce a promise in a deed notwithstanding the execution of the same deed by another person. Re A and K Holdings Pty Ltd [1964] VR 257 reinforced the conclusion.
4. Debtor fraud. Even assuming that the debtor had dishonestly induced the guarantor to give the guarantee, that would not release the guarantor from liability to an innocent creditor. A commercial guarantor is paid to assume the relevant credit risk and may protect itself by an express exclusion for fraud. In the absence of such a provision, the guarantor must pay the creditor and pursue any indemnity or recovery claim against the debtor.
5. Suspicion and later proceedings. Mere suspicion unsupported by evidence did not justify a trial. The court nevertheless observed, citing Arnold v National Westminster Bank Plc [1991] 1 AC 93, that if later evidence established fraud by the claimants, the guarantor might bring fresh proceedings to recover sums paid under the guarantee.

First-instance decision. No prior appellate decision is stated in the judgment.