Caterpillar Financial Services Ltd v Goldcrest Plant & Groundworks Ltd & Ors

Where a commercial guarantee clearly shows an intention to guarantee liabilities but fails to identify the underlying agreement, extrinsic evidence may be admitted to identify its subject matter. The question is one of objective consensus, assessed from the guarantee, relevant discussions, correspondence, the commercial context and the circumstances of signature. The evidence must identify the agreement or agreements covered; it must not alter or contradict the guarantee’s language. A guarantee may therefore be enforceable as an all monies guarantee covering several agreements novated together, despite the absence of a specific agreement on its face, where that scope is objectively clear.

Excel Plant Hire Limited had entered into six hire-purchase agreements with Caterpillar. The agreements were proposed for novation to Goldcrest Plant and Groundworks Limited. As a condition of the novation, Jaspal Singh Khaira and Paramjit Khaira signed an all monies guarantee. The guarantee identified Goldcrest as the customer but did not identify the underlying agreement, although its terms referred to an agreement specified overleaf.

HHJ Alton held that the guarantee was not shown to cover all six novated agreements and dismissed Caterpillar’s claim against the individual guarantors. The appeal concerned whether the surrounding discussions and correspondence were admissible and whether, viewed objectively, they established that the guarantee covered the six agreements.

1. Appeal allowed. Lord Justice Waller delivered the judgment, with Lord Justices Tuckey and Jacob agreeing.
2. The judge below had treated the issue as whether extrinsic evidence could be used to establish which agreements the guarantee was intended to cover. The Court of Appeal held that the evidence was admissible. The proper question was whether the evidence, assessed objectively, established a clear consensus that the subject matter of the guarantee was the six novated agreements. Caterpillar bore the burden of proof.
3. The guarantee was signed in a commercial context in which Caterpillar would not consent to the novation without an all monies guarantee. The June correspondence referred to the six agreements, and its first four conditions naturally concerned all of them. The guarantee was signed in the context of the six novation agreements. Its all monies wording indicated a scope broader than the single-account guarantee previously given, while the absence of a specified agreement required the surrounding evidence to identify the contractual subject matter.
4. On the objective evidence, it was clear to Mr Khaira and Caterpillar that the guarantee covered the six novated agreements. The fact that the guarantee’s wording had been taken from the earlier single-account guarantee did not make the new guarantee unenforceable for uncertainty.
5. Mrs Khaira had not participated in the relevant discussions or received the correspondence. However, Mr Khaira acted on her behalf in relation to identification of the subject matter, and she had no separate case on that issue. The guarantee was therefore enforceable against both individual guarantors.
6. Judgment was entered for Caterpillar against the second and third defendants in a sum to be agreed. They were ordered to pay Caterpillar’s costs, assessed at £12,000 including VAT, within 14 days. Permission to appeal was refused.

• Court of Appeal (Civil Division): On 16 March 2007, allowed Caterpillar’s appeal and entered judgment against the second and third defendants.
• High Court, Queen’s Bench Division (Mercantile Court, Birmingham): HHJ Alton’s judgment of 21 April 2006 dismissed Caterpillar’s claim to enforce the guarantee against the individual guarantors.