Barclays Bank Plc v Kufner

A surety’s equitable protection against impairment or release of security may be excluded or modified by the guarantee’s express terms. A clause permitting the creditor to release security without taking replacement security prevents a defence based on failure to procure effective substitute security. The Unfair Terms in Consumer Contracts Regulations 1999 apply to a guarantee only where the guarantee and the principal contract are entered into by consumers; a guarantor acting to acquire and operate a commercial asset is not acting as a consumer. A contractual prohibition on set-off in a commercial loan agreement may satisfy the reasonableness requirement under the Unfair Contract Terms Act 1977. A shareholder or beneficial owner cannot recover loss which merely reflects loss suffered by the company.

The Bank sought summary judgment on a guarantee given by Alfons Kufner for lending to Kel Maritime Limited to finance a motor yacht. The vessel was later transferred to Paelten Consultores e Servicos Lda, but the replacement mortgage was not registered in Madeira and the vessel was subsequently transferred again.

Mr Kufner argued that the Kel loan had been discharged, that the Bank’s release of the original mortgage impaired his position as surety, and that alleged negligent misstatements gave rise to set-off claims. He also relied on consumer-protection legislation and challenged a no-set-off clause. The central questions were whether any defence had a real prospect of success and whether the issues required a trial.

1. Summary judgment. None of the defences had a real prospect of success, and none of the issues required a trial. Judgment was therefore entered for the Bank for the sums due under the Kel guarantee.
2. Kel loan. The Kel loan was not discharged merely because the Paelten loan agreement was executed. Discharge depended on a drawdown supported by a mortgage over the vessel in a form capable of registration in Madeira. No such mortgage was executed.
3. Release of security. The equitable duty of a creditor to a surety not to impair or release security exists because of the surety’s right of subrogation. Clause 5.3(f) of the guarantee nevertheless gave the Bank liberty to release the Kel mortgage without taking any steps to obtain replacement security. The Bank therefore owed no pleaded equitable duty to procure an effective substitute mortgage.
4. Consumer protection. Applying Bayerische Hypothetken v Dietzinger, Case C-45/96, the Regulations applied to a guarantee only where both the guarantee and the principal contract were executed by consumers. Kel was not a consumer. In any event, Mr Kufner was acting in a business capacity because he was acquiring the component parts of a ship-chartering business.
5. Set-off. Under sections 13(1)(b), 13(1)(c) and 2(2) of UCTA, the no-set-off clause was enforceable as reasonable. There was no material inequality in bargaining power, Mr Kufner had legal advice, the clause was familiar and commercially sensible, and the Bank had a legitimate interest in receiving payment without awaiting determination of a cross-claim. A stay was also refused because exceptional hardship and any risk to the Bank’s ability to pay damages were not shown.
6. Reflective loss. The alleged loss from negligent misstatement was loss suffered by Paelten, the vessel’s owner, and merely reflected the company’s loss. Applying Johnson v Gore Wood & Co (a firm), [2001] 2 WLR 72, Mr Kufner could not recover it, whether his beneficial interest was 100 per cent or 50 per cent.