Close Invoice Finance Ltd v Watts & Anor

A guarantor’s subjective misunderstanding does not, without more, establish a defence to enforcement of a guarantee. Payment of a minimum charge for credit protection insurance does not itself create cover where an underwriter has refused a customer-specific credit limit. An alleged assurance that cover would begin when the customer became insurable cannot support a defence without evidence that the condition occurred, or that the creditor could and should have procured it. Summary judgment is appropriate where the alleged defence has no real prospect of success.

In Close Invoice Finance Ltd v Watts & Anor, Close Invoice Finance Ltd obtained summary judgment under Civil Procedure Rules 1998, Part 24, against former directors and personal guarantors of Haydon & Jackway Ltd. The judge later set that order aside, holding that the defendants’ evidence of an assurance concerning credit protection insurance gave their defence a reasonable prospect of success. Close appealed.

The defendants contended that insurance cover for Haydon’s customers, particularly Glyn Webb Ltd, had been promised or understood to exist, and that the absence of cover discharged or reduced their liability under the guarantee. The central issue was whether those matters disclosed a sound defence to the guarantee claim.

1. Appeal allowed. The order setting aside the summary judgment was set aside. The application to set aside the original judgment was refused.
2. The arrangements made an insurance facility available, but cover for an individual customer required Euler Hermes to grant a credit limit. A nil endorsement had been given for Glyn Webb, and its credit status never changed. The minimum monthly charge did not create insurance cover where the required credit limit had been refused.
3. There was no express or implied term that credit protection insurance would cover Haydon’s customers irrespective of Euler Hermes’ credit decision. The alleged assurance that cover would begin when Glyn Webb became insurable could not provide a defence because there was no evidence or pleading that Glyn Webb ever became insurable, or that Close could and should have procured a positive credit rating.
4. The defendants’ subjective belief that cover existed was irrelevant to the pleaded case, which alleged repudiatory breach of the Discounting Agreement, breach of a collateral contract and negligence. In any event, the contemporaneous e-mail made that belief not credible. A possible claim for repayment of insurance charges would not reduce Haydon’s indebtedness below the guarantee’s £50,000 limit.
5. Lord Justice Sullivan agreed with Lord Justice Etherton’s reasoning. The original summary judgment therefore stood.

• Court of Appeal (Civil Division): Appeal from an order of HH Judge Simon Brown QC made on 5 December 2008 and amended on 20 December 2008. The order setting aside the earlier summary judgment was set aside, and the application to set aside that judgment was refused.
• Birmingham District Registry, Queen’s Bench Division: Summary judgment had initially been entered for Close under Civil Procedure Rules 1998, Part 24, for £53,024.66, with costs summarily assessed at £6,788. That judgment was later set aside.