Beck Interiors Ltd v Russo

A surety is discharged by a material variation of the guaranteed contract without consent, unless the alteration is plainly insubstantial or incapable of prejudice. Giving the principal debtor additional time under a binding agreement may itself discharge the surety. A guarantee expressed in general terms does not ordinarily make the guarantor bound by an adjudicator’s decision between the creditor and principal debtor; clear agreement is required. On termination, sums identified as due under the contractual payment schedule may be recoverable without a further valuation process, but the guarantor may rely on defences and set-offs available to the principal debtor.

Beck Interiors Limited sought summary judgment under CPR Part 24 against Dr Mario Luca Russo under a personal guarantee securing sums due from Dr Russo MediSpa Ltd under a building contract. Beck also claimed adjudicators’ fees and, alternatively, the contractual sums independently of the adjudicator’s decision.

Dr Russo contended that the guarantee had been discharged by extensions of time and further variations, that it was conditional on Beck returning to site, and that he was not bound by the adjudicator’s decision against the company. He also relied on possible defects, incomplete works and withholding provisions. The central issue was whether he had a real prospect of successfully defending the claim.

1. Application dismissed. Dr Russo had real prospects of successfully defending the claim. No payment into court was required. He was awarded 80% of his costs of the application.
2. Following Holme v Brunskill (1878) 3 QBD 495, a material alteration to the guaranteed contract normally discharges the surety without consent. The court adopted the reasoning in Marubeni Hong Kong and South China Ltd v Government of Mongolia [2004] 2 Lloyd’s Rep 198: a binding agreement giving the debtor time to pay may discharge the surety because it interferes with the surety’s rights.
3. Beck had given the company further time to pay, and the alteration was not plainly incapable of prejudice. However, Dr Russo had been consulted and had consented to the altered payment obligations and additional works in both his personal and corporate capacities. The guarantee was therefore not discharged on that ground. The further question whether later variations themselves constituted material alterations remained arguable.
4. The evidence disclosed a genuine conflict about whether Beck’s return to site on 5 January 2009 was a condition of the guarantee. That conflict could not be resolved summarily, and Dr Russo therefore had a real prospect of establishing that the condition was unfulfilled.
5. Applying Re Kitchin [1881] 17 ChD 668 and Bruns v Colocotronis (The Vasso) [1979] 2 Lloyd’s Rep 412, general guarantee wording did not, without more, bind Dr Russo to the adjudicator’s decision between Beck and the company. Whether his participation in the adjudication bound him personally required determination at trial.
6. Under clause 13.2, the contractual payment schedule identified sums due on termination and no further valuation process was required. Nevertheless, Dr Russo could rely on any set-off or other defence available to the company. The absence or inadequacy of a withholding notice under sections 110 and 111 of the Housing Grants, Construction and Regeneration Act 1996 could affect the company’s defence, but the notice’s validity could not be determined on the application.