Destiny 1 Ltd v Lloyds Tsb Bank Plc

Contract formation is determined from the relevant circumstances and the whole of the parties’ communications. A party cannot isolate a document which appears to contain an offer where the parties objectively intended several transactions to form one package and did not intend any component to be separately binding. A promise is unenforceable without consideration moving from the promisee. Earlier security given in connection with negotiations may be treated as executed in escrow, taking effect only if the contemplated package is agreed and implemented. Acceptance of an offer by the method specified in it does not itself ordinarily provide consideration.

Destiny claimed damages from Lloyds for failing to provide a £30,000 guarantee in favour of Nisa. It relied principally on a letter from Lloyds stating that the guarantee would be provided if specified conditions were accepted, together with a signed copy allegedly returned by Destiny.

Lloyds contended that the letter formed part of wider discussions concerning a package including refinancing, overdraft facilities and security. It denied that the parties intended to contract separately for the guarantee. Lloyds also argued that the alleged agreement lacked consideration. The issues were whether a binding guarantee agreement had been formed and, if so, whether it was enforceable.

1. The claim was dismissed. The court found that the parties were considering a package comprising refinancing of existing borrowing, overdraft facilities, the proposed guarantee and security. Objectively, neither side intended the guarantee component to become a separate binding contract. The alleged contract was therefore not made out.
2. Contract formation is not determined by isolating an apparently self-contained offer and acceptance from the surrounding negotiations. The whole of the relevant correspondence and discussions must be considered to determine whether the parties reached agreement and on what terms.
3. In any event, the alleged agreement was unsupported by consideration. The Khalid Guarantee was given by Mr Khalid personally, not by Destiny, and was executed before the alleged agreement. The Debenture was also executed beforehand. Neither could constitute consideration moving from Destiny for Lloyds’ later promise.
4. The Khalid Guarantee and Debenture were properly treated as executed in escrow, intended to take effect only if the whole package was agreed and implemented. The alleged promise to indemnify Lloyds was unsupported by evidence. Acceptance in the manner specified by the alleged offer did not itself supply consideration.
5. Alternatively, the claimed losses were not caused by Lloyds’ failure to provide the guarantee. The action therefore failed on formation, consideration and causation.