McGuinness v Norwich and Peterborough Building Society

A guarantee may create both a damages obligation and a debt obligation. The court must construe the actual words used. A provision making the guarantor liable as principal debtor may make the principal debtor’s liquidated debt the guarantor’s own debt, payable without prior demand. Such a liability is a debt for a liquidated sum under section 267(2)(b) of the Insolvency Act 1986. It is unnecessary to obtain judgment before presenting a bankruptcy petition where the guaranteed liability is admitted, liquidated and mathematically ascertainable.

The court expressed doubt about treating the form of the cause of action as determinative of whether a liability is liquidated, but left that wider issue open.

The respondent building society presented a bankruptcy petition against the appellant for £1,223,883.26, said to be due under a guarantee and indemnity relating to his brother’s borrowing. A Deputy Registrar made a bankruptcy order on 24 February 2010.

The appellant appealed, contending that the guarantee was a “see to it” guarantee of the type considered in Moschi v Lep Air Services Ltd [1973] AC 331, under which the guarantor’s liability was limited to damages. He argued that damages were not a liquidated sum under section 267(2)(b) of the Insolvency Act 1986, even where the amount could be calculated precisely. The central issues were the construction of the guarantee and whether a prior judgment was required before bankruptcy proceedings could be commenced.

1. Appeal dismissed. The guarantee included an obligation in debt, and the respondent was entitled to present a bankruptcy petition for the liquidated sum due.
2. The guarantee had to be construed as a whole. Clause 2.2 required the borrower’s liabilities to be paid and satisfied when due. Clause 2.3 required payment immediately on demand. Most importantly, clause 4.2 stated that the appellant’s obligations were those of a principal debtor, not merely those of a surety.
3. The principal-debtor provision made the borrower’s debt the appellant’s own debt. It did more than permit enforcement without prior proceedings against the borrower. Consistently with MS Fashions Ltd v BCCI [1993] Ch 425, a debt arising in that way was immediately payable without prior demand on the guarantor.
4. The guarantee also treated the obligation to make good losses and expenses as a separate obligation. That supported the conclusion that clause 2.2 created a debt obligation; otherwise much of clause 2.4 would be redundant.
5. The court did not need to decide whether to depart from Hope v Premierpace (Europe) Ltd [1999] BPIR 695. It nevertheless expressed doubt about a rigid distinction based solely on the form of action. The purpose of section 267(2)(b) appeared to be to distinguish liabilities whose amount was ascertainable without judicial assessment from those requiring assessment. Requiring an inevitable summary judgment before bankruptcy proceedings could create unnecessary cost and delay.

• Deputy Registrar Middleton: made a bankruptcy order against the appellant on 24 February 2010.
• High Court (Chancery Division): dismissed the appeal and upheld the bankruptcy order.