National Westminster Bank Plc v Binney

An alleged oral agreement, collateral warranty or representation may qualify a written guarantee only if proved on the evidence. The existence of a formal written guarantee does not, by itself, make the issue suitable for determination in the abstract under the parol evidence rule. The court must consider the parties’ objectively assessed intentions and the surrounding circumstances.

Where a guarantor asserts that a guarantee was temporary or conditional upon a later cash injection, the burden remains on the guarantor to establish that agreement or assurance. A later payment into the principal debtor does not itself establish an agreement to release the guarantee, particularly where the creditor’s exposure remains substantially unchanged and the guarantee continues to be acknowledged as security.

National Westminster Bank Plc claimed £100,000, plus interest and costs, from David Binney under a written guarantee by deed dated 17 November 2006. Mr Binney was a director and minority shareholder of Kay Management Consultants Ltd, whose banking facilities had deteriorated.

Mr Binney accepted signing the guarantee but alleged that it was intended to operate only until he injected matching funds into the company or provided formal security. He relied alternatively on an oral contractual term, a collateral warranty and estoppel. He later paid sums totalling £95,000 into the company.

The central issues were whether any agreement, warranty or representation qualified the guarantee and, alternatively, whether the required £100,000 had been paid.

1. Burden and standard of proof. The burden was on Mr Binney to prove the alleged agreement, warranty or representation giving rise to an estoppel. The judge proceeded on the balance of probabilities, taking account of all the circumstances, including any inherent improbability in an allegation that contradicted the written guarantee.
2. Parol evidence and oral qualification. It was unnecessary and undesirable to decide the scope of the parol evidence rule as an abstract question. The Law Commission’s conclusion, accepted in principle by the editors of Chitty, was that the existence of a document appearing to be a complete contract does not itself make additional evidence inadmissible. Whether the document was complete depended on the parties’ objectively assessed intention. The issue therefore had to be resolved after hearing the evidence.
3. Factual findings. The evidence did not establish that the guarantee was temporary, conditional upon matching funds, or subject to an assurance that it would be returned. The judge considered the unusual nature of the alleged qualification, Mr Thomson’s evidence and the absence of contemporaneous written confirmation. Mr Binney’s financial experience and later conduct, including signing a facility letter which expressly referred to the guarantee as security, were inconsistent with his case. His inaccurate statements also materially affected the assessment of his evidence, although the judge recognised that dishonesty on one matter does not automatically invalidate all other evidence.
4. The later cash injections were explicable by KMC’s deteriorating financial position and did not prove any release agreement. The Bank’s exposure remained at approximately the same level. There was no agreement, collateral warranty, representation or estoppel preventing enforcement of the guarantee.
5. Alternatively, even if such an agreement or assurance had been proved, Mr Binney had not established on the balance of probabilities that the full £100,000 had been paid into KMC. The Bank was therefore entitled to recover £100,000 under the guarantee, together with interest and costs. Counsel were directed to agree a draft order, including interest and costs.