National Westminster Bank Plc v Alfano & Ors

A guarantee is not conditional upon further security unless that condition forms part of the contract and is objectively brought home to, and accepted by, the lender. The wording of the guarantee, the parties’ conduct and the commercial context are relevant. An indemnity may give the creditor a primary liability against the guarantor, permitting enforcement before other security is realised. A deed is enforceable only if delivered as a deed, but the guarantor bears the burden of proving conditional delivery. Later insertion of a date is not a material alteration unless potentially prejudicial to the guarantor’s legal rights or obligations. The special principles concerning misrepresentations within a close relationship do not generally extend to experienced directors or senior managers dealing with a family company’s financing.

The claimant bank sought sums from four directors or senior managers of Ciborio Limited under personal guarantees, after Ciborio entered administration and the bank remained out of pocket following enforcement of its security.

The defendants alleged that the guarantees were conditional upon the bank taking a debenture over Ciborio’s assets. They also relied on non-delivery of the deeds, material alteration by later dating, misrepresentation, and alleged misrepresentations by another family member. The court determined whether those defences were established and whether the guarantees were enforceable.

1. Guarantees unconditional. The court held that the guarantees were not subject to a condition precedent requiring the bank first to take a debenture. Under Vossloh AG v Alpha Trains UK Ltd [2010] EWHC 2443; [2011] 2 All ER (Comm) 307, the indemnity created a primary liability. The guarantee clauses were inconsistent with any requirement that the bank first enforce or obtain other security.
2. Applying TCB Ltd v Gray [1987] Ch 458; [1988] 1 All ER 108 and Byblos Bank SAL v Al-Khudairy [1987] B.C.L.C 232, a condition precedent required contractual agreement, objectively communicated and accepted by the lender. The evidence, documents and commercial context did not establish such an agreement. The guarantees were therefore unconditional.
3. The defendants did not prove that the guarantees were delivered on the basis that they would not bind them until the debenture was taken. The burden rested on them: Rowley v Rowley (1854) Kay 242; 69 ER 103. The deed defence accordingly failed. The principle concerning an undelivered guarantee stated in Bibby Financial Services Ltd v Magson [2011] EWHC 2495 did not assist on the facts.
4. The later insertion of the date and the bank representative’s details was not a material alteration potentially prejudicial to the defendants. The rule in Raiffeisen Zentralbank AG v Crossseas Shipping Ltd [2000] 1 WLR 1135 was therefore not engaged.
5. The alleged representations by the bank were factually rejected. The alternative case based on a family member’s alleged misrepresentations was inadequately specified under paragraph 8.2(3) of Practice Direction 16 and, in any event, did not fall within the principles in Royal Bank of Scotland v Etridge (No 2) [2002] 2 AC 773. The defendants were closely involved in the company’s affairs, so the relationship was materially different from the husband-and-wife relationship considered in that case; see also Royal Bank of Scotland v Chandra [2011] EWCA Civ 192.
6. The bank was entitled to pursue the guarantors after realising its other security. The defendants’ defences failed.