National Westminster Bank Plc v Lotay & Anor

A personal guarantee given as part of a package of security remains effective according to its terms unless a collateral agreement, warranty, representation or estoppel altering its effect is proved. The court will assess the alleged assurance against the contemporaneous contractual documents, the parties’ conduct and the surrounding evidence. Where the guarantee is joint and several, each guarantor is liable for the guaranteed sum. Contractual compound interest may be awarded on a reasonable basis where the agreement provides for interest but does not specify the rate or rests.

National Westminster Bank Plc sought £100,000 and interest from Harinderpal Singh Lotay and Inderpal Lotay under a joint and several directors’ guarantee given in support of Twinbuild.com Ltd’s borrowing facilities.

The defendants contended that the bank’s relationship manager had assured them that the guarantee was temporary and would cease once their parents granted a second charge over their home. They alleged that this assurance induced them to sign without independent legal advice. The bank denied that any such assurance was given and maintained that the guarantee, second charge and debenture formed a continuing security package.

The issues were whether a signing meeting occurred, whether the alleged assurance was made, whether it affected enforceability, and what interest was recoverable.

1. Guarantee enforceable. The court found that a signing meeting took place on 14 March 2005 at Twinbuild’s premises. Both defendants freely signed the guarantee and waivers of legal advice in the presence of the bank’s relationship manager.
2. The contemporaneous facility documents, internal approval documents, guarantee procedures, storage records and subsequent conduct showed that the guarantee was intended to operate alongside the second charge and debenture for the duration of the financing. The guarantee was an essential part of the security package, not a temporary measure pending execution of the second charge.
3. The alleged oral assurance was not made. The relationship manager acted with propriety and did not represent that the guarantee would lapse, be released or cease to be enforceable when the second charge was executed. The defendants’ evidence was rejected as inconsistent, improbable and contradicted by the documentary and surrounding evidence.
4. The defendants’ later conduct, including an assurance that they intended to honour their obligations under the personal guarantee and the second charge, was inconsistent with their asserted understanding that the guarantee had ceased to apply.
5. National Westminster Bank Plc was entitled to judgment against both defendants for £100,000, their liability being joint and several.
6. Under clause 13.6 of the guarantee, the bank was entitled to compound interest on a reasonable basis. The court awarded interest on £100,000 at quarterly rests and at 2% above the bank’s base rate from 1 September 2006 until judgment. Post-judgment interest arose under the Judgment Act.

The judgment records that earlier enforcement of the second charge was settled by a Tomlin order. Bankruptcy petitions against both defendants were dismissed because the guarantee defence required determination in ordinary proceedings. This court then entered judgment for the bank.