FBME Bank Ltd v Elwes & Anor

A guarantor is bound by the guarantee which he signed, even if he expected different terms or the creditor did not sign it. Where a facility agreement clearly restricts the purposes for which advances may be used, the lender may rely on those restrictions unless the parties agree a variation. A breach of the facility agreement by the lender does not necessarily discharge the guarantee. In particular, an express provision preserving the guarantor’s liability despite claims or rights against the lender may prevent that result. The guarantor remains liable for sums due under the guarantee, subject to any agreed instalment arrangement.

FBME Bank Ltd claimed against Kevin Aspin under a personal guarantee securing liabilities of Project-Pay (UK) Ltd. The guarantee was capped at £50,000 and an addendum provided for discharge by five annual instalments. An earlier judgment in the same action determined the timing of the first instalment. The remaining issues concerned the form and execution of the guarantee, FBME’s refusal to permit a further drawdown under a later facility agreement, the effect of any breach by FBME, and whether those matters affected Mr Aspin’s liability.

1. Guarantee binding as executed. Mr Aspin signed and initialled the guarantee. There was no claim for rectification and no relevant discrepancy was shown between the guarantee signed and the terms relied upon. He was therefore bound by its terms. The fact that FBME had not signed the guarantee did not affect its enforceability; it required the guarantor’s signature, but not FBME’s.
2. Facility restrictions. The purposes specified in clause 3.1 of the Second Facility Agreement were clear. Each separate element of the facility could be drawn down only for the specified purpose. The parties could have varied those provisions by agreement, but they had not done so. FBME was accordingly entitled to refuse a drawdown which did not fall within clause 3.1.
3. Expenditure on the Gateway did not fall within the provision for upgrading MTT 1581 units. The fact that it might have reflected technological developments did not entitle Project-Pay to use funds allocated to that specific purpose for replacing the units or keeping pace with new technology.
4. Even if FBME had breached the facility agreement by refusing the requested drawdown, that breach would have given Project-Pay a claim. It would not, by itself, have discharged Mr Aspin’s guarantee. Clause 8(d), which preserved the guarantor’s liabilities despite the existence of claims or set-off rights against FBME, provided a complete answer to that contention.
5. The claim for the first instalment of £10,000 due on 15 March 2012 succeeded. The other bases of claim failed. Judgment was entered for FBME against Mr Aspin for £10,000.

The judgment was a first-instance decision. It records that an earlier preliminary issue in the same action had been determined in favour of Mr Elwes on the construction of the guarantee addendum.