Close Brothers Ltd v Ridsdale & Ors

A surety is released where the underlying agreement is materially changed, unless the surety consents or the change is necessarily beneficial. Consent may be established by signing revised facility documents where the surety understood their effect. A material variation will not necessarily create a new transaction outside the scope of the original guarantee. The question is one of substance, although the form of the variation may be relevant. Conditional proposals to consider releasing guarantees will not ordinarily found an estoppel, particularly where the conditions are unmet and no detriment is shown.

Close Brothers sought to enforce personal guarantees given by Esther and Martin Ridsdale for lending to a property-development company. The original facility was later extended and restructured so that the development proceeded in phases, with funding principally limited to completion of the cottages and associated infrastructure.

The Ridsdales contended that the restructuring materially altered the risk under their guarantees, that the revised facility was outside the purview of the original guarantee, and that later communications created an estoppel preventing enforcement. Close also claimed a release fee.

1. Guarantee and material variation. The introduction of phasing and the limitation of Close’s commitment to Phase 1 materially changed the underlying facility and therefore required the guarantors’ consent. The governing principle, derived from Rees v Berrington and Holme v Brunskill, is that a surety is discharged by a material change unless the surety has notice of and consents to it, or the change is necessarily beneficial.
2. The Ridsdales consented. Their signatures on the extended facility letters were effective consent. The alleged assurance that Close would fund the development to completion was not given. The documents and surrounding correspondence made Close’s reservations clear. The consent was therefore informed, and it would in any event have been inequitable to release the guarantees when continuation of the facility was substantially in the Ridsdales’ interests.
3. Scope of the guarantee. The extended facility remained, in substance, a facility for continuing the Puddletown development. It was not a new and different agreement outside the purview of the original guarantee. Clause 3.2 of the guarantee was intended to cover variations, extensions and amendments of this kind. The approach in Triodos Bank NV v Dobbs was applied, but the present transaction fell within the original guarantee.
4. The court considered the alternative argument that each extension was supported by fresh consideration and regarded it as logically and commercially arguable, but it was unnecessary to decide.
5. Release fee and estoppel. Close could not treat the first extension as an expiry of the facility for the purpose of charging the release fee. By agreeing to extend the facility, it accepted that the facility had not expired. The estoppel claim failed because the communications were conditional, their conditions were not fulfilled, no sufficiently certain representation of release was made, and no detriment was established.