Harvey v Dunbar Assets Plc

A composite joint and several guarantee naming several intended guarantors is prima facie conditional on all named guarantors signing it. That is only the starting point. The court must construe the guarantee as a whole against the admissible factual matrix, applying ordinary modern principles of contractual construction.

Express or implied terms may displace the prima facie condition. Provisions dealing with the discharge, invalidity or release of an existing guarantor do not necessarily impose liability on a signatory where a named co-guarantor never executed the guarantee. If no term displaces the condition, the signatory is not liable.

John Spencer Harvey appealed from an order of HHJ Kaye QC, sitting in the Chancery Division, dismissing his appeal against DJ Pescod’s refusal to set aside a statutory demand served by Dunbar Assets Plc under section 268(1)(a) of the Insolvency Act 1986.

The demand relied on a composite guarantee signed by three of four intended guarantors. The fourth signature appeared to be forged. The central issue was whether Mr Harvey was liable despite the alleged non-execution by the fourth intended guarantor.

Appeal allowed unanimously. The statutory demand was set aside as against Mr Harvey.

1. Whether a signatory is bound where contemplated co-security has not been obtained is a question of construction of the relevant guarantee against its admissible factual matrix. The authorities do not establish an absolute rule that every signatory is unbound whenever an intended co-surety does not sign.
2. Where a single document is prepared as a composite joint and several guarantee, names all intended sureties together and defines them collectively, the prima facie position is that all named sureties must execute it before liability attaches to any individual signatory.
3. That prima facie position may be displaced by express or implied terms. Construction is a unitary exercise directed to the meaning a reasonable person, possessing the relevant background knowledge, would attribute to the language. The court may prefer a construction consistent with business common sense where competing constructions exist. The modern principles stated in Rainy Sky S.A. v Kookmin Bank [2011] UKSC 50 apply to guarantees. There was no requirement for a specially drawn or expressly notified exclusion clause.
4. The definition of the Guarantor as every person liable under the deed presupposed existing liability. Clauses 4(a), 5 and 15(b) addressed events affecting subsisting obligations, including discharge, release or invalidity. They did not determine the anterior question whether a signatory had ever become bound. Clause 4(a)(iv), concerning failure to obtain contemplated security, was insufficient to impose liability despite the missing signature. The same applied to the release and co-surety provisions.
5. On the assumed hypothesis that the fourth signature was forged, Mr Harvey never became liable as a Guarantor. The factual question concerning the signature remained for trial in the related proceedings.

1. Court of Appeal (Civil Division): allowed the appeal and set aside the statutory demand as against Mr Harvey: [2013] EWCA Civ 952.
2. High Court, Chancery Division: HHJ Kaye QC dismissed Mr Harvey’s appeal from DJ Pescod’s refusal to set aside the statutory demand.
3. District Judge: DJ Pescod refused the application to set aside the statutory demand.