Harvey v Dunbar Assets Plc

The Court of Appeal allowed an appeal against a refusal to set aside a statutory demand founded on a composite joint and several guarantee. The key legal principle was that where a single composite guarantee is expressed on its face to be signed by specific named persons (and to create joint and several liability) the prima facie construction is that liability of any individual signatory is conditional upon the due execution of the guarantee by all the other named guarantors. The court applied modern unitary principles of contractual construction (including consideration of the factual matrix) and held that nothing in the wording of the Guarantee (notably clauses 4, 5, 15 or the definition of "the Guarantor") displaced that prima facie position. On the assumed hypothesis that one named guarantor had not in fact signed (his signature being a forgery), the appellant was not liable under the Guarantee and the statutory demand under section 268(1)(a) of the Insolvency Act 1986 was set aside.

Background and procedural posture.

The appellant, Mr John Spencer Harvey, sought to set aside a statutory demand served by Dunbar Assets Plc pursuant to section 268(1)(a) of the Insolvency Act 1986. The statutory demand was based on an asserted liability under a joint and several guarantee dated 10 March 2008 (the "Guarantee") said to be signed by four named men. The Guarantee was provided in the context of loan facilities to Vision Development Ashbrooke Limited. The Bank had already issued a demand on the company and on 16 June 2011 served a statutory demand on Mr Harvey. Mr Harvey applied to set the demand aside on the ground that he disputed liability under the Guarantee. That application was refused below; permission to appeal to the Court of Appeal was granted.

Nature of the application and issues.

• The application before the court was an appeal against the refusal to set aside the statutory demand; if the Guarantee did not give rise to a debt properly payable by Mr Harvey then the statutory demand had to be set aside.
• The central legal issue was whether, on construction, a signatory to a single composite joint and several guarantee becomes liable where one of the other named intended guarantors has not in fact signed (on the assumed hypothesis that the missing signature was a forgery).
• Subsidiary issues were whether express terms in the Guarantee (notably clauses 4 ("Invalidity and indulgence"), 5 (releases/discharges) and 15 ("Joint and several liability")), or the definition of "the Guarantor", displaced the prima facie rule that all named signatures were required; and whether any such displacement needed especially clear or pointed language.

Arguments and reasoning.

Mr Harvey relied on authorities (for example James Graham & Co v Southgate Sands and earlier cases) that a composite guarantee appearing on its face to be intended to be executed by specified co-guarantors will ordinarily be conditional on all named guarantors signing, and that a signatory who signed on the footing that others would also sign does not assume liability unless that fact occurs. The Bank submitted that there was no absolute rule and that the question is one of construction; it relied on clauses in the Guarantee (principally clause 4(a)(iv) and clause 15) and on the factual matrix (including the Facility Letter) to show that the parties intended each signatory to be bound even if another intended guarantor did not sign.

The Court undertook a unitary construction exercise. It accepted that the Guarantee was a single composite instrument prepared for signature by several persons and that, as a starting point, that form pointed to the signatures of all being an essential precondition to liability. The court analysed the relevant provisions and their natural meaning. It concluded that (a) the defined term "the Guarantor" presupposed a person already liable "under this Deed" and did not operate to make persons who had not in fact become liable into guarantors; (b) clause 4(a) addresses what happens to subsisting obligations (discharge, impairment or effect) and does not sensibly operate to create the antecedent liability of a signatory where the instrument shows on its face that all named signatories were to sign; (c) clause 5 and clause 15 likewise assume an existing guarantor and are not apt to override the prima facie condition precedent arising from the composite form of the instrument.

Result and further matters.

The Court concluded that, on its true construction, the Guarantee was conditional on being signed by all named guarantors and therefore, on the assumed hypothesis that one named guarantor had not signed, Mr Harvey never became liable under the Guarantee. The statutory demand was set aside. The factual question as to whether the missing signature was in fact a forgery was left to be determined in the underlying action between the Bank and the other parties; that factual issue was not decided in the appeal.

Appeal allowed. The Court of Appeal held that the Guarantee, being a single composite joint and several document naming four guarantors and defining them collectively as "the Guarantor", was prima facie conditional on being signed by all named guarantors; nothing in the Guarantee's wording (including clauses 4, 5 and 15 or the definition clause) displaced that condition. Consequently, on the assumed hypothesis that one named guarantor did not sign, the appellant was not liable and the statutory demand was set aside.

Appeal from HHJ Kaye QC's order of 7 September 2012 dismissing Mr Harvey's appeal against DJ Pescod's order of 20 March 2012 refusing to set aside the statutory demand. Permission to appeal was granted by Kitchin LJ on 1 March 2013. The Court of Appeal allowed the appeal and set aside the statutory demand.