Catalyst Business Finance Ltd v Very Tangy Television Ltd & Ors

A surety instrument may impose both primary and secondary obligations. Its character depends on construction of the instrument as a whole. An indemnity obligation is primary where it extends beyond losses for which the principal debtor is liable.

A conclusive evidence clause may, depending on its wording, determine both liability and quantum. A certificate under such a clause is evidence of liability rather than the source of liability, subject to any agreed exception such as manifest error or error of law.

Where a loan agreement permits staged advances and repayment is linked to an advance, each advance may be repayable without waiting for the whole facility to be drawn. Summary judgment may properly be granted despite overlapping issues at a later trial where the individual liability is contractually distinct.

Catalyst lent £80,000 to Very Tangy Television Ltd under a loan agreement providing for a facility of £500,000 and staged advances. Richard Tuckwell gave a personal guarantee and indemnity. Catalyst demanded repayment and applied for summary judgment against him.

The application raised whether the personal instrument created primary or secondary obligations, whether the loan sums were repayable before the full facility was advanced, whether certificates of indebtedness were conclusive as to liability and quantum, and whether overlapping issues reserved for the trial of claims involving the companies provided another reason for trial.

1. Summary judgment. Summary judgment was entered for Catalyst against Mr Tuckwell for £142,936, together with interest of £8,747.78.
2. Nature of the obligations. The distinction between guarantee and indemnity depends on the true construction of the instrument. A guarantee normally creates secondary liability and attracts the principle of co-extensiveness. An indemnity creates primary liability. The personal instrument was hybrid. In particular, clause 3 imposed a primary obligation because it indemnified Catalyst against losses and costs resulting from the borrower’s failure to comply, including losses beyond those for which the borrower itself was liable. The provisions concerning invalidity and liability as principal debtor supported that conclusion. [2010] EWHC 2443 (Ch)
3. Repayment. The loan agreement permitted the £500,000 facility to be drawn in a single sum or in agreed smaller sums. Those sums were advances. Properly construed, the repayment obligation arose 90 days after an advance was made. The contrary construction would produce the commercially absurd result that repayment could be postponed until the entire facility had been advanced. The £50,000 and £30,000 payments were therefore repayable. Any potential set-off available to the borrower did not reduce Mr Tuckwell’s primary liability under clause 3.
4. Certificates of indebtedness. Clause 5 was concerned first with determining liability and then with quantifying the amount payable. It therefore operated as a conclusive evidence clause as to both liability and quantum, subject to manifest error or error of law. The first certificate was not invalid merely because it referred to the borrower’s indebtedness, and the certificates satisfied the clause’s only formal requirement, namely signature by a director. [2008] EWCA (Civ) 542; [2014] EWHC 1674 (Comm)
5. Error of law and further reason for trial. The phrase “manifest error or error of law” was disjunctive. The arguments that the sums were not advanced under the agreement or were not yet repayable had no real prospect of success. Issues concerning the company’s claim that further lending was due remained matters for the full trial and did not assist Mr Tuckwell. The existence of overlapping issues was not an adequate reason to defer judgment. The case was materially different from Iliffe v Feltham Contractors, which concerned common factual and expert issues in a contractual chain. Mr Tuckwell could seek an indemnity from the company if the later proceedings established that the company was not liable.

The application was initially listed before Master Thornett on 19 March 2018. He adjourned it for determination by a judge with a longer time estimate. Mrs Justice Jefford heard the application on 2 May 2018 and granted summary judgment on 4 May 2018.