Barclays Bank Plc v Price & Ors

A guarantee containing both a surety obligation and a principal-debtor obligation may still require a demand before liability to pay arises. The question is one of contractual construction.

A demand for more than the maximum guaranteed amount is not necessarily invalid. The court applies the objective Mannai test: whether the reasonable recipient would understand that the contractual right was being exercised. The result depends on the terms and context of the particular guarantee.

Factual disputes about receipt of a demand and service at the correct address ordinarily require trial and should not be resolved summarily where the claimant has a realistic prospect of success.

Barclays sought to enforce against Mr Cohen a director’s guarantee of liabilities owed by his former law firm, Jeffrey Green Russell Limited. Mr Cohen applied to strike out the claim or obtain summary judgment.

The guarantee required payment on demand, limited liability to a specified amount, and contained a separate principal-debtor clause. Barclays’ first demand sought £55,500 although the relevant maximum was £55,000. A second demand was sent with a covering letter containing an address error, giving rise to a factual dispute about receipt.

The application raised whether a demand was required, whether the excessive first demand was invalid, and whether Barclays could rely on the second demand.

1. Demand requirement. The guarantee required a demand before an obligation to pay arose, whether the obligation was treated as one of surety or principal debtor. The references to demand in clauses 1.1 and 6 were materially indistinguishable. The authorities on principal-debtor clauses were therefore distinguishable because construction of the particular guarantee governed.
2. Excessive first demand. The first demand was valid despite claiming £55,500 when the specified maximum was £55,000. The court applied the objective test in Mannai Investment Co. Ltd v Eagle Star Life Assurance Co Ltd [1997] AC 749: whether the reasonable recipient was left in no doubt that the contractual right was being exercised. The demand identified the guarantee, the liabilities and the sum claimed. The recipient could pay the maximum and dispute the excess. The first demand was therefore effective for the guaranteed amount.
3. Second demand. Whether the second demand was received, and when, raised a triable issue of fact requiring disclosure and cross-examination. Barclays had a realistic prospect of success, so strike out or summary judgment was inappropriate in relation to that demand.
4. Subsequent receipt and amendment. There was no absolute rule preventing reliance, by amendment, on a cause of action arising after proceedings began. The court had a discretion to permit such an amendment as justice required, subject to the consequences for recoverable interest.
5. The Fourth Defendant’s application for strike out and/or summary judgment was dismissed. Barclays was to pay the costs of and occasioned by any amendments, with directions to follow.