Abbhi v Slade (t/a Richard Slade And Company)

A promise to fund a creditor in any event, independently of the principal debtor’s default, creates an original and primary liability. It is not a guarantee within section 4 of the Statute of Frauds 1677, even where the amount payable is linked to the debtor’s liability under a retainer. The decisive question is the nature of the promise, not merely whether it concerns another person’s debt. A promise to pay only if the debtor defaults is secondary and falls within section 4. Classification as primary or secondary liability is a question of law, although the court determines the contractual terms and surrounding circumstances as matters of fact.

The respondent solicitor acted for the appellant’s father-in-law in litigation after the appellant orally agreed to fund the solicitor’s fees and disbursements. Payment was to be made through the father-in-law, who was the client under the retainer. The appellant had already funded the litigation under a written loan agreement.

After the father-in-law’s estate proved insolvent, the solicitor sued the appellant. Following a trial, HH Judge Russen QC held that the oral agreement was a primary funding obligation, not a guarantee, and that section 4 of the Statute of Frauds 1677 did not apply. Permission to appeal was granted on that issue only. The central question was whether the oral agreement created a secondary liability for the client’s debt or an independent obligation to provide funds.

1. Appeal dismissed. The oral agreement was outside section 4 of the Statute of Frauds 1677 because it imposed a primary liability on the appellant.
2. Whether contractual terms create a guarantee or an original obligation is a question of legal classification and therefore law. The contractual terms and surrounding circumstances remain matters of fact: [44].
3. The agreement was made on the footing that the client could not pay. The appellant promised to fund the solicitor’s fees, with payment routed through the client to reduce possible exposure under section 51 of the Senior Courts Act 1981. The promise was to pay in any event, independently of any default by the client: [45]-[50].
4. The obligation arose before the client’s payment became due. The appellant had to put the client in funds in sufficient time for the client’s cheque to be paid before expiry of the contractual grace period. Any breach by the appellant therefore preceded and did not depend upon default by the client: [50]-[51].
5. The fact that the appellant’s liability was defined by reference to the client’s liability under the retainer did not make the agreement a guarantee. The critical distinction was between a promise to pay if the other person did not pay and a promise to put the claimant in funds in any event: [52]-[53].
6. The reasoning in Associated British Ports v Ferryways NV was distinguishable. There, the obligation was defined by reference to the company’s liabilities as they fell due and was construed as a see-to-it guarantee. Here, the obligation was independent and absolute: [51]. The pre-existing loan agreement and the appellant’s personal interest were indications of primary liability, but neither was determinative: [56]-[57].
7. The court declined to revisit the separate issue under sections 69 and 70 of the Solicitors Act 1974, for which permission had been refused: [54]-[55].

Lord Justice David Richards and Lady Justice King agreed with Lord Justice Flaux. The order giving judgment for the respondent, with damages to be assessed, therefore stood.

• Court of Appeal (Civil Division): The appeal against the order of HH Judge Russen QC dated 1 March 2019 was dismissed. Permission had been granted only on the Statute of Frauds issue; permission on the separate Solicitors Act issue was refused: [2019] EWCA Civ 2175.
• High Court of Justice, Business and Property Courts, London Circuit Commercial Court: Following a three-day trial, HH Judge Russen QC found that the oral agreement was a primary funding agreement, not a guarantee, and gave judgment for the respondent with damages to be assessed. The judgment was dated 24 September 2018 and the order was dated 1 March 2019.