Peter Scholey Dunn v Kostas Kazolides

A guarantee securing a company’s contractual obligations may operate alongside a profit-and-loss sharing arrangement. Its purpose and limits must be determined by construing the agreement as a whole. A guarantor is discharged, unless the guarantee provides otherwise, where the guaranteed contract is materially varied without the guarantor’s consent, or where the creditor binds itself to give the debtor additional time to pay.

For limitation purposes, an agreement’s status as a deed depends on the statutory execution requirements, but it is unnecessary to resolve that issue where the claim is out of time even on the longer limitation period. “Insolvency” may bear its ordinary commercial meaning, including balance-sheet insolvency where the contractual context requires it.

The claimant funded a Cyprus villa-development joint venture through loans to Astriver Co Limited. The defendant was one of the joint venturers and had signed the joint venture agreement through an attorney. The claimant alleged that clause 18 guaranteed Astriver’s obligations and sought recovery of the outstanding loan balance.

The defendant denied giving a guarantee. Alternatively, he argued that the guarantee was invalid, statute barred, or discharged by changes to the joint venture agreement, extensions of time for repayment, breaches, or an oral agreement. The central issues were the construction and validity of the guarantee, limitation, the meaning of contractual insolvency, and discharge.

1. Guarantee. Clause 18, construed in context, identified Mr Kazolides and Mr Stylianou as the guarantors, despite the defective use of singular and plural terminology. The guarantee was enforceable under section 4 of the Statute of Frauds 1677. Mr Kazolides’ attorney had authority to enter it. The guarantee was a “see to it” obligation sounding in damages, not a debt, and it operated to ensure that the company’s share of losses could be funded. It did not make Mr Kazolides liable for the entire investment and accumulated interest.
2. Limitation. The court did not need to decide whether the joint venture agreement was a deed or a simple contract. The claim was statute barred even on the assumption that the 12-year period applied. Under section 1(2) and (3) of the Law of Property (Miscellaneous Provisions) Act 1989, the court noted the competing approaches in MacDonald Hotels Ltd v Bank of Scotland Plc and Briggs v Gleeds.
3. Insolvency and accrual. “The insolvency of the Company” in clause 5(c) had a simple commercial meaning and was not confined to a formal insolvency process. The balance-sheet test was sufficiently workable. Applying the approach in BNY Corporate Trustee Services Ltd v Eurosail-UK 2007-3BL plc, the company was insolvent by at least 30 September 2009. The loan then became automatically repayable, the company defaulted, and the cause of action under the guarantee accrued.
4. Discharge. The supplemental agreement varied the loan obligations with Mr Kazolides’ consent, so it did not discharge the guarantee. However, after insolvency, the claimant and the company reached a binding variation postponing sales and repayment until a time and price chosen by the claimant. Mr Kazolides had not consented. Applying Holme v Brunskill, the material variation and extension of time discharged his guarantee.
5. The claim therefore failed because it was statute barred and, independently, because the guarantee had been discharged.