M5 Associates Limited v Simon Nevill Wetton & Anor

Where a personal guarantee exceeds its agreed cap only if loss arises from fraud, negligence or misconduct, the claimant must prove the relevant conduct and its causal connection with the increased liability. A later inaccurate account of events does not, without more, establish that the defendant originally intended to break a promise. The court must assess contemporaneous documents, inherent likelihoods and the reliability of the evidence as a whole. Choosing to pay a secured creditor instead of an unsecured promised payment is not necessarily negligence or misconduct, particularly where possession proceedings threaten the defendant’s home. The guarantee cap therefore remains unless the enhanced-liability condition is proved.

The claimant, a commercial lender, sought to recover more than £250,000 under personal guarantees given by the defendants in connection with lending to Savernake Homes Limited. The guarantees were capped at £250,000 unless liability arose directly or indirectly from fraud, negligence or misconduct.

After an earlier hearing, the court had found that the claimant had not proved the required conduct by the second defendant. A review was granted after he accepted that material evidence about the use of proceeds from a property sale had been wrong. The central issues were whether he had dishonestly intended not to honour promises to pay the claimant, and whether his later failure to pay constituted negligence or misconduct.

1. The review did not alter the result. The claimant remained required to prove that the liability above the £250,000 cap arose directly or indirectly from fraud, negligence or misconduct by Mr Watkins.
2. Mr Watkins’ changing evidence, incomplete disclosure and exaggerated description of possession proceedings made the court cautious about accepting his evidence at face value. The court nevertheless considered the frailties of human memory, including the example cited in Kogan v Martin [2019] EWCA 1645.
3. The contemporaneous documents did not safely establish that Mr Watkins lacked an intention to honour his promise when he made it. The possession proceedings had followed several months without further enforcement steps, and the surrounding circumstances did not make a deliberate false promise the more likely inference.
4. Nor was it proved that paying the secured creditor over the claimant amounted to negligence or misconduct. The possession proceedings threatened the family home, and the duration of the Covid-related moratorium appeared increasingly uncertain. The claimant had also continued to allow drawdowns despite default, which provided an alternative explanation for the increased liability.
5. The additional claims to enforce the defendants’ promises personally were not made out. The cap on both personal guarantees therefore remained £250,000. The parties were directed to file an agreed draft order, with written submissions on unresolved consequential matters, within 14 days.

The judgment concerns a review of findings made by the same High Court judge after the original hearing. No earlier citation for that decision is stated in the judgment.