The enforceability of all-moneys guarantees

Posted on
In National Merchant Buying Society Limited v. Mr Andrew Bellamy and Mr Stephen Mallett [2013] EWCA Civ 452, the Court of Appeal has provided some helpful up to date guidance on the enforceability of all-moneys guarantees, which are used widely by both financial institutions and businesses, to provide extra security for amounts advanced.

The facts

Between 2000 and 2008, the Society had a business relationship with a company known as CTF Supplies Limited. When CTF became a member of the Society, it was provided with a credit limit of £30,000. This was subsequently increased to £200,000. However, in 2002, the Society requested that in consideration of it providing CTF with credit facilities, Mr Bellamy and Mr Mallett would have to provide personal guarantees, which they did in May 2002. There were various increases in this credit limit until CTF became insolvent in 2008, went into administration in January 2009 and shortly thereafter into liquidation. The Society issued proceedings against Mr Bellamy and Mr Mallett in December 2010 under the terms of the joint and several guarantees that they had provided to the Society for the amounts of unpaid invoices for goods purchased by CTF. The proceedings were defended by both guarantors but at trial judgment was awarded against each in the sum of £331,627.26 plus interest and costs. The guarantors appealed this decision.

Mr Mallett

Mr Mallett's defence was that he was discharged from his liability under the guarantee as he left CTF in 2006 and that there were material variations to the contract between the Society and CTF thereafter to which he did not consent, namely a number of increases in CTF's credit limit. In particular, Mr Mallett alleged that if a surety guarantees the performance of a particular contract, an alternation of the terms of the contract will have the effect of releasing him from his suretyship if the alteration is one to which he has not consented and is such that "it is not self-evident that the alteration is unsubstantial or one which cannot be prejudicial to the surety." The trial judge found that this principle had no application here as Mr Mallett had not guaranteed the performance by CTF of the terms of a particular contract, he had provided an all moneys guarantee for payment of any money due at the date of the guarantee or which thereafter may become owing. Furthermore, the trial judge considered what the guaranteed obligation was, in terms of whether it was an existing obligation or whether it extended to other obligations, present or future. If it extended to future obligations, the judge concluded that it must follow that it cannot be affected by agreements which alter or increase the liability of the debtor. Having considered that the wording of the guarantee "could not be clearer", the judge concluded that Mr Mallett remained liable for the sums claimed.

The appeal

Mr Mallett's was based on the proposition that if there was a later variation of the contract (i.e. between the Society and CTF) which would be prejudicial to the guarantor, he will only be answerable for any liability arising under the varied contract if he has consented to the variation; if he had not so consented, the variation would result in his guarantee being automatically discharged.

This point was considered and it was concluded that the question to be considered in this and every case is "what is the nature of the guarantee obligation that the guarantor has assumed?" The court held that the trial judge had given reasons as to why this was an all-moneys guarantee and therefore was not intended to link to any variations of the agreement between the Society and CTF. Accordingly, the appeal was dismissed.

Conclusion

This case provides clear confirmation that an all moneys guarantee cannot be discharged by a variation of a pre-existing contract. However, it is clear that the Court when considering this will want to look at all of the facts surrounding the guarantee, the nature of the obligation being guaranteed and the words of the guarantee itself.