Guarantees May Be Rectified

Fairstate Limited v (1) General Enterprise & Management Limited (2) Atef Sarian [2010] EWHC 3072 (2B)

Fairstate entered into a contract with GEM (a special purpose vehicle) under which GEM would manage flats owned by Fairstate. GEM was to pay Fairstate a monthly fee, but subject could keep all the rents due. Recital C of the management agreement provided that Sarian would provide a personal guarantee of GEM's obligations. Sarian signed a guarantee form. However, the wording was inappropriate (being in the form of a guarantee to a bank), and it misidentified the liabilities to be guaranteed, the creditor and the principle debtor, to the extent that Sarian was named as both guarantor and principal debtor. Sarian argued that the form did not amount to an effective guarantee which satisfied the requirements of the Statute of Frauds 1677. Fairstate argued that Sarian was estopped from denying effectiveness of the guarantee form by the recital and alternatively it sought to rectify the form of the guarantee.

The High Court (Richard Salter QC) held that the same principles of construction should be applied to a contract of guarantee as to any other commercial contract. Extrinsic evidence could be relied on to identify the guarantor, creditor, principle debtor and obligation to be...