How Good Is Your Guarantor?: A Reminder Of The Distinction Between A Guarantee And An Indemnity

The High Court recently handed down its decision in Catalyst Business Finance v. Very Tangy Television Limited, Richard Tuckwell, Very Tangy Media Limited [2018] EWHC 1669 (QB). The judgment provides a useful reminder of the differences between a true indemnity and a true guarantee. The distinction between a guarantee and an indemnity is more than just semantics. A true indemnity creates a primary obligation on the surety without the creditor first needing to establish liability for the principal debt. The indemnifiers' obligation is independent of, and not contingent on, the obligations of the borrower. In contrast, a true guarantee is a secondary obligation which enables the guarantor to avail himself of any defences which would otherwise be available to the debtor (for example, that the underlying facility is void or there is a right of set-off). In this case, the court examined the wording of a "guarantee and indemnity agreement" to determine which obligations were, in fact, indemnities.

The facts

In short summary, Very Tangy Television Limited (Tangy) entered into a loan agreement (the Loan Agreement) with Catalyst Business Finance Limited (Catalyst) to provide a loan (the Loan). A Mr Tuckwell agreed to stand surety for the Loan under a personal guarantee and indemnity (the Personal Guarantee and Indemnity). Two advances were made under the Loan Agreement. Some months later, Catalyst sought repayment of the Loan. Tangy did not pay so Catalyst pursued Mr Tuckwell under the Personal Guarantee and Indemnity. Catalyst issued various certificates of indebtedness to Mr Tuckwell certifying the amount payable under the Loan and the interest that had accrued.

Catalyst applied for summary judgment to the effect that: (1) Mr Tuckwell's obligations under the Personal Guarantee and Indemnity were primary obligations and not secondary; (2) the certificates of indebtedness issued by Catalyst were conclusive evidence as to both Mr Tucker's liability and quantum; (3) the only exception was if there is a manifest error or an error of law on the face of the certificate; (4) there is no such error; and (5) there could be no real prospect of Mr Tuckwell successfully defending the claim against him.

The decision

On the facts, Catalyst's application was successful. The judge found that the Personal Guarantee and Indemnity was properly regarded as a "hybrid document in which some of the obligations are primary and some secondary". She went on explain that...