Personal Guarantees ' When Blue Turns To Grey

• Published date: 08 June 2021
• Subject Matter: Finance and Banking, Insolvency/Bankruptcy/Re-structuring, Financial Services, Insolvency/Bankruptcy
• Law Firm: PDT Solicitors
• Author: Mr William Angas, Ben Ashworth, Justin McConville and Laura Sutton

It's not often we reflect on cases we lost. However, a recent case on personal guarantees has reminded us of the risks that financiers face when a Court is asked to decide between the evidence of the financier who believes he has a valid and enforceable guarantee, and the evidence of the guarantor who believes he either never signed a guarantee or if he did it is in any event unenforceable.

Our case, which came before the Court in 2012, involved a claim against a guarantor whose defence was that the personal guarantee he had signed was unenforceable by reason of his never having intended to be bound by it. In other words, although he did not deny having signed the guarantee he didn't expect it to be relied upon until he had agreed final terms on the proposed facility with the financier. The financier was unable to satisfy the Court that final terms had ever been agreed in relation to the proposed facility despite the fact advances had subsequently been made under it, and as a consequence the financier could not show that the guarantor had intended to be bound by the guarantee.

Since that case we have advised clients that they should always make sure that there is no doubt the guarantor intends to be bound by his or her personal guarantee. This can be done by sending the guarantor a copy of the (signed and dated) personal guarantee and asking the guarantor to return a suitably worded acknowledgement.

In the more recent case of Lynch v Cadwalladar and Aldermore Bank the Court was again asked to consider the evidence of the financier who believed it held a signed personal guarantee from Mr Lynch, and the evidence of Mr Lynch who denied ever having signed the guarantee. The case came before the Court as Mr Lynch disputed Aldermore's proof of claim in his bankruptcy (we acted for the trustee in this case, Alex Cadwalladar of Leonard Curtis, but took a neutral stance in relation to this application).

At trial, Aldermore were unable...