J Harvey v Dunbar Assets Plc

 

The Message

Failure of a multiple guarantor to validly sign may invalidate all the guarantees.

The Case

J Harvey v Dunbar Assets Plc [30 July 2013] concerned the significant issue of whether a guarantor who had signed a guarantee was liable where another guarantor had failed to sign the guarantee.

Dunbar Assets Plc made available to Vision Development Ashbrooke Limited loan facilities of over £3.5 million to enable it to refinance the cost of a development. Mr Harvey and two others signed a joint and several guarantee for £720,000 plus interest as security for Vision’s indebtedness. “Joint and several” liability means they could be sued together or separately for the liability. A fourth person appeared to have signed the guarantee.

The development was not successful and Dunbar demanded repayment from Vision of over £4.8 million. Vision did not meet the demand and Dunbar served a written demand on Harvey and the three other men for payment of the guaranteed sum. Subsequently, Dunbar served a statutory demand on Harvey, which he applied to set aside on the ground that he disputed liability.

Harvey argued that he had never become bound under the guarantee, because one of the intended guarantors had never signed the guarantee. It was assumed that this guarantor’s signature was forged. The High Court decided in Dunbar’s favour, but the Court of Appeal found for Harvey, setting aside the statutory demand.

The guarantee in question was a single composite guarantee, which envisaged the signature of all four intended guarantors, whose liability was expressed to be joint and several. The Court had to decide, by construing the particular guarantee, whether Harvey’s liability was conditional on all the other intended guarantors duly executing the guarantee.

The Court stated that the answer to the question is, essentially, one of construction of the guarantee against its factual matrix. There is no absolute rule that, in all circumstances, if an intended guarantor does not sign, the other guarantors are not bound. It all depends on construction. However, if the document shows that it is intended to be a joint composite guarantee contained in a single document with a single definition of “Guarantor”, which assumes that it will be signed by all the guarantors, then the starting point is that the guarantee will be subject to the condition that all the guarantors’ signatures are necessary for its validity. Liability as a guarantor will only be imposed on any individual signatory if all the named guarantors sign. The basis for this is that a guarantor is entitled to a contribution from co-guarantors in respect of the guaranteed amount, unless the guarantee states this is not the case.

The Court concluded that there was nothing in the express or implied terms of the guarantee, which altered the result that Harvey would not be bound, if any of the other guarantors failed to sign. Harvey’s guarantee was invalid from the beginning, because another guarantor had never been a guarantor due to his signature being forged. Therefore, Harvey was not liable under the guarantee and Dunbar’s statutory demand against Harvey would be set aside.

The case is a warning to ensure that all guarantors legitimately sign documents. Failure by one of multiple guarantors to validly sign could invalidate all of the guarantees.