In the recent case of John Spencer Harvey –v- Dunbar Assets PLC [2013] EWCA Civ 952 the court had to decide whether, on the construction of a composite joint and several guarantee, one of the four intended guarantors who had signed the Guarantee was liable, in circumstances where one of the other intended Guarantors had, apparently, not signed the document.
Background
Vision Development Ashbrooke Limited (the “Company”) was seeking a facility from the Defendant to carry out a development project. Mr Harvey was not a director or shareholder of the Company yet he was nevertheless persuaded to sign a Guarantee of the Company’s liabilities at the request of the Company and of the Bank. He was one of four individuals who agreed to sign a joint and several guarantee in the principal sum of £720,000 as one of the conditions under which the Bank provided the facility.
The development project was not successful and the Bank served a written demand upon Mr Harvey and the three other men for payment of the guaranteed sum of £720,000 plus interest.
Although it appeared that the Guarantee had been signed by all four individuals, one of the other individuals (Mr Lenney) asserted at this stage that he had never signed the document and that the purported signature appearing on the instrument was in fact a forgery.
The proceedings arose from an application by Mr Harvey to set aside a Statutory Demand which had been served on him by the Bank. The primary issue as to whether Mr Leney had signed the document was being dealt with in separate proceedings. For the purposes of the appeal it was agreed that the court should therefore consider whether or not the Guarantee would be enforced against Mr Harvey in the event that it was subsequently shown that it had not been signed by Mr Lenney.
The general rule
The court decided there was no absolute rule which determined whether or not a Guarantee would be enforceable in circumstances where one of the other parties had not signed. They determined that the question as to whether or not it would be enforceable in any particular case was essentially one of the construction of the relevant document against the factual background of the facts of that particular case.
The decision in this case
The Guarantee was clearly a single composite document, prepared for signature by several persons as joint and several guarantors and in which all four intended Guarantors were together defined as “the Guarantor”. The court could not find any provisions in the document to suggest it was not intended that all four parties would have to sign before the document would be regarded as enforceable. Therefore, on the wording of that particular document the court concluded that there was an expectation that it would be signed by all four Guarantors. Consequently, if it were established that any one of the intended Guarantors had not actually signed the document it would not be enforceable by any one of them.
The decision is not a happy one for the banks who will need to review their documentation to ensure this kind of situation does not arise again in the future. Mr Harvey was fortunate in that he had signed the document and not have been able to set aside the Statutory Demand but for the fortuitous evidence of one of his co-guarantors that he had not signed the document. However it is a lesson to all those who are being pursued under the terms of a contract as it can be worth thoroughly exploring all options in order to see if liability can be avoided.