Close Brothers Ltd v Ridsdale and others  EWHC 3090 (QB)
This case concerns a claim by Close Brothers Limited (“Close”), a merchant bank, to recover on personal guarantees given by the First and Second Defendants (Mr and Mrs Ridsdale) pursuant to a property development venture. Despite the court accepting that there had been material amendments to the Facility Agreement, the court found that the Ridsdales had consented to the amendments and that the amendments were not so fundamental so as to constitute a new agreement and thereby cause the guarantee to become unenforceable.
Close provided the Third Defendant (a company owned by Mr Ridsdale) with financing for the purchase and development of cottages at the Olds Garage Puddletown. The development consisted of cottages for refurbishment and a new build site. The Facility Agreement was due to expire on 30 June 2009. Under the Facility Agreement, Close requested a personal guarantee of £350,000 from Mr and Mrs Ridsdale.
Following a meeting on 24 March 2009 to discuss delays to the development, Close agreed to extend the Facility Agreement to 30 September 2009 on the basis that the development be “phased”. As part of the “phased” approach, Close required that the refurbished cottages be sold to reduce overall debt. Following the sale, Close would consider the future funding requirements of the new build element of the development.
In October 2009, the Facility Agreement was further extended to 31 December 2009 and in December 2009 it was extended again to 30 April 2010. On 23 December 2010 Close made a formal demand under the personal guarantee.
The personal guarantee provided at clause 3 that none of the Ridsdales’ liabilities under the guarantee shall be affected by a variation of the Facility Documents.
The court considered:
- whether a fundamental change was made to the original Facility Agreement dated 9 June 2008 by the first extension of the Facility Agreement on 10 July 2009 such that it materially affected the risk assumed by Mr and Mrs Ridsdale under the personal guarantees and whether they had consented to such change; and
- whether any change identified in issue (i) was a variation within clause 3 of the Guarantee, or was it a new and different contract that was outside the contemplation of clause 3 of the Guarantee.
Mr Roger Ter Haar QC, sitting as a deputy judge of the High Court Queens Bench Division, noted that a surety will be released from liability under a guarantee if there is a material (or “not unsubstantial”) change to the agreement in respect of which the guarantee has been given, unless the surety has had notice of the change and has consented to it. The court ultimately found that although there was a material change to the Facility Agreement, it was for the benefit of the Ridsdales and they had consented to the change.
Although the introduction of phasing was a material change to the underlying transaction, the court held that this was not such a fundamental change so as to make the extended Facility Agreement a new agreement and thereby cause the guarantee to be unenforceable.
This case serves as a reminder of the risks to the enforceability of guarantees following a variation to facility documents. Financial institutions agreeing to variations should consider the impact of the variations on guarantees and where there is doubt, ensure that either a new guarantee is entered into or clear wording is included in the varied documents to ensure that the existing guarantees remain enforceable.