Mr Kaheel was the sole director and shareholder of Fairstate Limited ("Fairstate"), which owns a long lease of 12 flats in a residential block. Mr Kaheel approached Mr Sarian to manage the flats through a special purpose vehicle, General Enterprise & Management Limited ("GEML"). A management contract was agreed between Fairstate and GEML. A recital to the contract stated that, in respect of GEML's management of the flats, Mr Sarian was "willing to provide a personal guarantee against any possible loss or damage [to Fairstate]". A guarantee was signed by Mr Sarian, but it contained incomplete clauses and a number of drafting errors. The parties subsequently entered into a dispute and Fairstate claimed damages from Mr Sarian under the terms of the guarantee.

The Court found that whilst there was sufficient evidence to demonstrate that Mr Sarian knew he was entering into a personal guarantee, the guarantee itself was unenforceable under section 4 of the Statute of Frauds Act 1677 ("the Act"). Whilst the Court may use "principles of construction" to assist them in determining the true meaning of a document, it found that the defects in the guarantee were too fundamental and extensive to be corrected. The Court considered that it would effectively be writing a new contract for the parties, instead of interpreting an existing one, and this would in turn go against the objective of section 4 of the Act.

This case serves as a reminder that guarantees must be drafted accurately. Whilst the Court has the power to determine the true meaning of a document, it will not always intervene to correct parties' drafting errors particularly where they are so extensive that it is not clear what was agreed.

Case: Fairstate Limited General Enterprise & Management Limited and another [2010] EWHC 3072 (QB)