In the recent case of McGuinness v Norwich and Peterborough Building Society, the High Court considered whether the terms of a guarantee created liability as a debtor or liability in damages on the guarantor's part. A schedule of amendments to a building contract prepared by an employer's solicitor will often require the contractor to procure from its immediate or ultimate parent company a deed of guarantee in the employer's favour. The contractor's parent company will guarantee to the contractor's employer that the contractor will comply with its obligations under the building contract.
The court decided that, if the guarantee requires the contractor's parent company to comply with its obligations as "principal obligor", instead of simply as surety, it will create a debt in favour of the employer who has the benefit of the guarantee, rather than simply giving the employer the right to sue the parent company for damages. The decision suggests that it will usually make sense to include an indemnity in a guarantee to make the guarantor liable as principal debtor. If a creditor is owed a debt by a guarantor, it can pursue the debt without needing to obtain a judgment against the guarantor by using a statutory demand and insolvency proceedings.
Previous decisions of the High Court suggested that a creditor needs to obtain a court judgment in its favour before being able to use its right to claim damages from a guarantor to form the basis of a statutory demand or insolvency proceedings. The judgment in McGuinness v Norwich and Peterborough Building Society does not directly overrule the previous decisions of the High Court, but it does throw doubt on them. In this case, the court suggested that, if the amount of a claim for damages is sufficiently certain, it will be appropriate to treat the claim as a liquidated claim that is able to be the subject of a statutory demand.