In 2007, Paul Alfano was finance director and managing director elect of the family business, Ciborio Limited (“Company”). Other members of the family were directors or senior managers. The Company owned the freehold to its main office and warehouse at Greenford. The Alfano Brothers Limited Retirement Benefits Scheme (“Alfano Retirement”) held leases on other Company premises across the UK.

In October 2007, the Company re-financed its business with a loan of £3.4m from Five Arrows Commercial Finance Limited secured against the freehold property, then valued at £4.5m. Five Arrows also provided revolving stock and confidential invoice discounting facilities and also held a debenture (a fixed and floating charge) over the Company’s assets. Five Arrows was taken over by GE Commercial Finance.

National Westminster Bank were the bankers to Alfano Retirement. In October 2008, Natwest became the Company’s bankers as well and planned to provide an overdraft facility, a loan to redeem and replace GE’s mortgage of the Greenford property and a debenture over the Company’s assets (thereby replacing GE as the sole debenture holder). It would also introduce Royal Bank of Scotland Invoice Financing to replace GE’s invoice discounting facility.

There were complications when Royal Bank of Scotland Invoice Financing declined to take over GE’s stock facility and confidential invoice discounting arrangement. At this time, the Company was in financial difficulty.

A plan was devised in January 2009  to overcome the Company’s cash- flow difficulties and an application was made to Natwest’s commercial credit team for a further loan secured against the Company’s Scottish property. Due to the financial position of the Company, it was suggested that personal guarantees would be required and Paul Alfano agreed to recommend to members of the family that they sign personal guarantees.

On 6 February 2009, six members of the Alfano family (“Guarantors”) signed personal guarantees of £100,000 each in favour of Natwest. The date of 6 February was inserted by an employee of Natwest after the documents had been returned to the Bank. The Company’s financial position continued to deteriorate and in July 2009, the Company gave notice of intention to appoint administrators. In August, Natwest gave notice of default of the loan of

£2.72m plus interest and the overdraft of £692,597. After realising the security over the Greenford property (realising £2.44m), Natwest sent letters of demand to the Guarantors. When the Guarantors did not pay, Natwest issued proceedings

First instance decision

The Guarantors raised five defences at first instance:

  1. it was a condition precedent to the enforcement of the personal guarantees that the bank would take a second debenture over the Company;
  2. the guarantees were not delivered as deeds intended to be immediately binding;
  3. the guarantees had been materially altered by the insertion of dates after delivery;
  4. the guarantees had been procured by Natwest’s misrepresentation; and/or
  5. there was a relationship of trust between Paul Alfano and the other Guarantors which Natwest knew about so they were liable for the consequences of his misrepresentation to the other Guarantors (Royal Bank of Scotland v Elridge (No. 2) [2002]).

There was some conflict at first instance about who had said what to whom. The Guarantors claimed that they had been led to believe that the guarantees were to be conditional upon Natwest taking a second debenture over the Company’s assets. They therefore believed they would only be pursued under their guarantees should the first two debentures fail to recover enough funds. The representatives of Natwest disagreed that the guarantees were conditional. Each of the Guarantors either received independent legal advice or waived the right to do so. Cranston J found that no immediate steps were taken by the Bank to advance the second debenture. This indicated that Natwest considered the guarantees and the debenture to be separate matters.

Accordingly, Cranston J decided in favour of Natwest on the basis that :

  1. the guarantees were unconditional;
  2. the addition of the dates were not material to their enforceability;
  3. no misrepresentations were made by Natwest or Paul Alfano to the effect that the guarantees were represented as conditional; and
  4. the relationship between Paul Alfano and the other Guarantors was not one of trust.

The Guarantors appealed on the general basis that the judge had misconstrued the factual evidence. In total, there were seventeen grounds for appeal.

Court of Appeal decision

Lord Justice Pitchford rejected all of the Guarantors’ arguments at appeal and endorsed the decision of the judge at first instance. There was no indication that the first instance judge had misunderstood or misconstrued the evidence.


On 17 July 2009 the second debenture had still not been given. Ciborio, in a Terms for Continuation of Facilities agreement dated 17 July 2009, acknowledged that the second debenture was to be received by the Bank within 10 working days and, more significantly, directors of Ciborio acknowledged that the “security in place” included “8 individual personal guarantees of £100,000 each totalling £800,000”. This document was inconsistent with the appellants’ case that the guarantees would not be in place until the second debenture was taken.

In Byblos Bank SAL v Al-Khudhairy [1987] the Court of Appeal decided that if the parties have signed a guarantee which on its face is complete and effective as soon as it has been signed little short of an express mention to the Bank’s officers that the guarantee was conditional would be sufficient to give rise to a contractual term.

Deeds not delivered

An alternative argument was that the guarantees were never delivered as deeds (section 1(3)(b) of the Law of Property (Miscellaneous Provisions) Act 1989) if the guarantees were received by the Bank on the basis that they were not to become binding until the Bank had taken its second debenture. In these circumstances the onus was on the Guarantors to demonstrate that possession of the deeds was given up on the basis claimed (Rowley v Rowley [1854]).

However, the terms of the personal guarantees were themselves inconsistent with the alleged conditionality. At Clause 8 each of the deeds of guarantee provided:

Preservation of the bank’s rights

8.1 This deed is in addition to any other guarantee or security present or future held by the bank in respect of the Debtor’s Obligations and shall not merge with or prejudice such other guarantee or security or any contractual or legal right of the bank.

8.2 This deed shall not be released or affected by any failure of the bank to take any security or by any other guarantee or security held by the bank or any intended guarantee or security in respect of the Debtors’ obligations being void or unenforceable or not completed or perfected.

Had the delivery of the deeds been conditional upon the obtaining of the second debenture this would have deprived the Bank of its entitlement under Clause 8 and, in practice, expose the Bank to the unsecured consequences of making further advances to the Company.

Position of trust

The Guarantors’ case as presented to the judge was that Paul Alfano was  the family’s representative in his contacts with the Bank. It was he who had made clear to the Bank that he would recommend to the Alfano directors and others that they provide personal guarantees but “strictly conditional on the Bank taking the second debenture” and so informed the Guarantors. However, the Court found that no misrepresentation was made by Paul Alfano or the Bank to the effect that the guarantees were conditional. It seemed to the Court that it was almost inconceivable that, if the case advanced at trial on this point was genuine, it had not emerged, even in embryo, until 2 years and 4 months after the Bank’s demand and 3 weeks before the trial. There could hardly be a plainer example of circumstances in which an inference adverse to the Guarantors’ case was appropriate. The judge used moderate language when he described the  effect of the background upon the evidence adduced by and on behalf of the Guarantors as throwing “a dark shadow” but it is clear that it permeated his judgment of the credibility of the witnesses.

The judge found there was no credible evidence that the guarantees were delivered to the Bank at the signing meeting subject to any condition.

Addition of the date

The Guarantors’ arguments were that

(i) the absence of the date from the personal guarantees made it more likely that the Bank did confirm that the personal guarantees were not to take effect before the second debenture was obtained; (ii) the only rational explanation for the omission, was that it was designed to fulfil a purpose, namely to preserve the guarantee in escrow pending the receipt of the debenture; and (iii) the later addition of the date was therefore a material alteration 

On the evidence, the absence of the date “had nothing to do with” the guarantees being conditional on a Bank debenture and was purely a matter of convenience. There was “no credible evidence” that this was the basis on which the Guarantors delivered the guarantees to the Bank. The addition of the date on the deeds was not material to their enforceability and was an immaterial formality.


The case serves as an important reminder that the giving of a personal guarantee should never be undertaken on an understanding or assumption without clarity as to the terms (if any) which govern enforceability.