In Dunbar Assets Plc v Lenney, Chancery Division District Registry (Newcastle) [2014], the court held that the lender can enforce a guarantee provided by a guarantor where there were allegations that the guarantor had not entered into the guarantee, and that the guarantee had not been witnessed at the time the guarantee was alleged to have been entered.

Background

Dunbar Assets Plc (the lender) granted a loan to Vision Developments Ashbrooke Limited (Vision) in the sum of £3.535 million to refinance a bridging loan and to develop a derelict building into 36 apartments. The loan was secured by a security package, which included a joint and severally liable guarantee (the guarantee). The guarantee was entered into by Mr Lenny and 3 others. The guarantee was to the limit of £720,000 plus interest charges, costs and expenses.  The lender sought to rely upon the guarantee and commenced proceedings to enforce a recovery of monies due to Vision’s default of the loan. Mr Lenny defended the claim on the grounds that he did not sign the guarantee and did not know the witness that was purported to have witnessed his signature. He argued that the guarantee was not enforceable.

Held

The High Court made a finding in fact that Mr Lenny had entered into the guarantee and that the lender was entitled to enforce the guarantee.

The following useful points arise from the judgment in this case:

  • The court found that there was sufficient evidence that Mr Lenny had intended to provide the guarantee to the lender. The facility letter offering the loan contained security requirements to be entered to the lender’s entire satisfaction which included the provision of a guarantee. Mr Lenny signed the facility letter in two places as Director of Vision and as a guarantor.
  • The court considered further evidence of fact and decided that (amongst other things) in signing the facility letter, compelling evidence of intent was found.
  • Two handwriting experts concluded that the signature to the guarantee belonged to Mr Lenny.
  • There was no evidence that Mr Lenny resisted entering into the guarantee or sought a variation to the lender’s security requirements.
  • Subsequent facility letters increasing the liability to the lender were signed by Mr Lenny as director and guarantor.
  • Signing documents without reading them (another argument put forward in witness evidence by Mr Lenny) does not reduce or eliminate a legal liability.
  • The principle set out in Shah v Shah [2001] EWCA Civ 527 applied; there is no requirement that the person attesting to a signature of a guarantee is to be present when the document is signed.
  • Section 4 of the Statute of Frauds does not require a deed, and so the assertion that the signature was not witnessed does not invalidate the contract of guarantee.
  • As Mr Lenny was found to have entered into the guarantee, the lender could recover its costs on an indemnity basis subject to detailed assessment.

Comment

The court would not decide three further arguments advanced on behalf of the lender as the court had decided in favour of the lender as a matter of fact. The court would not decide if a facility letter constitutes a contract of guarantee. Following that argument, if the facility letter was not found to be a contract of guarantee, the court would not decide if the facility letter was an invitation to treat with Mr Lenny’s offer to grant a guarantee being binding on him. Lastly, the court would not decide if Mr Lenny, by estoppel, was barred from challenging the authenticity of his signature on the guarantee.  It is possible that such arguments could be raised and dealt with in future litigation that seeks to challenge the validity of a guarantee.