In ING Lease (UK) Ltd v Harwood a director
unsuccessfully attempted to escape liability under a personal
guarantee by alleging an agreement had been reached in negotiations
that he would not be personally liable.
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ING provided finance to a group of companies which was
personally guaranteed by the group’s chief executive, Harwood. At
the instigation of ING, the group subsequently acquired another
company which was also indebted to ING. Harwood alleged that it was
orally agreed during discussions with ING that although his group
companies would give a cross-company guarantee, he would not be
personally liable for the acquired company’s debts. A written
composite cross-guarantee was then entered into which also
contained a personal guarantee by Harwood. The group companies
subsequently went into administration and ING sought to recover all
the outstanding monies from Harwood pursuant to the personal
guarantee. This included a debt due from the group companies to a
third party which had subsequently been assigned to ING.
Harwood defended the claim on the basis that the discussions
between him and ING amounted to a contractual agreement that he
would not be personally liable. As to the assigned debt it was
argued that the guarantee did not cover debts originally due to
third parties.
The court found that there was no evidence that the discussions
about limiting Harwood’s personal guarantee were intended to amount
to an oral contract. There was no record that any such agreement
had been reached. The discussions were simply negotiations that
took place at a preliminary stage. The composite agreement had to
be read on its face as meaning that Harwood had provided a personal
guarantee for all the companies including the acquired company.
There was no evidence from which a term could be implied that the
guarantee did not cover any monies owing by the acquired
company.
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By GlobalDataAlthough Harwood might have made it clear during the discussions
with ING that he would not extend the personal guarantee, the court
found that there had been no corresponding representation by ING
equivalent to a promise that Harwood would never be personally
liable for the acquired company’s debts. Harwood was therefore
bound by the personal guarantee in relation to that debt.
As to the assigned debt, the court found it was not within the
original contemplation of the parties that the guarantee should
extend to debts originally due to third parties.
Comment
However adamant the guarantor is on the point, discussions will
not amount to a binding agreement in the absence of evidence of a
clear intention on behalf of the finance company to either create
legal relations or alter existing ones. Prevention is better than
cure of course, and therefore it is good practice that whenever
such matters are discussed, a clear note is produced by the finance
company and agreed by the director, so that there can be no doubt
further down the line.
The author is a partner in Wragge & Co LLP’s Finance,
Insolvency, Recoveries and Sales team
Motor Finance Issue: 43 – May 08
Published for the web: May 23 08 16:14
Last Updated: May 23 08 16:19
