|August 17, 2013|
Previously published on August 2013
If you take a guarantee from multiple guarantors, make sure they all sign up.
In Harvey v Dunbar Assets PLC  EWCA Civ 952 the Court of Appeal unanimously rejected enforcement of a multiple guarantor guarantee on the basis that one of the intended guarantors had not signed it. Signature by each of the guarantors was a condition precedent to the liability under the guarantee of each of the other guarantors who were, therefore, not bound by their signature of the document.
The decision is important because it reaffirms the long-standing practice requiring signature by each guarantor in light of the important recent changes to the interpretation of contracts but confirms that this is not an inflexible rule of law. It is a matter of contractual interpretation. Accordingly, perhaps more importantly, it confirms that a drafting solution may be available.
The starting point of the analysis was that a reasonable person, confronted with a guarantee drafted to be signed by a number of guarantors, would proceed on the assumption that each of them ought to sign and so unless each did none would be liable. The important context of a guarantee liability is that guarantors will have rights of subrogation against their co-guarantors. The notional reasonable person would be aware of that and would consider that to be an important safeguard for a proposed guarantor. This is the background against which the starting point of the analysis arises. The Court of Appeal decided that the effect of non-signature was not to impair the guarantee given by a guarantor signing earlier. On the contrary, no guarantee liability came into existence until each guarantor had signed.
Nonetheless, because this was a matter of construction and not a rule of law, an appropriate provision in the guarantee could make clear that each signatory guarantor became bound by the terms of the guarantee on signature whether other contemplated guarantors had signed or not.
This clearly establishes the importance of deciding at the time the guarantee is given whether a guarantee liability will be dependent upon others undertaking a joint guarantee liability or not.