Wednesday, 13 May 2015
Friday, 6 March 2015
Friday, 30 January 2015
Be Careful with IRHP Basic Redress Offers
An offer of basic redress has been made and the door may be left open for a consequential loss claim. Why not accept it ?
We have seen increasingly that offers of basic redress have been calculated on the assumed basis that whilst the IRHP in question was mis-sold, the borrower would nevertheless have purchased a different but less 'expensive' IRHP. Whilst this does give rise to compensation it results in an offer of basic redress that is far lower than an offer that acknowledges the likely true position, which is that no IRHP would have been purchased.
Again a note for those having given a personal guarantee : If you have guaranteed the debts of a business that has been mis-sold an IRHP you may well have defences on liability. Incorrect compensation awards will also directly affect the extent your supposed personal guarantee liability.
Call me for in initial view at Keystone Law on 0207 152 6550
Email: Patrick.selley@keystonelaw.co.uk
Www.patrickselley.com
Friday, 23 January 2015
Ghostwriter signatures on Personal Guarantee - Beware
The use of ghostwriters by celebrities to pen autobiographies is widely known of and generally accepted. However using a ghostwriter to sign a personal guarantee thereby creating a legal obligation to pay over £600,000 is precisely what happened to celebrity chef Gordon Ramsay. The High Court delivered its Judgement on 20th January 2015 in the case of Ramsay v Love - [2015] All ER (D) 130.
The ghostwriter in question was a Ghostwriter Manual Feed Signature Machine. In this case it was found by the Court that Gordon Ramsay gave a wide general authority to his father in law Christopher Hutcheson to conduct the business of Mr Ramsay's companies and indeed Mr Ramsay's own business affairs It was also held that it was expressly understood that Mr Ramsay would provide personal guarantees of leases of premises where this was a business requirement. It was also found that Mr Ramsay was not always aware of the detail of specific business transactions.
Mr Hutcheson, pursuant to this particular general authority used the machine to place Mr Ramsay's 'signature' on a lease and on a personal guarantee contained within it. Mr Ramsay contested the validity of the guarantee and lost after a trial that lasted over a week. The fact that Mr Ramsay was not holding the pen and was not even there when it was signed mattered not. It was signed on his behalf and pursuant to his authority.
For those who are interested the premises in question were The York and Albany pub near Regent's Park and the Landlord to whom the rent was owed was the film director Gary Love.
Www.patrickselley.com
Email me for advice at :
Patrick.selley@keystonelaw.co.uk
Thursday, 22 January 2015
EFG Loans and Personal Guarantees
RBS has recently admitted mis sales of EFG Loans. What exactly constitutes mis-selling will vary in each case but it is likely that the borrowers believed they may ultimately be liable only for 25% of the original loan amount. This is of course incorrect. Here is an extract from the Government's published guidance"
"The guarantee provides protection to the lender in the event of default by the borrower – it is not insurance for the borrower in the event of their inability to repay the loan. The borrower is responsible for repayment of 100% of the facility, not just the 25% outside the coverage of the government guarantee. Where defaults occur, the lender is obliged to follow their standard commercial recovery procedure, including the realisation of security, before they can make a claim against the government guarantee."
It is difficult to see how, with such clear guidance, Banks could have mis-represented the position However if it is the case that the Bank 'mis-sold' the loan in this way then the borrower may have a defence to some or all of any claim for repayment under the original loan.
If in addition the business owner was required to give a personal guarantee of the borrower's liability and the representations made by the bank were also made to the prospective guarantor then there are certainly arguments that the guarantee liability is either substantially reduced or on some cases eliminated entirely.
Www.patrickselley.com
Email: Patrick.selley@keystonelaw.co.uk
Tuesday, 25 November 2014
Does your bank have better lawyers than you do?
Despite all the bluster, all the focus groups and all the blogs, ultimately the answer to your problem on the day will boil down to who is right and who is wrong according to the law. And there is the beginning of a problem.
Despite the fact that we have centuries of law which generally favours our institutions and banks in particular, the law and Judges are increasingly prepared to accept that banks behave badly and there is now more likelihood that a court will find in favour of the customer than ever before. This is a not a wholesale change in the legal landscape but it is at least a moderate change in prevailing climate.
In order to make the most of your chances you need a lawyer who can best exploit the law, the procedural rules and the prevailing ‘climate’.
Large law firms together will account for most of the legal expertise in the banking field. Those same law firms will always derive significant income from acting for banks. Often it is expressly agreed between an individual bank and a law firm that if the law firm agrees to act for the bank then it will decline to act against not only that bank but clearing banks as a whole.
This does make sense from the bank’s perspective but severely limits the pool of expertise that you can draw on in fighting the bank.
I deal with banking disputes for clients who are not banks. Often banks have behaved badly towards a business and push it over the edge because they know that they have the comfort of a personal guarantee. So it becomes your problem and not theirs. We cannot always waive a magic wand and sometimes the bank does in fact have the upper hand according to the law. However this is certainly not always the case, far from it, and I have selected a team of people that can assist you, based to the following criteria :
1. Established expertise
2. Knowledge of the inside workings of banks
3. Knowledge of banking documentation
4. No conflicts of interest. In other words, no-one acts regularly for banks in general or any particular bank and is not therefore conflicted in acting against banks.
Therefore we like to think that we can offer the same expertise when acting against banks that they have routinely available in making claims against you.
Email me for advice: Patrick.selley@keystonelaw.co.uk
Www.patrickselley.com
Friday, 12 September 2014
Is my bank retaliating?
If
the decision benefits the bank commercially that would be sufficient
reason. If, however, the only reason was because of your complaint to
the FCA, this would be irrational or capricious and accordingly in
breach of your contract; however, you would need to prove this. Start by
asking the bank to state its reasons in writing. Once you have this,
make a Data Protection Act request accompanied by the correct fee. You
may then begin to ascertain if there was any other rational reason for
the reduction of your overdraft.
If the bank pays you basic compensation for the swap mis-sale it is important that you do not accept this as final compensation and that you reserve your right to claim any consequential losses for the unnecessary expense your business incurred. Finally, if you have given a personal guarantee for the overdraft take specialist advice at an early stage.
If the bank pays you basic compensation for the swap mis-sale it is important that you do not accept this as final compensation and that you reserve your right to claim any consequential losses for the unnecessary expense your business incurred. Finally, if you have given a personal guarantee for the overdraft take specialist advice at an early stage.
patrickselley.com
patrick.selley@keystonelaw.co.uk
http://www.ft.com/cms/s/0/11b8b254-1bbf-11e4-9db1-00144feabdc0.html#axzz3D5UeHu3t
Monday, 23 June 2014
Personal Guarantee liability for Company Directors following an increase in the company’s credit limit.
Typical Situation
As a company director you may have given a guarantee to the Company’s suppliers. Typically supply agreements have a credit limit at any given time. Questions arise as to the effect of in increase in the underlying credit limit upon the personal guarantee. Have you been asked to pay far more under the guarantee than you ever thought you were liable for? Does an increase in the credit limit discharge your liability or not ?General Principle
Variations to the contract between the supplier or lender made without the consent of the guarantor after the guarantee has been given can operate to discharge the guarantee. Holme v Brunskill (1878) 3 QBD 495). For this reason nearly all bank guarantees will have carefully drafted clauses designed to avoid this happening. However personal guarantees in supplier contracts are frequently drafted less carefully and leave the door open to arguments about discharge of liability where the underlying contract has been changed.
Variation that can discharge guarantee liability
The Court of Appeal decision in the case of Triodos Bank NV v. Dobbs [2005] EWCA Civ 630 is authority for the proposition that a variation to the original contract such as the granting of increased credit, will discharge the guarantor from liability if the variation on its true construction in fact amounts to a contract that was different to that contemplated by the parties, including the guarantor, at the time the original guarantee was given. In this case the guarantor can be discharged even if, as a director of the company, he consented to the variation.
Variations that will not discharge liability
In National Merchant Buying Society Ltd v Bellamy and Mallett [2013] EWCA Civ 452 the Claimant was an industrial and provident society which negotiated bulk purchasing agreements with suppliers for the benefit of its members. Its members were companies in the construction industry. Mr. Mallett was a shareholder and joint director of his company which was a member. The company had a credit limit with the Claimant of £200,000 but appeared to be in financial difficulties. In 2002 the Claimant therefore asked Mr. Mallett to provide a written personal guarantee under which guaranteed payment of "all sums which are now or may hereafter become owing" to the Claimant by the company. In 2006 Mr. Mallett resigned as a director but his guarantee remained in place. The company’s credit limit was increased to £400,000 and then to £700,000. The company became insolvent in 2008 owing the Cliamant £330,000. The Claimant obtained part of that sum from its credit insurers and sought payment Mr. Mallet under the terms of the guarantee.
Mr. Mallett argued that the guarantee had been given on the basis of a contract with a credit limit of £200,000, which therefore limited liability on the guarantee to £200,000. As he had not consented to the increase in the credit limit his liability under the guarantee was therefore discharged.
The Court of Appeal decided that the guarantee was not linked to a specific contract but was a guarantee of all monies that would become due between the Claimant and the company. As the course of dealing between the claimant and the company was in the contemplation of the parties when the guarantee was given the liability on the personal guarantee was not discharged and Mr. Mallett had to pay.
The Court said :
“ The relevant question – in this as in every case – is ‘what is the nature of the guarantee obligation that the guarantor has assumed?’ The answer to the question turns on the interpretation of the guarantee, as to which there are no special rules”
Conclusion
1. If you are resigning your position as director of a company it is always best to remember that you need to make provision to deal with your potential guarantee liability at the point of resignation.
2. If however you are being pursued under the terms of an earlier personal guarantee then you will need to :
a. Check the terms of the guarantee itself
b. Check the terms of the underlying contract
c. Find out what happened since you resigned and
d. Take advice.
Patrick Selley
17th June 2014
www.patrickselley.com
email: patrick.selley@keystonelaw.co.uk
Monday, 16 June 2014
SMEs Losing Out On Mis-Selling Compensation
SMEs losing out on mis-selling compensation
An investigation by the Times suggests that banks are failing to pay out sufficient compensation to SMEs over the mis-selling of interest rate hedges. The paper says it has uncovered a “flawed but legal” mechanism in the regulator's scheme that allows banks to cut compensation awards to their customers by hundreds of thousands of pounds potentially. A spokesman for the FCA said: "Our aim is to secure fair and reasonable redress for those affected. We have kept a close eye on decisions as they have been made to check that fair and reasonable redress is being offered. We will continue to monitor the process as it reaches its conclusion. A commentator states that banks are making "nonsensical" decisions that were "unfair" for small businesses, especially those that could not afford to take legal action.
The Times, Page: 37, 42, 43
Lifted from Keystone daily news update
Tuesday, 25 February 2014
Tuesday, 21 January 2014
Do Banks Have the Best Lawyers?
In the current financial and economic climate many people have suffered at the hands of their bank. Many feel aggrieved at the way their bank has treated them. There are many groups which are a focus of concern at the way banks behave and there is no shortage of forums which allow bank customers to voice their dissatisfaction at bad bank behavior.
Despite all the bluster, all the focus groups and all the blogs, ultimately the answer to your problem on the day will boil down to who is right and who is wrong according to the law. And there is the beginning of a problem.
Despite the fact that we have centuries of law which generally favours our institutions and banks in particular, the law and Judges are increasingly prepared to accept that banks behave badly and there is now more likelihood that a court will find in favour of the customer than ever before. This is a not a wholesale change in the legal landscape but it is at least a moderate change in prevailing climate.
In order to make the most of your chances you need a lawyer who can best exploit the law, the procedural rules and the prevailing ‘climate’.
Large law firms together will account for most of the legal expertise in the banking field. Those same law firms will always derive significant income from acting for banks. Often it is expressly agreed between an individual bank and a law firm that if the law firm agrees to act for the bank then it will decline to act against not only that bank but clearing banks as a whole.
This does make sense from the bank’s perspective but severely limits the pool of expertise that you can draw on in fighting the bank.
I deal with banking disputes for clients who are not banks. Often banks have behaved badly towards a business and push it over the edge because they know that they have the comfort of a personal guarantee. So it becomes your problem and not theirs. We cannot always waive a magic wand and sometimes the bank does in fact have the upper hand according to the law. However this is certainly not always the case, far from it, and I have selected a team of people that can assist you, based to the following criteria :
1. Established expertise
2. Knowledge of the inside workings of banks
3. Knowledge of banking documentation
4. No conflicts of interest. In other words, no-one acts regularly for banks in general or any particular bank and is not therefore conflicted in acting against banks.
Therefore we like to think that we can offer the same expertise when acting against banks that they have routinely available in making claims against you.
Email me: Patrick.selley@keystonelaw.co.uk
Www.patrickselley.com
Tuesday, 17 December 2013
Bank conduct overriding Standard Bank Documentation
We have just obtained leave to Defend proceedings brought by a Bank on the basis that there is an arguable case that the Bank owed its customer a fiduciary duty. The customer had signed a personal guarantee over the debts of a company and had been persuaded to execute a mortgage over the family home as security for the personal guarantee.
Email me for advice: Patrick.selley@keystonelaw.co.uk
Www.patrickselley.com
Friday, 6 December 2013
Monday, 25 November 2013
RBS in the Press
Much will depend upon RBS having acted illegally. This will usually be judhed against the terns of any lending facility. Just because RBS states that the business is in default it does not follow that they are right. If RBS has treated an account as if it were in breach of the terms of its borrowing facility with RBS when on a close analysis this is not true then RBS itself is the party in breach. Close attention will need to be paid to the terms of financial covenants and what is meant by ‘valuation’. Key bank correspondence will centre around the commissioning of so called ‘valuations’ and any internal calculations of financial default.
Those who have given personal guarantees should not necessarily roll over and certainly should consider applying to have any statutory demand set aside.
The introduction of another organization in the RBS loop, West Register, may allow borrowers to consider whether there has been an illegal means conspiracy between RBS and West Register.
The strength of an individual case is likely to turn on the documents. Lawrence Tomlinson’s report states that the Sunday Times ‘has uncovered’ evidence including internal RBS memos.
email: Patrick.selley@keystonelaw.co.uk
Tuesday, 12 November 2013
My Bank Has Called in my Loan...
Two years ago I took out a business loan. My business has been repaying it since then, but I made underpayments for three months due to cash-flow difficulties. When I spoke to my bank about these, I was told that there was no problem and it even increased our overdraft limit. The bank has now said it is calling in the loan and using a personal guarantee that would place me in a lot of difficulty.
Where do I stand?
This is sadly typical of cases I see where banks, having the security of a personal guarantee, act in a way that is contrary to the interests of the business, knowing that you, the owner, will ultimately pay. In these situations the wording of the facility documentation and guarantee is crucial.
In this case, the bank appears to have represented to you that it would waive the underpayments and even increased your overdraft facility.
Undoubtedly, the written loan agreement will have a "no waiver" clause. It could be argued, however, that the verbal waiver by the bank manager induced the company to extend its liabilities by an increased overdraft.
This arrangement could amount to a new agreement, one of the terms being that earlier underpayments would not be relied upon to call in the loans. As guarantor, you could argue that the bank has breached the agreement and that the granting of any waiver or further advances to the business discharges your guarantee in its entirety.
However, most bank guarantees are worded in the bank's favour. Cases such as this depend on the particular facts and early advice should be taken. Patrick Selley is a consultant solicitor at Keystone Law
email: patrick.selley@keystonelaw.co.uk
www.patrickselley.com
http://www.ft.com/cms/s/0/784df3d4-12e9-11e2-aa9c-00144feabdc0.html#axzz2XVVbwrUc
Where do I stand?
This is sadly typical of cases I see where banks, having the security of a personal guarantee, act in a way that is contrary to the interests of the business, knowing that you, the owner, will ultimately pay. In these situations the wording of the facility documentation and guarantee is crucial.
In this case, the bank appears to have represented to you that it would waive the underpayments and even increased your overdraft facility.
Undoubtedly, the written loan agreement will have a "no waiver" clause. It could be argued, however, that the verbal waiver by the bank manager induced the company to extend its liabilities by an increased overdraft.
This arrangement could amount to a new agreement, one of the terms being that earlier underpayments would not be relied upon to call in the loans. As guarantor, you could argue that the bank has breached the agreement and that the granting of any waiver or further advances to the business discharges your guarantee in its entirety.
However, most bank guarantees are worded in the bank's favour. Cases such as this depend on the particular facts and early advice should be taken. Patrick Selley is a consultant solicitor at Keystone Law
email: patrick.selley@keystonelaw.co.uk
www.patrickselley.com
http://www.ft.com/cms/s/0/784df3d4-12e9-11e2-aa9c-00144feabdc0.html#axzz2XVVbwrUc
Thursday, 24 October 2013
Два года назад я достал визитную кредита. Мой бизнес был платить его с тех пор, но я сделал недоплаты в течение трех месяцев из-за денежных потоков трудности. Dva goda nazad ya dostal vizitnuyu kredita. Moy biznes byl platit' yego s tekh por, no ya sdelal nedoplaty v techeniye trekh mesyatsev iz-za denezhnykh potokov trudnosti.Мой Банк Звонил в моей Ссуде Два года назад я вынул деловую ссуду. Мой бизнес возместил это с тех пор, но я сделал недоплаты в течение трех месяцев из-за трудностей потока наличности. Когда я говорил с моим банком о них, мне говорили, что не было никакой проблемы, и это даже увеличило наш предел кредита по текущему счету. Банк теперь сказал, что это звонит в ссуде и использует личную гарантию, которая разместила бы меня в большую трудность. Где я стою? Это печально типично для случаев, которые я вижу, где банки, имея безопасность личной гарантии, действуют в пути, который противоречит интересам бизнеса, зная, что Вы, владелец, в конечном счете заплатите. В этих ситуациях формулировка документации помещения и гарантии важна. В этом случае, банк, кажется, представляет к Вам, что это отказалось бы от недоплат и даже увеличило ваше помещение кредита по текущему счету. Несомненно, письменное соглашение ссуды не будет иметь 'никакого отказа' пунктом. Это могло утверждаться, однако, что
Это печально типично для случаев, которые я вижу, где банки, имея безопасность личной гарантии, действуют в пути, который противоречит интересам бизнеса, зная, что Вы, владелец, в конечном счете заплатите. В этих ситуациях формулировка документации помещения и гарантии важна.
В этом случае, банк, кажется, представляет к Вам, что это отказалось бы от недоплат и даже увеличило ваше помещение кредита по текущему счету.
В этом случае, банк, кажется, представляет к Вам, что это отказалось бы от недоплат и даже увеличило ваше помещение кредита по текущему счету.Несомненно, письменное соглашение ссуды не будет иметь 'никакого отказа' пунктом. Это могло утверждаться, однако, что устный отказ управляющим банком побудил компанию расширять ее долги увеличенным кредитом по текущему счету.
Эта договоренность могла составить новое соглашение, один из сроков, являющихся этим, на более ранние недоплаты не будут полагаться, чтобы звонить в ссудах. Как гарант, Вы могли утверждать, что банк нарушил соглашение и что предоставление любого отказа или далее продвигает к увольнениям бизнеса вашу гарантию полностью.
Однако, большинство банковских гарантий сформулировано в пользе банка. Случаи, типа этого зависят от отдельных фактов, и ранний совет должен быть взят. Патрик Селлей - поверенный консультанта по Закону Краеугольного камня
patrick.selley@keystonelaw.co.uk
Tuesday, 22 October 2013
My Bank Has Called in my Loan
Two years ago I took out a business loan. My business has been repaying it since then, but I made underpayments for three months due to cash-flow difficulties. When I spoke to my bank about these, I was told that there was no problem and it even increased our overdraft limit. The bank has now said it is calling in the loan and using a personal guarantee that would place me in a lot of difficulty.
Where do I stand?
This is sadly typical of cases I see where banks, having the security of a personal guarantee, act in a way that is contrary to the interests of the business, knowing that you, the owner, will ultimately pay. In these situations the wording of the facility documentation and guarantee is crucial.
In this case, the bank appears to have represented to you that it would waive the underpayments and even increased your overdraft facility.
Undoubtedly, the written loan agreement will have a "no waiver" clause. It could be argued, however, that the verbal waiver by the bank manager induced the company to extend its liabilities by an increased overdraft.
This arrangement could amount to a new agreement, one of the terms being that earlier underpayments would not be relied upon to call in the loans. As guarantor, you could argue that the bank has breached the agreement and that the granting of any waiver or further advances to the business discharges your guarantee in its entirety.
However, most bank guarantees are worded in the bank's favour. Cases such as this depend on the particular facts and early advice should be taken. Patrick Selley is a consultant solicitor at Keystone Law
www.patrickselley.com
patrick.selley@keystonelaw.co.uk
07976 911936
Tuesday, 1 October 2013
Bank Guarantee Claims
Challenging a creditor’s right to call a personal guarantee
Personal Guarantees are more common now than ever and creditors can be quick to take action against a guarantor. However, not all personal guarantees are enforceable. Patrick Selley explains how you can defend a guarantee claim.
If you have given a personal guarantee and the creditor is seeking to enforce it, you should seek legal advice first as you may have grounds to challenge its validity.
Patrick Selley, who specialises in bringing claims against banks, financial advisors and financial institutions, explains that despite some creditor's best efforts, many individuals have successfully avoided some or all of their liability under a personal guarantee.
In this, the first of a series of four articles, Patrick sets out the grounds for a successful challenge to the terms of the guarantee itself.
What is a guarantee?
A guarantee is a particular type of contract (suretyship) whereby one party, the "guarantor", agrees to be liable for the obligations of another party, the "principal".
Generally speaking, the guarantee will be expressed to be in favour of a third party creditor which in most cases is a bank. Usually, the obligation being guaranteed will be that the principal will repay the third party a sum of money on or by a particular date. In a guarantee, the guarantor promises the third party that, in the event of the principal not performing its obligation, the guarantor agrees to perform it instead.
Key issues for challenging a personal guarantee
When considering whether the personal guarantee can be enforced, there are four key questions to be answered:
Breaching the equitable principles
When faced with a guarantee claim, one of the most important arguments that you can advance is that the creditor's actions have rendered the guarantee unenforceable pursuant to the equitable principles of suretyship.
These equitable principles arise independently of the intentions of the parties and, to some extent, independently of the contractual terms. Further, the creditor, its employees and on occasion its legal team often do not understand these equitable principles.
One of the clearest examples of the operation of the equitable principles can be found where the creditor allows the principal more time than permitted in the guarantee to pay the guaranteed sums, or varies the terms of the initial loan to allow for further borrowing. In such cases, the creditor may have rendered the guarantee unenforceable.
Other common examples of conduct on the part of the creditor that may render its guarantee unenforceable include:
"From time to time we may provide the customer with any credit or facilities, vary cancel or refuse credit, give the customer more time to pay, make any other arrangement, compromise with the customer, take or deal with any security ... If we carry out any of the above acts, or do or fail to do anything else this will not affect our rights under this guarantee".
The Unfair Terms in Consumer Contracts Regulations 1999
The Unfair Terms in Consumer Contracts Regulations 1999 (UTCCR), as its name suggests, applies only to consumer contracts and has the effect of rendering unenforceable any terms which are adjudged to be ‘unfair'.
According to the UTCCR, "consumer means any natural person who, on contracts covered by these regulations, is acting for purposes which are outside his trade, business or profession".
When creditors require a director of a company to give a guarantee, it is arguable that the guarantee is not given by the director ‘as a director' but rather that it is given by him in his capacity as shareholder, and is therefore not given by the director in the course of his trade business or profession.
Often guarantees are given by the guarantor's spouse as well, so as to include the martial home as an asset which is available to the creditor should it need to enforce the guarantee. In such a case, the spouse can also argue that the term of the guarantee that excludes the equitable principles is unfair and so the guarantee should not be enforceable. Indeed, there is a higher likelihood of success for the spouse, where they are not involved in the company. In such a case it is highly advisable to seek legal advice before reverting to the creditor.
Where a term is considered unfair where it "has not been individually negotiated [it] shall be regarded as unfair if, contrary to the requirement of good faith, it causes significant imbalance in the parties' rights and obligations arising from the contract, to the detriment of the consumer." A "term shall always be regarded as not having been individually negotiated where it has been drafted in advance and the consumer has therefore not been able to influence the substance of the term".
The courts will assess the unfairness of a contractual term, taking into account the nature of the goods or services for which the contract was concluded and by referring, at the time of conclusion of the contract, to all the circumstances attending the conclusion of the contract and to all the other terms of contract or of another contract on which it is dependent.
Convincing the court that a term is unfair
Only the court can determine whether a term is unfair. However, the creditor might not wish to incur the expense of legal proceedings it may lose and may therefore decide not to enforce the guarantee or to settle.
In both cases, a guarantor will need to advance a strong argument and to produce as much supporting evidence and documents as are available. Where the creditor holds relevant documentation, the guarantor is entitled to be provided with copies upon request. Creditors are often slow to recognise the extent of relevant documents that they hold, or are just reluctant to produce them and therefore properly framed requests for documents are important in defending guarantee claims.
If you wish to challenge a personal guarantee, you need to plan a strategy carefully. Given the potentially high cost of litigation, it may be preferable to reach a settlement with the creditor. The terms of such settlement can be affected by the manner and timing of contact with the creditor. Careful and targeted use of disclosure requests for documentary evidence of matters which would go to the question of unfairness can be a useful tool in bringing about an advantageous settlement.
Conclusion
It is often possible to challenge a creditor's right to enforce a personal guarantee. However, doing so is rarely simple and legal advice from a specialist in this area is highly advisable.
Unsurprisingly, creditors will firmly reject any challenge to a personal guarantee and have standard methods of so doing. The analysis of the relative merits of their counter-arguments is important.
Also it should not be forgotten that in most cases the creditor is a bank, and that currently the banks do not wish give the courts the opportunity to strike down a personal guarantee, as to do so would set a dangerous precedent potentially affecting thousands of guarantees held by them. As a result, when confronted with a well advised guarantor, the banks' firm rejections can give way to a willingness to settle.
In his next articles looking at personal guarantees Patrick Selley will address:
www.patrickselley.com
Personal Guarantees are more common now than ever and creditors can be quick to take action against a guarantor. However, not all personal guarantees are enforceable. Patrick Selley explains how you can defend a guarantee claim.
If you have given a personal guarantee and the creditor is seeking to enforce it, you should seek legal advice first as you may have grounds to challenge its validity.
Patrick Selley, who specialises in bringing claims against banks, financial advisors and financial institutions, explains that despite some creditor's best efforts, many individuals have successfully avoided some or all of their liability under a personal guarantee.
In this, the first of a series of four articles, Patrick sets out the grounds for a successful challenge to the terms of the guarantee itself.
What is a guarantee?
A guarantee is a particular type of contract (suretyship) whereby one party, the "guarantor", agrees to be liable for the obligations of another party, the "principal".
Generally speaking, the guarantee will be expressed to be in favour of a third party creditor which in most cases is a bank. Usually, the obligation being guaranteed will be that the principal will repay the third party a sum of money on or by a particular date. In a guarantee, the guarantor promises the third party that, in the event of the principal not performing its obligation, the guarantor agrees to perform it instead.
Key issues for challenging a personal guarantee
When considering whether the personal guarantee can be enforced, there are four key questions to be answered:
- Are there any defences available to the guarantor?
- Has the creditor proceeded correctly against the guarantor?
- Are there any claims available to the principal against the creditor that can be relied on by the guarantor in reducing the guarantee liability?
- What documentation is there that will evidence the guarantor's arguments on one of the three grounds listed above and who has such documents?
Breaching the equitable principles
When faced with a guarantee claim, one of the most important arguments that you can advance is that the creditor's actions have rendered the guarantee unenforceable pursuant to the equitable principles of suretyship.
These equitable principles arise independently of the intentions of the parties and, to some extent, independently of the contractual terms. Further, the creditor, its employees and on occasion its legal team often do not understand these equitable principles.
One of the clearest examples of the operation of the equitable principles can be found where the creditor allows the principal more time than permitted in the guarantee to pay the guaranteed sums, or varies the terms of the initial loan to allow for further borrowing. In such cases, the creditor may have rendered the guarantee unenforceable.
Other common examples of conduct on the part of the creditor that may render its guarantee unenforceable include:
- where the creditor deals negligently with other security held by it in respect of the same liabilities; and
- where the creditor alters the liability of the principal under the loan without the knowledge and consent of the guarantor.
"From time to time we may provide the customer with any credit or facilities, vary cancel or refuse credit, give the customer more time to pay, make any other arrangement, compromise with the customer, take or deal with any security ... If we carry out any of the above acts, or do or fail to do anything else this will not affect our rights under this guarantee".
The Unfair Terms in Consumer Contracts Regulations 1999
The Unfair Terms in Consumer Contracts Regulations 1999 (UTCCR), as its name suggests, applies only to consumer contracts and has the effect of rendering unenforceable any terms which are adjudged to be ‘unfair'.
According to the UTCCR, "consumer means any natural person who, on contracts covered by these regulations, is acting for purposes which are outside his trade, business or profession".
When creditors require a director of a company to give a guarantee, it is arguable that the guarantee is not given by the director ‘as a director' but rather that it is given by him in his capacity as shareholder, and is therefore not given by the director in the course of his trade business or profession.
Often guarantees are given by the guarantor's spouse as well, so as to include the martial home as an asset which is available to the creditor should it need to enforce the guarantee. In such a case, the spouse can also argue that the term of the guarantee that excludes the equitable principles is unfair and so the guarantee should not be enforceable. Indeed, there is a higher likelihood of success for the spouse, where they are not involved in the company. In such a case it is highly advisable to seek legal advice before reverting to the creditor.
Where a term is considered unfair where it "has not been individually negotiated [it] shall be regarded as unfair if, contrary to the requirement of good faith, it causes significant imbalance in the parties' rights and obligations arising from the contract, to the detriment of the consumer." A "term shall always be regarded as not having been individually negotiated where it has been drafted in advance and the consumer has therefore not been able to influence the substance of the term".
The courts will assess the unfairness of a contractual term, taking into account the nature of the goods or services for which the contract was concluded and by referring, at the time of conclusion of the contract, to all the circumstances attending the conclusion of the contract and to all the other terms of contract or of another contract on which it is dependent.
Convincing the court that a term is unfair
Only the court can determine whether a term is unfair. However, the creditor might not wish to incur the expense of legal proceedings it may lose and may therefore decide not to enforce the guarantee or to settle.
In both cases, a guarantor will need to advance a strong argument and to produce as much supporting evidence and documents as are available. Where the creditor holds relevant documentation, the guarantor is entitled to be provided with copies upon request. Creditors are often slow to recognise the extent of relevant documents that they hold, or are just reluctant to produce them and therefore properly framed requests for documents are important in defending guarantee claims.
If you wish to challenge a personal guarantee, you need to plan a strategy carefully. Given the potentially high cost of litigation, it may be preferable to reach a settlement with the creditor. The terms of such settlement can be affected by the manner and timing of contact with the creditor. Careful and targeted use of disclosure requests for documentary evidence of matters which would go to the question of unfairness can be a useful tool in bringing about an advantageous settlement.
Conclusion
It is often possible to challenge a creditor's right to enforce a personal guarantee. However, doing so is rarely simple and legal advice from a specialist in this area is highly advisable.
Unsurprisingly, creditors will firmly reject any challenge to a personal guarantee and have standard methods of so doing. The analysis of the relative merits of their counter-arguments is important.
Also it should not be forgotten that in most cases the creditor is a bank, and that currently the banks do not wish give the courts the opportunity to strike down a personal guarantee, as to do so would set a dangerous precedent potentially affecting thousands of guarantees held by them. As a result, when confronted with a well advised guarantor, the banks' firm rejections can give way to a willingness to settle.
In his next articles looking at personal guarantees Patrick Selley will address:
- the effect of a creditor's failure to observe important procedural formalities;
- undue influence and other defences; and
- document disclosure requirements.
www.patrickselley.com
Tuesday, 24 September 2013
Our Clients say...
Good to hear from happy clients:
Date: 21 June 2013
"I have used Mr Selleys services for the past 18 months on several very difficult legal matters, especially with regards to personal guarantees. He has been a tremendous help to me and he has been an absolute pleasure to deal with and I could not recommend him highly enough.
After owning many well established businesses for the past 40 years, and therefore having had the need to use many different solicitors for different legal matters over the period. I can say the service and professionalism I have had from Mr Selley, and the advice he has given me during the period have been without question the best I have ever seen."
Michael Basso
Chairman of Pan World brands/I Love cosmetics Limited/Worldwide Golf Limited
Email Patrick for a legal opinion: patrick.selley@keystonelaw.co.uk
www.patrickselley.com
Subscribe to:
Posts (Atom)