McGuinness v Norwich and Peterborough Building Society
| Jurisdiction | England & Wales |
| Judge | MR JUSTICE BRIGGS,Mr Justice Briggs |
| Judgment Date | 23 November 2010 |
| Neutral Citation | [2010] EWHC 2989 (Ch) |
| Docket Number | Appeal No CH/2010/APP/0109 |
| Court | Chancery Division |
| Date | 23 November 2010 |
[2010] EWHC 2989 (Ch)
Before: Mr Justice Briggs
Appeal No CH/2010/APP/0109
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
IN BANKRUPTCY
Mr Peter Arden QC and Mr Tim Calland (instructed by Moon Beever, 24–25 Bloomsbury Square, London WC1A 2PL) for the Appellant
Ms Angharad Start and Mr Richard Hanke (instructed by Rosling King, 10 Old Bailey, London EC4M 7NG) for the Respondent
Hearing dates: 16 th November 2011
Approved Judgment
I direct that pursuant to CPR PD 39A paragraph 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
Mr Justice Briggs:
On 24 th February 2010 Deputy Registrar Middleton made a bankruptcy order against the Appellant Spencer Robert McGuinness on a petition by the Respondent building society in respect of a sum of £1,223,883.26 alleged to be due under a guarantee and indemnity (“the Guarantee”) given by the Appellant in relation to his brother's borrowing liabilities. This appeal, brought with the permission of the Deputy Registrar, raises two interesting points about the nature of a guarantor's liability to the creditor, and the consequences in terms of the creditor's ability to present a bankruptcy petition. In short, is it a liability “for a liquidated sum” within the meaning of section 267(2)(b) of the Insolvency Act 1986 or only a liability to pay unliquidated damages? If the latter, is the creditor disabled from presenting a bankruptcy petition without first obtaining judgment for a specific sum, even in a case where the liability is admitted, and the amount of the damages can be identified with mathematical precision?
It is common ground that the answer to the first question turns on the true construction of the Guarantee. A negative answer to the second question would require this court to conclude that the decision of Rimer J in Hope v. Premierpace (Europe) Limited [1999] BPIR 695, to the effect that claims for damages or for an account were not claims for a liquidated sum, even if the claimant could identify his claim down to the last penny, was wrongly decided.
THE FACTS
The Guarantee, dated 10 th September 2008 and made on the Respondent's standard form, contained the following relevant provisions:
“2. GUARANTEE AND INDEMNITY
In return for our lending, agreeing to lend or continuing to lend money, or granting credit facilities, to the Borrower you accept the liabilities set out below. These liabilities are unconditional and you cannot withdraw from them, except as set out in Clause 5.
You guarantee that all money and liabilities owing, or becoming owing to us in the future, by the Borrower (whether actual or contingent, whether incurred alone or jointly with another and whether as principal or surety) will be paid and satisfied when due.
Any amount claimed under the Guarantee is payable by you immediately on demand by us.
As a separate obligation you agree to make good (in full) any losses or expenses that we may incur if the Borrower fails to pay any money owed to us, or fails to satisfy any other liabilities to us, or if we are unable to enforce any of the Borrower's obligations to us or they are not legally binding on the borrower (whatever the reason).
You will also make good any losses or expenses which we may incur if we take steps to enforce this Guarantee or if we try to do so.
…
4.2 Your obligations under this Guarantee are those of principal, not just as surety. We will not be obliged to make any demand on, or take any steps against, the Borrower or any other person before enforcing this Guarantee.”
The Appellant's brother Craig McGuinness (the Borrower referred to in the Guarantee) defaulted on his obligations and the Respondent thereafter demanded payment by the Appellant of the sum identified in the petition, pursuant to clause 2.3 of the Guarantee. It is common ground that the liability of the Borrower in respect of which the demand was made was a liquidated sum, rather than, by contrast, a liability to pay damages at large for some breach of the borrowing facility. It is not disputed that the Borrower was liable to the Respondent as claimed, and the Appellant has advanced no defence to liability under the Guarantee.
THE LAW
The requirement that a bankruptcy petition must be founded on a liquidated sum dates back at least to 1869. It is currently to be found in section 267(2) of the Insolvency Act 1986, as follows:
“Subject to the next three sections, a creditor's petition may be presented to the court in respect of a debt or debts only if, at the time the petition is presented—
(a) …
(b) the debt, or each of the debts, is for a liquidated sum payable to the petitioning creditor, or one or more of the petitioning creditors, either immediately or at some certain, future time, and is unsecured,
…”
“Debt” is broadly defined. Section 382(3) provides that:
“For the purposes of references in this Group of Parts to a debt or liability, it is immaterial whether the debt or liability is present or future, whether it is certain or contingent or whether its amount is fixed or liquidated, or is capable of being ascertained by fixed rules or as a matter of opinion; …”
In Hope v. Premierpace (Europe) Limited (supra) the creditor served a statutory demand in respect of £17,329.58 alleged to have been misappropriated by its employee, the Appellant. After procedural mishaps, a bankruptcy order was made based upon that demand. On appeal, Rimer J analysed the possible basis of a claim for recovery of the stolen money as being: (i) a claim for money had and received; (ii) a claim against the debtor as a constructive trustee; (iii) a claim in deceit; (iv) a claim for breach of an implied term in his contract of employment; and (v) money paid under a mistake of fact. He concluded that (i), (ii) and (v) were all claims for an account and payment, and that (iii) and (iv) were claims for damages. He continued:
“Mr Rainey submits that it follows that none of the company's claims for a remedy is in the nature of an order for payment of a liquidated sum. It is irrelevant that the company claims to be able to identify its claim down to the last penny. It is still faced with the difficulty that its range of alternative claims against the debtor are claims for damages or for an account and payment. A claim for damages is not a claim for a liquidated sum; and nor is a claim whose remedy is that of an account, even though it may be that the taking of the account so ordered could be dealt with in a summary way and a judgment there and then given for a specific sum.
I accept that submission. I agree with Mr Rainey that the petition is not based on a debt for a liquidated sum. It follows that in my judgment no bankruptcy order could properly be made on it. I will therefore not merely discharge that order. I will also dismiss the petition.”
Rimer J re-iterated that analysis in Navier v Leicester [2002] EWHC 2596 (Ch).
In Moschi v. Lep Air Services Limited [1973] AC 331 the appellant was the managing director and guarantor of the debtor company, which had agreed to pay the respondent creditor £40,000 in instalments. The appellant's guarantee was in the following terms:
“(XIII) In further consideration of the above Mr Moschi has personally guaranteed the performance by Roloswin Investments Limited of its obligation to make the payments at the rate of £6,000 per week together with the final payment of £4,000 and hereinbefore set out so however that Mr Moschi's total obligation under this guarantee shall not exceed the total sum of £40,000 of which approximately £3820 has already been paid as aforesaid.”
The debtor defaulted in making the instalment payments, whereupon the creditor accepted that default as a wrongful repudiation of the contract and sued the Appellant for the £40,000 less payments to date of £10,069. The Official Referee concluded that the guarantee extended only to instalments payable until the date of the discharge of the contract by accepted repudiation. Both the Court of Appeal and the House of Lords concluded, for different reasons, that the guarantee extended to the whole of the debtor's liability.
Lord Reid, giving the leading speech, said this at pages 344–345, (referring to counsel for the appellant):
“His next argument is more formidable. He says, look at clause (XIII). It merely guarantees that each instalment of £6,000 shall be duly paid. But by reason of the accepted repudiation the contract was brought to an end before the later instalments became payable. So they never did become payable. All that remained after the contract was terminated was a claim for damages. But I never guaranteed to pay damages. If the creditor chooses to act so that future instalments are not payable by the debtor he cannot recover them from me.
To meet that argument I think that it is necessary to see what in fact the appellant did undertake to do. I would not proceed by saying this is a contract of guarantee and there is a general rule applicable to all guarantees. Parties are free to make any agreement they like and we must I think determine just what this agreement means.
With regard to making good to the creditor payments of instalments by the principal debtor there are at least two possible forms of agreement. A person might undertake no more than that if the principal debtor fails to pay any instalment he will pay it. That would be a conditional agreement. There would be no prestable obligation unless and until the debtor failed to pay. There would then on the debtor's failure arise an obligation to pay. If for any reason the debtor ceased to have any obligation...
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