Is the wording in your guarantees ambiguous?

Updated November 2011

Banks should review the wording of their guarantees in the light of a very recent Court of Appeal decision say Jonathan Hoey and Richard Hayllar of national law firm TLT LLP. 

Usually, a bank guarantee of a loan or other third party liability may impose several different types of liability on the guarantor. A common one is a so-called “see to it” obligation, that is, an undertaking by the guarantor that the principal debtor will perform his own contract with the creditor.

The Court of Appeal has held in the case of McGuinness v Norwich and Peterborough Building Society, [2011] EWCA Civ. 1286, that this type of clause may not entitle a creditor to immediately pursue the debtor in bankruptcy. This means that the creditor/bank will have to prove the amount due and obtain a judgment for the debt before seeking a bankruptcy order. This will delay the process of recovery and incur more expense. It is, therefore, essential to word such clauses so that they impose an immediate obligation on the guarantor for payment.

We have considerable experience of drafting such clauses and will be pleased to review and advise on any existing wording in your guarantees.

This publication is intended for general guidance and represents our understanding of the relevant law and practice as at November 2011. Specific advice should be sought for specific cases; we cannot be held responsible for any action (or decision not to take action) made in reliance upon the content of this publication.

TLT LLP is a limited liability partnership registered in England & Wales number OC 308658 whose registered office is at One Redcliff Street, Bristol BS1 6TP England. A list of members (all of whom are solicitors or lawyers) can be inspected by visiting the People section of this website. TLT LLP is authorised and regulated by the Solicitors Regulation Authority under number 406297.