Tue 25 Aug 2020

All Sums Guarantees - a Clarification to "Dowling"?

Promontoria (Chestnut) Ltd v Simpson and another


In May 2019, I wrote an article about guarantees and the purview doctrine, arguing that the courts have failed to provide sufficient clarification on the full extent and scope of the purview doctrine when applying it in a commercial context.  The article was published to the Morton Fraser website and can be accessed here: Guarantees & the Purview Doctrine - An Unhelpful Encroachment into Commercial Transactions.

In that article, I referred to the case of Dowling v Promontoria (Arrow) Ltd [2017] BPIR 1477, which related to the enforceability of an "all sums" guarantee.  The Dowling case has, most unhelpfully, thrown the efficacy of true "all sums" guarantees and security into doubt where there is more than one facility letter constituting the principal guaranteed liabilities as a result of the applicability of the purview doctrine.

However, some clarification on this issue as regards "all sums" security and guarantees has perhaps been provided in the recent case of Promontoria (Chestnut) Ltd v Simpson and another [2020] EWHC 2137 (Comm).

As an aside, some thanks and gratitude should perhaps be extended to Promontoria for doing its bit to advance the case law as it applies to "all sums" guarantees and security!

Dowling v Promontoria - a recap

In Dowling Promontoria was attempting to enforce a personal guarantee given by the director of a company, the benefit of which guarantee had been assigned to Promontoria.  The guarantee deed itself referred in the recitals to one facility agreement that had been entered into by the borrower company and the original lender.  However, that facility letter had been replaced by a new facility letter entered into between the borrower company and the original lender and it was in respect of sums due under that new facility letter (which had also been assigned to Promontoria) that the guarantee was being enforced.

The case was heard in the Bankruptcy High Court by Registrar Barber, who held that the purview doctrine had been engaged since there was a new facility agreement and, therefore, a fresh guarantee was necessary.  In so holding, Registrar Barber applied the leading recent cases on the purview doctrine, being Triodos Bank NV v Dobbs [2005] EWCA Civ 630 and CIMC Raffles Offshore (Singapore) Ltd and another v Schahin Holding SA [2013] 2 All ER (Comm) 760, despite the fact that neither of those cases involved "all sums" guarantees, but rather guarantees which were expressed to relate to liabilities arising under a specific principal contract.

I argued in the piece referred to above that Dowling was wrongly decided and I continue to take that view.  The guarantee in Dowling was a true "all monies" instrument and it should have been dealt with accordingly by the court as covering "all sums" due by the principal borrower as per the plain English interpretation of the instrument.  I believe that the court in Dowling wrongly applied the purview doctrine to "all sums" security and, in so doing, threw the standard practice of many lenders in the SME sector into considerable doubt when it comes to the efficacy of "all sums" security in an amendment and restatement scenario.  I don't believe that the fact that the recital in the guarantee referred to a specific earlier facility agreement and not the later facility agreement should have been sufficient to allow the court to come to a conclusion that the clear wording in the operative provisions of the guarantee as to what had been guaranteed (i.e. all sums due by the principal borrower to the original lender) should be countermanded.

The recent case of Promontoria v Simpson has perhaps provided some welcome clarity here, although regrettably it is possible to distinguish the case from Dowling on the facts.

Promontoria v Simpson

The facts of this case are relatively straightforward.  It related to a set of financing documents entered into between Clydesdale Bank as lender and Property For Sale or Let Limited as borrower, the benefit of which had been assigned to Promontoria.  The assigned contracts included a guarantee by two of the directors of the borrower, which was an all sums guarantee, albeit capped at £300,000 plus interest.  As per Dowling there were two principal facility letters, although unlike Dowling (and this is perhaps where the cases might be distinguished), the second facility letter was regarded as having amended and restated the first facility letter and therefore did not replace it in its entirety.

Counsel for the defendants did not rely upon the purview doctrine to have the guarantee set aside, but instead argued (amongst other things) that, on a true interpretation of the deed of assignment, only the rights arising under the earlier facility letter had been assigned and could be recovered under the guarantee.

Davies J did not have much difficulty in dispensing with all arguments advanced by counsel for the defendants and deciding in favour of the claimant (Promontoria).  He did so on the basis of a number of arguments submitted by counsel for the claimant, but the pertinent argument for the purposes of this piece was that pertaining to the "all sums" nature of the guarantee.  The relevant section of the judgment is worth setting out in full (my emphasis):

"[I]f one goes to the guarantee, one sees that, in terms, it says that the defendants enter into this guarantee in return for the bank making available, or continuing to make available, banking facilities to Property For Sale or Let Limited which is defined as the customer. It is said in terms that:

'The customer obligations which are guaranteed are any sum of money or any liability which the customer may now, or at any time in the future owe to us.'

On the face of it, therefore, it is not limited to a specific facility letter or any specific liability. It is an all monies guarantee limited only by amount and that really is the end of the point and indeed the case."

The commendable and straightforward clarity of thought brought to bear on the matter by Davies J here is most refreshing.  It is regrettable that Registrar Barber did not bring such clarity to her own thinking in Dowling.  This is surely the entirely correct manner in which to interpret an "all sums" instrument concluded between commercial persons - it is for "all sums".  Period.  Drafting lacuna and imprecise legal principles such as the purview doctrine should not be allowed to cut across the clear wording in the body of the guarantee or security document in which commercial persons (in this case, a bank and two directors of a borrower company) agree that the guarantors are liable for all sums due to the bank by the principal borrower.

Conclusions and further thoughts

It appears that Dowling was not cited as precedent in Promontoria v Simpson and that is presumably because the purview doctrine was not relevant to the case.  That is a shame as it would have been helpful to see some judicial doubt cast upon the Dowling judgment in this regard.  Nevertheless, Promontoria v Simpson does provide some helpful clarity to the efficacy of "all sums" instruments in an amendment or multi-principal document context, and the extension of same to the liabilities which the clear wording of such instruments relates to - i.e. "all sums due by the principal obligor to the creditor whether present or future, actual or contingent".

It is to be hoped that Dowling will be overruled by a higher court sooner rather than later.

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