Posted: Wednesday, 9 January 2019 @ 10:03
A recent case has highlighted the position of formal demands under personal guarantees. In October 2018 the High Court decided that Barclays Bank could rely on a formal written demand even where the amount specified was incorrect as it exceeded the liability cap in the guarantee.
A simple guarantee does not become an enforceable debt until a demand has been made by the creditor on the guarantor. Usually the form of guarantee will set out clearly that a demand must be made in writing and it will set out how the demand must be made. If the guarantee also states that the guarantor is also a principal debtor, then on that ground no formal demand is actually required unless the wording of the guarantee agreement provides otherwise.
In the particular case the Judge found that the wording used in the Barclays Bank form of guarantee meant that a formal demand was required even against the guarantor as a principal debtor, but had the bank done enough? The demand claimed £55,500 when it should have claimed no more than £50,000. The Judge referred to the legal test set out in the case of Mannai Investment v Eagle Star which decided that even if a notice contained some errors, if it was clear and unambiguous so that the receiver was left in no reasonable doubt what was being asked (demanded), then it was effective. The guarantor clearly realised he was being asked to pay the maximum amount of his liability, so the notice was binding.
A word of warning. Even if the written demand is found to be ineffective, there is nothing to stop the creditor in issuing a second demand which corrects any mistakes. With a simple personal guarantee the limitation period of 6 years for commencing action on a contract such as a personal guarantee will not start ticking until an effective demand has been given. So it may be a case of winning a battle but not the war. However, challenging any procedural irregularities may help in the strategic game of negotiation with the creditor.
For an explanation of the position when a Statutory Demand is served, please refer to my earlier blog by clicking here.
It is always important to check carefully the precise terms of the written guarantee. Obtaining early legal advice is strongly recommended.
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