Did the release of one guarantor operate as a release of other co-guarantors in the case of Cynergy Bank Limited v Dinglis [2024] EWHC 754 (Comm)?
Background facts
The claimant bank (“the Bank”) provided a loan facility to Gatemark Limited (“the Principal”), a company registered in Cyprus.
The defendant (“the Guarantor”) had interests in the Principal as well as other property companies, including a UK Company (“UK Co”) and he and UK Co provided separate guarantees to secure the obligations of the Principal.
In this case, the Bank applied for summary judgment against the Guarantor relying on the terms of the guarantee entered into by the defendant Guarantor (“the Guarantee”) which provided that, upon demand in writing, the Guarantor would pay all money which the Principal owed.
UK Co had been released from its guarantee obligations in 2012. The Guarantor defended the Bank’s claim arguing that because UK Co had been discharged from its liabilities, that amounted to a discharge of the Guarantor’s obligations.
In response, the Bank relied on the express terms of the Guarantee which included the following provision:
“7.1 We may at any time do any of the following things without affecting our rights under this guarantee… (f) give up all or part of any security;.. (j) release any person from any security we may have taken…
7.2 For the purposes of condition 7.1 above, 'securities' means any bills of exchange, promissory notes, mortgages, charges, liens… guarantees or other contracts we hold”
The issues
To grant summary judgment the Court has to be satisfied that a defendant has no real prospect of defending the claim and that there is no other compelling reason for trial.
It was not in dispute that the Bank had released UK Co from its guarantee and that the Guarantor did not consent to the release.
The Court referred to ‘the accepted principle’ that release of one co-surety may release others and the ‘interesting argument’ about whether that accepted rule would apply where the guarantees were independent obligations found in different documents, as was the case here. However, the Court did not need to decide that point.
The issues which the Court had to decide included whether the ‘accepted principle’ could be excluded by contract and whether the Guarantee, which the Guarantor had signed, effectively excluded that principle.
The decision
The Court decided that the Guarantor had no realistic prospect of showing that the release of UK Co released him from his obligations under the Guarantee.
Whilst there was an accepted principle that release of one joint debtor released all, there was no reason in principle why an agreement between the parties could not change that.
The Bank and the Guarantor were free to agree the contractual arrangements between themselves. The Judge referred to the terms of the Guarantee and said: “It does, however, make it abundantly clear that the bank may 'without affecting our rights under the guarantee' release co-sureties. I see no room for any doubt and no circumstances in which trial would be required.”
The express terms of the Guarantee enabled the Bank to deal with other securities as it thought fit.
Implications
There is a well-established rule of English law that the release of one joint debtor releases all. The rationale for the rule is that joint debtors have undertaken the obligation on that joint basis and can expect to rely upon and have rights of recourse against each other.
The case is a useful reminder of that general rule and also reminds sureties to be careful when releasing an indemnitor. Usually, a general agreement of indemnity will include a provision that enables the surety to release one indemnitor without releasing all.
It sometimes happens that sureties are asked to release an indemnitor – for example in connection with a restructure or sale of part of a group.
When asked to release an indemnitor, it is important to ensure that the indemnity contains that provision and to check that any necessary formalities are complied with.