Moody & Anor v Condor Insurance Ltd & Anor

This is an application by the claimants, Mr Moody and Mr Miller, for summary judgment against the first defendant, Condor, to enforce what Mr Moody and Mr Miller contend to be its obligation to them under a guarantee dated 13 October 2004. In my judgment, and despite the submissions of Miss Ife, who appears for Condor, Condor has no real prospect of successfully defending the claim. Further, I see no other compelling reason why the case should go to a full trial. Therefore, pursuant to rule 24.2 of the Civil Procedure Rules, I will grant the summary judgment requested.

Mr Moody and Mr Miller owned a company called MGM Precision Ltd, which I will call ‘Precision’. Mr Thompson, the solicitor for Mr Moody and Mr Miller, states in his first witness statement in support of the application that Precision was a profitable sub-contracting engineering business operating primarily in the offshore market. On 13 October 2004 Mr Moody and Mr Miller sold Precision to MGM Group Limited, which I will call ‘Group’. a company owned by a Mr Dowd. Group is the second defendant, but no relief against it is sought on this application. It was a vehicle company established by a Mr Dowd to acquire Precision. It had no other significant assets.

One part of the purchase price, slightly more than £1.75m, was paid on completion, apparently with money borrowed by Group from a bank. Group also issued some shares to Mr Moody and Mr Miller. But another part of the purchase price, namely £1.2m, was left outstanding and was to be paid in four six-monthly instalments of £300,000 each. Group issued loan notes to Mr Moody and Mr Miller in respect of the debt of £1.2m (two loan notes for £600,000 each). The loan notes provided that, if any instalment was not paid on time, the full outstanding balance became payable immediately. Group failed to pay the first instalment of £300,000 when it was due (which was on 13 April 2005), so (as is now conceded by Miss Ife, though originally it was not) the whole £1.2m is payable.

Group has not made any payment, and appears to be unable to do so. On 25 April 2005 Precision was placed into administration, and the next day the administrator sold its business and assets to another company owned by Mr Dowd. It seems that the price received by Group was enough for it to repay the bank, but left nothing available to pay any part of the debt of £1.2m which it owed to Mr Moody and Mr Miller.

Mr Moody and Mr Miller believed that they had the benefit of a guarantee from Condor of Group’s debt of £1.2m, and gave notice to Condor of a claim under the guarantee. Condor has refused to pay, and Mr Moody and Mr Miller have commenced the present proceedings seeking judgment against Condor on what they say is Condor’s guarantee liability.

I shall have to examine some parts of the documentary small print as this judgment progresses, but what I have said so far is the essential factual background, with the addition of only the following few supplemental points. Mr Moody and Mr Miller would not have been willing to sell Precision to Group without the protection of a guarantee. Mr Dowd and his vehicle company, Group, knew that. They identified Condor as a potential guarantor. Condor is in the business of granting corporate risk guarantees. It received a premium from Group as consideration for giving the guarantee which Mr Moody and Mr Miller seek now to enforce.

The case placed before me by Mr Rubin QC and Mr Yeo on behalf of Mr Moody and Mr Miller is short and simple. They say that the intention and the effect of the documents (which I shall have to examine in a little detail later) was that, in the events that have happened, Condor should be liable to Mr Moody and Mr Miller under the guarantee. Mr Moody and Mr Miller were not nominal parties to the document or documents which contained the guarantee, but the documents were executed by Condor as deeds, and were plainly intended to be enforceable by Mr Moody and Mr Miller directly against Condor. In those circumstances Mr Moody and Mr Miller can proceed directly against Condor, and Condor has no defence against them. Condor may or may not have grounds for claiming against Mr Dowd and Group that it was deceived by them when it entered into the guarantee, but any such grounds cannot give it a defence against the claim by Mr Moody and Mr Miller to enforce its guarantee to them. It must pay up to Mr Moody and Mr Miller under the guarantee, and then, if it wishes to pursue the matter, seek to recoup itself on a claim for an indemnity from Mr Dowd and Group. If its remedy by way of indemnity is worthless (as it clearly is against Group and may be against Mr Dowd), that does not provide it with any justification for not meeting its liability to Mr Moody and Mr Miller.

In opposition to Mr Moody’s and Mr Miller’s application for summary judgment Miss Ife advances three arguments.

I will now consider the arguments, doing so under three headings which correspond to Miss Ife’s three reasons for opposing the application for summary judgment.

I need to preface my examination of this question by describing the overall structure of the documentation for the sale of Precision to Group, so far as that structure is relevant to the arguments which were placed before me. The sale documents provided for what might be thought of as three tiers of documents. At (so to speak) the top tier there was the main sale agreement. At the second tier there were several other documents which the main sale agreement required to be executed. One of these was the Loan Note and Guarantee instrument. At the third tier there were two documents which the Loan Note and Guarantee instrument provided were to be executed. These were, first, the loan note certificates and conditions, and, second, the guarantee. I add some observations about the documents at the three tiers in the following sub-paragraphs.

Miss Ife’s submission is that the structure of the foregoing documents means that Condor’s guarantee cannot be enforced against it by Mr Moody and Mr Miller, but only by Group. If that is right it plainly defeats the whole purpose behind obtaining the guarantee. I will address the technical arguments later, but at this stage I wish to refer to numerous provisions which show irrefutably that the common intention of all parties, including Condor, at the time when the documents were prepared and entered into was that the guarantee should confer rights upon Mr Moody and Mr Miller, and that they should be rights against Condor.

Given all of those provisions it is, in my judgment, certain that the intention of everyone involved when the guarantee was given was that it should be given by Condor to Mr Moody and Mr Miller, and should be enforceable by them directly against Condor. I do not understand Miss Ife to dispute that that was indeed the intention, but she argues that the parties failed to achieve their intention because of the way in which the documents were structured. I do not agree.

The argument takes us into somewhat arcane and esoteric aspects of the law relating to deeds. It is common ground that, although not all deeds can confer rights on a non-party so that the rights are enforceable by the non-party against the party who executes the deed, some deeds can do that. Such deeds are commonly described by the old expression ‘deeds poll’. It was demonstrated to me from authoritative text books that, in the practice of capital markets in England, it is common (indeed usual) for guarantees of indebtedness under loan stocks and similar debt instruments to be provided for in deeds executed solely by the guarantor, without the investors in whose favour the guarantees are given having to be signing parties to them. I need not cite the text book extracts which were shown to me, because Miss Ife accepts the general validity of the proposition. She says that, although it would have been possible to create a guarantee deed under which Condor would have been directly liable to Mr Moody and Mr Miller without their having been parties to the deed, and although it may have been intended to achieve that result in this case, the result has not been successfully achieved.

I accept that there is a distinction between deeds which do confer rights on persons who are not parties to them and deeds which do not, but I do not think that the division is made in the purely mechanistic way which is implicit in Miss Ife’s submission. The distinction is commonly equated with that between deeds poll and deeds inter partes. The standard example of a deed poll is a deed executed by one person alone, by which the executing party makes a promise to someone else who is not a party to the deed. In this case the loan note certificates (one to Mr Moody and one to Mr Miller) are good examples. They are executed as deeds solely by Group, and by each of them Group makes promises to the loan noteholder (not a party to the deed) to pay to him £600,000 on specified dates, with interest. A deed inter partes, by way of contrast, is a deed between two or more parties by which one or more of them makes or make promises to the other or others of them. I hesitate to assert definitively that a deed inter partes could never create rights which could be enforced by a non-party to the deed against a party, but I certainly accept that the indications in the text books and authorities (which tend to be of considerable antiquity in this area) are to that effect: deeds inter partes create rights and obligations between the parties, and are not, or (putting it more cautiously) are not customarily thought to be, the kinds of documents to use if the intention is to confer rights on non-parties which they can enforce against parties.

Where I part company with Miss Ife is on her proposition that, because (1) the Loan Note and Guarantee instrument (the tier 2 document) was executed, not by Condor alone, but by Group and Condor, (2) that instrument was said to be made ‘between’ Group and Condor, and (3) the guarantee (the tier 3 document) was executed, not by Condor alone, but by Group and Condor, therefore the guarantee was a deed inter partes such that the promises which were made in it by Condor to Mr Moody and Mr Miller were incapable of being enforced against Condor by Mr Moody and Mr Miller. If that was so it would be an extreme instance of form triumphing over substance. I accept that the law about deeds is heavily affected by considerations of form, but I do not accept that the formalism goes as far as Miss Ife contends.

In my judgment it is necessary to consider, not just whether one or two persons executed the documents, and not just whether the word ‘between’ appears. It is necessary to examine what the parties who execute a document, saying that they are executing it ‘as a deed’ (the modern equivalent of affixing a wax seal), set out to do by it. Does one or more of them in fact make promises to the other or others (as one would expect of a deed inter partes), or do they rather seek to use the document as a means for each of them to make unilateral promises to a person who is not a party to it (or to persons who are not parties to it)? When the conventional word ‘between’ appears, is it an appropriate word given the content of what appears in the document that follows? When those questions are asked in this case it becomes, in my judgment, clear that the Loan Note and Guarantee instrument and the guarantee were the types of deeds which not merely were intended to create rights enforceable by non-parties (Mr Moody and Mr Miller), but which in law achieved the intention.

I consider first the Loan Note and Guarantee instrument. As I have said earlier, most of the provisions of it set out the facts of and the terms relating to the loan notes in respect of Group’s indebtedness of £1.2m owed to the loan noteholders, Mr Moody and Mr Miller. The provisions cover the principal amount of the notes, the status of the notes, the conditions applicable to them, redemption, prepayment, interest, loan note certificates, events of default upon which the notes become immediately payable, and the loan note register. All of those provisions are directed to the position between Group on the one hand and Mr Moody and Mr Miller on the other. They are not directed to the position as between Group on the one hand and Condor on the other. As well as the provisions relating to the notes and the indebtedness, there are the four short provisions referring to the guarantee which I quoted in paragraph 10(ii) above. I refer to those quotations, and I assert that the provisions which they contain are directed to the position between Condor on the one hand and Mr Moody and Mr Miller on the other. They are not directed to the position between Condor on the one hand and Group on the other.

As far as I can see there is no provision at all in the Loan Note and Guarantee instrument which in any realistic way operates between Group and Condor. I look for something whereby Group makes a promise to Condor, and I find nothing. I look for something whereby Condor makes a promise to Group, and again I find nothing. Of course Condor had agreed with Group that it would give the guarantee to Mr Moody and Mr Miller, but it did not make that agreement with Group in the Loan Note and Guarantee instrument. I was told that Group had agreed with Condor to indemnify Condor for any payment which Condor might have to make to Mr Moody and Mr Miller pursuant to the guarantee (a common corollary of any case where one person agrees to guarantee another’s liabilities to a third party), but Group did not make that agreement with Condor in the Loan Note and Guarantee instrument.

The word ‘between’ at the beginning of the Loan Note and Guarantee instrument is a conventional word for a draftsman to use where one document is going to be executed by more than one person. But it is potentially misleading in this case. It may create the impression that the two persons who have executed this instrument have used it to record the contents of an agreement between themselves. But that is not so in this case. Group and Condor have used the one document to record (1) the terms of the debt relationship which the entire transaction created between Group as debtor and Mr Moody and Mr Miller as creditors, and (2) the terms of the guarantee relationship which was to subsist between Condor as guarantor and Mr Moody and Mr Miller as beneficiaries of the guarantee. The document in essence creates two relationships in the nature of deed poll relationships, one between Group and Mr Moody and Mr Miller, and the other between Condor and Mr Moody and Mr Miller, but with the two relationships put into a single deed. The two relationships could just as easily have been put into two documents, one executed by Group as a deed, and the other executed by Condor as a deed. In that case I think that Miss Ife would accept that the one executed by Condor as a deed would have been a deed poll, and that Mr Moody and Mr Miller could have sued Condor on it notwithstanding that they were not signatory parties to the deed. In my judgment it cannot be right that, because there was one document instead of two, Mr Moody and Mr Miller have lost the right (which they were undoubtedly intended to have) of enforcing the guarantee against Condor if, as has happened, Group has defaulted on its debt to them.

I move on to consider the guarantee, the relevant tier 3 document. This is the principal document upon which Mr Moody and Mr Miller rely in their action against Condor. Miss Ife’s point on this document is that, although it is executed as a deed, it is executed by Group as well as by Condor. She says that that prevents the deed from being a deed poll, and prevents Mr Moody and Mr Miller from proceeding under it against Condor. I cannot agree. In paragraph 11 above I have quoted several extracts from the document to show that it was manifestly intended to record Mr Moody’s and Mr Miller’s rights under the guarantee, and that they were rights directly against Condor. It would be excessive for me to set out extensive quotations from the document, but I assert that, with very few possible exceptions (exceptions which are in any event of trivial significance, if any) the contents of the deed are directed to the relationship between Condor and the noteholders, Mr Moody and Mr Miller. They are not directed to the relationship between Condor and Group. On any view the obligation in the guarantee which Mr Moody and Mr Miller seek to enforce in the present proceedings is an obligation expressed to be owed by Condor to them, and is not expressed as an obligation owed by Condor to Group.

I referred in the previous paragraph to possible exceptions to the proposition that the contents of the guarantee deed are directed to the relationship between Condor on the one hand and Mr Moody and Mr Miller on the other. There are only two exceptions which could be of any account at all.

Hitherto I have considered the question as a matter of principle. There appears to be little authority bearing on it, but in my view such authority as there is supports my view. The only English case on the point to which I was referred was Chelsea and Walham Green Building Society v Armstrong [1951] 1 Ch 853, a decision of Vaisey J. A Mrs Brooks and Mr Armstrong entered into a deed by which a property was transferred from Mrs Brooks to Mr Armstrong. The deed also contained provisions about a mortgage in favour of the building society to which the property was subject. The building society was not a party to the deed. By one of the provisions Mr Brooks expressed himself as covenanting with the building society that he would repay to it the mortgage debt then owed by Mrs Brooks. The society sued Mr Brooks claiming that it could enforce that covenant against him notwithstanding that it (the building society) was not a party to the deed.

The judge held that the society could indeed enforce the covenant. It seemed to him that ‘the document is in form much more analogous to a deed poll. It may be more accurately stated as a deed not inter partes, although it is not strictly a deed poll.’ Plainly he did not think it necessary to take account of everything in the whole document, because the whole document included a transfer from Mrs Brooks to Mr Armstrong. As respects that part of the document it undoubtedly a deed inter partes. Vaisey J was taking account of the part of the deed upon which the building society wished to rely despite not being a party to it. As respects that part the document was not a deed inter partes, and it followed that the building society could sue upon to enforce the promise which had been made to it.

It is true that the judge also laid some stress on the feature that a deed poll ‘is announced to the whole world, not in the sense that everybody is concerned in it, but to the world who are concerned, or who are interested, in what is being done.’ The point which the judge had in mind was that entries affecting the property and mortgages upon it would be made on the Land Register. There was some discussion of whether the present case is similar to that or not. I confess that I find it hard to see why it should make any difference whether a deed which sets out to confer rights on a non-party is ‘announced to the whole world’ or not. The rational distinction must surely be between (i) a deed which as respects the operative contents of it purports to have effect between the parties to it (a deed inter partes) and (ii) a deed which as respects the operative contents of it purports to have effect between a party to it and a non-party (not truly a deed inter partes, even if there happens also to be some other person who is a party to the deed, but to whom the rights-creating provisions in the deed are not directed). In any case, with reference to Vaisey J’s allusion to ‘the world who are concerned, or who are interested, in what is being done’, the contents of the guarantee deed in the present case were announced to the persons who were concerned or interested in what was being done. Those persons were the noteholders, Mr Moody and Mr Miller. They were intended to see, and did see, the entire contents of the deed. Further, reverting to the Chelsea and Walham Green Building Society case, entries on the Land Register were not at the time open for inspection by the general public, so in any event it was not really the case that, via the Land Register, the contents of the deed which the Building Society was entitled to enforce were ‘announced to the whole world’.

In my judgment the Chelsea and Walham Green Building Society case is more in support of Mr Moody’s and Mr Miller’s case in the present application than against it. One thing is certain about it: it refutes any argument that, if a deed contains a promise made by a party to a non-party, but the deed is for some reason also executed by a third party, that feature (of a third party, as well as the promisor, having executed the deed) automatically prevents the non-party promisee bringing proceedings against the promisor to enforce the promise. The deed in the case contained a promise made by Mr Armstrong to the building society. Mr Armstrong executed the deed and the building society did not. The same deed was also executed by Mrs Brooks, but that did not prevent Vaisey J holding that the building society could successfully sue Mr Brooks upon the promise which he had made in a sealed instrument.

The other case which was cited to me was re A and K Holdings Pty Ltd [1964] VR 257, a decision of the Supreme Court of Victoria. A company (‘Castley Brothers’) in a group was in financial difficulties, and ten other companies in the same group, one of which was A and K Holdings, executed a deed of guarantee which was expressed to be in favour of unsecured creditors of it. No unsecured creditors of Castley Brothers were parties to the deed, nor was an attempt made to establish a trustee for unsecured creditors and to join it as a party to the deed. Later a creditor of Castley Brothers sought to enforce the guarantee against A and K Holdings by petitioning for that company to be wound up. It was argued in opposition to the petition that the deed was ineffective, because it was addressed to no-one, nor could any intended beneficiary of the deed have been identified at the date when it was made. However, the judge, Sholl J, held that the guarantee was enforceable by a creditor of Castley Brothers directly against A and K Holdings. He said that the deed took effect as ‘an immediately operative deed poll – a unilateral document made by each of the ten guarantor companies – but not intended to be executed by any other party’. The case is not, perhaps, as closely analogous to the present case as is the Chelsea and Walham Green Building Society case, but in my judgment it does to an extent reinforce the conclusion to which I have come.

For the foregoing reasons I consider that, under the law relating to promises made in deeds, Mr Moody and Mr Miller are entitled to enforce Condor’s promise to them that it guaranteed payment of Group’s debt of £1.2m to them. In the circumstances of this transaction it does not matter that Mr Moody and Mr Miller were not signatory parties to the Loan Note and Guarantee instrument or to the guarantee deed. I do not accept Miss Ife’s submissions on this part of the case.

I mention for completeness, before I move on to Miss Ife’s second and third submissions, that other arguments were addressed to me by Mr Rubin and Mr Yeo to the effect that, if I accepted Miss Ife’s arguments which I have been considering in the foregoing paragraphs, Condor was still liable to Mr Moody and Mr Miller for other reasons. It was submitted that the Contracts (Rights of Third Parties) Act 1999 applied. That might be so, but I would not grant summary judgment on the basis of that submission. If Mr Moody and Mr Miller based their claim on the 1999 Act, then by virtue of s.3(2) Condor could rely against them on any defence which would have been available to it if Group had brought proceedings against it. Condor makes, against Mr Dowd and Group, allegations of fraud or something approaching it which, if the dispute between them came before the courts, would require a full-scale trial. It seems likely that a claim against Condor by Mr Moody and Mr Miller based on the 1999 Act could and would be defended by Condor by reliance on the same allegations that there had been fraud or something similar on the part of Mr Dowd and Group. So a trial would be needed, and summary judgment would not be appropriate.

Mr Moody and Mr Miller do have another argument, however, which in my judgment is correct and on the basis of which I would also be prepared to grant summary judgment. The argument would require me to give permission for an amendment to the pleadings, but I would give the permission. I will not go into this argument in any length, since, given what I have said already, it does not make any difference.. In outline the argument prays in aid normal contractual principles of offer and acceptance in the context of an associated and simultaneous set of transactions where all the parties knew and approved the contents of all the documents. A similar argument might be difficult to establish for a large scale City-type transaction involving many investors in loan notes, whose identities the guarantor might not know and who, conversely, might not know who the guarantor of the notes was going to be. But in this case Condor knew before the agreements were entered into that Mr Moody and Mr Miller were going to be the loan noteholders and that it was going to give a guarantee to them; and Mr Moody and Mr Miller knew (possibly through their solicitors) that Condor was going to be the guarantor. In formal terms of offer and acceptance Mr Rubin and Mr Yeo say that, when Condor entered into the main agreement (which committed it to execute the Loan Note and Guarantee instrument), that amounted to an offer to Mr Moody and Mr Miller that it (Condor) would guarantee to them payment of the loan notes once they were issued. Mr Moody and Mr Miller accepted the offer at the same time as it was made, doing so by themselves entering into the main agreement, pursuant to which they necessarily became the loan note creditors of Group for £1.2m.

In my judgment that argument is correct, and it is an alternative reason why I do not accept the first reason which Miss Ife puts forward against Mr Moody’s and Mr Miller’s application for summary judgment. I move on to the second and third reasons.

Part of Condor’s case is that it may have been deceived by Mr Dowd when it agreed to give the guarantee. Miss Ife suggests that an inference of some form of dishonest plot by Mr Dowd, of which Condor would be the victim, might be inferred (though she accepts that a trial would be needed to make the inference good). She draws attention in particular to the following circumstances. (1) Quite soon after Precision was bought for what is argued to have been a suspiciously high price, it failed and went into administration. (2) The administration was put into place by Mr Dowd and did not involve any participation by the court. (3) The next day the administrator sold Precision’s business and assets for a price which was enough to pay off Group’s bank borrowing, so discharging Mr Dowd from his personal guarantee to the bank. (4) Condor was left to pick up the bill for the £1.2m owing to Mr Moody and Mr Miller.

I have my doubts about whether those circumstances really do raise the inference which Miss Ife says that they do. However, on this application for summary judgment I will assume that they might do, and that, if there was a trial of the issue, the court might find that there had been dishonesty of some sort on the part of Mr Dowd.

The next stage in the argument is that, if the court did make such a finding, Condor could obtain an order setting the guarantee aside as between itself and Group. The final stage in the argument is that, if that happened, the whole guarantee would fall away, so that Mr Moody and Mr Miller could not rely on it against Condor. This argument does not need to involve any assertion of impropriety against Mr Moody and Mr Miller (although Miss Ife’s third argument does).

The argument is said to be supported by the following passage in paragraph 5-013 of The Law of Guarantees (4^th Edition) by Andrews and Millet:

“If the contract which the surety seeks to set aside is a tripartite contract between himself, the creditor and the principal, he probably has fairly strong grounds for setting it aside if he has been induced to enter into that contract by fraud or some other misrepresentation on the part of the principal, even if the creditor knows nothing about the fraud or misrepresentation. Since the person who made the misrepresentation, the principal, is a contracting party, the surety would have a prima facie right to have it set aside against him, and therefore it probably could not survive as regards any other contracting party. To hold otherwise would be to produce the most unsatisfactory position that the contract was enforceable for some purposes and not for others. … However, there appears to be no direct authority on this point.”

Notwithstanding the distinction of the authors of the above passage, I respectfully disagree with it. Further, since (as I said in paragraph 32 above) I assume for the purposes of this application that a trial might show some sort of dishonesty or other impropriety on the part of Mr Dowd, the question is purely one of law. I can decide it on the present summary judgment application, and I do not need a trial to assist me to do that. There are two reasons why I disagree with the view suggested in the textbook. Logically they may arise in the reverse order from that in which I am going to set them out, but since the reason which is logically second is the one which in my view is the more fundamental I will explain it first.

In my judgment it is quite wrong, and inconsistent with the inherent nature of a guarantee, that the guarantor should be freed from liability to the third party creditor if the guarantor can, after the event, establish that he was deceived by the debtor (‘the principal’ in the passage from Andrews and Millet which I cited above) when he agreed to give the guarantee. Of course the guarantor is assumed to be wholly innocent of any form of dishonesty or impropriety, but it must also be assumed for the purpose of evaluating the argument that so is the third party creditor. I have to postulate a case where either an innocent creditor (here Mr Moody and Mr Miller) or an innocent guarantor (here Condor) must suffer from the dishonesty perpetrated by a principal debtor (here Group, making the assumption, which I do for the sake of argument but no more, that there was dishonesty on the part of Group and Mr Dowd). Which of the two innocent parties should bear the risk? The answer must surely be: unless the contract of guarantee says otherwise, the guarantor.

In a typical case, and certainly in this case, the guarantor gives the guarantee in the course of business, and is paid for giving it. Similarly, in a typical case, and certainly in this case, the creditor is not willing to accept the risk of default by the principal debtor without the benefit of the guarantee. In this case Condor was in the business of underwriting corporate risk. Mr Moody and Mr Miller were not, and were not prepared to sell Precision on terms which left them exposed to the credit risk of Group and Mr Dowd. Condor received a premium for giving the guarantee. It could have made enquiries about the credit-worthiness and the integrity of Mr Dowd before accepting the risk. It could have insisted on obtaining references for him before it agreed to give the guarantee. For all that I know it may have done both of those things, and if it did not it must have been aware of the chance that it was taking. Whether Condor did those things or not, it seems to me to be quite wrong that, if it guarantees to an innocent third party a liability of another person, and if the third party would not have been prepared to give credit to the other person without the guarantee, it can repudiate its liability to the innocent third party if the other person turns out to have been a rogue. That was surely one of the risks for which Condor was paid when it agreed to accept the guarantee liability.

Of course, if a guarantor is willing to accept the risk that a debtor may be or may become insolvent, but is not prepared to accept the risk that a debtor may be a fraudster, the guarantor can seek to have included in the contract of guarantee a provision which excludes liability if there has been any fraud on the part of the debtor. It will then be up to the third party to decide whether he is willing to go ahead and allow credit to the debtor on the basis of a guarantee which is restricted in that way. But if the guarantor does not exclude loss caused by fraud from the risks which he or it is prepared to cover (and Condor did not), then, if the debtor defaults on the liability to the creditor, in my opinion the guarantor is liable on his or its guarantee whatever may have been the cause of the default.

The guarantor may have a valid claim to be indemnified by the debtor (for what it is worth, which in many cases may not be much), but the legal position surely is that the guarantor must pay up to the creditor on his guarantee, and then see whether he can get anything back by proceeding against the debtor (or, if the debtor is a shell company, as it is in this case) against the person or persons who stand behind the debtor, and who may have dishonestly procured the guarantor to give the guarantee.

I mentioned that Condor did not include any provision in the terms of its guarantee which excluded liability if there was some form of fraud on the part of Mr Dowd and Group. On the contrary, if anything the guarantee may have contained an express provision to exactly the opposite effect. In paragraph 11(iv) above I referred to paragraph 4 of the deed of guarantee. The paragraph provided that the obligations of the guarantor were not to be released or reduced or otherwise affected by ‘the obligations of [Group] being invalid or unenforceable or anything else which might otherwise affect the Guarantor’s obligations under this Guarantee’. Miss Ife has a fair point when she comments that the last part of this cannot literally mean that the guarantee is enforceable against Condor even if it is not enforceable against Condor, but one thing which, as it seems to me, it could mean is that the guarantee is enforceable against Condor by Mr Moody and Mr Miller even if Condor has an argument as between itself and Group that it was deceived by Group into giving the guarantee.

My final comment on my first reason for not accepting the argument that, if Condor could have the guarantee set aside as between itself and Group, the guarantee would therefore fall away as between itself and Mr Moody and Mr Miller is that all of the points which I have made in the foregoing paragraphs against that argument seem to me to be equally valid whether the guarantee is contained in a tripartite contract or not. The paragraph from Andrews and Millet which I quoted implies that there is a difference between a case where there is one trilateral contract, one limb of it being the giving of the guarantee to the creditor, and a case where there are two bilateral contracts (one being a contract between the debtor and the guarantor to the effect that the guarantor will give the guarantee to the creditor, and the other being a contract between the guarantor and the creditor whereby the guarantor actually gives the guarantee). I cannot see why that difference should be relevant. If the contract of guarantee could not be set aside in the second situation because of something wrong about the manner in which the other contract (that between the debtor and the guarantor) was made, I do not see why the guarantee limb of the trilateral contract should be capable of being set aside in the first situation because there was something wrong with the other limb of the contract.

That leads me to the second reason why I respectfully disagree with the authors of Andrews and Millet. They assume that, where a trilateral contract has been made, the guarantor might be able to have set aside the limb of the contract which operates between itself (the guarantor) and the debtor. The authors then reason that, if that limb of the contract is removed by being set aside, the other limb must fall as a logical consequence. But surely the concept of setting a contractual obligation aside assumes that the obligation is still subsisting and, if not set aside, will have to be performed in future. It makes no sense to speak of setting aside a contractual obligation which has already been fully performed. (Rescission may be a different matter, but it is hard to believe that a court would rescind a contract if rights have arisen under it in favour of an innocent third party.) Yet under a tripartite contract the obligation of the guarantor to the debtor is an obligation that the guarantor will make a promise of guarantee to another person, namely the creditor, and will make it not later than the time when the debt owed by the debtor to the creditor arises. The obligation which arises under that promise, once it is made, is an obligation owed by the guarantor to the creditor, and it falls to be performed, if called upon, in the future. But the obligation of the limb of the tripartite contract which has effect between the guarantor and the debtor is an obligation on the guarantor simply to make a promise, and that obligation is performed once and for all when the guarantor makes the promise. So far as the relationship between the debtor and the guarantor is concerned, there is no obligation left to be set aside.

In my respectful opinion there is a logical fallacy in the reasoning of Andrews and Millet. Once the limb of the tripartite contract which requires the guarantor to make a guarantee promise to the creditor has been performed, all that is left of the tripartite contract is the other limb, by which the guarantor remains bound by his continuing promise to the creditor to pay money to the creditor in the event of the debtor defaulting on its primary obligation to pay its debt. It seems to me that that continuing limb of the contract cannot disappear as a consequence of the other limb being set aside. The other limb has been discharged by performance, and is not in existence any more so as to be capable of being set aside.

For the foregoing reasons, I do not accept Miss Ife’s second argument, and I do not consider that the argument should deflect me from giving summary judgment in favour of the claimants, Mr Moody and Mr Miller.

I come now to Miss Ife’s third argument, that, because Condor is ‘suspicious’ about Mr Moody and Mr Miller, summary judgment should not be given against it. The factual context of this argument is as follows.

The date when Group defaulted on the first £300,000 instalment due to Mr Moody and Mr Miller was 13 April 2005. The full debt of £1.2m thereupon became immediately owing. Mr Moody and Mr Miller, through their solicitors, served on Condor a demand for payment on 21 April. By an email of 10 May 2005 Condor’s solicitor wrote, among other things: ‘On our preliminary analysis of the information that is available at present, my client [Condor] has no reason to suppose that your clients were anything other than innocents in this matter.’ Condor served a defence in the present case on 9 August 2005. Nothing in it suggested that Condor was having second thoughts. However, in a witness statement dated 30 November 2005, served in opposition to Mr Moody’s and Mr Miller’s present application for summary judgment, Condor’s solicitor says that Condor is ‘suspicious as to the bona fides’ of Mr Moody and Mr Miller. The hearing of the application took place two weeks later, on 14 and 15 November 2005.

In the course of the hearing Miss Ife explained the position now adopted by Condor. It is now suspicious that Mr Moody and Mr Miller may have been secretly involved in a plot, jointly with Mr Dowd, to defraud it (that is to defraud Condor). It has no evidence to substantiate its suspicions. However, it wishes to have a trial in order that it can obtain disclosure and use other procedural steps which may enable it to discover evidence where at present it has none.

I am not prepared to refuse summary judgment on that ground. Condor has absolutely no evidence to back up its alleged suspicions of Mr Moody and Mr Miller. Miss Ife has outlined a number of circumstances which she says need investigation. Just conceivably an element of suspicion may hang over Mr Dowd, but nothing that Miss Ife has drawn to my attention leads me to think that at present there is a case to answer against Mr Moody and Mr Miller. When, as in my judgment is the case, they have clearly established what they need to establish in order to satisfy me that, on their case, they are entitled to summary judgment, Condor needs to do more than make unsubstantiated allegations about its suspicions before I will refrain from awarding summary judgment.

In any case Mr Rubin has pointed out to me that, as he puts it: ‘Just in case vague insinuations were planned by the Defendants as to the Claimants’ conduct, this was addressed head on in the Claimants’ evidence’. This is a reference to a passage in the first witness statement of the claimants’ solicitor, Mr Thompson. He said that he was informed, and believed, that Mr Moody and Mr Miller were not aware of the plans to put Precision into administration until after the event had occurred. Nor was Mr Thompson’s firm. He added that, after the sale by the administrator to another company owned by Mr Dowd, Mr Moody and Mr Miller (who are small minority shareholders in Group, having received some shares as part of the consideration for the sale of Precision to Group in 2004) were asked to vote in favour of a resolution of Group to approve the sale by Precision, acting by the administrator, of its business. Such a resolution may be necessary to protect the sale from the risk of being challenged under s.320 of the Companies Act 1985. Mr Moody and Mr Miller declined to attend a general meeting, thus preventing a quorum being obtained. That is hardly the action of persons who were co-conspirators with Mr Dowd.

It does not begin to meet this point to say that Mr Moody and Mr Miller have not themselves taken an initiative to bring proceedings claiming to have the sale of the business set aside under s.320. For anything that I know Mr Moody and Mr Miller have retired and have no desire to get involved in legal proceedings beyond the present case. Whether that is so or not they probably take the view that, while they are not going to help Mr Dowd out of a problem by making a quorum for Group so that he can belatedly get a resolution approving the business sale passed at a General Meeting, there would be no likely advantage for themselves even if an order upsetting the business sale to Mr Dowd’s new company could be obtained.

My final point on Miss Ife’s third argument is this. If, summary judgment having been given against Condor pursuant to my present decision, Condor makes further enquiries and finds evidence of participation by Mr Moody and Mr Miller in a fraud jointly with Mr Dowd, I anticipate (although the point was not gone into in any depth in argument) that Condor could commence a fresh action against Mr Moody and Mr Miller seeking to recover the amount paid over to them under the guarantee, and that the fresh action, being based on fraud, would not be defeated by a plea of res judicata or, in so far as it is not the same thing, by issue estoppel. See the observations of Lord Keith in Arnold v National Westminster Bank Plc [1991] 1 AC 93 at 104 and 109. His Lordship effectively said that even cause of action estoppel is not an absolute bar to fresh proceedings where fraud or collusion is alleged. If that is the position as respects cause of action estoppel it is certainly also the position sd respects issue estoppel.

For the foregoing reasons I will grant to Mr Moody and Mr Miller the summary judgment for which they apply.