Trustees of Beardsley Theobalds Retirement Benefit Scheme v Yardley

The claimants are the trustees of a retirement benefit scheme and are the registered freehold owners of a commercial premises whose address is 22-24 Market Street Nottingham. This property is an asset of the scheme. The trustees entered into a lease for this premises dated 9 September 2005 with Body Care International Limited (“BCIL”) as tenant for a term of fifteen years from 1 November 2003 with an initial rent of £32,500.00 per annum. The defendant, Mr Joshua Yardley, has signed this lease as a guarantor of the rent and the other obligations of the tenant. BCIL went into administration on 15 August 2006 and into liquidation on 13 November 2007. The claimants are now claiming unrecovered rent, damages for breach of the repairing obligations and other unrecovered expenses from Mr Yardley by seeking to enforce the guarantee. They first attempted to recover their claim by issuing a statutory demand and then a bankruptcy petition against Mr Yardley but the petition was dismissed because there was a substantial dispute about the debt. On 25 August 2009, this claim was issued. The sum claimed in the claim form is for £79,049.46 for arrears of rent and insurance rent, £3,602.75 for the cost of repairing the roof and interest of £30,682.50 up to the date of the date on which the claim form was issued with further interest continuing until judgment. The claimant has applied to amend the claim so as to claim additional arrears of rent up to the date of the trial. The claim is disputed in full. The basis of the defence is that Mr Yardley never signed the lease as a guarantor because, although he added his signature to the document, he thought he was signing it as a witness. Thus, a series of defences are raised, any of which would, if successful, provide him with a complete defence. He also opposes the claimants’ application to amend the claim on the grounds of delay and of it being too late to amend to add a substantial additional sum to the claim at the trial.

The factual background falls within a narrow compass but it is crucial for the defences that are advanced that I first decide precisely when, where and in what circumstances Mr Yardley signed BCIL’s copy of the lease. At the trial, there were seven witnesses of fact. However, the three crucial witnesses were Mr Ciaran Mooney, a director of BCIL who signed the lease on behalf of the company, Mr Yardley and Ms Emma Ryan, who was called by Mr Yardley and who witnessed Mr Yardley’s signature in the lease. The claimants also called Mr Anthony Palfreman, who was the conveyancing solicitor in Fraser Brown, the claimants’ solicitors based in Nottingham who acted for the claimants in the conveyancing transaction for the grant of the lease, and Mr Stephen Littlewood, the senior partner in Littlewood & Company, the claimants’ managing agents. He gave evidence about the nature and extent of the arrears being claimed. Mr Yardley called two other witnesses, Mr Ian Hallam and Mr Benjamin Davies who gave brief evidence about Mr Yardley’s relationship with Mr Ciaran Mooney and Mr Mooney’s brother and co-director, Mr Adam Mooney.

Initial period. In 1990, Mr Adam Mooney started The Tanning Shop Limited (“TSL”), a company that operated a chain of tanning salons that traded as The Tanning Shop. TSL opened its first tanning salon in Dublin and within 18 months it had opened another four salons and it rapidly expanded its operations throughout the United Kingdom. Most of the salons were franchised and run by franchisees and the remainder were run by TSL. This business secured an exclusive distributorship agreement to market the California Tan Sunless range of tanning skin care products in the United Kingdom. These products were used in and sold from the Tanning Shop chain of salons and they were also marketed to other commercial users.

Mr Yardley was born in December 1968. On leaving school, he worked briefly as a pub licensee and then worked for a menswear retail group in its buying department before becoming a sales representative working for a company that was importing skincare products from the USA. In March 1993, Mr Yardley was recruited by Mr A. Mooney to work for the Tanning Shop sales department which marketed the specialist tanning products that the Tanning Shop was importing under licence from the USA. Marketing was undertaken through a related company, The Tanning Shop (Retail) Limited (“TSR”). Mr A. Mooney’s brother, Mr Ciaren Mooney, started with TSL soon afterwards. He was appointed a director of TSL with particular responsibility for franchising.

In March 1998, TSL was financially restructured and the Mooney brothers incorporated BCIL on 11 March 1998 to take over and run the Tanning Shop business and its chain of salons. There were four initial directors of BCIL. These were the two Mooney brothers, Mr Michael Llewelyn-Evans who was an accountant and Mr Justin Selig who was a solicitor and who was also appointed as BCIL’s company secretary. Mr Selig undertook all BCIL’s legal work including the legal work involved in its leases and he also provided legal advice to his fellow directors. BCIL also took over TSL’s leases.

Mr Yardley’s employment was transferred to BCIL and he was promoted to take responsibility for the sales and distribution division of BCIL. He was an employee of BCIL and he was paid a salary which was topped up by commission payments on the sales that he made. He was successful in this role and soon after he started with BCIL, he accepted an invitation to buy a 4.85% shareholding in BCIL. This acquisition cost him about £15,000. About a year later, on 3 March 1999, he accepted Mr A. Mooney’s invitation to become a director and board member of BCIL. He was very much the junior member of the board whose driving force was largely Mr A. Mooney with, to a lesser extent, Mr C. Mooney. When Mr Yardley joined the board, it had five other directors. At the same time as he became a director of BCIL, Mr Yardley also became a director of Bodycare Direct Limited (“BDL”), which was TSR’S wholesale division and a subsidiary of BCIL.

Guarantors of underlease. Soon after Mr Yardley had become a director of BCIL, the board decided to acquire an underlease of a shop premises at 22 - 24 Market Street, Nottingham. When this underlease subsequently fell in, it was replaced by a new lease for the same premises for which Mr Yardley gave the guarantee that founds this action. The underlease was acquired by a licence granted by the claimants, the head landlords and freehold owners of these premises. This licence permitted the tenant, Halifax Estate Agencies Ltd, to underlet the premises to BCIL. The term of the head lease had been for 21 years expiring on 30 October 2003 and the underlease was for the remainder of that term less two days, being a period of just over 4 years 7 months. The underlease was therefore to run until the 28 October 2003. The underlease was not protected by the Landlord and Tenant Act 1954 whereas the head lease was protected by that Act. However, the Halifax had vacated these premises and had no intention to resume occupation in the two-day period between 29 and 30 October 2003 when possession would revert to it. The licence required BCIL to pay its rent directly to the claimants. Mr C. Mooney, as BCIL’s franchising director, asked Mr Yardley to become one of the two guarantors that the licence required to be provided to provide security for BCIL’s obligations to pay the rent and the required insurance premiums and to keep the premises in good repair. Mr Selig also became a guarantor.

No explanation was given as to why Mr Yardley and Mr Selig were asked to become guarantors of BCIL underlease obligations that it owed directly to the landlords. Mr C. Mooney stated in evidence that he had previously given a personal guarantee in support of BCIL’s lease obligations in about six cases and that it was normal for him and his brother to give such guarantees since BCIL were invariably asked to provide guarantors to guarantee its payment obligations with regard to rent and repairs. He also stated that most of the tanning salon leases that had been entered into by BCIL had been completed in the period 1998 – 1999 following its acquisition of the Tanning Shop business.

I conclude that BCIL’s practice was to provide personal guarantees for its tenancy obligations, when required, by persuading members of its board of directors to provide them. I also conclude that since this lease was entered into soon after Mr Yardley joined the board and after BCIL had already entered into a number of leases backed by personal guarantees, he was asked by Mr C. Mooney and Mr Selig to provide one of the required guarantees because, unlike the Mooney brothers, he had no other subsisting guarantee obligations.

Mr Yardley was vague as to the commitment he understood that he had taken on and it seems that Mr Selig, as BCIL’s legal director and company secretary, advised Mr Yardley as to his obligations as a guarantor. Mr Yardley remembered that he had been advised by Mr Selig but he could not remember any of the details of that advice. However, he stated that he remembered talking to Mr Selig about the guarantee and he trusted Mr Selig when Mr Selig told him that he could and should sign the guarantee. I am satisfied that Mr Yardley knew that he was signing a guarantee for the rent payable under BCIL’s underlease of the shop premises at 22- 24 Market Street, Nottingham and that Mr Selig had provided him with appropriate advice as to the risk he was taking on before he signed the guarantee. Following this advice, Mr Yardley and Mr Selig on 19 April 1999 both signed the licence permitting the landlords to underlet the premises to BCIL as guarantors of the rent and other tenant’s obligations. The rent that was being guaranteed was in the region of £30,000 per annum.

Background to new lease. In November 2001, BCIL was subject to a substantial financial reorganisation. Capital was brought into the company by a venture capitalist company called ISIS who provided additional finance through a company, Willoughby (346) Limited (“Willoughby”) which acquired a controlling interest of BCIL. ISIS was issued with 35% of Willoughby’s shares. ISIS required the existing directors of BCIL, save for Mr Selig who elected to retire from the Tanning Shop business, to become directors of Willoughby. This transaction led to a dilution in the value of Mr Yardley’s shares in BCIL to about two thirds of their previous value.

This re-organisation was altered after the first year. ISIS required a presence on the board of BCIL and a corresponding reduction in BCIL appointed board members. As a result, Mr Yardley was asked to leave the boards of BCIL, BDL and Willoughby and he resigned as a director all three companies in January 2003. Mr Yardley continued to head up BCIL’s sales and distribution division, the job that he had been appointed to in 1999. He remained an employee of BCIL receiving some of his remuneration as a salary and the balance as commission from his sales figures. At Mr C. Mooney’s request, Mr Yardley was given the title of sales director even though he was not a director of BCIL. The company provided him with business cards which described him in that way. Mr Yardley took no part in the decision to give him that title but, as requested, he used it when carrying out his sales work for BCIL.

The venture capital had been provided by ISIS who acquired in return, through Willoughby, about 35% of BCIL’s issued shares. In 2004, the venture capitalists who had provided the finance for Willoughby to acquire BCIL’s shares required it to be repaid. This repayment occurred in the period from October 2004 until March 2005 and it was achieved by BCIL buying back its shares that had been issued to Willoughby. This transaction BCIL with considerable cash flow difficulties from which BCIL never recovered. A creditor issued a winding up petition against BCIL on 4 August 2006. This immediately led to BCIL going into administration on 15 August 2006 and to The Tanning Shop business being immediately acquired by Blue Tanning and Beauty Limited (“BTBL”) by means of a pre-pack transaction. BTBL had three directors, being the two Mooney brothers and Mr Robert Kirby who had been appointed company secretary of BCIL in June 2005 and who became the third director and company secretary of BTBL. Mr Yardley’s contract of employment was transferred to an associated company of BTBL, The Feel Good Group Limited (“TFGGL”), who made him redundant on 1 September 2007.

Negotiations for a new lease. The negotiations for a new lease for 22 – 24 Market Street, Nottingham were very protracted and lasted from 8 November 2002 until completion occurred on 14 September 2005. It is significant that the latter part of this period coincided with BCIL’s cash flow difficulties. BCIL’s underlease was due to expire on 28 October 2003. As a result, the claimant’s solicitors, Fraser Brown, who were based in Nottingham, wrote to BCIL at their premises in Market Street to enquire whether they wished to continue in occupation at those premises. BCIL, through their solicitors Freeth Cartwright, also based in Nottingham, replied on 20 November 2002 that it would like to re-negotiate the lease and continue in occupation. The negotiations were conducted by Mr Anthony Palfreman of Fraser Brown who gave evidence and Ms Nisha Gohel of Freeth Cartwright who did not give evidence. Little happened until after 28 October 2003 and BCIL held over as the Halifax’s underlessee, continuing to pay the rent direct to the claimants’ agents. In late 2003, surveyors were appointed by both parties and they rapidly agreed Heads of Terms. Mr C. Mooney took all decisions with regard to this transaction for BCIL and the day to day work was undertaken by his personal assistant, Ms Jill Purves. They were both based at BCIL’s Darlington office. Mr Yardley, who was based in London and who had nothing to do with the property side of the business, had no involvement or knowledge of any of the negotiations.

Mr C. Mooney accepted in evidence that Ms Purves acted throughout on his instructions. It is clear from the correspondence that, at until early 2004, both parties were expressing a desire for the new lease to be finalised and completed rapidly. Thus, on 24 February 2004, BCIL’s surveyor wrote to his opposite number that “both parties want to get the renewal documented as quickly as possible”. However on 16 March 2004, Ms Jill Purves of BCIL spoke to Ms Gohel, as recorded in Ms Gohel’s telephone attendance note, and gave her very different instructions. These were, as recorded in the note, as follows:

On 19 July 2004, Fraser Brown submitted a draft lease to Freeth Cartwright for agreement. The draft lease had inserted into it the names of Mr Yardley and Mr Selig as guarantors. Mr Palfreman had inserted these names since they had been the guarantors of BCIL’s underlease obligations. Ms Gohel discussed the draft terms with Ms Purves and then returned the draft with the provisions for guarantors struck out of the draft. Initially, Fraser Brown accepted this deletion but, when agreement as to the terms of the draft lease were nearly complete, Fraser Brown wrote to Freeth Cartwright on 13 December 2004 as follows:

This letter was responded to as by Freeth Cartwright on 12 January 2005 as follows:

Fraser Brown responded on 1 February 2005 that the claimants would require guarantors for the lease. The letter stated:

This view was reinforced by their receiving a report from their accountants about the accounts for BCIL and Willoughby that had been sent to the accountants for advice. That advice stated that BCIL’s accounts were reasonably healthy although the liquidity ratios were somewhat weak. However, Willoughby’s accounts were particularly poor with significant losses returned at company and group levels. A note to the accounts suggested that since the accounts had been prepared, there had been a change for the better in the Group’s affairs in that outstanding debts of £2.7m had been redeemed for £900,000 which had strengthened the Group. However, the Group still had a long way to go before its net tangible assets exceeded its overall liabilities. The transaction redeeming the Group’s debt that was referred to must have been the transaction in which the venture capitalists were bought out that was reaching completion in February 2005.

In February 2005, Fraser Brown was also pressing BCIL to pay the outstanding mesne profits on the premises which they had been occupying since the underlease had determined on the understanding that they would pay the same rent as mesne profits in the period they held over until a new lease was entered into. No mesne profits had been paid and, on 11 March 2005, Freeth Cartwright informed BCIL that unless the outstanding “rent” of £40,625.00 was paid immediately, the claimants would withdraw from negotiations, retake possession and start proceedings for the recovery of this outstanding sum. The sum demanded was paid on 16 March 2005.

BCIL finally responded to Freeth Cartwright’s request for instructions about the request for two guarantors in an email from Ms Purvis on 18 April 2005. This asked whether the landlord would accept one director guarantor and, if this was acceptable, Ms Purves would provide the name. This was put to Mr Palfreman who replied by telephone to Ms Gohel having taken instructions. His telephone file note of what he stated on 22 April 2005 was as follows:

Fraser Brown amended the current draft of the lease to provide for the replacement of the guarantor should the single guarantor die or go bankrupt and sent this draft to Freeth Cartwright with a letter dated 10 May 2005 which also requested the name of the proposed guarantor. The request for the name of the “proposed Director who is to stand as Guarantor” was repeated in a letter dated 31 May 2005. Freeth Cartwright replied on 1 June 2005:

Freeth Cartwright forwarded the draft lease to BCIL for engrossment and signature under cover of a letter dated 15 June 2005 which stated that the target date for completion was 24 June 2005. In a letter dated 5 July 2005, Freeth Cartwright informed Fraser Brown that they were holding a signed lease ready for completion. However, the parties could not then complete because the claimants, through their solicitors, were insisting that it was a condition precedent to completion that two outstanding matters were dealt with. These were payment of a sum of approximately £40,000.00 for outstanding mesne profits at the premises and an agreement to undertake repairs and redecorations within defined periods of time after completion. This work had been agreed by the surveyors as constituting the outgoing tenant’s obligation under the now expired head lease which BCIL had agreed that they would be responsible for.

The signing of the guarantee. No-one could provide the date when Mr Yardley signed the lease. The correspondence that I have summarised shows that the date must have been sometime between 17 June 2005 and 4 July 2005 since the draft lease was sent to Darlington on 15 June 2005 and was brought from Darlington to London by Mr C. Mooney who arrived in London in the late morning. He could not, therefore, have left Darlington with the draft lease on the 14 June 2005 since he would have left before the draft lease could have arrived by post at BCIL’s offices. Freeth Cartwright must have received the signed copy from BCIL no later than 5 July 2005 since their letter to Fraser Brown of that date states that they were holding the signed document for completion.

The lease was signed by Mr Mooney in The Tanning Shop located in central London at Fish Street Hill, Monument, London. There was a Tanning Shop salon on the ground floor where customers attended to use the tanning and other facilities and to buy tanning products. BCIL had offices on the first floor which consisted of a small board room which was also used by Mr Yardley as his office and a general office, called the “back office” which was used by visiting members of BCIL’s management. On the day in question, Mr C. Mooney had travelled down to the Fish Street Office by train to undertake some BCIL business that included some meetings. He made this journey regularly and invariably travelled to and from London by train in the day. He used the board room as his office whilst he was at Fish Street and, on those occasions, Mr Yardley used the back office. As usual, Mr C. Mooney carried with him all the documents he needed which had been looked out for him by Ms Purvis. One of the documents on this occasion was the lease which he had been given for the express purpose of obtaining Mr Yardley’s signature on it. When he arrived, sometime in the late morning, he noticed that Ms Emma Ryan was working in the salon. She was the salon manager and receptionist, a post she held from 2003 until July 2006 when BCIL went into administration. She was therefore managing all the activities of the salon. Mr Yardley was also working at Fish Street that day and was in the back office when Mr C. Mooney arrived.

Although Mr C. Mooney, Ms Ryan and Mr Yardley all gave evidence, none of them could remember much about the signing of the lease. This had occurred five and a half years previously and, as was clear from their largely consistent evidence, had been an unremarkable occurrence for them that had occurred in the space of a few minutes at most. It was unremarkable because all three witnesses agreed that Mr Yardley was often asked to sign documents and Ms Ryan likewise. Mr C. Mooney accepted Mr Yardley’s evidence that Mr Yardley was frequently asked to witness what Mr C. Mooney called legal documents, particularly those associated with the sale of tanning equipment to franchisees and others on credit terms. He also accepted Ms Ryan’s evidence that she was often asked, certainly by him, to witness his signature or to witness other signatures on documents that she was not otherwise involved in. This was because she was usually the only other person in BCIL’s Fish Street offices and those using or calling into those premises often had legal documents to be signed and witnessed.

According to Mr Yardley, at some stage not long after Mr C. Mooney had arrived, he was called into the board room by Mr C. Mooney to discuss a number of matters. Mr Yardley remembered that he had been asked by Mr C. Mooney “to pop in for five minutes.” In the course of this discussion, Mr Yardley recalled Mr C. Mooney producing a legal document with the last page turned to the top, placing it on the desk and asking him to sign it. Mr Yardley wasn’t sure whether Mr C. Mooney asked him to sign the document, to witness the document or to witness his (i.e. Mr C. Mooney’s signature) which is now clearly on the document above Mr Yardley’s because he had signed the document along with his brother as directors to confirm that BCIL was executing the document as a deed. What he was sure about was that Mr C. Mooney conveyed the impression that he was asking him to sign the document in the same way as he had frequently signed other documents in the past and that this was not a document which involved him or put him financially at risk. In other words, he was signing to witness or acknowledge the other signatures on the document and no more.

The last page, number 29, looked like this:

Mr Yardley therefore did not read the page he was presented with but, with little thought as to what he was signing, he signed opposite his name. It is clear from looking at the page that there is no reference to it being the last page of a lease and that someone with no legal training presented with that page and thinking that they were being asked to witness a signature or signatures in a way that they had been asked to sign many other previous documents would not appreciate that he was signing up to be the guarantor of an annual payment of rent in excess of £30,000 for a period of 15 years.

Mr Yardley believed that the Mooney brothers’ signatures were already on the document and that he signed before Ms Ryan. He thought it unlikely that Ms Ryan was in the room when he signed the document but he could not be sure. Ms Ryan remembered going into the room, probably with drinks following a request or a shout for these. She also remembered that, on entry into the room, she was asked by Mr C. Mooney to witness a signature. She did so and left, she was in a hurry because the salon was unattended and had customers in it. She could not remember whether there were any other signatures on the page when she signed. She could remember that her visit to the room lasted for no more than about one minute. Mr Yardley was clear that he was only shown page 29 of the document, he was not told what the document was and he did not read or consider the one page he was proffered.

Mr C. Mooney accepted that a lot of the legal formalities might have been compromised by the way that the document was signed. He said that he asked Mr Yardley for his signature on the guarantee part of the document because he had acted as a guarantor on the licence for the same premises. He accepted that he had not explained to Mr Yardley that he was being asked to act as a guarantor or that the document that he was signing was a lease. He also couldn’t remember whether Ms Ryan was present when Mr Yardley signed. Mr C. Mooney concluded his evidence about the signing of the lease by stating that he remembered that as soon as Ms Ryan had signed the document, she left and he picked the document up and put it away. He also confirmed in his evidence that Freeth Cartwright was, at no stage, acting for Mr Yardley in addition to acting for BCIL.

Mr Yardley’s address. When Mr Yardley was nominated as the guarantor by Ms Purvis in her email to Freeth Cartwright dated 10 May 2005 and by Freeth Cartwright in its letter to Fraser Brown dated 10 May 2005, his address was not provided. When Fraser Brown forwarded the counterpart lease to Freeth Cartwright, the letter drew attention to the first page of the document which names Joshua Yardley as the third party to the lease but left a blank after the word “of-” for his address. The letter asked Freeth Cartwright to insert his address in that blank on the first page and let Fraser Brown have details of the address for insertion in the original lease. This request was repeated in a subsequent letter dated 22 June 2005 which informed Freeth Cartwright that the claimants were now ready to complete.

Mr Yardley’s address has been added in manuscript and it is clearly not Mr Yardley’s handwriting. The address is a different address to the address given for him in the licence which he signed as guarantor on 19 April 1999. Mr Yardley had moved in the meantime. What is significant is that the address must have been added by someone other than Mr Yardley and without reference to him. This would appear to confirm Mr Yardley’s evidence that he was only shown the last page, page 29, of the counterpart lease when he was asked to sign that document.

Following the signing of the guarantee. BCIL did not pay anything towards the mesne profits that it agreed to pay the claimants, being the sum that it had previously been paying as rent. Finally, after the claimants informed BCIL in Fraser Brown’s letter dated 7 March 2005 to Freeth Cartwright that they would withdraw from negotiations and seek possession unless mesne profits up to 31^st January 2005 were paid within seven days. That led to a payment of £40,625.00 being paid on 16 March 2005, following a request on behalf of BCIL to extend the seven-day deadline by a further two days. However, by the date of payment, another approximately £14,000 had become due and, by the date on which completion was intended to take place on 24 June 2005, the sum outstanding for mesne profits and interest on those payments stood at just over £22,000. As a result, the completion statement sent to BCIL included that outstanding amount in addition to the sums to be expected in a completion statement for a commercial lease, namely the first quarter’s rent which would be payable in advance and the landlord’s solicitors fees. This completion statement was sent to Freeth Cartwright under cover of a letter dated 22 June 2005. The letter also stated that completion would not take place until BCIL had agreed in writing that it would carry out the external repairs within six months of completion and the interior repairs within twelve months of that date. These were the repairs that had been agreed as falling within the Halifax’s repairing obligations at the expiry of its lease in October 2002.

As a result, although Freeth Cartwright were ready to complete by 5 July 2005, because it had received the signed counterpart lease from BCIL, it was not able to complete because it had not been put in funds to the extent shown on the completion statement, a sum of £30,440.74, and because it had not received the requested written confirmation as to future repair work from BCIL. The claimants had provided Fraser Brown with the engrossed lease on 22 June 2005. Each firm of solicitors were therefore holding their respective engrossed documents pending the fulfilment of the conditions imposed on BCIL to pay the entire completion statement and to give the appropriate confirmation as to future repair work. BCIL persuaded the claimants to relax the timetable for repair work and, on 29 July 2005, Fraser Brown informed Freeth Cartwright that BCIL could have until the end of March 2006 to complete all works shown in the surveyors’ agreed schedule, being both the exterior and the interior works. The letter asked for confirmation that completion could take place on 11 August 2005.

However, on 9 August 2005, Ms Purvis emailed Freeth Cartwright and asked as follows:

Subsequent events. The subsequent administration of BCIL, the pre-pack transfer of The Tanning Shop business to BTBL and Mr Yardley’s redundancy from BTBL on 1 September 2007 have all been referred to already. Following BCIL’s administration, BTBL remained in occupation of the Nottingham premises from 15 August 2006 until 6 July 2007 as the licensees of the administrators. BCIL had not carried out any of the repairs that it had agreed should be completed by 31 March 2006. The administrators sought the claimants’ permission to assign the lease to BTBL. The claimants’ surveyor informed the administrators’ surveyor that an assignment would only be agreed if all the outstanding dilapidations were repaired and in addition to other requirements, an Authorised Guarantee Agreement would be required joining the current guarantor with the assignor and a new guarantor would be required for the assignee. The reply to this stipulation was that BCIL was not in a position to enter into an AGA or to continue the guarantee currently in place under the lease because BCIL was in administration. BTBL’s response was to withdraw from the negotiations for an assignment and to vacate the premises on 6 July 2007. However, the claimants did not receive anything by way of mesne profits because BTBL paid these over to BCIL’s administrators and BCIL’s shortfall was so large that there was nothing left to meet the claimants’ claim. BCIL was dissolved on 13 November 2007.

Following Mr Yardley’s redundancy, he made a claim against his employer TFGGL for redundancy and for other claims including those for breach of contract, unfair dismissal and unauthorised deductions from wages. These claims were compromised by an agreement dated 19 May 2008. The agreement included a provision that TFGGL would indemnify Mr Yardley, subject to an upper limit of £50,000, against any and all claims for rent, damages, compensation costs or otherwise arising from the premises at 22 – 24 Market Street, Nottingham contained in the surety deed dated 21 April 1999. It is notable that this agreement indemnifies Mr Yardley against the limited risk of being required to honour the first guarantee he gave when he was a director of the Mooney brothers’ companies but did not seek to indemnify him against the real likelihood of his being sued under the second guarantee given without his appreciating that he was giving it at a time when he was no longer a director of any of the Mooney brothers’ companies.

This agreement was reached five months after the claimants first claimed from Mr Yardley under the guarantee. This claim was made in a letter dated 12 December 2007. Mr Yardley was unaware that he had signed a guarantee until he received this letter. He telephoned Mr C. Mooney and asked him what the guarantee was that he had supposedly signed. Mr C. Mooney replied that he should write back saying he knew nothing about signing a guarantee and, in any case, he had no money. Mr Yardley did as Mr C. Mooney suggested. I accept that Mr C. Mooney did reply to Mr Yardley in this way, although he subsequently denied that he had replied like that. That reply was not only correct factually, but it shows that Mr C. Mooney knew that Mr Yardley had signed the document without realising, or being informed, that it was a guarantee.

Mr Yardley puts forward the following defences to the claim on the guarantee:

He entered into the guarantee under the undue influence of Mr C. Mooney and without being provided with or given the opportunity to take independent legal advice;

The guarantee is avoided because he made a fundamental mistake as to the nature of the document he was signing, otherwise known as a non est factum defence;

He did not give authority for the deed he signed to be delivered on 9 September 2005;

His signature was not attested by Ms Ryan and is not enforceable as a deed. It is not enforceable as a contract since no consideration was provided for that contract;

The vesting of the lease in the Crown as bona vacantia amounted to an assignment requiring section 17 notices to be served. The claimants had failed to give the necessary section 17 notices and, as a result of the assignment, these notices are a condition precedent to Mr Yardley being liable on the guarantee. No section 17 notices were served by the claimants.

Further factual findings. I must first identify some additional findings of fact. The claimants’ solicitor, Mr Palfreman of Fraser Brown and their surveyor, Mr Littlewood of Littlewood & Company both provided witness statements and were cross-examined. Mr Littlewood’s evidence proved the claimants’ loss which is the subject of the claim. He established that loss. In cross-examination, he was asked about the claimants’ attitude to guarantors. He stated that they were firm in their view that a guarantor of the lease in question had to be a director of the company lessee or a holding company with proved financial standing. He also stated that had the trustees been informed that the guarantor was not a director of the lessee company, in other words was Mr Yardley, the claimants would only have been prepared to consider whether to accept him if there was a very good reason for his being offered although he was not a director of the company. Mr Palfreman confirmed Mr Littlewood’s view that the claimants required any guarantor to be a director of the company. He explained that the claimants would have been consulted if he had been informed that Mr Yardley was not a director of BCIL. The decision would have been theirs but it was unlikely, he thought, that Mr Yardley would have been accepted. This was because nothing was known about him, in the absence of a good reason; there was no justification for not insisting on a director of the company and no good reason had been provided and a director guarantor was more likely to take steps that would ensure that the lessee did not default and, if it did, to be reliable in meeting his or her liability under the guarantee.

I must also refer to the evidence of two witnesses called by Mr Yardley. The first was Mr Davies. He was a longstanding friend of Mr Yardley and, through him, met both Mooney brothers about fifteen years ago and also became friends with them. He and his wife had been on a BCIL staff holiday in the Greek islands in 1999 because his wife had arranged much of the holiday through her work as a social event organiser. He considered that both Mooney brothers were much more dominant than Mr Yardley and that Mr Yardley would defer to both of them. Moreover, Mr Yardley was not good with his own finances. Mr Davis remembered that Mr Yardley had signed a lease. This had come up in conversation. Since he saw a lot of Mr Yardley, he couldn’t remember when or where the conversation had taken place. Mr Davis could not remember the details of what Mr Yardley had stated save that he had stated that he had signed the lease as a witness. When asked whether Mr Yardley had given an indication as to when this had occurred, particularly whether it was in 2005, Mr Davis was unsure but thought that Mr Yardley could have said that this occurred in 2005.

The second witness was Mr Hallam. He had met Mr Yardley and both Mooney brothers through his work as a sales manager of a leasing company who provided third party leasing and loan arrangements for customers of BCIL to enable them to purchase equipment sold by BCIL. He had travelled to Spain on one occasion with all three men and that had enabled him to get to know all three quite well. He confirmed that the two Mooney brothers were much more dominant than Mr Yardley and that Mr Yardley placed a lot of trust in them, particularly with Mr C. Mooney. He also confirmed that Mr Yardley’s wife, before their divorce in 2007, was the dominant force with regard to both of their finances.

Findings. I will now summarise my principal findings, drawn from the findings of fact already set out. These are:

Mr Yardley never became involved with any other side of the Tanning Shop business except his own field of sales. Even as a board member of BCIL, he paid little or no attention to any other aspect of the business.

Mr Yardley signed the guarantee in 1999 because he felt that he had to as a new board member prevailed upon by Mr C. Mooney. Moreover, he was reassured by the advice he received from Mr Selig which explained to him the risks he would run in becoming a guarantor and by Mr Selig also becoming a guarantor of the same risks.

Once Mr Yardley had left the boards of the three companies that he had been persuaded to join by the Mooney brothers, he continued to devote himself exclusively to sales. His business card, which described him as “sales director” and the use of that description by BCIL were uses which were requested and approved by the Mooney brothers after he had left the three boards and he merely adopted that description on their instructions. No-one considered him to be a board director and the title did not, and was never taken to, indicate that he was a member of the board of any of the Tanning Shop group of companies.

BCIL was in financial difficulties throughout the period from 2004 to 2005 when the active negotiations for the new lease were in train. Mr C. Mooney was determined not to become a guarantor himself, probably because he could not afford that additional commitment and because he knew how risky it would be and that it was very possibly that the guarantee would be called on, given the risky financial situation that BCIL was in.

Mr C. Mooney used every stratagem to avoid BCIL having to find a guarantor and, when this proved to be impossible, decided that he could prevail upon Mr Yardley to be a sole guarantor. His explanation for choosing Mr Yardley, namely that he had been a guarantor under the previous underlease, was not anything more than a makeweight explanation. His real reason was that he could not think of any way of finding a guarantor other than Mr Yardley given his determination to avoid himself, and presumably his brother, running the additional risk of becoming guarantors given the significant additional financial risk that such a step would entail.

Mr C. Mooney misinformed BCIL’s solicitor that Mr Yardley was a board director of BCIL. He knew that the claimants were insisting on a board director guarantor and he was shrewd enough to realise that he could pass Mr Yardley off as a board director by calling him a director and, if this ruse came to light, pass it off by referring to his having been referred to in the company as a “sales director” of BCIL since he had ceased to be a full director. He was, therefore, directly and knowingly responsible for the misrepresentation that was made by himself and BCIL when Ms Purves informed Freeth Cartwright who then informed Fraser Brown that: “Further to your letter of the 4^th May, Joshua Yardley, director of BCIL, will act as guarantor.” (I have underlined the vital words giving rise to the misrepresentation.) Furthermore, Mr C. Mooney knew that Mr Yardley would not be acceptable to Fraser Brown or the claimants as a guarantor if they found out that he was not a director of BCIL.

Mr C. Mooney also devised the stratagem for getting Mr Yardley’s signature without his realising that he was signing a guarantee. He had often got Mr Yardley to sign loan documents and similar legal documents as a witness and Mr Yardley was always prepared to sign without paying any attention to what he was signing. Equally, Ms Ryan was always prepared to witness a signature without showing any interest in what she was signing. He therefore decided to get them both to sign the document, each signing whilst the other was not present and ensuring that the only page either of them saw was the last page. He had already got his brother to sign the document and he had also signed it before he left for London so that it would be easier for him to obtain both signatures that he wanted without arousing their suspicions.

Mr C. Mooney led Mr Yardley, when asking to sign “this document”, to believe that Mr Yardley was witnessing his signature and that of his brother and he carefully ensured that the only page that Mr Yardley would see of the document was the last page. He intended Mr Yardley to think that he was signing a document of the kind he had always previously signed (except when signing the guarantee in 1999) and that is why he was so vague about the document and ensured that Mr Yardley did not see any but its last page. It is noteworthy that that page, if read in isolation form the rest of the deed, does not make it clear to someone who is not familiar with legal documents that the person signing in Mr Yardley’s space is signing up to being a guarantor of a lease. Indeed, neither of those words appear on the last page.

Thus, Mr C. Mooney misrepresented to Mr Yardley that he was being asked to witness his signature or to be placing his signature on a legal document for a purpose that would not involve him in future financial commitment. He was led to believe that it was immaterial what the nature of the legal document was and, at the time of signing, did not appreciate that the document was a lease. However, even more significantly, he thought that he was witnessing other signatures and had no idea that he was signing up to being a guarantor of a substantial long-term payment obligation.

Even after the document had been signed by Mr Yardley and Ms Ryan, BCIL’s finances nearly prevented the lease from being completed. Mr Yardley was not informed of this further difficulty in the period between signing the guarantee and the completion of the lease, a period of two months.

Mr Yardley was never informed about any aspect of the negotiations for the new lease and, indeed, was unaware of the transaction or that he has signed a lease document as a guarantor until he received the claimants’ letter before action dated 12 December 2007.

Had Mr Yardley been informed that he was to sign a guarantee of a lease, he would have refused, his financial situation was such that neither he, nor his wife who he would have consulted, would have agreed to this course. Furthermore, had he been informed of the further difficulty in completing in the period between July and September 2005, he would have withdrawn his consent and completion with his name on the guarantee would not have occurred.

Had the claimants been informed that Mr Yardley was not a board director of BCIL, they would have refused to enter into the lease with BCIL unless at least one board director of BCIL was a guarantor.

The law. There are two issues that must be addressed. Firstly, should Mr Yardley have been offered or advised to take independent legal advice as to the risks he would run if he signed the guarantee and, if so, what is the effect of his not taking such advice? Secondly, what is the effect of the misrepresentations made to him by Mr C. Mooney in suggesting that he was being asked to sign the document as a witness and in suggesting to the claimants that Mr Yardley was a board director?

Undue influence. Both parties cited the leading authorities on undue influence: Barclays Bank Plc v O’Brien (Footnote: ¹ ) ; Credit Lyonnais v Burch (Footnote: ² ) ; RBS v Etridge (no 2) (Footnote: ³ ) ; Moody & Miller v Condor Insurance (Footnote: ⁴ ) and Hewett v First Plus Financial Group Plc (Footnote: ⁵ ) . From these authorities, I draw the following relevant principles:

The burden of proof lies on Mr Yardley to establish that, as a matter of fact, he was unduly influenced to sign the guarantee.

Mr Yardley must establish that the guarantee was procured by undue influence.

In an appropriate case, a misrepresentation that procures a signature to a guarantee can amount to undue influence.

The nature of the relationship between Mr Yardley and Mr C. Rooney arising from the procurement of the guarantee should not be a commercial relationship.

If the relationship was one which gave rise to a presumption of undue influence, Mr Yardley should have had an opportunity to take independent legal advice or to have made an informed decision not to take such advice.

The claimants must be shown to have had constructive knowledge of the undue influence.

In this case, all these elements have been established. The whole background to the signing of the document must be considered. This shows that Mr Yardley was in a position of inferiority to Mr C. Mooney and had no commercial or employment-related interest in the proposed transaction. He was entitled to be provided with sufficient information about what it was proposed that he should sign to enable him to take an informed decision whether to agree to sign the document or to take independent advice about that question.

Mr Yardley should have been informed what he was being asked to sign, why he was being asked to sign instead of Mr C. Mooney, what the risks were of BCIL defaulting, any financial concerns BCIL had about paying the rent and fulfilling the other obligations and what the claimants as landlords and as the parties who would be enforcing the guarantee had been told about Mr Yardley. He should have been given the document to read in its entirety and given an opportunity to discuss that document with a legal adviser, just as he had done with Mr Selig in 1999. On that earlier occasion, he was being asked to guarantee rent payments of about £30,000 per annum for a period of just under four years in conjunction with a fellow director who was a solicitor at a time when BCIL’s financial position appeared relatively sound.

In summary, Mr Yardley was now being asked to guarantee rent payments of about £32,500 per annum subject to two five-yearly rent reviews for a period of fifteen years at a time when BCIL’s financial position was poor to desperate with no other supporting guarantor to assist in taking the risk and the financial consequences of default. Moreover, he was no longer on the board and no longer privy to the company’s financial affairs which, if he was to undertake that risk, he was entitled to be a party to. He was certainly entitled to know that he was being lied to by Mr C. Mooney in misrepresenting the nature of the transaction and its risks and that the landlords had been lied to when told that he was a board director because they were only prepared to enter into a lease if it was guaranteed by a board director. He clearly trusted Mr C. Mooney who was aware of that trust and, regrettably, chose to break it without informing Mr Yardley what he was doing.

Thus, in conclusion, this was unquestionably a transaction which Mr Yardley should have been advised was one that he should first take independent legal advice, paid for by BCIL and should not have been asked to sign the document until he had taken that advice or had clearly given informed consent not to take it. Those decisions could only reasonably have been taken by Mr Yardley if he had been given full information about the proposed transaction and the risks that he might run if he agreed to be a guarantor.

It was contended on behalf of the claimants that, even if there was a situation of undue influence, they had no constructive knowledge of that and are therefore still entitled to enforce the guarantee. That is an untenable position to take for these reasons:

The claimants and their advisors knew that BCIL’s financial position was precarious. They should therefore have checked that the proposed guarantor was financially sound, aware of the risks being undertaken and in full agreement with the proposal that he was to guarantee the rent for a fifteen-year period. The guarantor should have been asked to acknowledge in writing that he was fully in agreement to become a guarantor and had been made aware of the risks of signing the guarantee. He should also have provided, through BCIL, a signed acknowledgement from a solicitor that he had been given appropriate advice before agreeing to sign or a signed waiver of the need to take such advice.

These precautions were particularly necessary given the knowledge that the claimants had about BCIL’s financial position, the doubts that should have been thrown up by the long and wholly unsatisfactory history of negotiations about the terms of the new lease and the extraordinary mistake that the solicitors stated had occurred in being erroneously told that Mr Yardley was not a board director and then subsequently being told that in fact he still was one.

Furthermore, the claimants’ advisers could readily have ascertained whether Mr Yardley was a board director, as the claimants’ advisers adamantly insisted he should be. An on-line search of the relevant register with Companies’ House would have shown that he was not a board director.

When it proved so difficult to complete and the monies due on completion took so long to be made available, when taken against the long history of non and delayed payment should have led to a further series of enquiries about BCIL’s financial position and Mr Yardley’s preparedness to provide a guarantee.

Conclusion. Mr Yardley has proved all the ingredients of undue influence, fed by significant misrepresentation by Mr C. Mooney to both him and to the claimants. In those circumstances, the guarantee is not enforceable against him and the claim fails.

Non est factum. The principal authority, which was cited, that identifies what must be established by a defendant to succeed in a defence of non est factum is Saunders v Anglia Building Society (Footnote: ⁶ ) . Non est factum is a shorthand way of saying that a person is not bound by a deed he has signed if he made a fundamental mistake as to the nature of the transaction and had taken all reasonable precautions available to him before signing to ascertain the nature and purpose of the deed being signed.

It was contended on behalf of the claimants that Mr Yardley must have known that he was signing a guarantee of a lease and that he failed to take any precautions in signing the deed to ascertain what he was signing or what his obligations would be on signing it. However, as was contended on behalf of Mr Yardley and as I have found, Mr Yardley genuinely believed that he was witnessing other signatures on a legal document and had reached that conclusion because the words and actions of Mr C. Mooney had reasonably led him to that belief. In other words, he was induced to sign the document without reading it as a result of the misrepresentations conveyed to him by Mr C. Mooney which were misrepresentations which Mr C. Mooney had intended to convey to him.

I conclude that, on the exceptional facts of this case, Mr Yardley has made out this defence, notwithstanding the high onus placed upon him to establish it. He is therefore not bound by the document on this ground as well.

Want of authority. It is also suggested that the deed was not delivered with his authority because it was held in escrow for a period of two months whilst a condition precedent that he had not been aware of was fulfilled. In other words, when it became apparent that the lease would not be completed as soon as he had signed it as guarantor because BCIL could not find the resources to pay the sum due from them on completion and had not, or could not, give the necessary undertaking to complete the list of repairs after completion, Mr Yardley should have been informed so that he could consider whether to withdraw his guarantee due to these changed circumstances which he might have considered to have enhanced the risk he was signing up to.

This defence is based on the assumption that Mr Yardley had signed and executed a deed which made him a guarantor of rent payable under a lease but had not authorised the deed to be delivered in escrow but had, instead, only authorised the deed to be delivered as soon as the deed had been executed. If Mr Yardley had been found to have validly executed a guarantee, this defence would have had merit. This is because he had not been informed about the conditions precedent to completion, namely payment of outstanding mesne profits and an agreement to complete repairs after completion due to an antecedent liability that BCIL had assumed responsibility for. Neither of these obligations sprung from the lease and, given BCIL’s financial circumstances, both were potentially significant additional obligations which identified both the enhanced risk that BCIL would fail to meet its rent obligations under the lease and the enhanced repairing obligations associated with the lease. Thus, Mr Yardley, in attesting the deed, was not impliedly authorising the deed to be delivered in escrow to await for a period of two months fulfilment of these obligations, particularly when the payment obligation was delayed due to cash flow difficulties. This defence, therefore, succeeds if the defences of undue influence and non est factum fail.

Mr Yardley’s signature was not correctly witnessed. There are two aspects to this defence. For the guarantee to be valid as a deed, Mr Yardley’s signature had to be witnessed. If the deed was otherwise valid, it was contended that Ms Ryan was not present when Mr Yardley signed the document and, in any event, thought she was witnessing Mr C. Mooney’s signature and not Mr Yardley’s. Both these grounds of defence are good and, had it been necessary, I would have found that the document was not enforceable as a deed. However, that finding would not have assisted Mr Yardley because the document could still be enforceable as a contract in writing, so long as the claimants could show that that contract was supported by consideration. Here they could show that. The consideration was their granting the lease, which is the detriment moving from them, on terms that the lessee procures a guarantor of the rent who is a director of the lessee company, which is the benefit moving from both the lessee and the guarantor. It follows that success on this issue would have resulted in no more than a pyrrhic victory for Mr Yardley since the guarantee would still have been enforceable.

Absence of section 17 notices. It was asserted on behalf of Mr Yardley that the claimants failed to give the necessary section 17 notices that it was required to give prior to claiming from Mr in these proceedings and these notices are a condition precedent to his being liable on the guarantee. The notices referred to, it was contended, those required by section 17 of the Landlord and Tenant (Covenants) Act 1995. Such notices were only required if the passing of the lease to the Crown as bona vacantia amounted to an assignment. This defence was not pleaded but I permitted the defendant to advance the submissions in support of it in counsel’s closing submissions, directed that the claimants’ counsel should respond in his closing submissions and would then decide whether to permit this defence to be advanced in this judgment.

The defence raises issues of fact, namely whether appropriate notice was given or whether the requirement for giving notice was waived or the defendant is estopped from raising a defence based upon the failure to give the notice and difficult issues of law as to whether a section 17 defence may be waived or give rise to an estoppel and as to whether the passing of a lease to the Crown bona vacantia amounts to an assignment of the lease to the Crown thereby engaging section 17 at all. Since this defence should have been pleaded and since it is not necessary to decide the issues it raises and in the light of these difficulties, I rule that the defence may not be raised at this late stage. I therefore do not decide the issues raised by this particular defence.

The claimants sought to raise an amendment to their claim at trial to bring the figures being claimed up to date to the trial and to claim rent that has fallen due since the commencement of proceedings. Although this was objected to, I grant permission for this amendment. The claim impliedly claims these additional sums, full discovery was given that covered the claim for this period, the claimants proved that this part of their claim was due and, subject to the defences that I have dealt with, claimable from Mr Yardley and no prejudice has been suffered by him in having to deal with this additional claim at the trial.

Thus, the claimants have permission to advance a claim for the following sums:

Repairs to roof: not pursued since these have been paid.

Insurance rent to date of issue: £5,924.46

Insurance rent since issue: £4,078.47

Rent arrears to date of issue: £73,125.00

Rent arrears since issue: £40,625.00

Interest under clause 3.4 of lease

Interest since issue at daily rate

Costs claimed under clause 6.1: To be quantified

These sums and the claimants’ entitlement to claim them, subject to the defences already dealt with, were proved at trial by Mr Littlewood. However, the sums are not recoverable from Mr Yardley because he signed the lease under the undue influence of Mr C. Mooney, because his signature was non est factum and because he did not authorise the delivery of the deed in escrow or the postponement of its coming into effect for two months whilst BCIL found the means of fulfilling the conditions precedent imposed by the claimants on its coming into effect.

In all these circumstances, the claim fails.