Enforcement of guarantees where the underlying obligation has been varied
In the recent case of Close Brothers Ltd v Ridsdale and others [2012] EWHC 3090 (QB), the High Court, relying on an established legal principle, held that a guarantor will not be released from liability under a guarantee where there has been a material (‘not unsubstantial’) change to the underlying agreement guaranteed, provided the guarantor has had notice of, and has consented to, the change.
In this case, the Claimant bank advanced money to the subsidiary of a company, owned by the First Defendant, Mr Ridsdale, a property developer. Mr and Mrs Ridsdale personally guaranteed the obligations of the subsidiary under the terms of a facility letter which was subsequently varied by a number of extended facility letters, each signed by Mr and Mrs Ridsdale by way of acceptance of the terms.
When the subsidiary company defaulted under the loan, the bank brought a claim against the guarantors pursuant to the guarantee provided.
In applying the above mentioned principle, the Court held that, as Mr and Mrs Ridsdale were aware of the changes to the facility, which were material in nature, and had consented to the same, they would be bound by their original guarantee.
The Court also considered whether the variation to the facility was within the contemplation of a standard ‘bank friendly’ clause in the guarantee, which was intended to preserve the guarantee if a change was made to the underlying agreement. The Court held that, as the change was, in substance, a variation to the original underlying transaction within the general purview of the original guarantee, it was precisely the sort of change to the facility that the clause was intended to anticipate.
Among other issues noted in the judgment, the judge also considered the principle that a guarantor would not usually be discharged from liability if the change, whilst material, ‘cannot be otherwise than beneficial’ to the guarantor. In this case the judge remarked it was arguable that the variation to the facility letter was beneficial to the guarantors, although he did not need to reach a settled conclusion on this issue as the guarantors were held bound by their original guarantee, on other principles, referred to above.
Please note that this information is provided for general knowledge only and therefore specific advice should be sought for individual cases.
For further information, please contact Edward Vaughan at or Kenny Friday at