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	England and Wales High Court (Queen's Bench Division) Decisions
You are here: BAILII >> Databases >> England and Wales High Court (Queen's Bench Division) Decisions >> Fairstate Ltd v General Enterprise & Management Ltd & Anor [2010] EWHC 3072 (QB) (29 November 2010) URL: http://www.bailii.org/ew/cases/EWHC/QB/2010/3072.html Cite as: 133 Con LR 112, [2010] EWHC 3072 (QB)

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IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION

		Royal Courts of Justice Strand, London WC2A 2LL
		29 November 2010

MR SALTER QC:

Introduction

1. In this action the Claimant, Fairstate Limited ("Fairstate") claims the sum of £178,868.98 (alternatively, damages) from the First Defendant, General Enterprise & Management Limited ("GEML") under a Management Contract dated 1^st September 2006 ("the Management Contract"). Fairstate also claims the like sum from the Second Defendant ("Mr Sarian") under a guarantee which Fairstate alleges that Mr Sarian gave to secure the liabilities of GEML under the Management Contract.
2. While it is common ground that, on 1^st September 2006, Mr Sarian signed both the Management Contract and a document which refers to itself as "this guarantee" and which describes him as "the Guarantor" ("the Guarantee Form"), Mr Sarian's case is that the Management Contract and the Guarantee Form, whether considered separately or together, do not contain either an effective contract of guarantee, or a memorandum of any agreement of guarantee sufficient to satisfy the requirements of the Statute of Frauds 1677 s 4. Fairstate disputes these contentions, and says that Mr Sarian is in any event estopped by a recital in the Management Contract from denying that the Guarantee Form is an effective guarantee. Fairstate alternatively claims rectification of the Guarantee Form, in order to meet Mr Sarian's points about its wording.
3. Mr Sarian also relies upon two other independent grounds of defence to Fairstate's claims against him: first, that he signed both the Management Contract and the Guarantee only in his capacity as a director of GEML, and not in his personal capacity; and secondly, that the effect of the Guarantee Form was in any event misrepresented to him prior to his signing of it, thus entitling him to avoid any contract contained in that document.
4. On 21^st May 2010 Master Foster ordered that the issue of whether Mr Sarian is liable to Fairstate as a guarantor of GEML's obligations should be tried first, as a preliminary issue. At the trial of that issue, Fairstate was represented by Mr Nicholas Berry. Mr Abdullah Kaheel, who is the sole director of and shareholder in Fairstate, gave oral evidence on Fairstate's behalf. Mr Sarian, who gave oral evidence in his own defence, was represented by Mr Oliver White. This is the judgment of the Court on that preliminary issue.

The Factual Background

5. The facts which constitute the relevant background to this dispute were not in issue, and can be shortly stated.
6. Mr Sarian is a businessman of Egyptian origin. He came to England when he was 17, speaking little English, and soon afterwards enrolled in a language course at Ealing Hammersmith and West London college. It was there that he met Amjad Salfiti ("Mr Salfiti"). Mr Salfiti, who later went on to qualify as a solicitor, and Mr Sarian thereafter remained (in Mr Sarian's words) "close and loyal friends".
7. Mr Sarian eventually dropped out of college, and went to work in the catering industry. At the age of 33, he bought his first investment property. By the time of the events with which I am concerned, he owned and managed 5 investment properties. He and his wife also owned and ran a company called Glen Overseas Limited, which imported fresh produce from Egypt.
8. Mr Kaheel is also a businessman of Arab origin. He has business interests in a number of countries, including England, though his usual place of residence for a number of years has been in China. In 1979, he arranged for Fairstate to be incorporated, in order for it to acquire a long lease of 12 residential flats in a block at 22-23 Marylebone High Street, London W1 ("the Property"). These flats were let on assured shorthold tenancies, usually to visitors from overseas, and Fairstate employed an on-site manager to collect the rents and to manage the Property on its behalf.
9. However, after a time, Mr Kaheel became dissatisfied with that arrangement. Because he spent so much time out of England, he was unable to supervise the management of the Property as closely as he would have wished. So, in about August 2006, he decided to appoint a different manager, and to change the way in which the Property was managed. Henceforward, the manager would pay Fairstate a fixed sum each month, but would be entitled to keep for the manager's own account any profits that the manager could make, after expenses, from letting the flats. This would ensure that Fairstate received a defined income, and would pass the risk of unforeseen expenses, poor management, uncollected rents and voids (as well as the chance of additional profit) on to the manager.
10. Mr Kaheel and Mr Sarian did not at that stage know each other: but they had a mutual acquaintance in Mr Salfiti, who by that time was in sole practice as a solicitor. Mr Kaheel had employed Mr Salfiti as his solicitor in connection with a number of earlier transactions. When Mr Kaheel mentioned his plan for the Property to Mr Salfiti, Mr Salfiti suggested that Mr Sarian would make a suitable manager. According to Mr Kaheel, Mr Salfiti assured him that Mr Sarian was experienced in managing properties, and managed his own portfolio of properties in London.
11. Thereafter, there were 3 meetings involving Mr Kaheel in connection with this transaction. These took place on 16^th August, 21^st or 22^nd August, and 1^st September 2006. There is a conflict between Mr Kaheel's evidence and that of Mr Sarian as to the location of, and as to who was present at, the first two of these meetings, as well as a disagreement as to the length of, and as to what was said at, all 3 meetings. I shall return to those disputes later in this judgment.
12. What is not in dispute, however, is that the third meeting, on 1^st September 2006, took place at Mr Salfiti's office, in Mr Salfiti's presence, and that on that date, Mr Kaheel (on behalf of Fairstate, as "Owner") and Mr Sarian (on behalf of GEML, as "Manager") both signed the Management Contract. Mr Kaheel and Mr Sarian also initialled each page of the document. Mr Salfiti also signed the Management Contract, as witness to the signatures of Mr Kaheel and Mr Sarian.
13. It is also not in dispute that, at that same meeting, Mr Sarian signed the Guarantee Form. He did so twice, once above the words "signatures(s) or signature(s) and seals of guarantor", and once immediately below the words "I Atef Sarian acknowledge receipt of a copy of the above guarantee". Mr Sarian also initialled each page of the document. Mr Salfiti, again, also signed the Guarantee Form as witness to Mr Sarian's signature. Mr Kaheel, however, did not sign or initial the Guarantee Form.
14. Both the Management Contract and the Guarantee Form were documents which had been drawn up by Mr Salfiti on Mr Kaheel's instructions. Mr Kaheel's evidence (which was not challenged in cross-examination), was that each of the two documents was presented to Mr Kaheel and Mr Sarian by Mr Salfiti in three copies, all of which were signed. Mr Kaheel kept one signed copy, Mr Sarian was given another, and Mr Salfiti himself kept the third.

The Management Contract

15. Before I come to the matters in dispute between Mr Kaheel and Mr Sarian concerning the three meetings, I must set out the relevant provisions of the documents which they eventually signed, in order to put those matters into context.
16. The Management Contract is expressed to be made between Fairstate, as "the Owner", and GEML, as "the Manager". By clause 2.1, Fairstate appoints GEML as Fairstate's agent to manage the Property. Clause 3 sets out GEML's duties, which include managing the Property on Fairstate's behalf, purchasing "at no cost to [Fairstate] all necessary stock, operating equipment and operating supplies", providing "at no cost to [Fairstate] .. all essential maintenance and repair services", and keeping the Property "painted and exterior lighting systems clean and tidy and replac[ing] all bulbs, strip lights and similar items when required at no cost to [Fairstate]".
17. GEML is also required by Clause 3 to pay a management fee to Fairstate of £120,000 per annum in the first year, £150,000 per annum in the second year and £180,000 per annum in the third. This fee is payable by standing order, monthly in advance on the 1^st day of each month. In addition, clause 5.2.1 provides that

A further sum of £10,000 shall be paid at the effective date by [GEML] to [Fairstate] to be held as deposit for the term of the agreement, and shall be refundable only on termination subject to clause

18. Clause 5.2.1 ends with a blank space. No clause number is given. This is only one of a number of infelicities in the drafting of the Management Contract. For example, clause 5.4 – which is part of the clause providing for payment of the management fee – states that interest at 8% will become payable "in the event that rent remains outstanding for 15 days". The Management Contract does not provide for the payment of rent.
19. By way of return for these services and these payments, clause 5.1 states that GEML "shall be entitled to retain all profits from the management of the Property, subject to the management fee being paid to [Fairstate] and net after payment of any cost, fee, demand, expense, invoice related to the management of the Property".
20. For the purposes of the preliminary issue which I have to determine, the most important provision of the Management Contract is recital (C), which provides that:

[Fairstate] wishes to engage [GEML] and to delegate certain of his powers in respect of the Property to [GEML] under the terms and conditions set out in this Agreement in respect of the ten flats at the Property and where [GEML] through its director Mr Atef Sarian is willing to provide a personal guarantee against any possible loss or damage to [Fairstate] copy of which is appended herewith

The Guarantee Form

21. The Guarantee Form which Mr Sarian signed bears the date of 22nd August 2006 at its head, even though it is common ground that it was in fact signed on 1st September 2006 and bears the date of 1st September 2006 next to Mr Salfiti's signature as the witness. Its wording appears to have been taken almost without alteration from the wording of a guarantee given (or to be given) by a third party to a bank for the indebtedness of a customer, and in consequence is largely inapt for a security to be used in connection with a commercial transaction such as that contemplated between Fairstate and GEML.
22. The fact that the operative provisions of the Guarantee Form are more appropriate to a guarantee to be given to a bank than to a security for a commercial transaction is by no means the only problem with the Guarantee Form as a guarantee for the transaction recorded in the Management Contract. The draftsman of the Guarantee Form (who, I assume, was Mr Salfiti or a member of his staff) has also managed to transpose the names of the intended principal debtor, creditor and guarantor. If read literally, the Guarantee Form would have Mr Sarian guaranteeing to himself the liabilities of Fairstate. The Guarantee Form also wholly mis-described the liabilities to be guaranteed.
23. In the place where the bank creditor to whom the guarantee is to be given would usually be named, the Guarantee Form is addressed to the intended guarantor:

To Mr Atef Sarian of General Enterprise and Management Limited

24. The Guarantee Form then continues by naming Fairstate, rather than GEML, as principal debtor; by referring to GEML in the place where Mr Sarian's address would normally be given in the definition of the Guarantor; and by identifying the liabilities to be guaranteed in terms appropriate to a transaction in which the creditor is a bank and the principal debtor is its customer:

[I Atef Sarian of General Enterprise and Management Limited ('the Guarantor;)² in consideration of your from time to time making or continuing loans or advances to or coming under liabilities or discounting bills for or otherwise giving credit or granting banking facilities or accommodation or granting time to or on account of Fairstate Limited of 24 Old Bond Street London Wl ('the Principal') unconditionally guarantee to and agree with you as follows:

1. Guarantor to pay on demand

The Guarantor shall pay to you on demand:

1.1 all money that is now or shall at any time or times after this date be due or owing or payable to you from or by the Principal under or in respect of any dealing, transaction or engagement either solely or jointly with any other person firm or company, whether as principal or surety, and whether upon current account or other banking account or otherwise or in respect of bills, drafts, notes or other negotiable instruments made, drawn, accepted, advised, endorsed or paid by you or on your account for the Principal, either solely or jointly as stated above, or that you may from time to time become liable to pay in respect of any bills, drafts, notes, letters of credit or any other dealing, transaction or engagement on account of or for the benefit or accommodation of the Principal, either solely or jointly as stated above, together with

1.2 all interest, costs, commissions and other banking charges and expenses you may in the course of your business as bankers charge against the Principal and all legal and other costs, charges and expenses you may incur in enforcing or obtaining payment of any such money, from the Principal, or attempting so to do,

provided that the total amount recoverable from the Guarantor under this guarantee shall not exceed £ … together with a further sum for the interest, costs, commissions and other costs, charges and expenses as stated above that have accrued, or shall accrue due to you at any time before or at any time after the date of the demand as stated above, provided that if the amount is not completed and this proviso is not deleted, the guarantee will be interpreted as unlimited.

The errors in punctuation and redundant references are as they appear in the original.

25. There then follow a series of "boilerplate" clauses in fairly standard terms for a guarantee to be given to a bank for a customer's account. These provide (inter alia) that the guarantee is to be a continuing security, that it shall not be brought to an end by the death of the guarantor; that the guarantee may be determined as to future obligations by 3 months' notice; that "you" may open a new account after the giving of notice to determine or the making of a demand; that the guarantee is not to be affected by other securities or by any actions which would otherwise, in equity, discharge the guarantor wholly or partially; and that the guarantor shall not prove in competition with "you" in the insolvency of the Principal. "You" in such clauses would normally mean the bank or other creditor to which the guarantee is addressed, and the Principal would normally be the customer whose indebtedness was being guaranteed. However, as set out above, the Guarantee Form is addressed to Mr Sarian, and Fairstate is identified as the Principal.
26. Although no bank is identified anywhere in the Guarantee Form, clause 17 of these "boilerplate" provisions is headed "Change in Bank's constitution or its amalgamation", and Clause 27 provides that "The paper on which this guarantee is written shall remain at all times the property of the Bank". Clause 26, headed "Governing law and jurisdiction", is missing any operative wording. It reads simply "(insert clause as appropriate)".

Meetings between Mr Sarian and Mr Kaheel

27. According to Mr Kaheel's oral evidence, he first met Mr Sarian on 16^th August 2006 at Mr Salfiti's office, where the three of them had discussions lasting about an hour about the proposal that Mr Sarian should become manager of the Property. These discussions took place both in English and in Arabic. Mr Kaheel had already been at Mr Salfiti's office for about an hour before Mr Sarian arrived. In the course of these discussions, Mr Sarian told Mr Kaheel and Mr Salfiti that he (Mr Sarian) would propose to set up a "paper company" to act as the manager of the Property. Mr Kaheel responded that, in that case, he would at the least need a personal guarantee from Mr Sarian. Mr Sarian responded that he would give a personal guarantee "to cover all the rent and damages": and Mr Salfiti said words to the effect of "what could you want better than a personal guarantee". Mr Kaheel than told Mr Salfiti to put it into the management contract that he was to draft that Mr Sarian had to give him a personal guarantee. They then all agreed that they would meet the following week to read everything that Mr Salfiti was to draft, and to sign the agreements.
28. Again, according to Mr Kaheel's oral evidence, he and Mr Sarian next met – once more at Mr Salfiti's offices - on 21 or 22 August 2006. Mr Salfiti had prepared drafts of the Management Contract and of the Guarantee Form, which he said reflected the terms which Mr Kaheel and Mr Sarian had agreed at their first meeting. Mr Kaheel and Mr Sarian then sat down and read the documents though. According to Mr Kaheel, Mr Salfiti also read out and explained these documents, both in English and Arabic. He also invited Mr Sarian to have his own lawyer present, but Mr Sarian refused.
29. According to Mr Kaheel, Mr Kaheel nevertheless refused to sign the documents at that point until he had received the money which was to be paid as a deposit. (I should mention in passing that it was common ground between Mr Kaheel and Mr Sarian that the agreed deposit amount was actually £15,000, and not the £10,000 mentioned in clause 5.2.1 of the Management Contract). So Mr Kaheel and Mr Sarian went away, taking with them copies of the documents, and agreed to meet again once the money had been paid. After that meeting Mr Kaheel asked his assistant, Mr John, to show Mr Sarian the building.
30. Finally, after the money had been paid, Mr Kaheel and Mr Sarian met for the third time in Mr Salfiti's offices. Mr Salfiti produced the Management Agreement and the Guarantee Form, each in triplicate: and Mr Kaheel and Mr Sarian signed and initialled the Management Contract, and Mr Sarian signed and initialled the Guarantee Form. According to Mr Kaheel, this third meeting did not last very long.
31. Mr Sarian's account was somewhat different. In his oral evidence, he said that the proposition that he should become the manager of the Property was first put to him by Mr Salfiti in a telephone conversation, in the course of which Mr Salfiti also advised him to form a company to act as the manager. Following that call, Mr Sarian went to the Property, where he looked over the building, before meeting Mr Kaheel at his flat and then going downstairs to Mr Kaheel's office to discuss matters. According to Mr Sarian, at this first meeting Mr Kaheel talked "at length about his global business interests which extended to over 45,000 employees. Naturally I [Mr Sarian] was impressed by this". Mr Salfiti was not present at that meeting.
32. Nor (according to Mr Sarian) was Mr Salfiti present at the second meeting which Mr Sarian had with Mr Kaheel, which also took place at the Property. At this meeting, according to Mr Sarian, Mr Kaheel assured him "that this proposed deal would make me [Mr Sarian] a millionaire". On this basis, Mr Sarian agreed terms with Mr Kaheel in the course of the second meeting. Those terms included a £15,000 deposit, which Mr Kaheel required should be paid (together with the first three months' management fees, amounting to a further £30,000) before the transaction could be concluded. According to Mr Sarian, Mr Kaheel told Mr Sarian that "I am not giving you my building until you give me the money".
33. Thereafter, according to Mr Sarian, he had about 5 telephone discussions with Mr Salfiti about the transaction. He told Mr Salfiti on the telephone that he needed some trust deed – a deposit deed- to secure the £15,000 which he had paid as a deposit. According to Mr Sarian, "when we talked about a guarantee, it was about the £15,000".
34. Mr Sarian's evidence was that he was not present at the meeting which Mr Kaheel had with Mr Salfiti at which Mr Salfiti produced the Management Contract and the Guarantee Form for consideration, and that he only saw the Management Contract and the Guarantee Form for the first time at the meeting on 1^st September 2006, when he signed them.
35. According to Mr Sarian, at the signing meeting on 1^st September 2006 Mr Salfiti told him that the Guarantee Form was a standard form, and that the Management Contract and the Guarantee Form simply gave effect to the terms that Mr Sarian had already agreed with Mr Kaheel. Mr Sarian therefore believed, when he signed the Guarantee Form, that it related only to the £15,000 deposit, which he had by then already paid. "Neither [Mr Kaheel] nor [Mr Salfiti] ever told me that such a document was intended to be an unlimited personal guarantee to be provided by me in my personal capacity. Had either party informed me of this fact, I would never have signed the document".
36. According to Mr Sarian, he signed and initialled the documents that were put in front of him, without either reading them or having their terms explained to him. Mr Sarian was at some pains to emphasise to me that his command of written English was poor, that he is dyslexic, and that a combination of problems which he has experienced since birth (which have been exacerbated by the effects of a stroke which he experienced about 5 years ago) have meant that he has no effective vision in his left eye. It was also Mr Sarian's evidence that these problems were well known to Mr Salfiti, who would therefore have known that Mr Sarian was unable to read the documents put in front of him, and so was totally dependent upon Mr Salfiti to explain them to him fully and accurately. However, "prior to signing either document I asked [Mr Salfiti] to read me the documents and his response was that he could not as he was acting for Fairstate".

Disputed Issues of Fact

37. Some aspects of these discrepancies between the evidence of Mr Kaheel and that of Mr Sarian are probably explained by the time that has elapsed since the events in question. It would be unrealistic to expect either of them to have an exact recall of the detail of meetings which took place 4 years ago: and it is not necessary, in order for me to decide the preliminary issues which are before me, for me to attempt to resolve all of these conflicts.
38. However, not all of the contradictions between their accounts can be explained by the effect on memories of the passage of time: and there are some central issues which I must resolve. In order to do so, I must of course take into account the demeanour of Mr Kaheel and Mr Sarian in the witness box as they gave their evidence to me: but I must also test their evidence against all the other materials available to me. In that regard, I bear in mind the helpful observations of Robert Goff LJ (as he then was) in The Ocean Frost^[1]:

.. It is frequently very difficult to tell whether a witness is telling the truth or not; and where there is a conflict of evidence such as there was in the present case, reference to the objective facts and documents, to the witnesses' motives, and to the overall probabilities, can be of very great assistance to a Judge in ascertaining the truth ..

39. As to the demeanour of the witnesses, Mr Kaheel gave his evidence to me in a confident and very forceful way. He seemed angry with Mr Sarian for defying him, and for denying his claim. This anger may have led him to be overconfident about a number of matters. He was not prepared to accept that his recollection might be fallible, even about points of detail concerning which it seemed to me to be inherently unlikely that he would have the precise recall which he claimed to have.
40. By contrast, Mr Sarian seemed a nervous and rather tentative witness. However, in at least one respect, he put on a performance for the benefit of the Court, which did not reflect the reality. As I have said, Mr Sarian was at pains to emphasise his inability, for physical reasons as well as for lack of the necessary linguistic skills, to read documents in English. However, as I observed him giving his evidence, it became apparent to me that he was quite well able to read documents in English, when he chose to do so. When the need to show that he could not read in English was present to his mind, his body language demonstrated that inability. But, when he forgot, it was plain that he was able to find his way about, and to follow the wording and sense of, the documents in English that were put before him, with reasonable facility. His command of oral English, including business terminology, seemed fluent.
41. Both sides relied upon various discrepancies between the evidence given orally and that presented in witness statements, and I have born those in mind in evaluating the evidence of Mr Kaheel and Mr Sarian.
42. Neither party called Mr Salfiti to corroborate their own version of events. Mr Kaheel explained his decision on the basis that Mr Salfiti and he had fallen out professionally. Mr Sarian explained his decision by pointing out that Mr Kaheel had written a letter before action to Mr Salfiti, threatening a claim for professional negligence against Mr Salfiti were Mr Sarian's defence to Mr Kaheel's claim to be successful. I found neither explanation wholly convincing. However, I do not consider that I am entitled to draw an adverse inference against either party from their failure to put in evidence from Mr Salfiti, since both were equally able to call Mr Salfiti, and both chose not to do so.
43. I can also derive only limited assistance from the contemporary documents (other than the Management Contract and the Guarantee Form themselves). Mr Sarian relied upon the fact that Fairstate's Account Statement dated 30^th October 2010 contains the wording "Hold deposit for the Agreement £15,000.00 pound paid at 24/08/2006 as guarantee for the furniture". This, Mr White argued, provided support for Mr Sarian's case that he reasonably thought that the Guarantee Form was in some way connected with the £15,000 deposit which Mr Kaheel had required to be paid prior to signature of the Management Contract. Mr Kaheel's response was that this document was not prepared by him, but by his accountants, for the purposes of his claim against Mr Sarian, and that the language was therefore neither his, nor contemporary with Mr Sarian's signature to the Guarantee Form.
44. Mr Sarian also relied upon the fact that the first mention of any personal guarantee given by him appears in paragraph 10 of the Particulars of Claim served (in previous County Court proceedings between the parties) on 29 June 2008. However, it has not been suggested that there was any relevant correspondence prior to the issue of the Claim Form in that earlier action, and none has been put in evidence. It can scarcely be surprising that there was no reference to any personal guarantee in correspondence, if there was no correspondence to contain any such reference.
45. Moreover, the page of the Defence in which Mr Sarian responds to this paragraph in the Particulars of Claim is not in evidence: and Mr Berry, on behalf of Mr Kaheel, fairly points out that there is no documentary evidence of any prompt denial by Mr Sarian, either of this allegation, or of that made in Mr Kaheel's 2 December 2008 email (which is the next time that the allegation relating to the personal guarantee appears in writing). However, the email exchanges following the issue of the first set of proceedings were directed towards finding a commercially acceptable settlement between the parties: and it is plain that, in the course of those exchanges, neither Mr Kaheel nor Mr Sarian made any clear distinction between his own rights and liabilities and those of his company.
46. In my judgment, it would not be right for me to attach any significant weight to any of these factors. Nor can I attach much weight to the fact, as pointed out by Mr White, that the receipts in the trial bundle show that Mr Sarian paid sums which included the £15,000 deposit on 17^th and 21^st August 2006, ie prior to (and not after) the second meeting about which Mr Kaheel gave evidence. These receipts, which are written on forms which have boxes for "office account" and "client account", appear to be receipts issued by Mr Salfiti, not by Mr Kaheel: and it was Mr Kaheel's evidence (which I accept on this point) that the money did not reach Fairstate's own account from Mr Salfiti until after the meeting on 21^st or 22^nd August 2006.
47. Finally, I come to the parties' motives and the inherent probabilities. It is plain from the mistakes in, and inappropriate features of, the wording of the Management Contract and the Guarantee Form, that neither of these documents can have been read with much care or understanding prior to signature, either by Mr Kaheel or Mr Sarian. To the extent that Mr Kaheel sought to suggest the contrary, I reject his evidence as improbable.
48. However, the existence of recital (C) to the Management Contract strongly suggests that, at least by the time that the transaction closed, Mr Kaheel not only wanted Mr Sarian to give a personal guarantee to Fairstate for GEML's liabilities, but had discussed that requirement with Mr Salfiti. It is unlikely that Mr Salfiti would have included that recital and prepared the Guarantee Form if that was not so. Mr Kaheel's desire for such a guarantee from Mr Sarian is entirely understandable, given Mr Kaheel's wish for a secure income for Fairstate from the Property, and Mr Sarian's intention that the newly-formed GEML (which had no significant assets) should become the manager responsible for receiving the rents from the tenants and paying substantial fees derived from that income over to Fairstate.
49. Given that Mr Kaheel had formed the desire to have a personal guarantee from Mr Sarian, and had communicated that desire to Mr Salfiti, it seems to me also to be more likely than not that Mr Kaheel had also communicated that desire to Mr Sarian, and that Mr Sarian had agreed to do what Mr Kaheel wished. Mr Kaheel struck me as a man who would not be slow in communicating what he wanted from any particular contractual arrangement to the other side. In my judgment, he would also have been likely to get his own way in any negotiation with Mr Sarian about this transaction.
50. As I have already mentioned, Mr Kaheel was by far the more forceful personality. Moreover, Mr Sarian's negotiating position was weak, as he was very keen to seize the opportunity that he was being offered. By his own admission, he thought that the deal being put forward by Mr Kaheel would give him "a very profitable business". He told me that Mr Kaheel was "a very eloquent storyteller", that he was "overwhelmed" by Mr Kaheel's presentation, and that he "did not think that there was any risk at the time". Mr Sarian (on his own case) carried out no adequate inspection of the Property that GEML was to manage. Nor did he make any of the other due diligence enquiries that might have been expected of someone whose company was about to enter into a transaction of this kind. This was the behaviour of someone who was likely to take whatever terms were offered to him, not of someone approaching the negotiations in a cautious frame of mind.
51. Taking all of these factors into account – the demeanour of the witnesses, the objective facts and documents, the witnesses' motives, and the overall probabilities – and giving each of them the appropriate weight, I reject Mr Sarian's evidence that he did not realise when he signed the Guarantee Form that it was intended to be a personal guarantee by him of GEML's liabilities to Fairstate under the Management Contract. I find as a fact that the provision by Mr Sarian of a personal guarantee for the liabilities of GEML to Fairstate under the Management Contract was one of the matters which had been orally agreed between Mr Kaheel and Mr Sarian at some point before the parties signed the Management Contract and the Guarantee Form. I also find as a fact that Mr Sarian, when he signed and initialled the Guarantee Form, believed that he was signing such a personal guarantee.

Misrepresentation/Signature only as Agent

52. Those findings of fact are sufficient to dispose of Mr Sarian's two independent grounds of defence. Mr Sarian's defence based upon misrepresentation fails, because the misrepresentation upon which he relies – Mr Salfiti's statement that the Management Contract and the Guarantee Form simply gave effect to the terms that Mr Sarian had already agreed with Mr Kaheel – was (if I decide that the Guarantee Form amounted to an effective guarantee by Mr Sarian of GEML's liabilities to Fairstate) true. Of course, if I decide that the Guarantee Form did not amount to an effective guarantee, then the defence of misrepresentation is unnecessary. As to Mr Sarian's defence that he signed the Guarantee Form only as agent for GEML, that fails on the facts.

The Statute of Frauds 1677

53. I now turn to Mr Sarian's principal grounds of defence, which are that the Guarantee Form is ineffective as a guarantee as a matter of the general law of contract and/or is unenforceable as a guarantee by virtue of the provisions of the Statute of Frauds 1677 s 4. Since the requirements of section 4 must inform any consideration of the validity of a guarantee, I begin with some observations about this long-standing statutory provision.
54. Section 4 of the Statute of Frauds 1677 provides (in modern English spelling) as follows:

.. no action shall be brought … whereby to charge the defendant upon any special promise to answer for the debt default or miscarriages of another person … unless the agreement upon which such action shall be brought or some memorandum or note thereof shall be in writing and signed by the party to be charged therewith or some other person thereunto by him lawfully authorised ..

55. The purpose for which section 4 of the Statute of Frauds was enacted is stated in the long title to the Statute. It is "An Act for prevention of frauds and perjuries. For prevention of many fraudulent practices, which are commonly endeavoured to be upheld by perjury and subordination of perjury". The history and purpose of the section was recently analysed by the House of Lords in Actionstrength Limited (t/a Vital Resources) v International Glass Engineering In.Gl.En. Spa^[2], where Lord Bingham of Cornhill stated that the mischief which section 4 was intended to address was "to prevent the calling of perjured evidence to prove spurious agreements said to have been made orally"^[3]. According to Lord Hoffmann, its purpose "was precisely to avoid the need to decide which side was telling the truth about whether or not an oral promise had been made and exactly what he been promised" since "Parliament decided that there had been too many cases in which the wrong side had been believed"^[4].
56. It was common ground between the parties that the requirements of section 4 may be satisfied in two ways. The first is by having a written agreement signed by the guarantor or his agent. The second is by having a note or memorandum of the agreement similarly signed. In the latter case the agreement itself may be oral^[5].
57. However, it seems to me that only the first of these ways can be relevant in the present case. That is because there was never at any point any oral agreement of guarantee between Mr Sarian and Fairstate. Their agreement was rather that, at completion of the transaction, a written guarantee would be provided. As is pointed out in Andrews & Millett, The Law of Guarantees^[6], where the parties agree that a written guarantee should be provided:

.. It is rarely the case that the written guarantee is merely a reflection of a pre-existing agreement which has been concluded orally; on the contrary, it is generally the intention of the parties that there should be no binding agreement until the [written] guarantee is signed ..

In my judgment, that was the position here.

58. It was also not in dispute that, in order to comply with s 4, the written agreement relied on must state all the material terms of the contract which have been expressly agreed^[7], except for the consideration^[8]. In that connection, it has been said that the identity of the principal debtor is so clearly a material term of a contract of guarantee as to render its absence from the written contract or memorandum "fatal non-compliance with the Statute of Frauds"^[9].

Was the Guarantee Form an Effective Contract of Guarantee?

The Submissions on behalf of Mr Sarian

59. Against that background, Mr White submitted on behalf of Mr Sarian that the Guarantee Form did not amount to an effective contract of guarantee to Fairstate by Mr Sarian of the liabilities of GEML under the Management Contract. In Mr White's submission, the agreement recorded in the Guarantee Form was ineffective as a matter of contract, because it did not identify Fairstate as the creditor, did not identify GEML as the principal debtor, did not identify the Management Contract as the obligation to be secured, and was generally expressed in terms which were appropriate to a banking transaction rather than to a commercial one. In each and all of these fundamental respects, the Guarantee Form also failed to satisfy the requirements of section 4. Furthermore, Mr White submitted, because these defects are so fundamental, they cannot properly be cured, either by giving the wording of the Guarantee Form a purposive construction, or by rectification.
60. In support of these submissions, Mr White placed reliance upon Barclays Bank Plc v Caldwell^[10], where the bank's standard form of guarantee which the guarantor signed had not been amended to reflect the special terms which had been agreed between him and the bank. The court declared the alleged guarantee to be unenforceable, and refused to entertain a claim for rectification which was made after judgment.
61. Mr White also relied upon the decision of the Court of Appeal in State Bank of India v Kaur^[11]. In that case, the spaces in the bank's standard form of guarantee for the name of the principal debtor and for the limit on the total amount recoverable from the guarantor to be filled in had both been left completely blank. The Court of Appeal held that the signed guarantee was "a wholly deficient document" for the purposes of the Statute of Frauds, and that, although extrinsic evidence could be used to explain the terms used in a guarantee, it could not be used in that case, as the blanks in the document meant that "there is no term to be explained".
62. In the present case, as in Kaur, the space for the limit on the total amount recoverable from the guarantor was not filled in. However, Mr White conceded that the additional words "provided that if the amount is not completed and this proviso is not deleted, the guarantee will be interpreted as unlimited" – which appear in the Guarantee Form but not in the guarantee considered by the Court of Appeal in Kaur - are sufficient to prevent him from relying upon this omission as a further fatal defect in the present case. In my judgment, Mr White was right to make that concession^[12]. However, Mr White relied strongly upon the other ground for the Court of Appeal's decision in Kaur, as authority for the proposition that extrinsic evidence is not admissible to establish the identity of the principal debtor, if the principal debtor is not identified in the contract or memorandum.
63. As to Fairstate's claim for rectification, Mr White conceded (in my judgment, correctly^[13]) that the remedy of rectification is in principle available even in relation to contracts of guarantee. However, he submitted that the defects in the Guarantee Form were too fundamental to be corrected by rectification because, by doing so, the court would in effect be creating the parties' contract for them.
64. In that connection, he relied upon the observation in Andrews & Millett, The Law of Guarantees^[14] that

.. Although there may be no reason in principle why the doctrine of rectification should not be used to make good omissions in a written guarantee in the same way as in any other type of contract, it may be that in practice the prerequisites for the remedy are difficult to establish in this particular context, where particular care is likely to be taken to avoid depriving the defendant of a legitimate statutory defence ..

The Submissions on behalf of Fairstate

65. In response to these points made by Mr White, Mr Berry on behalf of Fairstate realistically accepted that the Guarantee Form, as it stood, was not happily worded for the function that it was intended to perform. His submission, however, was that it was plain beyond argument (inter alia, from the terms of recital (C) in the Management Contract) what the parties intended to achieve. In Mr Berry's submission, I should therefore either construe the wording of the Guarantee Form (either on its own or in combination with recital (C) in the Management Contract) in such a way as to give effect to that intention, or should rectify the wording of the Guarantee Contract in order to do so.
66. Mr Berry submitted that the modern approach is to apply to contracts of guarantee the same principles of construction as would be applied to any other commercial contract. The court should ask itself the question: what meaning would the guarantee convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties at the time it was given^[15]? Only in cases of genuine doubt or uncertainty should the court resolve those doubts or uncertainties in favour of the guarantor^[16].
67. Mr Berry urged me to apply those principles when considering the wording of the Guarantee Form. In particular, he submitted that I should apply to the facts of the present case the principle that, in appropriate circumstances, a clear mistake in wording may be corrected as part of the process of construction^[17].
68. As Mr Berry correctly observed, the authorities establish that, where that principle applies, there is no limit to the amount of red ink or verbal rearrangement or correction which the court is allowed. All that is required is that it should be clear that something has gone wrong with the language, and that it should be clear what a reasonable person would have understood the parties to have meant^[18]. As Sir Andrew Morritt C recently observed^[19]:

.. although the mistake must be clear, it may emerge from a consideration of all the relevant documents, not only on the face of one of them; nor is there a limit to the correction which may be made, provided that it is clear to the reasonable person having regard to all the relevant documents what the parties meant ..

69. Mr Berry submitted that it was plain that something has gone wrong with the language used in the Guarantee Form: and that, since it is quite clear who the parties in fact intended should be the creditor and the principal debtor, and what the guaranteed liability should be, I should construe the words actually used in the Guarantee Form so as to give effect to that intention.
70. In that regard, he submitted that I should follow the approach of Scott J (as he then was) in Perrylease Ltd v Imecar AG and others^[20] (where the liabilities covered by the guarantee were identified by reference to extrinsic evidence); of Christopher Moger QC (sitting as a deputy judge of the Queen's Bench Division) in Vodafone Ltd v GNT Holdings (UK) Ltd^[21] (where extrinsic evidence was used to identify the creditor and the liability intended to be guaranteed, both of which had been mis-described in the guarantee); and of the Court of Appeal in Gastronome (UK) Ltd v Anglo Dutch Meats (UK) Ltd^[22] (where the guarantee, in identifying the creditor, gave only a generic group name and the wrong address in the wrong country, but the Court of Appeal upheld the first instance judge's use of extrinsic evidence to identify the particular creditor company to which the parties in fact intended to refer).
71. If, for any reason, I was not prepared to construe the Guarantee Form in the sense for which he contended, Mr Berry alternatively submitted that I should rectify it, there being (in Mr Berry's submission) convincing evidence, objectively manifested in Recital (C), of the parties' common and continuing intention that the Guarantee Form, when signed by Mr Sarian, should be a guarantee by Mr Sarian to Fairstate of the liabilities of GEML under the Management Contract^[23].
72. Mr Berry also submitted I should in any event hold that Mr Sarian was estopped by the terms of recital (C) from denying that the Guarantee Form was an effective guarantee by Mr Sarian to Fairstate of the liabilities of GEML under the Management Contract. Mr Berry identified this as either an estoppel by convention (see eg Amalgamated Investment & Property Co Ltd v Texas Commerce International Bank Ltd^[24]) or as a contractual estoppel (see eg Springwell Navigation Corporation v JP Morgan Chase Bank^[25]).
73. I can deal with this last point very shortly. Recital (C) appears in the Management Contract. That is a contract between Fairstate and GEML. Mr Sarian is not a party to that contract, and signed it only on behalf of GEML. Its recitals therefore cannot give rise to any contractual estoppel binding Mr Sarian personally.
74. For the same reason, I also reject another of Mr Berry's submissions, which is that recital (C) can itself be interpreted as a contract of guarantee by Mr Sarian. As a contract between Fairstate and GEML, to which Mr Sarian was not a party, the Management Contract cannot on its own impose obligations on Mr Sarian. There are also two further reasons why Fairstate cannot rely upon recital (C) to impose obligations on Mr Sarian. The first is that recital (C) is a recital, not an operative provision. In a formal contract such as this, which has been drafted by a lawyer, the section containing the recitals is not the part of the agreement in which the substantive obligations are usually expressed. It is therefore inherently unlikely that the parties intended any of the matters recited to give rise, by itself, to a substantive obligation^[26]. Secondly, the words actually used in recital (C) "where [GEML] through its director Mr Atef Sarian is willing to provide a personal guarantee against any possible loss or damage to [Fairstate] copy of which is appended herewith" indicate that the substantive obligations (if any) undertaken by Mr Sarian are to be found in the Guarantee Form, not in recital (C).

Analysis

75. In my judgment, Mr Berry is correct in his submission that the modern approach is to apply to contracts of guarantee the same principles of construction as would be applied to any other commercial contract. There is nothing in the policy underlying the Statute of Frauds which prevents the application of these modern principles of construction, or which requires them to be modified (except in one respect) in their application to guarantees^[27]. In accordance with these principles (and in a suitable case), extrinsic evidence may be relied upon to identify the guarantor, the creditor, the principal debtor or the obligation to be guaranteed, where any of these have been inadequately or ambiguously described in the relevant document^[28]. Where the evidence is sufficiently convincing (and the other conditions are met) for an order for rectification to be made, such evidence may even be used to supply a missing name or obligation^[29].
76. The one respect in which the application of these principles may require to be modified in some cases involving guarantees is this. Where there is a genuine dispute as to the existence of any agreement of guarantee, or as to precisely what has been agreed, the Court may need to consider the extrinsic evidence that is presented to it for these purposes with particular care. In such cases, the Court will be slow to deprive the defendant of a legitimate statutory defence on the basis of contested oral evidence alone. To do so would be to undermine the policy of the statute "to avoid the need to decide which side was telling the truth about whether or not an oral promise had been made and exactly what he been promised"^[30]. However, where reference to the objective facts and documents, to the witnesses' motives, and to the overall probabilities enables the Court to be sufficiently confident about the "objective meaning which is conventionally called the intention of the parties"^[31] in relation to the point at issue, then the fact that the document to be construed or rectified is a guarantee should be no impediment to the application of all of the law's tools for giving effect to that intention.
77. The decision of the Court of Appeal in State Bank of India v Kaur^[32] is not authority for a stricter or more rigid approach to issues of construction or rectification than that which I have outlined. In Kaur, the parties expressly requested the Court not to send the case back for the County Court to make the findings of fact that would have been necessary for the Bank's arguments based on extrinsic evidence to have had any prospect of succeeding. In the circumstances, no claim for rectification to supply the missing name of the principal debtor (whose identity was in dispute) was (or could have been) made.
78. The judgments in the Canadian decision Imperial Bank of Canada v Nixon^[33] provide useful reminders that a Court will not often be satisfied to the necessary standard to enable it to supply by rectification a name or term that is wholly missing from a guarantee document. However, once it is accepted that the remedy of rectification is, in principle, available in the case of such contracts, there can be no logical reason for excluding any particular provision of the contract from the corrections which that remedy (in an appropriate case) makes possible. It follows that, to the extent that the Imperial Bank case holds that rectification may in no circumstances ever be granted to supply the name of the principal debtor (or any other missing name or term) in a guarantee, it does not in my judgment represent the current state of English law.
79. Mr Berry is also correct in submitting that – exceptionally - his client does not need in the present case to rely solely, or even mainly, on contested oral evidence to establish the identity of the intended guarantor, creditor, principal debtor or liability to be guaranteed. As Mr Berry submits, the Management Contract and the Guarantee Form can and should be read together. Although the Guarantee Form does not refer to the Management Contract, the Management Contract refers to the Guarantee Form as "attached": and both have been signed by Mr Sarian as part of the same transaction^[34]. Unlike the Guarantee Form (in whose wording something has clearly gone wrong), recital (C) to the Management Contract clearly identifies Fairstate as the intended creditor, GEML as the intended principal debtor, and GEML's liability under the Management Contract as the liability which the parties intended that the guarantee to be given by Mr Sarian should secure. The Management Contract was signed by Mr Sarian (albeit on behalf of GEML): and I have found as a fact that Mr Sarian, when he signed and initialled the Guarantee Form, believed that he was signing such a personal guarantee. Mr Sarian's signature to the Management Contract containing recital (C) therefore means that, in the present case, there is written evidence of the parties' intentions which satisfies the policy underlying (if not the technical requirements of) section 4^[35] in relation to many of the essential features of the transaction.
80. Against that background, there is an attractive logic to Mr Berry's further submission that I should give effect to these clearly expressed intentions of the parties, either by construing the words used in the Guarantee Form, or by rectifying them, so as to accord with recital (C). After all, there is House of Lords authority for the proposition that, once I am satisfied as to the parties' intentions in relation to the meaning of a contract, there is no limit to the amount of verbal rearrangement or correction which I am allowed to carry out in order to give effect to those intentions.
81. So, on that basis, Mr Berry would say that I should either construe or rectify the clause addressing the Guarantee Form to Mr Sarian, so that it is addressed to Fairstate; I should either construe or rectify the clause describing Fairstate as "the Principal" so that that description is applied instead to GEML; I should either construe or rectify the description in clauses 1.1 and 1.2 of the liabilities guaranteed so as to refer simply to GEML's liabilities under the Management Contract; I should either construe or re-write as referring to Fairstate (or discard as mere surplusage) all later references in the Guarantee Form to the "Bank"; and I should construe, re-write, or discard as mere surplusage all of the provisions in the Guarantee Form that are directed to providing security for a banking relationship rather than for a management agreement.
82. However, the sheer length of the catalogue of corrections and additions that I should have to make to the Guarantee Form in order to turn it into an effective guarantee for this transaction highlights the reason, in my judgment, why I cannot accede to Mr Berry's submissions. If I were to do so, I would not be interpreting the Guarantee Form in order to give it "the meaning which the instrument would convey to a reasonable person having all the background knowledge which would reasonably be available to the audience to whom the instrument is addressed"^[36]. I would instead be writing a new and different contract for the parties. That is something which cannot properly be achieved by even the most energetically purposive and "sophisticated technique" of construction^[37]. It is not the function of the court to write a new contract for the parties under the guise of interpreting an existing one^[38].
83. Nor, in my judgment, can I properly achieve the same effect by a process of rectification. As Denning LJ stated in Frederick E Rose (London) Ltd v William H Pim Jnr & Co Ltd^[39]:

.. Rectification is concerned with contracts and documents, not with intentions. In order to get rectification it is necessary to show that the parties were in complete agreement on the terms of their contract, but by an error wrote them down wrongly; and in this regard, in order to ascertain the terms of their contract, you do not look into the inner minds of the parties – into their intentions – any more than you do in the formation of any other contract. You look at their outward acts, that is, at what they said or wrote to one another in coming to their agreement, and then compare it with the document which they have signed. If you can predicate with certainty what their contract was, and that it is, by a common mistake, wrongly expressed in the document, then you rectify the document; but nothing less will suffice ..

84. In the present case, it seems to me to be impossible to say that the outward acts of Mr Sarian and Mr Kaheel (on behalf of Fairstate) demonstrate that they were "in complete agreement on the terms of [Mr Sarian's guarantee], but by an error wrote them down wrongly". Recital (C) to the Management Contract (and the other evidence to which I have referred above) indicates that Mr Kaheel and Mr Sarian had agreed that Mr Sarian should give a guarantee to Fairstate of GEML's obligations under the Management Contract. The fact that Fairstate required Mr Sarian to sign the Guarantee Form (which is 6 pages long), and that Mr Sarian did sign that document, indicates that the parties intended that Mr Sarian's proposed guarantee should contain a large number of other terms. But there is no evidence whatsoever apart from the Guarantee Form itself of any agreement between Mr Kaheel and Mr Sarian as to what those other terms should be. For the reasons that I have explained, the Guarantee Form was substantially inapposite to the transaction which Mr Sarian and Mr Kaheel had in mind. So I can be reasonably confident that neither of them intended that the terms which actually appeared in the Guarantee Form should without alteration be the terms of Mr Sarian's guarantee. However, I can only speculate as to what terms they did in fact intend to include.
85. I asked Mr Berry to produce a draft of the Guarantee Form, showing how (if I acceded to his submissions) that document would read after it had been rectified by the Court. The draft which he produced deletes most of the existing text from, and then re-writes, both the introduction and clause 1 "Guarantor to Pay on Demand". Mr Berry's draft also deletes clause 6 "New Account", clause 10 "Indulgence", clause 12 "No proof in competition with bank", clause 17 "Change in bank's constitution or its amalgamation etc", and clause 27 "Property in the guarantee to belong to the Bank". However, it leaves as unaltered both clause 4 "Notice to determine guarantee", and the incomplete clause 26 "Governing law and jurisdiction".
86. I am far from convinced that a document in that form would necessarily give effect to the parties' intentions. Two examples illustrate the problem. First of all, it seems to me to be inherently improbable that Mr Kaheel, had he turned his mind to it, would have agreed to the terms of Clause 4 of the Guarantee Form (which Mr Berry nevertheless suggests that I should leave intact after rectification). By clause 7 of the Management Contract, GEML's appointment was to last for 3 years. If Mr Kaheel wanted GEML's obligations under the Management Contract to be secured by Mr Sarian's guarantee, why should he agree that that Guarantee should be terminable, as clause 4 of the Guarantee Form provides, by 3 months' notice given at any time – particularly since GEML had already paid the first 3 months' management fees? If that were right, Mr Sarian could give notice to terminate his guarantee the day after it was signed, and would then have no further liability for the remaining 2 years and 9 months of GEML's obligations under the Management Contract.
87. By contrast, Mr Berry's draft invites me to delete clause 10 as a matter of rectification, because its opening sentence, which refers to refusing further credit to the Principal, is more appropriate to a banking context than to the Management Contract. But why should Mr Kaheel not have wished to have at least the remainder of clause 10 retained, since it operates in Fairstate's favour to exclude the operation of the protections which equity otherwise affords to sureties such as Mr Sarian?
88. In both cases, I can make an informed guess at what a reasonable commercial party would have agreed: but I cannot say with any certainty what (if anything) Mr Sarian and Mr Kaheel in fact agreed on the point. Nor can I solve the problem by saying that they simply left these details to Mr Salfiti. First of all, these are not mere matters of detail. The provision as to the duration of the guarantee, in particular, is a material term of the contract for the purposes of s 4. Secondly, Mr Kaheel and Mr Sarian did in fact leave these matters to Mr Salfiti: but that is what has led to the present problem, because what Mr Salfiti produced was inapt for the transaction.
89. Of course, the mere fact that the precise mechanism for carrying into effect the parties' common intention has not expressly been discussed between them is not, of itself, a ground for refusing rectification in a case where that remedy would otherwise be appropriate. For example, in Swainland Builders Ltd v Freehold Properties Ltd^[40], the parties intended, when agreeing the sale of the freehold of a block of 39 flats, that all of the flats should have been let on the same long leasehold terms by the time of the transfer. By mistake, long leases of two of the flats were never granted, and the transfer of the freehold by the vendor failed to reserve any rights to the two flats for the benefit of the vendor.
90. The Court of Appeal upheld the decision of the first instance judge to order rectification of the transfer so as to provide for the grant to the vendor himself of leases in respect of the two flats, even though no such grant had expressly been discussed or agreed between the parties. Gibson LJ observed that he could

.. see no reason, in principle, why equity should be prevented from giving relief merely because the parties had not agreed on the mechanics by which effect should be given to a clear and simple common intention ..

and Jonathan Parker LJ noted that:

.. the mere fact that the mechanism for carrying into effect the parties' common intention had not been discussed was not a ground for refusing rectification. The parties in the instant case understandably left the mechanics of the transaction to their respective solicitors, in the expectation that the form of the transaction as devised by the solicitors would be effective to carry their common intention into effect ..

91. However, that was a case in which not merely the substance but the detail of the parties' common intention could be ascertained with clarity^[41]. The lease terms could be ascertained from the leases of the other 37 flats. All that the Court had to supply in order to give effect to the parties' intention was the identity of the vendor as lessee. In the present case, it is the detailed terms of the transaction intended by the parties that remain uncertain.
92. In that respect, this case is essentially different, not merely from Swainland, but also from the Perrylease^[42], Vodafone^[43], and Gastronome^[44] cases on which Mr Berry relied. In those cases, one or two of the principal elements of the transaction – the identity of one of the parties, or the identity of the liability to be guaranteed – had been mis-described in the document. The Court was able, with the necessary degree of certainty, to identify the party or liability that the parties truly intended to be referred to, and could therefore interpret or rectify the document accordingly. That done, the document concerned became suitable for the transaction it was to secure, and required no further re-writing. In the present case, not merely are the creditor, the principal debtor and the liability to be guaranteed all mis-identified in the Guarantee Form, but the document itself – although undoubtedly intended to be a guarantee – is substantially inapposite to the transaction for which it is intended to stand as security.
93. It seems to me that it is particularly important that the Court should require clarity as to all (and not just some of) the material terms of the transaction in cases, such as the present, where it is asked to use its powers of purposive construction or of rectification to correct errors in the wording of a document which is relied upon to satisfy the requirements of the Statute of Frauds 1677 s 4. To do otherwise risks undermining the protection that the statute was intended to confer.
94. In my judgment, therefore, Mr White is correct in his submission that the defects in the agreement recorded in the Guarantee Form are so fundamental and extensive that they cannot sufficiently be cured, either by purposive construction, or by rectification, or by any combination of those approaches. The Guarantee Form is therefore ineffective as a matter of contract, and would in any event be unenforceable because it fails to satisfy the requirements of section 4.
95. As to Mr Berry's argument based upon estoppel by convention, I again accept his submission that the ordinary rules of estoppel are applicable to guarantees. But in order to decide whether an estoppel by convention binding Mr Sarian in favour of Fairstate has arisen, it is necessary to ask three questions: (1) What is the assumption which Fairstate made? (2) Did Mr Sarian induce or encourage the making of that assumption? (3) Is it in all the circumstances unconscionable for Mr Sarian to rely upon the defects in the Guarantee Form (and, consequently, to place reliance on s 4)?
96. I am prepared to assume in Fairstate's favour that it believed itself at all relevant times to be the beneficiary of an effective guarantee from Mr Sarian. However, the second and third of the questions that I have set out above present insuperable difficulties for Fairstate. The only inducement or encouragement in that belief which it is alleged that Mr Sarian gave to Fairstate was his signature to the Management Contract and the attached Guarantee Form (which I have held to be ineffective as a Guarantee). It has not been alleged that there was any separate representation by Mr Sarian that he would treat the Guarantee Form as binding on him as a guarantee, despite its defects. Nor has it been alleged that Mr Sarian made any payment direct to Fairstate which Fairstate relied on as a representation by conduct that the Guarantee Form constituted an effective guarantee. As to the third element, it is difficult to see why it should be said to be unconscionable for Mr Sarian to rely upon defects in the Guarantee Form which Fairstate's solicitor had prepared for his signature, when he came to discover them upon taking advice for the purposes of this litigation, or for him to rely upon the statutory defence which s 4 consequently provides for him.
97. If Mr Sarian were held to be estopped in this case, it is hard to see why any signatory to a defective agreement of guarantee would not similarly be estopped. In that respect, the position here seems to me to be very similar to that considered by the House of Lords in Actionstrength Limited (t/a Vital Resources) v International Glass Engineering In.Gl.En. Spa^[45], where the plea of estoppel was unanimously rejected.

Disposition

98. For these reasons, I dismiss Fairstate's claim against Mr Sarian.

Note 1    [1985] 1 Lloyd's Rep 1 at 57.    [Back]

Note 2    [2003] UKHL 17; [2003] 2 AC 541.    [Back]

Note 3    Ibid, at [1]; at 544.    [Back]

Note 4    Ibid, at [19]; at 549.    [Back]

Note 5    Elpis Maritime v Marti Chartering [1992] 1 AC 21 at 31, per Lord Brandon of Oakbrook.    [Back]

Note 6    5th ed, at p 90. See also Mehta v J Pereira Fernandes SA [2006] 1 WLR 1543, where HHJ Pelling QC (sitting as a judge of the Chancery Division) observed in the context of a similar agreement to provide a written guarantee that “An agreement to do something which is expressed to be subject to the execution of formal documentation will usually be regarded as incomplete until the formal documentation has been settled and signed”.    [Back]

Note 7    Motemtronic Limited v Autocar Equipment Limited (unreported, 20 June 1996, CA, BAILII: [1996] EWCA Civ 1350) per Aldous LJ; Clipper Maritime Ltd v Shirlstar Container Transport Ltd, The Anemone [1987] 1 Lloyd’s Rep. 546 at 556, per Staughton J.    [Back]

Note 8    Mercantile Law Amendment Act 1856 s 3.    [Back]

Note 9    Union Bank (UK) PLC v Pathak [2006] EWHC 2614 (Ch), [2006] BPIR 1062 at [58], per Michael Briggs QC (sitting as a deputy judge of the Chancery Division).    [Back]

Note 10    (25 July 1986, unreported), Harman J.    [Back]

Note 11    [1996] 5 Bank LR 158. See also Imperial Bank of Canada v Nixon [1926] 4 DLR 1052, where Orde JA said (at p 1058) “I think I am safe in saying that in no case where oral evidence has been admitted to illuminate the memorandum or note of a contract within the purview of the statute of Frauds [it] has gone the length of supplying a missing term of the contract itself”; and AGS Electric Ltd v Sherman (1979) 108 DLR (3d) 229 (where the names of both the creditor and the principal debtor were omitted from the document).    [Back]

Note 12    A standard form of guarantee which provides for a limit, but where the space for that limit to be stated has been left blank, will usually be construed as unlimited rather than uncertain: see Bank of Baroda v ANY Enterprises Ltd (unreported, 4th December 1986, CA: CAT No 1088 of 1986). This earlier decision of the Court of Appeal does not appear to have been drawn to the Court’s attention inKaur. See also Bank of Baroda v Patel [1996] 1 Lloyd’s Rep 391 at 395, per Potter J; and Caltex Oil (Australia) Pty Ltd v Alderton (1964) 81 WN (NSW) (Pt 1) 297.    [Back]

Note 13    See GMAC Commercial Credit Development Ltd v Kalvinder Singh Sandu [2004] EWHC 716; [2006] 1 All ER (Comm) 268 (Richard Siberry QC, sitting as a deputy judge of the Queen’s Bench Division), where the point was fully argued; and cf WG Mitchell (Gleneagles) Ltd v Jemstock One Ltd [2006] EWHC 3644 (Ch), where Sir Andrew Morritt C granted rectification of an underlease to include a guarantee provision.    [Back]

Note 14    5th ed, at p 90.    [Back]

Note 15    See ICS v West Bromwich Building Society [1998] 1 WLR 896 at 912H to 913F, per Lord Hoffmann.    [Back]

Note 16    See eg Estates Gazette Ltd v Benjamin Restaurants Ltd [1994] 1 WLR 1528 at 1533, per Nourse LJ, adopting the approach of Millett J in Johnsey Estates Ltd v Webb [1990] 19 EGLR 80 at 82; Melvin International SA v Poseidon Schiffahrt GmbH (the “Kalma”) [1999] 2 Lloyd’s Rep 374 at 378, per Cresswell J.    [Back]

Note 17    See eg East v Pantiles (Plant Hire) (1981) 2 EGLR 111 at 112, per Brightman LJ; KPMG v Network Rail Infrastructure Ltd [2007] EWCA Civ 363 at [50], per Carnwath LJ; Chartbrook Ltd v Persimmon Homes Ltd [2009] UKHL 38, [2009] 1 AC 1101 at [22] to [24], per Lord Hoffmann; and Re a Company [2010] EWHC 1461 (Ch) at [15] to [20], per Sir Andrew Morritt C.    [Back]

Note 18    Chartbrook Ltd v Persimmon Homes Ltd [2009] UKHL 38, [2009] 1 AC 1101 at [25], per Lord Hoffmann.    [Back]

Note 19    Re a Company [2010] EWHC 1461 (Ch) at [20], per Sir Andrew Morritt C.    [Back]

Note 20    [1988] 1 WLR 463.    [Back]

Note 21    [2004] EWHC 1526 (QB).    [Back]

Note 22    [2006] EWCA Civ 1233.    [Back]

Note 23    For the elements which must be established before a claim for rectification can succeed, Mr Berry and Mr White both referred me to KPMG v Network Rail Infrastructure Ltd [2007] EWCA Civ 363; and to Chartbrook Ltd v Persimmon Homes Ltd [2009] UKHL 38, [2009] 1 AC 1101. I was also referred to Weeds v Blaney (1977) 247 EG 211 as authority for the proposition that negligence by the solicitor to the party seeking rectification is no bar to such a claim.    [Back]

Note 24    [1982] QB 84.    [Back]

Note 25    [2010] EWCA Civ 1221 at [141] to [171].    [Back]

Note 26    “The court will in any case be cautious in spelling a covenant out of a recital .. The court must be satisfied that the language does not merely show that the parties contemplated that the thing might be done, but it must amount to a binding agreement upon them that the thing shall be done”: Lewison, The Interpretation of Contracts (4th ed ) at 10.15.    [Back]

Note 27    See Static Control Components (Europe) Ltd v Egan [2004] EWCA Civ 392, [2004] 2 Lloyd's Rep 429, particularly at [12]-[14] and [27]-[28] per Arden LJ. See also Perrylease Ltd v Imecar AG and others [1988] 1 WLR 463; Bank of Scotland v Wright [1991] BCLC 244; Vodafone Ltd v GNT Holdings (UK) Ltd [2004] EWHC 1526 (QB); Union Bank (UK) PLC v Pathak [2006] EWHC 2614 (Ch), [2006] BPIR 1062 at [58], per Michael Briggs QC (sitting as a deputy judge of the Chancery Division); Gastronome (UK) Ltd v Anglo Dutch Meats (UK) Ltd [2006] EWCA Civ 1233 at [14], per Tuckey LJ; and Cattles Plc v Welcome Financial Services Ltd [2010] EWCA Civ 599 at [43], per Lloyd LJ.    [Back]

Note 28    The use of extrinsic evidence for this purpose has a long history: see Newell v Radford (1867) LR 3 CP 52. Cf Shogun Finance Ltd v Hudson [2004] 1 AC 919 at [49], per Lord Hobhouse.    [Back]

Note 29    See GMAC Commercial Credit Development Ltd v Kalvinder Singh Sandu [2004] EWHC 716; [2006] 1 All ER (Comm) 268 (Richard Siberry QC, sitting as a deputy judge of the Queen’s Bench Division); and cf WG Mitchell (Gleneagles) Ltd v Jemstock One Ltd [2006] EWHC 3644 (Ch), where Sir Andrew Morritt C granted rectification of an underlease to include a guarantee provision.    [Back]

Note 30    Actionstrength Limited (t/a Vital Resources) v International Glass Engineering In.Gl.En. Spa [2003] UKHL 17; [2003] 2 AC 541 at [19], per Lord Hoffmann.    [Back]

Note 31    A-G of Belize v Belize Telecom Ltd [2009] UKPC 10 at [16], per Lord Hoffmann.    [Back]

Note 32    [1996] 5 Bank LR 158.    [Back]

Note 33    [1926] 4 DLR 1052.    [Back]

Note 34    See O’Donovan and Phillips, The Modern Contract of Guarantee (English Edition 2003) para3-59, and the cases there cited.    [Back]

Note 35    It is well-established that a document may be a sufficient memorandum for the purposes of section 4 if it is signed by the guarantor, irrespective of the intention of or capacity in which the guarantor signed the document: see Elpis Maritime v Marti Chartering [1992] 1 AC 21, applying Re Hoyle, Hoyle v Hoyle [1893] 1 Ch 84. The capacity in which the guarantor signs is only relevant where (as here) the written document is said to be the agreement itself.    [Back]

Note 36    A-G of Belize v Belize Telecom Ltd [2009] UKPC 10 at [16], per Lord Hoffmann    [Back]

Note 37    This description was used by Lord Hoffman in Homburg Houtimport BV v Agrosin Ltd (the “Starsin”) [2003] UKHL 12, [2004] AC 715 at [94]. In that case, the House of Lords upheld the interpolation into a clause in a bill of lading of a 17-word phrase in order to repair the omission produced by a homoeoteleuton, However, the clause concerned had plainly been closely modelled on the equivalent clause in the Conline form, so that it was clear what the omitted words should be.    [Back]

Note 38    See Sinochem International Oil (London) Co Ltd v Mobil Sales and Supply Corporation [2000] 1 Lloyd’s Rep 339 at [29], per Mance LJ; and Dalkia Utilities Services Plc v Celtech International Ltd [2006] 1 Lloyd’s Rep 599 at [119], per Christopher Clarke J.    [Back]

Note 39    [1953] 2 QB 450 at 461; cited with approval in Chartbrook Ltd v Persimmon Homes Ltd [2009] UKHL 38, [2009] 1 AC 1101 at [60], per Lord Hoffmann.    [Back]

Note 40    [2002] EWCA Civ 560, [2002] 2 EGLR 71.    [Back]

Note 41    See Co-operative Insurance Society Ltd v Centremoor Ltd [1983] 2 EGLR 52 at 54, per Dillon LJ, with whom Kerr and Eveleigh LJJ agreed.    [Back]

Note 42    Perrylease Ltd v Imecar AG and others [1988] 1 WLR 463.    [Back]

Note 43    Vodafone Ltd v GNT Holdings (UK) Ltd [2004] EWHC 1526 (QB).    [Back]

Note 44    Gastronome (UK) Ltd v Anglo Dutch Meats (UK) Ltd [2006] EWCA Civ 1233.    [Back]

Note 45    [2003] UKHL 17; [2003] 2 AC 541.    [Back]