Publications
Financial Services Quarterly
Contents:
Download full document
(459KB PDF Document)
To view this document you will need to download a copy of Adobe Acrobat.
Archive:
For earlier editions of Financial Services Quarterly, please click here.
Guarantee to reflect the underlying facility
The English Court of Appeal has decided1 that a lender could not rely on a guarantee provided pursuant to an earlier loan agreement in respect of a new loan facility where the documentation had not expressly contemplated the guarantee and was not within the "original purview" of the original arrangement.
Most standard forms of guarantee contain a provision stating that the obligations of the guarantor are not affected by any amendment to, or replacement of, the loan that is being guaranteed. The purpose of such a clause is to address the fact that a material variation or amendment in the loan agreement will discharge the guarantor unless the variation is provided for in the guarantee or has been consented to by the guarantor.
This case has highlighted a risk that, even where the guarantor has given consent, if the amendment or variation is not within the "general purview" of the original agreement, then the guarantee will not extend to any amendments made to the loan agreement.
The Court will analyse the intention of the parties when they entered into the original agreement and the guarantee to assess whether such amendment or variation was contemplated.
According to the article, lenders should now consider:
- amending the guarantee to provide specifically that the guarantee covers any increase in the indebtedness of the borrower and/or any change in the purpose of the loan;
- including provision in the interpretation clause of the loan agreement that the reference to any agreements are to those agreements as amended from time to time;
- obtaining confirmation from the guarantor that the guarantee extends to the amended or varied loan agreement; and/or
- obtaining a new guarantee - particularly if changes to the loan agreement materially increase the borrower's indebtedness or alter any other material commercial terms of the agreement.
1 Triodos Bank N.V. v Ashley Charles Dobbs [2005] EWCA Civ 630
Enquiries and information
For more information on any of the cases, articles and features in Financial Services Quarterly, please email Rachel Gowing or call on 64 9 916 8825.
Disclaimer
This publication is necessarily brief and general in nature. You should seek professional advice before taking any action in relation to the matters dealt with in this publication.
