A guarantor has failed to establish that there was a genuine dispute over payments under a guarantee sufficient to restrain the presentation of a winding-up petition in PME Cake Ltd v Craig and others [2022] EWHC 1783 (Ch).
The case concerned a guarantee by the claimant of the tenant’s performance under a lease of property in South Harrow owned by the respondents. Possession of the property was yielded up to the respondents in June 2019. The respondents claimed that the tenant had failed to yield up the property in the state of repair required by the lease and brought proceedings against the tenant claiming damages of £558,000. The proceedings were compromised, at mediation, and the agreed terms enshrined in a Tomlin Order which required the tenant to pay costs of £55,000 and the sum of £245,000 in full and final settlement of all claims under the lease.
Payment was not made and the respondents sought to enforce payment by serving the claimant with a demand for the sums due under the order and enforcement costs, pursuant to the guarantee. When the claimant failed to pay, the respondents served it with a statutory demand.
The claimant argued that the claims which were the subject of the proceedings were compromised by the settlement agreement contained in the Tomlin Order by which the respondents agreed to settle all claims under the lease. This created a new agreement which replaced the lease. So, the respondents could not rely on the covenants contained in the lease but were restricted to seeking recourse pursuant to the provisions of the Tomlin Order. The tenant had been released from its liabilities under the lease and so the claimant, which was not a party to the Tomlin Order and not bound by it, was also released from its liabilities under the guarantee. Alternatively, the claimant argued that the Tomlin Order effected a material variation of the lease discharging the claimant from the guarantee or that since the respondents had elected to purse the tenant as principal, they were now estopped from pursuing the claimant as surety.
The court found that the Tomlin Order settled once and for all the disputes between the respondents and the tenant and brought into existence a new relationship between them. However, the reality was that the only claim that existed between the parties was the claim in the proceedings for the tenant’s breach of covenant. Consequently, it would be artificial to regard the sum payable under the Tomlin Order as anything other than a payment to be made by the tenant in satisfaction of its liability to deliver up the property in good and tenantable repair: Collin Estates Ltd v Buckley [1992] WL 893876. The Tomlin Order only settled the secondary liability for damages arising on a breach of the terms of the lease: it did not purport to vary any term of the lease.
The election argument also failed: where security is taken to secure any liability, a creditor’s claims against the principal for a debt and a guarantor on its guarantee are cumulative, not alternative remedies.
Louise Clark is a property law consultant and mediator
