Guarantees are different to indemnities, though they are commonly provided in the same document (a guarantee and indemnity). Indemnities are agreements by the indemnifier to be liable for any loss incurred by the lender. It is independent to and not contingent on the obligations of the borrower.
Gordon James Ramsay v Gary Love
In a recent case in the High Court involving a well known restaurateur, it was held that an agent has the authority to enter into a personal guarantee and indemnity on behalf of the principal using a signature machine.
Gordon Ramsay had an agency agreement with his father-in-law (the agent) by virtue of which the agent assumed responsibility for the management of Mr Ramsay's businesses. As part of the agency arrangement, the agent used a signature machine to regularly place Gordon Ramsay's signature on various documents.
The defendant, Northam Worldwide Limited, an owner of premises which were leased to one of Mr Ramsay's companies, Gordon Ramsay Holdings International Limited ("GRHI"), sought to enforce a personal guarantee granted by Mr Ramsay in respect of the obligations of GRHI under that lease. The personal guarantee was contained within the lease and Mr Ramsay's signature was placed on the document by the agent using the signature machine.
Mr Ramsay argued that he was not bound by the guarantee as he did not sign it, the agent did not have the requisite authority to bind Mr Ramsay under the guarantee and he could not have been aware of the existence of the guarantee as there had been no discussion about it.
The court held that:
- whilst it was plausible that Mr Ramsay did not know the detail of the transactions executed on his behalf, Mr Ramsay did not expect the agent to keep him informed of such matters and he was aware that he would not be kept informed. Mr Ramsay regularly gave personal guarantees without being expressly informed or asked and he didn't place significant importance on that;
- Mr Ramsay gave a substantial level of commercial responsibility to the agent, trusted him entirely and allowed him to regularly place his signature on legal documents using the signature machine; and
- there was no limit on the agent's authority and on that basis, the agent had been acting within a very wide authority to enter into the guarantee on Mr Ramsay's behalf and the guarantee was held to be valid
Whilst most individuals who are asked to grant guarantees are unlikely to have agents managing their affairs or access to a signature machine, the case does remind us of some fundamental considerations that should always be taken into account when a guarantee is being granted:
- the guarantor must understand the terms of the guarantee (albeit there were added complexities in the above case in respect of how legal documents were routinely entered into by the guarantor); and
- the guarantor should always be advised to take independent legal advice so as to limit the risk of challenge to the validity of the guarantee on the grounds that the guarantor did not understand its terms. Most banks require evidence that such advice has been given or an acknowledgement that they have chosen not to take such advice.Anyone who does have an agency arrangement in place should ensure the scope of the agent's authority is explicitly and carefully set out in any agency agreement and any limits on that authority are also specified so both parties are clear what action can and cannot be taken.