McGuinness v Norwich and Peterborough Building Society

Factual and Procedural Background

On 24th February 2010, Deputy Registrar Middleton made a bankruptcy order against the Appellant on a petition by the Respondent building society concerning a sum of £1,223,883.26 alleged due under a guarantee and indemnity ("the Guarantee") given by the Appellant in relation to his brother's borrowing liabilities. The appeal, permitted by the Deputy Registrar, raises two points about a guarantor's liability and the creditor's ability to present a bankruptcy petition: whether the liability is "for a liquidated sum" under section 267(2)(b) of the Insolvency Act 1986 or only for unliquidated damages; and if only damages, whether the creditor must first obtain judgment for a specific sum before presenting a bankruptcy petition, even where the liability is admitted and the damages can be precisely identified.

The Guarantee, dated 10th September 2008 on the Respondent's standard form, included provisions that the guarantor's liabilities were unconditional, payable immediately on demand, and included making good any losses or expenses incurred if the borrower failed to pay or if enforcement was required. The Appellant's brother (the Borrower) defaulted, and the Respondent demanded payment from the Appellant under the Guarantee. It was undisputed that the Borrower's liability was a liquidated sum and the Appellant advanced no defence to liability under the Guarantee.

Legal Issues Presented

1. Is a guarantor's liability under the Guarantee a liability "for a liquidated sum" within the meaning of section 267(2)(b) of the Insolvency Act 1986, or only a liability to pay unliquidated damages?
2. If the liability is only for unliquidated damages, is the creditor disabled from presenting a bankruptcy petition without first obtaining judgment for a specific sum, even where the liability is admitted and the damages can be identified with mathematical precision?

Arguments of the Parties

Appellant's Arguments

• The Appellant's counsel submitted that the Guarantee was of the "see to it" type identified in Moschi v. Lep Air Services Limited, meaning the guarantor's obligation was to ensure the principal debtor performed, and the creditor's remedy was damages for breach of contract rather than a debt.
• Accordingly, the creditor could not present a bankruptcy petition based on the guarantor's liability without first obtaining a judgment for payment of a specific sum, even if the amount was precisely ascertainable.
• The Appellant argued the Respondent's claim was for unliquidated damages, not a liquidated sum, and thus the Deputy Registrar lacked jurisdiction to make the bankruptcy order.

Respondent's Arguments

• This information was not available in the provided opinion.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Hope v. Premierpace (Europe) Limited [1999] BPIR 695	Claims for damages or for an account are not claims for a liquidated sum even if the claim can be identified precisely.	Considered whether this decision should be followed or departed from; court expressed doubt about its correctness but did not decide to depart from it.
Moschi v. Lep Air Services Limited [1973] AC 331	Guarantee of the "see to it" type creates an obligation to ensure the principal debtor performs; guarantor's liability is for damages, not a debt.	Used to analyze the nature of the Guarantee; court distinguished the present case from Moschi on the basis of the wording of the Guarantee.
MS Fashions Limited v. BCCI [1993] Ch 425	Distinction between surety and principal debtor liability; principal debtor liability dispenses with need for demand.	Applied to interpret the principal debtor provision in the Guarantee, supporting that the Appellant's obligations included a debt.
TS&S Global Limited v. Fithian Franks [2007] EWHC 1401 (Ch)	Guarantee containing principal debtor liability and payment on demand supports bankruptcy proceedings without prior demand.	Followed to support that bankruptcy proceedings were properly constituted on the present Guarantee.
Romain v. Scuba TV Limited [1997] QB 887	Payment on demand clause means no cause of action arises until demand is made.	Referenced in discussion of whether the Guarantee was of the "see to it" type or triggered only upon demand.
Hampton v. Minns [2002] 1 WLR 1	Guarantee creating a liability in debt arising on demand.	Considered as persuasive authority that guarantees with payment on demand create debt obligations.
Truex v. Toll [2009] 1 WLR 2121	Distinction between liquidated sums and bona fide defence to claims.	Used to emphasize that the question of liquidated sum is separate from the existence of a defence.

Court's Reasoning and Analysis

The court began by examining the Guarantee's wording, noting key provisions that the guarantor's obligations were unconditional, payable on demand, and that the guarantor's liability was as principal debtor, not merely surety. The court distinguished the present Guarantee from the "see to it" type in Moschi v. Lep Air, where the guarantor's obligation was to ensure the debtor performed, resulting in damages liability rather than a debt. Here, the Guarantee included a principal debtor provision that effectively made the guarantor liable for the debtor's debts as his own, thus creating a debt obligation.

The court found that clause 2.3's provision for immediate payment on demand and clause 4.2's principal debtor clause supported the conclusion that the liability was a liquidated debt rather than unliquidated damages. The court rejected the Appellant's argument that the Guarantee imposed only a damages liability requiring prior judgment before bankruptcy proceedings. It also noted that requiring creditors to obtain judgment before presenting bankruptcy petitions in such cases would cause unnecessary delay and expense.

The court acknowledged the authority in Hope v. Premierpace but expressed doubt about its correctness, without deciding to depart from it. The court emphasized that the Guarantee included a debt obligation sufficient to satisfy the requirements of section 267(2)(b) of the Insolvency Act 1986, allowing the Respondent to present a bankruptcy petition based on a liquidated sum.

Holding and Implications

The court DISMISSED the appeal, holding that the Guarantee included a liability for a liquidated sum within the meaning of section 267(2)(b) of the Insolvency Act 1986.

This decision confirms that where a guarantee includes a principal debtor provision and an obligation to pay on demand, the guarantor's liability is treated as a liquidated debt, permitting a creditor to present a bankruptcy petition without first obtaining judgment for a specific sum. The ruling avoids procedural delays and expense that would arise if judgment were required before bankruptcy proceedings in such cases. The court did not set new precedent on the broader question of guarantees of the "see to it" type but signaled some reservations about the authority of Hope v. Premierpace.