[Home] [Databases] [World Law] [Multidatabase Search] [Help] [Feedback]
	England and Wales Court of Appeal (Civil Division) Decisions
You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> GMAC Commercial Credit Development Ltd v Sandhu [2001] EWCA Civ 1209 (10 July 2001) URL: http://www.bailii.org/ew/cases/EWCA/Civ/2001/1209.html Cite as: [2001] EWCA Civ 1209, [2001] 2 All ER (Comm) 782

[New search] [Printable RTF version] [Help]

IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
(Mr J Mitting QC)

		Royal Courts of Justice Strand London WC2 Tuesday, 10th July 2001

1. LORD JUSTICE POTTER: These proceedings concern a claim by the claimant, GMAC, against the first defendant, Kalvinder Singh Sandhu ("Kalvinder") and his father, Kewal Singh Sandhu ("Kewal") under deeds of guarantee and indemnity ("the guarantees") stated to be entered into by them in consideration of GMAC, then named BNY Financial Limited, entering into or continuing with an invoice discounting agreement between BNY and a company called Palmier PLC ("Palmier"), then in administrative receivership, but of which the defendants were former directors. For convenience I shall refer to GMAC by those initials throughout, ignoring its former appellation of BNY.
2. The guarantees were signed against the following background. The first defendant, Kalvinder, is an international businessman. He was the principal director and moving spirit behind Palmier and the overall controller of its activities. Palmier was in the garment business. Kalvinder built up the business over the years and conducted business not only in this country but in association with companies established in various countries to further Palmier's foreign business.
3. On 20th September 1994 Palmier entered into the invoice discounting agreement, whereby Palmier sold to GMAC all its book debts and ancillary rights as at the date of the agreement and arising thereafter at a purchase price defined in clause 5 of the agreement. The procedure provided for in respect of future sales was that under clause 6 Palmier would notify GMAC, on delivery of the relevant goods, by delivery to GMAC of a completed transmission form, upon receipt of which GMAC would credit Palmier with a purchase price from its client account and would otherwise account as set out in clause 7, the purchase price payable by GMAC being "the gross purchase price" less a discount and administration charge as provided for in clauses 5 and 8 of the agreement. Whereas the property and the receivables passed to GMAC, and Palmier agreed to receive and pay into a trust account for GMAC all moneys received on account of the goods sold, and whereas under clause 20 of the agreement GMAC had the sole rights of collection and enforcement in respect of the receivables under clause 20.3, GMAC appointed Palmier as its agent for administering the accounts of the debtors and procuring payment and enforcing all ancillary rights for GMAC's account, Palmier undertaking to act promptly and efficiently in that respect. By clause 15 Palmier also had the obligation to keep and maintain all appropriate books and records and to deliver monthly to GMAC a schedule of all receivables owed, aged by date of invoice, together with a copy of Palmier's sales ledger control account, including all details required by GMAC. By clause 17, to which I shall turn in more detail below, GMAC had the right to require Palmier at any time to re-purchase any receivable pursuant to a re-purchase notice as specified in clause 17. By clause 19, the agreement was terminable on one month's notice by either side and by GMAC for breach, insolvency and on the happening of various other specified events.
4. At the time the invoice discounting agreement was made a debenture was taken as a security over the book debts of Palmier. However, it ranked second to a debenture in favour of Midland Bank Plc, Palmier's principal bankers.
5. Palmier's business was faltering in 1998. On 3rd December 1998 Midland Bank Plc appointed joint administrative receivers of Palmier's business and undertaking pursuant to powers granted to it under a debenture. At that time there were outstanding receivables which had been purchased by GMAC pursuant to the discounting agreement to the value of some £7.5m. Some £4m was quickly collected in by the receivers and paid over to GMAC, leaving then due from debtors an unrecovered sum in excess of £3m. However, GMAC were not concerned to hold out for that sum, being content to recover what they had paid out under the invoice discounting agreement, which they calculated at £1,618,000.
6. The receivers who, as the administrative receivers of Palmier were in possession of the records and were still GMAC's agents for collection of the debts, were anxious to enlist the assistance of Kalvinder, who had an intimate knowledge of the business and customers and was in the best position to supply information and assist in the recoveries. Kalvinder also had a keen interest in doing so. As he put it at paragraph 17 of his first witness statement:

"I appreciated that there could be a commercial advantage in facilitating the claimant's collection of the book debts providing as part of any deal the entity which was to act as the claimant's collection agent could also purchase from Palmier its rights to the book debts in excess of those Palmier owed to the claimant, ie the difference between the £1.6 million owed to the claimant and the £3 million outstanding (being approximately £1.4 million)."

7. With this in mind, having finally ceased to be a director of Palmier on 31st December 1998, on 22nd January 1999 Palmier, acting by the receivers, sold the goodwill and other assets of Palmier, including its books and records to P & P Designs, another company controlled by Kalvinder, and subsequently accepted a proposal from a British Virgin Islands company, Donnaway Ventures Limited, another vehicle for Kalvinder's interests, to purchase the book debts of Palmier. The essentials of the deal were recorded in a letter of 7th March 1999. That letter stated that the consideration and terms of the purchase contract were likely to be as follows:

"1. Such a ledger will be purchased without warranty or guarantee.

2. The consideration for the Purchase Contract at the time of purchase is to be a fixed negotiated figure over and above the balance due to the owner of the Ledger (BNY), at the time & date of contract.

3. Such a consideration to be also calculated net of cost or reasonable provision of costs of collection and/or legal costs in the pursuit of The Ledger or the Sale/Purchase transaction.

4. The terms of payment of the above consideration are proposed as follows:

* The purchaser or their mutually agreed agents will use their best endeavours to collect the book debts, details of which you will provide as an appendix to any Purchase Contract.

* The Purchase Contract will be guaranteed by Third Party Personal Guarantees (The Guarantor) acceptable to The Seller and the Joint Receivers for the contracted sum. Such acceptance to be advised as such to you by The Seller under separate cover.

* No monthly minimum payment will be agreed, but the Purchase Contract may be agreed with a duration of six months. On conclusion of the contract any balance due to The Seller will be paid in full, or recourse may be taken by you as Agent against the Guarantor.

* On completion of the payment of the consideration, full title to the balance of the Ledger will pass to the Purchaser."

8. It subsequently became appreciated that under the existing arrangements the book debts of Palmier were not theirs to sell, property being in GMAC under the terms of the invoice discounting agreement. Accordingly, an agreement called a "Deed of Assignment" was entered into, whereby Donnaway took over the position of Palmier under the invoice discounting agreement. The deed of assignment was eventually signed on 18th June 1999 and guarantees were entered into by the defendants on the same date. The deed was made between GMAC, Palmier acting by its joint administrative receivers ("the receivers") and Donnaway. It was agreed that the amount of the "outstanding pre-payments" in respect of advances by GMAC were £1,618,000 which Donnaway would proceed to get in. Donnaway also agreed to pay to the receivers of Palmier on or before 19th November 1999 an assignment consideration in the sum of £300,000 plus VAT, in consideration of which Palmier assigned to Donnaway, with the consent of GMAC, all Palmier's title and interest which it had or might have in the discounting agreement. Donnaway in turn undertook, with effect from 18th June 1999, all Palmier's obligations to GMAC under and in pursuance of the invoice discounting agreement. Donnaway also undertook to use all reasonable efforts to collect in the receivables up to a net sum of £1,918,192 as expeditiously as possible and promptly pay the proceeds into a trust account to be established by Palmier with Midland Bank, the moneys to be held by Palmier on trust to pay GMAC all moneys paid in until GMAC's outstanding pre-payments had been paid; secondly, to pay the receivers all further moneys received until the assignment consideration of £300,000 had been paid to Palmier, and, thirdly, for Donnaway absolutely. Once Donnaway had paid the outstanding pre-payments and the assignment consideration, Donnaway would be released from all obligations under the assignment deed. It was a curiosity of the deed of assignment, however, that, whereas Donnaway was bound to pay the assignment consideration to the receivers by 19th November 1999, no time limit was placed on its obligation expeditiously to get in the book debts. The guarantees entered into by the defendants were made simultaneously on 18th June 1999.
9. For reasons which are not wholly clear, although GMAC were interested in enforcing the obligations undertaken by Donnaway under the terms of the deed of assignment, no specific mention of the deed of assignment as a source of Donnaway's obligations to pay money to GMAC appears save in the preamble to the guarantees, which states that the consideration for the guarantee is "the factor at the request of the surety entering into or continuing with any agreement for the factoring or discounting of debts which agreement was made with Palmier Plc (in administrative receivership) ('the Agreement') the entire benefit of which has been assigned to the client [that is to say, Donnaway] or in accordance with the agreement treating any debt as approved." Under the guarantee the defendants agreed, inter alia, to pay to GMAC on demand all sums then or at any time thereafter due to GMAC from Donnaway. They further guaranteed the due performance of all other obligations of Donnaway to GMAC however arising and to indemnify GMAC against all losses, actions, costs, interest, proceedings, claims and demands which GMAC might suffer or incur by reason of or in relation to the insolvency of Donnaway or any breach or failure by Donnaway to observe or perform any of its obligations to GMAC. It was also provided that each surety would be liable under the guarantee in all respects as the principal debtor. Finally and importantly for this appeal, clause 13 of the guarantee provided:

"It is AGREED and declared that the aggregate demand or demands under this Guarantee and indemnity shall not in any event exceed the lesser of (a) the sum of £1,618,492 plus VAT save that the Surety shall be liable to pay interest upon such demand or demands pursuant to clause 4(vii) and that the obligations [of] the Surety under this Deed shall be subject to this limitation of liability and (b) the balance of the Asset Purchase Price from time to time outstanding under the Agreement. Without prejudice to the foregoing it is agreed that the Factor may make demand if and to the extent that any such remain outstanding on 19 November 1999."

10. I shall return to clause 13 later.
11. Donnaway having failed to get in sufficient to meet the outstanding repayments under the deed of assignment within the six months, by letters dated 18th January and 16th August 2000 GMAC's solicitors wrote to Donnaway demanding payment of the sum of £1,249,899.66 under clause 17 of the invoice discounting agreement, and upon Donnaway's failure to respond, GMAC's solicitors made demand on each of the defendants to pay that sum pursuant to their guarantees.
12. Proceedings were issued on 22nd August 2000 and application made for summary judgment under CPR Part 24 in what I shall call the first action. By the defences raised the defendants asserted that the demands made on the guarantors were premature. Against that defence being made good, GMAC issued a second set of proceedings against the defendants ("the second action") and held an application for summary judgment in reserve. The Master gave judgment for GMAC in the first action, rejecting the defence of prematurity of demand.
13. The defendants appealed to the judge in chambers against the decision of the deputy Master in the first action, and it was common ground that the evidence and issues deployed in the first action should be treated as redeployed in the second action, upon which GMAC then proceeded before the judge. On 13th October 2000 Mr. John Mitting QC, sitting as a Deputy Judge of the High Court, held in favour of the defendants on the prematurity defence in the first action. However, in the second action, in which the prematurity argument could not be run, he rejected various defences relied upon by the defendants. The first was an argument of construction relating to the alleged non-compliance of GMAC with the notice requirements under clause 17 of the invoice discounting agreement. He also rejected three defences which were raised for the first time before him and which were based upon evidence served subsequent to the hearing before the deputy Master. One was a claim for rectification based on alleged mistake. The second was a claim that the deed of assignment and the guarantees were induced by misrepresentation on the part of GMAC and the receivers. The third was a defence raised by Kewal that, in signing his guarantee, he acted under the undue influence of Kalvinder, of which GMAC were alleged to have had notice. The rectification point has not been pursued upon this appeal. Three of the defences raised before the judge have been pursued before us, although they have been truncated in part. I shall consider them under the headings 'Invalid Notice', 'Misrepresentation/unfair term', and 'Undue influence'.

Invalid notice

14. The defendants contend that no valid notice has ever been served under clause 17 of the invoice discounting agreement so as to place Donnaway, as successors to Palmier, in default, and thereby to justify a demand upon the defendants as guarantors. Clause 17 of the invoice discounting agreement provided, under the heading "RECOURSE TO CLIENT":

"17.1. UCB may require the Client at any time after receiving a written notice from UCB ('the Repurchase Notice') to immediately repurchase any Receivable:

17.1.1 which remains unpaid, whether in whole or in part after payment thereof has become due; or

17.1.2 which even if not due remains unpaid by the end of the Permitted Credit Period; or

17.1.3 where the Debtor at any time disputes liability for payment or asserts any right of lien retention or set-off

17.2 The Repurchase Notice shall detail the relevant Receivable to be repurchased and the price at which it is to be repurchased which shall be the amount of the Receivable as included in the relevant Transmittal Form less any amount already paid by a Debtor in respect of such Receivable ('the Repurchase Price')

17.3 Until all the monies payable by the Client under the Repurchase Notice to UCB have been paid the Receivables included in such notice and its Ancillary Rights any Transferred Goods relating thereto shall remain vested in UCB.

17.4 After the ownership of any Receivable shall have revested in the Client UCB will credit the Client with all sums subsequently recovered by UCB in respect of such Receivable as a result of UCB's enforcement of any of the Ancillary Rights vested in UCB pursuant to Clause 2.2.

17.5 UCB has an additional right to require the Client to repurchase any Receivable at any time in its absolute discretion whether or not the Client is in breach of any of its obligations hereunder."

15. By letter of 18th January 2000 the solicitors for GMAC wrote to Donnaway, who by then were assignees of Palmier's obligations under the invoice discounting agreement, in the following terms:

"By agreement dated 18 June 1999 the benefit and burden of the Invoice Discounting Agreement was with our clients' consent, assigned to you. The sum outstanding at the 18 June 1999 was £1,618,000.00.

The account has only reduced since that time to £1,249,899.66. As a result of the non-performance of the ledger, notwithstanding all efforts to obtain payment, our clients have decided to give notice of recourse pursuant to Clause 17 of the Invoice Discounting Agreement. Our clients therefore require you to immediate re-purchase all outstanding receivables which remain unpaid.

Please arrange to let us have payment of the amount outstanding £1,249,899.66 within the course of the next seven days by TT to our Client Account..."

16. This produced no result. On 16th August 2000 the solicitors wrote as follows:

"We refer to our letter of 18th January 2000 (copy attached)... Notwithstanding this demand, no payment has been made.

Our clients, for the avoidance of doubt, repeat their demand for the sum due of £1,249,899.66 and further to the provisions of Clause 7.5 of the Invoice Discounting Agreement, demand payment of £1,249,899.66."

17. Mr. Berry on behalf of the defendants takes the straightforward point that the notice given by the letters quoted did no more than demand the repurchase of all "outstanding receivables", putting a global sum upon them without, as required by clause 17.2, giving details of each relevant receivable to be repurchased and the price as calculated therein. He submits that such failure is contrary not merely to the letter but also the spirit of clause 17.1 to clause 17.4, which was clearly concerned to place the onus upon UCB/GMAC to give the appropriate chapter and verse, bearing in mind that, under the regime provided for in the agreement, UCB/GMAC would be in possession of all relevant (or at least sufficient) information as a result of the obligation on Palmier/Donnaway to give notification of receivables under clause 6, and the monthly update under the provisions of clause 5.2. Mr. Berry acknowledges that clause 17.5 , on the face of it, gives UCB/GMAC an additional right to require Palmier/Donnaway to repurchase any receivable at any time in its absolute discretion and that it is plain that, in giving notice of recourse as set out above, at any rate in their letter of 16th August 2000, GMAC's solicitors sought to rely specifically on clause 17.5. However, he submits that clause 17.5 must still be construed as requiring identification of the particular recoverable or recoverables required to be repurchased and the repurchase prices required in respect of each.
18. The judge rejected these arguments, taking what may be described as a shortcut, which Mr. Berry submits was erroneous. The judge simply said this at paragraphs 15 to 16 of his judgment:

"The letter, accurately and completely identifies the relevant receivable and states the price at which it is to be repurchased. It does so because, by applying the interpretation provision to which I have referred, clause 17 should read:

'The repurchase notice shall detail the relevant receivables to be repurchased at the price at which they are to be repurchased."

19. I pause to say that he might more accurately, in the spirit of his observation, have put 'price' in the plural as 'prices'. The judgment continues:

"The notice, the letter of 18th January 2000, does precisely that. It identifies the relevant receivables to be repurchased as all outstanding receivables and it identifies the price at which they are to be repurchased, namely £1,249,899.66. The letter of 18th January 2000 was valid notice under clause 17."

20. I agree that the judge's approach was incorrect and I accept the submissions of Mr. Berry. The context and crucial purpose of clause 17 in my view plainly contemplates the situation where, in the course of an ongoing factoring agreement relating to many sales and purchases regularly reported and accounted for by Palmier, UCB, for particular reasons set out in paragraph 17.1, or other reasons within their discretion, require repurchase of a particular factored debt or debts. In such circumstances, the onus is placed on UCB to provide details of the balance, bearing in mind it is requiring a repurchase by Palmier for its own reasons and on its, rather than Palmier's, terms. If this is so, it does not seem to me that the simple proposition that a "singular includes the plural" interpretation is to be implied meets the complaint that particulars of the individual receivable and the individual repurchase prices are required to be given by way of break-down or itemisation, so that Palmier in turn can check the price and take up any issue which may appear.
21. So far as the procedure envisaged and required by clause 17 is concerned, the demand made by GMAC had two particular deficiencies, one patent and one latent. The patent deficiency was that, in the context, a demand for all outstanding receivables which remain unpaid did nothing to identify which individual debts or receivables were required to be repurchased in a situation where the amount of £1.618m was a conventional figure assessed on the basis of what GMAC was prepared to accept in discharge of the £3m or so of the receivables actually outstanding under the factoring agreement. The latent deficiency, which is in fact much the same point, is that it is apparent that the figure of £1.618m had never been calculated on the basis of repurchase prices in respect of particular transactions totalled up to give a global sum due, but had been arrived at on a rough and ready banking basis, calculated internally by GMAC by checking what the bank had paid out, namely £1.522m topped up with a figure of £96,000, which constituted a 'guestimate' made on 4th May 1999 of the discount charges which would accrue on the reducing figure over the six months recovery period then anticipated, assuming that the debts were got in in the foreseeable future.
22. In those circumstances, I consider that the judge was wrong to find as he did. He should have found that no valid notice was given under clause 17 and that therefore, insofar as it was relied upon to found a default by Donnaway under the invoice discounting agreement when GMAC made the demand upon the defendants under the guarantee, it was ineffective for that purpose.
23. Mr. Davies for GMAC has nonetheless relied upon the argument that, so far as the demands under the guarantees were concerned, it was unnecessary to found them upon a clause 17 notice, or indeed upon any default by Donnaway. He submits that clause 13 of the guarantee, while infelicitously drafted, is adequate to justify a demand directly upon the guarantors under the last lines of clause 13. I quote here from (b) as previously quoted:

"The balance of the Asset Purchase Price from time to time outstanding under the Agreement. Without prejudice to the foregoing it is agreed that the Factor may make demand if and to the extent that any such remain Outstanding on 19 November 1999."

24. Mr. Davies was obliged to accept that "any such" must refer back to the earlier sum mentioned under (a) of £1,618,492 and/or under (b), the balance of the asset purchase price from time to time outstanding under the agreement. In this respect it seems to me that Mr. Davies faces insuperable difficulties. It is no doubt the case that in drafting the guarantee GMAC had in the forefront of its mind its requirement that the guarantor should stand as surety for and in the shoes of Donnaway in respect of any failure by Donnaway to realise book debts to the amount specified for the purpose of paying off GMAC. However, clause 13, which is principally aimed at the capping of the guarantor's liability at £1.618m or any lower balance due after further recoverables had been got in by Donnaway, limits the liability of the guarantors by reference to the so-called "asset purchase price" from time to time outstanding under "the agreement", which by definition in the guarantors is the invoice discounting agreement. As such, it makes no sense, there being no suitable subject in this context for the words "asset purchase price".
25. Without suggesting, let alone claiming, any remedy of rectification, however, Mr. Davies argues that it is plain that (i) clause 13 of the agreement must have been intended, and should be read, to refer to the deed of assignment rather than the invoice discounting agreement, and (ii) the words "asset purchase price", while not appearing in that deed either, must be taken to mean the amount of the "outstanding repayments" which it was plainly intended should be recoverable from the guarantors if and when Donnaway failed to get in sufficient receivables. Mr Davies seeks to derive support for this construction by pointing out that the date of 19th November 1999, which appears in clause 13, is the date by which the assignment consideration of £300,000 was payable to the receivers under the Deed of Assignment. In my view, Mr Davies seeks to push the principle that a contract should be construed by reference to the so-called matrices of the agreement too far in this case. It is plain that the form, thrust and intention of the guarantee is to provide security in respect of the obligations of Donnaway. Furthermore, it is framed, at least principally, to cover Donnaway's obligations under the invoice discounting agreement and not the deed. Even if it were right to go as far as Mr Davies suggests and to clause 13 as referring to Donnaway's obligations under the deed of assignment, I do not read the deed as imposing any time limit upon Donnaway's obligations to get in the debts of which Donnaway can be said to be in breach as the principal debtor. Mr. Davies invites the court to say that the final sentence of the guarantee imposes an additional and freestanding liability upon the guarantor to respond to a demand made upon him after 19th November 1999 quite independent of any default by Donnaway. In my view, it is not properly susceptible of such a construction.
26. Those conclusions are sufficient for the success of the appeal. However, I shall refer briefly to the other heads.
27. So far as misrepresentation is concerned, it is the defendants' contention that there was an actionable misrepresentation by GMAC made prior to the execution of the deed of assignment, which would entitle Donnaway to rescind the deed and would entitle the defendants in turn to discharge from their guarantees in the following circumstances. Kalvinder had ceased to act as a director of Palmier on 31st December 1998 and had not been actively engaged, it is said, in the process of debt recovery by the receivers since 3rd December when they were appointed. It is said that he was therefore dependent upon such information as he was given by the receivers as the result of their efforts at recovery at the time in order to know the true position in relation to receivables and any outstanding balance. In early 1999, as he put it in his first witness statement, he was informed by the receivers and Mr. Titley of GMAC that Palmier's outstanding book debts were approximately £3m, of which £1.6m was owed by Palmier to GMAC under the invoice discounting agreement. In his second witness statement he recalled that the sum was said to be approximately £3.2m. The judge accepted that in his judgment, and it is not disputed that a representation was made in early 1999, that the outstanding book debts were in the order of £3m or £3.2m which was consistent with a contemporary schedule dated 17th March 2000 from the DAL Consulting Group retained by Donnaway to get in the debts, and which showed the gross value in the books as £3.233m.
28. It was and is the defendants' assertion, not that the debts were necessarily overstated at that time but that subsequently, and before the deed of assignment and guarantees were signed, the amount of the gross book debts was reduced but without any further correcting or updating statement of the level of book debts being given. Indeed, it is asserted and not disputed before us that the schedule of invoice book debts stated to be attached to the deed of assignment (which is in fact missing and not before us) listed 600 items totalling some £3.22m as set out in the first five columns of the DAL schedule, (pages 149-157 of the bundle), thereby continuing the representation originally made. The defendants go on to assert that there is evidence to suppose that, as a result of the investigations of DAL, the receivables were overstated by as much as £500,000, for reasons set out but into which it is not necessary to go, and that, had Kalvinder been so aware, he would not have proceeded with the arrangements embodied in the deed of assignment.
29. The judge held that there was sufficient evidence of an actual misrepresentation, but went on to hold that, both by reference to Kalvinder's experience and state of knowledge, coupled with the effect of various provisions in the assignment deed, no reliance upon the representation could be demonstrated. He was also prepared to hold that if (as it appears might be the case) various provisions of the deed of assignment amounted to exception clauses under the Unfair Contract Terms Act, they were plainly reasonable. We do not propose to rule on those matters, not having called on Mr Davies in that respect. Suffice it to say that, on the state of the evidence before the judge, the claimants plainly had strong grounds on which to assert that Kalvinder had not relied upon the representations raised and that he was better aware than the receivers of the true level of outstanding receivables. Having said that, however, we consider that none of the judge's rulings, made in the course of hearings before him and on the basis of the limited evidence made available to him, should give rise to any plea of issue estoppel if and when the issues in the case are tried.
30. The same observations apply to the final head of 'Undue influence', on which we have heard no submissions. In fact, the plea is not one of undue influence but is based upon principles discussed in Barclays Bank v O'Brien, coupled with an assertion that Kalvinder misrepresented to Kewal the circumstances in which he was being asked to sign his guarantee and/or its likely effect in a situation of which GMAC should be regarded as having had notice. The judge was dismissive of this plea and, speaking for myself, I would give it little encouragement on the evidence that I have seen. Nonetheless it is not a matter which the parties should be shut out from arguing, given that leave to defend should have been given. Thus it should not be regarded as the subject of any plea of issue estoppel or res judicata later in the proceedings.
31. For the reasons I have given I would allow the appeal.
32. LADY JUSTICE HALE: I agree that the appeal should be allowed.
33. SIR ANTHONY EVANS: I agree and add a very few words about the further claim which was made under clause 13 of the guarantee, about which Mr. Davies has addressed us this morning.
34. The submission was dealt with by the judge in the first of his judgments, where he described the submission in the following way:

"On a natural reading clause 13, as a whole, taken in conjunction with clause 1, does not impose a freestanding obligation upon the guarantors to pay whatever sum may be outstanding but undemanded as at 19th November 1999."

35. In his second judgment, the relevant one for present purposes, the judge said this:

"I have already determined in a judgment given this morning that what I might describe as a construction argument does not avail the defendants in the fresh proceedings commenced by GMAC upon the guarantees."

36. The full breadth of Mr. Davies' submission has become apparent. It is well summarised by the judge's phrase "freestanding obligation". The submission is that the last sentence of clause 13 of the guarantee does give rise to an undertaking by the guarantor, who is described as the surety, to pay such sum as the claimants might demand as being "Outstanding" on 19th November 1999. The submission is that this undertaking was given by the first defendant as principal, not in his capacity as a surety, and that the undertaking was not secondary to any obligation which rested upon the party guaranteed; that is to say, Donnaway Ventures Limited. I would hold that this meaning of the last sentence of clause 13 is excluded by the contract terms themselves. The contract is described as a deed of guarantee and indemnity. The agreement stated in clauses 1, 2 and 3 is to guarantee or alternatively indemnify the claimants by reference to obligations owed by Donnaway Ventures Limited. It seems to me that those provisions clearly preclude reading any of the later clauses of the guarantee as extending to some other independent obligation owed by the surety independently of the debtor, Donnaway Ventures Limited. It is noteworthy that in clause 13 itself, though not in the last sentence, the defendants are referred to as the surety in their respective guarantees. It is not submitted that the debtor, Donnaway Ventures Limited, was under any matching obligation of the kind alleged against the defendants; that is to say, to repay the balance at a fixed date, namely 19th November 1999, and indeed any such obligation is conspicuously absent from the terms of the Deed where no such time limit is imposed.
37. I would hold secondly and independently that, even if there was a separate obligation of the kind alleged, it is impossible, on the wording of clause 13 itself, to say what the obligation was. The wording of the last sentence relates to "any such remain Outstanding" and "any such" clearly means any such balance as described in the first sentence. The balance referred to can only be calculated if it is known what is meant by the words which follow (b), "the balance of the asset purchase price from time to time to outstanding under the agreement". Lord Justice Potter has identified some of the insoluble problems of construction which arise even in deciding which agreement is referred to in that sentence. If the intention was the simple one that there should be an obligation to pay the sum of £1.618m less amounts that might have been accounted for to the claimants under the machinery which had been put in place, it would have been so simple to say so, and there is no apparent reason why, if that was their meaning, the parties should not have said so in this agreement.
38. I would like to say finally that it seems to me that, although future proceedings may be inevitable if only in order to resolve the misrepresentation and undue influence issues which we leave undetermined, it seems to me that the central issues in this case must be capable of solution by means of an inquiry into the state of the accounts between the parties, including the receivers as well as the parties who are before this court. Some form of proceedings with that object, which would result in an inquiry which would settle the accounts, could no doubt be devised. It would be even better if the parties could agree between themselves how and by whom such an inquiry should be conducted. That person's report need not be accepted in advance as final, though that too could be agreed. Even without such an agreement it would be immensely desirable that some private initiative should be taken rather than embark upon a costly investigation by the court.
Order: Appeal allowed with costs; second action dismissed with 50% of the appellants' costs; payment in the sum of £20,000 to the first defendant and £10,000 to the second defendant. (Order not part of the judgment of the court)