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	England and Wales Court of Appeal (Civil Division) Decisions
You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> Silverburn Finance (UK) Ltd v Salt & Anor [2001] EWCA Civ 279 (1 March 2001) URL: http://www.bailii.org/ew/cases/EWCA/Civ/2001/279.html Cite as: [2001] 2 All ER (Comm) 438, [2001] Lloyd's Rep Bank 119, [2001] EWCA Civ 279

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IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM MR RECORDER ARMITAGE QC
PRESTON COUNTY COURT

		Royal Courts of Justice Strand, London, WC2A 2LL Thursday 1st March, 2001

LORD JUSTICE MUMMERY :

1. This is an appeal from the judgment of Mr Recorder Armitage QC sitting in the Preston County Court on 1 October 1999. He dismissed a claim by Silverburn Finance (UK) Limited (Silverburn) for £21,756.50 plus interest. That sum is alleged to be due under written guarantees given in May 1992 by Mr Peter Salt and Mr Raschid Gibrail, as directors of Nightingale Signs (Blackburn) Limited (Nightingale), in respect of factoring transactions. The dispute arose following the appointment of administrative receivers of Nightingale on 17 May 1995.
2. The appeal, which has been very well argued by Mr Kinsky for Silverburn and by Mr Jess for the two directors, raises a point on the unilateral revocability of a continuing guarantee and on the possibility of an implied reinstatement of such a guarantee once revoked.

The Facts

3. Silverburn factor invoices for businesses on a "recourse" basis. They are based in Bolton. On 19 September 1991 Nightingale, who are based in Blackburn, entered into a written factoring agreement with Silverburn. Nightingale (referred to as the vendor) agreed to sell and Silverburn (referred to as the purchaser) agreed to buy such of Nightingale's invoices as Silverburn might from time to time agree to negotiate under the agreement in accordance with the agreed conditions. According to the main conditions Silverburn agreed to pay 96% of the face value of any invoice submitted under the agreement. By a later agreement dated 8 July 1992 this was reduced to 95 1/2 %. Nightingale's debtors were to make payment direct to Silverburn, but in the event of any invoice being disputed or remaining unpaid for a period exceeding average 43 days from factoring (extended to 54 days in the July 1992 agreement) Silverburn reserved the right to re-charge Nightingale with the full amount of such invoices and all costs and expenses incurred in course of enforcing payment, plus re-discount charges from the due date to the date of payment.
4. In April 1992 the defendants became directors of Nightingale. They were asked by Silverburn to provide and did provide written guarantees dated 8 May 1992. Each guarantee was in these terms

"I guarantee to pay to Silverburn....on demand any monies due to Silverburn..in respect of any unpaid invoices re discount charges and all costs and expenses incurred in enforcing payment."

5. As Mr Kinsky pointed out, the guarantees are not expressly linked to any specific agreement between Nightingale and Silverburn. The Recorder construed the guarantees as relating only to monies due to Silverburn for factored Nightingale invoices.
6. Silverburn factored invoices for Nightingale under the September 1991 agreement and later under a factoring agreement made between the same parties in slightly different terms on 8 July 1992. No fresh guarantees were given when that agreement was made.
7. Later in 1992 Nightingale's bankers recommended that Nightingale negotiate for the provision of factoring services by Lombard NatWest Commercial Services Limited (Lombard).
8. The crucial events occurred on 10 December 1992. The Recorder heard evidence from Mr Salt and Ms Joan Bennett, who was employed by Silverburn as a financial controller. He found the following facts. They are not challenged on appeal.
9. Mr Salt telephoned Ms Joan Bennett. He told her of the decision to move the factoring requirements to Lombard. Nothing was said about the guarantees. As requested, he confirmed this by letter to her written on Nightingale's headed notepaper and signed by him as managing director. The letter, which does not refer to the telephone conversation or to the guarantees, reads-

"I am writing to inform you of Nightingale Signs intention to terminate our factoring agreement with immediate effect.

A decision has been made to place our factoring with Lombard NatWest Commercial Services Limited and their Account Manager Mr Howard Dickinson will be contacting you to arrange a smooth transition.

I would like to thank you for the service you have provided to the Company over the years and can assure you the decision that has been made in no way reflects on the service you have provided...."

10. Ms Bennett wrote a letter to Mr Salt at Nightingale on the same day. It did not refer to any telephone conversation or to the guarantees.

" Thank you for your letter advising of the change to Lombard...

Should you be dissatisfied in the future please contact us but we wish you well and a profitable 1993."

11. After receiving that letter Mr Salt telephoned Ms Bennett. During the conversation he asked her to clarify the position regarding the directors' guarantees. She said that the guarantees would cover the invoices which had been received by Silverburn up till 10 December 1992.
12. No further invoices were submitted by Nightingale to Silverburn during the following month. The transfer to Lombard, which did not involve the provision of directors' guarantees as factoring was to be on a "non-recourse" basis, did not go smoothly. There was a serious cashflow crisis for Nightingale. Their bank manager advised them to go back to Silverburn, which they did on 8 January 1993 when a meeting took place between the defendants and Ms Bennett at Silverburn's offices. There was no discussion at that meeting about guarantees or about any change in the factoring conditions. The defendants remained silent about guarantees. As for Ms Bennett, the Recorder found that she was pleased to see her lost customer return so soon. She agreed to continue factoring for Nightingale. She got out the file containing the factoring agreement and the personal guarantees. Having assured herself that she still had the documents, she assumed that they remained binding.
13. After Nightingale went into administrative receivership in 1995 Silverburn's solicitors sent letters to the defendants dated 14 July 1995 applying for payment of the monies due to Silverburn in respect of unpaid/underpaid invoices factored for Nightingale under the terms of a factoring agreement "which Agreement was personally guaranteed by you jointly and severally."

The Proceedings

14. As the sum demanded was not paid proceedings were started by Silverburn in the Bolton County Court on 4 January 1996. In the amended Particulars of Claim reference was made to the Written Factoring Agreement of 19 September 1991 and the agreement of 8 July 1992, to the guarantees and to Mr Salt's letter of 10 December 1992. It was pleaded that after that letter Silverburn continued to factor invoices for Nightingale, who continued to accept payment for such invoices on the same terms as the Written Factoring Agreement, as varied, and that by such conduct the parties entered into further Factoring Agreements on the same terms as before in respect of each invoice thereby submitted and paid for from time to time.
15. Among the points taken in the defence was the allegation that on 10 December 1992 Nightingale were released from all liability in respect of which the defendants gave the guarantees and that the defendants were discharged from any liability under them. This allegation was denied in Silverburn's reply. The defence also raised a plea of estoppel founded on claimed reliance on an alleged oral representation on behalf of Silverburn on 10 December 1992 that the guarantees would continue after the termination of the factoring agreement

"only in respect of Nightingale's obligations concerning invoices which had by 10 December 1992 been sent to the Plaintiff by Nightingale."

The Judgment

16. In a clear and careful judgment the Recorder came to firm conclusions which can be summarised as follows:-
17. The factoring agreement was terminated on 10 December 1992, so that there would be no future invoices to which the guarantees could attach.
18. By necessary implication the guarantees were discharged on 10 December 1992 in respect of later invoices. The defendants were thereby released from their guarantees, save as to the account in relation to invoices received by Silverburn up to that date. Nothing needed to be said expressly, as neither party contemplated that after that date Nightingale would submit or that, if submitted, Silverburn would accept, invoices for factoring.

A further factoring agreement was made on 8 January 1993, but the guarantees were not discussed and were not part of that agreement, even though Ms Bennett assumed that they were.

19. In those circumstances the Recorder did not find it necessary to decide the estoppel point. He dismissed the claim.

Silverburn's Submissions

20. Mr Kinsky, on behalf of Silverburn, criticised the Recorder's analysis of the legal position. His main submissions can be summarised as follows:-
21. Nothing was expressly said in the exchange of letters on 10 December 1992 or in the telephone conversations to the effect that the guarantees would be ineffective after that date.
22. There was no basis for implying into what was said by Ms Bennett any agreement by Silverburn to release the guarantees in respect of any invoices factored after 10 December 1992 and her words should not be construed as such an agreement.
23. It was wrong to treat the "termination " of the factoring agreement as releasing the guarantees for invoices factored after that date. The factoring agreement did not create continuing obligations either on Nightingale to factor all its invoices or on Silverburn to accept invoices presented for factoring. It was an "umbrella " contract setting out the terms on which invoices would be factored if and when they were presented and accepted. Accordingly there was no legal obligation on Nightingale to inform Silverburn on 10 December that they did not intend to factor any more invoices after that date. The guarantees remained unaffected.
24. That this is so is clear from the terms of the guarantees, which were ignored by the Recorder. It has already been noted that the guarantee obligations are not linked to any particular factoring agreement. They expressly cover "any unpaid invoices" factored by Silverburn for Nightingale. The claim on the guarantees is based on invoices falling within that description and it is unaffected by the events of 10 December 1992.
25. Even if the guarantees were released by reason of the events of 10 December, the position was reversed by the effect of the defendants' request at the meeting on 8 January 1993 to resume the pre-existing factoring arrangements. Even though nothing was said about guarantees on that occasion, the defendants' request, which was granted by Silverburn, was made in the knowledge that it was Silverburn's usual practice to require company directors to provide personal guarantees to support the "recourse" aspect of their relationship. The previous relationship between the parties was revived in its entirety, including the existing guarantees. They fully complied with the statutory requirement of writing and were couched in sufficiently wide terms to cover the invoices factored in the period after that date. The claim is based on such invoices. In a sentence, the events of 8 January 1993 terminated any prior termination of the factoring agreement and revoked any prior revocation of the guarantees.

Conclusion

26. I am unable to accept Silverburn's analysis of the legal position. It has been attractively presented and, in my view, Silverburn's stance is more consistent with equity and justice than that adopted by the defendants. But as a matter of law the Recorder reached the right decision.
27. In my judgment the correct legal analysis can be shortly stated.
28. The guarantees supplied by the defendants in May 1992 are correctly characterised as continuing guarantees. They were given in respect of indebtedness of Nightingale to Silverburn continuing to accrue from time to time under the "recourse" provisions of the factoring agreement. In the absence of any express provision in the guarantees providing for their termination by the giving of a prescribed period or form of notice, the defendants were entitled at any time to revoke the guarantees in respect of the future liabilities of Nightingale to Silverburn.
29. The guarantees were revoked on 10 December 1992 as a result of what was done and said by the parties on that day. The underlying legal relationship between Nightingale and Silverburn created by the factoring agreement was terminated with immediate effect. That was agreed. Nightingale, acting through Mr Salt, informed Silverburn both orally and in writing, that Nightingale were changing the factoring of invoices to Lombard. Ms Bennett, on behalf of Silverburn, accepted that that was the position.
30. In stating that the defendants remained liable on the guarantees in respect of invoices already factored Ms Bennett correctly recognised a significant legal consequence of the revocation of a continuing guarantee. If a continuing guarantee is revoked the guarantor remains responsible for any sums incurred by the principal debtor (i.e. Nightingale) which are the subject of the guarantee up to the time of revocation. Accrued rights are not affected by the revocation. See Halsbury's Laws (4th Ed) Vol 20 at para. 290; Law of Guarantees, Andrews & Millett at para 8.6.
31. The guarantees were effectively revoked in respect of future liabilities of Nightingale to Silverburn for the simple reason that the contemplation of all the parties on 10 December was that no such liabilities would in fact be incurred after that date. There would be no more factoring of Nightingale invoices by Silverburn following the change to Lombard. The legal relationship between Nightingale and Silverburn, in support of which the guarantees were supplied, was extinguished, not temporarily suspended. The guarantees were revoked, not simply in abeyance; they were not needed by Silverburn in respect of a non-existent relationship. As they have been revoked, Silverburn are not entitled to sue on them.
32. A new factoring agreement was made between Nightingale and Silverburn on 8 January 1993. The new agreement was not put into writing. Nothing was expressly said about its terms. In fact factoring took place thereafter on the basis of the conditions prescribed in the earlier factoring agreement. Those conditions did not, however, expressly provide for a guarantee. There was no express agreement at the meeting on 8 January about the supply of guarantees by the directors. Any implication of an agreement to supply a guarantee would face the difficulty of non-compliance with the statutory requirement of writing. That requirement cannot be satisfied by reference back to the guarantees supplied in May 1992, as they have been revoked. They are only written evidence of guarantees that have since ceased to exist. They have not been resurrected by some process of implied revocation of an effective revocation. The earlier documents of May 1992 are not evidence in writing of a guarantee alleged to have been impliedly agreed on 8 January 1993. In any event, as already pointed out, Silverburn's pleaded claim against the defendants is based on the 1992 guarantees, not on any guarantees given or revived on any later date.
33. The Recorder rightly dismissed the claim. I would dismiss the appeal.

LORD JUSTICE RIX:

34. I agree and gratefully adopt Lord Justice Mummery's statement of the facts and the submissions of the parties.
35. When on 10 December 1992 Nightingale wrote to Silverburn "to terminate our factoring with immediate effect", there was in my judgment also an implied revocation of the personal guarantees of Mr Salt and Mr Gibrail which had been given to support the factoring agreement between Nightingale and Silverburn. It is true that those guarantees did not refer in terms to any particular factoring agreement, but they were certainly given to support the factoring agreement between the companies and did refer expressly to "any unpaid invoices" etc. That agreement had now been terminated. It is also true that the agreement did not bind the companies to the factoring of any particular invoices. Thus Nightingale was free to tender invoices as it wished for factoring, and Silverburn was likewise free to accept or refuse any such invoices tendered. Nevertheless, if factoring was to be done, the factoring agreement set out the terms on which it was to be done, and with the termination of that agreement there ended the contractual relationship between its parties. If that relationship was at any time thereafter to be renewed, and I accept that Ms Bennett harboured hopes that it might be, it did not follow that it would be renewed on the same terms as before. In these circumstances it would in my judgment be wrong to suppose that the personal guarantees could survive the termination of the primary arrangement which those guarantees had been given to support, save of course in respect of invoices which had already been accepted for factoring prior to the termination.
36. If, however, there might be any doubt regarding the continued effectiveness of the guarantees in the absence of express reference to them, the facts were that in the telephone conversation on 10 December between Mr Salt and Ms Bennett which followed the faxing of his letter there was a discussion between them regarding just that question. The recorder found that Ms Bennett said that the guarantees would cover the invoices that Silverburn had received up to that day, ie 10 December. She did not say – "and not thereafter", or "only the invoices received up to today": but the recorder held that the effect of the conversation was the same as if she had so said, and I agree. The whole point of that area of their conversation was to determine, in the light of the parting of the ways, whether and if at all for which invoices the guarantees continued to provide surety. The guarantees themselves contained no notice provisions for their revocation: they could be revoked therefore in any way effective to do so.
37. When on 8 January 1993 Nightingale and Silverburn resumed their previous relationship, there was a meeting at Silverburn's offices. Nothing was put in writing, but in effect a new factoring agreement was made on the same terms as the one that had been terminated. Nothing, however, was said on either side about personal guarantees. Under pressure of cross-examination on this very point – for Ms Bennett's witness statement had said nothing about any mention of guarantees on this occasion – Ms Bennett said that she had told Mr Salt and Mr Gibrail at the meeting that the guarantees still applied; she said that she had gone into the matter of them fully. But the recorder did not accept her evidence on this point. For their part, Mr Salt and Mr Gibrail were conscious of the question of guarantees, but were determined not to mention them unless Ms Bennett brought up the subject, which she did not. That may not reflect credit on them, but that is the situation. For her part, Ms Bennett may have omitted to mention the question of guarantees because she was confident that they still applied, or because she forgot, or because at a time when Silverburn was in the process of winning back Nightingale's business she did not think it opportune to mention the subject.
38. The only question now relevant, however, is as to the effect on the matter of the guarantees of nothing being said about them at the time when the relationship between the companies was resumed. Mr Kinsky submitted that as a result of the resumption of the relationship on 8 January the guarantees also resumed their effectiveness. Just as the termination of the factoring agreement had been reversed, so any revocation of the guarantees should be regarded as reversed similarly.
39. In my judgment, however, the matter cannot be regarded in that way. It is relatively easy to see that a new factoring agreement on the same terms as the old one was made. That much was no doubt the subject of express discussion at the meeting of 8 January. That, however, was not at issue in this trial. If it had been, the conduct of several years of business following the resumption of the relationship would no doubt have answered any question on that score. As to the guarantees, however, just as it was necessary to agree again a new factoring agreement, to replace the old agreement which had undoubtedly been terminated, so it was necessary to agree new guarantees to replace the old ones which had been revoked. New guarantees were not agreed expressly. It would perhaps have been arguable to say that they had been agreed impliedly, on the basis that the directors knew that Silverburn was only willing to do business on a recourse basis, supported by personal guarantees. However, the difficulty with that approach is that Silverburn had never pleaded reliance on new guarantees, only on the old guarantees given in May 1992. Nor had Silverburn pleaded any other route by which the revocation of the old guarantees had been somehow undone.
40. The significance of the failure to plead the existence of new guarantees or the re-emergence of the old guarantees is that such pleas were never considered at trial. If they had been, the question of their status would have had to have been considered by reference to the Statute of Frauds. I am doubtful that an argument could be sustained that the old guarantees would stand as a sufficient note or memorandum of new or revived guarantees, at any rate in the absence of express agreement to that effect. However, on appeal this Court was simply not concerned with such questions nor were we taken to the underlying authorities which would have had to have been considered if such questions had been properly before us. In such circumstances it seems to me to be impossible to say that further evidence would not have been relevant at trial, if such points had been taken there, or that it is now possible, or fair, to determine them on appeal.
41. For these reasons, I too would dismiss this appeal.
ORDER: Appeal is dismissed with costs , which will be subject to a detailed assessment. Application to appeal to the House of Lords refused. (Order does not form part of approved Judgment)