An obligation under a guarantee to pay on demand requires service of a demand before liability arises unless the liability is as principal debtor when no demand is required.
The High Court has considered this issue in Roberts v Kseye Capital No.1 Ltd and another [2023] EWHC 2927 (Ch).
The case concerned the provision of bridging finance of more than £2m by Kseye to GBQ Investments Ltd, to assist with the purchase of a number of properties. GBQ did not repay the sum outstanding when due in March 2018. In August 2019, Roberts provided the following guarantees to Kseye:
- 2.1 that whenever GBQ did not pay any of its obligations when due, to pay them on demand
- 2.2 that if the obligations were not recoverable from GBQ due to illegality, incapacity… or any other reason, to remain liable for them as if he were a principal debtor.
The guarantee provided for each demand to be in writing, delivered personally or sent by pre-paid first-class letter to Roberts, with deemed service on the second business day after posting.
Kseye served a statutory demand on Roberts in March 2021 and a bankruptcy petition in September 2021. Roberts was adjudged bankrupt in July 2023 as the district judge was not satisfied that there was any genuine dispute on substantial grounds. Roberts appealed.
It was common ground that unless a valid demand was made of Roberts under the guarantee, no debt was due under 2.1 because such a demand was a precondition to liability. In February 2020, Kseye’s solicitors had sent a demand letter enclosing the guarantee to Roberts marked “by first class post” and copied by e-mail to GBQ’s solicitors. The marking was the only evidence that the letter had been sent by first-class post. Roberts denied receiving the letter.
The question both for the district judge and on appeal was whether there was a genuine dispute on substantial grounds and whether Roberts had a realistic prospect of success. The High Court decided that the judge had understood and applied the correct test. There was no defective evaluation of the evidence which would justify interference by an appeal court: the judge was entitled to reach the conclusion she did.
Had Roberts succeeded on 2.1, he would still have been caught by 2.2. A debtor’s agreement to pay “on demand” does not require the service of a demand before liability arises: Levin v Tannenbaum [2013] EWHC 4457 (Ch). The words “or any other reason” meant that if the obligations became irrecoverable from GBQ, Roberts’ liability was triggered.
Louise Clark is a property law consultant and mediator
