Plaintiffs owning group of companies – Loan facilities being made available on basis of each company guaranteeing borrowings of each other company and personal guarantees from plaintiffs – Plaintiffs selling part of group and retaining remainder – Plaintiffs instructing solicitors – Problems arising with transaction – Bank recalling its loan – Companies retained by plaintiffs liable for borrowings under cross guarantees of companies which had been sold – Plaintiffs liable under personal guarantees – Plaintiffs alleging that they would not have entered transaction if they had been properly advised by solicitors as to risk of liability under cross guarantees – Plaintiffs’ claim dismissed
The plaintiffs were the owners of a group of 21 companies which comprised of various operations in the garage and motor trade. In June 1989 the group’s collective borrowing which was limited to £2.25m stood in excess of £2.7m and the bank became anxious about the position of the company. The facility had been made available on the basis that each company guaranteed the borrowings of each other company in the group and additionally the plaintiffs had given personal guarantees of £382,000. The plaintiffs entered into negotiations for the sale of 15 companies in the group to Norfolk House, which offered to buy the group for £3.5m. They instructed the defendants, a firm of solicitors, to act for them. The agreement with Norfolk House could not be executed until the bank agreed to release the companies from the inter-company guarantees and in any event Norfolk House began to reconsider their offer. The plaintiffs also entered negotiations for the sale of the 15 companies to another company, Towerdean, which offered as consideration a property in Scotland, known as Pollphail Village, near Inverness. The transaction with Towerdean was executed but did not go as planned. The bank made demands upon the companies and the companies which the plaintiffs had retained became liable under the cross guarantees. The plaintiffs had to pay £582,000 in accordance with their personal guarantees.
The plaintiffs issued proceedings and claimed that the defendant had failed in its duty to properly advise them in relation to the risk to which the cross guarantees gave rise and that in the absence of the agreement by the bank there could be no certainty that the retained companies would be released from the inter-company guarantees for the sold companies. The plaintiffs contended that if they had been properly advised they would not have entered into the agreement with the purchaser, but would had entered into a more favourable agreement with Norfolk House. The defendant admitted negligence, but contended that the plaintiffs would have entered into the agreement with Towerdean in any event.
Held The plaintiffs’ claim was dismissed.
The plaintiffs had been under pressure from the bank and an urgent solution had been required. The cross guarantees presented an additional source of risk to the retained companies and the plaintiffs, but not one that was different in principle to the plaintiffs’ personal guarantees to the companies which they had retained and, which having been explained by the defendant, they had accepted. The bank had not agreed in advance of the transaction to release the retained companies form the cross guarantees and the plaintiffs knew that there was a risk that the bank might not consent. Therefore it could be concluded that the plaintiffs would have entered into the agreement with Towerdean even if they had been reminded of the cross guarantees by the defendant and advised of the consequences which could flow from their existence. Accordingly the plaintiffs had not suffered any loss as a result of the defendant’s negligence.
John McDonnell QC and Claire Andrews (instructed by Howell & Co, of Birmingham) appeared for the plaintiffs; Bernard Livesey QC and Rhodri Thompson (instructed by Mills & Reeve, of Cambridge) appeared for the defendant.
