BCCI contracted with three companies and their directors or others as sureties. Money was deposited with BCCI as security from the companies. Some agreements described the sureties as ‘principal debtor’ or contained personal covenants by them as ‘principal debtor’.
One document headed ‘cash deposit security terms – third party’ entitled BCCI, at any time and without notice, to set off monies deposited by Mr Ahmed against amounts due from the companies, and he also agreed to guarantee to pay to BCCI upon written demand all liabilities of the companies to BCCI and further declared ‘as a separate and independent obligation hereunder’ that the company’s liabilities ‘shall be recoverable by you from me as principal debtor and/or by way of indemnity and shall be repaid by me on demand made in writing by you or on your behalf whether or not demand has been made on the [company]’.
In a letter of charge, Mr Amir charged his credit balances agreeing that ‘the liabilities hereunder shall be as that of principal debtor’. He did not give an express personal covenant to be liable to BCCI but the letter was taken to have that effect in an amount not more than the amount of his deposits. The court was asked whether BCCI’s liability on the sureties’ deposits should be set off under rule 4.90 of the Insolvency Rules against their liabilities to BCCI as sureties. There could be no set-off involving a contingent due debt to a company in liquidation unless and until the contingency occurred. BCCI argued that the sureties’ liabilities were contingent on demands made by it, which it might well never make.
Held: Affirming the decision at first instance, the court held that as the sureties had covenanted to pay as principal debtors, a demand was unnecessary and there should therefore be a set-off under rule 4.10. A demand is not necessary under a guarantee to make the liability under immediately payable.
In the context of a winding up, the relevant date for assessing the mutuality of credits and debts in insolvency set-off is the date of the winding up order.
Dillon LJ recorded BCCI’s acceptance that the liabilities of the companies to BCCI were at all times presently enforceable without any need for a demand before the issue of a writ, even if expressed to be repayable on demand. He referred to the line of authorities leading up to Bradford Old Bank v Sutcliffe, and said: ‘The effect of that must be to dispense with any need for a demand in the case of Mr Amir since he has made the companies’ debts to BCCI his own debts and thus immediately payable out of the deposit without demand. In the case of Mr Ahmed there must be immediate liability even though the word ‘demand’ was used, because he accepted liability as a principal debtor and his deposit can be appropriated without further notice.’
Judges:
Hoffmann LJ
Citations:
[1993] Ch 425, [1993] 3 WLR 220, [1993] 3 All ER 769
Jurisdiction:
England and Wales
Citing:
Cited – Bradford Old Bank Ltd v Sutcliffe CA 1918
A demand for payment is not necessary in order to make a present debt immediately payable, even if it is expressed to be payable on demand, unless it is a collateral debt. . .
Cited by:
Cited – TS and S Global Ltd v Fithian-Franks and others ChD 18-Jun-2007
Appeal against setting aside of statutory demand disputed as to amount of liability under contract.
Held: The guarantors’ liability under the guarantee was immediately payable by them, without the need for a demand, before service of the . .
Lists of cited by and citing cases may be incomplete.
Contract, Insolvency
Updated: 07 May 2022; Ref: scu.267644
