Challenge to witnessing of Deed of Guarantee fails

There has been understandable focus recently on the question of virtual witnessing of documents such as Deeds of Guarantee which require the presence of a witness, a topic dealt with in our last Briefing and to which we will return later in this one. It is important however to remember that the vast majority of Deeds are still executed by wet signatures and in this regard there has been an important recent decision of the High court favourable to financiers.

In Euro Securities & Finance Ltd v Barrett [2023] EWHC 51 (Ch), the court considered the meaning of the attestation requirement for Deeds and in particular of the phrase “in the presence of a witness who attests the signature” in section 1(3)(a)(i) of the Law of Property (Miscellaneous Provisions) Act 1989 (“LPMPA”).

Three defendant guarantors contended that their guarantee supporting a loan to the business in which they were involved as shareholders and directors was invalidly attested as a Deed, but in finding the attestation valid, the court held that:

• Based on the evidence and inferences properly drawn from the contemporary documents taken at face value, on the balance of probabilities, the defendants had signed the guarantee together, and were observed by a single witness (M), who also signed the guarantee (under the words “and witnessed by”) to confirm she had witnessed their signatures.
• There was no merit in the defendants’ argument that the attestation was invalid because there were no words confirming that M had observed the act of signing, witnessed all three signatures or signed in the defendants’ presence. Section1(3)(a)(i) requires a witness who is present to observe the act of signing, and who attests by signing the deed as a witness. There is no requirement for the attestation clause to use specific words. It was therefore enough that M had signed under the words “witnessed by” which (in the absence of contrary indication) presupposed she was present when the defendants signed the guarantee. It was also entirely possible to interpret M’s signature as attesting all three defendants’ signatures. A witness signing under the words “witnessed by” and below three signatures clearly attests them all. While section 1(3) envisages several parties making a Deed, it does not prescribe a particular form of attestation for use in those circumstances. Therefore, a person witnessing several signatures on a Deed can properly attest them collectively.
• Section 1(3)(a)(i) does not require the witness to attest in the signatory’s presence. It is impermissible to read into “attests the signature” or the rest of section 1(3) a requirement from pre-LPMPA case law that attestation must be contemporaneous with the signature attested. Even if there were such a requirement, it would be satisfied by the witness attesting on the same day (which the court found M had done), and irrespective of whether the signatory is present.

Estoppel

The court then went on to consider the claimant’s alternative argument that even if, contrary to the judge’s conclusions, the Deed of guarantee had not been properly witnessed, the defendants were estopped or precluded from taking the point by reason of their own conduct in effectively leading the claimant to believe that all necessary formalities had been complied with. To put it into layperson’s language, an estoppel means that the defendants cannot “blow hot and cold” at the same time.

The judge agreed with the claimant on this point, and cited passages from an earlier legal authority:

“81.  The leading case on estoppel in this field is Shah v Shah [2001] EWCA Civ 527 where as in this case, the defendants signed a guarantee in Deed form. Pill LJ explained the relevant facts at p.8:

“Each [defendant] signed the deed at the appropriate place and the signature of an attesting witness, the same signature in each case, appears at the appropriate place. The attesting signature is that of… [a man who]… had an office in the same building as the defendants. The document was brought to him by the defendants’ secretary after it had been signed by them . The judge found that the signature of the attesting witness was added to the document shortly after it had been signed by the parties to the document but not in their presence…

31. Having regard to the purposes for which deeds are used and indeed in some cases required, and the long-term obligations which deeds will often create, there are policy reasons for not permitting a party to escape his obligations under the deed by reason of a defect, however minor, in the way his signature was attested. The possible adverse consequences if a signatory could, months or years later, disclaim liability upon a purported deed, which he had signed and delivered, on the mere ground that his signature had not been attested in his presence, are obvious. The lack of proper attestation will be peculiarly within the knowledge of the signatory and…will often not be within the knowledge of the other parties.

33….  [T]he delivery of the document…..involved a clear representation that it had been signed by the third and fourth defendants in the presence of the witness and had accordingly been validly executed by them as a deed. The defendant signatories well knew that it had not been signed by them in the presence of the witness, but they must be taken also to have known that the claimant would assume that it had been so signed and that the statutory requirements had accordingly been complied with so as to render it a valid deed. They intended it to be relied on as such and it was relied on”.

The judge therefore concluded that since the three defendants were involved in running the business for which the benefit of the guarantee was given, it would be unconscionable for them to be able to rely on a failure to comply with the statutory formality when they had been in a better position than the claimant to appreciate that this was the case:

“…this case is one of a party who failed to validly execute a deed seeking to rely on their own failure to follow the clear implicit instructions in it, despite being three extremely experienced business-people. Moreover, … where a party has taken the benefit of a deed, it is often unconscionable for him to refuse to take its burdens because he did not execute it properly. It is highly relevant to the Defendants’ ‘unconscionability’ that the Defendants as partners in [the business receiving the loan] took the benefit of the Guarantee in inducing the loan even if they failed to execute it properly. … All that together unquestionably shows that it would be plainly unconscionable for the Defendants to deny the validity of the Guarantee.”

Comment

This is a welcome decision from a specialist judge which stands up well against some of the decisions which have been reported over the years in which financiers have faced less understanding from some less specialist courts.

In addition to the sensible interpretation of the relevant legislation, this decision is particularly noteworthy for the robust approach taken by the judge to the estoppel point.

It is fair to say that one of the main reasons for this was the undoubted business experience of the three guarantors, but nevertheless the same reasoning should normally apply to any situation in which a guarantor is benefiting from the provision of the underlying facility to which the guarantee relates, whether as shareholder, office holder, or even as a family member of someone who directly benefits in a personal capacity.

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