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January 1, 2010updated 12 Apr 2017 4:28pm

Advancing the law on lease assignment

On 6 October 2006, a salesman from a communications company, C2, made an unsolicited visit to the office of BMS Ltd with a view to providing a complete telecoms solution to replace BMSs existing telephone, mobile, internet and fax services.

By Sunil Iyer

The director of BMS, Ghuman, signed an order form, a lease agreement with One World Leasing (OWL) and a direct debit mandate.

On 12 October 2006, the salesman returned to deliver the equipment and obtain Ghuman’s signature on the delivery note and a further document which turned out to be a director’s personal guarantee. OWL counter-signed the lease agreement on 18 October 2006.

Ghuman was dissatisfied with the quality of the goods and services, about which he made complaints that were not dealt with to his satisfaction, and BMS stopped making payments in early 2007 and demanded its money back. It thereafter ceased trading.

OWL purported to terminate the lease agreement and issued proceedings against Ghuman under the personal guarantee in August 2007. However, it ceased trading and assigned the lease agreement to Investec Asset Finance (IAF) later that year. IAF was subsequently substituted as claimant.

Ghuman’s grounds for defending were as follows:

(1) Although the lease agreement was signed by OWL on 18 October 2008, it had been entered into orally on 6 October and therefore pre-dated the signing of the personal guarantee; in the circumstances, the personal guarantee failed for past consideration.

(2) Although OWL assigned the lease agreement to IAF, it failed to assign the personal guarantee, and therefore, IAF had no right to bring a claim on the personal guarantee to which it was not a party.

(3) The services provided were unsatisfactory, entitling BMS to cancel the lease agreement, which it did, therefore discharging it from further liability and also discharging Ghuman from liability under the personal guarantee.

The trial of Investec Asset Finance Ltd vs Ghuman was heard by His Honour Judge Pierce Higgins at Worcester County Court on 24 November 2009 and, with the agreement of both parties, the Judge dealt with Issue (2) as a preliminary issue.

Clause 2 of the assignment of the lease agreement stated that it assigned all OWL’s “right, title, benefit and interest” in the lease agreement and included any securities created on or after 1 October 2007.

IAF argued that the personal guarantee was a “right” or “benefit” under the lease agreement and that OWL only agreed to accept the proposal of finance on the basis that a personal guarantee would be provided. The judge held the assignment of the lease agreement did not include an assignment of the personal guarantee. In particular, the latter was a separate transaction between different parties and therefore did not create any rights or interests under the lease agreement.

The lease agreement made no mention of the personal guarantee and contained an “entire agreement” clause preventing the implication of further terms.

The express reference to the inclusion of post-1 October 2007 securities indicated that securities created before that date (including the personal guarantee) were not included in the assignment. Finally, if there was any uncertainty or ambiguity in the language of the assignment (which the judge found that there was not), the “contra proferentem” rule compelled him to resolve such ambiguity against IAF and in favour of Ghuman.

Therefore, the personal guarantee was not assigned by OWL to IAF, IAF had no right to bring the claim and the action was dismissed with costs. The judge did not need to deal with Ghuman’s other defences.

Sunil Iyer

The author is a barrister at the Nottingham-based chambers KCH Barristers

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