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Bank’s High Court claim for £9.5 plus interest settles out of Court
Contract of guarantee – limitation periods – demands
Arfan Khan successfully defended complex claims in the High Court Chancery Division. The claims were pursued by a bank against the Defendants for £9.5 million plus interest, including possession of land. A legal charge was procured by the bank to secure the alleged indebtedness.
The bank issued a demand for the monies in 2003. In 2014, the bank issued claims for both a money judgment and possession orders in relation to three separate plots of land. By 2015, the alleged debt was claimed to stand at £9.5 million plus interest.
The bank through Counsel, and its legal team, contended that, whilst the claim had been issued in 2014, time started to run from the date of the demand in 2003 because the relevant documents expressed the liability to be repayable on demand. The bank contended that a limitation period of 12 years applied and, therefore, the bank’s claim for the money judgment and possession were in time.
The guarantees and the charge, however, contained a primary debtor clause, which guaranteed the alleged indebtedness as a primary debtor, rather than as a surety only. The Defendants contended that there was a distinction between an ordinary contract of surety in relation to which a demand was necessary before the indebtedness could be claimed, and a contract containing a primary debtor clause. The Defendants contended that, where there is a primary debtor clause in a guarantee, rendering the surety also a primary debtor, there is no need for a demand, even where the indebtedness is expressed to be repayable on demand: MS Fashions Ltd v Bank of Credit and Commerce International SA  Ch 425; TS & S Global Ltd v John Fithian Franks  EWHC 1401.
The reasoning behind this appears to be that the character of the agreement to pay is no longer a collateral one, but an agreement to pay a present debt for which a demand is not a condition precedent: TS & S Global Ltd v John Fithian Franks  EWHC 1401 at para .
Accordingly, the Defendants argued that a demand was not necessary. It was argued, therefore, that time started to run from the date of the breach in 2001 rather than from the date of the demand in 2003. That being so, the Defendants contended that the 2014 claims for a money judgment and possession of land were time barred.
In any event, the Defendants contended that the bank’s claim for continuously accruing interest in excess of £5 million attracted a six-year limitation period and was time barred. The bank could only claim continuous interest limited to the last years rather than from the date of the demand.
In respect of the possession claim, it was contended that the limitation period of 12 years started to run from the date of the breach in 2001. This was so irrespective of whether or not the bank unequivocally demanded possession at that date or forbore from doing so. The Defendants relied on Ash v National Westminster Bank  2 P & C.R. 27.
The Defendants also argued that the bank could not, in any event, seek possession of the land because there were agricultural tenancies in place within the meaning of s.1 and 2 of the Agricultural Holdings Act 1986.
The Defendants issued applications for strike out and summary judgment which were listed to be heard on the morning of a four-day trial.
The bank subsequently abandoned its interest claim falling outside the six-year limitation period, and on the morning of the trial, after the exchange of skeleton arguments, settled.