Summary

When considering the proper construction of a proviso in a waiver agreement the court had to construe the waiver agreement as a whole and against its factual background. In the circumstances the comparison the court was required to make between the loss which would be caused to the representee by a misrepresentation and the loss which would be caused to the representor by rescission pointed inevitably to a refusal of the remedy of rescission.

Facts

The claimant bank (B) sought to enforce two guarantees executed by the defendant husband and wife (KT and CT) to secure the borrowings of a company (K). The guarantees were entered into in 1990 and in 1995 B called on the guarantees after K went into liquidation. Negotiations to avoid KT's bankruptcy led to a compromise with creditors. On the basis that KT and CT had made a full disclosure of their assets B in 1997 agreed to release their liability under the guarantees (the waiver agreement) provided that in the event that further material assets were discovered in respect which either or both of KT and CT had a proven beneficial interest at the date of the waiver agreement, B would be entitled to treat the agreement as at an end and proceed for the full sum due under the guarantees. In 2002 B issued proceedings to enforce the guarantees despite the waiver agreement, alleging that there had not been full disclosure in relation the ownership of two properties, KT's relationship with another bank, and a separate agreement in relation to the indebtedness of another company. B claimed to be entitled to enforce the guarantees, or alternatively to rescind the waiver agreement in equity for material misrepresentation. KT argued that it was not open to B to enforce the guarantees in circumstances other than those set out in the proviso to the waiver agreement.

Held

(1) The court rejected B's argument that full disclosure was a condition precedent to the waiver. The court agreed with the proposition in Alfred McAlpine plc v BAI (Run-Off) Ltd (1998) CILL 1405 that where an agreement expressly provided that compliance with certain obligations was to be a condition precedent for liability under the agreement, other obligations not so identified were unlikely to be such conditions. The waiver agreement was to be construed as a whole and against its factual background. The proper interpretation of the waiver agreement was that the proviso set out the only contractual basis upon which the waiver agreement could be set aside. B had precluded itself from pursuing KT and CT in respect of any undisclosed matter that did not amount to a proven beneficial interest at the date of the waiver agreement. (2) B was in principle entitled to rescind the waiver agreement because it had entered into it on the basis of representations which were false. Although there had been a delay of over five years between the agreement and the proceedings that delay did not make it unconscionable for the bank to rescind. Had the instant case been one of fraud it would have been appropriate to disentangle the entire transaction. However the allegation of fraud had been withdrawn and no allegation of dishonesty was made. In the circumstances the comparison the court was required to make between the loss which would be caused to the representee by the misrepresentation and the loss which would be caused to the representor by rescission pointed inevitably to a refusal of the remedy of rescission together with the substitition, in principle, of damages in lieu thereof under the Misrepresentation Act 1967 s.2 . On the assumption that the bank would not have executed the waiver agreement had it known of the true position, it would have petitioned for bankruptcy but there was no indication that it would have made a better recovery in a bankruptcy than that which it in fact made. Since the court was not satisfied that the damage occasioned by the misrepresentation was substantial, it followed that B was not entitled to the relief sought.

Judgment for defendants.