Legal Aspects of Business

Guarantee or Indemnity
Catalyst Business Finance Limited v Very Tangy Television Limited

Group D11
Anirudh | Adithi | Nayana | Pranav | Sanjay | Shivaraj
 .

Introduction
👉 Operated through
VTTL (Very Tangy Television Ltd.)

VTML (Very Tangy Media Ltd.)

Richard Tuckwell 👉 Business expansion of VTTL

Entrepreneur in
US$40 million investment from Vanguard
Digital Media Industry
 Short Term Loan
.

Fulfillment of conditions and standards

Expenditure required

Short term loan from Catalyst

£500,000

Term sheet basis Vanguard

investment
 27 MAY 2015

Urgency of Requirement

Urgency for short loan to pay Vanguard US$45,000 to visit VTTL in UK

 Catalyst Approval
Catalyst Board approves to lend £ 500,000 subject to:

Personal Guarantee of Tuckwell

Charge on Tuckwell’s Property

Sanctioned
£ 500,000
 Contract Acceptance

Tuckwell accepts terms, signs the documents and drops them with Catalyst
 New Request
 After receiving signed documents, Catalyst demands proof of funds in respect of Vanguard

 As proof will take time, Tuckwell requests £ 50,000 be released immediately and balance later

 Catalyst transfers £ 50,000 on the same day Transferred

£ 50,000
 Updates

Repeated Follow ups by Tuckwell for release of balance £ 450,000

Aug 23, 2015 – Tuckwell mails Catalyst that secured funding, which Vanguard had let down

Aug 24, 2015 – Provided Memorandum of Understanding with Select TV & asked for funds
Final Disbursement

Catalyst transfers £ 30,000 to VTTL

No further sum came from Catalyst

Transferred
£ 30,000
 Activity Timeline
Demand for
Loan Sanction MoU with Select TV
payment

May 29, 2015 Sep 1, 2015

May 28, 2015 Aug 24, 2015 May 10, 2016

New Request Transferred £ 30K

& transferred £ 50K
 Default
When money was not repaid, Catalyst identified event of default

Demanded
Repayment + Legal Costs
 Guarantee
As Catalyst did not get paid, demanded repayment + legal costs from Mr. Tuckwell under

Personal Guarantee
 Dispute
Tuckwell disclaimed liability for repayment and had the following contentions:

Primary vs Secondary: Liability under guarantee was secondary and liability of VTTL primary

Loan question: £ 80,000 advance was not paid under the loan agreement; loan agreement
provided for single payment of £ 500,000. Hence no secondary liability
 Relevant Clauses

Clause 4: “The loan shall be drawn down in a single sum (or such other sums as
shall be agreed between the parties) as soon as this agreement is signed.”

Clause 5: “The loan shall be repaid 90 days after the date the Advance is made
unless otherwise agreed in writing by both the Lender and the Borrower”.
Two questions arose from the loan question
? Question 1: Were the £ 30,000 and £ 50,000 drawn under the loan agreement?

The sums of £30,000 and £50,000 are covered in the definition of advances

No other legal basis to draw these sums

Agreement clearly states £500,000 could be drawn in a single sum or many smaller sums as
agreed by parties
? Question 2: Was VTTL and Tuckwell under obligation to repay loan only after
entire £500,000 had been transferred?

Total amount loaned, (with advances) shall be repaid 90 days after it is made

All advances drawn shall be repaid 90 days after they are made

Hence VTTL was liable to make these repayments

 Court Comment

If clause 5 construed otherwise, perverse result of no repayment until whole loan of £ 500,000 made

e.g. if VTTL withdrew £ 499,999.99 – still no obligation to repay

 Claim of Damages by VTTL

Loan Agreement Catalyst was

was for obliged and VTTL Claimed
£500,000 failed £7.6 million in
damages
 Judge’s Views

The agreement was qualified by Mr. Tuckwell’s

recognition
that Catalyst board’s approval was required
 Judge’s Views

Loan agreement construed as a whole makes payment

Conditional
on satisfaction of Catalyst with VTTL documentation
 Key question

Whether Tuckwell’s liability was

Primary or Secondary
under the Personal Guarantee

It is pertinent to understand the difference between guarantee and indemnity in this context.
 Parties to the Contract
Creditor Principal debtor Surety
Third party responsible
To whom the Who is obligated to the
for payment of
obligation is owed creditor
obligation
Contract of Guarantee

Indemnifier Indemnified

Who promises to save another party Who is saved from loss

Contract of Indemnity
 Contract of Indemnity
✘ Contract where the person who gives the
indemnity undertakes by way of security for
the performance of an obligation of another.
✘ Contract where one party promises to
compensate another party for the losses
Contract of Guarantee
✘ Contract whereby the surety(guarantor) promises
the creditor to be responsible for due
performance by the principal if principal fails to
perform them
✘ One party promises to discharge the liability of a
third person in case of his default

✘ Primary liability falls upon the giver of the ✘ Liability of surety is always secondary to that of
indemnity the principal

An indemnity prevents the discharge of the principal or any variation or compromise of the
creditor’s claims against the principal from affecting the liability of the indemnifier under his
contract with the creditor.
 Contract of Indemnity Contract of Guarantee
✘ Principle of co-extensiveness does not ✘ The liability of a guarantor is dependent on the
apply to a contract of indemnity underlying obligation of the principal to the
guaranteed party

✘ Shifts the burden of principal’s insolvency ✘ Surety only liable to the same extent as that of the
on to the indemnifier and safeguards principal. Hence, no liability if the underlying
creditor against the possibility of underlying obligation is void or unenforceable
transaction being void or unenforceable
Time of liability
✘ Liability of indemnifier arises only on the ✘ Liability of the surety is already in existence but
happening of a contingency or loss arises on the default of the principal debtor.
Application to Terms of Contract
 Express Agreement

I indemnify and hold you harmless against all losses and costs that you may suffer or incur
by reason of any failure of the Borrower to comply with any terms of the Agreement and
against all Losses and Costs arising out of or in connection with the recovery by you of any
Clause 3 monies ……

Mr. Tuckwell has in express terms has undertaken to indemnify Catalyst

Judge’s View
 Primary Liability

I agree that my liability shall not be affected by:

“any invalidity, illegality, unenforceability, irregularity or frustration of any actual or
purported obligation of, or security held from, the Borrower or any other person;”
Clause 7.7
“and I shall be liable under this deed in every respect as a principal debtor”

These references would be pointless if the personal guarantee & indemnity gave rise to a
secondary liability
Judge’s View
 Final Judgement

 There was an express obligation to indemnify against losses/ costs suffered

 It is clearly a primary obligation because it extends beyond losses & costs for which the Borrower is
liable

 In the given case, Catalyst has suffered a loss and Tuckwell’s liability is primary. Therefore he has to
pay the sum demanded by Catalyst