Beck Interiors Limited v Dr Mario Luca Russo [2009] EWHC B32 (TCC)

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Where a third party has given a personal guarantee to the performance of a contract, which subsequently becomes subject to adjudication in which he does not personally become bound by the award of the adjudicator, he would not be bound by the adjudicator’s decision in relation to his personal obligation under the guarantee.

Technology and Construction Court, Mr Justice Ramsey


Dr Russo was a 90% shareholder and sole director of a company in the business of providing spa treatments (the “Company”).  The Company appointed Beck Interiors Limited (“Beck”) by way of a letter of intent dated 28 October 2008 to carry out works to create new premises for the Company.  A payment schedule was appended to the letter of intent, setting out the payment dates. On the 23 December 2008, a sum of £17,500 was outstanding and due. Dr Russo discussed the position with Beck.  The outcome of these discussions was that Dr Russo gave a written personal guarantee for all sums due or becoming due under the contract, attaching an agreed amended payment schedule.  Dr Russo alleged that he gave the guarantee on the basis that Beck’s workers would return to site on 5 January 2009.  However, Beck argued that no agreement was made with regard to the return to work.  Beck’s workers did not return to the site until 20 January 2009, at which time a further amended payment schedule was agreed that changed some of the dates for payment and also varied the practical completion date.  The Company terminated the contract on 20 March 2009, triggering a contractual obligation on the Company to make all payments listed in the payment schedule up to and including the payment immediately after the date of termination.  Beck submitted a claim for these amounts together with a sum for variations.  After deducting sums already paid, Beck claimed that the outstanding balance was £413k.  Beck referred the dispute to adjudication.  The Adjudicator decided that the Company was liable to Beck for the full amount plus his fees.  The Adjudicator’s award was not paid and the Company went into administration.  Beck therefore issued proceedings against Dr Russo in which Beck sought payment of the award from Dr Russo under his personal guarantee.  In those proceedings Beck issued an application for summary judgment. 


The Court addressed the following issues:

  • Whether the guarantee was discharged because the contract was varied in material respects in that Beck granted further time and carried out additional work in the form of variations.
  • Whether the guarantee was given on a conditional or unconditional basis.
  • Whether the Adjudicator’s decision was binding on Dr Russo in his personal capacity as guarantor.
  • Whether, regardless of the Adjudicator’s decision, Dr Russo was liable under his guarantee for sums payable by the Company to Beck under the terms of the contract.


The Court held:

  • If there is any material variation in the terms of the principal contract that will discharge a guarantor, unless the guarantor consents to it.
  • In this case, by agreeing the revised schedule of payments on 20 January 2009, Beck gave time to the Company and it was not self-evident that the alteration was unsubstantial or one which could not be prejudicial to Dr Russo.  It was also arguable that there was a material alteration to the contract in the form of the further variations agreed after the guarantee which were not clearly provided for in the contract.
  • However, it was not reasonably arguable that Dr Russo was not consulted and did not consent to the alteration in payment obligations under the contract in his personal capacity as guarantor, and it was clear that Dr Russo had knowledge and consented to additional works being carried out. It was not, therefore, reasonably arguable that the guarantee was discharged by material alterations in the terms of the contract.
  • There was a real prospect that Dr Russo could successfully defend Beck’s claim on the basis that the guarantee was subject to a condition that had not been fulfilled.
  • By analogy with the cases on arbitration, general words in a guarantee, guaranteeing the due performance of all the obligations of the principal debtor do not, of themselves, have the effect of making the guarantor bound by an adjudicator’s award in an adjudication between the principal debtor and the creditor, even where the adjudication award arises out of an adjudication clause in the contract containing the obligations of the principal debtor guaranteed by the guarantor.
  • The Court could not determine at this stage whether or not Dr Russo became bound by the Adjudicator’s decision in a personal capacity when acting in the adjudication between Beck and the Company.
  • If the guarantee was not conditional, then, to the extent the Company could assert a set-off for defective or incomplete works, Dr Russo could also rely on that as a defence to the claim under the guarantee.  In the adjudication, the Company relied on a withholding notice in the sum of £243,166.  However, the Court could not determine at this stage whether the withholding notice was good.  In any event the absence of a withholding notice for more than £243,166 would mean that there would be no defence to a claim for the difference between the £413k claimed by Beck and the sum in the withholding notice.
  • Accordingly the application for summary judgment would be rejected, as Dr Russo had a real prospect of successfully defending the claim on the basis that it was subject to a condition that Beck’s workers would return to site on 5 January 2009.

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