Caribbean Pharmaceutical Supplies Ltd v Edwards
| Jurisdiction | Antigua and Barbuda |
| Judge | George-Creque, J.A. |
| Judgment Date | 23 March 2009 |
| Neutral Citation | AG 2009 CA 5 |
| Date | 23 March 2009 |
| Court | Court of Appeal (Antigua and Barbuda) |
| Docket Number | Civil Appeal No. 18 of 2006 |
Court of Appeal
Rawlins, C.J. (Ag.); Hariprashad-Charles, J.A. (Ag.); George-Creque, J.A. (Ag.)
Civil Appeal No. 18 of 2006
Sir Richard Cheltenham, QC and Mr. Trevor R. Kendall for the appellant.
Ms. E. Anne Henry and Ms. Debra Burnette for the respondent.
Contract - Interpretation — Whether New Agreement represented a novation or a variation — Guarantor's right to indemnification.
George-Creque, J.A. [AG.]: This appeal concerns the construction of an agreement executed by various parties including the appellant Company (“the Company”) and the respondent (“Dr. Edwards”) on 21 st January, 2000 (“the New Agreement”). The New Agreement concerned the repayment of a debt owed by the Company to the Antigua and Barbuda Investment Bank (“the Bank”) and guaranteed by Dr. Edwards and Dr. Ramsey 1 (“the Doctors”) prior to that date. The New Agreement required the Doctors jointly and severally to pay to the Bank a sum of $325,000.00 being a part of the remaining accumulated interest in respect of which the Company was indebted under the earlier loan agreement. The learned judge in the court below held that the Company was obliged, as principal debtor, to reimburse Dr. Edwards, as surety, in the sum of $162,500.00 2, being the amount paid to the Bank in pursuance of the guarantee. The central issue is whether the terms of the New Agreement denote a novation with the effect that the Doctors ceased being guarantors of the debt of the Company and became principal debtors to the Bank. This question will be considered against a brief background.
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(a) On 27 th November 1992, Dr. Edwards, then a director and shareholder of the Company, agreed to and did provide a personal guarantee on behalf of the Company to secure the payment of a debt in excess of $1.3 million, plus interest pursuant to a loan facility agreement granted by the Bank to the Company.
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(b) The Company failed to meet its obligations in accordance with the agreement and on 2 nd February 1999, Dr. Edwards was called upon to honour his obligations under the guarantee. Various options were
explored with a view to salvaging the Company which had sunk into an insolvent state. -
(c) An investor, who subsequently became the majority shareholder and effectively took control of the Company, agreed to purchase the Company's debt from the Bank. At that time, the Company was indebted to the Bank in the principal sum of EC$1,253,620.00 and also for accumulated interest in excess of $830,000.00. The New Agreement was accordingly not only as between the Company and the Bank but also included the investor and the Doctors, as parties.
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(d) In accordance with the New Agreement, Dr. Edwards paid to the Bank the sum of $162,500.00, representing half of the agreed discounted accrued interest. He satisfied this debt by obtaining a loan from the Bank in the sum of $142,000.00 at an interest rate of 12.5% together with a personal contribution of $20,500.00. He thereafter sued the Company for this sum and interest. He obtained judgment in his favour though he was successful on having interest awarded only at the rate of 5% and not 12.5% as claimed.
Counsel for the Company argued that the learned trial judge misconstrued the nature of the transaction created by the New Agreement in that it substantially altered the contractual relations between the parties as its essential purpose was to ensure that the Bank would cease to be the Company's creditor. To that end, the investor became the Company's creditor for the original debt in the sum of some $1million and the Bank became a creditor of the Company for the sum of $325,000.00 for which the Doctors became liable as principal debtors.
It was contended for the Company that the Doctors, as sureties under the earlier agreement, were discharged by virtue of the New Agreement and thus became liable as principal debtors. Counsel argued that when the Company ceased to be a debtor to the Bank (when the investor bought the debt) under the New Agreement, the suretyship came to an end as there can be no surety without a principal debtor. Counsel for the Company relied on the learning in Snell's Equity3 which states:
“There can be no suretyship unless there is a principal debtor…Nor can a man guarantee anybody else's debt unless there is a debt of some other person to be guaranteed.”
Counsel for the Company averred also that pursuant to its terms, the New Agreement purported to assign the benefit of all securities and guarantees offered by the Company, its directors and shareholders to the Bank, for the loans and advances to the investor, absolutely. The investor was given the power of enforcement in respect of these securities and guarantees. Counsel therefore argued, in the alternative (to that stated at paragraphs 3 and 4 above), that if the High Court was correct in holding that the $325,000.00 was paid by the Doctors as sureties under the original suretyship the assignment would have meant that the payment of $325,000.00 was to be paid to the investor who took up the benefit of the securities and guarantees. 4
Counsel argued that this, however, was not the intention under the New Agreement which made separate and explicit provision for the payment of the $325,000.00 by the Doctors to the Bank. It was contended that the amount was required to be paid as consideration for being relieved of liability as sureties for the full debt comprising capital and interest. In essence, he urged that the New Agreement amounted to a novation. In these circumstances, counsel submitted, Dr. Edwards was a principal debtor and had no recourse to the Company for indemnification unless there was a provision in the New Agreement which so provided. Counsel insisted further that nothing turned on the fact that the Doctors were referred to as guarantors in the New Agreement.
Counsel for Dr. Edwards on the other hand, argued that the overriding objective of the New Agreement was to secure settlement of the indebtedness of the Company to the Bank. This was to be achieved by assigning a portion of the debt to the investor and the payment by the Doctors of the outstanding interest in accordance with their liability as guarantors under the earlier agreement. That this is clearly the intention is evidenced by the Bank's correspondence both prior and subsequent to the execution of the New Agreement.
Chitty on Contracts 5 describes a novation in these terms:
“[It] signifies ‘that there being a contract in existence, some new contract is substituted for it, either between the same parties (for that might be) or between different parties; the consideration mutually being the discharge of the old contract.’ In particular however, it denotes the rescission of one contract and the substitution of another in which the same acts are to be performed by different parties.”
At paragraph 22–028 of the same text, the author goes on to say as follows:
“The question whether a rescission has been effected is frequently one of considerable...
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