Liability of guarantor when tenant’s liability for breach is compromised under a Tomlin Order

Simon Lane was instructed by Andrew Flagg at Stephen Rimmer LLP, Eastbourne  in the Insolvency and Companies Court in the important decision of Re PME Cake [2022] EWHC 1783 (Ch).

The decision deals with the difficult interrelationship between Tomlin Orders (compromise generally), guarantees and the liability of guarantors when the principal debtor has compromised a claim.

Simon’s clients had settled a significant dilapidations claim against the former tenant company, culminating in a Tomlin Order in December 2021 following mediation.  When the tenant failed to pay what had been agreed, the Tomlin order was enforced by application to the High Court and then the sums demanded from the guarantor in the usual way.

Incidentally the guarantor and the tenant were owned by the same person, who was the sole director.

Simon successfully contended that the guarantor was not entitled to argue that the debt was substantially in dispute and therefore his clients should be entitled to present a winding up petition.

The guarantor raised a multitude of points of dispute including several entirely new points only 2 days before the hearing which were in summary:

1. The Tomlin Order creates a discrete contract which buried and superseded the liability under the lease and therefore a new legal relationship replacing the one of disputation;
2. The lease was varied by the compromise discharging the Company and the guarantee (the Rule in Holme v Brunskill (1878) L.R. 3 Q.B.D. 495);
3. There was a release of the tenant from its liability under the lease, replaced by the liability under the Tomlin Order;
4. The new liability arose after the liability period under the lease meaning that it was not covered by the guarantee;
5. The landlord having elected to pursue the tenant, the former was estopped from pursuing the guarantor.

Deputy Insolvency and Companies Court Judge Kyriakides held that:

1. Following the decision of the Court of Appeal in Collin Estates Limited v Alain Robert Buckley [1992] 2 EGLR 78 whether the guarantor was liable for the amount of the agreed compromise depended upon the construction of both the guarantee and the  Tomlin order.
2. The guarantee was amply wide to cover the liability and there was a direct relationship between compromise and what was covered by the guarantee.
3. There was no election, pursuing the tenant did not prevent the guarantor from being pursued;
4. There was no variation of the lease .

The judge therefore concluded that the debt was not disputed on substantial grounds.

Permission to appeal has been granted although this was conditional and it remains to be seen whether the appeal will be pursued.

Simon has been asked to prepare an article for Lexis Nexis as they consider the case important for both insolvency and property practitioners. Simon’s article will feature on the Chambers website in due course.

Simon is a senior junior barrister and mediator practicing in the fields of property and estates, in particular landlord and tenant. Simon’s work is principally based in London and the South and South West of England.