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Ramsay’s Guarantee Nightmare

01/05/2015 | David Sachs

Gordon Ramsay recently tasted defeat in the High Court as he sought to challenge the validity of a personal guarantee signed by a “ghost writer” signing machine operated by his father-in-law (Christopher Hutchinson).  The case touched on some important points in relation to how the law adapts to new technology, in this case, how automatic signing machines are operated to sign documents, and a useful reminder on what steps you should take to ensure your guarantee is watertight.

The chef’s holding company, Gordon Ramsay Holdings Limited had been granted a lease by Northam Worldwide Limited over the York & Albany hotel in London. The payments under the lease had been guaranteed apparently by Gordon Ramsay personally. But, after Mr Love, the landlord, had acquired the reversion of the lease and called on the guarantee, Ramsay contested the demand claiming the guarantee was not valid. He argued that he had not known about the guarantee – it was after all signed by a machine operated by Christopher Hutchinson, his father-in-law, rather than his own fair hand – and that, in any case, Mr Hutchinson had not had authority to commit Ramsay to the guarantee obligation.

The court therefore had to consider whether it was likely that Ramsay did or did not know about the guarantee and whether Hutchinson had authority to use the machine to sign on the chef’s behalf, thereby making Ramsay liable under the guarantee.

Although it was acknowledged that Ramsay might not have known about the precise details of all his business arrangements, it was successfully argued that Ramsay did know at least about the existence of the lease. Moreover, under questioning, Ramsey admitted that it was not uncommon for such leases to require a personal guarantee from him. The Court concluded therefore that the personal guarantee would at least have been contemplated by Ramsay and that, importantly, had he been aware of the guarantee requirement, he would in any event have agreed to it.

Furthermore, Ramsay’s relationship with Hutchinson at the time showed that Ramsay entrusted his father-in-law with his general business dealings.   The court was able to look at what other arrangements and course of dealings Hutchinson had agreed to on Ramsay’s behalf and was able to conclude that he had ostensible authority, as Ramsay’s agent, to commit the chef to the guarantee in this instance.

The case highlights some interesting points for lawyers.

1. One of the consequences of modern technology, particularly with email and the speed of scanning documents, is that all parties’ completion signing meetings take place much less frequently. The use of such signing machines to execute documents is also becoming more commonplace. It is clear though, and both sides accepted as much in this case, that a person can be bound by the terms of an agreement, including a deed, signed by such machines.   Although the Statute of Frauds Act of 1677 provides that a guarantee must be evidenced in writing by a document signed by a guarantor, this exception only applies to guarantees where no indemnity is also given. As most guarantees nowadays routinely include an indemnity (and Ramsay’s did), such guarantees will also be held to be validly executed if signed using such machines. The fact that a document can now be properly executed and bind the signatory in this way is no doubt convenient for those too busy to wield a pen themselves but extra care should still be taken by all parties where such technology is used.

2. Whenever a person is signing a document on behalf of another, for example as agent, the counterparty should take all necessary steps to ensure that the signing party is properly authorised to sign such documents. This may seem obvious where, for example, an agency agreement has been or is being entered into, and there are agreed corporate approvals and resolutions confirming such authority, but where it is less clear, the relying counterparty should ensure that there is sufficient evidence to show authority, that the non-signing principal knows of, and has otherwise approved, the document and has expressly agreed that his agent may execute it on his behalf.

English case law relating to guarantees generally favours guarantors; this is why guarantee clauses are typically drafted so carefully – and extensively – by wary lawyers acting for beneficiaries. This case though is a reminder that the Courts will not simply allow guarantors to escape liability where there is insufficient evidence to support their claim. In any event, Ramsay will have plenty of time to chew on the decision as the guaranteed lease only expires in 2033.

This bulletin should not be taken as definitive legal advice on any of the subjects covered. If you require legal advice on any of the subjects covered or on any other banking or finance matters, please contact David Sachs on 0207 955 1447 or davids@rosenblatt-law.co.uk

 

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