Independent Legal Advice Personal Guarantees and Indulgence Clauses

The High Court has recently held that amendments made to a loan agreement (extending the term and allowing interest to be rolled up on indulgence clause contained within a guarantee.


Investec Bank Plc (lender) entered into three loan agreements with Parkwood group companies. One of the loan agreements was with Parkwood (Koblenz) Sarl, one with Parkwood (Hanau) Sarl and one with Parkwood (Koln) Sarl (together the borrowers).

In March 2008, the amount of one of the facilities was increased and Robert Maxted and John Lorimer (guarantors), two directors of the borrowers, provided the lender with a guarantee of interest payable under all three loan agreements. The guarantee was capped at 450,000 euros plus interest, costs and expenses. The guarantee also included a clause stating that the guarantee would not be discharged by "any variation or amendment of any agreement between the bank and the debtors".

In March 2009, all three loan agreements were amended to extend the term of the loans made under them to 29 December 2010 and roll up the interest on the loans until the 31 August 2009.

In March 2011, all three loan agreements were amended to extend the term to 31 December 2012.In March 2011, the guarantors signed a statement confirming that the lender could continue to rely on the guarantee in respect of the loans and adding "I note your recommendation I obtain independent legal advice, however I confirm I am fully aware of the nature and extent of my obligations … and that I waive my option to obtain independent legal advice".

On 1 December 2016, the lender issued a formal demand on the guarantors to pay the interest payable on the loans.

The guarantors refused to pay and claimed that the guarantee had been discharged by serious amendments to and replacements of the terms of the loan agreements guaranteed by the guarantees.

These amendments were, they said, outside the scope of those amendments envisaged by the consent to variation clause in the guarantee.

Although the directors acknowledged that their signature was on the documents amending the loan agreements they said that their business partner (a third director, now deceased) habitually dealt with all the banking arrangements. They had no memory of being consulted about the amendments to the guaranteed obligations and did not receive any advice as guarantors in relation to those amendments.

They, therefore, argued that they had never consented to the variation of the guaranteed obligations.

They also argued that when they provided a written waiver of their right to seek independent legal advice in relation to the guarantee they were acting under the undue influence of the lender. The lender, by including the consent to variation clause in the guarantee, created a relationship of trust and confidence between it and the guarantors, which gave rise to a presumption of undue influence.

In their judgment, the Court found that the amendments did not discharge the guarantee. The borrower's obligations as amended did not truly "replace" their original obligations. Further, the guarantees should be construed like any other contractual instrument, in accordance with the intention of the parties, and the language used should be given its natural and ordinary meaning. In this case, on the facts, extending the term and rolling up interest were within the scope of the consent to variation clause incorporated in the guarantee.

On the point of undue influence raised by the guarantors, the court found that the letter the guarantors signed waiving their right to seek independent legal advice was not given under the undue influence of the lender. It rejected the argument that by including the consent to variation clause in the guarantee the lender had created a relationship of trust and confidence between the lender and the guarantors. The guarantors were held to be men of business who understood the risks of giving the guarantee. The doctrine of undue influence was, therefore, not relevant in this case.

(Maxted and another v Investec Bank Plc [2017] EWHC 1997 (Ch))

If you need independent legal advice in connection with a personal guarantee then please contact Nick Attwell on 0207 449 3133 or e-mail Nick at