Appellant – Mr Deepak Abbhi (DA)

Respondent – Mr Richard Slade (RS)

Mr Balmohinder Singh – he had been engaged in extensive litigation with his son, which was funded by Mr Abbhi, but…

Facts of the case:

1. A few months before trial, Singh changed solicitors and instructed Richard Slade (RS) to act for him
2. Singh and RS met on 11 July 2013; the meeting was predicated on Singh being unable to pay RS’s bills if he agreed to take on the case
3. RS agreed orally with DA that DA would pay such fees and disbursements on Singh’s behalf or lend Singh enough funds to pay RS (the oral agreement)
4. DA paid RS £185,000 in fees, leaving £317,823.63 outstanding. Singh died on 9 February 2015, leaving an insolvent estate

Issue of the case: Court of Appeal (CA)

1. whether the oral agreement amounted to a primary obligation on DA to pay RS
2. whether the oral agreement amounted to a secondary obligation to guarantee the payments by Singh to RS

Legal principle:

1. primary->debt->enforceable against DA
2. secondary->guarantee->unenforceable against DA->Section 4 of the Statute of Frauds 1677->guarantees are only enforceable if recorded in writing

indemnities – guarantees are to be distinguished from indemnities because indemnities impose a new, primary obligation on the promisor to indemnify without reference to a pre-existing debt.

Primary obligations, unlike guarantees, are not subject to the requirements of section 4 of the Statute of Frauds 1677.

For DA: DA’s counsel claimed that the guarantor’s liability is secondary and thus the oral agreement was a guarantee; he also added that DA’s liability is to be defined with reference to Singh’s liability to RS and was therefore secondary and outside of the scope of Section 4 of the statute. DA had promised that he would put Singh in funds so that Singh could write a cheque to RS paying his fees and this was therefore a ‘see to it’ guarantee. Consequently, counsel for DA submitted that DA’s promise was not actionable until Singh was in default under the retainer and, accordingly, DA’s liability was equivalent to Singh’s primary liability.

His Honour Judge Russen QC – sitting as a High Court judge – said it was “implausible” that Richard Slade would have taken on the case if he did not have a guarantee of payment.

For RS: DA had said that he would pay RS’s bills, meaning that he would pay RS on behalf of someone who could not pay. He would put Singh in funds first to enable him to write a cheque lawfully; the nature of that agreement was a question of fact and the trial judge had been correct to determine that this imposed a primary obligation on DA to pay Singh’s bills in any event.

Application:

The court found that the oral agreement was predicated on Singh being unable to pay the legal fees to fund the litigation. That amounted to a term of the oral agreement, under which DA had agreed that, in consideration for RS agreeing to act as solicitor, he would pay the legal fees. In other words, he had agreed to fund the litigation.

DA’s obligation under the oral agreement was thus not simply a see to it guarantee, but an independent, primary and absolute obligation, assumed by DA, to put Singh in funds in any event.

Flaux LJ said “this was a promise to put Mr Slade in funds in any event”. This made it a primary, rather than secondary, liability.

“If Mr Abbhi did not put Mr Singh in funds before the due date… then he would be in breach of the oral agreement. That breach would occur prior to and independently of any default by Mr Singh.”

Consequently, the oral agreement did not fall under Section 4 of the statute and was enforceable, despite not being in writing.

The critical question which determines whether a contract is one of guarantee within Section 4 of the statute is not that the promise is to pay another’s debt but whether the promise is to:

• pay if the other does not pay, in which case it is within the Statute of Frauds; or
• put the debtor in funds in any event, in which case it falls outside that piece of legislation.

Conclusion:

The oral agreement did not fall foul of the 1677 Statute of Frauds.

Essential:

As with all contracts, recording them in writing gives all parties certainty. If this is not possible, thought should be given to the nature of the promise made in any oral agreement so as to ensure that the promise to pay is primary and thus ensure that an oral funding contract is enforceable. The court noted that such cases are always likely to be heavily fact specific, but the key point is to ensure that the nature of an agreement is to pay come what may.