Guernsey guarantor protections: the Etridge case principles and ‘droit de discussion’

Guarantors in Guernsey face a unique intersection of English and customary law protections, particularly when supporting loans or financial agreements in personal relationships.  

This article examines the evolving legal landscape for guarantors in Guernsey, focusing on the implications of the English case Royal Bank of Scotland plc v Etridge (No.2) (Etridge) and the first judicial discussion of the 'droit de discussion' legal principle on the island in the case of Sproge v Sinel Global Restitution Limited.

Sproge v Sinel Global Restitution Limited 

In the case of Sproge v Sinel Global Restitution Limited (Sproge), the respondent in the case, Sinel Global Restitution Limited (Sinels), pursued the recovery of debts assigned to it by Close Finance. The debts in question arose from two agreements:

1. a car hire-purchase agreement (the HP Agreement), where the appellant (Ms Sproge) was the guarantor for her ex-husband’s financing of a Mercedes Benz, and

2. a personal loan agreement in Ms Sproge’s name 

Mr Mezinieks, Ms Sproge’s ex-husband, defaulted on the loan under the HP Agreement, removed the car from Guernsey and sold it in Germany. Ms Sproge also defaulted on her own personal loan.  

Close Finance assigned its rights to Sinels to pursue the debt from Ms Sproge for both contracts. After Ms Sproge failed to attend Court and put forward a defence, Sinels obtained judgment in default for more than £52,000, plus interest and costs. 

Key legal protections in the Etridge case principles 

Ms Sproge appealed the decision, arguing that she did not understand the legal implications when signing the HP Agreement as a guarantor, and that she had not received independent legal advice when entering into the HP Agreement.  

The Court of Appeal emphasised that under Guernsey law, the protective principles established in the English case of Etridge apply. These principles require lenders to ensure that individuals acting as guarantors in non-commercial relationships have received independent legal advice and are fully aware of the obligations being assumed. If this is not done and the guarantor's consent is procured through undue influence or misrepresentation, the guarantee may be set aside. 

In this instance, the Court of Appeal noted there was no evidence Ms Sproge received independent legal advice or was made aware of the ramifications of the guarantee. This gave rise to a realistic prospect of a defence, warranting a trial on the facts. 

The Court of Appeal’s decision in Sproge 

The Court of Appeal found that several important points of law and fact had not been addressed in the initial approach by the Royal Court. Most notably, the issues to be resolved at trial were: 

1. whether the Etridge protocol was followed

2. whether independent legal advice was given

3. whether Ms Sproge was misled or acting under undue influence 

The Court therefore set aside the default judgment and remitted the case to the Royal Court for full consideration. 
 
Further, the judgment directly warns lenders and assignees that, where they are “on notice” of any suggestion that a guarantor did not receive independent legal advice in accordance with the principles in Etridge, they proceed at their own risk, as the enforceability of the guarantee may be compromised. 
 
It is also worth noting that the Court of Appeal commented that there was no general principle of law applicable in Guernsey by which fraudulent conduct by a debtor against a creditor will discharge a guarantor's liability.  

Practical implications for lenders  

Sproge v Sinel Global Restitution Limited serves as a clear reminder that financial institutions carrying out lending services in Guernsey and assignees operating in Guernsey must take proactive steps to ensure and evidence that guarantors in non-commercial relationships receive independent legal advice and fully comprehend the commitments they are undertaking.   

Even in instances where the contract waives the 'droit de discussion', creditors must demonstrate that the guarantor understands both the practical effect of that waiver and the overall obligations.  

Failure to follow the Etridge protocol exposes lenders and assignees to considerable risk that a guarantee may be set aside if challenged. The judgment not only reinforces procedural protections for individual guarantors but is also likely to influence future lending and enforcement practices across Guernsey. 

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Disclaimer

This client briefing has been prepared for clients and professional associates of Ogier. The information and expressions of opinion which it contains are not intended to be a comprehensive study or to provide legal advice and should not be treated as a substitute for specific advice concerning individual situations.

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