Wise Up Wednesday: Be Careful What You Sign!
Whilst there is more to this case than meets the eye (or has been reported), a director’s desperate attempts to keep his sub-contracting business afloat is a salutary lesson for anyone being asked to sign anything!
Mr Dunne was a director of Specialist Contractor Dunne Building and Civil Engineers Ltd (DBCE), and the financial predicament of his company led to him giving a personal indemnity in order to secure on account payments from Multiplex Construction Europe Limited (Multiplex).
Unfortunately for Mr Dunne, the chickens came home to roost, his company collapsed, and Multiplex pursued him via the personal indemnity.
Advance Payment
Multiplex had entered into nine subcontracts with DBCE across its projects nationwide. Why they did that when DBCE was teetering on the brink of insolvency is no doubt another story!
That aside, the parties decided that Multiplex would make an Advance Payment of £4m to assist DBCE with their cash flow and entered into an Advance Payment Deed.
This Advance Payment was effectively a payment on account of sums that would become due to DBCE in the future for its work on the different subcontracts.
Mr Dunne, was joined as a party to this Advance Payment Deed in his personal capacity and was identified as a “Guarantor”, undertaking to be jointly and severally liable with The Dunne Group Ltd (allegedly DBCE’s parent company) to Multiplex in specific circumstances.
What The Judge Decided
DBCE went into administration and Multiplex brought a summary judgment application against Mr Dunne. Multiplex claimed that the Advance Payment Deed was a contract of indemnity that gave rise to a primary obligation upon Mr Dunne (irrespective of the state of the financial account between Multiplex and DBCE).
Whilst there is more to this case than meets the eye (or has been reported), a director’s desperate attempts to keep his sub-contracting business afloat is a salutary lesson for anyone being asked to sign anything!
Mr Dunne was a director of Specialist Contractor Dunne Building and Civil Engineers Ltd (DBCE), and the financial predicament of his company led to him giving a personal indemnity in order to secure on account payments from Multiplex Construction Europe Limited (Multiplex).
Unfortunately for Mr Dunne, the chickens came home roost, his company collapsed, and Multiplex pursued him via the personal indemnity.
Advance Payment
Multiplex had entered into nine subcontracts with DBCE across its projects nationwide. Why they did that when DBCE was teetering on the brink of insolvency is no doubt another story!
That aside, the parties decided that Multiplex would make an Advance Payment of £4m to assist DBCE with their cash flow and entered into an Advance Payment Deed.
This Advance Payment was effectively a payment on account of sums that would become due to DBCE in the future for its work on the different subcontracts.
Mr Dunne, was joined as a party to this Advance Payment Deed in his personal capacity and was identified as a “Guarantor”, undertaking to be jointly and severally liable with The Dunne Group Ltd (allegedly DBCE’s parent company) to Multiplex in specific circumstances.
What The Judge Decided
DBCE went into administration and Multiplex brought a summary judgment application against Mr Dunne. Multiplex claimed that the Advance Payment Deed was a contract of indemnity that gave rise to a primary obligation upon Mr Dunne (irrespective of the state of the financial account between Multiplex and DBCE).
Unfortunately for Mr Dunne, the judge agreed with Multiplex’s interpretation. In coming to this decision, the judge looked at the commercial purpose of the Advance Payment Deed.
He agreed with Multiplex that the primary purpose was to ensure that Multiplex could look to someone else (i.e. Mr Dunne or DGL) for repayment of the Advance Payment in the event of the insolvency of DBCE.
Don’t Give Indemnities!
We have said it before and we will keep on saying it.; “Don’t give indemnities!”
This case highlights the potential risks and significantly higher stakes of entering into a contract of indemnity, the key lesson here is for Specialist Contractors to ensure that they know what they are signing up for.
Mr Dunne’s bitter experience, is a warning to all that it is imperative for you to take proper advice as to the implications of what you are signing up to as a failure to do so will rarely get you off the hook.
Need Some Advice?
So there you have it. Another very scary reason why you must check that contract, letter of intent, or any other warranty or guarantee, or document you are agreeing to.
With the right assistance and application of the right principles at the appropriate time, you can make sure you protect yourself and your business!
Without the right support and advice you are putting your business, yourself, and maybe even your family and your home at risk!
I have been assisting Specialist Contractors just like you, to resolve commercial and contractual problems for the last 28 years. And, Streetwisesubbie.com and our Consultants have been providing services to improve the lives of our Buddies (members) for the last 10 years.
We are pretty confident that we can help you, so please feel free to call any time. Initial advice is free, subject to you meeting certain criteria.
Thanks and best regards
Barry
Streetwisesubbie.com
P.S. Please remember that we are here to provide solutions exclusively for Subcontractors. If you want access to professional solutions that work, then please give us a call on 01773 712116, or email info@streetwisesubbie.com today.
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