The case of Peter Dunn v Kostas Kazolides [2025] EWHC 2212 (Ch) addresses interesting questions about limitation periods, insolvency, the formal requirements for the execution of deeds, and how variation to the contract between the principal debtor and creditor may discharge a guarantor.

Mr Dunn, a former chartered accountant and insolvency practitioner, claimed nearly £9m from Mr Kazolides. The High Court decided that Mr Kazolides (who was represented at trial by Dov Ohrenstein of Radcliffe Chambers and Canfields Law Solicitors) had entered into a guarantee in respect of a Cypriot company that was heavily indebted to Mr Dunn but dismissed the Claim. How was it possible for Mr Kazolides to succeed in his defence and avoid being liable for any payment under the guarantee?

The background to this case is that, pursuant to a joint venture agreement, Mr Dunn loaned money to the company for the purposes of developing and selling 7 villas in Cyprus.  The agreement provided that the loan was repayable on “the insolvency of the company” and (as found by the judge) included a guarantee from Mr Kazolides. The agreement stated it was a deed and it was signed on behalf of the company and Mr Kazolides, and those signatures were witnessed. Mr Dunn also signed but his signature was not witnessed. There were delays in the construction of the villas and the Cypriot property market crashed before the villas were completed in 2010. By that time Mr Dunn had taken control of the joint venture and was a director of the company. Mr Dunn decided that, rather than the company selling the villas as soon as practicable after the development had commenced (which is what the joint venture agreement had stipulated), the villa sales would be delayed in the hope of obtaining higher sale prices.  This had a detrimental effect on the company’s finances because of the ever increasing debt from compounding interest owed to Mr Dunn. In 2012 Mr Dunn then obtained a default judgment against the company and also provided a Comfort Letter to the company’s accountants stating that the loan would not be demanded for repayment within the next 12 months. Similar letters were provided in subsequent years. The Cypriot property market did not recover. One villa was eventually sold on the open market in 2018 and the remaining villas were sold to a nominee of Mr Dunn in 2019. The company was still unable to repay the loan. The Claim Form was issued in 2022 alleging that Mr Kazolides was liable to Mr Dunn for the outstanding loan and interest.

The first reason that the Claim failed was that it was held to be time barred pursuant to the Limitation Act 1980. The cause of action under the guarantee accrued at the point that the company defaulted on repaying the loan (applying Moschi v Lep Air Services Ltd [1973] A.C. 331). That default was when the company first became insolvent because the loan was repayable on “the insolvency of the company”.  This defence therefore turned on Mr Kazolides’ ability to prove that the company was insolvent at the relevant time (ie 12 or 6 years before the issue of the Claim Form depending upon whether the guarantee was a deed or simple contract). Mr Dunn argued that “insolvency of the company” referred to the company being unable to pay its debts and to various specific insolvency events such as arrangements with creditors but did not include balance sheet insolvency. Mr Dunn denied balance sheet insolvency in any event.

The Court rejected Mr Dunn’s approach and held that “the insolvency of the company” was intended to have a simple common sense meaning so that if the expected sale prices of the villas were insufficient to discharge the actual and contingent liabilities of the company then the company was insolvent. Contingent liabilities such as anticipated estate agency fees and ongoing expenses should be factored into the insolvency assessment along with the costs of completing the villas’ construction. This is consistent with BNY Corporate Trustee Services Ltd v Eurosail-UK 2007-3BL plc and others [2013] UKSC 28 and the recent decision in Cresta Estates v MPB Developments [2025] EWHC 198 (Ch). After hearing evidence from Cypriot property valuation experts, the Court concluded that by late 2009, ie over 12 years prior to the issue of the Claim Form in 2022, the villas were worth substantially less than the company’s liabilities so that the company was insolvent and the Claim on the guarantee (whether it was a deed or simple contract) was time barred.

The conclusion on the time bar was sufficient to dispose of the Claim but the Court also found for Mr Kazolides on the basis that the guarantee was discharged in any event, based on the rule in Holme v Brunskill (1878) 3 QBD 495. That rule states that, unless expressly excluded by the contract of guarantee, a guarantor is discharged from liability where, without the guarantor’s consent, there has been a variation to the contract between the creditor and the debtor (including the giving of time to pay) and it is not, without enquiry, evident that the variation is insubstantial and cannot be otherwise than beneficial to the guarantor. Even a short extension of time which does not injure the guarantor in financial terms can discharge a guarantee because it deprives the guarantor of the right to use the name of the creditor to sue the principal.

The Court held that by late 2009 the loan had become automatically repayable because the Company was insolvent but that Mr Dunn had decided to defer the repayment of the loan and reached an understanding with the company to reflect that. This deferment was subsequently formally recorded in the Comfort Letter so that the company accounts could be completed on a going concern basis and amounted to variation in the terms of the loan was which (because it was not agreed with Mr Kazolides) discharged his obligations under the guarantee. Similarly, the associated decision of Mr Dunn and the company (which was acting at his direction) to postpone the sale of the villas and await an upturn in the market was also a variation of the parties’ agreement and effective to discharge the guarantee.

This case is therefore an important reminder for anyone drafting a guarantee for a lender that the guarantee should include provisions that state that the guarantor’s obligations will not be discharged if the lender gives the borrower additional time to pay or if there is any other variation in the terms of the loan. Any lender who wants to rely on a guarantee without such provisions needs to ensure that the  guarantor gives his consent to any extension of time or other variation.

It should also be noted that the judge addressed but ultimately did not resolve the question of whether the joint venture agreement was a deed (with a 12 year limitation period) or a simple contract (with a 6 year limitation period) because he held that any obligations were time barred even if it was a deed and because the Court was faced with conflicting decisions in Briggs v Gleeds [2015] Ch 212 and MacDonald Hotels Ltd v Bank of Scotland Plc [2025] EWHC 32 (Comm) as to the proper interpretation of Section 1 of the Law of Property (Miscellaneous Provisions) Act 1989. The decision in Briggs supports the proposition that all the signatures to a deed must be attested by witnesses while MacDonald Hotels states (albeit obiter and without consideration of Briggs) that if it is clear from the face of a document that it is intended to be a deed and at least one of the parties has correctly executed it then the mere fact that it has not been validly executed by all the other parties does not prevent the document being a deed. This is therefore a matter for another case to decide.

Read the full judgment here.