Edmonds Judd

Guarantees

Consumer Guarantees Act vs Fair Trading Act

Property, Relationships, Retirement, Social Media, Trusts
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The purpose of these two laws are often confused: the Consumer Guarantees Act 1993 (CGA) and the Fair Trading Act 1986 (FTA) both provide legislative protection for consumers. However, they both address different aspects of consumer rights and business conduct.

The Consumer Guarantees Act 1993: The CGA only applies to goods and services bought for personal, domestic or household use, and not to those purchased for business purposes. The CGA states that goods must be of acceptable quality, fit for purpose and match the description provided by the seller. You cannot contract out of the CGA when you are dealing with consumers, even if you want to do so. There is a limited ability to contract out in business-to-business transactions provided certain requirements are met.

The CGA is important in that it ensures that goods and services bought for domestic use meet certain standards  following their sale.

The Fair Trading Act 1986: In contrast, the FTA provides protection for consumers from misleading and deceptive conduct of sellers in trade. The FTA cannot be contracted out of, except where both parties are in trade.

The FTA also promotes fair practice and conduct in relation to the supply of goods and services, meaning businesses must compete effectively and fairly. The CGA ensures all businesses operate on a level playing field, particularly for smaller businesses that could be taken advantage of by larger corporations.

If you find yourself in a position where false claims have been made in respect of machinery, livestock or equipment, you may have a claim under the FTA.

In addition, there may be other forms of redress ensuring fair treatment of consumers and business owners.

Estates and guarantees

Estate, Trusts
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Can cause difficult legal issues

Guarantees entered into by a person during their lifetime can create some difficult legal issues for their executor after they die.

 

Limiting a guarantee

The terms of most guarantees allow a guarantor to give notice; this stops further liabilities accruing. In an estate situation, this will not alter the liabilities accrued to date, however the executor who is aware that an estate is liable under a guarantee may need to issue a stop notice to protect the estate’s position to maximise the value of the estate.

This can be a difficult decision for an executor, particularly where (for example) a guarantee is important for the ongoing viability of, say, a family member’s business.  However, where the estate does not have an interest in that business, the executor may need to do this anyway as the estate’s position is the executor’s responsibility, and the interests of all beneficiaries must be prioritised, even if the decision causes dissatisfaction for one.

 

Calling up a guarantee

Where a guarantor has died, and the guarantee is called up after their death, the estate is liable to the lender in the usual way.

In the situation where the estate is only one of several co-guarantors, the executor may need to decide whether to seek contributions from the co-guarantors. The executor may also need to take legal action to enforce payment by co-guarantors.

Where any of the co-guarantors are also beneficiaries of the estate, it may also be necessary for the executor to take advice about the extent to which any liability for contribution to the guarantee can be met by funds that the beneficiary is to receive under the terms of the will.

 

Rights of contribution between co-guarantors

The default position is that co-guarantors share an equal liability to meet a common debt. Where one guarantor pays more than their fair share of the debt to the lender, they are entitled at equity to seek an equal contribution from their co-guarantors.

Complications can arise, however, where a co-guarantor is insolvent. In that situation, the other solvent co-guarantors may have to contribute proportionally to meet the shared debt. This means that an estate might be held liable for more than its ‘fair’ share of the debt.

 

Co-guarantors who are also beneficiaries

The situation becomes more complex when a co-guarantor is also a beneficiary of the estate that has paid the debt. Can the executor claim contributions towards the debt paid by withholding the beneficiary’s share of that debt from their entitlement under the will? Although the court has confirmed that a beneficiary owing money to an estate cannot claim a share of their interest without first settling the debt, an executor should not automatically deduct a debt from a beneficiary’s entitlement.

Rather, the first step will usually be for the executor to approach the relevant beneficiary first by letter and then a formal demand. If a beneficiary persistently refuses to fulfil their debt, an executor can then retain that beneficiary’s share or interest to recover their relevant contribution. The executor should then seek the approval of the High Court to deduct the beneficiary’s share of the debt from their estate entitlement.

 

Interests of beneficiaries take priority

Personal guarantees can create tricky issues for an executor to deal with, particularly in family situations. The estate’s position is the executor’s responsibility, and the interests of the beneficiaries of the estate must be the executor’s priority – even if it means one beneficiary is unhappy because they are affected by the executor’s decision.

While it does not commonly arise, the right of contribution is also something the executor may need to explore for the benefit of the estate as a whole and seek some advice. In some circumstances the executor may also need to go to the High Court for assistance where one beneficiary will not cooperate.

 

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