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The Jersey Law Review – June 2005

THE DROIT DE DIVISION IN MODERN GUERNSEY LAW:  APPLICATION TO CO-GUARANTORS ONLY OR TO CO-OBLIGORS GENERALLY?

William Simpson & Jeremy Muir

Introduction

1       One of the first aspects of the customary law a legal practitioner new to Guernsey learns is the need to ensure waiver of the droit de discussion and droit de division in guarantee documentation with a Guernsey element (either governed by Guernsey law or with a Guernsey party).   A typical clause might go along the following lines -

The Bank waives any right which the Bank may have under the existing or future law of the Island of Guernsey:

(a)     whether by virtue of the droit de division or otherwise to require that any liability under this guarantee be divided or apportioned with any other person or reduced in any manner whatsoever; and

(b)     whether by virtue of the droit de discussion or otherwise to require that recourse be had to the assets of any other person before any claim is enforced against the Guarantor in respect of the obligations hereby assumed by the Guarantor.

2       As with many aspects of Guernsey law, however, neither the droit de discussion nor the droit de division has been extensively tested in the modern Guernsey courts,[1] nor indeed those of Jersey where similar principles apply.[2]  Questions arise, therefore, from time to time in practice as to their extent and application.  As the then Deputy Bailiff wrote in his judgment in Cross v Benitrust International (CI) Ltd. & others in the context of the droit de discussion (but which, it is submitted, applies equally to the droit de division) -

“The trouble about the law relating to the droit de discussion is that one has to go back a long way to find any practical authorities indicating how it worked.   The reason for this is that as any aspirant au barreau knows from his first day in the conveyancing department the invariable practice of draftsman [sic] of obligations is to provide for the droit de discussion to be waived.  This does not of course always work as a green light to a creditor to proceed against all and sundry who may feature as guarantors of a particular debt, (see, for example, the difficulties that arose in the recent litigation involving the Royal Hotel) but it does mean that there have been few decisions in the recent past interpreting the droit de discussion.”

3       This article looks at the droit de division and, in particular, the question of whether it applies only in the context of a guarantee or whether it may have application more broadly to any set of co-obligors.

A common understanding

4       A general statement of the droit de division which many Guernsey advocates would recognise would be that it is the right of a guarantor, where there are multiple guarantors, to require the creditor only to recover each guarantor’s proportionate part of the total amount guaranteed.  Indeed, Advocate Gordon Dawes, in his Laws of Guernsey, states that the droit de division is “the customary right of a guarantor to divide his liability as guarantor with co-guarantors”.[3]  As authority for this proposition, he cites De Ferrière who wrote-

“Bénéfice de division est celui que l’Empereur Adrien a introduit en faveur de plusieurs fidéjusseurs qui ont servi de caution à un même débiteur.  En vertu de ce bénéfice, lorsque l’un des fidéjusseurs est poursuivi pour toute la dette, il oppose l’exception qui en résulte, qui est de n’être tenu que pour sa part et portion”. [4] 

5       Certainly, this appears to reflect the comments of Pothier in his Law of Obligations, well-thumbed by generations of Guernsey advocates, where he states –

“When several persons engage as sureties, of a principal debtor of the same debt, they are each of them held to oblige themselves for the whole debt....

... In this respect several sureties differ from several principal debtors, each of whom is understood to be only obliged for his own part of what is jointly promised, if the solidity of the obligation is not expressed; the reason of the difference is, that it is of the nature of the engagement of a surety to oblige himself to every thing that is due from the principal debtor, and consequently each of those who undertake as sureties for him, is understood to contract this engagement, unless it be expressly declared, that he is only obliged for his own part...

... The emperor Adrian introduced a modification of this solidity, by the exception of division which he allowed to sureties; the surety from whom the creditor demands the whole of the debt, obtains by this exception a right to demand, that the creditor shall be bound to divide, and apportion his demand between him and his co-sureties, provided that they are solvent, and consequently, that he may be received to pay to the creditor his portion, saving the right of the creditor to proceed for the remainder against the others: this law has been adopted in France.” [5]  

6       An alternative reading of this, however, is that Hadrian extended the benefit of division to co-sureties, that is, it thereafter applied both to co-sureties (by this extension) and to co-obligors generally (as principal debtors were not jointly and severally bound in any event, unless the solidity of the obligation was express).  A more thorough review of the Roman authorities is, unfortunately, beyond the scope of this paper, except to note the comment of the translator, W D Evans, in the earlier section of Pothier’s work devoted to divisible and indivisible obligations generally, that -

“By the Roman laws, when several persons contracted an obligation jointly, each was only liable for his own part, unless it was particularly stipulated that they should be bound in solido ... ”[6]

7       Pothier himself writes, in this section -

"... [T]he obligation in solido, when several persons contract to pay another the sum of ten pounds, is nevertheless a divisible obligation; the effect of the solidarity is that it is not actually divided among the debtors in solido:  but their obligation is, notwithstanding, divisible, because it may be divided, and in fact will be so, among their heirs.”[7]

8       Tracing backwards to the Norman context, a reference to this principle may be found in Routier’s commentary, Principes Généraux du Droit Civil et Coutumier de la Province de Normandie -

“Régulièrement les Obligations se divisent entre les co-obligez qui ne sont tenus que pour leurs parts & portions lorsqu’ils sont tous présens & solvables.”[8]

9       Where, division is renounced, however, Routier continues -

“Chacun des débiteurs obligez solidairement & avec renonciation au bénéfice de division, peut être poursuivi & contraint pour le tout.”

Guernsey customary law

10     Notwithstanding the extensive commentary of Pothier on the droit de division in the context of sureties, he does not appear to address conclusively the question of whether the right is available to co-obligors more generally.[9]  Turning to the Guernsey commentators on the customary law, however, statements of the more expansive principle appear in the context of both sureties and co-obligors.

11     As with any issue of customary law in Guernsey, the first place to look is Terrien’s Commentaires du Droict Civil,[10] as adopted in Guernsey by L’Approbation des Lois which itself became law upon registration as an Order in Council on 27 October 1583, and as futher commented on by Le Marchant in his Remarques et Animadversions sur l’Approbation des Lois et Coustumier de Guernesey.[11]

12     Book VII, Chapter III of Terrien’s commentary, “De dettes & de detteurs”, contains a number of useful statements -

“… se plusieurs se mettent en plege de toute une dette, sans determiner de combien chacun le pleuit: s’aucun meurt, ou n’a dequoy payer, les autres doyuent payer pour luy.” [12]

13     Terrien’s comments are not limited to simple pleges,    however -

“Sur ce faut noter qu’aucunes fois on fait obliger le plege avec le principal detteur dés le commencement du contract sans faire mention qu’il soit plege.   Et en ce cas n’a lieu le benefice d’ordre, non plus que in alÿs correis debendi qui ne sont point pleges.  Mais a lieu le benefice de division, combien qu’ils soyent obligez ensemble & l’un seul pour le tout: s’il n’yest renoncé par ces mots, sans division, comme Papon dit avoir esté iugé par arrest de Paris, lequel benefice est tel, que si tous les obligez sont solvables, & presens ou habitans sous une mesme juridiction, & l’un d’eux est executé pour le tout, il peut requerir que le creancier s’adresses aux autres tous ensemble, ou à chacun pour sa portion.” [13]

14     Where, therefore, one of two co-obligors is not stated to be a plege and becomes, apparently, a principal debtor, he or she will lose the benefit of ordre (discussion) but retains the benefit of division.  The Approbation restricts itself to noting “Nous usons du troisiesme chapitre…” and, accordingly, Terrien’s commentary is adopted.

15     Le Marchant’s analysis of Chapter III is also useful.  He notes first of all that Terrien distinguishes two kinds of plege -

1       the simple plege: “par laquelle un s’oblige qu’un tel fera ou ne fera telle chose” ; and

2       the plevine qui retient la debte: “par laquelle le plege se constitue debteur pour ou avec le premier debteur et en fait comme sa propre debte”.

16     Although recognising the dangers in applying modern labels to historic concepts of this kind, it seems reasonable to identify the second category with the modern guarantor/indemnifier who expressly takes on liability as a principal debtor.  The effect of this is that it seems then reasonable to assume that such a person would be in a similar situation to any co-obligor (even outside the guarantee context).

17     He continues -

“Lorsque plusieurs personnes deviennent pleges de quelque debte, par ensemble, en simple plege, sans déclarer la quotte part dont chascun d’iceux devient plege et que quelques-uns des dits pleges meurent, les survivants sont obligés pour l’entier de la plevine, et de mesme si l’un des dits pleges est insolvable, jugé et recogneu judiciairement tel, autrement les co-obligés pourroyent avoir le bénéfice de division.” [14]

18     Again, however, the reference to contracting en simple plege in this quotation makes it difficult to know the extent of the principle.   A page or so later, however, he writes in more general terms -

“Le bénéfice de division est proprement entre co-obligés au payement d’une mesme debte également et par ensemble, par lequel bénéfice un créancier ne peut se prendre à un seul des co-obligés pour l’entier de la debte, mais est tenu ou de les attaquer tous ensemble, ou séparément, chascun pour sa portion de la ditte debte…. Il faut noter que lorsque de deux co-obligés il y en a un qui en effet est principal debteur, et l’autre seulement plege, et que dès le commencement d’un contract ils s’obligent également ensemble, sans parler de la dite caution, non plus que si il n’y en avoit point, et que mesme ils s’obligeast un seul pour le tout, le plege néanmoins aura le bénéfice de la division avec son co-obligé…”[15]

19     In this section, he writes that the benefit of division is available between co-obligés with respect to a single debt.  The second part of the quotation applies this (apparently) general principle to the particular case where one of two co-obligés is a plege, concluding that where the plege contracts également with his co-obligé from the beginning of the contract (and, it appears, where the status of the plege is not known to the other contracting party), the plege will have the benefit of division. 

20     His clearest statement is, however, as follows -

“Or les dits ordre de discussion, bénéfice de division … doivent estre ès cas susdits inviolablement observés en toutes cautions et co-obligations; sinon que par les contracts d’icelles il y soit expressement dérogé et dit que les pleges renoncent à l’ordre de discussion et appellation de garantie et les co-obligés au bénéfice de division, s’obligeant l’un et le plus solvable pour le tout, solidairement …”[16]

21     Accordingly, it is pleges who renounce the droit de discussion, but co-obligés who renounce the droit de division.  Is this perhaps the form of express acceptance of solidity that Pothier refers to in the context of multiple principal debtors?

22     Laurent Carey, writing in the eighteenth century, also draws a distinction between someone who is a caution, who can require the principal obligor to be pursued, and one of two debtors, who cannot be required to pay the whole unless he has renounced the bénéfice de la division -

“Exception est un contredit à une action pour en exclure la demande et en empecher son effet…

Elles peuvent être alléguées par personnes qui sont convenues pour plus qu'elles ne peuvent ni doivent comme consorts perçonniers. 

Item: Par celui qui est caution d'un autre, si l'obligation n'est solidaire, lequel pourra demander que le principal obligé soit contraint… 

… Item: Par un des deux detteurs, pour n'être constraint lui seul pour le tout, si expressément n'est appose la renunciation au benefice de la division et ordre de discussion.” [17]

23     It is not clear why it is suggested the ordre de discussion be renounced here, unless it may be implied that this is only the case where one of the two debtors is a surety.

24     Given the authority of the specifically local commentators in the Guernsey courts, these texts are grist for the mill should the question under consideration come to be considered here.[18]  A Guernsey court would, however, also be likely to consider the way that French law has developed up until the present day together with, possibly, the English law position.  A few comments on these jurisdictions follow, together with a brief comment on Scots law.  These sections are not intended to be comprehensive, but might usefully provide a starting point for further research at another time.

Modern French law

25     A detailed analysis of modern French law in this context is beyond the scope of this article (and outside the expertise of its authors).  Some guidance, however, may be taken from a French textbook on obligations, as follows -

“Principe de division des créances et des dettes -  L’obligation conjointe est celle qui comporte plusieurs créanciers ou débiteurs entre lesquels elle se divise activement ou passivement, de sorte que chaque créancier n’a le droit de réclamer qu’une part dans la créance et chaque débiteur n’est tenu de payer qu’une part de la dette.

Cette situation représente la norme.  Elle s’applique de plein droit, dès lors qu’il y a pluralité de créanciers ou de débiteurs, en l’absence d’indivisibilité résultant de la nature des choses, de stipulation contractuelle, de disposition légale ou de décision judiciaire contraire.” [19]

26     Accordingly, where full joint and several obligations on the part of co-obligors is desired, it should be expressly provided for.  The key articles of the Code Civil are found in the section headed Des Obligations Solidaires and, for our particular purposes, include -

“Art. 1200    Il y a solidarité de la part des débiteurs, lorsqu’ils sont obligés à une même chose, de manière que chacun puisse être contraint pour la totalité, et que le payement fait par un seul libère les autres envers le créancier.

Art. 1202     La solidarité ne se présume point; il faut qu’elle soit expressément stipulée…

Art. 1203     Le créancier d’une obligation contractée solidairement peut s’adresser à celui des débiteurs qu’il veut choisir, sans que celui-ci puisse lui opposer le bénéfice de division.”

27     This is in accordance with Pothier’s comments with respect to multiple principal debtors above.  Therefore, unless joint and several liability (in English terms) has been expressly provided for, the benefit of division appears likely to be available.

28     The relationship between co-obligors when an obligation has been contracted for solidairement is set out in articles 1213 and 1214 -

“Art. 1213    L’obligation contractée solidairement envers le créancier se divise de plein droit entre les débiteurs, qui n’en sont tenus entre eux que chacun pour sa part et portion.

Art. 1214     Le codébiteur d’une dette solidaire, qui l’a payée en entier, ne peut répéter contre les autres que les part et portion de chacun d’eux.  Si l’un d’eux se trouve insolvable, la perte qu’occasione son insolvabilité se répartit, par contribution, entre tous les autres codébiteurs solvables et celui qui a fait le payement.”

29     Division is, accordingly, available between co-obligors even where not permitted (or provided for) as against the creditor.

English and Scots law

30     Halsbury’s Laws of England sets out the general principles with respect to co-obligations under modern English law.[20]   Any number of persons may join in making or accepting a promise; and a promise made by several persons may be joint, several or joint and several.  It is a question of construction as to which case applies.  Where several persons join in making a covenant, the covenant is construed in accordance with the ordinary meaning of the terms used.  Where two persons covenant generally for themselves without words of severance, a joint liability is created and each of them is liable for the performance of the whole promise.

31     More specifically, Glanville Williams in his 1949 treatise Joint Obligations writes -

“A joint promise by two or more persons creates a single obligation incumbent upon both or all.  The theory of a joint and several promise is that it creates both a joint obligation incumbent upon all and a number of several obligations respectively incumbent upon each one; but the several obligations are non-cumulative, so that (as with purely joint obligations) performance by any one will discharge all.  Joint and joint and several promises may be called generically co-promises.

The presumption is that a contract made by two or more persons is joint, express words being necessary to make it joint and several.  The usual formula to create a joint and several liability is “A and B jointly and severally promise”.” [21]

32     The result of this is that, as a joint promise creates only one obligation, all the promisors must generally be joined as defendants to any action. Prima facie, a joint promisor has the right to insist upon the other joint promisors being joined as co-defendants and may apply for a stay of proceedings if this is not the case.

33     As under French law, co-promisors generally have a right of contribution against each other whether as a matter of implied contract or of quasi-contact.[22]  The right of contribution is independent of any present right of the promisee (principal creditor).  These principles apply equally to guarantees and Halsbury refers directly to the right of contribution from co-guarantors where a guarantor has paid more than his or her share of the common liability, whether the liability is joint and several or several alone.[23]

34     Williams notes, however, the difference between English and Scots law (and, in our view, Norman and French law) on joint obligations. In Scotland if two promise to pay £100 jointly, each is liable only for half; he cites as authority for this proposition Coats v Union Bank of Scotland.[24]  This reflects, of course, the civil law origins of the Scottish legal system.

35     In Coats, three shareholders of a company heavily indebted to a bank agreed to purchase shares belonging to the company and held by the bank as security, and entered into agreement with the bank by which the bank was to advance to them a “joint loan” to finance part of the purchase price, and to hold the shares as security for the advance.  They paid for the shares partly by their individual cheques and partly by drawing joint cheques on the bank for that portion of the purchase price advanced by the bank.  The bank contended that the three were liable severally for the whole loan.  One shareholder sought and received a declaration (affirmed by the House of Lords) that he was liable only for his own third share of the money advanced.  Viscount Hailsham stated -

“By the law of Scotland, differing in this respect from the law of England, joint debtors are regarded prima facie as incurring a pro rata liability only; but this prima facie presumption may be rebutted. The law is stated in Gloag on Contracts (2nd ed. at p. 198) as follows: “As a mere general rule, subject to many exceptions, and yielding to expressions indicative of an intention to the contrary, obligations are construed as involving rights and liabilities pro rata, so that one of two creditors can exact payment of a half only; one of two debtors is liable only in the same proportion”. Prima facie, therefore, a request for a joint loan would import an undertaking to repay only a proportionate part of the amount advanced. The question which is to be determined is whether the documents in this case, read as a whole, and the method by which the transaction was carried out, contain evidence sufficient to rebut the presumption and to prove that the intention of both parties was that Mr Coats should be liable for the whole of the debt.”[25]

36     It is perhaps fair to say that the modern drafting tendency is to ensure that the covenants of co-obligors are expressed to be joint and several where the matter is otherwise likely to come into dispute, and this has prevented these issues being more frequently litigated.  As these tendencies have been imported largely into Guernsey legal practice, it leads nicely on to the next issue.

Waiver of the right

37     If, indeed, the benefit of division were available to co-obligors, it should be considered whether the common practice of stating that the obligations of a co-obligor are to be joint and several is sufficient impliedly to waive the right of division.  Certainly the two principles appear mutually inconsistent.  Concern is, however, often voiced that the rightsshould, as a general principle, be waived specifically rather than by implication.  See, in Jersey, the dicta of the Royal Court in Le Cornu and another v CI Heat Pump Bureau Limited, Glover and Black, in the context of a guarantee in a lease -

“The pleadings state that the wording of the guarantee clause avoids the droit de discussion.  We are not prepared to say that the words “without reservation of any kind” avoid the general common law rule without far more detailed argument.  It might be argued that such a contention is against public policy; it might contrarily be argued that la convention fait la loi des parties.” [26] 

38     Although the Court did not reach a decision on those facts, it is reasonable to suppose that similar principles would be applied with respect to an argument that the droit de division had been impliedly waived.  The public policy argument, however, is more likely to be applied to co-guarantors rather than to co-obligors generally, given the historical interest in protecting sureties.

39     It is possible, also, that Terrien’s comments (noted above) that division may apply “… s’il n’yest renoncé par ces mots, sans division” might be read strictly to require that the principle be renounced by the specific words “sans division” or “without division”.

40     As usual, Pothier also addresses these issues -

“When it is expressed in the engagement that the sureties are obliged in solido, and as principal debtors, is this clause understood to include a renunciation of the exception of division?  Those, who think that such a clause does not include a renunciation of the exception of discussion, would also think that it does not include a renunciation of the exception of division:  but the reasons which induced us to think that it included a renunciation of the exception of discussion ... induce us to think that it imports the renunciation of that of division.” [27]

41     In his previous analysis of renunciation of the exception of discussion in similar circumstances, therefore, he noted as      follows -

“Is the surety understood to have renounced this exception, when it is said by the engagement, that the obliges himself as principal debtor?  Authors seem divided upon this question:  some old arrêts of the parliament of Paris are adduced, which have decided that this was not sufficient, and that the renunciation of this exception ought to be express.  Basnage in his Treatise of Hypothecations, says, that the jurisprudence of Normandy is that these terms are sufficient to declare a renunciation of the exception of discussion, and that it should not be supposed that they were employed to signify nothing; this accords with the rules for the interpretation of agreements...”[28]

42     Where there is any doubt, of course, it may be that cautious drafting will prevail and a wider use of express waivers of the droit de division will develop, at least until the point is considered by a Guernsey court.  It may be that a form of wording in English (language) contracts such as “the debtors covenant jointly and severally (and without the benefit of division)” would be appropriate where certainty is wanted.

Intervening insolvency

43     It should be noted, as both Terrien (as quoted above) and Le Marchant point out, that the droit de division is not available where a co-surety is insolvent or not present in the jurisdiction.  Le Marchant notes as follows - 

“Mais il y a deux choses requises … sans lesquelles on ne peut avoir le dit … bénéfice.  Le premier est que … chascun des co-obligés sure lesquels le créancier est renvoyé par bénéfice de division soit solvable; le deuxième, qu’ils soient présents et sous une mesme jurisdiction …”[29]

44     For completeness, it is worth quoting Pothier’s excellent explanation of the point in full -

“Lastly, it is necessary that the co-sureties, with whom the surety demands that the action should be divided, be solvent …

… But if my co-surety was solvent at the time of contesting the cause, and consequently the action of the creditor has been divided between him and me, although he afterwards becomes insolvent, the creditor can no longer come against me for his part...

… In this respect, the exception of division differs from that of discussion; the reason of the difference arises from the different nature of these exceptions;  that of discussion is only dilatory, it only defers the action of the creditor against the surety, till after the creditor has discussed the principal debtor;  whereas the exception of division is in the nature of a peremptory exception:  when it attaches, it entirely destroys the action of the creditor against the surety who opposed it, for the part of his co-sureties with whom the division is allowed, and therefore the creditor can no longer come upon him, even if the co-sureties should afterwards become insolvent.

Further, even if my co-surety is insolvent before the demand of the creditor, if the creditor has voluntarily divided his action, by demanding from us separately our respective parts, he cannot afterwards demand from me the part of my insolvent co-surety…

… Provided that my co-surety be solvent, although the term, or the condition under which he is obliged, be not yet expired, I may nevertheless demand that the action be divided between him and me provisionally, saving the right of the creditor to come upon me for the part of the co-surety, if at the expiration of the term or condition he should not be solvent … and a fortiori if the condition under which he is obliged, happens to fail.

As the demand of the creditor is only subject to be divided, when the co-sureties are solvent, if there is a dispute between the creditor and the surety, who demands the division, upon the fact whether the co-sureties are or are not solvent, the surety, upon offering to pay his part, may demand, that previous to deciding the point as to the residue, the creditor shall, at the risk of the surety, be bound to discuss the co-sureties.” [30]

45     With respect to the latter point, Pothier confirms that the benefit of division is not available where the co-surety resides “out of the kingdom; for this exception is a favour which the law only grants in as much as the creditor does not suffer too great inconvenience from it”.[31]

The effect of the exception of division

46     Guidance as to the nature of division and its effect can, again, be gained from Pothier -

“The effect of the exception of division is, that the judge will decree the division of the debt between the sureties who are solvent, and thereby restrict the demand against the suretry who opposed the division, to his part only.

Before this division of the debt is pronounced by the judge, upon the exception of division, or has been voluntarily made by the creditor, by a demand against each of sureties for his part … each of the sureties is really debtor of the whole;” [32] 

47     The right of division, therefore, does not reflect the nature or original obligation of the surety but only has an effect when an order is made.

Conclusions

49     The Guernsey authorities (with support from other jurisdictions) appear to suggest that the droit de division should be extended by a Guernsey court to a co-obligor who is not a co-guarantor.  Where a co-obligor’s obligations are expressed to be joint and several, it is possible that benefit of division would be held to have been renounced (should it apply), but this remains an open question.  It remains to be seen whether the view of the Guernsey bar will shift and a wider use of express waivers of the droit de division in the context of co-obligors (who are not co-sureties) will develop.  Only a reasoned decision of a Guernsey, or Jersey, Court is likely to settle the matter. 

William Simpson is an advocate of the Royal Court of Guernsey who practised as a English barrister and also in Cayman and the BVI before joining Ozanne’s in Guernsey in 1991.  He is now a partner in Ogier and Le Masurier, based in Guernsey. 

Jeremy Muir is a barrister and solicitor (New Zealand) and an aspirant to the Guernsey bar.  He now works for Ogier and Boxalls  in their Cayman office.

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