ON APPEAL FROM THE MERCANTILE COURT,
QUEEN'S BENCH DIVISION
His Honour Judge Waksman
Strand, London, WC2A 2LL
B e f o r e :
LADY JUSTICE ASPLIN
MR JUSTICE NUGEE
| Elite Property Holdings Ltd & Another
|- and -
|Barclays Bank PLC
Mr Andrew Mitchell QC and Mr Ian Bergson (instructed by Dentons UK and Middle East LLP) for the Respondent
Hearing dates: 29th-30th January 2019
Crown Copyright ©
Lady Justice Asplin:
". . . except in exceptional circumstances, such as for example where this is necessary to preserve value in the Customer's business, [the Bank] will not foreclose on, or adversely vary, existing lending facilities (without giving prior notice to the Customer and obtaining their prior consent) until [the Bank] has issued a final redress determination…"
"In particular, in any case where the Firm proposes to foreclose on a Customer . . . the Skilled Person will review the case to confirm that there are exceptional circumstances."
"…Although there are no firm assurances but it could very well be proved that we are entitled to a refund of this amount. Two of the loans totalling £1 million are for financing breakage costs. The overall cost to the group is approximately £2 million."
In the light of that a further draft was produced and ultimately signed off by Mr Stavrinides on behalf of H&H.
"On 20 May 2013 a winding up petition was presented…Also, on 2 August 2013, H&H submitted a proposal for a Company voluntary arrangement…The letter also identified, under the heading 'Breaches', the sale (the transfer of assets) having been completed without the Bank's prior consent, the winding up petition and the CVA proposal."
The Bank reserved all of its rights and remedies in relation to the breaches including, but not limited to, issuing formal demand and commencing enforcement action against Elite, or any other person in accordance with the terms of any security. In the same letter, under the heading "Interest Rate Hedging Profit Review," it stated:
"As you will be aware the Bank has provided an undertaking to the [FCA]… that it will not foreclose, [etc], except in exceptional circumstances. This undertaking applies to the Facilities. We confirm that this reservation of rights is without prejudice to Elite's right…to be included in the Bank's ongoing interest rate swaps review…"
"Whilst the directors have purported to transfer assets (held by Elite Property Holdings Limited) to a new company whose banking is with the Bank of Cyprus, (outside of the Bank's security network, without our consent) the licences still sit with Health and Home Limited and therefore if the company goes into liquidation their licence will be revoked resulting in the nursing home being shut down which will leave vulnerable people at risk.
The Bank's appointment of administrators will enable the nursing homes to continue to trade (with the intention of eventually achieving a going concern sale) and prevent the residents from being subjected to a distressing move which may have a severe detrimental effect to the residents [sic.] health and well being [sic.]."
The detriment to the Bank was the trading value of the three nursing homes, which would be destroyed, reducing the overall security by £3.5 million, based on existing valuation reports that had not been updated. The potential for reputational damage to Barclays if the residents were forced to relocate was also referred to. In fact, the request was not pursued because the Bank decided to await the outcome of the proposed CVA.
". . . As Health and Home does not have an IRHP, we consider it falls out of scope of the exceptional circumstances procedures. In respect of [Decolace] and [Elite], as both have been struck off… it is arguable that they also both fall out of scope. However, we confirm that in our opinion the Bank's proposed action is consistent with the decision-making approach the Bank has set out in respect of exceptional circumstances."
KPMG also recorded that:
". . . You acknowledge that any decision taken, or not taken adversely, to vary or foreclose is yours alone [the Bank's] and that KPMG has not been, and will not be participating in the Bank's decision-making. The Bank has agreed that it will not convey to the customer any contrary impression."
The date of final sanction was given as 11 September 2013.
Proposed Amendments Before the Judge and the Judge's Decision
Grounds of Appeal and Respondent's Notice
(1) there was no serious argument that the circumstances were unexceptional and he should have held that there was a reasonable prospect of proving a breach of the undertaking to the FCA. In particular, he erred in holding that: (a) it was not arguable that there was an implied term in the loan or security agreements with the Bank that it would not cause the Appellants to breach those contracts; (b) it was not arguable that circumstances caused by the Bank could not amount to "exceptional circumstances"; (c) that Mr Stavrinides had stated that the Appellants were not in financial difficulties, and therefore it was not arguable that the Bank should have prioritised the Appellants in the review; (d) that it was not arguable that the Bank had used the Appellants' alleged inability to collect rents because they had been struck off the Companies Register in the British Virgin Islands as a ploy; and (e) that because KPMG as Skilled Person had approved the "exceptional circumstances" categorisation the Appellants had no reasonable prospect of proving that the circumstances were not exceptional or that the Bank intended to act unlawfully.
(2) the claim was precluded by the 2014 Releases.
Application to Adduce Fresh Evidence
(i) the director [Mr Stavrinides] having maintained that the goodwill in the businesses was an asset of Elite and that therefore, consent of the Bank was not required in relation to the transfer of assets;
(ii) Elite and Decolace being struck off the register in the British Virgin Islands creating a situation where the directors cannot trade or manage the businesses including the collection of rent; and
(iii) "directors unable to deal with affairs or assets of [the] Elite until restored to the Registry" and a similar statement in relation to Decolace.
Test to be Applied – Amendment of Pleadings
The 2014 Releases
"To my mind once one has read the language in dispute and the relevant parts of the contract that provide its context, it does not matter whether the more detailed analysis commences with the factual background and the implications of rival constructions or a close examination of the relevant language in the contract, so long as the court balances the indications given by each."
"2. We, as directors of the Company agree that the acceptance of the Revised Redress Offer made by the Bank is subject to the following terms:
(a) The Revised Redress Offer and receipt of the Redress Payment is in full and final settlement by the Company of all Claims (as defined below), including costs, expenses or damages, (excluding for consequential loss as defined in the Bank's 'Customer Guide on Consequential Losses') and any court costs awarded in relation to any action to pursue damages for consequential loss, in any way connected to the sale of the IRHPs, however such Claims arise. For the purpose of this Form, "Claims" means all complaints, claims and causes of action in any way connected to the sale of the IRHPs, except in respect of any action necessary to pursue damages for consequential loss only and any further cash redress which may be due to the Company as a result of such claims.
. . ."
Further, by clause 3 the directors acting on behalf of the Company acknowledged that clause 2(a) would take effect upon receipt of the Redress Payment. It is not in dispute that a Redress Payment was received by both Elite and Decolace. "Consequential loss" was defined in the Bank's "Customer Guide on Consequential Losses" in the following manner:
"unlike losses which may be expected as a result of the mis-sale of an IRHP to anybody (for example payments made under the IRHP) consequential losses are losses suffered as a knock-on effect of the mis-sale and are specific to a customer because of their own particular circumstances."
Missing Elements of the Tort of Unlawful Means Conspiracy
"84. This plea must fail, first, because the only unlawfulness relied upon is the breach of the undertaking, but I have held that there was no breach and no real prospect of establishing that there was a breach.
85. But moreover there is no relevant intention either. If there was no unlawfulness there could be no intention to do an unlawful act, and even if there was arguable unlawfulness there is no realistic basis for saying that the Bank and BDO intended to act in breach of the undertaking. If they did, the last thing the Bank would do would be to seek the appropriate sanction from KPMG, with the obvious risk that if KPMG refused to escalate the request the Bank's intentions to enforce, in breach of the undertaking, would be found out. None of this adds up at all.
87. Further, the allegation of the actual conspiracy is itself sparse. It is true that in conspiracy claims it is often hard to find direct evidence of the actual agreement made between the conspirators, hence the use of inferences. But here the allegation is that the agreement was made on or about 4th September between Ms McDonald of the Bank and Mr Nygate of BDO. But all that happened on 4th September was the Bank learning of the striking off of the companies. So the suggestion seems to be that this triggered the conspiracy, which had not been presaged or prepared in any way beforehand. Furthermore it is necessary to ask what acts were then done in furtherance of this conspiracy.
88. Reference is made to the delay in telling Mr Stavrinides about the striking off, but the fact is that he was told. It is not as if the striking off was the only event of default relied upon as against Elite. The other events of default, which were themselves substantial, had already happened. It is not suggested that the Bank provoked those earlier events of default in bad faith. For example, to cause HMRC to make a tax demand or to cause HHE to make the transfer of assets. As there were other defaults, the notion that the Bank may have deliberately not told Mr Stavrinides about the striking off does not make any difference. The only event that happened subsequent to the date of the alleged conspiracy was the application for the escalation of the request and then enforcement. So this is a very odd conspiracy plea indeed, because effectively everything the conspirators set out to do would already have happened."
". . . First it refers to the striking off as being not exceptional but [a] only minor error. But this was a serious matter. It did not take long to correct it but the point is that it would, while it was there, have affected the ability of Elite to collect the rent. Secondly, a reference is then made to the proposed CVA. But the proposed CVA was [a] also serious matter, which could have serious effects on the property because it could have affected the business. The important point being, on this score, that for the CVA to have proceeded, it would assume, as had been stated, H&H's insolvency. Furthermore, the transfer of assets was a serious event of default for the reasons which were given. The fact that the reservation of rights letters had acknowledged that the undertaking had applies is irrelevant. The undertaking not to enforce did indeed apply but it was subject to the exceptional circumstances proviso."
Mr Justice Nugee:
"The necessary ingredients of the conspiracy alleged are: (1) there must be a combination; (2) the combination must be to use unlawful means; (3) there must be an intention to injure a claimant by the use of those unlawful means; and (4) the use of the unlawful means must cause a claimant to suffer loss or damage as a result."
Lord Justice Hamblen:
40A. The Claimants' case is that on about 4 September 2013 the Bank combined with BDO with the purpose of engineering a position whereby the Bank could foreclose on or adversely vary the Claimants' existing facilities, thereby inflicting intentional harm on the Claimants and the Group. The Bank's foreclosure and adverse variance to the facilities, implemented by the appointment of BDO as LPA Receivers, amounted to unlawful means and resulted in unlawful interference in the Claimants' business. Alternatively, the Bank's combination with BDO was actionable as a conspiracy to injure the Claimants.
40B. The Claimants will refer to the following matters.
40B.1 From mid-2012 the Bank's conduct towards the Claimants and the Group became increasingly demanding and oppressive. It appeared to the Claimants that the Bank was developing a policy of bearing down on SMEs such as the Claimants rather than supporting their mutual business development.
40B.2 On or about 22 June 2013, when the Claimants and the Group were under very considerable strain due to the past and continuing payment obligations under the IRHPs and the break costs loans, the Bank placed the Group's accounts into the "Barclays Business Support Team". As part of that process the Bank required the Claimants to appoint BDO to prepare a report on the financial condition and activities of the Claimants and the other companies in the Group.
40B.3 Although the Claimants were required to instruct BDO jointly with the Bank and bear the entire cost of the Report, the format was dictated by the Bank and provided that the Claimants would be entitled to see only the first part of the Report, the second part being confidential to the Bank and BDO. The nature of BDO's appointment therefore predisposed BDO to be on the side of the Bank rather than of the Claimants.
40B.4 An initial draft of the BDO Report provided to the Claimants on 22 July 2013 contained a number of inaccuracies, which Mr Stavrinides identified in an email to BDO dated 22 July 2013, in particular the "fundamental issue" of the breakage costs under the FSA Review.
40B.5 BDO released a further draft of its Report on 23 July 2013 (the "23/7 draft BDO Report").
40B.6 It was alleged by BDO in the 23/7 draft BDO Report (among other things) that:
40B.6.1 The main cash generator for the Group was the care home business.
40B.6.2 The cash flow to enable the First Claimant to meet its debt servicing costs to the Bank came from the care home business operating from properties owned by Elite.
40B.6.3 Until 18 May 2013 the care home business was operated by H & H, and this was then transferred to H & H (E).
40B.6.4 Third party debtors and creditors were minor and the key issue facing the Group was H & Hs corporation tax liability to HMRC of £640,000.
40B.6.5 HMRC had issued a winding-up petition which had been adjourned on the basis that H& H would prepare a CVA proposal.
40B.6.6 Elite owed H & H £510,000.
40B.6.7After deducting loan capital repayments to the Bank, the business generated free cash of about £490,000 pa, from which Mr Stavrinides allegedly took his drawings.
40B.7 The stated purpose of the 23/7 draft BDO Report was to enable the Bank to consider the implications for the Group of the liability to HMRC and the winding-up petition and the extent to which the Bank might be able to help the Group if requested.
40B.8 By letters dated 24 July 2013 the Bank's Interest Rate Hedging Resolution Team notified the Claimants that they had been categorised as non-sophisticated customers within the meaning of the Review and that the sales of the IRHPs were automatically eligible for redress. It followed (as the Bank must have known) that the Claimants were entitled to substantial redress for the Structured Collars (at least) which would go all or most of the way to satisfy the First Claimant's alleged debt to H & H [sic – the Bank], even if H & H's corporation tax debt was neither reduced nor rescheduled.
40C. Despite the decision of the Bank's Interest Rate Hedging Resolution Team, and despite the Bank's agreement with FSA/FCA that customers in financial difficulties would be prioritised in the Review, the Bank failed to ensure that proper provision was made by BDO for the Bank's obligation to pay redress. Further, Mr Nygate of BDO (who ought also to have been astute to reflect in the BDO Report the Claimants' entitlement to redress) refused to make proper provision and stated to Mr Stavrinides that BDO's task in compiling the Report was to be very conservative and critical. Given that there was an obligation on the Bank to pay fair and reasonable redress, the position of both the Bank and BDO was illogical and suspicious and revealed a readiness to co-operate between them that was hostile to the interests of the Group.
40D. Further, as part of the Review, the Bank had previously undertaken to the FSA/FCA that the Bank would not foreclose on or adversely vary customer's existing tending facilities without the customer's consent except in exceptional circumstances. This undertaking was plainly intended to be for the benefit of the Bank's customers such as the Claimants.
40E. By reservation of rights letters sent by the Bank to H&H and to the First Claimant dated 14 August 2013 (hereinafter "the Reservation of Rights Letters") the Bank confirmed that this undertaking applied to the facilities provided by the Bank to the First Claimant and to H & H.
40F. The Bank (correctly) did not allege in the Reservation of Rights Letters that "exceptional circumstances" already pertained to those facilities. Further and in any event, upon an ordinary meaning of the Bank's undertaking, financial circumstances caused by the Bank's own failings in the sale of the Swaps or by its failure (contrary to the Specification) to prioritise its review of customers in financial difficulty could not amount to "exceptional circumstances" within the meaning of the Bank's undertaking to the FSA/ FCA.
40G. Neither the First nor the Second Claimant had at any time been in default of payment of any interest or any loan repayment to the Bank. However, on about 4 September 2013 the Bank discovered that the First and Second Claimants had been struck off the BVI Register of Companies on 1 November 2011 and 1 May 2012 respectively. This arose from administrative errors by the Claimants many months previously which could easily be rectified. However, instead of communicating at once with the Claimants to insist that the position be corrected, the Bank did not tell the Claimants until the following week. It is to be inferred that the Bank did this in order that the Claimants could not take the immediate opportunity to correct the position, or to make arrangements with third parties for any necessary financial support.
40H. At a meeting with the Bank (Ms McDonald) and BDO (Mr Nygate) on 9 September 2013 Mr Stavrinides was, without forewarning, informed by the Bank that:-
40H.1 the Claimants had been struck off the BVI register of companies;
40H.2 the Bank would serve immediate demand for repayment of their facilities on the Claimants;
40H.3 the Bank would appoint Tony Nygate of BDO as LPA Receiver over all the properties in the Group; and
40H.4 Mr Stavrinides should consent to BDO's appointment as administrator of H&H.
40I. It is to be inferred from Mr Nygate's presence at the meeting on 9 September 2013 that he already knew from the Bank (ie before the Claimants knew) that the Bank was going to foreclose on the loans and appoint Mr Nygate as LP A Receiver.
40J. Until that meeting Mr Stavrinides did not know about the striking off of the Claimants. He communicated his assumption that the striking off must have happened by mistake, and that he would take immediate steps to have the companies restored which was a straightforward process and could implemented immediately.
40K. Notwithstanding Mr Stavrinides' assurance that the Claimants would be restored (as in fact they were on 13 September 2013), on 10 September 2013 the Bank made demands for repayment of both Claimants' facilities and on 13 September 2013 appointed Tony Nygate of BDO as LP A Receiver over the First Claimant's properties.
40L. After the said meeting on 9th September 2013 the Bank continued to put constant pressure on Mr Stavrinides to consent to the appointment of BDO as Administrator to H & H. On 11 September 2013, and in the face of Mr Stavrinides' refusal, the Bank served a demand on H&H under the guarantee given in respect of the First Claimant and, on the basis that the First Claimant had defaulted under the demand served on 10 September 2013, hastened to the appointment of BDO's Tony Nygate and Sarah Ravment as joint administrators of H&H under their debenture later that day.
40M. By letter dated 8 October 2013, the Bank alleged that because the First and Second Claimants had been struck off, it would affect their legal ability to collect rent and that appointment of an LPA Receiver would allow the collection of rent. However, BDO have taken no step to collect the rent since their appointment and it is to be inferred that the Bank did not have any real concerns about the collection of rent.
40N. It is to be inferred from the matters set out at paragraphs 40G-40M above that the Bank decided to use the Claimants' absence from the BVI Register as a cynical opportunity to join with BDO with the purpose of depriving the Claimants of the care home cash flow that they needed to continue in business.
40O. For the avoidance of doubt, there were no "exceptional circumstances" within the meaning of the Bank's undertaking to the FSA/FCA which emerged in the month before the Bank purported to appoint BDO as LPA Receivers over the properties of the First Claimant which could justify any adverse variation in the Bank's facilities to the Claimants and H & H. In particular:-
40O.1 The Claimants' absence from the BVI Register was not an exceptional circumstance, but instead a minor error which could readily be corrected.
40O.2 H & H's corporation tax liability and its proposed CVA was not an exceptional circumstance. In this regard the Claimants will contend as follows.
(1) The Claimants' facilities and the Bank's security documentation were by necessity subject to implied terms that the Bank would not do anything which would render the Claimants in breach of their loan and/or security covenants (hereinafter "the Implied Term").
(2) The mis-sold IRHPs caused the cash deprivation across the Group, which in turn caused H&H's/the Group's inability to pay the corporation tax liability and thereafter H&H's proposed CVA.
(3) Accordingly these matters were the direct result of the Bank's breach of the Implied Term and could not amount to exceptional circumstances within the meaning of the Bank's undertaking to the FSA/FCA.
(4) Further and in any event, the Bank's Reservation of Rights Letters had acknowledged that the undertakings applied to the facilities of the Claimants and H & H.
40P In the circumstances, the Claimants contend that:-
40P.1 On or about 4 September 2013 the Bank (by Ms McDonald) combined with BDO (by Mr Negate), their mutual purpose being to deprive the Claimants of their source of free cash from which the Claimants' obligations to the Bank could be discharged.
40P.2 It is to be inferred (from the matters set out at paragraphs 40C and 40G-40M above) that the Bank and BDO thereby intended to injure the Claimants.
40P.3 It is to be inferred (from the matters set out at paragraph 40C and 40G-40M above) that in its variation of the facilities of the Claimants and the Group and its purported appointment of BDO as LPA Receivers the Bank acted in breach of its undertaking to the FSA/ FCA which was designed to protect the interests of the Claimants. This amounts to the use of unlawful means.
40P.4 In the premises the Bank is liable to the Claimants for conspiracy to injure by unlawful means, and/or for unlawful interference in the Claimants' trade or business.
40P.5 Alternatively, in circumstances where the Bank was subject to a bar on foreclosure and variation of facilities by reason of its undertaking to the FSA/FCA which was designed for the protection of customers such as the Claimants, there is a sufficiently high degree of proximity, targeting and blameworthiness in the Bank's conduct as to justify the imposition of liability on the Bank for loss caused by its breach of the FSA/FCA undertaking, even if that undertaking was only actionable by the FSA/FCA at the behest of the Claimants rather than by the Claimants themselves.
40P.6 Alternatively, it is to be inferred from the irrational and extreme nature of the matters set out at paragraphs 40C and 40G-40M above that the predominant intention of the combination between the Bank and BDO was to injure the Claimants. In the premises, the Bank is liable to the Claimants for conspiracy to injure."