England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE BIRMINGHAM COUNTY COURT
(JUDGE ECCLES Q.C.)

		Royal Courts of Justice Strand London WC2 Wednesday, 28th March 2001

Wednesday, 28th March 2001

1. LADY JUSTICE ARDEN: This is an application by Mrs. El Boudi for permission to appeal from the order of His Honour Judge Eccles Q.C. sitting in Birmingham County Court dated 31st July 2000. By his order, the judge decided certain preliminary issues in favour of the claimant.
2. In order to understand this application I need to say a little about the facts in this action, and to do so I turn to the facts as found by the judge. Mr. and Mrs. El Boudi are equal shareholders in Nicelink Limited, a company trading in perishable items. Nicelink Limited banked at the New Street, Birmingham branch of Barclays Bank, where the manager was a Mr. Peter Toon. In November 1989 the bank granted Nicelink overdraft facilities of £10,000 in return for an all-monies debenture and an unlimited guarantee signed by Mr. El Boudi. Mr. El Boudi says that it was intended that he would sign a guarantee on behalf of the company and that he signed a personal guarantee by mistake but was assured that it would be replaced by a company guarantee. Mr. Toon says that a personal guarantee was given because Nicelink might wish to increase its guarantee.
3. In February 1990 the overdraft was increased to £14,000. In October 1990 Barclays Bank paid a cheque for £3,000 without authority, and there is an important issue which arises as to whether there was then an agreement that the bank (acting by Mr. Toon) would increase the overdraft to £17,000 or, as the defendants contended, to £30,000. I shall have to explain that in more detail later, but what Mr. Toon said was that he agreed to increase the overdraft to £17,000 per annum on a temporary basis. I shall have to go into the events of that period of time in more detail, but Mr. El Boudi says that Mr. Toon agreed to see if the bank would in fact increase the facilities to £30,000 or would allow the company to go into creditors' voluntary liquidation or enforce the debenture because the company had some adverse trading conditions. As I have said, Mr. Toon thought that what was agreed was a permanent increase to £17,000 against a joint and several unlimited guarantee to be given by both defendants and a second charge over the El Boudi's matrimonial home. Mr. Toon said that he had no information on which to value the company. The defendants said that this was untrue. They say that Mr. Toon told them that Nicelink's overdraft would be increased to £30,000 and that he simply asked them to secure the top slice of the overdraft by the security which they gave – that is, the excess of £16,000 over £30,000.
4. In brief, there was a meeting between the El Boudis and Mr. Toon on 12th December 1990. The El Boudis signed a second charge over their house and unlimited guarantees. The El Boudis say they thought the guarantee and charge was merely to cover the top slice, as I have explained, and they say they did not realise that they were in fact signing guarantees. Later the bank reduced the overdraft to £14,000 and returned a cheque for £2000.
5. On 27th December Mr. Toon wrote to Mr. El Boudi to explain that the overdraft had been reduced to £14,000. Mr. El Boudi complained to the bank that they had agreed to increase the overdraft to £17,000. On 14th January 1991 Mr. Toon wrote to Mr. El Boudi informing him that, after certain liabilities of the bank with regard to cheque negotiation had been extinguished, there would be a temporary increase to £17,000. In February 1991 the overdraft was marked at £17,000, where it remained for the rest of the relevant trading period.
6. Later on, Mr. Toon was made redundant. Mr. El Boudi gave evidence that Mr. Toon had told him, Mr. El Boudi that he had deceived Mr. El Boudi regarding the availability of the £30,000 in order to get the El Boudis to execute the second charge and guarantees.
7. Matters proceeded until 1994, when the bank made demand under the guarantee and the El Boudis then realised that guarantees had been given. They complained that they had not received the promised overdraft of £30,000. They said that they had not previously complained about that because of their financial vulnerability. The bank's case is that the El Boudis must have known that they were signing guarantees, that the document was so headed and was printed on yellow pages.
8. In short, the judge rejected the El Boudis' case, after hearing witnesses, that Mr. Toon had deceived them as to the £30,000 overdraft. The judge also rejected the argument that Mr. El Boudi did not know he was signing a guarantee. He also considered whether the bank owed a fiduciary duty to the claimants. He asked whether there was a relationship of trust and confidence, but he found that the El Boudis did not in fact seek advice from the bank and that therefore the relationship was a standard relationship of banker and customer and not more.
9. The judge answered the questions ordered to be tried by way of preliminary issues in the following manner at the end of his judgment:

"(1) Did the defendants execute the guarantee dated 12th December, 1990? Answer, yes.

(2) Are the terms of the guarantee those set out in the deed of guarantee dated the 12th December, 1990? My answer is yes.

(3) If so, did Mr. Toon conceal the nature of the guarantee document or misrepresent its terms? My answer is no.

(4) Did Mr. Toon represent to the defendants in or about October or November, 1990 that the claimant would increase the overdraft facility of Nicelink Limited to £30,000? My answer is no.

(5) If so, did the defendants rely on the representation by entering into the legal charge dated 12th December, 1990? My answer is that that issue does not arise.

(6) Did a fiduciary relationship exist between Mr. Toon and the defendants outside the normal banker/customer relationship? My answer is no. (7) If so, did Mr. Toon breach his fiduciary duty? My answer is that the issue does not now arise."

10. On this application Mrs. El Boudi has appeared in person on her own behalf and on behalf of her husband and has made some helpful submissions. In addition, she has filed the applicants' notice which is required to be filed, setting out grounds for appeal by which I will give my judgment, and in addition she has provided the court with a helpful skeleton argument.
11. I am going to start with ground 7 because it seems to me that this may well be the most important issue. Ground 7 says:

"His Honour Judge Eccles Q.C. was wrong in Law in holding that we executed the Guarantee dated 12th December 1990 as the Claimant failed to prove the existence of any valuable agreement in which the Guarantee could be construed."

12. This ground raises the issue whether the judge was right to say that there was no agreement for an overdraft facility of £30,000 and that it was on that basis that the El Boudis executed the guarantees and second charge.
13. In order to deal with this I need to go back in some detail to the judgment itself, starting at page 22 of the bundle. Before I do that, I should explain that if there were an appeal, then on most of the grounds raised it would be an appeal on fact. It is well established that the Court of Appeal is most reluctant to interfere with a judge's findings, particularly those of primary fact, unless they are against the weight of the evidence. One of the reasons for that is that the Court of Appeal does not hear the evidence again but merely has to look at the documents, whereas the judge has the advantage (as in this case) of hearing the evidence given orally and forming a view about its credibility.
14. Going to the judgment (page 22, letter F), I pick up events at 19th November 1999:

"On the 19th November, 1990 the defendant went to the bank and there met Mr. Toon. There was a discussion over the financial affairs of the company, but again there is a substantial conflict between what Mr. El Boudi says and Mr. Toon says. Mr. El Boudi's evidence is that, according to his witness statement,he told Mr. Toon during this meeting of his concern over three large debts totalling £49 1/2 thousand (later it was said that it was about £39,000) and he told Mr. Toon that he was concerned about the effect those debts were having on the company's ability to trade. He outlined three possible options to Mr. Toon; the bank could call in its debenture, or the company could go into voluntary liquidation; or the bank could increase the company's overdraft facility to £30,000 to enable the company to pursue legal action to recover the debts owing to it, including the £3,000 the plaintiff had paid to El Tisser in error. So at that point it seemed, according to that part of his evidence, that on the 19th November it was still considered to be a potential necessity for Nicelink to engage in litigation with El Tisser. "At the end of the meeting, says the first defendant, Mr. Toon said he would consider those options and tell Mr. El Boudi of the bank's decision within a few days because he had to consult his superior since his, Mr. Toon's, authority did not exceed £20,000 for the offer of overdraft facilities.

"Mr. Toon's account is set out in a note which was written by him on the 19th November in which he said that his judgment of the securities available to the bank at that time was that they had a nil value, and he said in evidence that was because he, Mr. Toon, had no up-to-date management information from the company. He said that:

'Mr. El Boudi has asked that the temporary excess arrangement becomes a permanent feature of the account and I have agreed, subject to a second mortgage over the matrimonial home. Mr. El Boudi tells me the property is valued at £100,000 with an outstanding mortgage of £80,000. Forms have been handed to him and should be returned on Monday.

'As Mrs. El Boudi is intimately involved with the business then I am happy she should sign the form here,'

and he asked for a Financial Services Division to obtain a valuation, and would they also obtain an appropriate side letter to ensure that the private borrowing was secured.

"So the bank's position was that at that date in November of 1990 there was no information upon which any value could be put upon the securities then available and Mr. Toon says he has no recollection of any figure of £30,000 being mentioned but, even if it was, he is adamant that he never agreed to recommend that the overdraft facility be increased to £30,000.

"The defendants say, as I said earlier in this judgment, that Mr. Toon in fact had the monthly creditor/debtor figures from which the debenture could have been valued as a security and therefore the fact that it was valued at nil is some evidence of a sinister purpose on Mr. Toon's part to justify requiring the defendants to provide some extra security. They also point to the fact that in September the debenture had a value of some £20,000 according to the monthly figures, and by the defendants' own calculations the value of the debenture in October/November would have been about £28,000."

15. The judge then refers to Mr. El Boudi's account that Mr. Toon had in fact consulted his superiors and had obtained the necessary authorisation to increase the overdraft to £30,000 and then arranged for Mr. El Boudi and his wife to execute the legal charge over their matrimonial home to secure the top slice to which I referred above. It was of course denied by Mr. Toon that he had made any offer of £30,000 or that the security was simply for the top slice.

Going back to the judgment at page 25 of the bundle:"On 11th December, 1990 there was a telephone call in which Mr. Toon spoke to Mr. El Boudi, and it may be that that included some discussion about making an appointment for the following day for Mr. and Mrs. El Boudi to come into the bank. Up to that point the first defendant was expecting that he and his wife would go into the bank to execute a second charge over their matrimonial home. It seems to me they had no reason at that time to know of the significance of any side letter that might be put before them to sign and there is no evidence that Mr. Toon had told the first defendant that the second defendant would have to sign a personal guarantee of her own, let alone one that was unlimited. There is, however, a conflict of evidence between Mr. El Boudi and Mr. Toon about the telephone call. Mr. Toon says that he discovered, either in the course of this telephone call or shortly before it, that there was a substantial liability that the bank had been exposed to over the negotiation of foreign cheques, and he said that he had spoken to Mr. El Boudi on the telephone on the 11th December expressing his concern at the liability of some £33,000, bearing in mind that the bank had not received copies of the audited accounts as at September, 1989, and had had no management information for the months of September, October, November, 1990.

"So Mr. Toon's evidence was that by the 11th December, 1990 he had become aware that there was a combination of liabilities that the bank was exposed to, including liabilities over the negotiation of foreign cheques, and that those liabilities, taken with the other facilities which were being made available if a £17,000 overdraft was continued, would expose the bank to a total liability of about £32 1/2 thousand according to the bank statements as they were on the previous Friday. Mr. Toon's evidence was that he had no idea until then that the bank was negotiating foreign cheques for Nicelink. Those negotiations resulted in Nicelink being afforded a credit for possibly three or four weeks until the cheques were collected, and the bank was exposed to the possible risk of any of those cheques being returned. Mr. Toon said that the negotiation of these cheques was being done on the initiative of a clerk at the foreign desk without any authority from Mr. Toon. He was unable to explain how or why that had happened but he said that as soon as he had heard of the practice he reported it to his superiors, and indeed that is what appears in the subsequent documents."

16. The judge then goes on to record that the defendants challenged Mr. Toon's knowledge of these facilities. They said that he knew all about them at the relevant time and Mrs. El Boudi further says that she would wish to adduce the evidence of the clerk in question to show that Mr. Toon did know about the negotiation of these foreign cheques. If indeed Mr. Toon had not been believed on that point, it would have cast doubt on the account of the conversation which he gave on 11th December.
17. I can then move to a document which Mr. Toon executed on 11th December 1999. The judge says this:

"On 11th December, 1990 Mr. Toon prepared an authorisation slip which he later dated the 12th, to be submitted to his superior, Mr. Sutton. In that he set out the existing facilities that were made available and he set out proposed facilities, which included an overdraft limit for the company of £17,000, to be secured by the debenture, by a joint and several unlimited guarantee signed by Mr. and Mrs. El Boudi, and to be secured by a second charge over the house which was valued by the bank at £7,000 in the light of the valuation which the bank had obtained. A cheque negotiation limit was proposed for something over £12,000 for one month only. The recommendation that he made was that the cheque negotiation liability should be extinguished by mid-January, 1991 and then there could be a normal increase in the overdraft to the figure of £17,000, and he referred to the fact that the customer was being chased over accounts, and that management information was to be provided as soon as possible when the books had been returned by the company's accountant. So he recommended an increase to £17,000. In fact, in his covering note to Mr. Sutton he said this:

'As the borrowing falls outside my own discretion I would ask that David gives me sanction to the overdraft and Barclaycard facilities for a period of one month and additionally gives me sanction for the negotiation limit for a period of one month only.'

So the actual recommendation he was making was only to cover the company for one month'."

18. The judge then goes back in his judgment to the proposed meeting with the defendants. He notes that there was no letter or contemporaneous note to indicate that the defendants were informed in advance of the proposed meeting that Mr. Toon needed authority to sanction an overdraft of £17,000, nor that they were told that Mr. Toon was seeking authority for one month only initially, nor were they warned that Mrs. El Boudi was to be asked to sign an unlimited guarantee in relation to the second charge. The judge continues:

"Given the shortfall in the expected value of the second charge from £20,000 down to £7,000, being the difference between the defendant's valuation and the bank's valuation, and given the existence of the negotiated cheque liabilities, assuming for the moment that those were not known until the 11th December, there may well have been good banking reasons for requiring the extra security of the wife's guarantee. I confess I was a little surprised that Mr. Toon did not take the precaution of informing the customers in writing of the change of structure to the company's borrowings and the reasons for it and it is difficult therefore to know to what extent Mr. Toon did or did not explain to the defendants the significance of the changes in the bank's proposals from those discussed on the 19th November".

19. The judge then sets out his findings on the meeting of 12th December. He says this at page 28 of the bundle:

"On 12th December, 1990 both defendants went to the bank. There was a short meeting there where the defendants signed, first, a legal charge over their home to take effect as a second charge after priority to the building society. Secondly, they each signed a personal unlimited guarantee. The guarantees were contained in a yellow form and the charge deed that was signed was on the usual blueish-coloured paper and was a thicker texture than the guarantee form. There is a substantial conflict again between what the defendants say and what Mr. Toon says about the 12th December. Mr. Toon's evidence is that the two of them came to his desk, which was quite large. The relevant documents had been typed in advance with the date blank and with room for the defendants to sign. He showed the charge deed and the guarantee forms to the defendants and explained the nature of them. He told the defendants in relation to the guarantee that the bank would look to the company first but, if the company could not pay, the bank would then look to Mr. and Mrs. El Boudi for them to pay under the guarantee. He handed the documents over, showed them where to sign. He said that if they wanted time to take advice or if they had wanted a further explanation he would have been happy to comply with their request, but they asked no further questions. So far as he was concerned they were both involved in running the company and he was happy therefore to leave it to them to take the initiative if they required further information. Both of them signed, and signed to acknowledge that they received a copy of the guarantee. A copy of the guarantee was handed over to them, Mr. Toon having witnessed their signatures on the guarantee document and stamped it with the bank's stamp."

20. The judge then sets out the cases made by each side, which are as I have briefly explained. I then go to the judge's conclusion with respect to the question of the signing of the guarantee. That is to be found at page 39 of the bundle where the judge said:

"So having tried to give proper weight to all the points raised by the defendants, in the end I find no reason to disbelieve Mr. Toon when he says that he did not offer an overdraft of £30,000 and when he says that he probably explained the nature of the guarantee to both defendants on the 12th December, 1990. It seems to me, for what it is worth, that on that day the defendants probably believed that with the existing facility of £17,000, if it was confirmed, they could trade their way out of any difficulties and they did not, being optimistic people, trouble themselves unduly with the risk that they were taking in signing either the guarantee or the charge."

21. That was the judge's conclusion.
22. I now go back to the question whether there is a reasonable prospect of success in challenging the judge's conclusion on this point, which is the essential issue raised by ground 7 in the notice of application. On the one side the judge had the evidence of Mr. El Boudi. He also had the point which was argued which was that as a matter of logic it seemed unlikely that the defendants would execute unlimited guarantees and a second charge over their home for an increase of just £3,000. There is also the point made forcibly today by Mrs. El Boudi that the debenture which the bank had did indeed have a value. It may be that the stock was not of any value to the bank because it was perishable, but the company had book debts of value.
23. On the other side of the scales, the judge had Mr. Toon. He also had the bank authorisation note to which I referred and in addition he had two diary notes which are also in the bundle. The first is dated 19th November 1990. That refers to agreed excesses on a limit of £14,000 and those agreed excesses were to £17,000. There is a further diary note of 13th December 1999 which again refers to an increase in the company's overdraft limit to £17,000. These were contemporaneous documents to which the judge could look, in addition to the oral evidence before him.
24. Mrs. El Boudi would like to challenge the authenticity of those documents and indeed points to certain matters in them which might perhaps still need explanation, such as the fact that the side letter referred to in the first diary note was not produced and the fact that in the authorisation slip there is reference to the first guarantee which Mr. El Boudi gave as being expired. But the fact is that it would be too late now to challenge the authenticity of those documents. The position is that the judge clearly preferred Mr. Toon's evidence on this point. That was, as I see it, a decision which he was entitled to make and in which this court could not now interfere because it could not be said that it was against the weight of the evidence. The judge had to weigh up the evidence on either side of the argument, and he came on down on the bank's side.
25. I now go to the other grounds of appeal. The first is that in effect Mr. and Mrs. El Boudi, who were appearing for themselves, found themselves in difficulty because time limits were imposed on them. This was put to me to have been particularly the case in the cross-examination of Mr. Toon where Mrs. El Boudi was given from 10.45 until 2 o'clock to cross-examine him, which effectively is some two and a half hours of court time. She had not finished by 2 o'clock and the judge then gave her an extra half hour but said that she had to finish in that time. She says that she was not able to put all the questions which she wanted to put in that time. But the position is that the judge of course has a discretion to fix the timetable in a case before him, and he fixed it and gave Mrs. El Boudi fair warning of the time limit, and indeed appears to have given her some extra time. Therefore, from what I have seen, I think that there is no real prospect of this court's intervening in the time limit which he set.
26. The second ground of appeal is that the judge did not adequately take account of the evidence put before him. I have already been through the evidence on the essential point and I have come to the conclusion that there is no real prospect of success on that essential and fundamental point in this case.
27. Thirdly, the grounds of appeal say that the defendants were not allowed to adduce further evidence. This again is a reference back, as I understand it, to the time limits or alternatively to ground 4, which is that new evidence is available. What Mrs. El Boudi says (and one understands and has some sympathy for the fact the defendants were conducting the case without legal representation) is that they did not expect Mr. Toon to say that he did not know about the bank's exposure to the foreign cheque negotiation liabilities. They now wish to bring forward the evidence of the clerk who actually did agree this matter with the El Boudis to say that Mr. Toon knew all about it. There is not in fact an application to file new evidence. Even putting that aside, there is not a statement from the clerk and it is not at all clear what the clerk would say; so it is not possible to say that there should be permission to appeal on the basis of evidence which the court cannot at this stage consider. It may very well be that Mr. Toon knew in very broad terms about the foreign cheques but did not know about the bank's exposure on them.
28. Fifthly, the grounds of appeal say that, whilst being cross-examined by the defendants, the claimant's witness was directed or helped in his replies by His Honour Judge Eccles Q.C. I have asked Mrs. El Boudi about this. It appears that the judge intervened to state the effect of the legal charge and said something to the effect that it would not secured the company's liabilities unless the guarantee was executed. There is no transcript of the evidence of Mr. Toon, who was the witness concerned, or indeed of any witness before the court at this stage for reasons of costs. But if that was all the judge said, it seems to me to be unobjectionable. He was obviously trying to make sure that the trial did not go longer than necessary and on that basis was simply stating what is the well-established effect of such documents.
29. Sixthly, it is said that the solicitor for the claimant prejudiced the course of justice. What happened was that the judge allowed Mr. Toon to be recalled by the defendants to answer further questions, and Mr. Toon arrived at the court and the solicitor for the claimant went outside court for a few minutes with Mr. Toon before Mr. Toon came back in. What Mrs. El Boudi says is that Mr. Toon was primed with what answers to give. The fact that the solicitor spoke to Mr. Toon is of no matter unless it had that effect. But the court cannot assume, as I see it, that that is what happened. It would involve saying that Mr. Toon did not give his evidence honestly, whereas the judge found him to be an honest and reliable witness. It would also mean concluding that the solicitor had set out to pervert the course of justice, and that too would be obviously most unprofessional conduct, if not worse, and is not something that the court could readily assume. It seems to me that ground cannot afford a real prospect of success.
30. I have dealt with ground 7, and in ground 8 it is said that the judge was wrong in law in holding that there was no fiduciary duty between the claimants and the El Boudis and that the claimant did not breach the said fiduciary duty. It is well established that as between banker and customer (particularly a commercial customer) the relationship is that of debtor and creditor unless some relationship in which advice is expected and given commences. I asked Mrs. El Boudi about this matter. She relies on the fact that Mr. El Boudi put three options to the bank. That appears from the citation from the judgment which I have given. But it is clear that that was a question of three options for the bank in order for the bank as lender to decide what to do. The bank was not being asked to advise Mr. or Mrs. El Boudi as to what they should do, nor yet the company. It was a matter for the bank's decision and thus, as I see it, that could not constitute the creation of a fiduciary relationship giving rise to a breach of fiduciary duty.
31. Mrs. El Boudi also referred me to Halsbury's Laws on guarantees, vol.20, 4th ed., page 82 at paragraph 135, where it is said that a guarantee may, in appropriate circumstances, be a manifestly disadvantageous transaction to the guarantor. But that is said in the context of presumed undue influence, and in those circumstances where there is presumed undue influence then it is obviously easier to establish that the bank should have explained the transaction or that the guarantee should be set aside as against the bank. But when one turns to the previous page in Halsbury, paragraph 134 contains an explanation about the relationships in which presumed undue influence arises. They include the relationship that a solicitor has with his client, a medical adviser with his patient, a parent with his child and so on. It is then said that the relationship between banker and customer does not fall within that class and in the ordinary course of banking business a banker can explain the nature of a proposed transaction, such as a guarantee, without laying himself open to such a charge. However, it is said that where the bank goes further and advises on more general matters germane to the wisdom of the transaction, it may cross the line into the area of confidentiality.
32. The judge formed the view that there were no such circumstances here and, so far as I can see, there is no real prospect of success on appeal against the judge's conclusion on that point. As I have said, the principal ground relied on by Mrs. El Boudi is the instance where Mr. El Boudi gave three options to the bank, and I have already dealt with that matter.
33. Mrs. El Boudi has taken me to respects in which the bank's evidence can be criticised or contains inconsistencies, and undoubtedly there are such matters. But the essential question would remain, is there anything to show that the bank agreed to the overdraft facility of £30,000 which the judge did not take into account so that it could reasonable be argued that his conclusion that that was not the agreement is against the weight of the evidence. I do not think that there is anything of that quality. Accordingly I do not think that there is any real prospect of success on appeal on the grounds set out in the notice of application. In those circumstances, I decline the application.
ORDER: Application dismissed.