England and Wales Court of Appeal (Civil Division) Decisions

IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
Sir David Eady
[2017] EWHC 1409 (QB)

		Royal Courts of Justice Strand, London, WC2A 2LL
		31/10/2018

Lord Justice Newey:

1. Where a creditor has taken two guarantees for a debt, it is well established that his release of one surety may operate to discharge the other, either wholly or in part. In a similar way, a creditor's release or surrender of a security that he holds is capable of discharging a surety. It is clear law, too, that a creditor has an equitable obligation to perfect any security and that, if he fails to do so, a surety can be discharged, at least to some degree.
2. The present appeal raises issues as to the extent of a creditor's obligations in relation to security. The respondent, General Mediterranean Holding SA SPF ("GMH"), has brought proceedings to recover loans it made to the first appellant, QucomHaps Holdings Limited ("QucomHaps"), which the second appellant, Mr Billy Harkin, guaranteed. The appellants, however, maintain that GMH failed to take steps to protect security it had been granted and that, as a result, neither appellant has any liability to GMH.
3. GMH lent QucomHaps sums totalling US$4,000,000 in 2005-2006 to enable it to purchase a Czech aircraft manufacturer called Moravan AS ("Moravan") in accordance with a letter from QucomHaps dated 15 November 2005 ("the Finance Letter"). On 20 July 2007, GMH and QucomHaps entered into a written loan agreement ("the July Agreement") formalising the terms of the loan. This recorded, among other things, that repayment had been secured by a pledge of the shares of Moravan Aviation s.r.o. ("SRO"), a wholly-owned subsidiary of QucomHaps that by then owned Moravan, and a personal guarantee from Mr Harkin, QucomHaps' managing director. It also provided for QucomHaps to procure SRO to grant a first fixed and floating charge over land, buildings and fixed assets that SRO had acquired from Moravan.
4. Mr Harkin in fact gave GMH two guarantees at about this time. By the first, dated 13 July 2007, he guaranteed "the obligation of the Principal [i.e. QucomHaps] to make payment or discharge of monies advanced in terms of the Finance Letter, any repayment sums and any applicable interest or 'rental' payments which the Principal is obliged to make to the Lender". By the second, made on the same day as the July Agreement, he guaranteed "the obligation of the Principal [i.e. QucomHaps] to make payment or discharge of monies advanced in terms of the Loan Agreement [i.e. the July Agreement], any repayment sums and any applicable interest payments which the Principal is obliged to make to the Lender". For present purposes, it is the second guarantee that matters.
5. Later in the year, by a written agreement dated 7 December 2007, GMH agreed to lend QucomHaps a further US$2,000,000, which it subsequently did. Mr Harkin agreed to guarantee this loan, too.
6. On about 17 January 2008, SRO granted GMH a charge over its assets. According to the appellants, however, SRO fell victim to a "tunnelling" fraud in late 2008 or early 2009. Such a fraud typically involves, I gather, a "trusted company 'insider'" causing the company to enter into one or more secret loans with a person outside the company; an announcement at short notice that the company is insolvent; the company in consequence entering into a bankruptcy process; and the supposed lender, as the company's only or main creditor, then procuring the sale at an undervalue of some or all of the company's assets to an entity that it controls. In the case of SRO, the fraud is said to have involved a Czech businessman and an ex-manager of SRO "fraudulently obtaining security over the Assets belonging to [SRO] which they then sought to enforce with a view to forcing the company into insolvency and then buying the Assets back out of the administration at a fraction of their true value" (to quote from the appellants' defence). The chronology agreed between the parties records that, in the event, SRO went into administration in about 2009.
7. The appellants' defence said this about what ensued:

"As a result of the 'tunnelling' fraud, [SRO] went into administration in the Czech Republic. The Creditors' Committee in the administration was controlled directly or indirectly by the 'tunnellers' because of the Claimant's failure to exercise its rights and honour its obligations in relation to the Security ….

The Defendants repeatedly advised the Claimant that under Czech law the Claimant was required to take certain actions by 30 March 2010 in order to maintain its rights in respect of the Security and that if it did not do so the Security would be negated and the Assets would be lost to the 'tunnellers'. However, the Claimant failed and/or refused to take the required steps by that time or at all; and the Assets were indeed then lost to the 'tunnellers'."

8. In the same vein, the defence alleged that "the Security was rendered worthless and/or unenforceable" as a result of, among other things, GMH's "failure to take any steps to protect its rights and the rights of the Defendants in respect of the Security". GMH's "failure to take the necessary steps by 30 March 2010 to preserve its rights in respect of the Security in the administration of [SRO]" was said to mean that neither QucomHaps nor Mr Harkin has any liability to GMH.
9. GMH applied for the defence and counterclaim to be struck out and summary judgment to be entered in its favour. The application was supported by a witness statement made by its chief financial officer, Mr Arif Husain. In the course of this statement, Mr Husain observed of the alleged "tunnelling" fraud that it was "no more than an assertion by [the appellants] that such a fraud occurred" and that it "remains mysterious and doubtful". He also said that, after SRO had gone into administration, the appellants had "asked [GMH] to take or suggested to [GMH] that it should take certain steps including … filing a creditor claim with the Czech court as a secured creditor of [SRO] on the basis of the purported fixed and floating charge over the land and assets of [SRO]". However, he explained in paragraph 10.15.1 of his statement that GMH "had reason to believe that the purported fixed and floating charge was ineffective as security and would not have been enforceable in the Czech courts, among other reasons because there was a discrepancy between the amount of the loan stated in the purported fixed and floating charge … and the actual advances made under the July 2007 and December 2007 Agreements". Further, GMH understood, so Mr Husain said, that "under Czech administration/bankruptcy law, a person who makes a creditor's claim which fails can be ordered by the court to pay compensation to the other creditors and/or the debtor company equal to the amount of the creditor's failed claim".
10. The appellants' response to Mr Husain's evidence came from Mr Andrew Meadows, a solicitor in the firm that was by then acting for the appellants. He said the following in a witness statement:

"65. On 27 March 2010 Mr Harkin wrote to Mr Husain and GMH's solicitors, Hierons Law …, to advise them that under Czech law GMH was required to take certain actions by 30 March 2010 in order to maintain its rights in respect of its security and that if it did not do so the security would be negated and the company's assets lost to the 'tunnellers'. A copy of this email is at [AM1 pages 47-48]. This was one of several repeated attempts made by email and in person through visits to GMH's offices by Mr Harkin, [QucomHaps] and Mr Abu-Taha [i.e. the third defendant] to try and persuade GMH to take action in this regard.

66. However, GMH refused to take any of the necessary steps to prevent the loss of its security and on 30 March 2010 [SRO] was declared insolvent with the result that the charge granted by it as security for the loans to [QucomHaps] was rendered valueless and was superseded by the security granted in favour of the fraudsters and [a company associated with one of the alleged 'tunnellers']."

11. The email of 27 March 2010 that Mr Meadows exhibited included these passages:

"QucomHaps has already conceded that ? solely because for shortage of cashflow ? these Czech ?tunneling people? Have managed to get the upper hand for now. And that they WILL on Wednesday succeed in entirely removing both our ownership of the Moravan Factory and Airport ? and also the dissolution of the currently in place GMH Security (over the Moravan assets). Unless GMH steps in at the what would now be the ?11^th hour?....

My very strong recommendation here therefore, under the circumstances, is for QucomHaps to SELL Moravan to GMH immediately. RATHER than see us lose it to these Czech ?tunnelers? on Wednesday ….

This solution would afford a sizeable gain ? and re-enforcement of assets – for GMH; at the expense of QucomHaps."

12. With regard to the explanations that Mr Husain had given in paragraph 10.15.1 of his witness statement, Mr Meadows said:

"Mr Harkin has informed me that he and [QucomHaps] sought to reassure GMH at the time that this was not the case but without success."

13. According to the appellants, the administrator of SRO sold its assets to a company owned and/or controlled by a "tunneller" for approximately US$2.4 million, which is said to have been less than 6% of their true value.
14. GMH's application for the appellants' defence and counterclaim to be struck out and/or for summary judgment against them came before Master Yoxall in 2016. Master Yoxall acceded to the application in a judgment dated 4 October 2016, but the appellants appealed. The appeal came before Sir David Eady in May 2017. On 15 June 2017, Sir David Eady dismissed the appeal, rejecting the appellants' contention that GMH had been under a duty to file a claim in SRO's administration. In Sir David Eady's view, such a duty was "certainly not demonstrated" by the cases to which he had been referred (see paragraph 26 of his judgment). Having noted (in paragraph 24 of his judgment) that the rationale behind decisions on which the appellants relied "was that the debtor and surety have rights of subrogation in respect of any security, which they would be entitled to exercise as and when the debt has been repaid to the creditor", Sir David Eady also said this (in paragraph 25):

"In so far as [counsel for the appellants] seeks to show that the Claimant in the instant case is in an analogous position, by not having filed the claim in the Czech administration, I would have expected him to produce some evidence of Czech law in support. He says that he did not have permission to introduce expert evidence and that he may well be in a position to do so at trial. It is recognised by [counsel for GMH], in general terms, that the legal position is not the same as in England, and that it may well be the case that a creditor cannot effectively preserve or protect security in such circumstances by merely taking some administrative step, such as registration. Indeed, it seems that on 15 April 2008 formal steps had already been taken to register the Claimant's interest. Yet, even if it be the case that preservation could not be achieved without filing a claim, it simply does not follow that an obligation would arise under English law to take that step. It may well be, as the Claimant apprehends, that it would by doing so have become subject to substantial financial risks as a matter of Czech law. It seems to me that it would ultimately be for the Defendants to show that au contraire the Claimant would have been in no more disadvantageous a position than by registering an interest in security under English law. I cannot decide the point on this appeal, any more than the Master could have done so."

15. The appellants now challenge Sir David Eady's decision before us.
16. Before Sir David Eady and Master Yoxall, the appellants were relying on terms that, they said, were implied in the loan agreements between GMH and QucomHaps. Sir David Eady and Master Yoxall both referred in their judgments to creditors' equitable duties, but these were not the main focus of the hearings. This Court, in contrast, is concerned only with whether the appellants should be permitted to defend the claims against them on the basis of allegations that GMH breached duties it owed in equity.
17. Mr Richard Gillis QC, who appeared for the appellants, submitted that GMH had an equitable obligation to Mr Harkin, as surety, to take reasonable steps to protect its security over SRO's assets and that it was at least arguable that it breached that duty. He further contended that an equivalent duty was owed to QucomHaps. The proceedings should accordingly, so Mr Gillis said, be allowed to proceed to trial as against both appellants.
18. The main authority on which Mr Gillis relied in support of his submissions was Wulff v Jay (1872) LR 7 QB 756. In that case, debtors who had assigned their premises and the contents of them to the plaintiff creditors by way of security were adjudged bankrupt. A surety was held by the Court of Queen's Bench to have been partially discharged as a result of the plaintiffs' failure to take steps "either to protect the bill of sale by registration, or to enter and take possession of the effects" (see Cockburn CJ, at 761). Noting (at 762) the "common and well-known proposition" that "where a debt is secured by a surety, it is the business of the creditor, where he has security available for the payment and satisfaction of the debt, to do whatever is necessary to make that security properly available", Cockburn CJ said (at 762):

"Now, I think there was a twofold laches on the plaintiffs' part—laches in the first place in not registering the bill of sale. If they had registered it the effect would have been that the fixtures would have been protected. That would not have applied to the other moveables which remaining in the order and disposition of the bankrupt would have been affected by the bankruptcy. But then there was laches if possible of a more serious description affecting not only the moveables but the fixtures also. The plaintiffs might have entered and taken possession upon the interest not being paid at the time when it became due. Instead of doing this, however, they allow the mortgagors to remain in possession when they see that bankruptcy is impending and imminent."

Concurring, Quain J said (at 765):

"The rule, as it is laid down by Stuart, V.C., in Strange v. Fooks [(1863) 4 Giff 408], is in these words:—'It is perfectly established in this court, that if through any neglect on the part of the creditor, a security to the benefit of which a surety is entitled is lost, or is not properly perfected, the surety is discharged.' It seems to me that this case comes directly within that rule."

Quain J went on (at 766):

"[T]he debtors make default on the 25th of February, 1871, and the mortgagees take no steps to protect the goods from the operation of the Bills of Sale Act, if it is within that Act, or from the reputed ownership clause in the Bankruptcy Act. They do not take possession of the fixtures or plant, or any of these goods, but allow the property in them to pass to the trustee. The mortgagees well knew the state of their debtors, one of the mortgagees being the attorney who conducted the bankruptcy proceedings. The result is, that the mortgagees stand by and allow the whole of this property to be swept away by the trustee in bankruptcy, and sold for the benefit of the estate."

19. Mr Gillis attached particular importance to what was said about the moveables. While he accepted that a creditor need not enforce a security, it can be seen from Wulff v Jay, he said, that a creditor's duty can extend to taking possession of mortgaged property.
20. Wulff v Jay was cited without apparent disapproval by Lord Templeman when giving the judgment of the Privy Council in China & South Sea Bank v Tan [1990] 1 AC 536. What, however, was decided in the Tan case was that a creditor had owed no duty to a surety to exercise its power of sale over shares mortgaged in its favour. Lord Templeman explained (at 545):

"The creditor had three sources of repayment. The creditor could sue the debtor, sell the mortgage securities or sue the surety. All these remedies could be exercised at any time or times simultaneously or contemporaneously or successively or not at all. If the creditor chose to sue the surety and not pursue any other remedy, the creditor on being paid in full was bound to assign the mortgaged securities to the surety. If the creditor chose to exercise his power of sale over the mortgaged security he must sell for the current market value but the creditor must decide in his own interest if and when he should sell. The creditor does not become a trustee of the mortgaged securities and the power of sale for the surety unless and until the creditor is paid in full and the surety, having paid the whole of the debt is entitled to a transfer of the mortgaged securities to procure recovery of the whole or part of the sum he has paid to the creditor.

The creditor is not obliged to do anything. If the creditor does nothing and the debtor declines into bankruptcy the mortgaged securities become valueless and the surety decamps abroad, the creditor loses his money. If disaster strikes the debtor and the mortgaged securities but the surety remains capable of repaying the debt then the creditor loses nothing. The surety contracts to pay if the debtor does not pay and the surety is bound by his contract. If the surety, perhaps less indolent or less well protected than the creditor, is worried that the mortgaged securities may decline in value then the surety may request the creditor to sell and if the creditor remains idle then the surety may bustle about, pay off the debt, take over the benefit of the securities and sell them. No creditor could carry on the business of lending if he could become liable to a mortgagor and to a surety or to either of them for a decline in value of mortgaged property, unless the creditor was personally responsible for the decline. Applying the rule as specified by Pollock C.B. in Watts v. Shuttleworth, 5 H. & N. 235, 247, it appears to their Lordships that in the present case the creditor did no act injurious to the surety, did no act inconsistent with the rights of the surety and the creditor did not omit any act which his duty enjoined him to do. The creditor was not under a duty to exercise his power of sale over the mortgaged securities at any particular time or at all."

21. There was reference to both Wulff v Jay and China & South Sea Bank v Tan in Yorkshire Bank plc v Hall [1999] 1 WLR 1713. There, a bank had made loans on the security of, among other things, shares that the borrowers held in a particular company. The borrowers complained that the bank had failed to exercise its rights to intervene in the company's affairs despite being told that its assets were being sold off by its management at an undervalue. The Court of Appeal concluded that the judge below had been right to strike out the borrowers' claim. Robert Walker LJ (with whom Mantell LJ and Kay J agreed) said (at 1728):

"Apart from bad faith (which is not asserted against the bank) it had no duty (even if it had power, which is doubtful) to intervene in the company's thoroughly confused affairs in the hope of preserving the value of its security."

22. A little earlier, Robert Walker LJ had said:

"The general duty (owed both to subsequent encumbrancers and to the mortgagor) is for the mortgagee to use his powers only for proper purposes, and to act in good faith: see [Downsview Nominees Ltd v First City Corporation Ltd [1993] AC 295], at p. 317. The specific duties arise if the mortgagee exercises his express or statutory powers: see the Downsview case, at p. 315. If he exercises his power to take possession, he becomes liable to account on a strict basis (which is why mortgagees and debenture holders operate by appointing receivers whenever they can). If he exercises his power of sale, he must take reasonable care to obtain a proper price.

A mortgagee is also under a duty to take any necessary steps to perfect his security, for instance by registering a bill of sale: Wulff v. Jay (1872) L.R. 7 Q.B. 756. That is because of the mortgagee's duty to hand over the security, on redemption, to the mortgagor (or the surety if it is he who redeems). But that point does not assist the Halls [i.e. the borrowers] here."

Robert Walker LJ thus took Wulff v Jay as authority for the proposition that a a mortgagee has an obligation "to take any necessary steps to perfect his security".

23. China & South Sea Bank v Tan was also cited in a further decision of the Court of Appeal, Silven Properties Ltd v Royal Bank of Scotland plc [2003] EWCA Civ 1409, [2004] 1 WLR 997. What was at issue there were the duties of receivers, but Lightman J, giving the judgment of the Court, explained (in paragraph 12) that the claimants' submissions required an examination and comparison of the duties of mortgagees and receivers. He therefore considered the duties that mortgagees owe, on which subject he said this (in paragraph 13):

"A mortgagee has no duty at any time to exercise his powers as mortgagee to sell, to take possession or to appoint a receiver and preserve the security or its value or to realise his security. He is entitled to remain totally passive. If the mortgagee takes possession, he becomes the manager of the charged property: see Kendle v Melsom (1998) 193 CLR 46, 64 (High Court of Australia). He thereby assumes a duty to take reasonable care of the property secured: see Downsview Nominees Ltd v First City Corpn Ltd [1993] AC 295, 315a, per Lord Templeman; and this requires him to be active in protecting and exploiting the security, maximising the return, but without taking undue risks: see Palk v Mortgage Services Funding plc [1993] Ch 330, 338a, per Sir Donald Nicholls V-C."

24. Mr Richard Spearman QC, who appeared for the respondent, submitted that the authorities establish that a creditor's equitable duty is of limited scope. They show, he argued, that a creditor has:

"(i) a duty to perfect the security … and (ii) a duty, when exercising a power of sale, to take reasonable steps to obtain a proper sale price for the security but (iii) no other duty to take positive steps which have not been expressly stipulated by the debtor or the surety and (iv) in particular, no duty to preserve the security at the peril of the creditor".

If and in so far, Mr Spearman said, as Wulff v Jay might suggest any more extensive obligation, it is not consistent with more recent authorities. In that connection, Mr Spearman noted, among other things, that Robert Walker LJ cited Wulff v Jay as authority for a duty to take reasonable steps to "perfect" (not "preserve" or "maintain") security and that Lightman J spoke of a mortgagee being "entitled to remain totally passive" and having no duty "to take possession or to appoint a receiver and preserve the security or its value or to realise the security". Mr Spearman further argued that recognising a duty to protect security would introduce undesirable uncertainty; would be inimical to the ability of a lender to carry on business; and would be anomalous when the law does not require a creditor to do anything to prevent a security losing its value. Echoing Lord Templeman (see paragraph 20 above), Mr Spearman also pointed out that it is open to a surety who is concerned about a security to pay off the debt and take over the security. It is noteworthy, too, that counsel's joint researches indicate that decisions of the Court of Queen's Bench (such as Wulff v Jay) are not strictly binding on this Court.

25. While, however, there is considerable force in Mr Spearman's contentions, it seems to me that his summary of the law must somewhat understate the equitable duty of a creditor unless, perhaps, the "duty to perfect the security" is recognised as having a degree of flexibility. Suppose, for example, that a security would be valid only if the creditor both registered it at the outset and subsequently paid a modest annual fee. Mr Spearman would, as I understand it, accept that it was incumbent on the creditor to effect the initial registration, but I doubt very much whether that would exhaust the creditor's obligation. There would surely be a strong case for saying that he also had to pay the annual fee.
26. On the other hand, I do not think any duty of a creditor to preserve or maintain a security can be an onerous one. As Mr Gillis was inclined to accept, notwithstanding Cockburn CJ's reference to it being "the business of the creditor, where he has security available for the payment and satisfaction of the debt, to do whatever is necessary to make that security properly available", there can be no question of a creditor having an absolute duty to ensure that a surety can have recourse to a security. More than that, I do not consider that a creditor can be obliged to incur any sizeable expenditure or to run any significant risk to preserve or maintain a security. I doubt, moreover, whether a creditor can ever have an equitable duty to the principal debtor (as opposed to a surety) to take steps to preserve or maintain a security granted by a third party.
27. Is there, then, a real prospect of the appellants successfully defending GMH's claims on the basis of breach of equitable obligation? In this context, it is to be remembered that "[t]he criterion which the judge has to apply under Part 24 is not one of probability; it is absence of reality" (per Lord Hobhouse in Three Rivers DC v Bank of England (No 3) [2003] 2 AC 1, at paragraph 158) and that "proper disposal of an issue under Pt 24 does not involve the judge conducting a mini-trial" (as Lord Woolf MR pointed out in Swain v Hillman [2001] 1 All ER 91, at 95), but also (as Potter LJ said in ED&F Man Liquid Products Ltd v Patel [2003] EWCA Civ 472, at paragraph 10) that:

"that does not mean that the court has to accept without analysis everything said by a party in his statements before the court. In some cases it may be clear that there is no real substance in factual assertions made, particularly if contradicted by contemporary documents."

The defence "must carry some degree of conviction" (per Potter LJ in ED&F Man Liquid Products Ltd v Patel, at paragraph 8) and "the judge is not required to abandon her critical faculties" (per Lewison LJ, in Calland v Financial Conduct Authority [2015] EWCA Civ 192, at paragraph 29).

28. In my view, the appellants do not have a real prospect of successfully defending GMH's claims. My reasons include these:

i) The defence provides no real explanation of what steps it is said that GMH ought to have taken by 30 March 2010, or why, nor of how its failure to do so could have resulted in the security over SRO's assets being "negated", "worthless" or "unenforceable";

ii) The appellants had plenty of opportunity to expand on their defence when GMH applied for the defence and counterclaim to be struck out and summary judgment to be entered in its favour. There was an interval of three months between the date Mr Husain made his first witness statement (14 October 2015) and that of Mr Meadows' first statement (14 January 2016), and another three months had elapsed by the time Mr Meadows made a second witness statement (on 28 April 2016). If anything, however, Mr Meadows' evidence makes the basis of the appellants' case less clear. In keeping with the defence, Mr Meadows asserted that "GMH refused to take any of the necessary steps to prevent the loss of its security", but what was proposed in the email of 27 March 2010 that Mr Meadows exhibited was that QucomHaps should "SELL [SRO] to GMH immediately", and there is absolutely no question of any equitable obligation having required GMH to buy SRO. To add to the confusion, Mr Meadows spoke of SRO having been "declared insolvent" on 30 March 2010, without explaining what he meant, even though the company appears to have been in administration since the previous year. It is also striking that the appellants provided no evidence at all from anyone with personal knowledge of the relevant events. Not only is Mr Meadows a solicitor, but his firm was not acting for either appellant in 2010;

iii) Mr Harkin said this in a letter to Mr Husain dated 8 June 2010:

"We have also over the past several months repeatedly in meetings with you and your local lawyer, and also be several email alerts, advised you that the ONLY certain way to maintain the 'GMH Security' in place was for the creditors of [SRO] to be paid."

Mr Harkin thus took the position at the time of the events that are now in issue that SRO's creditors needed to be paid if the security was to be saved, yet it is inconceivable that GMH had any duty either to pay any creditor itself or to provide funding to enable QucomHaps (or anyone else) to make such a payment;

iv) Mr Gillis emphasised that Mr Husain accepted in his evidence that the appellants had "asked [GMH] to take or suggested to [GMH] that it should take certain steps including … filing a creditor claim with the Czech court as a secured creditor of [SRO] on the basis of the purported fixed and floating charge over the land and assets of [SRO]". In that same witness statement, however, Mr Husain explained that GMH "had reason to believe that the purported fixed and floating charge was ineffective as security and would not have been enforceable in the Czech courts" and understood that a creditor which made a failed claim could be ordered to pay compensation equal to the amount of the claim. It cannot have been incumbent on GMH to expose itself to such a risk, but the appellants nonetheless provided no real answer to Mr Husain's points. Mr Meadows, the appellants' only witness, responded in his first witness statement that Mr Harkin had "informed [him] that he and [QucomHaps] sought to reassure GMH at the time that this was not the case but without success" and that "whether GMH was justified in taking the stance it did depends on evidence of Czech law". This evidence, however, tends to confirm that GMH did indeed hold and voice the concerns to which Mr Husain referred while providing no basis for dismissing them. As I have already mentioned, Mr Harkin did not even give evidence himself; and

v) The suggestion that GMH could have any liability to QucomHaps, the principal debtor, for failing to preserve or maintain security given by a third party (albeit a subsidiary of QucomHaps) is still less plausible. QucomHaps had no right to throw liability onto SRO, which had only a secondary liability. To the contrary, SRO would have been entitled to an indemnity from QucomHaps had its assets been used to pay GMH.

29. In all the circumstances, I would dismiss the appeal.

Mr Justice Henry Carr:

30. I agree.

Lord Justice Lewison:

31. I also agree.