Banking &Finance—H1 2018 round-up: key cases

In Carney and others v NM Rothschild & Sons Ltd [2018] EWHC 958 (Comm), the court rejected a claim by the claimant borrowers, to whom the defendant bank had made loans so that they could make investments. The claimants argued that their relationship with the defendant had been unfair as a result of its negligent advice and misrepresentations about the investment, and that the basis clauses of the loan agreements which stated that the parties’ relationship was not advisory were themselves part of that unfair relationship.

In Burnside v Promontoria (Chestnut) Ltd [2017] CSOH 157, the court decided that an agreement which did not expressly specify the timescale for performance of certain obligations contained an implied term that it was to be within reasonable time.

In Crowther & Crowther v Arbuthnot Latham & Co Limited [2018] EWHC 504 (Comm), the High Court held that a secured lender unreasonably withheld its consent to a disposal of property as its refusal had not been based on the sale price.

In Lloyds Bank PLC v McBains Cooper Consulting Ltd [2018] EWCA Civ 452, the Court of Appeal reversed the Technology and Construction Court’s apportionment of losses finding that, due to the bank’s own failures in initially approving a loan for works and then continuing to fund the project, it had to bear the greater share of responsibility for its losses rather than the project monitor, despite the project monitor’s breach of duty.

In Travel Document Service and another v HMRC [2018] EWCA Civ 549, the Court of Appeal upheld the decisions of the Upper Tribunal and First-tier Tribunal that the loan relationships unallowable purpose rule (contained at the relevant time in paragraph 13 of Schedule 9 to the Finance Act 1996 (FA 1996)) was capable of applying to a deemed loan relationship. Furthermore, it confirmed that FA 1996, para 13 applied on the facts to disallow the non-trading loan relationship debits that had been claimed by the taxpayers as part of a tax avoidance scheme.

Security and quasi-security

In Plant and another v Vision Games 1 Ltd and others [2018] EWHC 108 (Ch), the court had to consider the compatibility of a generic security document with an underlying transaction document—this case serves as a reminder to practitioners that security documents must be drafted so as to be compatible with the underlying transactional documentation and that the security arrangements provided for must, so far as they can, be actually put into practice. For more information, see News Analysis: The importance of correct drafting of security documents (Plant and another v Vision Games 1 Ltd and others.

In Steel and another v NRAM Ltd (formerly NRAM plc) (Scotland)) [2018] All ER (D) 148, the Supreme Court overturned the decision of the Inner House of the Court of Session to hold that in releasing security over property a commercial lender will not be acting reasonably if it proceeds upon no more than a description of terms put forward by or on behalf of the borrower by its solicitor. In this particular case, the borrower’s solicitor had mistakenly requested full releases when only part of the debt due was being repaid.

In First Abu Dhabi Bank PJSC (formerly National Bank of Abu Dhabi PJSC) v BP Oil International Ltd [2018] EWCA Civ 14, the Court of Appeal considered a number of points of construction in relation to a receivables financing arrangement and the underlying contract, which contained a prohibition on assignment of rights without consent. For more information, see News Analysis: An invitation to challenge Linden Gardens? (First Abu Dhabi Bank v BP Oil).

In Tetronics (International) Ltd v HSBC Bank plc (BlueOak Arkansas LLC intervening) [2018] EWHC 201 (TCC), the court discharged an injunction restraining HSBC Bank from making a payment in respect of a call on a guarantee. Even though, unusually, the fraud exception applied, the injunction was not justified on the balance of convenience given the claimant’s failure to provide full and accurate disclosure of relevant information to the court.

In Zurich Insurance Plc v Nightscene Ltd [2017] Lexis Citation 445, the court concluded that the claimant, Zurich, was unable to rely on a deed of guarantee that had been executed in a manner that did not conform with the requirements of the Companies Act 1985. However, Zurich was able to rely upon the deed as a simple contract and the defendant, Nightscene, was, accordingly liable.

In Whitlock and another v Moree (Bahamas) [2017] UKPC 44, a majority of the Privy Council decided that where documents opening a joint bank account contained terms indicating that the survivor was to be the sole owner, these terms applied to the legal and beneficial interest and no further investigation was necessary, unless there were special circumstances such as evidence of fraud or undue influence. For more information, see News Analysis: Beneficial ownership of money held on a joint bank account (Whitlock v Moree).

Intercreditor

In Citibank, NA, London Branch v Oceanwood Opportunities Master Fund and others [2018] EWHC 448 (Ch), the court had to consider whether a majority note holder had sufficient ‘control’ over the issuer of the loan notes so as to preclude it from giving direction to the agent under an intercreditor agreement. The court took a commercial approach in deciding the matter to avoid what, the court termed, an absurdity whereby the majority noteholders would be prevented from giving directions to protect their interests just at the moment they most needed to. For more information, see News Analysis: Can a majority noteholder have “control” over the issuer so as to preclude it from giving direction to the agent? (Citibank, NA, London Branch v Oceanwood Opportunities Master Fund and Others).

Liability of financial institutions

In Singularis Holdings v Daiwa Capital Markets Europe [2018] EWCA Civ 84, the Court of Appeal upheld the High Court decision that Daiwa had been negligent in paying out monies from its client account on the instructions of a Singularis director, Mr Al Sansa, despite circumstances indicating that those instructions may not have been bona fide. For more information, see LMA Briefing: Liability of financial institutions for fraudulent transactions (Singularis Holdings v Daiwa Capital Markets Europe).

Asset finance

In Aquila WSA Aviation Opportunities II Ltd v Onur Air Tasimacilik AS [2018] EWHC 519 (Comm), the Commercial Court had to consider the allocation of risk in aviation lease agreements and dismissed the claimants case that a lease was not in contractual condition after signing an acceptance certificate.

Real estate finance

In Baker v Craggs [2018] EWCA Civ 1126, the Court of Appeal confirmed that the grant of an easement was not capable of engaging the overreaching provisions in section 2(1) of the Law of Property Act 1925 because it was not a conveyance to a purchaser of ‘a legal estate in land’ within the meaning of the sub-section.

In Gaia Ventures Limited v Abbeygate Helical (Leisure Plaza) Limited [2018] EWHC 118 (Ch), the court had to consider an overage clause triggered by a transfer.

Restructuring

In Barons Finance Ltd (in liquidation) (acting by its liquidator Coleman) v Barons Bridging Finance 1 Ltd and others [2018] EWHC 496 (Ch), the court decided that the purported assignment by the third defendant, who carried out money-lending activity through the claimant company, of the claimant’s loan book to the first and second defendant companies, which he also controlled, was void. This was due to a disposition made after the commencement of the claimant’s winding-up, as an undervalue transaction and as a transaction to defraud creditors. For more information, see News Analysis: Disposition of property of company in liquidation found to have been backdated (Barons Finance Ltd (in liquidation) v Barons Bridging Finance 1 Ltd and others).

In Re OJSC International Bank of Azerbaijan; Bakhshiyeva (in her capacity as the foreign representative of the OJSC International Bank of Azerbaijan) v Sberbank of Russia [2018] EWHC 59 (Ch), the Companies Court dismissed an application by the OJSC International Bank of Azerbaijan for what was considered, in effect, to be a permanent moratorium against English law-based creditor claims against the bank. Justin Michaelson, partner, and Simon Camilleri, associate at Fried, Frank, Harris, Shriver & Jacobson (London), assess the implications of this decision in News Analysis: Court dismisses Azerbaijan foreign representative’s application for permanent moratorium (Bakhshiyeva v Sberbank of Russia and others). This decision is being appealed and will be heard in the Court of Appeal on either 23 or 24 October 2018.

Claims and remedies

In Motortrak Ltd v FCA Australia PTY Ltd [2018] EWHC 990 (Comm), the High Court held that a delay in accepting a repudiatory breach, while the innocent party sourced alternative supply so as to avoid business disruption, was still affirmation of the contract during that period. The court also considered attempts to rely on an exclusion clause to prevent a loss of profit claim.

In Rock Advertising Ltd v MWB Business Exchange Centres Ltd [2018] UKSC 24, the Supreme Court held that an oral variation of a licence agreement, which contained a clause requiring all variations to be in writing, was invalid and, contrary to the Court of Appeal’s decision, did not amount to an agreement to dispense with the clause.

In Rocker v Full Circle Asset Management [2017] EWHC 2999 (QB), the High Court set out its approach to quantification of damages in a breach of contract case.

In Phones 4U Ltd (in administration) v EE Ltd [2018] EWHC 49 (Comm), the Commercial Court’s decided to dismiss the defendant mobile network operator’s counterclaim for damages for loss of bargain when it terminated its contract with the claimant retailer of mobile phones and contracts.

In Nesbit Law Group LLP v Acasta European Insurance Company Ltd [2018] EWCA Civ 268, the Court of Appeal dismissed the appellant insurance company's appeal and upheld the original judge's decision that an exclusion clause in a financial guarantee indemnity insurance policy had not covered any breaches of the refinancing agreement, as the words 'including but not limited to any agreement entered into by the respondent and its lender to repay a loan' in the exclusion clause were not able to be taken to be referring to a subsequent refinancing agreement for the respondent to repay loans.