Kojima v HSBC Bank Ltd

In 2003 Mr Satoshi Kojima was in his early thirties working in the City of London in the Mergers and Acquisition Department of an investment Bank. He wished to make what he understood to be a tax-efficient investment in the British Film Partnership, Tower Scheme, promoted by Tower Film Productions Limited (“TFPL”). For that purpose he borrowed from HSBC the whole of the amount required for his investment in the expectation that if he obtained the tax advantage in doing so which had been ascribed to him he would retire by way of tax rebate on an amount than sufficient and had to repay the whole of what he had borrowed from the bank.

On 26 March 2003 he applied to HSBC for a bridging loan of £128,595 on a form entitled HSBC Bridging Application Form for Tax Refund Loan Scheme (inaudible) giving information about his employment, which he described as that of an associate director of (inaudible) international (inaudible) his income, outgoings, assets and liabilities. Three days earlier he signed an authority to HSBC to transfer the bridging finance (inaudible) form to an accountant on the Trustee of the Tower Scheme. On 4 April 2003 HSBC offered him a facility on the terms set out on their letter of that date. The letter recommended Mr Kojima to take independent advice before accepting the offer but it seems that he did not do so. The limit of the facility was to be £137,850 and the purpose of the facility was stated to be to fund an equity investment in the film partnership. It was repayable on demand but the expectation was that the loan would in fact be paid by Inland Revenue tax rebates due in December 2003 and July 2004.

The letter was written by Ms Alison Clare, describing herself as a commercial banking manager of HSBC. Unfortunately for Mr Kojima and other investors the Inland Revenue began to investigate the effectiveness of the scheme and the expected tax rebates were not made. In the meantime HSBC paid the amount of facility to an account designated by Mr Kojima and he had used it to make an investment. Mr Kojima was unable to repay the amount of the loan and attempts by him and HSBC to reach an accommodation failed. Ultimately on 5 January 2006 HSBC demanded repayment of the loan which they claimed had risen to £156,360 inclusive of interest and other charges. Mr Kojima did not pay the amount demanded. HSBC began proceedings in the Redditch County Court claiming repayment of the loan which, according to the Particulars of Claim, had by now risen to £166,388.

The Particulars of Claim were served on Mr Kojima together with the response pack. In November 2006 Mr Kojima sent back the acknowledgement of service; he ticked the box stating “I intend to defend part of this claim”. On the next page he ticked the box to state that he admitted £158,875 on the claim and (inaudible) offered to pay at a rate of £173 per month. Attached to the acknowledgement of service was a five-page letter that Mr Kojima had written. In it he complained that the manager of HSBC had written to him together with the IFA and that there was "a confident, coordinated and (inaudible) solicitation of these parties together that I was sold on the merits of the scheme". He said that the HSBC manager explained that the bridging loan backed by the certainty of the government rebate within the next eight months. He said that at the meeting he was expressly told:

He went on to explain that he disputed the quantum, bank charges and interest claimed by HSBC and he recalculated what he said was the true amount that he owed. He put that at £158,975 and attached a calculation showing how he arrived at that figure. He continued by saying:

On 8 March 2009 Mr Kojima joined many other dissatisfied investors as claimants in proceedings issued in the Chancery Division. (Inaudible) claimed their losses were invested in the Tower Scheme against various of its trustees, promoters and operators alleging breach of trust in (inaudible) the claimant's money, breach of contract, negligence, negligent misrepresentation and statutory liability to pay compensation for the operation of what was described in the claim as an unregulated collective investment scheme pursuant to the Financial Services Market Act 2000. HSBC was not a defendant to that claim.

HSBC’s restored proceedings came before Deputy District Judge Nicholes in the Central London County Court on 10 June 2009 in which HSBC sought judgment for the sum admitted the direction (inaudible) the balance. The hearing began at 12.30. An attendance note made by HSBC's representative at the hearing records that Mr Kojima told the district judge that if there were a county court judgment made against him he would never be able to work again as a financial adviser. The district judge was clearly concerned about these potential consequences from Mr Kojima. He thus tried to devise a solution that would accommodate both parties. She asked how HSBC could enforce a judgment and was told that it would by way of charging order. Mr Kojima said that he had offered a charge but that had been refused. The district judge said she would adjourn until 2pm to enable HSBC's representative to take instructions on whether the bank would accept a charge. HSBC's representative took instructions over the lunch break and HSBC said that they would be willing to accept a charge. At the adjourned hearing this was reported to the district judge. According to the note:

The district judge then "entreated" Mr Kojima to reconsider the charge. She said that if the matter went to trial judgment against Mr Kojima was likely to be entered. Mr Kojima agreed to grant the charge and the district judge then made an order to that effect. The order recited that upon the defendant admitting liability of £158,875 by disputing the balance of the claim and then went on to provide that unless the defendant returned to HSBC a fully executed charge to secure £158,875 (inaudible) by 4pm on 1 July 2009 the claimant should be entitled to enter judgment for that sum. The balance of the claim (inaudible) adjourned to ADR as requested by HSBC. Mr Kojima executed the charge which bears that date. The charge is a typical bank charge that all monies be due but limited to £158,875.

On 25 September 2009 Mr Kojima described his predicament arising from the HSBC claim to the solicitors acting for him and his co-claimants in the Tower Scheme Chancery proceedings, whereupon he was advised on the defence which he now wishes to pursue. That defence, as set out in draft amended defence and counterclaim, relies on misrepresentations alleged to have been made on behalf of HSBC in a April 2003 meeting (inaudible) claim for statutory compensation on the basis that HSBC thereby through an unauthorised person (inaudible) promoted the Tower Scheme to Mr Kojima in breach of Section 21 or alternatively to Section 238 of the Financial Services and Markets Act. This meeting was the same meeting as that which Mr Kojima had described in a letter attached to (inaudible) for service. His more amplified account of that meeting is that Ms Claire came to discuss the proposed transaction (inaudible) at a meeting on 11 April 2003 attended also by Mr Richard Porter, representing St James' Place Partnership, which was co-promoting the Tower Scheme (the TOEL) and UK (inaudible).

In the draft amended defence and counterclaim which Mr Kojima wishes to be able to pursue, verified by the evidence and support, he says that Mr Porter made, and Ms Claire by her presence endorsed, a series of representations about the compliance of the Tower Scheme with the relevant tax legislation and the certainty in borrowing from HSBC would in due course be repaid out of the proceeds and the tax rebate attributable to his investment in a fourth partnership. Further, he says that Ms Claire on behalf of HSBC made representations on her own about the certainty that, come what may, even if it was actually not available the loan provided to Mr Kojima could in due course be repaid by those operating in the Tower Scheme so that it would not have been repaid by him. (inaudible) showed Mr Kojima a copy of a letter which HSBC had received from UK MS (?) (inaudible) March 2003, which he said makes statement to substantiate the same fact. Mr Kojima said that (inaudible) reliance on what he had been told at that meeting, that he took out a loan, made an investment, drafted a counterclaim, claims of (inaudible) deprivation, loan agreements by (inaudible) claims for damages (inaudible) does not specifically (inaudible) setting aside the charge.

On 19 May 2010 Mr Kojima applied first for permission to withdraw his admission that had stood since November 2006 that he was indebted to HSBC in the sum of £158,875; secondly for the revocation of the order of Deputy District Judge Nicholes dated 10 June 2009; thirdly, that permission to amend his defence; and fourthly for permission to counterclaim.

On 29 July 2010 HHJ Mitchell refused the application. Mr Kojima appealed unsuccessfully to Briggs J, who dismissed his appeal on 22 March 2011. With the permission of Arden LJ, Mr Kojima appealed again. One of the matters upon which Mr Kojima relied both before HHJ Mitchell and on appeal before Briggs J was the fact that he had executed a legal charge in favour of HSBC. That, he said, adequately protected the bank's position. As I have said, there is no claim in draft leading to set aside the charge. The order of the district judge did not in fact (inaudible) judgment of HSBC to be admitted (inaudible). It said that unless the charge was provided the bank would be entitled to enter judgment. Since the charge was provided the bank cannot enter judgment; indeed that was the whole point of the unless order; so what part of the order is it that Mr Kojima wants to set aside? In my judgment it can only be the admission as cited in the order as a prelude to the making of the unless order.

Accordingly, what this appeal is really about are the circumstances in which the court would permit a litigant to withdraw an admission. CPR Part 14.1(5) enables a litigant to withdraw admission with the court's permission. Practice direction 14 paragraph 7 lays down the principles the courts must apply. It says:

HHJ Mitchell considered these principles. He decided first that Mr Kojima was aware of the material facts when he made his admission and nothing had changed in that respect. He may have been unaware that those facts gave him a defence, but if he did not take legal advice that was his choice; he was capable of understanding the facts and advancing his own position. Thus paragraph a) of paragraph 7.2 of the practice direction pointed against allowing the admission to be withdrawn. Secondly, the reason why the unless order was made according to Mr Kojima's admission was that instead of pressing for a money judgment HSBC agreed to accept the charge. The judge described it as having been negotiated on 10 June 2009. Although the judge was not expressly saying so, he must have thought that Mr Kojima received a benefit as a consequence of the admission, namely that no county court judgment was entered against him which might have prejudiced his career as a financial adviser. In short, paragraph (B) also pointed against the (inaudible) of the admission being withdrawn. Thirdly, although there would be prejudice to Mr Kojima in depriving him of the ability to put forward an arguable defence, there was also prejudice to the bank because it had been under the misapprehension that it had the equivalent of judgment for a long time. I take this to mean that the judge thought that paragraphs (c) and (d) were neutral (inaudible) fully balanced. So far as the merits of the defence were concerned, the judge was not able to form a view save to the extent of saying that the Chancery action was at a very early stage. I take this to mean paragraph (f) was in his view also neutral. Fourthly, it was not in the interests of justice to allow Mr Kojima to withdrawn an admission that had been made over three years earlier, not least because it would require an investigation of events that took place in 2003, over seven years before the application to withdraw the admission. In short, paragraph (g) also pointed against allowing the admission to be withdrawn. The judge therefore refused the application.

The appeal before Briggs J was principally concerned with the circumstances in which the court can and should exercise its power under CPR Part 3.1(7) to revoke or vary a previous order. It was right at the end of his judgment that Briggs J came to consider how HHJ Mitchell exercised his discretion. Briggs J said in paragraph 45:

In advancing his appeal to this court Mr Adair also put the proper approach to CPR 3.1(7) at the forefront of his skeleton argument. Indeed, neither in his main skeleton argument, on the basis of which Mr Kojima was granted permission to bring a second appeal, nor in his supplementary skeleton argument does he seriously criticise HHJ Mitchell's exercise of his discretion in the practice direction. However, in my judgment, to concentrate on CPR part 3.1 7 is to put the cart before the horse. Unless the judge was wrong in saying that, independently of any restrictions on varying or revoking the deputy district judge's order, the admission should not be permitted to be withdrawn, then whether there are any additional restrictions because of the existence of the order does not matter. Whether or not there is a power to vary such an order, I have no doubt that the fact that the admission is made -- not just informally or even in a statement of case but is formally recorded in a court order -- is an important circumstance which falls within the ambit of paragraph (e) of paragraph 7.2 of the practice direction. It too points to the conclusion that permission to withdraw the admission should be refused. This reinforces, rather than undermines, the judge's decision. Mr Adair submitted that the judge had (inaudible) the two applications: on the one hand for permission to withdraw the admission and on the other to revoke the deputy district judge's order. He pointed to paragraph 20 of the judge's judgment and said that matters considered in that paragraph were relevant to the application to revoke or vary but not to the application to withdraw the admission. I disagree; it seems to me that the fact that an admission is formally recorded in a court order falls squarely within paragraph 7.2(e) of the practice direction.

Mr Adair also submitted that the judge made inconsistent findings in paragraph 17 and 19 of his judgment. However, on examination there is, in my judgment, no inconsistency at all. In paragraph 17 the judge accepts that Mr Kojima did not know the facts that he alleged gave rise, or might give rise, to the defence. In paragraph 19 he says that nothing had changed so far as the facts were concerned. His reconciliation of these two findings is at the last part of paragraph 19, in which he says:

Mr Adair also said that the judge wrongly attributed blame to Mr Kojima, but in my judgment the judge did no such thing. He took the lengthy delay into account, but did not ascribe any blame for it. In his written argument Mr Adair had said that HHJ Mitchell underestimated the strength of Mr Kojima's defence, and that the judge overlooked the fact that since the bank had not accepted the admitted in full satisfaction of that claim the litigation had been likely to proceed in the event. However, the judge recorded the submission of (inaudible) on Mr Kojima's behalf that Mr Kojima had no defence, and approached his decision-making on that basis. In the circumstances in which most of what Mr Kojima led him to dispute it, that was, in my judgment, an entirely (inaudible) case. (inaudible) made in the skeleton argument may look like (inaudible) the litigation would proceed anyway may turn out to be the (inaudible). If the admission is not withdrawn (inaudible) litigation would proceed on the basis on the (inaudible). It is only if Mr Kojima was permitted to withdraw his admission that the litigation would proceed in a way which allows Mr Kojima to (inaudible) his defence in full. It may be (inaudible) do not decide (inaudible) Mr Kojima may be entitled to raise the defence that he wishes to as regards the balance. That in the first instance is a matter for the court.

In short, these arguments do not, in my judgment, carry the case further. Mr Adair also criticises paragraph 22 of HHJ Mitchell's judgment as being pertinent to the application under CPR Part 3.1(7) but not to the application to withdraw the admission. I do not accept this as a valid criticism, especially asserted that since the judge had carefully gone through the practice direction paragraph by paragraph. The decision entrusted to the judge under CPR Part 14.1(5) was a multi-factorial value judgment. The appellate court should not substitute its own value judgement with that of the decision-maker to whom the rules entrust a decision, unless he has gone wrong in principle. Provided he applies the right principles, his decision is not to be impugned merely because other judges, or even the appellate court itself, might have reached a different conclusion. The criticisms of HHJ Mitchell Mr Adair made are in my judgment unjustifiable, but even if justifiable they are, as Briggs J said, a periphery of this case; they do not provide a basis in which this court can or should interfere. Mr Adair also said that the judge's decision is one which no reasonable judge could have reached. That is a bold submission on a second appeal when the first appeal upheld the decision in question. In my judgment the criticisms made come nowhere near surmounting that very high hurdle. In short, in the present case I consider that HHJ Mitchell's valued judgment was based on the correct appreciation of the principles to be applied and cannot be successfully impugned. Briggs J was right to dismiss Mr Kojima's appeal.

Mr Adair sought to raise a new point which was not ventilated before HHJ Mitchell or before Briggs J. The point was that since HSBC had not accepted the admitted sum in satisfaction of the whole of their claim, the admission ceased to have effect. This had the consequence that the deputy district judge had no jurisdiction to make the order that she did. Not only is this a wholly new point, it is also wrong. There are two methods by which a claimant who pursues a money claim for a liquidated sum can obtain judgment. One is by administrative action by a court officer; the other is by judicial decision. In the context of admissions made by parties who are neither children or protected parties, judgment may be entered administratively without a judicial decision where, firstly, the defendant admits the whole of the claim (CPR Part 14.14). In that case the claimant obtained judgment by filing a request in the relevant practice form (CPR Part 14.43), on receipt of the request the court will enter judgment (CPR Part 14.45). Secondly, where the defendant admits part of the claim and the claimant accepts the admitted sum in satisfaction of the whole of his claim (CPR Part 14.56). Again, the claimant obtains judgment by filing a request in the relevant practice form (CPR Part 14.56). On receipt of the request the court will enter judgment (CPR Part 14.58). If the defendant admits part of the claim and the claimant does not accept the admitted part in satisfaction of the whole claim the proceedings will continue (CPR Part 14.53B). In that event directions will be given under Part 26, but the court still retains the power to give judgment on the admission. However, in these circumstances it must be done upon application and by judicial decision under CPR Part 14.3 rather than simply by filing a request in a practice form. Nothing in the rules says that if the claimant does not accept a (inaudible) satisfaction of his whole claim the admission ceases to have effect, and it would be extraordinary if that were the case. Why should the parties or the court devote time and resources in litigating and adjudicating on matters that are not in dispute? In my judgment, therefore, the deputy district judge had jurisdiction to make the order that she made and the new point does not undermine that. I would dismiss the appeal.

I agree. It can perhaps be said that Briggs J in dismissing the first appeal was concerned largely with finality, which in turn is what persuaded Arden LJ to give permission to appeal. The critical judgment is that of HHJ Mitchell. He seems to me to have correctly based himself on something that Atkin LJ, as he then was, said in Ras Behari Lal v King Emperor [1933] 60 Indian Appeals 354 and 361: "Finality is a good thing, but justice is a better".

The two things are not opposed. The interests of justice importantly include, but are not confined to, finality. I can see no failure on the part of HHJ Mitchell to respect both facets of what is a unitary principle which can be said in one way or another to govern all cases of this kind.

I agree with both judgments. In my opinion this is a very good example of a case where a first instance judge's decision, in what may be characterised, as Lewison LJ says, as a valued judgment issue, should be respected and not revisited by an appellate court. HHJ Mitchell, after purporting to correct himself in accordance with paragraph 7.2 of the practice direction 14, decided that Mr Kojima should not be permitted to withdrawn his admission that he owed HSBC the sum of £158,875. Unless it can be shown that the judge misdirected himself in a material way, for instance by misunderstanding the evidence or arguments, by disregarding a relevant matter or taking into account an error on the matter, or that he reached a decision which no reasonable judge could have reached, an appellate court should not interfere with such a decision.

In considering whether any such grounds exist interfering with the decision, an appellate court should not be too ready to find fault with the first instance decision. Decisions of this sort apart from giving extemporary by a judge with a full list. While an appellate court must take care to ensure that the judge has not gone wrong in a significant way, it should not be too ready to find an error that can magnify the importance of any error simply because it feels that it might have reached a different conclusion than the judge if it had been the first instance tribunal.

In this case the judge, as I see it, made no errors in his assessment of his evidence, and if he did the errors were minor and could fairly be said to have included his carefully reasoned conclusions. It is also impossible to say that the conclusion was one which he could not have reached.

The melancholy fact is that this is a second appeal, as Briggs J upheld the decision of HHJ Mitchell. As a result, any application to set aside HHJ Mitchell's order faces an even higher hurdle than if this was a first appeal. This is not because of the terms of CPR 52.13(2), which only permits permission for a second appeal if it would "raise an important point of principle or practice" or if "there is some other compelling reason" of the permission to appeal. That is because permission to bring this second appeal has been given. However, where, as here, a High Court judge has carefully reviewed the first instance judge's decision and the exercise of his value judgment and has upheld it, especially in the terms in terms such as those quoted by Lewison LJ, a further appeal can stand really no chance of success unless it raises some point of principle which is determined against the would-be appellant in the lower courts.

In my judgment, therefore, this appeal should be dismissed. I should add this. Mr Adair raised the point that we should decide whether or not Mr Kojima should be entitled or not entitled to raise the sort of arguments he now wishes to raise in relation to the balance of the claim or in any other proceedings with HSBC. In my view, this is not a point we should consider; it was not considered below, and if and when it needs to be considered then it should be considered, but it does not arise in my view on this appeal. The appeal is therefore dismissed.