Bournemouth & Boscombe Athletic Football Club Ltd v Lloyds TSB Bank Plc

On 3^rd and 4^th April 2003 I heard two applications on this matter. The first was that issued by the Defendant (“the Bank”) on 23^rd January 2003 seeking an Order that the Claim be struck out due to the Claimants failure (“the Football Club”) to comply with CPR 7.4 and/or CPR 3.4(2)(c) with an alternative claim for summary judgment in its favour pursuant to CPR 24.2, in the alternative it sought an order that the claim be stayed pursuant to CPR 3.4 (4) until the Football Club had paid the sums due to the Bank under previous proceedings which themselves have been struck out.

The second application was an application issued by the Football Club on 5^th February 2003 for an extension of time to serve the Particulars of Claim. According to the first witness statement of Mr Pack a director of the Football Club who appeared on its behalf that application was originally listed for hearing on or about 15 April 2003 but on 10 March 2003 it revised the date for the 15^th July 2003. It was only on 19March 2003, that the application was served on the Bank.

The applications had come before me on 20 March 2003 where I acceded to an application by Mr Pack partly by adjourning the applications until the 3^rd April on terms that all of the outstanding costs were paid. Those costs were paid.

At the end of the hearing on the 4^th April 2003 I indicated to the parties that I intended to accede to the Bank’s application and refuse that of the Football Club, but would deliver reasons at a later date.

This Judgment sets out the reasons.

It is important as part of this Judgment to set out the procedural chronology not only in respect of this action by also an earlier action. In September 2000 the Football Club brought a claim against the Bank, but the claim was struck out because it failed to serve its Particulars in time. It did not pay the costs it was ordered to pay until as a result of my Order on the adjournment referred to above. An examination of the Claim Form in the previous action when compared with the lengthy Particulars of Claim as ultimately served in this action shows that in substance all of the claims are a repetition of those set out in the struck out first action. The basic challenge by the Football Club is an allegation that the Bank is in breach of an agreement to provide finance made between it and the Football Club dated 23^rd September 1994.

The present proceedings were commenced by a Claim Form that was issued on 28^th June 2002. The Claim Form was issued by a firm of solicitors on behalf of the Football Club, Messrs Edwin Coe. The claim was stated to be “damages for breach by the Defendant of a contract dated 23^rd September 1994 between the Claimant and the Defendant for the provision by the Defendant to the Claimant of a Loan Facility for the Defendant’s breach of its duty to the Claimant as its Banker”.

As will be seen from the Particulars of Claim the breach consists of a wrongful demand issued on 2^nd July 1996. There is an alternative claim as set out in paragraph 7 of the Particulars of Claim and following alleging that the Bank owed the Football Club a duty of care. In addition it is alleged that it owed a duty of care to its independent directors, certain non-independent directors, the company secretary, the chief executive officer, shareholders, secured creditors, unsecured creditors and the clubs auditors.

I accept the submission of Mr Lerego QC who appears for the Bank that the draftsman of the Particulars of Claim has alleged a tortious duty in paragraph 7, so as to be able to assert that it was only completed as a cause of action when damage occurred when the wrongful demand was made on 2^nd July 1996. The breaches of alleged non-disclosure arise mostly in relation to a events that took place as far back as 25^th August 1991, culminating in the Agreement dated 23^rd September 1994 (“the Agreement”). If these had been framed as any contractual breach of the Agreement, save in so far as they were subsequent breaches, which arose during the period of the parties’ relationship under the agreement they too would have been statute barred.

Thus the Claim Form was issued at the very last minute.

Under CPR 7.5(2) the Claim Form has to be served within 4 months of its issue. Further by CPR 7.4(2) the Particulars of Claim must be served no later than the latest time for serving a Claim Form.

Thus the Claim Form had to be served by 28^th October 2002 and the Particulars of Claim also was required to be served by that time.

The Claim Form was served on the last day, namely 28 October 2002. The Particulars of Claim were not served until the 8^th November 2002 and as I have said the application for an extension of time to serve the Particulars of Claim was not issued until the application, which was issued on 5^th February 2003.

The Football Club, as I have said appears by Mr Pack one of its directors. Mr Pack describes himself as somebody experienced in forensically examining cases. I have had no explanation as to why the Particulars of Claim was not served in time beyond a statement by Mr Pack that it mistakenly believed that it had 14 days to serve them following the service of the Claim Form.

The previous Claim Form had been issued by a firm of solicitors, Messrs Cripps Harries Hall. That too was served on the last date for service, namely 22nd January 2001, but no Particulars of Claim was served with it. It is quite clear that the Club would have been well aware of the obligation to serve the Particulars of Claim with the Claim Form because the Bank’s solicitors applied on 12^th February 2001 for those first proceedings to be struck out because of a failure to serve the Particulars of Claim with the Claim Form. I therefore reject the suggestion put forward by Mr Pack that it was ignorance that was the reason for non-service.

Another similarity between the two sets of proceedings is that after the service of the Claim Form in each case by solicitors the Football Club immediately ceased to retain solicitors and acted in person. Thus Cripps Harries Hall ceased to act on 16^th March 2001 in respect of the first proceedings. In the second proceedings, Edwin Coe ceased to act in October 2002, shortly before the Particulars of Claim Form was served.

No explanation has been provided to me as to why the Football Club chooses to conduct this litigation in this unusual way. It is quite clear that a deliberate decision was made to issue a Claim Form twice. Both Claim Forms were generalised in nature and they were both served at the end of the relevant period for service. The Particulars of Claim was not served, as I have said in respect of the second action as required and no Particulars of Claim was ever served in respect of the first action.

Equally the Football Club instructs solicitors for the purpose of issuing the Claim Form, but then disinstructs them almost immediately. No explanation was provided for this beyond Mr Pack informing me that the Football Club had decided to retain the services of an Australian Barrister who was a very busy man and did not yet have rights of audience within England and Wales for the purposes of this action and was also proposing to instruct a solicitor known to this Australian Barrister. It was not suggested on behalf of the Football Club that it did not have the financial ability to instruct lawyers. Mr Pack also asserted that he could not find any other lawyers to act against the Bank. I find this incredible. The plain fact of the matter is that Mr Pack has been causing the Football Club to do as little progress in this action in the hope that the issues will be reviewed in separate proceedings to which I shall make reference where a Mr Hayward, a director of the Football Club has obtained a retrial in respect of issues arising under a guarantee he gave to support the Agreement of 23^rd September 1994.

It follows therefore my conclusion is that the Football Club has deliberately delayed in complying with the procedural requirements as set out in the CPR.

As Mr Lerego QC sets out in his skeleton argument a different philosophy of approach is applied under the CPR. The philosophy is that rules are there to be obeyed see Sayers –v- Clarke Walker [2002] EWCA Civ 645 at paragraph 20. The Claim Form as I have said was issued only a few days before the expiry of the limitation period and as I have already observed goes back to raise matters as long ago as August 1991, that is to say nearly 12 years ago. No explanation has been provided for the delay in issuing the proceedings when all of these breaches must have been known to the Football Club over six years ago.

An application to extend time for service after the time has expired falls to be considered under the provisions of CPR 3.9. This appears from the decision of Sayers referred to above as considered by the Court of Appeal in Sabrina Robert –v- Momentum Services Ltd. [2003] EWCA Civ 299 paragraphs 29 – 33. Where an application is made to extend time before the period has expired the Courts will not import the requirements under rule 3.9, but just consider whether the particular failure has caused prejudice to the Defendant see paragraph 39.

In the present case it follows that the Football Club’s application for an extension of time has to be considered in the background of CPR 3.9. It also has to be considered against a background of the fact that this action is a second bite at the cherry, because of its striking similarity to the first action, which has already been struck out. I am therefore mindful of the Judgment of Chadwick LJ in Securum Finance Ltd. –v- Ashton [2001] Ch 291 and in particular paragraph 52 where he said:-

“In my view, for the reasons which I sought to give, it is open to this court to strike out the claim for payment made in the present action. That is a claim which, in substance, is indistinguishable from the claim for payment made in the first action. If that claim stood alone it could be said with force that to seek to pursue it in a second action when it could and should have been pursued, properly and in compliance with the rules of court, in the first action it is an abuse of process. It is an abuse because it is a misuse of the court’s limited resources. Resources which could be used for the resolution of disputes between other parties will (if the second action proceeds) have to be used to allow the bank “a second bite at the cherry”. That is an unnecessary and wasteful use of those resources. The bank ought to have made proper use of the opportunity provided by the first action to resolve its dispute in relation to the claim for payment.”

On the facts of that case the Court of Appeal allowed the second action to proceed (and ultimately fail before me).

I am firmly of the view that in the light of the procedural delay that has occurred both in the first action and the second action it would not be right to grant the Football Club a further second bite at the cherry. I refer to the various factors set out in CPR 3.9. It is not in the interests of the administration of justice (factor (a)). Nor was the application for relief made promptly (factor (b)). The failure seemed to comply to me was intentional (factor (c)). There has been no good explanation for the failure (factor (d)), and the effect of granting relief on the other party will cause further prejudice in the prosecution of this action (factor (i)). In that context the Football Club deliberately tried to set a late date for the hearing of its application for an extension of time. Mr Pack on the adjourned application before me sought a further period of adjournment for 3 months. During that period it was envisaged that the Particulars of Claim would be amended.

Looking at all of those factors it is appropriate to dismiss the Football Club’s application for an extension of time to serve the Particulars of Claim.

That is enough to dispose of the action, but in case the matter is considered further I shall also deal with the Bank’s application.

That will involve an examination of the background facts. Mr Pack provided me with no less than 4 witness statements, the third of which was delivered on the first day of the hearing and the fourth of which was handed in on the second day of the hearing. The material contained in these various witness statements is almost overwhelmingly irrelevant to the issues, as I tried to point out to Mr Pack on a number of occasions. In fairness Mr Pack valiantly tried to present the case, but he is not lawyer.

Thus he was unable to provide any answer to the Bank’s submissions in relation to the duty of care issues set out in the Particulars of Claim. As I have said the basis for the claim is a tortious one. The Bank’s relationship with the Football Club, its customer, is not a fiduciary relationship. It lies solely in contract, and does not therefore give rise to a duty of disclosure see Suriya and Douglas –v- Midland Bank Plc [1999] 1 All ER (Comm) 612, 618.

If the Bank had been involved in financial mismanagement or irregularities with the Football Club’s affairs (which I should observe the Bank denies) there would be no separate duty to disclose its own past breaches see Bell –v- Lever Brothers Ltd. [1932] A C 161.

It follows from those matters (which Mr Pack was unable to answer in any meaningful way) that paragraph 7 and following of the Particulars of Claim disclose no cause of action, are bound to fail and should accordingly be struck out.

As I have said above this arises out of the Agreement.

It has been indirectly the subject matter of the proceedings brought by the Bank and against Mr Hayward. In those proceedings, Rimer J on 22^nd March 2002 delivered a judgment giving judgment for the Bank on Mr Hayward’s three guarantees with credits given for £40,000.00 was recovered from Mr Norman Hayward and £250,000.00 recovered from a co-assurety a Mr Gardiner. Mr Lerego QC appeared in that action for the Bank.

The Court of Appeal however, overturned that decision on 12^th December 2002 Lord Justice Jonathan Parker giving the main judgment.

I can see no basis at this stage as the Court of Appeal ordered a retrial in revisiting factual matters, which have to be dealt with in that trial. That is not to say however, that means that the Football Club’s position is entirely the same as the guarantor and the Football Club has a sustainable case on the evidence in this action. I stress that bearing in mind the fact that it is a part 24 application the test to be applied is whether the Football Club has a real prospect of success in its claim. It is no part of that procedure to evaluate the disputed evidence as if it were a trial.

The background to the agreement can be discerned briefly from a bad and doubtful debtors report and a request for additional provision set out in a note prepared by Mr Thomas the Bank’s relevant senior manager dated 3^rd October 1994. This document was produced by Mr Pack. At that time the Football Club was a division two Football Club. It had traded with the Bank for sixty years. The overdraft by that time was £2.6 million with a verbal commitment to £3.2 million. It had suffered heavy trading losses, but the reality is that the Football Club could not continue without the support of the Bank. The value of the securities (i.e. the ground) appears to be between £1 million and £1.2 million leaving an exposure in net terms of as much as £2.35 million.

The proposals which led to the Agreement involved a rescheduling of the facility by converting a large part into a fixed loan to be repaid over 9 years at the rate of £250,000.00 per annum after year 1, with an agreement by the Bank to write off up to £500,000.00 against new loans or equity following repayment of £1.85 million in year 9.

The proposals involved giving additional security (in particular by Mr Gardiner) in the sum of £250,000.00 supported by a cash deposit.

Under clause 2 the facility offered is a facility of £2.350 million. As I have said that represented then virtually the entirety of the then outstanding borrowings.

Under clause 4.1 there were various conditions precedent required including the New Guarantee as defined, which is the guarantee of Mr Gardiner.

Under paragraph 5 the drawings are split into two elements. The principal facility (“Tranchee A”) is £1.85 million and the principal amount of the second part (“Tranchee B”) is £500,000.00 totalling the figure of £2.350 million.

Under clause 5.2 it is provided as follows:-

“5.2

Provided that;-

(a)

no Event or Default has occurred and is subsisting or will occur as a result of the Facility being draw; and

(b)

the representations and warranties in Clause 12 are true on the date of any proposed drawing then immediately upon satisfaction of the conditions precedent set out in Clause 4 without further notice from the Borrower to the Bank Tranchee A shall be fully drawn and so much of Tranchee B shall be drawn as is necessary to ensure repayment in full of the Overdraft from such drawings (whereupon the Overdraft will be cancelled) and the balance of Tranchee B shall be credited to the Borrower’s account with the Bank and used for working capital purposes. ”

Paragraph 7 provides as follows:-

“7 Repayment

7.1

Commencing from 30^th September 1995 on the last day of March, June, September and December (or the next succeeding Business Day) each year until the Final Repayment Date [i.e. 30 June 2003] the Borrower will make quarterly capital repayments of £60,000.00 to reduce Tranchee A PROVIDED that failure to pay any such instalment shall not be an Event of Default if on or before 30^th June 1996 and in any year ending 30^th June thereafter the Borrower has repaid not less than £250,000.00 to reduce Tranche A.

7.2

The Facility shall be repaid in full no later than the Final Repayment Date PROVIDED that if (a) before the Final Repayment Date the condition referred to in Clause 6.1 has been satisfied and (b) on the Final Repayment Date, no Event of Default has occurred and is continuing, then the Bank shall not require repayment of so much of Tranche B as equals to the cash raised for new shares or new loans in the Borrower as referred to in Clause 6.1. ”

Clause 14 has the following provisions:-

“14.

Default

On the occurrence of any of the events specified below the Bank may terminate all of any of its obligations hereunder; and/or declare that the Facility, together with all interest, fees and other amounts payable hereunder, shall thenceforward at all times be due and payable on demand, whereupon the same shall be payable on such demand; and/or demand immediate repayment of any indebtedness and all accrued interest, charges, costs and expenses and execute all or any of its rights under the Security:-

(a)

any default in the payment on the due date by the Borrower of any sum due and payable to the Bank or any other member of the Bank’s group, whether under this Agreement of otherwise;

(f)

if a petition is presented for the appointment of an administrator in relation to the Borrower or to wind up the Borrower, or if a resolution is passed to wind up the Borrower …

(i)

if the Borrower is unable to pay its debts (whether within the meaning of Section 123 of the Insolvency Act 1986 or otherwise) …”

I refer to the judgment of Lord Justice Jonathan Parker and the facts, which are not in dispute. On 2^nd July 1996 the Bank demanded repayment of the full amount of the indebtedness to the Bank on the basis that the Football Club had made no payments as required by clause 7 of the Agreement. On 3^rd July 1996 it made demands of Mr Hayward on his guarantees (which in total amount to £650,000.00). He contended he was not liable because amongst other things the Bank had breached an oral agreement to make an overdraft of £3.2 million available to the Club. Second, he contended that in a letter dated 3^rd October 1994 the Bank agreed it would not vary the loan arrangements without Mr Hayward’s consent and that it had breached that agreement and that his liabilities as guarantor was consequently discharged.

Rimer J rejected Mr Hayward’s first contention and there was no appeal against that part of the decision. He also rejected the second contention, that there had been no variation and that therefore the Bank was entitled to judgment. The appeal was successful by Mr Hayward in that respect. However, the only point therefore for argument on the retrial that was ordered was whether or not there was a variation of the arrangements with the Football Club without Mr Hayward’s consent which discharged his guarantee.

The uncontroversial factual background is summarised in paragraph 30 of the judgment, which provides as follows:-

“30 As I have already mentioned, in the event the Club made no repayments during the year ended 30^th June 1996 and the Bank accordingly had recourse to the full amount of the Gardiner cash deposit. On 2^nd July 1996 it demanded payment by the Club of the full amount of the outstanding indebtedness in the sum of £2.35 M plus interest of some £11,000. On the following day, the demand on the Club being wholly unsatisfied, the Bank made a demand on Mr Hayward under his three guarantees. No replacement for the Gardiner guarantee was ever tendered by the Club. Thereafter the financial position of the Club deteriorated still further, and on 25^th July 1996 HM Customs and Excise presented a winding up petition against it. Further demand was made by the Bank on 2^nd January 1997 and on 9^th June 1997, the Club entered into a voluntary arrangement with its creditors. That was a further event of default under the loan arrangements and on 23^rd December 1997 the Bank made a further demand on the Club. It also made further demands on Mr Hayward on 29^th December 1997 and 23^rdJanuary 1998. ”

Mr Pack has raised on behalf of the Football Club an argument that the arrangements agreed meant that the Bank would treat Mr Gardiner’s cash sum if it was taken as payment by the Football Club so that it was not in default in failing to make any payments. It is difficult to see the logic of that. On the correspondence it is quite clear that the Bank made a demand on default and then made a demand on the guarantee. As Mr Lerego QC rightly submitted the liability of a surety is a secondary obligation to pay damages measured by the default to the principal debtor i.e. the Football Club. I am by no means convinced that there is a genuine issue, which has any prospect of success in this regard. However, it does seem to me that amongst the thicket of irrelevant documentation there is a possibility of this allegation succeeding. If that were the only factor I would not have acceded the Bank’s application.

However, the plain fact of the matter is that if the demand was wrongly based the Bank had ample basis for making the demand.

It is plain that the Football Club was hopelessly insolvent before the date of the demand. By no later than November 1995 the position had been that the Football Club as I have set out above had not only not made any capital repayments but had also not made any interest payments. The Football Club effectively rolled the interest up into the loan of £2.35 million and that limit was reached by November 1995. Thereafter the interest payments had to be serviced from its general trading. Its general trading was of course without any other facilities. It negotiated temporary overdrafts from time to time from the Bank. A winding up petition had been presented on 11^th October 1995. That petition was not dismissed until 10^th June 1996. From the Football Club’s board minutes of 1^st July 1996 it can be seen that the financial position was dire and its trading for the month of July was heavily dependent on footballers being sold. Further the budget did not take into account current creditors such as the Inland Revenue and Customs and Excise with a projected cash shortfall in July alone of £150,000.00.

Later that month on 25^th July 1996 Customs and Excise presented another winding up petition for £70,000.00. This was advertised on the 15^th August 1996. There is no question of the Bank’s demand having any effect on the ability of the Football Club to discharge that indebtedness. The borrowing facility was already utilised and the Bank’s demand did not make any difference at all. By that I mean the Football Club made no repayment of it (unless one takes into account the £250,000.00 “paid” by Mr Gardiner).

In this context Mr Pack made an incredible submission, that the £250,000.00 should be treated as the Football Club’s money and that that would have led to a release of £750,000.00. His reasoning was that the £250,000.00 would be treated as a repayment by the Bank thus reducing the indebtedness and it would also free up capital to be utilised in accordance with clause 7 of the Agreement in the sum of £250,000.00 both as regards Mr Gardiner and as regards Mr Hayward so that it should be treated as having available capital of £500,000.00. Quite apart from this particular and extraordinary submission, that a payment of £250,000.00 by a surety in effect gives the Football Club £750,000.00 worth of free capital it is not actually what clause 7 says.

There is evidence that the Football Club borrowed money from Hayward Properties (not Mr Norman Hayward) as set out in a loan letter of 22^nd July 1996. The total lending was £85,000.00. Mr Pack was constrained to admit that those monies were not used to pay any of the Customs and Excise monies. Further, by November 1996 the Football Club was forced to borrow a further £75,000.00 from a company called Acheve Ltd. The rate of interest on this sum was an extraordinary 100% on an annualised basis. This was never repaid either. However, that negatives Mr Pack’s assertion that Mr Hayward was available to provide further monies. It is quite clear that if the Football Club is driven to borrow at that rate it has no ready access to any other source of funds.

The petition was still outstanding in January 1997 when the receivers fought the petition on the basis of a voluntary arrangement being entered into. A voluntary arrangement of course presupposes that the Football Club is insolvent and unable to pay its debts. That is supported by the Statement of Affairs of the Football Club deposed to by its officers, which showed it to be massively insolvent. During this period the Bank helped the Football Club from time to time but there is no evidence to show that the Bank thereby waived any of its rights arising out of the demand of 2^nd July or the later demands that were issued.

The reality is that from a commercial enterprise, the Football Club had been insolvent for some time, but for the Banks support. The Bank ceased to provide support and the Football Club then became insolvent.

In those circumstances the Football Club was in breach of the various clauses set out in the default provisions in clause 14 summarised above.

Finally, in this context it is to be noted that during all this period there was not one item of complaint from the Football Club asserting the Bank in issuing its demand had acted in breach of the Agreement. That came later when the affairs of the Football Club were subsumed in a voluntary arrangement, which led to a Phoenix Football Club arising out of the ashes with the assets.

It follows that there is absolutely no merit in the claim whatsoever for those reasons alone.

Accordingly, as set out in this Judgment, as I indicated when I reserved Judgment, I dismiss the Football Club’s application for an extension of time and accede to the Bank’s application to strike out the Claim Form.