Rahman & Ors v HSBC Bank Plc & Ors

Definitions

In this judgment I shall adopt the following definitions:

Introduction

Mr Rahman is the controlling force behind a group of entities which have been referred to in these proceedings as the Rahman Group. The Rahman Group comprises a loose association of six “cost centres” comprising Mr Rahman, Mr and Mrs Rahman the Trustees, LPL, LP(GB)L and the Parents. From about 1993 the Rahman Group has built up a large portfolio of commercial and residential investment properties.

In or about 1998 the Rahman Group commenced a banking relationship with HSBC. HSBC provided secured overdraft facilities and term loans to members of the Rahman Group to enable them to acquire and/or refurbish the properties.

On 30 August 2011 HSBC served demands upon Mr and Mrs Rahman and the Trustees for the repayments of various term loan facilities that it alleged had expired between 31 May and 4 August 2011. It alleged that the failure to repay these facilities triggered defaults in relation to those claimants’ remaining term loans (under express cross-default clauses). Demand was made in relation to those facilities on 31 August 2011. On 1 September 2011, the Bank appointed the Receivers over the properties provided as security for those facilities.

HSBC contend that the demands on 30August 2011 related to term loans of 5 year duration. The relevant facility letters support that contention. However Mr Rahman contends that by an oral agreement concluded or binding representation made on 28 June 2006 and reiterated on 30May 2008 HSBC agreed with him to extend all of the facilities under his control to 15 year terms. He also contends that such agreement encapsulated not only existing term loans, but also all present and future facilities, including overdraft facilities.

The principal dispute between the parties relates to the appointment of the Receivers. Mr Rahman and the other relevant Claimants contend that the appointment was invalid on three grounds. First they rely on the agreement. Second they rely on the doctrine of promissory estoppel. Third they contend that the appointment of the Receivers was unfair. They rely on the provisions of section 140A and B of the Consumer Credit Act 1974 and invite the Court to exercise its discretionary power in effect to discharge the receivership.

HSBC dispute each of the three grounds relied on by Mr Rahman. It denies that there was any oral agreement or representation made on 28 June 2006. Any such agreement would be inconsistent with the facility letters and other contemporaneous documents. It makes a similar denial in respect of the meeting on 30 May 2008. It contends that there was nothing unfair about HSBC’s terms or its treatment of Mr Rahman. These were commercial transactions involving large sums of money between experienced businessmen. There is no reason for the Court to interfere.

There are a number of subsidiary issues.

The most important of these relates to the alleged failure by HSBC to provide funds to LPL to enable it to develop St Anne's School site, Woodhouse Square, Leeds. As pleaded LPL’s case is that HSBC agreed to fund the development at the meeting on 28 June 2006. In evidence Mr Rahman went further than this. In any event HSBC denies any agreement to provide funds for the development of St Anne's School.

There are four other groups of properties in Leeds where it is alleged that HSBC failed to provide funds. These are 51/55 Clarendon Road, the CAL properties, 40/41 Park Square and 2 Blenheim Terrace. In respect of 51/55 Clarendon Road and the CAL properties HSBC accepts that there was a facility letter in each case but contends that the offer lapsed because there was no acceptance or drawdown within the time specified in the letter. The position with regard to 40/41 Park Square is slightly more complex. On any view the offer in one of the facility letters was accepted in respect of the funds necessary to purchase 40/41 Park Square. Those funds were loaned. Mr Rahman’s complaint relates to the balance of the funds referred to in the facility letter. HSBC contends that there was no relevant request to draw down these funds within the drawdown period.

Mr Rahman alleges that HSBC agreed to fund the acquisition of 2 Blenheim Terrace as part of an arrangement whereby he would in effect swap 2 Blenheim Terrace for 75 Otley Road which would be sold. He asserts that this swap was agreed by Mr Swift on behalf of HSBC. Mr Swift agrees that there were discussions in relation to a possible swap but denies that there was a concluded contract.

Finally there is a dispute about the allocation of the proceeds of sale following what Mr Rahman described as a “fire sale” of St Anne's School and 51/53 Clarendon Road in 2008. Mr Rahman contends that the proceeds should first have been applied to reduce overdrafts and that what happened was in breach of an agreement reached between himself and Mr Kosmirak. Mr Kosmirak denies that there was an agreement as alleged. In any event as the rate of interest on all the facilities was the same it in fact made no difference to the overall position.

HSBC have Counterclaimed for the sums due under the various facilities. At one time there was a dispute as to whether interest had been correctly refunded. That dispute was resolved during the course of the hearing. In the circumstances there was no argument at the hearing on the Counterclaim.

I should immediately acknowledge with gratitude the very considerable assistance I have received from the legal representatives from both sides. This was a document heavy trial. There were some 29 bundles and it took considerable skill to ensure that the case was conducted and concluded precisely within the time table allotted. I am also particularly grateful to Mr Rahman’s advisors for providing me with an electronic pdf copy of every document in the 29 bundles and to Mr Wilson for his extremely detailed and well referenced written arguments.

Witnesses

Four witnesses were called on behalf of Mr Rahman. The principal witness was, of course, Mr Rahman. He was cross-examined for 2½ days and re-examined for half a day. In addition Mr Rahman called Mr Taher Nawaz, Mr Glen Levison and Mr Matthew Hopkins.

Mr Nawaz is a close friend of Mr Rahman and also the accountant advising him. He did not become involved in the matters which are the subject of this dispute until March 2008. Thereafter he assisted Mr Rahman with the correspondence with HSBC and attended some four meetings with the Bank. He was cross-examined briefly over one of those meetings.

Mr Levison and Mr Hopkins are both valuers. Both were involved with properties within Mr Rahman’s portfolio. The effect of their evidence was that in discussions in 2008/2009 Mr Rahman referred to the fact that his loans with HSBC were 15 year terms. Neither were cross-examined save to establish the dates of conversations.

Seven witnesses were called on behalf of HSBC. Mr David Menaghan was a Commercial Manager at SABU and was Mr Rahman’s relationship manager from December 2004 until 31 January 2006. His evidence related to this period and was largely uncontroversial. Its relevance lay in setting out the tensions in the relationship between Mr Rahman and HSBC in the early part of 2006. He also dealt with the acquisition of St Anne's School.

Three witnesses were called in relation to the events in 2006 and the spring and summer of 2007. This, of course, included the crucial meeting on 28 June 2006. Mr Mike Senior was a Senior Commercial Manager at SABU and took over as Mr Rahman’s relationship manager from January 2006 until September 2007. Mr Jason Trigg was Head of the Commercial Team at SABU and Mr Senior’s immediate line manager. Given the size and complexity of Mr Rahman’s portfolio Mr Trigg was involved in the majority of the meetings and decisions taken. Mr Mark Vines was at the relevant time the Area Director for West Yorkshire. He was brought in by HSBC to attend the meeting on 28 June 2006 and his evidence related to that period.

Mr Christopher Kosmirak was employed as a Corporate Manager in the Real Estate Department in Leeds. As such he became Mr Rahman’s relationship manager from September 2007 when the relationship was transferred from SABU to Corporate in Leeds until July 2010. His evidence related to the meeting on 30 May 2008 and to a number of the subsidiary issues set out above.

Mr Michael Swift was the Deputy Head of Corporate Banking for Yorkshire and the North East. His evidence principally related to the alleged swap agreement in relation to 2 Blenheim Terrace.

Stephane Barreau is a Director in LMU and became Mr Rahman’s relationship manager when the relationship was transferred to LMU in June 2010. His evidence related to his dealings with Mr Rahman after 2010 and the events which led to the demands and the appointment of the Receivers.

Events prior to 2006

Mr Rahman is 58 years of age. He was born in the United Kingdom but educated in India at Delhi University. He returned to the United Kingdom in 1976, and in 1977 got married and moved to Leeds. In around 1981 he acquired his first property, which was a back to back terrace let to students. The property business expanded rapidly. In 1986 he became a Lloyds Name. This caused him financial difficulties and he had to realise his assets. In 1993, however, he reached an agreement with Lloyds which enabled him to proceed to develop his business.

Mr Rahman established two limited companies for his sister, namely LPL and LP(GB)L respectively. While Mr Rahman is not a director or shareholder of those companies, he ran the companies and other portfolios on behalf of other members of his family.

The basic structure of the business/portfolio was that Mr Rahman controlled family property (i.e. properties owned by the Trustees for their children as beneficiaries, and properties belonging to his sister and his parents) which had appreciated in value. He used the equity in those properties in order to acquire further properties. Over the years he moved from predominantly residential property into high quality commercial property with long blue chip covenants.

The relationship between Mr Rahman and HSBC began in 1998 when Mr Rahman was introduced to Richard Bowers the then manager of SABU which was run from Bradford. Between July 1998 and the end of 2004 a number of loans were made to various cost centres. In a CARM dated November 2004 HSBC summarised the position:

It will be seen that there were loans totalling £7.2 million secured against property valued at £14 million. As Mr Rahman pointed out the rents receivable more than covered any interest payments due under the loans.

The loans were of differing lengths varying from overdrafts repayable on demand to 15 year term loans. All of the loans were evidenced by facility letters. The facility letter set out the terms of the loan/overdraft facilities being offered. It set out the amount of the loan, (in most cases) the purpose of the loan, the amount or limit of the amount to be lent, the term of the loan, the interest rate, the amount of repayments due and the security required.

Each of the facility letters was couched as an offer by HSBC and required acceptance by the borrower (usually within 28 days of the offer). The letter made clear that if the offer was not accepted within this period it would lapse.

The facility letters were issued subject to HSBC’s General Terms and Conditions. It is not necessary to refer to the terms in detail. Furthermore not all the facility letters were subject to identical terms. Three of the conditions have been the subject of some debate:

It is plain that Mr Rahman received and read the General Conditions. Many of the signed copies of the facility letters contain parts of the General Conditions which have been struck out by Mr Rahman before signature. He particularly objected to the renegotiation clause. It was Mr Rahman’s evidence that before he struck out the relevant clause he discussed the amendment with the relevant relationship manager – usually Mr Senior. Mr Senior did not accept this.

An important distinction has to be made between loans where the monthly repayments comprised only interest with the result that the whole of the capital was repayable at the end of the term (“interest only”), and loans where capital and interest was repayable throughout the term (“capital and interest”). Many of the term loans before 2005 were capital and interest loans with an interest rate of 2% over HSBC base rate.

HSBC’s procedures required that credit approval be obtained before the issue of any facility letter. In evidence Mr Rahman confirmed that he was aware of this requirement although, on a number of occasions he referred to credit approval as “a mere formality”.

HSBC’s facilities were secured by way of legal mortgage incorporating HSBC’s Mortgage Deed Conditions (1999 Edition). Under condition 11 the Mortgage became enforceable if:

In general the securities comprised the assets owned by the particular cost centre to which the facility was granted. During HSBC’s closing submissions I was helpfully provided with a Schedule prepared by its solicitors setting out in detail the securities held in respect of each facility where receivers have been appointed. I have included this Schedule as an Appendix to this judgment. It will be seen that many of the properties owned by individual cost centres were security for more than one facility.

In or about July 2004 Mr Rahman put a proposal to HSBC with a view to purchasing St Anne’s school in Leeds at a cost of £2 million for conversion into 52 flats at an estimated cost of £4 million.

In a letter dated 11November 2004 he repeated the request to Mike Hemingway and John Bell. This led to detailed consideration of the proposal in a CARM dated 16 November 2004. One of the matters considered in the CARM was whether HSBC would restructure existing facilities in a manner which would facilitate the purchase. The proposal was to restructure existing Medium Term Loans (MTLs) to 20 years.

Shortly thereafter there was a meeting between Mr Rahman, Mr Hemingway and Mr Bell. According to Mr Rahman it was agreed that at that meeting that all loans would be on 25 year repayment terms and that the restructuring would take effect in January 2005.

It is not clear whether that agreement was reached as early as November 2004. It is, however, clear from HSBC’s CARM dated 4 January 2005 that a request was made to approve the extension of all existing loans to 25 years but provide an interest only period of 2 years for the £1.9 million loan in respect of the acquisition of St Anne’s school.

Credit approval was duly obtained both for the purchase of the land at St Anne’s school for £1.9 million and for the term loans to be rescheduled.

The facility letter for St Anne's School is dated 18^th January 2005. It offers LPL an on demand facility of £1.9 million but makes it clear that the facility is due for review in 12 months. The land at St Anne's School was duly acquired by LPL.

New facility letters or letters varying the original term loans were also issued converting the term loans so that they were repayable on capital and interest terms over 25 years.

Mr Rahman however complained that the conversion process took too long. Although the first letter is dated 18 January 2005 the process was not completed until 11 November 2005. Mr Rahman was concerned that these delays increased the interest he had to pay. When he gave evidence Mr Menaghan could not now remember the reason for the delay.

Mr Rahman also complained about the rate of interest on the loans (in general 2% over HSBC base rate). Mr Rahman considered that that rate was too high. Mr Rahman contends that on 7 September 2005 Mr Menaghan agreed that uniform rates of interest of 1 % over base would be applied to all the facilities. He contends that HSBC failed to honour this agreement and overcharged him interest.

There was at one time a dispute as to whether the agreement alleged by Mr Rahman was ever made. In letters dated 14 November 2005, 22 November 2005 and 7 December 2005 Mr Rahman asserted that it was. In a letter dated 16 November 2005 HSBC denied that such an agreement was made. On 7 December 2005 HSBC offered to reduce the rate to 1.75% “as a gesture of good faith”. On 30 December 2005 an interest refund of £52,473.29 was made.

Mr Rahman was not satisfied with this. The dispute rumbled on until 27 June 2006 (the day before the meeting on 28 June 2006). In a letter dealing with the matters to be discussed at the meeting HSBC offered an interest refund from 7 September 2005 at a rate of 1% over base. That refund was duly applied to the relevant accounts.

A further source of irritation to Mr Rahman was that in December 2005 HSBC issued default notices in respect of loan repayments amounting to about £8,000 and failed to honour cheques totalling about £3,000.

Thus, at the beginning of 2006 relations between Mr Rahman and HSBC were becoming strained. From Mr Rahman’s point of view HSBC were not honouring the agreement over interest, it was slow in putting into effect the agreement reached in January 2005, and it was dishonouring his cheques.

From HSBC’s point of view Mr Rahman was a very valuable customer of HSBC. He had outstanding loans of approximately £10 million; he was paying interest of approximately £200,000 per annum and was seeking to expand his portfolio. According to Mr Senior he was one of the largest customers of SABU.

Accordingly HSBC set about repairing the damage and rebuilding the relationship. Mr Trigg met Mr Rahman on 18^th January and wrote a long letter to Mr Rahman on 29^th January 2006. It is not necessary to set out the letter in full. In summary (so far as is relevant to the issues):

He referred to Mr Rahman as a valuable customer of HSBC. He wished to continue the relationship but recognised that the service provided by HSBC must mirror his value.

He attributed the problems of December 2005 to poor communication (on both sides). He apologised for not giving Mr Rahman the opportunity to rectify any excesses on the overdraft. He offered to refund any fees levied and to write to the payees explaining that cheques were returned due to “Bank error”.

He referred to a number of facilities including St Anne's School. He noted that Mr Rahman was:

He then set out a number of key issues that would need to be considered including planning consent, detailed and robust costings, the quality of the proposed builder and an indication of the likely rental income.

He pointed out that it was necessary to renew the facility (for the £1.9 million landbank loan) for a further 12 months.

On 6 February 2006 Mr Rahman wrote to Mr Trigg informing him that in 2005 he had obtained planning approval for 72 flats rather than the approval for 52 that had been obtained in 2004.

The application to renew the 12 month facility was the subject of comments by Mr Trigg in a CARM dated 17^th February 2006 which included:

The application was approved on 21^st February by Mr Gunton. It is clear from his comments that he had a number of reservations about the facility. Amongst his other observations he noted:

There are a number of factual issues arising. Mr Rahman asserts that Mr Trigg promised him the development funding at or around this time. He asserts that Mr Trigg came to his office. He was shown the plans and they talked about the land. He says that Mr Trigg said that HSBC would fund the development. Mr Rahman also asserts that neither Mr Trigg nor Mr Senior passed on the reservations expressed by Mr Gunton.

Mr Trigg denies this. He says that he told Mr Rahman that he had obtained credit approval for the purchase of the land but not for the development. He did tell Mr Rahman that credit did not want to do it and that it would be difficult to get anything agreed. However at that time Mr Rahman was talking about joint venture or sale. He did tell Mr Rahman that he would put a proposal to credit control if he felt it was viable.

Mr Trigg also said that he personally was not keen on residential development in Leeds. So much so that he implemented a local policy against such funding.

From about the end of January 2006 Mr Rahman started to discuss his funding requirements with other banks. He has disclosed documents which show:

On 8 February 2006, he on behalf of LPL received draft heads of terms from Bank of Ireland in respect of a loan of £8½ million being £2 million to refinance the facility then held with HSBC and £6.5 million for the development of St Anne's School. This facility was at a margin of 1.6% over base. It was repayable on demand but repayable in any event within 2 years and was subject to a number of other fees.

Mr Rahman approached Lloyds TSB in a letter dated 13 February 2006. After initial discussions on 11 April 2006 the Senior Relationship Manager at Lloyds wrote to Mr Rahman with suggestions to enable him to refinance and expand his portfolio. In the letter he suggested a 5 year interest only loan period and that Lloyds should be able to consider an investment facility of £25 - £28 million and £6.5 million to develop St Anne's School. On 10 July 2006, he wrote again confirming that Lloyds were very keen to provide him with banking facilities and that he had received formal credit approval for a package of facilities totalling £30 million. The principal term of the proposed investment loan was that it was interest only for the first 5 years with the loan to be rescheduled over 20 years commencing in year 6.

On 22 May 2006, Mr Rahman received outline terms from Bank of Scotland. These included a term loan for £4.2 million to refinance existing term loans and a development loan of £6.5 million in respect of St Anne's School. The term loan was proposed to be on the basis of 5 years interest only and thereafter on a term loan.

On 16 June 2006, Mr Rahman received indicative terms from Royal Bank of Scotland. The terms provided for finance of up to £40 million to uplift existing borrowing from HSBC, to provide a £6.5 million development facility for St Anne's School, and to provide a facility for future investment deals. The facility was offered on the basis of a 5 year interest only facility.

It can thus be seen that a number of financial institutions were interested in providing Mr Rahman with lending facilities. However none of HSBC’s rivals had offered better repayment terms than 5 year interest only.

It is common ground that at the meeting on 28 June 2006 Mr Trigg, Mr Senior and Mr Vines were aware that Mr Rahman was being courted by and had received offers of finance from other banks. It is equally common ground that they were keen to continue the relationship if possible.

On 18 April 2006 Mr Rahman faxed a letter to Mr Senior. In it he referred to the meeting on 18^th January 2006, and pointed out that he was still awaiting decisions. The letter made reference to three properties in Leeds:

25 Park Square. This was a prospective Trust purchase. Mr Rahman asked for permission to exchange contracts in the week commencing 18 April 2006 with completion 4 weeks away. He asked Mr Senior to extend the overdraft on the Trust account by £60,000 to enable exchange to take place.

St Anne's School. Mr Rahman complained that the section 106 agreement had not been signed by HSBC. He asked for permission to start demolition (at a cost of £25,000 plus £10,000 preliminaries).

30 Park Square. Mr Rahman stated that the Trust was putting in a tender on 26April 2006 for this office.

Mr Rahman concluded the letter by pointing out that substantial progress had to be made over the next few days and he hoped that HSBC would be able to deliver.

Following a meeting on 19 April 2006 between Mr Senior and Mr Rahman, Mr Senior agreed in principle to fund the purchase of 30 Park Square. A letter of comfort confirming this was sent to Mr Rahman’s agent thus enabling him to put in a tender for the property.

A meeting was scheduled between Mr Rahman and Mr Senior for 16 May 2006. It did not take place. However before the meeting Mr Rahman faxed his then current proposals to Mr Senior. In the fax Mr Rahman stated he was proposing to gear up his existing residential portfolio for 2 reasons. First he wished to develop St Anne's School into 72 flats and 65 underground parking spaces at a cost of £6.5 million; secondly he wanted to acquire further investment property – particularly commercial investment. The fax made it clear that Mr Rahman was then looking for a further £30 million from HSBC and made a request for such a facility. The fax referred to agreed current proceeding purchases as including 25, 30 Park Square and 5 South Parade.

On 17 May 2006, Mr Rahman sent a further fax to Mr Senior which made reference to St Anne's School:

Mr Senior replied the same day. The letter dealt with St Anne's School in the following way:

Whilst it may be said that that this reply does not make any reference to Central Credit’s lack of appetite for funding the St Anne's School development, it also lends little support for Mr Rahman’s contention that HSBC had already agreed to support the development.

The letter also dealt with Mr Rahman’s expansion plans:

As already noted Mr Rahman accepted in evidence that he would need credit approval for all applications.

On 26 May 2006, Mr Senior wrote to Mr Rahman confirming that he was processing the application to complete the purchase of 25 Park Square on 31 May 2006. The letter went on to confirm agreement in principle to fund the purchase of 30 Park Square though he commented that the purchase of 5 South Parade fell outside guidelines.

On 26 May 2006 two CARMs were prepared in respect of the renewal of various facilities. In the Introduction it was noted that the relationship was at a crossroads and that Mr Rahman had been taken to York Races by a rival – HBOS. Much would depend on the negotiations over the next few weeks.

The purchase of 25 Park Square duly completed on 1 June 2006. Credit approval for the facility was obtained on 30May 2006. The funding was comprised in a facility letter dated 30 May 2006 for £700,000 offered to the Trustees. The facility letter provided for repayment over 15 years on capital and interest terms.

On 15 June 2006, Sanderson Weatherall provided HSBC and Mr Rahman with a valuation of his portfolio. The portfolio comprised some 39 properties located primarily within the north western fringes of Leeds city centre. According to the valuation the vast majority of the portfolio comprised residential houses, some of which had been converted to provide self contained flats. A small minority were commercial in nature with commercial leases in places.

There was some debate as to the extent of the commercial properties. Mr Rahman, in evidence identified some 12 properties out of the list of 39 contained in the valuation which he described as Commercial. I was, however, provided with a schedule taken from the valuation itself which suggested that only 3 properties were commercial, 4 properties had mixed commercial, residential use and the remainder were solely residential.

The overall valuation totalled £22.8 million. St Anne's School was valued at £2.75 million but £10 million when converted. There was a separate valuation for St Anne's School. In section 8 of that report and Appendix IV details of proposed costings for the scheme were exhibited totalling £5.2 million. These projections were described as “feasible”.

On 23 June 2006, Mr Rahman sent a fax to Mr Senior which he copied to Mr Vines. The fax complains in terms about the level of service provided by HSBC and contains a clear threat to take his business to a rival bank. Amongst his complaints was the rate of interest he was paying, and the failure of HSBC’s credit department to approve the deposits for the purchase of 30 Park Square and 5 South Parade until the end of the following week. The letter suggested the cancellation of the meeting proposed for 28 June 2006

Mr Senior replied to the letter on 26 June 2006. In the letter he made it clear that he needed to meet to agree terms, obtain an update on Mr Rahman’s plans and enlist the support of Mr Vines. He also made the point that credit approval takes a minimum of 2 full days.

On 26 June 2006 Mr Rahman sent a fax to Mr Vines. In it he stated he was proposing to make 6 purchases including 30 Park Square, 5 South Parade and the construction of 72 flats at St Anne's School. The letter included the following:

The documents record considerable activity on 27 June 2006. Mr Senior prepared a CARM in relation to the deposits for 30 Park Square and 5 South Parade. The proposal was to increase the overdraft on the trustees account from £80,000 to £360,000. Under the heading “Purpose” there is a comment on the vulnerability of the relationship and the following:

Comments were added to the CARM by Mr Trigg at about 10.37 p.m. He too recognised that the relationship was difficult and that there was a real possibility of losing Mr Rahman as a client. He referred to a telephone conversation with Mr Heath (in credit) and the prompt support he was given.

When he gave evidence Mr Trigg confirmed conversations with both Mr Heath and Mr Rayner. The purpose of the conversations was to try and find a formula which Mr Rahman would be happy with. He confirmed that Mr Rayner had expressed a willingness to consider 5 year interest only loans for CIPs.

In the afternoon of 27^th June there was a telephone conversation between Mr Senior and Mr Rahman. Following the conversation Mr Rahman and Mr Senior exchanged correspondence as to what had been agreed. According to Mr Rahman’s fax:

Mr Senior’s letter was shorter. He confirmed the increase in the trust overdraft to facilitate exchange of contracts. The facility letter would be taken to the meeting. He confirmed that there was no commitment to fund the purchase though he anticipated that this would be taken forward at the meeting the following day. He confirmed the reduction in the rate for facilities for the future. He confirmed the rate of 1% over base for the period between 7 September 2005 and 27 June 2006 but qualified this confirmation with the words “subject to a continuing relationship”.

The qualification provoked a somewhat intemperate response from Mr Rahman which was faxed at 11.45 p.m. He accused HSBC of blackmail and said that if he had received the fax earlier he would have called the meeting off.

The Meeting of 28^th June 2006

The meeting took place at Mr Rahman’s offices. It was attended by Mr Rahman, Mr Trigg, Mr Senior and Mr Vines. It is common ground that it started at about 10.30 after having coffee. There is a dispute as to how long the meeting lasted. On behalf of HSBC Mr Trigg and Mr Senior both said that it lasted about two hours. Mr Rahman said it lasted only about half an hour.

There are conflicts of evidence central to Mr Rahman’s case as to what was said and agreed at the meeting. Before discussing the oral evidence it is convenient to look at the contemporaneous documentary evidence in relation to it.

The Agenda for the meeting is a 6 page document prepared by Mr Trigg and Mr Senior. Each of the pages consists of bullet points; thus there is one page for the purpose of the meeting and one page for outstanding issues involving Mr Rahman – these include the issues relating to the returned cheques in December and the rate of interest being charged. There is a page dealing with Mr Rahman’s plans and a page dealing with actions.

In the page dealing with Mr Rahman’s plans there is a section headed “Outstanding Deals” which includes - St Anne's School, 5 South Parade/30 Park Square, HSBC University Branch and Barclays (Headrow Branch). Mr Trigg has written comments on his copy of the Agenda. By St Anne’s School he has written: “WAYNE’S SUPPORT CAR PARK? OFFICES? £25K DEMOLITION SELL RENT OUT”

In the page dealing with Actions there is a section headed "Loan Structures". This has 3 subheadings – RIP, CIP and Overdraft. Beside RIP Mr Trigg has written: “INT ONLY x 15 YEARS”. Beside CIP Mr Trigg has written: “PART AMORTISATION x 15 YEARS INTEREST ONLY x 5 YEARS”.

On 29 June 2006 Mr Rahman wrote an urgent fax to Mr Senior in relation to 30 Park Square and 5 South Parade. In the letter he asked for a decision within the next 24 hours to confirm whether or not HSBC would support him with the purchase completions of the two properties.

The final paragraph of the letter includes:

On 29 June 2006 Mr Senior sent a letter setting out 9 actions which he asserted were agreed at the meeting. Actions 3 – 5 are relevant:

Mr Rahman responded to Mr Senior’s letter the following day. In the fax he addressed actions 3 -5 as follows:

Mr Senior responded briefly the same day. In the letter he expressed a belief that they had agreed a way forward and informed Mr Rahman that he had completed a credit application which would be sent for approval once Mr Vines had added his support.

Mr Senior prepared the CARM on 3July 2006. It is a lengthy document and it is not necessary to set it out in full. He set out the history in some detail including a reference to “a full and frank discussion” at the meeting on 28 June 2006. He described the proposal as “outside the CIP guidelines” and referred to the discussion with credit on 27 June 2006. He referred to the indicative offers from other banks which had been seen by HSBC. He asked for approval for 5 year interest only CIP loans for the purchase of 5 South Parade and 30 Park Square, amend existing CIP loan of £700k to 5 year interest only and to amend existing RIP loans to fully compliant 15 year interest only terms.

Mr Trigg added his comments at 2.15 p.m the same day. He also made the point that the loans met RIP guidelines but not CIP guidelines due to proposed interest only terms. After referring to the other offers he made the comment that HSBC’s terms appear out of step with the marketplace. His comments included the following:

Credit approval was granted at 8.07 the following morning and included the following comment:

When he gave evidence about the meeting Mr Rahman confirmed his case that he was offered and accepted 15 year interest only terms on CIP loans. He asserted that he had been offered 5 year interest only loans for CIP loans in March 2006 and had turned the offer down. He accepted that he was offered 15 year interest only loans on RIP loans but said that that did not attract him. He was exiting residential and had lost interest in such loans.

He said that Mr Vines offered him 15 year interest only loans on CIP loans and that was what clinched the deal. He said that Mr Senior or Mr Vines told him that he had to take the “off the shelf product” and that he would be given variation/side letters later.

My note of his evidence on this critical point reads:

Unsurprisingly Mr Rahman was asked about the contemporaneous documents (set out above) which, on their face, appear to be inconsistent with this evidence. In relation to his fax of 29 June 2006 he said he was told that HSBC would finance the 2 properties. Whilst he understood that credit approval was necessary he was told it was a formality. He explained the reference to a 5/7 year interest only loan by reference to the agreement to go for a standard product.

In relation to his fax of 30 June 2006 he was asked why there was no mention of the side letters extending the interest only period to 15 years. He said he had a phone conversation with Mr Senior before he sent the fax. Mr Senior explained that in order to fund the two properties Mr Rahman would need to take an off the shelf package. He would get a side letter in due course.

He made two comments about the CARM submitted by Mr Senior on 3 July 2006. First he agreed he did ask for 5 and 7 year interest only terms. This was to discover the extent of HSBC’s appetite. He wanted to know how much they were willing to lend; whether they were willing to lend the extra £20 million he was seeking. Second he made the point that this was an internal HSBC document (and thus he implied inaccurate). He repeated he was promised 15 year interest only term loans.

Later in his cross-examination he was asked what was said at the meeting about St Anne's School. My note of his evidence reads:

He was asked to explain the references in Mr Senior’s letter of 29 June 2006 to indicative terms and the reference to the need for the decision as to the nature of the development. Mr Rahman said that it was his understanding that Mr Vines said he would give him the funding.

In substance the evidence of Mr Vines, Mr Senior and Mr Trigg was consistent with the documentary evidence referred to above. All three witnesses denied in strong terms that there was any offer or agreement to lend money for CIPs on interest only terms for any period longer than 5 years. They all said that they would not have made any commitment without getting approval from credit.

Mr Vines’ recollection of the meeting was the poorest of the three witnesses. This is hardly surprising. He was the Area Director and did not have the day to day knowledge of the account of either Mr Senior or Mr Trigg. He made the point that it was so far outside his authority level to have committed HSBC to 15 year interest only loans that it would have amounted to gross misconduct. He described the suggestion that he made that offer in order to induce Mr Rahman to stay with HSBC as “absolute rubbish”.

Both Mr Trigg and Mr Senior made the point that a 5 year interest only CIP loan was not a standard package at the time. It was only offered after the discussions with credit referred to in the CARMs of 27 June 2006 and 3 July 2006. HSBC was trying to put forward a bespoke package for Mr Rahman. By converting him to “interest only” it would increase his borrowing capacity.

Mr Trigg made the point that there was no discussion at all about 15 year interest only CIP loans at the meeting. The discussion was about 5 year loans. Mr Rahman asked about 7 year loans. Mr Trigg said he would put the suggestion to credit but that the indication he had received from credit was in respect of 5 year loans.

Mr Senior had no recollection of the conversation alleged to have taken place between himself and Mr Rahman on 30 June 2006 when he was alleged to have confirmed that side letters would be sent extending the term to 15 years. He said that anything that had been agreed would have been included in the letter he sent on 29 June 2006.

All three witnesses refuted the suggestion that Mr Vines gave any commitment to fund the St Anne's School development at the meeting. Mr Vines agreed there was a discussion about St Anne's School. His recollection was that Mr Rahman did not have a detailed proposal and did not know if he was going to carry out a commercial or residential development. Until there was a detailed proposal the matter could not be put to credit.

Mr Senior and Mr Trigg’s evidence was to much the same effect. At no time did HSBC have sufficient details to put forward a proposal. Neither accepted that the details in the valuation were sufficient for HSBC’s purposes. Mr Senior gave evidence of a number of other matters which would be needed before a detailed proposal could be submitted. He repeated those matters in his letter of 29 June 2006. Mr Trigg said that HSBC had no appetite for residential development, and that any other form of development would be difficult but that he would be prepared to put forward a proposal if Mr Rahman came forward with a full proposal.

Subsequent Events

Both sides rely on events that occurred after the meeting on 28 June 2006 in support of their respective contentions as to what happened at the meeting.

On 30 June 2006, Mr Senior sent the Trustees a letter offering to vary the terms of the 30 May 2006 15 year loan which Mr Rahman had accepted in respect of the purchase of 25 Park Square. The variation offered a 5 year interest only loan to be repaid in full at the end of the term. The variation was accepted by the Trustees on 1^st July 2006.

On 3 July 2006, Mr Senior sent the Trustees two facility letters. One was a letter offering to repay the overdraft facility of £80,000; the other was a letter varying the terms of the Trustees’ term loan granted in July 2003. In each case the offer was for a term of 15 years interest only. The offers were accepted by the Trustees on 4 July 2006.

There was some misunderstanding as to the amounts of funding that Mr Rahman had requested in relation to these two properties in that he required moneys for refurbishment and for costs. That gave rise to an additional CARM from Mr Trigg dated 13 July 2006 and an additional approval from credit on 14 July 2006.

On 13 July 2006, Mr Senior sent the Trustees two facility letters. Both offered 5 year interest only loans to be repaid in full at the end of the term. The facility letter in respect of 30 Park Square offered £1,115,000. The facility letter in respect of 5 South Parade offered £2,756,000. Both facility letters were signed by the Trustees on 14 July 2006. Completion of the purchases took place shortly afterwards.

1/3 The Headrow was tenanted to Barclays Bank plc; 27 Blenheim Terrace was tenanted to HSBC. Each of these potential purchases were included in the Agenda at the meeting on 28 June 2006. It is plain they were discussed because Mr Trigg has made notes against each of them. They were not however referred to in Mr Senior’s letter of 29 June 2006.

In any event Mr Rahman successfully bid for each of them at auctions held at the beginning of July 2006. Funding of the acquisition was the subject of a CARM dated 24 July 2006 prepared by Mr Trigg. In the course of the application Mr Trigg repeated the comment that the funding does not meet CIP guidelines due to the proposed interest only terms. It also included this comment by Mr Trigg:

The application was duly approved on 25 July 2006.

On 26 July 2006, Mr Senior sent to Mr and Mrs Rahman two facility letters in respect of the above properties. Each offered 5 years interest only loans. £596,200 was offered in respect of 27 Blenheim Terrace, £2,743,650 in respect of 1 – 3 The Headrow. The offers were accepted by Mr and Mrs Rahman on 28 July 2006.

HSBC naturally rely on these facility letters as being wholly inconsistent with Mr Rahman’s case that he was promised 15 year interest only CIP loans. When asked about these documents he said that he was giving HSBC a one month window to provide side letters. He did not sign any 5 year interest only loans after the end of July 2006. He said that it was agreed that he would sign the letters for 5 years and that they would be converted to 15 years. He was told he had to take an off the shelf product and that is what he did.

He described Mr Trigg’s comments as a figment of his imagination. He never said he would return to capital and interest repayment terms after 5 years.

When Mr Senior was asked about the conversion of the old term loans to 15 year interest only terms he said that they were treated by HSBC as RIP loans and thus the conversion was within guidelines and in accordance with what had been discussed at the 28 June 2006 meeting.

HSBC made two CIP loans in 2007 which Mr Rahman asserts were made on 15 year interest only terms. He accordingly relies on these loans as evidence of what was agreed at the meeting of 28 June 2006. HSBC do not accept that these two loans were in fact made on 15 year terms. In any event there was no intention on its part to create a 15 year interest only term. In those circumstances neither of the loans affords any guidance as to what was or was not agreed at the meeting of 28 June 2006.

It will be necessary to return to this property when considering the subsidiary issues raised by Mr Rahman. For present purposes it is sufficient to look at the documents surrounding the acquisition of these properties.

On 12 December 2006 Mr Rahman sent a fax to Mr Senior informing him that he had tendered for the above properties and needed to exchange contracts on or before 21 December 2006. Mr Senior prepared a CARM on 5January 2007 for a £1.65m loan to assist with the purchase (£1.35 million) and refurbishment (£300,000) of the above properties. The CARM referred to the loan being interest only terms over 5 year period. The proposal was approved by Credit (Gunton) on 8 January 2007. Amongst his comments were the words “Interest only for 5 years”

On 17 January 2007 Mr Senior sent a facility letter to Mr and Mrs Rahman offering £1.65 million to assist with the purchase and refurbishment of the above property on 15 year interest only terms. When Mr Senior gave evidence he said that this was a mistake. He referred to the CARM and he also said that the discussions with Mr Rahman were on the basis of 5 year interest only.

In any event the terms of the offer were not acceptable. In a fax dated 29 January 2007 Mr Rahman explained that there were 3 clauses in the facility letter which were not acceptable to him and asked whether they could be omitted.

On 29January 2007 Mr Senior sent a fax to Mr Rahman and included a new facility letter which dealt – at least in part – with Mr Rahman’s objections. This facility letter however was for a term of 5 years interest only. Mr Rahman did not sign this letter but he did write (in manuscript) “15” above the number “5”. On 31 January 2007 HSBC permitted a drawdown of £135,000 in respect of the deposit payable on exchange of contracts.

Completion of the purchase was due to take place on 1 March 2007. HSBC’s file contains a detailed file note dated 26 February 2007. The file note refers to an ongoing dispute in relation to a fire escape and to Mr Rahman’s intention to transfer the property to an SPV domiciled in BVI. Following discussions with Mr Rahman’s solicitor it was agreed that the purchase would proceed in the names of Mr and Mrs Rahman and that the transfer would take place a few weeks later.

On 27 February 2007, Mr Senior’s assistant sent a third version of the facility letter to Mr and Mrs Rahman. This letter offered 15 year interest only terms. Some of the other terms (such as the renegotiation and early termination clauses) were unacceptable to Mr Rahman. He accordingly crossed them out. On 28 February 2007 Mr and Mrs Rahman signed the facility letter and returned it to HSBC. On 1 March 2007 HSBC permitted a further drawdown of £1,406,151 which enabled Mr and Mrs Rahman to complete the purchase.

According to Mr Senior the third facility letter contained the same mistake as the first letter. The mistake was not spotted when the letter was returned and drawdown was permitted.

On 23 April 2007, Mr Senior submitted a CARM in respect of a new CIP loan of £810,000 to assist with the purchase of the above property. The relevant part reads:

Comments added by Mr Trigg on the same day include a reference to:

The application was approved on 24 April 2007 (albeit with some reservations).

On 24 April 2007 Mr Senior sent Mr and Mrs Rahman a facility letter in respect of the loan. The letter offered interest only terms over 5 years. Mr Rahman, however, crossed out the word “five” and wrote “fifteen” in manuscript above it. He made a number of other amendments to the terms and conditions. On 25 April 2007 Mr Rahman (but not Mrs Rahman) signed the facility letter and returned it to HSBC. Drawdown of the facility was permitted.

According to Mr Senior there was no intention on the part of HSBC to create a 15 year term.

As already noted Mr Kosmirak took over as Mr Rahman’s relationship manager when the account was transferred from SABU to Corporate in Leeds in September 2007. It will be necessary to revert to the early part of the relationship when dealing with some of Mr Rahman’s subsidiary claims. For present purposes the correspondence is said to be relevant because of two letters in which Mr Rahman asserted that the loans were on 15 year terms

Following meetings and discussions at the beginning of 2008, Mr Kosmirak wrote a letter to Mr and Mrs Rahman on 6 March 2008 expressing concerns about their relationship. Amongst the concerns were allegations that because the interest cover had fallen below 130% there were breaches of the facility letters. The letter contained a list of actions which Mr Kosmirak felt were required to address the concerns. Mr and Mrs Rahman were invited to sign letters of variation to the term loans which acknowledged that the loans were now repayable on demand.

It was at this stage that Mr Rahman employed Mr Nawaz to assist him. On 12 March 2008 Mr Nawaz wrote a long letter for Mr Rahman which made a number of complaints that HSBC had reneged on a number of verbal commitments. It is clear from the letter that Mr Rahman did not accept that there were breaches of the facility letters and refused to sign the letters of variation.

On 21 April 2008, Mr Nawaz wrote another letter for Mr Rahman dealing with the problems that had arisen. Towards the end of the letter Mr Rahman proposes a three point solution to the situation. The first point reads:

Mr Kosmirak replied to this suggestion in a letter dated 8 May 2008:

Earlier in the letter he had made the point that for commercial loans full amortisation over a maximum period of 15 years is required.

Mr Rahman responded to Mr Kosmirak’s letter of 8 May 2008 on 27 May 2008 in a letter written on his behalf by Mr Nawaz. Point 14 of the letter is relevant:

It is common ground that there was a meeting on 30 May 2008 to discuss the way forward. It was attended by Mr Rahman, Mr Nawaz and Mr Kosmirak. According to Mr Rahman the meeting lasted about an hour. It is also common ground that during the course of the meeting Mr Rahman asserted that all of the loans were on 15 year interest only terms.

There is a difference in recollection as to Mr Kosmirak’s response. According to Mr Rahman Mr Kosmirak agreed that barring one loan that had slipped through the net all the other loans were on 15 year interest only terms. Mr Rahman asked Mr Kosmirak to convert the loan that had slipped the net. Mr Kosmirak agreed.

Mr Nawaz agreed that Mr Kosmirak confirmed that all of the loans bar one were on 15 year interest only terms. However he accepted in cross-examination that Mr Kosmirak did not agree to convert the outstanding loan to 15 year interest only terms.

According to Mr Kosmirak the meeting took between one and two hours. The purpose of the meeting was to structure the way forward. He recalled that Mr Rahman did state that all the loans were on 15 year interest only terms. His response was to the effect that he considered that all the loans were now “on demand” (as a result of the breaches). In any event he did not have the papers to hand and thus could not confirm the statement. He understood the majority of the loans to have been on 15 year interest only terms but he could recall at least one loan of a shorter duration. He did not identify the “shorter” loan.

On 31 May 2008, Mr Rahman wrote a 3 page letter to confirm the gist of the discussions the previous day. In paragraph 1 of the letter Mr Rahman set out three items that he wanted to see dealt with. Paragraph 1.1 states:

Mr Kosmirak did not reply to the letter in detail until 7 July 2008. The relevant part of his letter reads:

In a number of further letters in 2009 and 2010 Mr Rahman repeated the assertion that the loans were 15 year interest only. It is not necessary to refer to these letters in detail because they do not, in my view, advance the issue other than to show that Mr Rahman has been consistent in his allegation since 2008.

Submissions and discussion on main issue

Mr Elleray QC invites me to accept Mr Rahman’s evidence. He submits that Mr Rahman entered the meeting of 28 June 2006 in a strong negotiating position. Mr Rahman was a valuable customer of the bank with one of the largest portfolios of the SABU branch. The relationship was “at a cross-roads”. There were a number of issues between Mr Rahman and HSBC and there was a real risk that the whole portfolio would be lost to one of a number of rival banks who were courting him and offering interest only terms. There were precedents for issuing “side letters” for varying the terms of facilities.

He submits that by the time of the meeting the principal matters remaining for discussion were assurances as to funding and the terms of funding for CIP loans. He relies on the position in relation to St Anne's School as instructive in determining where the truth lies. He points out that rival banks had offered funding for the development of St Anne's School, that HSBC had in front of it a valuation and a development appraisal for St Anne's School, and that HSBC had never previously failed to deliver on obtaining credit approval when agreements for funding particular purchases. In those circumstances he submits I should accept that Mr Rahman would have walked out of the meeting if he had not been promised funding for the St Anne's School development.

I accept that Mr Rahman was a valuable customer of HSBC that HSBC were anxious not to lose. I also accept that there were issues between Mr Rahman and HSBC, that Mr Rahman had been offered terms by other banks including funds for the development of St Anne's School and that accordingly the relationship was at a cross-roads.

However I have no hesitation in preferring the evidence of HSBC’s witnesses to Mr Rahman. For the reasons summarised below I find Mr Rahman to be an unreliable witness whose evidence can only be accepted where supported by other independent evidence.

In the result I find as a fact that that there was no agreement at the meeting of 28 June 2006 or any representation by Mr Vines that Mr Rahman would be offered CIP interest only loans for 15 year terms. Indeed I accept the evidence of Mr Trigg that such loans were not even discussed.

Equally I am not satisfied that Mr Kosmirak made any agreement or representation either at the meeting of 30 May 2008 or in correspondence to the effect that all of Mr Rahman’s loans were on 15 year terms.

It follows that, subject to the Consumer Credit Act point which will be considered later in this judgment, the five facilities entered into between May 2006 and August 2006 had all expired in September 2011 when the Receivers were appointed. Equally HSBC was entitled to demand repayment of the other facilities by virtue of the cross default clauses.

St Anne's School

In dealing with the main issue I have set out relevant events relating to St Anne's School up to 28 June 2006. I shall not lengthen this judgment by repeating them.

It will be recalled that although the £1.9 million facility for the acquisition of the land was theoretically repayable on demand it was in practice considered by HSBC every 12 months and was in fact considered in a CARM dated 30 January 2007.

The Backgrounds comments in the CARM include:

Mr Trigg added some comments to the CARM on 31 January 2007 which included:

When he gave evidence Mr Rahman disputed much of this. He said that it was not until January 2007 that he was told that HSBC had no appetite for funding the development. He denied that he was awaiting final costings and said he always regarded it as a viable proposition. He accepted that there was an offer for the site for £2.9 million but said that the prospective purchaser failed to come up with the money.

On 19 February 2007, Mr Rahman wrote a long letter to Mr Senior which included a comment on St Anne's School:

A further CARM dated 5 June 2007 contains the following comment:

When he gave evidence Mr Rahman said that he contemplated putting St Anne's School in the auction but withdrew it before the auction.

The pleaded allegation in relation to St Anne's School is that a binding commitment to fund the development was made at the meeting on 28 June 2006. In evidence Mr Rahman went considerably further than the pleaded case because he alleged that a commitment to fund the development had been made much earlier.

In his closing submissions Mr Elleray QC invited me to prefer the recollection of Mr Rahman. He relied on the interest of competitor banks some of which were willing to fund the development, the strong negotiating position of Mr Rahman and the details that were available to HSBC in the valuation.

I have set out in detail why I could not accept Mr Rahman’s evidence in relation to the 15 year interest only CIP loans. For very similar reasons I reject his evidence in relation to St Anne's School.

In the result I reject Mr Rahman’s claim that there was an enforceable agreement to fund the development at St Anne's School.

51 & 55 Clarendon Road

On 11 August 2006, Mr Senior wrote to LP(GB)L offering a facility of £516,000 for the purpose of assisting with the purchase of and refurbishment of 51 Clarendon Road, Leeds. This was a 15 year interest only RIP loan. In order to accept the offer a copy of the letter had to be signed and returned to arrive no later than 28 days from the 11 August 2006.

The General Conditions of the Offer included (in clause 17) a renegotiation clause and in condition 1 a provision that:

The CARM in respect of the loan describes the purpose of the loan:

On 17 November 2006 Mr Rahman sent an urgent fax to Mr Senior which included:

A CARM dated 5 January 2007 summarised the position and on 17 January 2007 Mr Senior wrote to LP(GB)L offering a facility of £500,000 for the purpose of assisting with the purchase of and refurbishment of 55 Clarendon Road, Leeds. This was a 15 year interest only RIP loan. In order to accept the offer a copy of the letter had to be signed and returned to arrive no later than 28 days from the 11 August 2006.

The General Conditions contained a renegotiation clause and a clause requiring drawdown within 1 month of the Acceptance Date.

Neither offer was accepted within the 28 day period specified in the facility letters.

On 16 May 2007 Mr Rahman sent a fax to Mr Trigg and Mr Senior which referred to a meeting on 3 May 2007 where according to Mr Rahman:

On 12 June 2007 Mr Senior wrote to Mr Rahman enclosing new facility letters in respect of 51 and 55 Clarendon Road in the reduced sums referred to in Mr Rahman’s letter. He explained that the reason for the reduced facility was due to the affordability of the loans following the rise in interest rates since August 2007.

When he gave evidence Mr Rahman accused HSBC of breach of contract by putting renegotiation clauses into the original facility letters. He agreed however that he never accepted the revised offers because no money was provided for the development.

The final reference to these two properties is contained in a letter from Mr Kosmirak to Mr Rahman on 11 January 2008 following a meeting earlier in the week. The letter covers a number of points and only mentions the two properties in passing:

In evidence Mr Rahman said that the decision to sell arose because Mr Kosmirak was putting pressure on him to sell. He had a number of sites that needed development funds and Mr Kosmirak said he could only have development funds for one site. He chose 40/41 Park Square and thus had to sell the Clarendon Road properties.

It is Mr Rahman’s case that the inclusion of the renegotiation clause was a breach of the underlying agreement to fund the development of these properties. I cannot accept this argument. As Mr Wilson points out there simply was no “underlying agreement” to fund the development. There were offers made in August 2006 and January 2007 but these offers were never accepted. There is no evidence of any other agreement.

In any event I do not accept that the renegotiation clause played any part in Mr Rahman’s decision not to accept the offers before the Acceptance Date. If that had been the sticking point I have no doubt he would have raised it with either Mr Senior or Mr Trigg. In fact there is no mention of any concern about the renegotiation clause in any of the contemporaneous documents.

Accordingly I reject the claim in relation to 51 and 55 Clarendon Road.

40/41 Park Square

In section 6.2 I set out the circumstances surrounding the three facility letters which were issued between 17 January 2007 and 27 February 2007. It will be recalled that Mr Rahman objected to the terms in the first two facility letters but that Mr and Mrs Rahman signed and returned the third letter on 28 February 2007. The facility offered to Mr and Mrs Rahman was in the sum of £1,650,000 in respect of the purchase and refurbishment of 40/41 Park Square. The purchase price of 40/41 Park Square was £1,350,000. £300,000 was allowed in respect of the refurbishment costs.

Condition 1 of the General Conditions required the Loan to be drawn down in one amount no later than 3 months from the Acceptance Date and provided that if the loan were not drawn down during the Drawdown Period the letter would no longer be effective.

On 31 January 2007 HSBC permitted drawdown of £135,000 in respect of the deposit. The purchase of 40/41 Park Square completed on 1 March 2007. The Completion Statement shows that the total purchase price inclusive of costs amounted to £1,406,386 but that the amount due on completion after taking into account the deposit and some £210 provided by Mr Rahman was £1,271,175.25.

In fact pursuant to a request from Mr Rahman’s solicitors HSBC paid £1,406,151 on 1 March 2007 with the result that there was a surplus in respect of the acquisition costs.

On 18 April 2007 Mr Senior wrote to Mr Rahman’s solicitor pointing out that there had been an overpayment and requested its return “at your earliest convenience”.

On 24 April 2007 Mr Rahman’s solicitor replied by fax:

There is some confusion as to what happened to the cheque for £134,975.75. In evidence Mr Rahman appeared to accept that it was paid into his account with HSBC. However in his closing submissions Mr Elleray QC made the point that it did not appear in the Bank statements. Subsequent to the hearing Mr Rahman has disclosed additional documents which appear to show that the £134,975.75 was paid into an account with NatWest (03519287) held in the name of Mr Rahman. Included within the documents are paying in slips referring expressly to 40/41 Park Square.

I also received additional submissions from Mr Evans of DLA Piper suggesting a somewhat different scenario. However it seems to me more likely that Mr Elleray QC is correct and that the moneys were indeed paid into the account at NatWest.

In any event on 2 May 2007 Mr Senior without consulting Mr Rahman effected a transfer of £134,104.73 from Mr Rahman’s current account with HSBC to the loan account thereby reducing the outstanding balance on the loan account to £1,407,046.

There is no documentary evidence of any objection by Mr Rahman to this transfer. Equally there is no documentary evidence of any request by Mr Rahman or anyone on his behalf for further funds for the redevelopment of 40/41 Park Square until September 2007.

In evidence Mr Rahman said he did object to Mr Senior and did make request for funds. Mr Senior refuted this.

In any event on 24 September 2007 Mr Kosmirak sent a letter summarising outstanding issues. The summary included:

On 9 October 2007, Mr Rahman commented that £300k credit was being held back since February 2007 inhibiting work in progress.

It is accepted by Mr Wilson that Mr Kosmirak could not vary the terms of the existing facility but he contends that as there was no drawdown of the remaining funds within 3 months that part of the facility had lapsed. Mr Elleray QC on the other hand invites me to hold that the requirement to draw down within 3 months is inconsistent with a facility for refurbishment repayable over 15 (or even 5) years .

I prefer the arguments of Mr Wilson. I see no inconsistency with a requirement to draw down over 3 months and repayment over 15 years. It has to be born in mind that under the terms of the facility HSBC were not bound to monitor what the payments were in fact spent on. I prefer the evidence of Mr Senior to that of Mr Rahman for reasons already given and am not accordingly satisfied that there was any request for funds in the 3 month period or that there was any objection to the transfer.

At one stage I was concerned about the transfer of £134,104.73 made on 2May 2007. However having considered the arguments in Mr Wilson’s closing submissions I am satisfied he is correct that there is no pleaded case in respect of breach of mandate by Mr Senior. In those circumstances I do not have to consider the possible defences to such a claim set out in paragraphs 47.3.1 and 47.3.2 of his closing submissions.

CAL Properties

CAL is a BVI registered company with the directors and shareholders being HSBC Private Bank (Suisse) SA, Geneva. No trust documents have been provided but according to a CARM dated 5 January 2007 the shares are held in trust for “the Rahman family”. Mr Elleray QC however suggested that they were held in trust for the Parents.

In any event in January 2007 the Parents owned four residential properties subject to HSBC facilities – 3, 5, 6 and 8 Claremont View – and one unencumbered residential property – 5 Holt Avenue. There was a proposal by Mr Rahman for a 15 year interest only RIP loan of £750,000 to CAL to enable CAL to acquire the five properties from the Parents. According to the CARM the funds raised were to be used in part (£400,000) to repay existing facilities and the balance used to repay Mr Rahman in respect of development costs on the house he was constructing. In the long term CAL was to be used to hold further Rahman properties so as to provide an income in an offshore environment.

On 17 January 2007 Mr Senior sent a facility letter to the directors of CAL offering the £750,000 facility. It was a term of the offer that it was open for acceptance for 28 days and thus expired on or about 15 February 2007.

On 19 January 2007 Mr Rahman sent a fax acknowledging receipt of the facility letter and making a number of comments on its terms. It was never accepted.

Mr Rahman’s plans changed. By June 2007 he had decided that 5 Holt Avenue would be funded by LP(GB)L. Thus in June 2007 there is a CARM in respect of a £600,000 interest only 15 year RIP loan in respect of the four Claremont View properties. The application was approved on 11 June 2007.

Accordingly on 13 June 2007, Mr Senior sent a facility letter to the directors of CAL offering the £600,000 facility. It was a term of the offer that it was open for acceptance for 56 days and thus expired on or about 10 August 2007. The General Terms and Conditions included a number of conditions which Mr Rahman has crossed out. These include an early termination clause and a renegotiation clause.

On 26 September 2007 the Board of CAL resolved to accept and authorise the facility letter. On the same day two signatories on behalf of CAL signed the facility letter agreeing to all of its terms.

On 16 October 2007 Mr Kosmirak sent the Directors of CAL a further facility letter in respect of the £600,000 facility. It, too, had to be accepted within 56 days and contained clauses similar to those in the 13 June 2007 letter. This facility was never accepted by CAL.

In a letter dated 9 January 2009 from Mr Rahman to Mr Swift, Mr Rahman made it clear that there were a number of items in the draft agreement with which he did not agree. He then identified some 9 terms which required amendment. When he gave evidence Mr Rahman accepted that he never agreed the terms of the facility letter.

The proceedings in relation to the CAL properties are brought in the name of the Parents. CAL is not a party to them. Mr Elleray QC alleges that CAL is a nominee company for the parents and relies on an internal file note written by Mr Menaghan on 22 September 2005:

“I understand from Shafik that you have been dealing with his parents’ affairs, with a view to transferring their property assets and related lending to a new nominee company – Cransbill Assets Ltd.”

I have not seen the Trust Deed. The file note is not consistent with the CARM of January 2007 referred to above. I do not accordingly accept that CAL is a nominee company of the Parents.

In any event I do not accept that the Parents have any cause of action against HSBC in relation to the CAL properties:

Accordingly I reject the Parents’ claims in respect of the CAL properties.

2 Blenheim Terrace

In a file note dated 29 June 2007, Mr Senior noted that Mr Rahman told the Bank that the property was for sale at £420,000 and that he was in discussions with the owner.

On 15 August 2007, Mr Rahman sent a fax to Mr Herron stating he was committed to purchase the property and asked if HSBC would be willing to fund the purchase.

Gary Herron replied on 16 August 2007. The reply included:

“To make 2 Blenheim self supporting you would ideally need to inject £145k which would make interest cover 130%. I have discussed this internally and, if you are able to find £100k stake, whilst this would leave interest cover low, we could look to assist you.”

On 3 September 2007, Mr Rahman informed the Bank that he had offered to purchase 2 Blenheim Terrace for £430,000 and that Mr and Mrs Rahman would be selling 75 Otley Road for £435,000.

There was then an exchange of emails on the same day between Mr Swift and Mr Kosmirak. Mike Swift sent an email to Mr Kosmirak stating :

“customer wishes to acquire 2 Blenheim Terrace and sell 75 Otley Road – impact is that same debt level, same security value but increased rental. Therefore sounds worth doing – …”

Mr Kosmirak’s reply was more cautious:

“Not quite that simple. I will explain tomorrow... It resolves around what is included re rental income and the resultant %’s. From memory they are 108% interest cover in reality – not ideal.”

On 24 September 2007 Mr Kosmirak wrote to Mr Rahman setting the issues on the various properties and projects. The letter included an Indicative Term Sheet which was expressly subject to HSBC credit approval.

On 11 October 2007 Mr Kosmirak wrote to Mr Rahman a letter which included:

“...the one recommendation I cannot make to my Credit surrounds the finance of 2 Blenheim Terrace as you have indicated. In this regard I will need a minimum of £100,000 contribution from yourself in addition to your agreement to the sale of Otley Road by the end of April 2008. This is what we discussed at our short meeting on Friday.

Mr Rahman replied on 24 October 2007 :

“So far as 2 Blenheim Terrace is concerned I am prepared to pay back the £100,000 from the VAT refund from Owlett Hall Farm if that is acceptable to HSBC [to] support the purchase of 2 Blenheim Terrace. This will be in addition to the sale of 75 Otley Road for £435,000.”

He then wrote again on 31 October 2007:

“So far as 2 Blenheim Terrace it was agreed that I would be paying £100,000 towards the purchase of this property. Please instruct Weatherall to send you the valuation. I will pay £100,000 to [his conveyancing solicitors] with the balance of the purchase price coming from HSBC if that is acceptable to you.”

There was a meeting between Mr Rahman, Mr Swift and Mr Kosmirak on 19 November 2007 to progress ongoing discussions across the relationship.

On 11 January 2008 Mr Kosmirak wrote to Mr Rahman indicating that HSBC could not assist with the purchase.

“I have already sent a fax concerning the purchase of 2 Blenheim Terrace but for the avoidance of doubt, I regret that the bank is unable to assist with this at the present time. Mike Swift and I did mention to you when we all met prior to Christmas, that we were unable to agree any new monies for new property purchases. In addition my earlier letters to you with regards to this were on an indicative basis only and subject to formal credit approval.”

Mr Kosmirak wrote again on 16 January 2008:

Mr Rahman was able to complete the purchase of 2 Blenheim Terrace with assistance from Lloyds TSB, as he confirmed on 23 January 2008:

Mr Rahman complained about the failure to provide funding in the letter of 12 March 2008 which it will be recalled was typed by Mr Nawaz:

In my view the contemporaneous documentation lends no support to the suggestion that there was a concluded agreement to fund the acquisition of 2 Blenheim Terrace. The high water mark would appear to be contained in the letter of 24 September 2007 but the offer in that letter was expressly only indicative and subject to credit approval. There is no CARM in relation to the acquisition and no facility letter.

There are a number of inaccuracies in the letter of 12 March 2008. The commitment to purchase 2 Blenheim Terrace was made by 15 August 2007 yet Mr Swift only became involved in September when the relationship was finally transferred to Corporate. When he gave evidence Mr Rahman confirmed that he did not in fact inject the £100k. He said he spent £25,000 in obtaining planning approval for 40/41 Park Square, £25,000 for the air conditioning at 16 Blenheim Terrace and £50,000 on the top floor of 1/3 The Headrow.

It is Mr Rahman’s case that Mr Swift did indeed agree to fund the acquisition of 2 Blenheim Terrace. When he gave evidence Mr Swift denied this. He made the point that in September 2007 there was the concept of the swap which seemed logical to him but there was never a concluded agreement and in any event he did not have the authority to agree a swap without credit approval.

I have already found that Mr Rahman is an unreliable witness. There is no corroboration for his evidence. It is inconsistent with the documents I have set out above. It is, to my mind, improbable that Mr Swift would have agreed a swap. If there had been an agreement I would have expected it to have been contained in some document such as a CARM or a facility letter. I would also expect Mr Rahman to have mentioned it in his letter of 24 October 2007. I prefer the evidence of Mr Swift to that of Mr Rahman.

I accordingly reject the claim in respect of 2 Blenheim Terrace.

Proceeds of Sale Agreement

It is common ground that a number of properties were sold in 2008 and that this was consensual. The properties were: 51-57 Clarendon Road; 1 Kelso Road; the St Anne’s school site; 75 Otley Road; 1A Brandon Road; 3 Grimethorpe Place; and 16 Consort Terrace. The issue is whether there was an agreement between Mr Rahman and Mr Kosmirak as to how the proceeds of sale of (1) St Anne’s (2) 51 and 53 Clarendon Road and (3) 16 Consort Terrace were to be applied on sale between April and September 2008.

51 and 53 Clarendon Road were sold in April 2008:

St Anne's School site was sold in July 2008 and HSBC received net proceeds of £1,273,785.62. It applied

£63,689 to the overdraft on the current account;

£1,210,096 to the £1.9m facility that had been provided to LPL leaving an outstanding balance of £741,404 on that account.

Mr Rahman alleges that an agreement was made between him and Mr Kosmirak on 29 February 2008. It is set out in paragraph 68 of his witness statement:

Mr Kosmirak accepts that there were discussions as to the sale of properties and the application of the proceeds of sale but denies that there was any concluded agreement.

On 15 January 2008 Mr Rahman sent a fax to Mr Kosmirak about the proposed sales:

Mr Kosmirak replied the following day:

It will be recalled that Mr Kosmirak wrote letters to Mr and Mrs Rahman on 6March 2008 setting out HSBC's concerns and proposing a variation in the terms which were not acceptable to Mr and Mrs Rahman. The letter makes a general reference to “meetings in January and February 2008” but makes no specific reference to a meeting on 29 February 2008. When he gave evidence Mr Kosmirak had no recollection of a meeting on 29 February 2008 or of making the agreement alleged by Mr Rahman.

The letter of 6 March 2008 makes the following references to the sale proceeds:

When he gave evidence Mr Kosmirak said that at that time he thought that St Anne's School would sell at a profit so that it was only the surplus funds that would be used to reduce other facilities. In his closing submissions Mr Elleray QC invited me to reject this evidence in the light of a CARM dated 6 December 2007. That document also refers to the transfer of £500,000 after the sale of St Anne's School. Under the heading “Risk” appears:

Whilst I see the force of this point, I am not able to accept Mr Rahman’s evidence that there was an enforceable agreement in relation to the proceeds of sale. The letter of 16 January is too vague to give rise to such an agreement. At best it is an agreement to agree. More likely it is a statement of intent. I have already expressed my view of Mr Rahman’s reliability as a witness. The burden of proof on this issue is on Mr Rahman. In my view he has not discharged it.

It is, incidentally, difficult to see what overall loss could have arisen as a result of the agreement. All of the loans were at the same rate of interest. The cross default clause in the facility letters renders them all liable to be repaid once there is a breach of any loan to a particular cost centre.

The Consumer Credit Act

Mr Rahman’s final contention is that the relationship between the Claimants and the Bank was unfair within section 140A of the Consumer Credit Act 1974.

The concept and test of unfair relationships was introduced by sections 19-22 of the Consumer Credit Act 2006. Under ss. 140A of the 1974 Act, as amended by those sections:

Under section 140B the Court is given wide powers in relation to the orders it can make under the section including (under 140B(1)(b))

The provision only applies to individual debtors, so is of no assistance to LPL or LP(GB)L. However if the debtor alleges that a relationship is unfair it is for the creditor to prove it is not unfair.

In section 15 of his opening submissions, Mr Elleray QC took 3 points in relation to unfairness:

I have considerable doubt as to whether the failure to provide other funding can be said to arise out of the agreement so as to fall within section 140A of the Act. However in the light of my finding that there are no breaches of agreements to provide other funding the third point does not arise. It is therefore only necessary to deal with the first two points.

Before dealing with them it is necessary to set out the facts relating to enforcement.

The Rahman relationship was first referred to LMU by Chris Kosmirak on around 10 June 2010 and assigned to Mr Barreau. The principal reason why this relationship was referred to LMU was that communications between HSBC and Mr Rahman appeared to have broken down.Mr Rahman was refusing to meet anyone at HSBC, and had intimated a number of complaints and claims for alleged losses.

In July 2010 Mr Bowser, a Senior Manager based in Leeds offered to act as an informal mediator between Mr Rahman and the Bank. After an initial meeting between Mr Bowser and Mr Rahman on 4 November 2010, HSBC’s approach was noted in Mr Till's comments of 24 November 2010 in a CARM application, where he stated:

Mr Barreau, Mr Bowser, and Mr Till met Mr Rahman and his accountant, Mr Nawaz at a meeting in Leeds on 28 February 2011. The meeting was not a success. According to Mr Barreau, Mr Rahman made it clear that he was not going to compromise and simply restated many of the points he had made in his correspondence.

Following the meeting, on 2 March 2011 Mr Till sent a letter to Mr Rahman. The letter noted that Mr Rahman was not interested in restructuring the facilities whilst his claim for alleged losses had not been dealt with. Mr Till noted that Mr Barreau had said that he could not find any evidence to support Mr Rahman's allegations on HSBC's files but that Mr Nawaz had said that such documents did exist.

On 9 May 2011 Mr Barreau wrote to the Trustees to remind them about the prospective expiry, on 31 May 2011, of the loan drawn on 31 May 2006 in respect of 25 Park Square. He invited their proposals for repayment.

Mr Rahman replied on 31 May 2011. It included

Mr Barreau replied on 2 June 2011

On 5 June 2011, Mr Rahman reasserted his claim in respect of the term of loans. On 14 June 2011, Mr Barreau confirmed the expiry dates of the relevant facilities to Mr Rahman and to the Trustees, further noting that HSBC had spoken to Mark Vines who did not agree with Mr Rahman’s assertions.

On 5 August 2011, Mr Barreau sent a number of separate letters to the Trustees, and Mr and Mrs Rahman which:

Mr Rahman replied in letters sent on 7, 8 and 9 August 2011.He made no proposals in respect of repayment or the extension of the expired facilities.

On 19 August 2011, Mr Barreau sent further short letters to the Trustees, Mr and Mrs Rahman requiring proposals on repayment or extensions by 26 August 2011 and reserving the right to appoint LPA Receivers

On 19 August 2011, Mrs Rahman sent a letter to HSBC stating that Mr Rahman was on holiday until the week commencing 5 September 2011 and that he would reply to Mr Barreau's letter on his return. Mr Barreau replied on 25 August pointing out that proposals were required by 26 August 2011 and that Mr Rahman being on holiday did not have any effect on HSBC's position.

On 30 August 2011, Mr Rahman’s solicitors faxed a letter to HSBC. The solicitors requested until 19 September 2011 to respond to the letters of 5 and 25 August 2011. The letter noted that the fee earner was on leave until 1 September 2011 due to the Eid holiday. Counsel had been instructed on behalf of Mr Rahman.

On the same day HSBC issued demands to the Trustees and to Mr and Mrs Rahman in respect of the 5 year interest only facilities that had expired. These were delivered on 31 August 2011.

On 31August 2011, HSBC sent letters in respect of the remaining facilities under the cross-default provisions.

On 1 September 2011, HSBC appointed the Receivers.

I was referred to two authorities on section 140A – D – Paragon v McEwan Peters [2011] EWHC 2491 (Comm) and Harrison v Black Horse [2011] EWCA Civ 1128.

The facts in Paragon bear some similarity to the present case in that the creditor Paragon had lent over £6 million on properties which were to be let on residential mortgages. In paragraph 54 and 55 of the judgment David Steel J rejected a claim that the creditor’s enforcement of its rights was unfair. He gave a number of reasons including:

The overall business was in terminal trouble. On a falling market disposals of properties were being used to fund outgoings. In those circumstances the demand could not remotely be categorised as “unfair”.

Harrison was a very different case. The issue was whether non-disclosure of commission on the sale of a PPI product rendered the relationship between lender and borrower unfair.

In paragraph 58 of the judgment Tomlinson LJ rejected the argument. It is plain that he regarded the commission as being “quite startling” and that there would be many who would regard it as unacceptable conduct on the part of the lending institution. Yet he rejected the claim. He did not think that the size of the undisclosed commission rendered the relationship unfair. In addition he made the point that the regulatory authority did not after consultation require disclosure of the commission. In those circumstances it would be odd if there was a finding of unfairness under section 140A of the Act.

This was commercial lending involving very substantial sums of money. There is no suggestion that Mr Rahman had the weaker bargaining position. He was quite willing to take his business elsewhere and threatened to do so on a number of occasions. Indeed much of his case was predicated on the submission that he was in a strong bargaining position.

At no stage did he complain about the terms that are now suggested to be unfair whereas he did complain about a number of other terms. As Mr Wilson pointed out he plainly read the terms and conditions with some care.

In the light of my findings none of the terms were inconsistent with what was discussed at the meeting of 28 June 2006. I agree with David Steel J that the repayment of overdraft facilities on demand cannot remotely be considered to be unfair. It is commonplace in the industry and in the nature of an overdraft. The 5 year facility was not repayable on demand. It was repayable after 5 years. There is nothing unfair about that. A term entitling a mortgagee to appoint an LPA receiver on breach is also standard in the industry and cannot in my view be regarded as unfair.

Equally I do not regard the cross default clause as being unfair. It is not clear whether such a clause is standard but at least one of the other banks offering terms to Mr Rahman would have included such a clause. It has to be remembered that there were multiple facilities offered to various costs centres all of which were supported by multiple securities. In such a case there are sound commercial reasons for the cross default clause. Suppose property A is security for a 15 year term and a 5 year term. At the end of the 5 year term no repayment is made and Property A is sold realising more than enough to satisfy the sums due under the 5 year term. In the absence of a cross default clause there is, to put it no higher, doubt as to whether the mortgagee can retain the surplus as security for sums due in respect of the 15 year term. No such problems arise if there is a cross default clause.

To my mind it is not unfair that a cost centre should be able to maintain its 15 year interest only RIP loans for the full 15 years only so long as it honours the terms of its 5 year interest only CIP loans and repays them when they fall due.

I have set out the history of enforcement in some detail so as to demonstrate that this is not a case where HSBC have arbitrarily decided to serve a demand for immediate repayment and then appointed Receivers. On the contrary through Mr Barreau HSBC have since February 2011 adopted a patient attitude and have tried to find a solution to the dispute.

Mr Barreau attended a meeting in February in the hope of reaching some form of accommodation. Mr Barreau wrote a number of letters between May 2011 and August 2011 pointing out the expiry of the 5 year terms, inviting proposals for repayment, and inviting Mr Rahman to provide documentary evidence of his allegations.

Mr Rahman steadfastly refused to address the issues raised in Mr Barreau’s letters. Instead he has repeatedly advanced what I have held to be totally unfounded claims against HSBC. He did not produce a single contemporaneous document to support his allegations. He refused to advance any proposals despite being given ample opportunity to do so between May and the end of August 2011.

In my view HSBC’s decision to enforce its securities at the end of August cannot remotely be described as unfair. It is true that Mr Rahman always paid the interest due under the facility letters. However I agree with Mr Wilson that this does not assist him. The obligation on the Trustees, and Mr and Mrs Rahman was to repay the capital after 5 years. If they could avoid enforcement by simply paying the interest after this time they would be able to convert a 5 year term to a term of indefinite length.

I also agree with Mr Wilson that when the whole of the correspondence is looked at it was not unfair of HSBC to refuse to accede to the requests in Mrs Rahman’s letter of 19 August 2011 and the solicitors’ letter of 30 August 2011. In my view Mr Rahman had been given more than sufficient time to make proposals since May 2011 and had declined to do so. He could and should have consulted lawyers long before the end of August 2011. Although Eid fell on 31 August 2011, Mrs Rahman did not mention this in her letter of 19 August 2011. The only reference to Eid was in respect of the fee earner of the solicitors instructed by Mr Rahman.

In all the circumstances I reject the application for an order under section 140A of the Act.

Conclusion

In the result I conclude: