Habibsons Bank Ltd v Standard Chartered Bank (Hong Kong) Ltd

The claimant applies for permission to amend its claim in the form of Re-drafted Amended Particulars of Claim supplied to the defendant’s solicitors on 17^th March 2010. There is a considerable history in these proceedings which commenced on 4^th February 2009 in the Chancery Division before transfer to the Commercial Court. On 30^th April 2009 the defendant issued an application to strike out the claim or alternatively for summary judgment in respect of it, on the basis that it disclosed no recognised cause of action and had no real prospect of success. The hearing of the application was listed for 30^th July 2009.

On 22^nd July 2009 the claimant served on the defendant an application notice seeking permission to amend its Particulars of Claim in the form of an exhibited draft which included all of the matters in the original Particulars as well as a large number of completely new allegations. The fixed hearing went off because of illness of counsel and was re-fixed for 20^th August 2009. In the interim the defendant filed a skeleton argument addressing the new allegations made in the draft Amended Particulars of Claim.

At the hearing on 20^th August 2009 before Teare J, there was only time to dispose of the claimant’s application to strike out the existing claim form and Particulars of Claim, and not to deal with the draft amendments. In a judgment delivered on 20^th August 2009, Teare J dismissed the claim and ordered the claimant to pay the defendant’s costs of the application on th3 indemnity basis. Paragraph 3 of the order provided that the order for dismissal should not be carried into effect “pending the determination of the claimant’s application of 20^th July 2009 for permission to amend the Particulars of Claim in the form of the draft attached hereto, or further order”.

The defendant heard nothing from the claimant until December 2009 and then on 15^th December 2009 the matter was listed to be heard on 26^th March 2010.

Sometime after 1630 hours on 17^th March 2010, the claimant served the Re-drafted Amended Particulars of Claim, for which it now seeks permission to amend (the Revised draft). This completely replaced the previous draft Amendment. In correspondence it made clear that it was withdrawing its application to amend in the form of 22^nd July draft. It follows that the defendant is entitled to the costs of dealing with the application to amend in the form of 22^nd July draft and I so order.

The defendant submits that the revised application in respect of the Revised draft should not be permitted because the claim stood dismissed by Teare J and that part of the order dismissing the case was only not carried into effect pending the determination of the claimant’s application of 22^nd July 2009 for permission to amend the Particulars of Claim in the form of the draft attached thereto, an application which has now been abandoned. I ruled against the defendant on the basis that the last words of the order, namely the words “or further order”, gave this court liberty to deal with a further version put forward by the claimant and that justice required that I should consider the claim as now framed, particularly since, if the action was dismissed, the defendant had made it plain that it would wish to argue, in any new action, that the rule in Henderson v Henderson applied to estop the claimant from making any claim against the defendant at all in relation to this dispute.

It remains however part of the defendant’s submission that various points now being raised by the claimant have already been determined by Teare J and that it is therefore not open to the claimant to run them once again. Without deciding any point on issue estoppel, I decided to look at the substance of the matter in the new draft pleading.

The underlying facts are set out conveniently in paragraphs 2-17 of the judgment of Teare J and those paragraphs can be taken as read for the purpose of this judgment.

It is clear that on those facts and for the reasons set out by Teare J, the position is that, whatever occurred beforehand, on 6^th October 2008 both parties signed a LMA Trade Confirmation and Transfer Certificate which for historic reasons was dated 29^th September 2008, referred to a Trade Date of 24^th September 2008 but in accordance with LMA practice provided for a settlement date 10 days after 6^th October, namely 16^th October 2008 which was therefore the date at which the purchase price fell to be determined. It was also the transfer date set out in the transfer certificate.

In accordance with clause 2 of the LMA terms, a binding contract was concluded, at the latest, by that point. This is of importance in the context of the application which the claimant now makes. It is also important to note that the claimant makes no allegation of fraud against the defendant. It does not allege that the defendant knew prior to 7^th October 2008 that an Emergency Order had been made by the District Court of Amsterdam under the Dutch Financial Supervision Act at 2210 hours on 6^th October, on an application made that day by DNB N.V. There is evidence from Ms Leung Yee Chun, the head of the defendant’s Hong Kong Group Special Assets Management, that the defendant had no knowledge of the impending special regulatory emergency regime (akin to administration) prior to the service upon it of the court order on 7^th October 2008. Ms Chun also states that there had not been any event of default under the syndicated loan agreement prior to 6^th October 2008 and that there was no sum outstanding and unpaid by the borrower under the loan at that time. It was not until 16^th October that an Acceleration Notice was served on the borrower by the agent on behalf of the lenders and prior to that time the lenders had not taken the decision to accelerate the loan or enforce their rights in respect of it.

Although the defendant identified eight contentions in the revised draft Amended Particulars upon which the claimant sought to avoid the transaction, in truth there were only 2 which were really the subject of any argument. I deal summarily with the others:-

These points have no relevance because the claimant entered into a binding contract on 6^th October 2008 by executing and returning the LMA Trade Confirmation. From that moment, whatever happened earlier, there was a binding and effective agreement between the parties in respect of the assignment of the tranche of the syndicated loan. Moreover, since that Trade Confirmation document referred to the trade date as 24^th September, being the date of the original conversation, the claimant thereby agreed that this was the case.

The claimant’s fourth contention in the revised draft was that the revised LMA Confirmation and Transfer Certificate signed by both parties on 6^th October 2008 failed correctly to record the terms of the trade or to comply with the LMA conditions by recording the trade date of 24^th September 2008, by bearing the date 29^th September though the document was not created until 6^th October and by recording a settlement date and transfer date of 16^th October 2008 when no such date had actually been agreed orally (paragraph 70 of the re-draft). Once again this point is met by the simple fact that the claimant executed and returned the documents, therefore accepting the terms of the document or waiving any errors in them. I am in entire agreement with Teare J in his findings in relation to this contract in paragraphs 27, 33, 38, 40, 41, 44 and 48 of his judgment.

Leaving aside the fifth contention for the moment, I move on to the sixth contention which was that, after learning of the Emergency order, the defendant sought the agreement of the claimant to alter the transfer date from 16^th October to 10^th October and in doing so failed to represent the true position between the borrower and the lenders, omitted crucial information as to the borrowers insolvency and failed to state that the trade was now a trade of distressed debt, rather than a par trade and also misrepresented the parties’ positions and the reasons for seeking to advance the completion date for the transaction.

This plea is of no consequence since the parties had already entered into a contract and no agreement to vary the transfer date resulted. There was no misrepresentation inducing a contract and in any event the terms of clause 17.1, 17.2, 17.3 and 17.5 of the LMA terms mean that no such claim could succeed, even if any misrepresentation or failure to supply information is established. Moreover there is no allegation in the revised Particulars nor any evidence to the effect that the defendant or the Agent knew of the borrower’s parlous financial state before 6^th October 2008 or knew on 8^th October anything beyond the terms of the Amsterdam court order, whilst the evidence shows that the claimant was likewise aware of the order at that date in any event.

It is not alleged that the borrower had informed the agent or the defendant of its financial state, even if it was obliged to do so under the terms of the syndicated loan agreement. Paragraph 40 of the Revised draft proceeds on the basis of an alleged Event of Default before 6^th October 2008 and a breach by the borrower in not informing the agent or the lenders. This is also to be seen in the light of Ms Chun’s statement, as set out above. This plea therefore cannot succeed.

Leaving aside the seventh contention for the moment, I move onto the eighth point which is that the claimant set out its objections to the Trade Confirmation on 8^th October (notwithstanding its signature and agreement to its terms) and then gave instructions to the agent not to sign the Transfer Certificate without its written authorisation. The agent responded the following day, 10^th October and confirmed that it would not proceed with the transaction unless authorised by the claimant (see paragraphs 59, 60 and 75 of the Revised Statement of Case).

It is said that the agent did not have authority to sign the transfer as Agent under the Facility Agreement. This point was covered by Teare J in paragraphs 50-52 of his judgment but in reality it does not help the claimant against the defendant in any event. The agent was not acting as agent for the defendant in giving such an undertaking or in fact in signing the Transfer Certificate as it subsequently did. Under the terms of clause 26.5(a) of the Facility Agreement, the agent was, subject only to sub-clause (b), “as soon as reasonably practicable after receipt by it of a duly completed Transfer Certificate appearing on its face to comply with the terms of the agreement” and delivered in accordance with it, to execute that Transfer Certificate. Sub-clause (b) stated that the agent was only obliged to execute it when satisfied that it had complied with its “know your customer” duties in relation to the transfer to the new lender.

The agent may have been acting in a ‘ministerial’ capacity in its own right and not as agent for anyone – merely recording the effect of the Agreement reached on 6^th October 2008.

If the agent was acting as agent for anyone in the context of signing the transfer document which had already been signed by the claimant and the defendant as principals, it was presumably doing so on behalf of the other syndicate members so that “on the transfer date”, in accordance with clause 26.5(c)(iii), “the agent, the Mandated Lead Arrangers, the New Lender and the other Lenders shall acquire the same rights and assume the same obligations between themselves as they would have acquired and assumed had the New Lender been an Original Lender with the rights and/or obligations acquired”.

Furthermore, it is not alleged that any consideration was given to the agent for the undertaking given by it and if the contract between the claimant and defendant was binding (as it was) with a settlement date of 16^th October, a transfer had to be effected, the agent had to sign and no loss flows from the agent so doing, even if in breach of its own undertaking.

That leaves the fifth and eighth points to be determined which were the two upon which argument centred at the hearing.

At paragraph 36 and paragraph 71 of the Revised draft, it is alleged that, in consequence of the Amsterdam court order, the trade was incapable of being completed. The defendant could therefore not provide the essential consideration for the purchase price.

The basis upon which this is alleged is expressed in the following manner.

“36.

The Dutch Administration Order was (under relevant European legislation and domestic law) binding upon the parties to the Facility Agreement and [the claimant] and had the effect of:

a)

Freezing the assets of Indover; and

b)

Prohibiting any transfer by novation of any part of Indover’s liabilities under the Facility Agreement without the agreement of the Administrator appointed by the District Court on 6^th October 2008.

37.

From the date (and in consequence) of the Dutch Administration Order, [the claimant] was unable to transfer any part of the Indover loan.”

This is an extraordinary plea. When I enquired what was meant by “domestic law”, I was given different answers on different occasions. On one occasion I was told it referred to Dutch law and on another to English law. I asked what was being referred to as European legislation. The only document which was put before the court consisted of the notes at the beginning of the EC Regulation on Insolvency Proceedings 2000, which essentially deals with the issue of where insolvency proceedings should be commenced in trans-European matters.

Whilst the Amsterdam court order was exhibited to the Revised draft, there was no plea and no evidence of the provisions of any law which had the effect contended for in paragraph 26(a) and (b) of the draft amendment. If foreign law such as the law of the Netherlands is relied on, it must be pleaded. The claimant has had over a year to make its case in this respect and over 6 months since the decision of Teare J. It has failed to set out any Dutch law about the effect of the court order or to produce any expert evidence to justify the assertions made. What is the effect of a court order of this kind in the Netherlands on a company incorporated there? What provisions of Dutch law bring about that result? Foreign law is a question of fact and must be specifically pleaded. There is, as I have already mentioned, not even a reference to the law of the Netherlands in the draft amendment. The more likely construction of paragraph 36 involves treating the words “domestic law” as referring to the law of England as compared with European legislation.

The Amsterdam court order appointed administrators and authorised the administrators to transfer all or part of the rights and obligations of Indover and to liquidate all or part of its business, as translated. There is however no indication that contracts already concluded by others (the claimant and defendant) to which it had previously given its prior consent, and execution documents already signed were in any way invalidated by the order or incapable of being performed. Nor, in the year and a half since the event, have the administrators ever put in any claim or complaint about the completion of the transaction on 16^th October.

An attempt was made to support this plea by reference to an Australian case, Goodridge v Macquarie Bank Limited [2010] FCA 67 where, at paragraphs 100 through to 125, the Federal Court held that a prior agreement in a loan document to a novation between a lender and a future unknown party only took effect as an agreement to agree and was not valid in itself. The novation required the specific consent of the borrower to the substitution of an identified new lender for the old lender, because novation took place by way of extinction of previous contractual rights and liabilities and the creation of new ones in their place. In addition a number of other reasons were given, some factual and some based on principles of law. The Judge said that there was no support for the argument that a party could consent in advance to an unspecified means of novation that would subsequently be binding at the election of another party. This is not the law in this country and if it were so, a large number of syndicated loan agreements would have to be re-drafted since novations are common place, albeit done with different structures in some cases involving authority given by the borrower to the agent to consent to such a novation on its behalf. Here, there was a one year loan, the money had been advanced and the bundle of rights and obligations which were to be passed on were identical to those originally agreed. In the present case there is of course a clear mechanism set out for the process of novation in clause 26 of the Facility Agreement. The parties have expressly agreed as to what is to happen and the means by which such a novation is to be operative. The bundle of rights and obligations remain the same and the borrower can have no realistic concern as to the identity of any new lender in circumstances where the lenders have fulfilled their part of the bargain in providing the loan.

This authority does not represent the law of this country and appears on its face to be wholly uncommercial. It is a purist point which runs counter to the development of the law of contract giving effect to commercial realities. Furthermore this point has not been pleaded (as opposed to the paragraph 36 argument) so that it forms no part of the revised case, but is prayed in aid, as a point of law, in support of the need for consent of the administrators under the Amsterdam court order which, for the reasons I have already set out, is in itself a contention which has not been properly pleaded nor supported in any way by evidence.

Whilst the nature of the form of administration into which the borrower was put is not evidenced, so that it is not possible to know the status of the borrower or its administrators and what restrictions if any operate upon the borrower, or their impact upon the transaction as a matter of Dutch law, the position in English law which governs the transaction is set out in clause 22.7 of the Facility Agreement. The making of an administration order, within the meaning of that clause, constitutes an Event of Default. The effect of this is that the Majority Lenders have the right to cancel the loan, call in the loan or take other steps to enforce it. The loan is not immediately cancelled and, as appears from what I have said earlier, was not called in until 16^th October. Moreover, under the LMA conditions, clause 5.4 provides that if, between the date of the Trade Confirmation and the settlement date, an event of default or potential event of default occurs, or any event occurs which affects the ability of the borrower to perform its obligations under the loan, neither party to the sale is relieved of its obligations.

In consequence, this fifth contention fares no better than any of the others.

On 8^th October 2008, the defendant was pressing the claimant to advance the settlement and transfer date. Two reasons seem to have been advanced in the initial telephone call, the transcript of which appears in the bundle. The defendant’s representative said that, because the original documents were signed wrongly, the settlement date (12 days from 24^th September) had been delayed. Further, the borrower’s consent was not required. The claimant’s counsel was suspicious about a reference in a later call to the 2 days still to run before the 10^th and the question posed by the defendant’s representative as to whether the claimant knew “that anything big may happen today itself if we were settling on the 10^th” The claimant’s representative’s response was to say that if they were to settle on the 10^th there was a need to “fix things today”, to which the answer was “exactly, we already have everything in place” and, that there was no need for the five days consent of the borrower.

The documents show that on 8^th October the defendant sent to the agent a copy of a Transfer Certificate signed by both the claimant and the defendant where the date of 16^th December 2008 had been tippexed out and the date of 10^th October inserted instead. Whether or not the defendant knew it, the agent then sent that document to the claimant, asking the claimant to provide it with a list of authorised signatories and the signature rule book in order to verify authorisation of the execution of the document.

As is accepted, the claimant did not agree to the suggested earlier date of settlement and that document was superseded by a transfer document signed by the claimant and defendant with the original settlement date of 16^th October.

It is not alleged by the claimant that the defendant ever relied on the altered document or instructed the agents to sign it. No allegation of fraud is made. The altered document appears to have been produced in the context of seeking to obtain the claimant’s agreement to an earlier settlement date. As that date was not agreed, the effective instrument which was utilised was a Transfer Certificate with the 16^th October date on it. The altered document therefore had no practical effect whatsoever.

The exact nature of both of these documents is not known. All the exchanges between the parties were by fax so that faxed signature documents were exchanged between the claimant and the defendant and sent to the agent. Since the transfer document which was ultimately utilised was an unaltered document, it would appear to follow that the document altered by tippex must have been a photocopy which was then altered.

It is in these circumstances that the claimant relies upon the rule in Pigot’s Case (1614) 11 CoRep 26B. A series of cases was cited to me including Master v Miller 4 TR 330, Suffell v The Bank of England (1881-82) LR 9 QBD 355, Raiffeisen Zentralbank v Cross Seas Shipping [2000] 1 WLR 1135, The Bank of Scotland v Henry Butcher EWCA [2003] Civ 67 and Mercury Tax Group Case [2008] EWHC 2721 (Admin). The broad effect of these decisions is that any material alteration of a document undertaken after its execution and without the approval of all the parties to it renders it void. The precise ambit of the doctrine appears in the more recent cases and there appear to be two categories of materiality. The first is where there is an alteration which affects the very nature and character of the instrument. The second is where the alteration is “potentially prejudicial” to the obligor’s legal rights or obligations. In this latter case, in order to take advantage of the rule, “the would be avoider should be able to demonstrate that the alteration is one which, assuming the parties act in accordance with the other terms of the contract, is potentially prejudicial to his legal rights or obligations under the instruments”.

The claimant submitted that there was no need to establish fraud – the only issue was whether or not there was a deliberate material alteration. Because the altered date would affect the price, it was said to be clearly material in the present case. Moreover, although there was no evidence of movement of price and the difference was probably very small, such an alteration was “potentially prejudicial”.

This has an air of unreality about it. As the citations in the Raiffeisen case of Australian authorities make clear, with which Potter LJ agreed, “this primitive and arbitrary rule should be confined as closely as respect for the doctrine of precedent will admit”. There is a “need in modern conditions to confine the nullifying operation of the rule in Pigot’s Case to cases which fall strictly within its ambit and to interpret the rule as liberally and reasonably as possible.”

The natural inference to be drawn from the documents is that the alteration was made by taking a copy of the faxed signed Transfer Certificate and changing the date. In the absence of any allegation of fraud or reliance upon the altered document and any other reason for alteration it appears that it was produced to the agent at a time when it was hoped by the defendant that the claimant would agree to the 10^th October date instead of the 16^th October. When it did not so agree, that document was put to one side and the earlier executed document for the 16^th October utilised. There would not appear to be any improper motive in this though, if the claimant had agreed to a revised settlement date, it would have been necessary to obtain its written consent to the amended Transfer Certificate. The position can be seen in this way. If two parties sign a contract to which the consent of a third is necessary before it can be effective and, before obtaining that consent, sign a transfer document, it is until signature by that third person inchoate. Indeed that is precisely the position under clause 26.2(c) of the Facility Agreement. The document though agreed between the two parties is akin to a draft transfer. If the transfer document is then altered by one of the parties, without the consent of the other whilst asking for and hoping for the consent of the other to the change of date, the document is still inchoate because there has still not been consent and execution by the third party. In the present case it was not the actual Transfer Certificate that was altered but a copy of it because, when the claimant failed to agree to alter the settlement date, there still remained in existence a Transfer Certificate signed by the claimant and defendant with the 16^th October date extant. It was to that document that the agent consented and which was executed by it, thus completing the transfer in accordance with the terms of clause 26 of the Facility Agreement.

In Co-operative Bank v Tipper [1996] 4 AER 366, Judge Roger Cooke, sitting as a Judge of the High Court, held that a pencilled note on a guarantee, after its execution, was in the form of a note or drafting amendment. It was not final and did not alter the substance of the document. The point was that the amendment was not intended to be an operative and final alteration. He said that it might be described as “deliberative” – something that might be done, which was there for consideration. Although here in the Transfer Certificate there was obliteration of the earlier date in a copy of the earlier document, the earlier document remained extant and it is not alleged that there was any intention to use the 10^th October Transfer Certificate, if agreement to it was not obtained. In these circumstances, although it is an extension from the decision in the Co-operative Bank case, it seems to me that the answer must be the same.

Regardless of that, the position must be that, even if the claimant is right in what it contends, it is only the instrument itself which is rendered void by the principle in Pigot’s case. Thus the 10^th October Transfer Certificate would be rendered void. The Trade Confirmation would remain a valid contract under which both parties were obliged to affect the transfer on 16^th October and there remained in existence the earlier executed 16^th October Transfer Certificate, unaltered, for that very purpose.

In these circumstances I cannot see how the claimant’s case can succeed on this point and it is entirely technical and without merit in the absence of any suggestion of improper conduct, improper motivation or fraud.

This claim, like that against the agent, is parasitic. It is said that the New York affiliate of the defendant wrongly took monies held by it as a deposit from the claimant in order to satisfy the sum due on transfer of the tranche of the syndicated loan. Quite apart from an arbitration clause which would present a jurisdictional problem in pursuing the New York Bank in this litigation, the New York Bank had the right to exercise a set off in relation to amounts owing by the claimant to any of its affiliates. If therefore the sum was truly due and owing to the defendant in respect of the transfer, this claim cannot succeed.

In the circumstances none of the claims raised by the claimant in the revised statement of case has any prospect of success. Applying the test for summary judgment in the notes in the White Book in paragraph 17.3.6, I find that the amendments proposed are not arguable. They are either bad in law or are speculative, being unsupported by evidence.

It is noteworthy that at the third attempt the claimant is unable to produce a claim which has any realistic prospect of success and I therefore must refuse permission to amend. It follows that, in accordance with the earlier order of Teare J the claim must stand dismissed against the defendant and because I have refused permission to amend in relation to the other defendants, no question of pursuing them or seeking permission to serve out of the jurisdiction arises.

It must also follow that costs follow the event on the same basis as determined by Teare J, unless there is some peculiarity of which I am unaware. I hope therefore it will be possible for the parties to agree the order which I can sign on the formal handing down of this judgment.