Barclays Bank Plc v Sutton

This is an appeal from a decision of Master Eastman given on 6 July 2015 striking out the appellant’s Defence and Counter claim and giving summary judgment to the bank on its claim for payment of money due under a guarantee signed by the defendant personally for debts owed by one of his companies.

The relevant background is that the defendant traded for a number of years in expensive motor vehicles. He had two companies that for the purposes of this judgment I will call CSF and PFL. CSF had a poor trading year for various reasons and had an overdraft facility with the bank in the sum of £250,000. That overdraft was subject to a personal guarantee offered by the defendant. In August 2012 the defendant decided that he would wind up CSF with its various debts including £250,000 to the bank. He wanted to continue trading with PFL, however, as this company was solvent and had no overdraft facility or liability.

It is common ground that on the 15 August 2012 there was a meeting to discuss future banking facilities and the CSF overdraft in the light of these circumstances. On the 15 August 2012 the defendant was unwell and unable to attend personally but Aaron Jameson, the newly appointed finance manager for PFL did so. He met with Paul Hicking the relationship manager employed by the bank at Canary Wharf. Following the meeting at 18:16 Mr Hicking sent Mr Jameson an e-mail in the following terms:

“Following on from our conversation earlier today I am writing to confirm that agreement has been given to switch the overdraft facility from (CSF) to (PFL) subject to the following terms and conditions:

1.

Interest will be charged at 8% above the bank’s base rate with an annual 2% rate fee payable quarterly;

2.

Security required is a) Personal guarantee from Clive Sutton Ltd to £250,000; b) Debenture; c) 2nd legal charge over Flat 3, Admiral Walk, Bournemouth:

3.

Security to be in place prior to switching of facility;

4.

Please provide a copy of Begbies Traynor pre-liquidation report together with a list of creditors in (CSF);

5.

From October we will be looking to convert the overdraft to an on demand loan being repaid over a maximum 4 year term;

6.

To aid this could you please provide a copy of the 2011 audited accounts, standalone management accounts up to June 2012 and forecasts for the remainder of 2012 and for 2013.

7.

Going forward there will be a requirement to provide monthly managements accounts to be received within 30 days of each month end.

I trust you find this acceptable and I look forward to hearing from you shortly.”

The defendant was copied into the e-mail. There was no response to it contained in the evidence bundle.

The following day Mr Hicking sent two documents to the defendant. The first was the overdraft facility Commercial Terms stating in its first paragraph that ‘the bank is pleased to offer the borrower an overdraft facility’ on the terms contained in that document (the Commercial Terms) and its Standard Terms. The borrower was identified as PFL. The limit was £250,000 and the purpose was for working capital. The additional security required in the e-mail was set out in this document. Under the heading Special Conditions it was stated:

“On the marking of this facility the overdraft in the name of CSF shall be cancelled.”

Under the heading Conditions Precedent is stated:

“Any evidence required by the Bank for the purposes of any ‘know your customer’ and ‘know your business’ or other similar checks, the new security required together with such other related documents as the bank required.”

The Standard Terms document contained under the heading Conditions Precedent the following:

“The borrower may not utilise the facility until the Bank has received, in form and substance satisfactory to it, the Conditions Precedent.”

There were then a number of months delay before any further significant events occurred. On the 21 December 2012 the defendant signed a personal guarantee in respect of any debt owed by PFL to the bank up to a limit of £250,000. The terms of the guarantee document state amongst other things:

“8.1

You will be bound by this Guarantee from the time that you sign it even if

•

someone else was supposed to sign it or

•

other arrangements to secure Customer liabilities are never actually put in place.”

There was an accompanying declaration that the defendant had taken legal advice before it was signed.

Although the guarantee was signed, other aspects of the security mentioned in the e-mail of the 15 August 2012 and the Commercial Terms of the 16 August were never complied with; notably that Mr Sutton never executed a legal charge over his house in Bournemouth that was his home.

Nothing further was done to transfer the overdraft liability of CSF to PFL until February 2013. By this stage the CSF overdraft had increased to £266,665 as a result of interest accruing that had not been paid in the interim. Without any further formality this debt was transferred to PFL on the 21 February 2013. At 17:30hrs that day Mr Jameson e-mailed Mr Hicking in the following terms:

“I have just noticed that the overdraft has been transferred over to us now -£266,665.23. This has engulfed £6272.65 of working capital that we are needing to use. It is my understanding that the balance will eventually become a loan repayable and can I suggest that in order to allow us to use the monies we had in this account, the overdraft is increased to the amount transferred (-£266,665.23). And until such point as a loan agreement is set up that charges are frozen on it?”

Mr Hicking replied to this explaining that the increase was due to the accrual of interest and:

“when the loan account is eventually drawn down this will be limited to a amount of £250,000 (although the fee can be added to the loan) in line with the security limitation – personal guarantee from Clive limited to £250,000. Consequently it would not be possible to add this figure to the loan and it will need to be covered from general cash flow.”

The e-mail continued that Mr Hicking was still waiting for the financial forecast and management figures that he sought as a matter of urgency and the legal charge on the Bournemouth flat was still outstanding which:

‘seven months on from when first commenced was disappointing’.

Mr Sutton e-mailed Mr Hicking on the 25 February saying amongst other things:

“The timing of this transfer onto the PFL account is not helpful for us as we are in a build up phase of ordering for cars to be exported in March and April. Hence the income has been sparse since Jan. Accepting that the balance transferred is all due please enable the account to function without this effective neutering. If we had 6/7 K headroom and need it for the month end and there will be some DD’s presented from time to time. Perhaps you could temporarily mark the limit up to the amount transferred thus enabling us to use the head room and ensure that income due will be able to be used to pay for regular payments. The Bournemouth charge is being sorted out…. Apologies for the delay. In due course I will come in for a general update with you.”

Following a further exchange of e-mails Mr Hicking sent one on the 28 February that included the following:

“Your understanding that the debit balance (which at the time was £250,000) in September would be financed to loan was correct. This was always subject to security being in place and forecasts demonstrating repayment of loan over a 3 or 4 year term. Any facility to be agreed was always on a secured only basis and the sum of £250,000 was agreed hence that amount was proposed guaranteed. These requirements should have been met by October the latest. The delays in getting security in place were through no fault of the bank and the documentation was sent out at least three times. Consequently due to the delays interest has continued to accrue – if the balance had been re-financed in October the additional interest would not have occurred and you would have had to have covered ongoing interest in the normal course of business.”

Thereafter the defendant was unable to secure any further credit for PFL and that company had to stop trading. In due course the bank issued a claim for a principal sum due under the guarantee of £249,715 and interest accruing since the date of its demand. The Particulars of Claim state that:

“On the 16 August 2012 the bank offered an overdraft facility to (PFL) for working capital purposes subject to the banks commercial terms and standard terms.”

In response to this claim the defendant drafted his own Defence. Paragraph 9 of that Defence is in the following terms:-

“The bank’s relationship manager Mr Paul Hicking was well aware of (CSF)’s problems. In order to enable the group business as a whole to continue, it was agreed between Mr Sutton and Mr Hicking on or around 15 August 2012 that the overdraft limited to £250,000 which was provided to CSF by the bank would be moved to PFL and would be entered into as a term loan by PFL”.

Paragraph 10 of the Defence states that it was agreed on the 15 August that the overdraft would be moved from CSF to PFL and would be turned into a term loan lasting for and least four and potentially five years and continues:

“Mr Hicking explained over the phone in early August 2012 that the process of transferring and borrowing from CSF to PFL would be by first transferring the overdraft from CSF to PFL and then the term loan drawdown would be credited to the account of PFL.”

Paragraphs 30 and 31 of the Defence state that it was agreed that the overdraft balance from CSF would be transferred to PFL as a term loan and that the overdraft documentation was provided as a step in the process of transferring the balance to a termed loan. Mr Sutton counter-claimed for the losses incurred by PFL as a result of the unexpected saddling of its accounts with the transferred debt on the 21 February 2013 as a result:

“of the improper application of an overdraft without provision of a termed loan and the security package agreement was breached.”

The bank in its Reply and Defence to the Counterclaim admitted the agreement for transfer of the overdraft facility from CSF to PFL and that the possibility of converting that facility into a term loan was considered but denied that any concluded agreement to do so was reached.

In due course, the bank sought summary judgment pursuant to CPR 24. The issue is whether on the state of the pleading and supporting evidence the defendant has no real prospect of successfully defending a claim in issue. The transcript of the hearing shows that at the outset Master Eastman was inclined to the view that there was a dispute of fact at to whether there was a concluded agreement for a term loan, but having heard the advocate for the claimant and Mr Sutton in response reached the conclusion that;

“Regrettably there is nothing by way of documents, so far as I can see or I have been shown, to support the existence of any legally binding security package agreement such as is suggested.”

It was Mr Sutton who had relied upon the 15 August e-mail to which reference has earlier been made but it is apparent from its terms that what was said to be agreed at point 5 was a ‘looking to convert’ the overdraft to a term loan rather than a concluded agreement to that effect. The Master noted:

“Mr Sutton argued, with some force, that there was a lot of other surrounding circumstances in the way in which the future was planned. That maybe so but the fact of the matter is that, and the inescapable fact of the matter is, as far as I’m concerned, that he entered into this guarantee, which is set out in my bundle and there is no impediment to, as things have evolved Barclays Bank seeking to enforce it as the do by this action.”

Permission to appeal was granted by Dove J on the 5 October 2015 and the appeal came before me on the 26 October 2015.

In his written and oral submissions Mr Granville Stafford (for the defendant) makes two points. First, the bank’s claim has pleaded an offer but there is nowhere pleaded an acceptance of the offer of a overdraft facility made in August 2012. Without evidence of such an acceptance there was no concluded agreement upon which the bank could rely to debit PFL’s account in the way that it did in February 2013. Second, if there was a concluded agreement it was subject to a collateral contract or warranty that when PFL took on the debts of CSF it would be on the basis of a loan or alternatively a wider agreement, of which the guarantee was only a part, and accordingly the guarantee can not be relied upon in isolation.

I fully accept the principle that a written contract may need to be construed in the light of other oral agreements that are binding and operate to restrain the manner in which the written agreement is carried out. However, in my judgment, the Master was correct to focus upon whether there was a real prospect of the defendant showing at trial that there was a concluded agreement for a fixed term loan as opposed to a contingent aspiration.

Although the Particulars of Claim drafted by the bank are peculiar in not identifying when the contract for a transfer of the overdraft was in fact made, I consider there is force in the submissions of Mr Patel (for the claimant) that on the state of pleadings before the Master it was common ground between the parties that there had been agreement to that effect in August 2015. It is true that this agreement could not then be put into effect until the bank had first received Mr Sutton’s guarantee in respect to the PFL overdraft, which was eventually received in December 2012. It is also true that there are other provisions relating to the bank’s security, notably the grant of the charge over Mr Sutton’s house, which had not been complied with by February 2013.

It is contended by the defendant that there was a condition precedent to the enforceability of the contract and it is a condition which binds the bank as much the defendant. The Standard Terms quoted at [4] above refer to the borrower not being able to use the facility until the Conditions Precedent are satisfied. The bank successfully argued before the Master that a condition designed to protect its position could be waived at its request, although not the reverse. The reality of the position was that the bank had stayed its hand in enforcing the guarantee in respect of the CSF overdraft in the expectation that the relevant security would be in place in respect for the PFL loan to enable the liability to be switched. It was only in December that any security was granted that would enable the bank to make the switch from an account where interest had been accruing. The terms of the guarantee in December 2012 make it plain that it came into effect forthwith even if other provisions relating to security had not been brought into effect. The unexecuted charge over the house was another such security. The contract cannot reasonably be construed as preventing the bank moving the overdraft to PFL because of the defendant’s failure to provide the security envisaged in the August agreement. This along with the other failures was relevant to whether it was obliged to forthwith convert the overdraft into a loan.

The defendant contends that it is not the enforceability of the guarantee that is in dispute in these proceedings but whether there was any debt owed by PFL to the bank to which the guarantee could attach.

Mr Patel points out by way of back-ground that it is apparent that Mr Sutton owed the bank the full limit of the guarantee he entered into either for the over draft of CSF or for that of PFL on transfer from CSF. Whilst that is correct although it does not answer the question whether the defendant was liable under the PFL guarantee which is the basis of the bank’s claim in the present proceedings. The bank could have brought proceedings on the CSF overdraft at any time from August 2012 although it did not so; it says that that this was to enable PFL to trade without Mr Sutton being saddled with a judgment debt for £250,000.

I confess to surprise that the PFL account was charged with the CSF overdraft in February 2013 without any further notice that this would occur. I do not doubt that Mr Sutton was himself surprised by this development but the question is not whether he expected it then but whether the bank had the right to do so.

I have given careful consideration to the defendant’s submissions in the light of the pleadings, the witness statements, the terms of the e-mails and the commercial context of these transactions. In the end I conclude that the Master was not wrong in the decision that he reached.

There was abundant evidence before him that there was a concluded agreement for the transfer of an overdraft from CSF to PFL made in August 2015 but dependent for its efficacy upon the bank being satisfied that it had sufficient security for the new agreement. The bank was sufficiently satisfied of the latter after the signing of the guarantee for PFL in December. It would be unreal if the bank were not permitted to act on the August agreement in the light of this guarantee because Mr Sutton had failed to provide the additional security required. The terms of the security that he signed alerted him to this.

By contrast there is no evidence of a concluded agreement for a fixed term loan at the time of the transfer. Mr Sutton’s witness statement to the effect that that was the arrangement encounters the following difficulties:

There is also substance in the claimant’s point that the reaction of Mr Sutton and his Finance Director to the February 2013 transfer of the overdraft is revealing as to the nature of the terms of the agreement with the bank.

In both cases, their first reaction was not to contend that the transfer was a breach of the agreement but simply to ask for an extension in the credit limit to enable trading to continue. Mr Jameson’s e-mail is particularly revealing in referring to an understanding that the balance will eventually become a loan repayable. That is precisely the claimant’s case.

Accordingly, despite Mr Sutton’s protestations to the contrary, I conclude that there are no real prospects of him successfully defending the claim or establishing his counter-claim. This appeal is accordingly dismissed.