Cryne v Barclays Bank plc
kuac...@yahoo.com
Court of Appeal, Civil Division
[1987] BCLC 548
HEARING-DATES: 29, 30, 31 July 1985
31 July 1985
CATCHWORDS:
Appointment of a receiver -- Whether creditor entitled to appoint a
receiver where security was in jeopardy -- Whether term could be
implied entitling creditor to appoint a receiver where there were
reasonable grounds to suspect that the security was in jeopardy --
Basis on which default judgment can be set aside -- RSC Ord 13, r9.
HEADNOTE:
The defendant bank granted a loan facility, which terminated in May
1980, to the Weldit Group of companies (the group) secured, inter
alia, by debentures executed by all companies within the group. In
March 1980 the defendants called in the loan and appointed receivers.
The plaintiff, who had taken an assignment from the liquidators of all
the causes of action vested in the group against the defendants,
commenced proceedings for damages alleging that the calling in of the
loans by the defendants and the appointment of receivers was done in
breach of contract, and obtained judgment in default. The defendants
sought to have the judgment set aside on the grounds that they were
entitled to appoint receivers. In particular, it was alleged (i) that
the facility letter had been varied by agreement to make the loan
repayable on demand or that the plaintiff was estopped from contending
the contrary, (ii) that a term could be implied in the facility letter
whereby the bank could call in its loan if and when it appeared to it
acting as a reasonable banker that its security was in jeopardy, or
(iii) that the defendants were entitled to appoint receivers under
their debentures on the grounds that their security was in jeopardy.
The defendants appealed from a judgment of Legatt J refusing to set
aside the default judgment which had been made against them.
Held -- In order to have the default judgment which was regular set
aside, the defendants would have to furnish a reasonable explanation
of their failure to file a defence in time and show that there was a
triable issue on the merits. On the facts the defendants had satisfied
the first hurdle in that the failure to enter a timeous defence was
due to a misunderstanding between the defendants and their legal
advisers. The defendants, however, failed to show that there was a
triable issue. The defendants were not entitled to appoint a receiver
on the grounds that their security was in jeopardy as, in the absence
of a contractual right to do so, that could only constitute a basis
for having a receiver appointed by the court. In addition it was not
possible to imply a term in the agreement between the defendants and
the group entitling the former to appoint a receiver when the, on
reasonable grounds, considered that their security was in jeopardy.
Such a term could only be implied where it was necessary to give
business efficacy to the contract but, since the agreement between the
defendants and the group contained a number of express provisions
designed to protect the defendants' security, there was no
justification for implying any further terms to deal with this issue.
Lastly, there was no basis for finding that the agreement had been
varied to entitle the defendants to appoint receivers in March 1980;
nor was there any basis for estopping the defendants from contending
that the agreement remained unvaried. As the defendants had failed to
show that there was an basis for arguing that the appointment of the
receivers in March 1980 was justified, the judgment of the trial judge
denying them leave to appeal would be upheld.
CASES-REF-TO:
Amalgamated Investment & Property Co Ltd (in liq) v Texas Commerce
International Bank Ltd [1981] 3 All ER 577, [1982] QB 84, [1983] 3 WLR
565, CA.
Liverpool City Council v Irwin [1976] 2 All ER 39, [1977] AC 239,
[1976] 2 WLR 562, HL.
London Pressed Hinge Co Ltd, Re, Campbell v London Pressed Hinge Co
Ltd [1905] 1 Ch 576.
William & Glyn's Bank Ltd v Barnes (26 March 1980, unreported), QBD
INTRODUCTION:
Interlocutory appeal. Barclays Bank plc appealed pursuant to leave
granted by Kerr and May LJJ on 30 July 1985 again st the decision of
Leggatt J made on 2 April 1984 whereby he set aside the order of
Master Bickford-Smith dated 4 October 1984 ordering that the judgment
in default of service of defence entered on 11 September 1984 be set
aside in so far as it related to the claim by the plaintiff, Gordon
Cryne, under a deed of assignment dated 11 July 1984. The facts are
set out in the judgment of Kerr LJ.
COUNSEL:
R Neville Thomas QC and Ali Malek for the bank; Leolin Price QC and CL
Falconer for the plaintiff.
PANEL: Kerr and May LJJ
JUDGMENTBY-1: KERR LJ
JUDGMENT-1:
KERR LJ. This matter came before this court as an application for
leave to appeal from a judgment of Leggatt J given on 2 April 1985.
That application was referred to the full court by May LJ on 21 May
1985. After the close of the address of counsel on behalf of the
defendant bank (Mr Thomas QC), we gave leave to appeal, and now give
judgment on the appeal. But for the fact that this is the last day of
the legal year, we might well have preferred to take time to put out
reasons in writing, but having both reached a clear conclusion, we
decided to deal with the matter extempore.
he plaintiff, Mr Cryne, is beneficially entitled to the whole of the
issued ordinary share capital of Weldit Group Ltd, now in liquidation.
This is the holding company of a number of wholly-owned subsidiaries
known collectively as the Weldit Group. The group's business is mainly
that of steel fabrication, particularly for oil companies and the
North Sea oil industry generally. The plaintiff claims by virtue of an
assignment from the liquidators dated 11 July 1984 of all causes of
action against the defendants vested in the group, and no point is
taken on his right to pursue this action by virtue of that assignment.
The group banked at the defendants' branch in Scunthorpe. One of the
persons mainly concerned in the supervision of the group's account was
a Mr Thomas Smith, a local director at the bank's Liverpool office.
The facilities in question, to which I come in some detail later on,
were withdrawn on 17 March 1980, and receivers were appointed on 20
March 1980. The plaintiff claims that this was done in breach of the
contracts existing between the bank and the companies in the group as
its customers, and that the group has suffered considerable damage,
alleged to run into millions, in consequence.
The writ and statement of claim were issued and served on Friday, 13
July 1984. They originally included a claim for damages by the
plaintiff personally as a shareholder, but this has either been
discontinued or is no longer being pursued.
On 11 September 1984 the plaintiff's solicitors signed judgment in
default of defence for damages to be assessed. The bank applied to
have that judgment set aside, and on 4 October 1984 Master Bickford
Smith granted that application. The plaintiff then appealed to the
judge in chambers, and on 2 April 1985 Leggatt J allowed the appeal
and refused to set the judgment aside. It is against that decision
that the bank are now appealing.
The relevant rule is RSC Ord 13, r9 which is in very general terms:
'Without prejudice to 17(3) and (4) the Court may, on such terms as it
thinks just, set aside or vary any judgment entered in pursuance of
this Order.'
Both here and below the bank's case has been argued on the basis of
the law as summarised in The Supreme Court Practice 1985 vol 1, para
13/9/5 in the note following that rule, apart from the need for some
explanation of their failure to serve a defence. This reads as follows
under the heading 'Regular judgment', as this judgment was:
'If the judgment is regular, then it is an (almost) inflexible rule
that there must be an affidavit of merits, ie, an affidavit stating
facts showing a defence on the merits [and an authority is referred
to. Then there is a quotation from another:] "At any rate where such
an application is not thus supported, it ought not to be granted
except for some very sufficient reason" . . . For the purpose of
setting aside a default judgment, the defence on the merits which the
defendant is required to show needs only disclose an arguable or
triable issue . . .[an] arguable case which ought to go for trial.'
It is on that basis that the judge approached the matter and this
appeal has been argued. Accordingly the bank must overcome two hurdles
which I can summarise as follows. They must give some reasonable
explanation of their failure to file a defence in time, and they must
show that there is an issue on the merits which should go to trial.
In my view the bank have satisfied the first requirement, and I do not
propose to go into the facts concerning this in any detail. It is
sufficient to say that the failure to comply with the timetable of the
rules arose initially from a misunderstanding between the bank and
their solicitors about the date of the service of the writ and
statement of claim which, having been served on Friday, were thought
by the solicitors only to have been served on the following Monday.
Thereafter, while there is no express explanation of what happened,
one can infer that the intervention of the long vacation, and perhaps
a failure to appreciate that while time was suspended in August, it
again began to run on 1 September, are likely to have contributed to
the mistake which was made. In the event, the plaintiff's solicitors
signed judgment about two days or less after the time for defence had
expired, and their notification to the bank's solicitors that they had
done so crossed with a request by the latter for an extension of time.
However, as already mentioned, the judgment was regular, and the real
issue is as to the second requirement, whether there is a triable
issue on liability, it being common ground that the issue as to
damages, if any, will in any event have to be tried and is likely to
be of considerable complexity.
The question whether or not there is a triable issue is similar to,
though not necessarily identical with, the test which is applied when
a defendant seeks unconditional leave to defend on a plaintiff's
application for summary judgment under RSC Ord 14. The test as such
was not in issue below, not on this appeal. Leggatt J held that there
was no triable issue on liability in this case, and the question on
this appeal is whether he was right in that conclusion.
I must begin by referring to the facts, not in as much detail as
Leggatt J because the arguments before us on issues going to the facts
have rightly been narrowed, though a new point of law has been raised
for the first time. The history begins with a facility letter, as I
will call it, dated 22 May 1979, which is the most important document
in the case. It was from Mr Harcourt, the manager of the Scunthorpe
branch, addressed to the directors of the Weldit Group.
'Dear Sirs THE WELDIT GROUP OF COMPANIES Following the detailed
discussions between your Group and Barclays Bank Limited, I am very
pleased to formally write and confirm the Bank's agreement to
borrowing facilities sanctioned as follows:-
Upon overdraft, as a Group facility, £1.5 m (one million five hundred
thousand pounds) for six months, reducing to £1 m (one million pounds)
for six months and thereafter by review, subject to normal banking
terms and conditions.
The interest rate applicable to the advance and charged quarterly
shall be 1 1/2% above Barclays Bank Base Rate from time to time with
an additional 1/4% charge quarterly and retrospectively on the
hardcore. For purposes of definition "hardcore" shall be determined as
the lowest balance obtaining in the previous quarter.
Commission and/or other Banking charges shall be applied, subject to
assessment and agreement, quarterly as normal commercial rates.
The security for the advance shall be:-
Cross Guarantee and Debenture in the Bank's standard form from all
Companies within the Group. Any additional wholly or partly owned
subsidiaries created in the future shall be required to enter into
matching Cross Guarantees and Debentures.
The further conditions attaching to the advance shall be:-
(a) Financial statistics in the form produced by the Group's computer
are to be made available to the Bank by the 31st of each month,
relative to the preceding month. Inter alia these statistics should
evidence the reconciled Bank balance to be covered once by the total
of good and current debtors and twice by the total of current assets.
(b) The statistics should demonstrate and serve to monitor the Group's
progress against forecasts provided.
(c) The Group's most recent audited accounts should be made available
as soon as possible and hopefully within three months.
(d) The Bank's commitment fee of £2,500 shall be payable by the 30th
June 1979.
In view of the impending ICFC offer the above facility will be subject
to an agreed reduction to £1m (one million pounds) immediately upon
receipt of ICFC funds. All other terms and conditions remaining the
same. On the presumption that ICFC becomes a lender (by way of medium
term loan) in addition to an enquity participant, the Bank would
accept a review of the security to allow a "sandwich" Debenture
position to obtain, with priorities to be agreed.
I trust the foregoing meets with your approval and that you will feel
able to confirm your acceptance as soon as possible.
For my part, I look forward to a rewarding business relationship with
growing success to your endeavours.'
The reference towards the end to ICFC is a reference to the then
existing Industrial Commercial Finance Corp Ltd, a government
organisation for the assistance of industry.
A little later, in July 1984, a loan of £1 m was provided to the group
by ICFC on the security of a fixed charge. In effect therefore the
facility thereafter became one for £1 m for a period expiring after
one year, which both parties have treated as terminating on 31 May
1980. The precise date is irrelevant since the loan was in fact called
in and receivers appointed, as already mentioned, on 17 and 20 March
1980, and therefore some two months before the term of the loan
expired pursuant to the facility letter.
In connection with the second paragraph of that letter I should make
it clear that counsel for the bank did not seek to contend that the
words 'subject to normal banking terms and conditions' had the effect
of making the loan repayable on demand. An argument to this effect was
rejected by Ralph Gibson J in Williams & Glyn's Bank Ltd v Barnes in a
lengthy judgment delivered on 26 March 1980 which is unreported and
only selectively summarised in [1981] Com IR 205, to which I return
later on.
Equally rightly in my view, counsel for the bank did not submit that
repayability on demand arose from the express terms of the debenture
by way of a floating charge which the bank took the registered
pursuant to the facility letter. That was dated 1 June 1979, and I
need only refer to two provisions in this printed form.
2(a) Each company [that means each company in the Weldit Group] hereby
-- (i) covenants that it will on demand in writing made to it pay or
discharge to the Bank all moneys and liabilities which shall for the
time being (and whether on or at any time after such demand) be due
owing or incurred by it to the Bank (ii) convenants and guarantees
that it will on demand in writing made to it pay or discharge to the
Bank all moneys and liabilities which shall for the time being (and
whether on or at any time after such demand) be due owing or incurred
by any other Company to the Bank.'
At any time after the Bank shall have demanded payment from a Company
of any moneys hereby secured or if required by a Company the Bank may
appoint by writing any person or persons (whether an officer of the
Bank or not) to be a receiver and manager or receivers and
managers . . . of all or any part of the property hereby charged by
such Company.'
Counsel for the bank conceded, subject to one argument which I mention
later, that the bank's rights under the debenture were subordinated to
the facility letter. In other words, having regard to the words 'due
owing or incurred' in cl 2(a), the bank could not rely on cl 2(a), and
equally therefore not on its power to appoint a receiver under cl
7(a), unless and until the loan was or subsequently became repayable
on demand under the facility letter or any variation of it. In my view
these concessions were rightly made, and nothing to the contrary was
argued below by counsel (Mr Peppitt QC) who then appeared on behalf of
the bank.
On this appeal counsel for the bank (Mr Thomas QC) has argued three
main points. I will be dealing with these in due course in inverse
order, and I merely summarise them at this stage. First, he submitted
that by reason of subsequent events during the term of the loan, the
effect of the facility letter was varied by mutual agreement so as to
make the loan repayable on demand, or alternatively that the plaintiff
is estopped from contending the contrary. Second, that a term was to
be implied in the facility letter which justified the termination of
the loan on about 17 March 1980, and therefore justified the
appointment of receivers under the debenture of 20 March 1980. The
terms pleaded in that connection appear in para 8(c) and (d) of the
draft defence as follows:
(c) Further or alternatively, that the said advances were repayable on
demand if, for the protection of the Defendants' interest and lending
to the Weldit Companies or any of them, having regard to the apparent
state of business and affairs of the Weldit Companies or any of them,
it should reasonably appear necessary to the Defendants that the
facility should be terminated. (d) Further or alternatively, that the
said advances were repayable on demand if it appeared to the
Defendants that the Weldit Companies or any of them were insolvent and/
or trading at a loss.'
The formulation in para 8(c) is based on an obiter passage from the
judgment of Ralph Gibson J in Williams & Glyn's Bank Ltd v Barnes.
However, counsel for the bank has indicated that if this appeal is
allowed he would wish to amend these implied terms somewhat, and I
proceed on that basis. For present purposes I propose to summarise and
narrow the alleged implied term by saying that it is contended that
the bank could call in the loan if and when it appeared to it, acting
as a reasonable banker in reliance on apparently reliable information,
that the bank's security was in jeopardy. Perhaps one might add, 'with
no foreseeable prospect of improvement or with a foreseeable prospect
of deterioration in the customer's financial and trading position'.
For present purposes I do not think that the precise formulation of
the alleged implied term matters. The issue is whether there is any
scope for any implication on these lines. I therefore summarise the
implied term argument for convenience by basing it on the event of the
bank's security reasonably appearing to the bank to be in jeopardy. In
this regard I say at once for myself, without in any way pre-judging
anything that will have to be investigated on the assessment of
damages, that if such a term could be implied, then I would regard it
as sufficiently arguable on the facts of this case that the bank's
otherwise premature termination of the loan may have been justifiable
on the assumption of some such implied term. However, what remains in
issue on the second argument of counsel for the bank is the basic
question, 'Is there any scope for any such implication?'
The third submission by counsel was first raised here and not covered
by his notice of appeal, but we gave leave to raise it by amendment.
This was that there was in any event an inherent right in the bank as
debenture holders, without the need for implying any term in the
facility letter, to appoint a receiver once their security was in
jeopardy. In that connection counsel for the bank relied on a line of
cases, of which one of the most recent, and sufficient for present
purposes, was the decision of Buckley J in Re London Pressed Hinge Co
Ltd [1905] 1 Ch 576. The headnote correctly summarises that decision
as follows:
'Debenture-holders, who have a floating security upon the undertaking
and all the property, present and future, of a company, are entitled
to the appointment of a receiver of the property subject to the
debentures if their security is in jeopardy, although nothing is
payable in respect of principal or interest, and there has been no
default or breach of contract for the company.'
At first sight that is obviously an authority which strongly supports
counsel's third submission. However, as pointed out by counsel for the
plaintiff (Mr Price QC), that case and the other authorities in the
same line were solely concerned with applications for the appointment
of a receiver by the court and with the court's discretion to make or
refuse such an appointment. There cases are no authority for the
proposition that a debenture holder may appoint a receiver out of
court, as the debenture holder's agent, if there is no contractual
right to do so. Some debentures may indeed contain an express term to
the effect for which counsel for the bank contends: see Picarda, The
Law Relating to Receivers and Managers (1984) pp26, 27 and (in
particular) para 14. However, there is nothing of the kind here.
Counsel for the bank has accordingly not persuaded me that it is
arguable, let alone correct, that the bank had any inherent right to
appoint a receiver if it had no contractual right to do so under the
terms of the facility letter. I therefore conclude that the first
submission of counsel for the bank does not present a triable issue.
It follows that there can have been no right in the bank to appoint a
receiver in the present case unless the alleged term based on the
alleged supervening jeopardy of the bank's security can properly be
implied in the facility letter. I therefore next turn to this issue,
the second submission on which counsel relied. Its judicial foundation
and support is derived from a short obiter passage towards the end of
the judgment of Ralph Gibson J in Williams & Glyn's Bank Ltd v Barnes.
That judgment, as I have mentioned, has not been reported, and extends
to over 700 pages of transcript. The facts were complex, but for
present purposes I think that they can be sufficiently summarised as
follows. A facility by way of a loan, additional to an existing
indebtedness, was granted by the plaintiffs in a facility letter of
January 1974 in order to enable the defendant (trading as 'NDH') to
meet certain bills of exchange maturing in 1975. This was done by the
plaintiffs in order to rescue the defendant from an apparently
disastrous situation due to a slump in the property market, and as
part of a moratorium agreed between various creditors of the
defendants, including the plaintiffs. The terms of the loan under the
facility letter of January 1974 subsequently fell to be considered in
conjunction with additionally agreed 'Proposed Financial
Arrangements', referred to as PFA in the judgment, into which it is
unnecessary to go for present purposes. The loan was secured by a
debenture, and it is right to point out that the facility letter also
contained terms to the effect that the bank was entitled to have the
underlying assets valued from time to time, if it wished to do so, in
order to satisfy itself that the asset value remained 125% of the
outstanding indebtedness. I mention this for the sake of completeness,
but it is not mentioned by the judge in the part of his judgment which
is relied on here.
Ralph Gibson J held that the combined effects of the facility letter
and the proposed financial arrangements was that the loan became
repayable on demand. However, he had previously declined to imply a
term to this effect in the January facility letter itself. It is
against that background that he dealt shortly at the end of this very
long judgment with an argument that some term on the lines which I
have indicated would have fallen to be implied in these agreements if
it had not been the contractual position, as he held, that the loan
was in fact repayable on demand. It therefore follows that what he
said against that background was entirely obiter. What he said is as
follows:
'The bank's first contention was that if the banking contract was
frozen, as it was in July 1974, by the operation of the PFA on the
then existing contract, a term for repayment on demand was implied
into the banking contract either before July 1974 or at various stages
thereafter. My conclusion, set out in paras 22.11-14 above, is that
there was no term for repayment on demand in the banking contract
contained in the January facilty letter, but that the terms of the PFA
did contemplate and provide that facilities of clearing banks would be
repayable on demand on termination of the arrangement. After agreement
of the terms set out in the August facility letter, an express term
for repayment on demand was validly incorporated . . . If the
assumption was made that there is no absolute and effective right to
repayment on demand, because although it was agreed, it was struck
down for repugnancy or for breach of public policy, then the bank has
contended for the implication of a term to demand repayment based on
cause. In substance I think the bank must be right on this. On this
bank joining in the rescue operation for this company on terms that it
would continue substantial lendings for a term of one year or until
determination of the moratorium agreement, then in my judgment on the
principles which the court must apply for implication of terms as
stated in para 18.5 above a term must be implied by which the bank
could recall this facility upon need arising. I see no necessity to
imply a term giving to the bank unfettered discretion. I would
formulate the term as follows: the bank should have the rights to
demand repayment of its facility if, for the protection of the bank's
interest and its lending, having regard to the apparent state of the
business and affairs of NDH, it should reasonably appear necessary for
the bank to recall the overdraft. It would reasonably so appear if the
decision were made on material which a competent banker would regard
as sufficient for the purposes of the decision. The bank cannot be
expected to have agreed to continue its lending and to be prevented
from using powers given by its security in circumstances where, as
against NDH, the bank would reasonably and in ordinary commercial
judgment regard it as essential to demand repayment and use those
powers. I refer of course to it being regarded as essential on the
appearance of the business of NDH. To that proposition both sides
would have agreed at the time that the contract for the facility was
made. Since the bank was entering into the moratorium agreement with
other banks, the bank could not withdraw its facility without first
obtaining the agreement of the other banks to the termination of the
moratorium. On lawful termination of the moratorium, it is clear to me
that the bank should have the right to demand repayment.'
Leggatt J declined to follow that passage, at any rate in relation to
the facts of the present case. I agree that one cannot in any event
simply transpose this obiter passage and extract from it any general
principle that some such term is to be implied in other cases. Counsel
for the bank (Mr Thomas QC) went so far as to submit that a term on
these lines falls to be implied in commercial lending contracts
generally. In my view such a proposition is wholly untenable and would
create havoc in business relations. The principle is well established
that a term will only be implied if it is necessary, not reasonable,
to do so in order to make the contract work: to give business efficacy
to it (see most recently the decision of the House of Lords in
Liverpool City Council v Irwin [1976] 2 All ER 39 at 42 et seq, [1977]
AC 239 at 252 et seq, in particular per Lord Wilberforce).
In Williams & Glyn's Bank v Barnes the judge's remarks were made in
the context of a rescue operation accompanied by a moratorium of
creditors. There is no analogous background here. At the same time
when this facility letter was agreed on this was a straightforward
commercial transaction. The loan was for a term of one year. Is it
then necessary to cut down that term, in order to give business
efficacy to the contract, by any implied qualification of the duration
of the loan to the effect that it may be called in earlier if the
bank's security reasonably appears to it to be in jeopardy? To my mind
this cannot possibily be right. The facility letter in the present
case was subject to the express conditions (a), (b) and (c), and in
particular (a), which I have read. These were clearly designed to
protect the bank from month to month in the event of the value of the
underlying assets falling below the levels there specified. It is
unnecessary for present purposes to debate the precise construction
and effect of these conditions, since they were not relied on as such
by the bank on this appeal. Indeed, there is no evidence that the
value of the underlying assets did fall below this level, and some
evidence that is remained above it, at any rate up to December 1979.
The very presence of these conditions in the facility letter, all else
apart, renders it in my view impossible to imply any further term in
the same context, viz some term to the effect that the bank was also
to be entitled to call in the loan, and thereupon entitled to appoint
a receiver under the debenture, if it reasonably appeared to the bank
that its security was in jeopardy.
To my mind this argument, whatever may be its merits in other
connections, which I would myself regard as extremely limited, cannot
possibly be tenable in the context of the present facility letter. If
the bank wanted any such right, it should have inserted an express
term, or made the loan repayable on demand. I therefore equally reject
the second submission of counsel for the bank on the ground that it
does not raise any triable issue.
I then turn finally to his first submission, the allegation of
variation and estoppel which Leggatt J also rejected. I say at once
that on this submission I equally agree with Leggatt J, and indeed we
did not call counsel for the plaintiff (Mr Price QC) to deal with it.
However, to give my reasons I must briefly refer to the subsequent
history. By September 1979 the group's position clearly appeared to be
deteriorating. By that time or shortly thereafter the indebtedness to
the bank had in fact been allowed to rise above the figure of £1m
provided in the facility letter of 22 May to something of the order of
£1.25m or £1.3m (the precise figures do not matter). It is common
ground that the bank could at any time have required payment on demand
of any excess above £1m, and appointed a receiver in the event of non-
payment of the sums so demanded. But the bank did not do so. What
happened was that at the bank's request the plaintiff called in
accountants, Arthur Young McClelland Moores & Co, to report to the
bank and to the group. They made three reports respectively dated 28
September and 22 November 1979 and 16 January 1980. These presented an
increasingly gloomy and ultimately critical picture of the group's
financial position and of its prospects for survival. In January 1980
writs totalling about £200,000 had been issued by creditors against
it. Although the plaintiff remained relatively optimistic throughout,
or at least gave the appearance of remaining confident about the
future, his view was not shared by Arthur Young and the bank. As time
went on it became increasingly apparent that orders were drying up,
that creditors were pressing, and that the only realistic hopes lay in
the recovery of certain large claims or cross-claims against overdue
debts, which the group had or claimed to have against some major
customers, or in the injection of fresh capital from a buyer of the
group or a large investor in it or from some governmental source such
as ICFC or the National Enterprise Board.
While this was the general picture. I deliberately refrain from going
into any further details of the group's financial position for two
reasons. First, it is unnecessary to do so, since I have already
accepted that if the alleged term based on the appearance of jeopardy
of the bank's security could be implied, then the factual basis for
reliance on such a term is in my view sufficient to justify its
description as a triable issue. Second, I think that it is undesirable
to review the evidence concerning the group's actual or apparent
financial position and prospects at any particular time, since this is
evidence which will fall to be considered on the assessment of
damages. In that regard the judge said this towards the end of his
judgment:
'By pulling the mat from under the feet of the companies when they
did, the bank may well have saved them from a heavier fall, that is to
say, greater financial loss, later on. There is nothing to suggest
that Mr Smith's assessment of the group's prospects was not correct.
In these circumstances it would not be surprising if the bank were
able, with the aid of the Arthur Young reports, to show that the
companies would have been, and so that the plaintiff is, entitled to
recover no more than nominal damages in respect of the assigned
claims.'
For myself I express no view on that, and I do not review the evidence
which appears to have been considered in some detail below.
For present purposes it is only necessary to refer to a few events and
documents which crossed the line between the parties. These
concentrated on the actual position of the group's needs at various
times and the bank's willingness to try to meet these needs, but they
ignored the terms of the facility letter of 22 May in two respects.
First, as already mentioned, the bank did not insist on the reduction
of the outstanding balance to £1m. Second, the bank made it clear that
they treated or purported to treat the totality of the outstanding
loan as being repayable on demand. The phrase often used in that
connection was that the loan facility would continue 'on the day to
day basis for a period of one month', or words to that effect.
On 8 October 1979 the bank offered increased facilities rising to
£1.45m from December 1979 until 31 March 1980 on certain conditions
which included a mortgage over a property in Jersey which was
evidently owned or beneficially controlled by the plaintiff. However,
this proposal came to nothing. Then on 12 November 1979 the bank
manager, Mr Harcourt, wrote as follows, no doubt on instructions:
'Following our most recent meeting at York Local Head Office and what
now appears to be the substantial fact of the case, namely that third
party security will not be forthcoming, I am asked to write and advise
you of the present situation upon which the Bank will agree to
continue its support for the Weldit Group of Companies. (1) As you
already know Michael Arnold or Stephen Adamson [of Arthur Young] will
be attending the Company's offices on Monday 12th November to
ascertain the present state of the Company finances with special
emphasis being placed upon the Bank's current Debenture cover. In
particular the Accountant will be asked to look with a critical eye at
the stock and work in progress cover under the Debentures. (2) The
present support will be on a day-to-day basis for a maximum period of
one month. This lifeline is designed to give the Company time to find
a partner or a purchaser. (3) In the meantime I am asked to state that
your personal guarantee in the sum of £250,000 is relied upon and
remains in full force. (4) Subject to anything which the Accountants
might find which would change the Bank's view, the maximum amount of
overdraft permitted across the Company's accounts is £1,250,000 and
the Bank cannot entertain payment of cheques in excess of this limit.
(5) This limit is also subject to our obtaining agreement from ICFC
that the Bank's cover shall extend to £1m on current assets with a
further £250,000 or such greater sum as the Bank shall agree to lend
secured by a priority on the fixed charge.'
This letter was also set out by the judge below.
There were then various meetings and discussions on similar lines, to
which I need not refer in detail, without any new agreement being
concluded. On 11 December the bank suggested new terms and threatened
to call in the loan unless it was provided with a letter from the
group's then solicitors, Eric Levene & Co, that in their view it was
proper for the group to continue trading. This was ultimately provided
in somewhat guarded terms in an undated telex in December 1979 ending
as follows:
'We do not consider that it could be successfully contended that your
group was carrying on business with intent to defraud the creditors
thereof. On the basis of the information that you have provided, it
consequently follows that the business of the group may lawfully be
continued.'
Meanwhile the bank had purported to call in the then outstanding
indebtedness of about £1.369m on 20 December 1979 and threatened to
appoint a receiver. This produced a long letter from the plaintiff of
21 December surveying the total position as he saw it, on which
counsel for the bank relied on this appeal. I do not need to read it
except the last two paragraphs. Having reviewed the position, the
plaintiff concluded as follows:
'After having had the opportunity of considering the contents of this
letter, we trust you will concur with our view that the interests of
all creditors and employees are best served by the continuation of the
business without, for the time being, the appointment of a Receiver.
Now that the Group's claims have been submitted and negotiations for
the sale of the Group are advancing, we expect significant progress
within a reasonably short timescale, and in view of the above we would
request that you give urgent consideration to restoring the facilities
to enable the bank accounts to be operated.'
The bank responded by a letter of 7 January 1980 requiring to be
satisfied of certain matters, which led to Arthur Young's third report
of 16 January 1980, to which I have already referred. I need only read
the last paragraph of this letter from Mr Smith to the plaintiff:
'Whilst the overdraft limit remains at £1m, we will continue to permit
excesses to £1,250,000 on a day to day basis until Thursday, 10th
January, 1980, by which time we would hope the various information
which we have requested will be made available and will have vetted
and evaluated by Arthur Young McClelland Moores & Company. I would
stress that the Bank is anxious to see the borrowing reduced to within
the basic limit of £1m, and the permitted excesses seen in the recent
past are continued to keep the business alive, in the hope that your
Company's future can be secured by either the cash flow problems being
resolved by the satisfaction of claims, or a purchaser or partner
found, who is prepared to inject much needed capital.'
After having considered Arthur Young's third report, the bank wrote
again on 24 January, and I set out the second, third, fourth and last
paragraphs of the letter as follows:
'We have now considered the Arthur Young McClelland Moores and Company
report of the 16th instant, which you will appreciate does not give
the assurances we were seeking. Indeed, not only has the Debenture
cover been eroded, the apparent losses incurred and unsatisfied claims
have exacerbated the shortfall in your working capital requirement.
The overall financial structure of your Group continues to
deteriorate, and equally important, the Order Book is growing
disturbingly short.
With this background, whilst we are anxious not to jeopardise your
negotiations regarding the various claims outstanding, and talks
currently taking place with prospective purchasers, the Bank is not
prepared to allow this position to drift indefinitely. You will be
aware that the borrowing is repayable on demand and whilst we will
continue the present lending arrangements on a day to day basis,
unless your liquidity problems can be resolved in the very short term,
regrettably we see no alternative but to appoint a Receiver under out
Debenture.
Appreciating the important role the Group does have in the development
of North Sea Oil and the large and skilled workface you employ, we
earnestly hope a solution can be found.'
In February 1980 there were various meetings and discussions, and a
further letter from the bank of 21 February was sent concerning
potential purchasers of the group. In effect the bank was giving
further time on conditions which the bank offered but which came to
nothing. Finally, as already mentioned, the bank called in the loan on
17 March and appointed receivers.
What counsel for the bank seeks to extract from these events is an
agreement by the group, through the plaintiff, that the facility
letter of 22 May 1979 had become varied so as to make the loan
repayable on demand. His submissions can be summarised in the
following way. On 20 December 1979 the demand was made for the
repayment of the then full outstanding balance of £1.3m. This would
unquestionaly have been good if it had been limited to the excess of
about £300,000, and on the basis of a demand for this excess alone, a
receiver could have been appointed in the event of non-payment,
irrespective of the contractual position concerning the loan of £1m.
Having purported to call in the full oustanding indebtedness and
threatened to appoint a receiver, the plaintiff merely responded by
asking the bank to refrain from doing so, at any rate in the short
term. The bank acceded to that request and then referred to the loan
in all its subsequent communications as being on a day to day basis,
and therefore repayable on demand. That facility was taken up, as
counsel for the bank put it, though I think more accurately the
plaintiff continued to avail himself of what the bank was willing to
provide. Accordingly counsel for the bank submits that an agreed
contractual variation arose from the plaintiff's silence because, as
counsel said, he was then under a duty to speak. In effect counsel
argues that if the plaintiff objected to this state of affairs, then
he should have said that he did not agree that the bank was entitled
to take this line, having regard to the facility letter, and that his
failure to take that objection, and his continuing use of the
facility, gave rise to a contractual variation. I hope that I have
done justice to the argument of counsel for the bank, though it will
be apparent that I have not found it all that easy to formulate. In my
view it is impossible to extract any agreement to a contractually
binding variation of the terms of the facility letter from this
material. The plaintiff was under no duty to say anything. He agreed
to nothing, and his silence or failure to object cannot in my view be
treated as agreement of any kind. The bank simply continued to allow
the excess over £1m to remain outstanding. Admittedly the bank
purported to treat the whole outstanding balance as having become
repayable on demand, though contrary to the terms of the facility
letter. The plaintiff continued to avail himself of the de facto
extension of the facility to £1.25m or thereabouts, but he never
agreed to any variation of the terms of the facility letter. This
remained the only contractually binding document, and there was no
oral agreement on his part to anything else.
Counsel for the bank (Mr Thomas QC) also referred us to a decision of
this court in Amalgamated Investment & Property Co Ltd v Texas
Commerce International Bank Ltd [1981] 3 All ER 577, [1982] QB 84, and
in particular to the passage in the judgment of Lord Denning MR (see
[1981] 3 All ER 577 at 583-584, [1982] QB 84 at 120-121). However,
counsel himself appreciated that the factual position in that case was
quite different. In that case there was a course of dealing based on a
common assumption that a certain legal position existed between the
parties which did nor in fact exist. This cannot be said in the
present case in relation to the position under the facility letter of
22 May which, as I have said, was virtually ignored. But although it
was ignored, it was still there, and there was no common assumption
that its terms had ever been varied. It was never varied by agreement,
and the plaintiff never said nor did anything so as to estop him from
contending that it remained unvaried. I therefore consider, in
agreement with the judge, that the first submission of counsel for the
bank on this appeal equally fails and raises no triable issue.
Finally, by an amendment to his notice of appeal which the court
allowed, counsel for the bank raised the following additional point:
'That the issues of liability and of quantum are so closely related
that convenience requires a trial on both sets of issues.' I certainly
agree that there is a close relationship, and quite probably an
overlap, between the issues which have been argued both below and in
this court on liability, and the issues which will fall to be
investigated on the assessment of damages. However, since in my view
there is no triable issue on liability, there is nothing with which
the issues on quantum can overlap, and accordingly I cannot accept
that submission either.
In the result, despite valiant efforts below and here, I conclude that
the bank has not raised any triable issue which would justify setting
aside the regular judgment which the plaintiff has obtained against
it, and I would accordingly dismiss this appeal.
JUDGMENTBY-2: MAY LJ
JUDGMENT-2:
MAY LJ. I wholly agree, and anything which I might respectfully add to
the judgment which Kerr LJ has just delivered would merely be
repetition. I do not do so.
DISPOSITION:
Appeal dismissed. Leave to appeal to the House of Lords refused.
SOLICITORS:
Durrant Piesse; Hancock & Willis