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In this briefing, we look at Unitech's latest application to amend its case and Mr Justice Teare's comments in respect of each of the complex issues raised.
In his judgment on the 20th September 2013, Teare J dealt with a number of issues, including:
Alongside these issues, Teare J was also called upon to determine other procedural issues, such as whether or not the application for summary judgment was an abuse of process, too complicated, should await appeal from an earlier judgment in the action, and whether the claim was subject to the Ralli Brothers principle and matters such as the assumption of a duty of care between the contracting parties.
The context in which the various issues arose were the defendants' attempts to amend their defence and the claimants' application for summary judgment. Reference was made to a judgment of Cooke J earlier on in the litigation.
R v Helen Chapman  EWCA Crim 1370
The defendants wished to amend their existing defence, that they were entitled to rescind the swap agreement owing to the claimants having misrepresented its suitability, by introducing two further particulars of unsuitability. The issue however was whether or not, in principle, there was scope to amend the rescission plea. Teare J concluded not. This was on the basis that Cooke J had rejected the rescission argument because there had been subsequent novations of the credit agreement and these precluded any claim to rescission. The fact that the defendants were intending to appeal Cooke J's decision on this point did not prevent an issue estoppel and he specifically rejected the defendants submissions seeking to rely on observations of Moore-Bick LJ in the criminal decision of Helen Chapman. The remedy of rescission had been determined not available by Cooke J and that decision was binding on the defendants unless and until overturned by the Court of Appeal. If an appeal was allowed from Cooke J's decision then Teare J's own subsequent decision refusing permission to amend would similarly be open to appeal.
The defendants argued that since the claimant bank was involved in alleged LIBOR fixing contrary to both EU and UK competition law—by virtue of its horizontal agreements with other banks which, if proved, would render those agreements void—then it followed that any vertical agreements entered into between it and its customers (here the defendants) must also be rendered illegal, void and unenforceable. Teare J refused to accept the asserted degree of connection between the claimant's horizontal agreements in the alleged LIBOR fixing and its vertical agreements with its customers. Specifically:
Article VIII s (2)(b) of the IMF Agreement (which was incorporated into English law by the Bretton Woods Agreement Order in Council 1946) provides:
Exchange contracts which involve the currency of any member and which are contrary to the exchange control regulations of that member maintained or imposed consistently with this agreement shall be unenforceable in the territories of any member.
United City Merchants v Royal Bank of Canada and ors  2 All ER 720
The issue was whether or not the guarantee and indemnity in the credit agreement were issued in breach of Indian foreign exchange control regulations because the guarantor, being an Indian company, could only discharge its obligations under the guarantee by first using rupees to purchase US dollars. The defendants thus argued that the guarantee was essentially a disguised foreign exchange agreement and thus in breach of the Bretton Woods order. Teare J rejected this. While the IMF Agreement does not define exchange contracts, case law does. An exchange contract is one to exchange the currency of one country for the currency of another (United City Merchants). In this case, neither as a matter of form nor as a matter of substance did the guarantee and indemnity require rupees to be exchanged for US dollars. The fact that the only way in which the guarantor could put itself into a position to perform its obligation (ie by using rupees to purchase US dollars) was outside of the agreement.
The defendants argued that the claimants had failed to disclose to the guarantor a number of unusual features of the arrangements between it and the defendant debtor, such that the guarantee should be discharged. The claimed 'unusual features' were:
North Shore Ventures v Anstead Holdings  EWCA Civ 230
Teare J rejected these arguments. The scope of the limited duty of disclosure was recently considered in North Shore Ventures. In essence, there is a distinction between:
Critical here is the concept of unusual features of the contractual relationship between the creditor and the debtor:
The guarantor can be expected to know the usual features of the contractual relationship formed by the Credit Agreement and the swap agreement. But if the creditor and the debtor (or one creditor and another) have agreed terms which create an unusual feature of their relationship which the guarantor cannot be expected to know then there is a duty to disclose that feature.
Teare J concluded that none of the matters relied upon by the defendants were features of the contractual relationship, such as to have required disclosure.
Here, the issue was whether, if, as alleged, the LIBOR rate was manipulated, it therefore would be against public policy to allow the claimant bank to recover interest based on that LIBOR rate from the defendant. Teare J did not consider that this was an issue that could not be dealt with summarily. Proper and adequate effect could be given to the public policy that a person should not be able to profit from their own wrong by the remedy of a counterclaim for such damage as is shown to have been caused by the alleged wrong.
The parties did not disagree that there was scope for implying a term into the credit agreement and swap agreement regarding LIBOR, but they did dispute the scope of the term to be implied. Teare J considered that the full scope of the implied term was a matter to be determined at full trial in light of the evidence then presented. Similarly, he considered that the court could not summarily determine whether the alleged breach of such implied term was repudiatory or not. However, he did note that the law of contract is clear that repudiation of a contract does not automatically bring it to an end. Whether a party is released from their outstanding obligations depends upon whether he has accepted the repudiation as bringing the contract to an end.
Teare J's understanding was that the only acceptance of the repudiation relied upon by the defendants was that purportedly made during the hearing. Thus he would allow an amendment to plead repudiatory breach of the alleged implied term and to counterclaim for damages caused by that breach; however, he would not allow an amendment to the effect that by reason of the alleged repudiatory breach the defendants were discharged from sums that had accrued before the defendants purported to accept the alleged repudiation as terminating the credit and swap agreements.
No. It is now well established that a no set-off clause can still disable a defendant from setting off a counterclaim based on fraud in defence of a claimant's claim.
The defendants maintained various counterclaims, which they sought to set-off against the claimant's claims. However, the agreements contained provision precluding set-off. The issue was whether, where the counterclaims were based on the claimants' alleged fraud, there was scope yet to subvert the no set-off provisions on the basis of 'fraud unravels all'.
Skipskreditt v Emperor Navigation  2 BCLC 398
Deutsche Bank v Gulzar Ahmed Khan  EWHC 482 (Comm)
Teare J noted that there is authority that a no set-off clause can extend to counterclaims based on fraud; the rationale being that there is no reason why businessmen should not agree to a clause preventing set-off in terms wide enough to cover fraud on the basis that if allegations of a fraud by a lender are made they would be highly contentious and would require to be sorted out separately in a manner, which did not impinge on the performance of the loan in the meantime (Skipskreditt; Deutsche Bank).
No. The issue here was that the claimants had originally brought a summary judgment application, which they had then abandoned and only sought to resurrect after Cooke J had made his decision regarding the unavailability of a plea for rescission owing to the novation point. This was a fact specific matter where Teare J noted that there had been a change in circumstance, which had prompted the renewed application and that there had been no delay in renewing the application. He did, however, note that in principle he could see that there might be an abuse of process of the court for a party to take a certain decision in the conduct of case and then, after the court and parties have acted upon that decision, change its mind and seek to go back on its original decision. However, whether such change of mind was in fact an abuse would depend on all the facts. That was not the case here.
No. Tempting as it was, 140 pages of skeleton arguments, five bundles of evidence and seven bundles of authorities did not render the matter too complex for summary judgment; particularly when appreciating that over half of the court time dealing with the matter was, in fact, dealing with the defendant's application for permission to amend, rather than the summary judgment application.
In deciding that there was no need to await the outcome of the appeal application, Teare J noted that both parties had decided to pursue their course of action in respect of the present applications before him in the full knowledge that the appeal matter would be decided subsequently. Many litigants, faced with such an expensive appeal looming, might well have awaited the outcome of that appeal before embarking on further interlocutory skirmishes, but neither party here had done so. His specific reasons for determining the summary judgment application in advance of the appeal outcome, on case management grounds were:
Therefore it was sensible and proportionate to determine the summary judgment application now. If the Court of Appeal allowed the appeal from the order of Cooke J, it should be clear what effect the judgment of the Court of Appeal was to have on Teare J's order.
Ralli Brothers v Compania Naviera  1 K.B. 614
There was no dispute per se as to the recognised so called Ralli Brothers principle, ie that this court will not enforce performance of a contract where performance would be illegal in the place of performance.
The argument here was that the guarantor ought to be excused by this court from performance of its obligation on the grounds that:
There was no argument and no evidence that performance of the guarantee itself would be illegal in New York. Rather the argument was based on an assumption that it would be illegal under Indian law for the guarantor to transfer funds to New York to make payment there in accordance with the credit agreement and further assumed that, given this, a New York court would not compel the guarantor to make payment in New York under the agreement if this would require the guarantor to commit an act illegal in India.
Kleinwort Sons v Ungarische Baumolle  2 KB 678,  3 All ER 38
Ralli Brothers itself did not consider this 'steps preparatory' point. However, the scope of Ralli Brothers was considered in Kleinwort Sons where performance of an obligation was required in England but in order to perform that obligation funds had to be sent from Hungary which would have been illegal by the law of Hungary. The Court of Appeal in Kleinwort Sons held that the Ralli principle did not extend to such facts.
Thus Teare J was clear (with reference to a decision of similar effect in Toprak) that in circumstances such as this, where the performance itself is not illegal in the country where performance is to take place, then the court will not excuse the performance simply because steps necessary to enable a party to perform the obligation would be illegal in the country where such steps would be taken. (Toprak Mahsulleri v Fingrain Compagnie  2 Lloyd's Rep 98).
The defendants asserted that the claimant bank had owed the guarantor a duty of care to take reasonable steps to ascertain its experience and sophistication, to ensure that any product was suitable and to ensure that the guarantor fully understood any investment or product.
Teare J considered that whether a duty of care exists is usually 'so bound up with the facts of a case that it must be a rare case in which one can say at an interlocutory stage that there is no prospect that the alleged duty of care will be established'.
Springwell Navigation v JP Morgan Chase  EWCA Civ 1221IFE Fund v Goldman Sachs  EWHC 2887 (Comm)IFE Fund v Goldman Sachs  EWCA Civ 811Titan Steel v RBS  EWHC 211 (Comm)Standard Chartered v Ceylon Petroleum  EWHC 1785 (Comm).
He noted that there is now considerable authority for the proposition that when considering whether a duty of care is owed by one person to another the terms of the relationship between them must be considered and such terms may negate the existence of the suggested duty of care (Springwell Navigation, IFE Fund, Titan Steel, Standard Chartered v Ceylon Petroleum).
On that basis it was necessary for the court to consider the terms of the disclaimer signed by the guarantor before considering whether the claimant bank owed it a duty of care. Having done so, he concluded that the signing of such a disclaimer was inconsistent with the assumption of any duty of care as alleged by the defendants.
He further rejected that dishonesty could make any difference:
The duty alleged is one to take reasonable care. Such a duty is broken where reasonable care is not taken. The fact that dishonesty may be alleged does not enable a duty of care to arise in circumstances where it would not otherwise arise. A dishonest misrepresentation may give rise to a claim in deceit but it was not explained to me how it gives rise to a duty of care.
However, Teare J refused to make a summary judgment decision against the defendants on this point because they had also specifically alleged that the signing of the disclosure itself had been induced by fraud. It was thus arguable that if the guarantor were induced to sign the disclaimer by reason of a dishonest representation, the claimants could not rely on the disclaimer to show that there was no duty of care.
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