November 20, 2023 COURT OF FIRST INSTANCE - JUDGMENTS
Claim No. CFI 090/2022
IN THE DUBAI INTERNATIONAL FINANCIAL CENTRE
IN THE COURT OF FIRST INSTANCE
BETWEEN
BANK OF SINGAPORE LIMITED
Claimant
and
(1) MARJ HOLDING LIMITED
(2) MOHAMMED AHMAD RAMADHAN JUMA
Defendants
Hearing : | 12 October 2023 |
---|---|
Counsel : | Mr Tom Montagu-Smith KC instructed by Al Tamimi & Company for the Claimant Mr Robert Whitehead instructed by Hamdan Al Shamsi Lawyers & Legal Consultants for the Defendants |
Judgment : | 20 November 2023 |
JUDGMENT OF JUSTICE RENE LE MIERE
UPON the Claimant’s Application Notice CFI-090-2022/2 dated 21 June 2023 seeking immediate judgment against the Defendants (the “Immediate Judgment Application”)
AND UPON hearing Counsel for the Claimant and Counsel for the Defendants in a hearing before me on 12 October 2023
AND UPON the parties’ supplementary submissions dated 10 and 14 November 2023
AND UPON reviewing the case file and evidence set out therein
IT IS HEREBY ORDERED THAT:
1. The Immediate Judgment Application is granted.
2. Judgment shall be entered in favour of the Claimant against each of the Defendants in the sum of USD 55,884,582.50.
3. The parties may file and serve, within 7 days, a minute of the orders in relation to costs which they submit are appropriate together with submissions of no more than 5 pages.
Issued by:
Hayley Norton
Assistant Registrar
Date of issue: 20 November 2023
At: 10am
SCHEDULE OF REASONS
Summary
1. The Claimant, the Bank of Singapore Limited (the “Bank”), and the First Defendant, MARJ Holding Limited (“MARJ”) entered an agreement in October 2021 pursuant to which the Bank made certain facilities available to MARJ.
2. The Second Defendant, Mr Juma, is a director and majority shareholder of MARJ.
3. The agreement consists of a letter dated 5 October 2021 by which the Bank agreed to provide MARJ with credit facilities, on an uncommitted basis, for a revolving short-term advance/overdraft facility up to EUR 240m and trading facilities up to an aggregate line utilisation amount of USD 5m (together the “Facilities”), upon the terms and conditions set out in the letter and the Annex(es) (together, the “Facility Letter”).
4. The Facility Letter provides that the Bank’s Services Agreement and General Credit and Trading Facilities Agreement (“GCTFA”) shall apply and form an integral part of the Facility Letter. I will refer to the agreement constituted by the Facility Letter incorporating the Services Agreement and the GCTFA as the Facility Agreement.
5. The Facility Letter and the GCTFA expressly state that the Facilities are subject to the Bank’s overriding right to demand repayment at any time.
6. The Facility Letter provides that the Facilities and all monies and liabilities owing to the Bank shall be secured by a charge over the assets in MARJ’s accounts with the Bank, a guarantee by Mr Juma, and other security required by the Bank. The Services Agreement provides that MARJ shall provide security or collateral in such form as the Bank might in its discretion require and maintain such margin (or deposit with the Bank such amount of money, other assets or additional security as the Bank may specify in order to maintain such margin) as the Bank may in its absolute discretion consider appropriate as security for MARJ’s liabilities to the Bank.
7. On 6 October 2021 Mr Juma signed a guarantee in favour of the Bank, guaranteeing the obligations of MARJ to the Bank (the “Guarantee”).
8. MARJ placed certain securities in its accounts with the Bank which were the subject of a charge in favour of the Bank.
9. The Facilities became operational on 8 October 2021.
10. Between August and November 2021 MARJ delivered to the Bank Landstone B.V. Fixed Rate bonds and Nordrock Fixed Rate bonds (the “Bonds”) and other securities as security for MARJ’s liabilities under the Facilities.
11. By the end of 2021, MARJ was in margin shortfall. The Bank sent margin call letters to MARJ over an extended period.
12. On 11 March 2022, the Bank demanded repayment of the amounts outstanding under the Facilities and gave notice of its intention to close MARJ’s accounts and terminate the agreement. The Bank gave notice that unless MARJ repaid the advances under the Facilities, the Bank would proceed to liquidate the securities held in MARJ's accounts with the Bank.
13. The Bank gave warning notices, but MARJ did not repay the outstanding advances.
14. On 15 June 2022, the Bank terminated the Facilities and demanded repayment of the amounts outstanding under the Facilities.
15. In September 2022, the Bank sold the liquid securities in MARJ's accounts with the Bank.
16. On 14 December 2022, the Bank commenced this action by Claim Form in which the Bank made two claims. The first claim is that MARJ and Mr Juma are liable to the Bank for the unpaid balance under the Facility Agreement and the Guarantee respectively (the “debt claim”). The second claim is that MARJ is liable to the Bank for damages for misrepresentation in that MARJ misrepresented the value of the Bonds as security for the Facilities (the “misrepresentation claim”).
17. As of 31 May 2023, MARJ had overdrawn its current account in the amount of USD 53,169,618.94.
18. The Bank submits that its debt claim is a straightforward debt claim and has applied for immediate judgment on its debt claim. The Bank does not apply for immediate judgment on its misrepresentation claim.
19. The Defendants admit that they have not repaid the advances under the Facilities but do not admit the amount allegedly outstanding and say that MARJ is entitled to set-off sums owed to it by the Bank pursuant to its counterclaim for losses it has suffered as a result of breaches by the Bank of implied terms of the Facility Agreement and regulatory obligations.
20. The Defendants assert that various terms should be implied into the Facility Agreement, that the Bank breached those implied terms and regulatory obligations under the DFSA Rules causing MARJ loss and as a result MARJ has a counterclaim which it is entitled to set off against its liabilities to the Bank.
21. Mr Juma asserts that the Guarantee is invalid because it was not properly witnessed and so could not take effect as a deed and was signed after the Bank had agreed to grant the Facilities and so could not take effect as a contract because it lacks consideration.
22. Alternatively, Mr Juma asserts he is entitled to set-off against any liability to the Bank, the Bank's liabilities to MARJ.
23. For the reasons which follow I find:
(a) The Defendants have no real prospect of successfully defending the debt claim against them because:
(i) the outstanding balance of MARJ’s account is due and payable by MARJ to the Bank;
(ii) the Defendants are not entitled to set-off any damages they suffered as a result of the Bank breaching the alleged implied terms or regulatory obligations against the amounts owing to the Bank under the Facility Agreement;
(iii) the Defendants have no real prospect of succeeding on their counterclaim; and
(iv) the Guarantee is enforceable against Mr Juma.
(b) There is no other compelling reason why the Bank’s debt claim or its claim against Mr Juma under the Guarantee should be disposed of at a trial.
(c) The Bank's application for immediate judgment should be granted.
(d) Judgment on the debt claim should be entered for the Bank against each of the Defendants in the amount of USD 55,884,582.50.
(e) Each party may within 7 days file and serve a minute off orders in relation to costs which they submit are appropriate together with submissions of no more than 5 pages.
Factual outline
My findings
24. The pleadings and documentary and uncontradicted testimonial evidence establish the following facts.
The parties
25. The Bank is incorporated in Singapore. It has a branch in the DIFC and is an Authorised Firm under the DIFC Regulatory Law.
26. MARJ is a Cayman Islands company. Mr Juma is the majority shareholder and was, until 31 August 2022, its sole director.
The Facilities
27. On 21 June 2021, MARJ applied to the Bank to open an account. On the same day, MARJ and the Bank signed a memorandum of charge (the “Charge”), under which MARJ granted the Bank a fixed first charge and assigned absolutely to the Bank its interest in all securities and money standing to MARJ’s credit in its accounts with the Bank.
28. MARJ subsequently transferred a number of securities into accounts with the Bank. These included the Bonds (Landstone B.V. and Nordrock Securities B.V. bonds) with a nominal value of EUR 390m, transferred between 17 August and 30 November 2021. The Bonds could not be realised when the Bank liquidated the securities it held in MARJ’s accounts in September 2022.
29. On 5 October 2021, the Bank issued the Facility Letter to MARJ, offering to provide it with facilities on the terms set out in the Facility Letter, the Services Agreement and the GCTFA. The Facilities were offered on an uncommitted basis, “subject always to the Bank’s overriding right to demand repayment at any time”.
30. Mr Juma accepted the offer on behalf of MARJ on 6 October 2021.
31. On the same day, 6 October 2021, Mr Juma signed the Guarantee in favour of the Bank, amongst other things guaranteeing the prompt performance of MARJ’s obligations to the Bank.
32. Mr Gaurav Sahni, a senior relationship manager at the Bank, witnessed Mr Juma’s signature. Mr Sahni added his signature to the document on his return to his office.
33. On 14 October 2021, the Bank made 50% of the proposed facility available to MARJ in the sum of EUR 120m. The purpose identified in the term sheet was for reinvestment into liquid securities. The Bank’s position is that it withheld the balance of the Facility because MARJ had not provided certain securities
Operation of the Facilities
34. On 15 October 2021, the Bank assigned a fixed advance value of EUR 31.8m to the Landstone bonds. The Bank’s position is that it did so by way of exception. The Bank capped the additional advance attributable to the bonds at USD 30m.
35. On 16 November 2021, the Bank increased the additional advance value attributed to the Bonds to USD 60m for 6 months. Again, the Bank says it did so by way of exception.
36. In November 2021, Dr. Haider Khan1, the CFO of MARJ, emailed the Bank to confirm that further liquid securities would be provided to secure the borrowing.
37. The Landstone bonds were due to issue a coupon on 30 December 2021. By 5 January 2022, the Bank had not received the coupon. The Bank emailed Dr Haider Khan for information. In response, Dr Haider Khan said the bonds were not in default, that Mr Juma had directly received the coupon and he would transfer it to the Bank within the week.
38. Despite several further communications, the Bank never received the coupon. By 4 July 2022, Dr Haider Khan was proposing to “substitute Landstone”.
39. On 26 September 2022, the Bank emailed Lars Magnusson of the Larmag Group requesting information about the Landstone bonds. On 30 September 2022 Mr Magnusson informed the Bank that MARJ had not paid for the Landstone bonds and had only partially paid for other bonds issued by Nordrock Securities B.V. which the Bank also held as security.
40. On 6 December 2022, the Bank emailed an insurance broker requesting confirmation that the Landstone bonds were insured. On 7 December 2022, the insurance broker informed the Bank that the Landstone bonds were not insured because the bonds had not been paid for.
41. On 11 January 2022, the Bank issued a margin call letter to MARJ. The Bank subsequently notified MARJ of margin shortfall on numerous occasions and sent three margin call letters.
EFG Bank
42. On 8 February 2022, the Bank notified MARJ that, unless MARJ addressed the margin shortfall, the Bank would sell securities to reduce the deficit. In response, Dr Haider Khan said that the account would be regularised that day. On the following day, Dr Haider Khan said that he expected the margin shortfall to be reduced from USD 9.1m to USD 7.5m, that he needed two more days to eliminate the shortfall and that, if he was unable to do so, “the total outstanding shall be taken over by EFG”. Dr Haider Khan said that the Bank would receive formal communication from EFG during the day.
43. The Bank sought further information from Dr Haider Khan about the proposed EFG transfer on further occasions between 10 February and 9 March 2022.
44. Dr Haider Khan initially indicated that EFG would be in touch imminently. On 14 February 2022, he said EFG would begin the process that day. On 19 February 2022, Dr Haider Khan indicated that there would be delay in EFG taking over the portfolio because of “a change in composition of the portfolio constituents”.
Bank withdraws credit and terminates agreement
45. On 11 March 2022, the Bank gave notice that it intended to close the account and terminate the agreement with MARJ. The Bank gave several warnings that, unless the sums due were cleared, it would liquidate and redeem all securities held. The initial deadline given was 26 April 2022. The Bank extended this deadline on several occasions over the following months.
MARJ proposes to transfer accounts to ONE Swiss Bank
46. On 27 April 2022, V. Gowribalan, the CEO of GRIP (DIFC) Limited (GRIP), an investment and advisory firm, on behalf of MARJ informed the Bank that a transfer of the portfolio to ONE Swiss Bank was in progress. The Bank sought an update and to progress the transfer to ONE Swiss on nine occasions in May and June 2022.
47. Delays in the proposed transfer to ONE Swiss were explained by MARJ variously as due to delays caused by holidays and the need to obtain ONE Swiss credit committee approval (5 May 2022), unexpected procedural delays (20 May 2022), ONE Swiss internal approvals (24 May 2022) and “procedural only” (8 June 2022).
48. On 10 June 2022, MARJ stated that it was initiating discussions with five other banks. The Bank responded the same day expressing dismay.
Bank terminates Facilities and demands repayment
49. By letter of 15 June 2022 to MARJ the Bank terminated the Facilities and demanded repayment of all outstanding amounts.
ONE Swiss discussions continue
50. On 29 June 2022, Dr Haider Khan reported that discussions with ONE Swiss were still ongoing. On 18 July 2022, Adeel Sarfraz, an employee or officer of GRIP, on behalf of MARJ informed the Bank that discussions were progressing positively, and ONE Swiss would release an account number by 20 July 2022. On 20 July 2022, Mr Sarfraz informed the Bank that ONE Swiss would provide an account number by the following day. On 29 August 2022, Mr Sarfraz informed the Bank that ONE Swiss credit and risk committee approval was “in process”.
51. On 19 September 2022, the Bank sent Mr Juma a request for an update on ONE Swiss. Mr Sarfraz responded that “to the best of our knowledge, ONE Swiss … shall be able to send the transfer instructions by tomorrow”.
Liquidation of security
52. The ONE Swiss transfer did not occur.
53. On 29 September 2022, the Bank proceeded to sell the liquid securities. The Bank was unable to sell the Bonds.
54. On 2 November 2022, Dr Haider Khan offered a settlement plan by which MARJ would transfer:
“USD 3m every month starting current month onwards to settle the liabilities with [the Bank]”.
Dr Haider Khan proposed that the Bank attribute a nominal value of EUR 1 to the Landstone Bonds.
55. The Defendants have not made any payments to repay or reduce its liabilities to the Bank.
56. As of 31 May 2023, MARJ’s current account was overdrawn USD 53,169,618.94.
Procedural history
Claim form and pleadings
57. The Bank commenced this action on 14 December 2022. The Bank attached particulars of claim to its claim form.
58. The Bank served the claim form and particulars of claim on MARJ and Mr Juma on 21 December 2022 and 15 December 2022, respectively.
59. On 30 December 2022 the Defendants’ then legal representatives, KBH limited, filed an acknowledgment of service stating that they intended to contest jurisdiction. On 12 January 2023, the Defendants filed an amended acknowledgement of service which stated that they intended to defend the claim but not to contest jurisdiction.
60. By consent, the Court extended the time for the Defendants to file and serve a defence to 13 February 2023 and on 13 February 2023 further extended the time to 15 February 2023. The Defendants filed a joint defence and counterclaim on 15 February 2023.
61. By consent, the Court extended the time for the Bank to file a reply to 17 March 2023. On 17 March, the Bank filed a reply to defence and a defence to counterclaim.
62. On 16 June 2023, KBH Limited applied for a declaration that they had ceased to be the legal representative for the Defendants. On 20 June 2023, the Court ordered that KBH limited cease to be the legal representatives for the Defendants.
Immediate judgment application
63. On 21 June 2023 the Bank filed an application for immediate judgment on its claim in debt against the Defendants on the grounds that the Defendants have no real prospect of successful defending the Bank’s claim in debt; that MARJ has failed to repay, on demand, the debt due and owing to the Bank pursuant to the terms of the Facility Agreement; that pursuant to the terms of the Facility Agreement, the Bank has an overriding right to demand repayment of the loans provided to MARJ at any time, which it did on 15 June 2022; that MARJ has failed to repay the amounts claimed by the Bank; and that Mr Juma is jointly and severally liable for the debt pursuant to the terms of the Guarantee. The application was supported by the first witness statements of Mr Sahni, Boris Christian Huebscher, a Senior Credit Risk Manager of the Bank, and Johnathan Richard Brooks, a Senior Counsel at Al Tamimi & Company, the legal representatives acting on behalf of the Bank, verified on 16 June, 19 June, and 21 June 2023, respectively.
64. MARJ applied for an order extending the deadline for the Defendants to file their evidence in response to the Bank's immediate judgment application on the ground that the Defendants' previous legal representatives had ceased to act for them, and they had not yet been able to engage new legal representatives. The Bank opposed the extension of time sought by the Defendants. On 3 August 2023, before the Defendants’ application for an extension of time had been heard, Hamdan Al Shamsi Lawyers & Legal Consultants filed a notice that the Defendants had instructed them to act on behalf of the Defendants in place of KBH Limited.
65. On 21 August 2023, the Court ordered by consent that the time for the Defendants to file their evidence in response to the Bank’s immediate judgement application be extended to 4 September 2023. On 5 September 2023, the Court ordered by consent that the time for the Defendants to file their response evidence be extended to 11 September 2023 and the Bank shall file and serve its evidence in reply to the Defendants’ evidence in answer by 9 October 2023. On 12 September 2023, the Court ordered by consent that the time for the Defendants to file their responsive evidence be further extended to 13 September 2023.
66. On 13 September 2023, in answer to the Banks application for immediate judgment, the Defendants filed the second witness statements of Dr Haider Khan and Robert Whitehead, a partner and head of the DIFC and International Arbitration department at Hamdan Al Shamsi Lawyers & Legal Consultants, each verified on 13 September 2023.
67. On 6 October 2023 in reply to the Defendants’ evidence, the Bank filed the second witness statements of Mr Huebscher and Mr Brooks, each verified on 6 October 2023.
68. The Bank and the Defendants each filed their skeleton arguments on 11 October 2023.
Request for adjournment
69. At the hearing of the Bank’s application for immediate judgement, counsel for the Defendants informed the Court that the Defendants had written to the Court seeking an adjournment of the hearing of the application for immediate judgment, but the Court had refused the request. Counsel for the Defendants did not renew the application for an adjournment at the hearing of the application for immediate judgment.
70. During the hearing of the immediate judgment application, counsel for the Defendants stated in effect that the Defendants had not had enough time to consider and respond to the second witness statements of Mr Huebscher and Mr Brooks and the submission made by senior counsel for the Bank about the validity of a deed under Singapore law. I invited counsel for the Defendants to apply for leave to put on further evidence concerning those matters. Counsel for the Defendants elected not to do so and elected to proceed with the application for immediate judgment.
71. The Bank filed the second witness statements of Mr Huebscher and Mr Brooks within the time specified by an order made with the consent of the Defendants. The Defendants had an opportunity to apply for leave to put on further evidence in response but elected not to do so. The Defendants had an opportunity to apply for leave to put on evidence in response to the submissions of senior counsel but elected not to do so. I am satisfied that the Defendants have had a proper opportunity to answer the Bank’s application for immediate judgment.
Jurisdiction
72. It is common ground that the claim is within the jurisdiction of this court2. I am satisfied the Courts of the DIFC have jurisdiction pursuant to Article (5)(A)(1)(a) of the Judicial Authority Law.
Applicable law
Immediate judgment
73. Part 24 of The Rules of the Dubai International Financial Centre Courts 2014 (RDC) govern applications for immediate judgment.
74. There is no relevant controversy about the principles that apply to an application for immediate judgment, though the parties differ as to the proper application of those principles.
75. I will refer to the relevant principles below.
Facility Agreement
76. It is common ground that the law of Singapore governs the Facility Letter, the Services Agreement, the GCTFA, the Charge and the Guarantee3.
77. DIFC Courts are not bound to treat foreign law as a fact to be proved as such, as they possess a discretion under Article 50 (c) off the DIFC Court Law to apply such rules of evidence as they may consider appropriate in the circumstances4. In Fidel v Felecia5 the DIFC Court of Appeal held that the DIFC Courts should take an “international approach” to the determination of questions of non - DIFC law. The Court of Appeal stated that, generally, DIFC Courts should treat all non - DIFC law as law rather than fact,
“with counsel making legal submissions on disputed areas of the applicable (or relevant) law, appending expert opinions if necessary, and... the court being allowed to take judicial notice of the foreign law in question”.6
78. However, this is only a presumptive rule:
“The trial judge should always have the discretion to proceed in the manner in which he considers most beneficial for his education - in a system of law with which he is not confidently familiar”7.
79. In Nest Investments Holding Lebanon SAL and ors v Deloitte & Touche and anor8 the DIFC Court of Appeal observed that in Fidel v Felecia the Court was dealing with a question of UAE law. The Court further observed that that case did not require for its decision of the enunciation of an approach to be mandated on all questions of foreign law coming before DIFC Courts; the trial judge has the discretion to proceed in the way he considers most beneficial for his education in a system of law with which he is not confidently familiar.9 The approach which the trial judge takes may vary according to the circumstances. The process adopted is analogous to fact finding even if a peculiar kind of fact finding. Where the primary judge has simply heard argument, supplemented by reference to juristic writings and decisions, then the nature of the determination may be more analogous to the determination of a question of law10.
80. I will discuss the relevant Singapore law later in these reasons.
Immediate judgment principles
81. RDC Rule 24.1 provides that the Court may give immediate judgment against a defendant on the whole of a claim, part of a claim or on a particular issue if:
(1) it considers that:
(b) that defendant has no real prospect of successfully defending the claim or issue; and
(2) there is no other compelling reason why the case or issue should be disposed of at a trial.
82. RDC 24.2 provides that an application for immediate judgment under Rule 24.1 may be based on:
(1) a point of law (including a question of construction of a document);
(2) the evidence which can reasonably be expected to be available at trial or the lack of it; or
(3) a combination of these.
83. In Emirates NBD Bank PJSC and ors v Advanced Facilities Management LLC and ors11 the DIFC Court of Appeal dismissed an appeal by the defendants against an order granting the claimants immediate judgement on the claim and the counter claim in the action. The Court of Appeal held that on an application for immediate judgment under rule 24.1 the legal burden of proof rests on the Claimants12.
84. The Court of Appeal adopted the principles outlined by Lewison J in Easyair Ltd v Opal Telecom Ltd13 dealing with an application by a defendant for summary judgment. Justice Lewison stated that the court must be careful before giving summary judgment on a claim and that the correct approach on applications by defendants is as follows14:
“i) The court must consider whether the claimant has a ‘realistic’ as opposed to a ‘fanciful’ prospect of success.
ii) A ‘realistic’ claim is one that carries some degree of conviction. This means a claim that is more than merely arguable.
iii) In reaching its conclusion the court must not conduct a ‘mini-trial’.
iv) This does not mean that the court must take at face value and without analysis everything that a claimant says in his statements before the court. In some cases it may be clear that there is no real substance in factual assertions made, particularly if contradicted by contemporaneous documents.
v) However, in reaching its conclusion the court must take into account not only the evidence actually placed before it on the application for summary judgment, but also the evidence that can reasonably be expected to be available at trial.
vi) Although a case may turn out at trial not to be really complicated, it does not follow that it should be decided without the fuller investigation into the facts at trial than is possible or permissible on summary judgment. Thus the court should hesitate about making a final decision without a trial, even where there is no obvious conflict of fact at the time of the application, where reasonable grounds exist for believing that a fuller investigation into the facts of the case would add to or alter the evidence available to a trial judge and so affect the outcome of the case.
vii) On the other hand it is not uncommon for an application under Part 24 to give rise to a short point of law or construction and, if the court is satisfied that it has before it all the evidence necessary for the proper determination of the question and that the parties have had an adequate opportunity to address it in argument, it should grasp the nettle and decide it…If it is possible to show by evidence that although material in the form of documents or oral evidence that would put the documents in another light is not currently before the court, such material is likely to exist and can be expected to be available at trial, it would be wrong to give summary judgment because there would be a real, as opposed to a fanciful, prospect of success. However, it is not enough simply to argue that the case should be allowed to go to trial because something may turn up which would have a bearing on the question of construction.” (citations omitted)
85. In opposition to the application for immediate judgment the Defendants submitted that the Court should further examine questions or issues and submitted that these queries cannot be decided at the immediate judgment application hearing. For example, in arguing that the Bank arbitrarily and unilaterally re-evaluated the loan to value ratio of the Landstone bonds, the Defendants submitted that the parties should be allowed to appoint a banking/quantum expert to file an expert report as such technical queries relating to banking should not properly be decided by the Court as part of an immediate judgment application hearing. The Defendants submitted that the Court should permit them to provide evidence after further investigations into the claim and counterclaims.
86. I am not persuaded by those submissions. It is necessary for a party responding to an application for immediate judgment to put forward sufficient evidence to satisfy the Court that it has a real prospect of succeeding at trial. If it wishes to rely on the likelihood that further evidence will be available at a trial, it must substantiate that assertion by describing, at least in general terms, the nature of the evidence, its source, and its relevance to the issues before the Court. The Court may then be able to see that there is substance in the point and that the Defendants are not simply playing for time in the hope that something will turn up. It is not sufficient for a defendant simply to say that further evidence will or may be available. The Defendants are entitled to confine their evidence to selected documents and general allegations, but having done so, and having failed to show by evidence what other evidence can be expected to be available at trial, the Court will not speculate about whether there might be any such evidence, and if so, what its nature might be.
Singapore law
Contract law
87. It is common ground that the law of Singapore governs the interpretation and implication of terms of the Facility Agreement.
88. The parties conducted the application on the basis that the contract law of Singapore, including the interpretation and implication of terms, is the same as the contract law of England and Wales. Senior counsel for the Bank in his written and oral submissions expressly referred to the leading case on the implication of terms under English law15, the English case giving rise to the “Braganza duty”16, and English authorities where no such term will be implied17.
89. Counsel for the Defendants did not express any disagreement with that approach and framed his submissions on the basis that the terms which the Defendants submitted should be implied are those addressed by the Bank.
90. I take judicial notice that Singapore contract law is based on the common law of contract of England and Wales. The Bank expressly, and the Defendants implicitly, proceeded on the basis that the relevant contract law of Singapore is, or is the same as, the common law of England and Wales.
91. Having regard to the discretion of the trial judge to find foreign law in the way appropriate to the case and the way in which the parties conducted the case, I should, and will, proceed on the same basis as the parties, and treat the contract law of Singapore to be the same as the common law of England and Wales.
Requirements of a deed
92. The Bank submitted that the requirements and enforceability of deeds under the law of Singapore is, or is the same as, the common law of England and Wales. The Defendants contended that the Bank’s senior counsel had not cited any authority or text in support of his submission. The Defendants’ counsel submitted that that issue should be the subject of further inquiry and should await a trial of the action.
93. There is material before the Court about the Singapore law of deeds. The Singapore Court of Appeal in Lim Zhipeng v Seow Suat Thin18 (Lim Zhipeng) considered the requirements and enforceability of deeds. The Court invited the parties to comment on Lim Zhipeng. The Bank endorsed the statements in Lim Zhipeng as an authoritative explication of the relevant Singapore law. The Defendants did not demur.
94. I reject the Defendants’ submission that the requirements and enforceability of deeds under the law of Singapore should be the subject of further inquiry and should await a trial of the action. It is not sufficient for a defendant simply to say that further material may be available. The Defendants have had a proper opportunity to put forward submissions and material as to the relevant Singapore law. They elected not to do so. The Defendants have not given any indication of what other material can be expected to be available at trial. They merely invite the Court to speculate about whether there might be any such material, and if so, what its nature might be.
95. I accept the statements in Lim Zhipeng as an authoritative explication of the requirements and enforceability of deeds under Singapore law.
The Facility Agreement
96. The parties agree that on 6 October 2021 the Bank and the Defendants entered into the Facility Agreement on the terms of the Facility Letter which incorporated the Services Agreement and the GCTFA.
97. The Facility Letter provides that the Bank agreed to provide the Facilities:
“subject always to the Bank's overriding right to demand repayment at any time and the availability of funds … on an uncommitted basis”.
98. The Services Agreement at clause A provides:
(A2) “The availability and/or continued availability of any Service shall be subject to the Bank’s consent, in its sole discretion, and to the fulfilment by you of such conditions as the Bank may require. … . The Bank reserves the right to, at any time and from time to time, with or without notice or cause, cancel, withdraw, suspend, vary, change, add to or supplement any one or more of the Services.”
(A17) “Unless with the Bank’s written consent, security, Collateral or Margin so provided is not to be withdrawn, sold, pledged, transferred, charged, disposed of or otherwise dealt with until all amounts owing by you to the Bank are satisfied or paid in full.
…
The Collateral Value ascribed to each item of Collateral furnished shall be calculated as a percentage of its market value. Such percentage and market value shall be determined from time to time by the Bank in its discretion. The Bank may, in its discretion, ascribe a zero Collateral Value to any item of Collateral.
The Bank may specify from time-to-time Margin levels to be established before a Facility may be utilised and to be maintained during the utilisation of a Facility, failing which the Bank may require topping up of Collateral or the repayment of obligations. The Bank may also specify Margin which if exceeded will entitle the Bank to Close Out or liquidate positions and Contracts. These Margin levels may be varied by the Bank from time to time in its absolute discretion.
If at any time the Collateral Value is not sufficient to comply with any Margin stipulated by the Bank, the Bank shall be entitled to:
(a) convert, upon notification to the Client, any Facilities or loans extended by the Bank to the Client from the base currency initially agreed between the Bank and the Client to another currency;
(b) notify the Client to furnish additional Collateral or to repay such part of its outstanding obligations to the Bank and the Client shall forthwith upon such notification furnish such additional Collateral or make such repayment so that after the top-up or repayment, the stipulated Margin requirements are complied with; and
(c) exercise all or any of its rights which it would have under Clause A (27) upon the occurrence of any Event of Default”
99. The Services Agreement at clause B1 provides:
“Upon request from you, the Bank may in its discretion make available any or all of the following facilities to you upon the terms and conditions set out in the General Credit and Trading Facilities Agreement set out in Annex C (GCTFA) and/or the relevant Facility Letter(s):-[the various credit facilities which might be made available to MARJ]”
100. The Services Agreement at clause D7 provides:
“(i) The Bank may at its absolute discretion grant to the Client overdrafts on the Client’s Account(s) and on such terms and conditions as it may impose.
(ii) Where an overdraft is permitted by the Bank, each principal amount advanced by the Bank at its sole discretion shall be payable by the Client immediately upon demand by the Bank together with interest accrued and, if applicable, all other commissions, discounts and Bank charges”
101. The GCTFA provides at clause A:
“Any credit and trading facility offered to the Client by the Bank pursuant to the terms and conditions in this Agreement shall be on an uncommitted basis unless otherwise specified and subject always to the overriding right of the Bank to demand repayment at any time.”
The Bank, at the request of the Client, may extend a short-term advances (STA) / overdraft facility to the Client for an amount and in a currency as may be approved by the Bank. The Bank may review and revise the limits of any STA / overdraft facility extended to the Client without notice if it regards such review and revision to be necessary or expedient. “The Bank, at the request of the Client, may extend a shortterm advances (STA) / overdraft facility to the Client for an amount and in a currency as may be approved by the Bank. The Bank may review and revise the limits of any STA / overdraft facility extended to the Client without notice if it regards such review and revision to be necessary or expedient.”
102. The GCTFA provides at clause B (1):
“The Bank, at the request of the Client, may extend a short-term advances (STA) / overdraft facility to the Client for an amount and in a currency as may be approved by the Bank. The Bank may review and revise the limits of any STA / overdraft facility extended to the Client without notice if it regards such review and revision to be necessary or expedient.”
103. The GCTFA provides at clause B (7):
“Each Advance under the STA / overdraft facility shall be repaid either at the end of the Interest Period for that Advance under the STA facility or on demand for an Advance under the overdraft facility, or upon the termination or cancellation of the STA / overdraft facility, whichever is the earliest.”
Bank is prima facie entitled to be paid by MARJ
104. A loan of money payable on request creates an immediate debt19. Speaking of a promissory note payable on demand Parke B in Norton v Ellam said20:
“It is the same as the case of money lent payable upon request, with interest, where no demand is necessary before bringing the action. There is no obligation in law to give any notice at all; If you choose to make it part of the contract that notice shall be given, you may do so. The debt which constitutes the cause of action arises instantly on the loan.”
105. By the Facility Agreement, the Bank provided MARJ with credit facilities, on an uncommitted basis, for a revolving short-term advance/overdraft facility, subject always to the Bank’s overriding right to demand repayment at any time.
106. By letter of 15 June 2022 to MARJ, the Bank terminated the Facilities and demanded repayment of all outstanding amounts. The amounts outstanding under the Facilities became, and are, due and payable by MARJ to the Bank as a debt.
107. The Defendants do not dispute that the amount outstanding under the Facilities is a debt owing by MARJ to the Bank under the Facility Agreement.
The defence
108. MARJ’s defence to the Bank’s debt claim is summarised at [4.2] of the Defence.
109. At [4.2.1] the Defendants plead that the Bank has failed to plead the extent to which it remains in possession of assets held with the Bank under MARJ's portfolio.
110. At [4.2.2] of the Defence, the Defendants plead that MARJ has a counterclaim against the Bank for damages for breach of contract and/ or pursuant to Article 94 of DIFC Law No 1 of 2004 (the DIFC Regulatory Law). The counterclaim is that the Bank breached duties implied in the Facility Agreement and imposed by the Regulatory Law as a result of which MARJ suffered damage. The Defendants plead that MARJ is entitled to set off against any liability to the Bank the sums owed to it by the Bank pursuant to the counterclaim.
111. At the hearing of the immediate judgment application the Defendants submitted that MARJ has a real prospect of successfully defending the Bank’s debt claim against it on the basis of those arguments.
Assets retained by Bank
112. The first defence raised by the Defendants is that the Bank has failed to plead the extent to which it remains in possession of assets held by the Bank in MARJ's accounts.
113. That proposition does not provide a defence. Under the terms of the Facility Agreement the Bank is entitled to sell MARJ’s assets held by the Bank as security to discharge obligations of MARJ, but it is not obliged to do so. The Defendants have not pleaded and did not submit that the Bank is obliged to do so. In any event at [79] of his first witness statement in support of the Bank's application for immediate judgment, Mr Huebscher states that by 29 September 2022 the Bank sold the liquid securities held in MARJ’s account and gives details of the securities sold and the amounts realised. At [80] Mr Huebscher states that the Bank was unable to sell the Bonds. The Defendants have not contradicted or challenged that evidence.
The counterclaim and set–off
114. MARJ claims damages for loss it suffered as a result of the Bank breaching implied terms of the Facility Agreement and compensation pursuant to Article 94 of the DIFC Regulatory Law and the Defendants seek to extinguish or reduce the Bank’s claim by setting off the sums counterclaimed.
115. Even if the Bank breached implied terms of the Facility Agreement which caused loss and damage to MARJ or is entitled to compensation for breach of regulatory duties, that may not afford MARJ a defence because the Facility Agreement contains a no setoff clause.
116. Clause A.9 of the Services Agreement provides:
“Unless otherwise agreed, all payments to the Bank shall be made without set off or counterclaim and free and clear of any deductions or withholdings….”
117. For the purposes of this application the contract law of Singapore is to be taken to be the same as the common law of England and Wales. Under the law of England and Wales, subject to any statutory provision to the contrary, an express or implied agreement may exclude a right of set-off including a right of equitable set off21
118. The Defendants have not suggested that the contractual right of set-off is precluded or restricted by statute or for any other reason.
119. Therefore, even if MARJ has a real prospect of succeeding in its counterclaim, that is not a defence to the Bank’s application for immediate judgment on its debt claim.
120. In case the matter goes on appeal, and it is found that there is a real prospect of the Defendants successfully defending the Bank’s debt claim on the ground that MARJ can set-off the loss it suffered as a result of the Bank breaching implied terms of the Facility Agreement and/ or compensation pursuant to Article 94 of the DIFC Law No 1 of 2004 to extinguish or reduce the Banks claim, I will consider the Defendants’ counterclaim.
The counterclaim
121. The Defendants plead that by reason of
(a) the Bank’s breaches of the pleaded implied terms of the Facility Agreement, and
(b) the Bank’s reckless or negligent breaches of the pleaded DFSA Rules
MARJ has suffered loss and damage.
Counterclaim for breach of implied terms
The pleaded implied terms
122. The Defendants plead that in exercising the “discretions” to demand repayment, to advance and operate the Facilities; and to value collateral and demand maintenance of margin, the Bank breached implied terms of the Facility Agreement. The first implied term is that the Bank must exercise those powers or discretions honestly, genuinely, in good faith, and in the absence of arbitrariness, capriciousness, perversity and irrationality. The second implied term is that the Bank would exercise the powers or discretions for legitimate commercial purposes and not for the purpose of vexing the Defendants maliciously or for purposes unconnected to the Bank’s commercial interests.
Legal principles
123. In their written and oral submissions, the Defendants did not cite any juristic source or authority for the alleged implied terms. The only basis for the implied terms referred to by the Defendants are the statements in their defence and counterclaim that each term is to be implied “because it was so obvious as to go without saying and because it was necessary to give business efficacy to the same.”
124. The leading case on implication of terms is the judgment of Lord Neuberger in Marks and Spencer plc v BNP Paribas Securities Services Trust Co (Jersey) Ltd22. Lord Neuberger adopted the explanation of Sir Thomas Bingham that it is because the implication of terms is so potentially intrusive upon the parties’ agreement that the law imposes strict constraints on the exercise of the extraordinary power to imply terms.
125. In Yoo Design Services Limited v Iliv Realty Pte Limited23 Carr LJ summarised the relevant principles as follows:
(i) A term will not be implied unless, on an objective assessment of the terms of the contract, it is necessary to give business efficacy to the contract and/or on the basis of the obviousness test;
(ii) The business efficacy and the obviousness tests are alternative tests. However, it will be a rare (or unusual) case where one, but not the other, is satisfied;
(iii) The business efficacy test will only be satisfied if, without the term, the contract would lack commercial or practical coherence. Its application involves a value judgment;
(iv) The obviousness test will only be met when the implied term is so obvious that it goes without saying. It needs to be obvious not only that a term is to be implied, but precisely what that term (which must be capable of clear expression) is. It is vital to formulate the question to be posed by the officious bystander with the utmost care;
(v) A term will not be implied if it is inconsistent with an express term of the contract;
(vi) The implication of a term is not critically dependent on proof of an actual intention of the parties. If one is approaching the question by reference to what the parties would have agreed, one is not strictly concerned with the hypothetical answer of the actual parties, but with that of notional reasonable people in the position of the parties at the time;
(vii) The question is to be assessed at the time that the contract was made, it is wrong to approach the question with the benefit of hindsight in the light of the particular issue that has in fact arisen. Nor is it enough to show that, had the parties foreseen the eventuality which in fact occurred, they would have wished to make provision for it, unless it can also be shown either that there was only one contractual solution or that one of several possible solutions would without doubt have been preferred;
(viii) The equity of a suggested implied term is an essential but not sufficient precondition for inclusion. A term should not be implied into a detailed commercial contract merely because it appears fair or merely because the court considers the parties would have agreed it if it had been suggested to them. The test is one of necessity, not reasonableness. That is a stringent test.
126. Lawyers and legal academics commonly refer to the first alleged implied term – to exercise contractual discretions honestly, genuinely, and in good faith and in the absence of arbitrariness, capriciousness, perversity, and irrationality – as the implied duty of rationality. Courts in England have implied such a duty into contracts which allocate only to one party a power to make decisions under the contract which may have an effect on both parties. In the Court of Appeal of England and Wales in Socimer International Bank Ltd v Standard Bank London Ltd24 Lord Rix, with whom LJJ Lloyd and Laws agreed, after reviewing relevant authorities held:
“It is plain from these authorities that a decision-maker's discretion will be limited, as a matter of necessary implication, by concepts of honesty, good faith, and genuineness, and the need for the absence of arbitrariness, capriciousness, perversity and irrationality.”
127. Lord Rix explained that the duty, which he paraphrased as a duty of rationality, is to be understood in a sense analogous to Wednesbury unreasonableness, not in the sense of deploying entirely objective criteria.
128. Lawyers and commentators commonly refer to the duty of rationality implied in contracts which allocate to one party a discretion to make decisions under the contract which may have an effect on both parties as a Braganza duty following the decision of the UK Supreme Court in Braganza v BP Shipping25 where the Supreme Court applied the principles in the context of an employment contract. In this application senior counsel for the Bank referred to the implied duty of rationality advanced by the Defendants as a Braganza duty. The cases in which the duty has been implied are commonly referred to as the discretion cases.
129. In Braganza v BP Shipping, Mr Braganza, the Chief Engineer on a BP oil tanker then in the mid-North Atlantic, disappeared. His employers formed the opinion that the most likely explanation for his disappearance was that he had committed suicide by throwing himself overboard. This would mean that his widow was not entitled to the death benefits provided for in his contract of employment, which relevantly provided26:
“Compensation for death, accidental injury or illness shall not be payable if, in the opinion of the Company or its insurers, the death, accidental injury or illness resulted from amongst other things, the Officer's wilful act, default or misconduct whether at sea or ashore …."
130. The UK Supreme Court found that the employer’s discretion to form the opinion whether the death resulted from Mr Braganza’s wilful act was limited, as a matter of necessary implication, by concepts of honesty, good faith, and genuineness, and the need for the absence of arbitrariness, capriciousness, perversity, and irrationality
131. Lady Hale (with whom Lord Kerr agreed) said27:
“Contractual terms in which one party to the contract is given the power to exercise a discretion, or to form an opinion as to relevant facts, are extremely common. It is not for the courts to re-write the parties' bargain for them, still less to substitute themselves for the contractually agreed decision-maker. Nevertheless, the party who is charged with making decisions which affect the rights of both parties to the contract has a clear conflict of interest. That conflict is heightened where there is a significant imbalance of power between the contracting parties as there often will be in an employment contract. The courts have therefore sought to ensure that such contractual powers are not abused. They have done so by implying a term as to the manner in which such powers may be exercised, a term which may vary according to the terms of the contract and the context in which the decision-making power is given.”
132. Lady Hale referred with apparent approval to a judicial statement that28:
“… a decision-maker's discretion will be limited, as a matter of necessary implication, by concepts of honesty, good faith, and genuineness, and the need for the absence of arbitrariness, capriciousness, perversity and irrationality.”
133. Not every decision made by a party under a contract can properly be characterised as a contractual discretion to which the principles referred to in Socimer and Braganza apply. Where a commercial contract gives one party a right to terminate in certain circumstances, it will not ordinarily be appropriate to subject the exercise of that right to obligations of procedural or substantive fairness akin to the public law duties which apply to the decisions of the executive. In Lomas & ors v JFB Firth Rixon29 the Court of Appeal of England and Wales said:
“The right to terminate is no more an exercise of a discretion, which is not to be exercised in an arbitrary or capricious (or perhaps unreasonable) manner, than the right to accept repudiatory conduct as a repudiation of a contract.”
134. In Mid Essex Hospital Services NHS Trust v Compass Group UK30 in the England and Wales Court of Appeal Jackson LJ observed of the contractual discretion cases that:
“An important feature of the above line of authorities is that in each case the discretion does not involve a simple decision whether or not to exercise an absolute contractual right. The discretion involved making an assessment of choosing from a range of options, taking into account the interests of both parties. In any contract under which one party is permitted to exercise such a discretion, there is an implied term. The precise formulation of that has been variously expressed in the authorities. In essence, however, it is that the relevant party will not exercise its discretion in an arbitrary, capricious, or irrational manner.”
135. In Monk v Largo Foods Limited31 the High Court of England Wales considered a Term of Arrangement clause in a consultancy agreement which provided:
“The consultancy arrangement will operate for a three-year period subject to the completion of a successful review in January 2012 assuming both parties are satisfied with the arrangement following this review, both parties will commit to a further two-year consultancy.”
136. The bank contended that the defendant’s right to terminate or not continue with the agreement must be exercised by an objectively reasonable judgement made in good faith that defendant’s performance had been unsatisfactory. David Foxton KC sitting as a Deputy Judge of the High Court reviewed the contractual discretion cases and rejected the bank’s contention, stating:
“In my opinion, the rights given by the “Term of Arrangement” provision here (whether characterised as a right to terminate or a right not to continue) are in the nature of absolute contractual rights rather than contractual discretions, such that the restrictions on the exercise of the right to “break” the contract for which Mr Monk contends do not arise as a matter of construction or implication” 32
137. In Taga Bratani Ltd v Rockrose33 Judge Pelling KC sitting as a Judge of the High Court of England and Wales rejected the proposition that a contractual provision which conferred an unqualified or absolute right to discharge the operator under the relevant joint operating agreement providing only that the requisite qualified majority of participants vote in favour of the discharge could be constrained by an implied term that qualifies the manner in which it may be exercised by reference to Socimer and Braganza. Judge Pelling KC said:
“.. Whilst I accept that the circumstances in which such terms can be implied into commercial agreements is an incrementally developing area of the law, I consider it clear that on the current state of the authorities, the Braganza doctrine has no application to unqualified termination provisions within expertly drawn complex commercial agreements between sophisticated commercial parties such as those in this case.
138. Judge Pelling KC referred to authorities concerning unqualified rights of termination and concluded:
“In my judgement these authorities speak with a single voice - where the parties choose to include within their agreement a provision which entitles one or more of the parties to terminate the agreement between them, that clause takes effect in accordance with its terms.”
139. In UBS AG v Rose Capital Ventures Ltd34 in the England and Wales High Court, Chief Master Marsh considered the right of a bank, UBS, to call in a loan which was repayable on demand. I will make extensive reference to UBS AG v Rose Capital Ventures Ltd because the Chief Master’s consideration of the relevant principles is illuminating, and the facts of the case are relevantly similar to the facts of this case.
140. Rose Capital borrowed GBP 20.4 m from UBS (the bank) on a five-year repayment term. The loan agreement contained a term allowing the bank to demand full and early repayment of the loan at its absolute discretion, upon providing three months’ notice to the borrower. Four years into the term of the loan, the bank gave the required notice and demanded repayment in full. Rose Capital argued that, following Braganza, the bank's discretion to demand early repayment was not “absolute” in that it was subject to among other things an implied duty of rationality (the Braganza duty). UBS accepted that it was subject to a duty of good faith but submitted that the duty did not assist the defendants because of its narrow scope. UBS argued that it was entitled to put its own interests ahead of those of the borrower.
141. Counsel for UBS referred to authority that a mortgagee is under no duty to refrain from exercising his rights merely because to exercise them may cause loss to the mortgagor.
142. The Chief Master referred to the scope of a mortgagee’s duty of good faith considered by the Privy Council in Cukorova Finance International Ltd v Alpha Telecom Turkey Ltd (Nos 3)35 35. In that case there were allegations of bad faith and improper purpose in connection with a decision to appropriate shares held as security for a loan. The Board observed:
“... The Board considers that if a chargee enforces his security for the proper purpose of satisfying the debt, the mere fact that he may have additional purposes, however significant, which are collateral to that object, cannot vitiate his enforcement of the security. If the law were otherwise, the result would be that the exercise of the right to enforce the charge for its proper purpose would be indefinitely impeded because of other aspects of the chargee’s state of mind which were by definition irrelevant.”
143. The Chief Master said that it follows that in the absence of an allegation that UBS’ decision to call in the loan was disconnected from a desire to obtain repayment of the loan and to enforce its security, the duty of good faith will not avail the defendants36.
144. The defendants relied on the decision of the Supreme Court in Braganza. The Chief Master observed that the decision the employer had to make in Braganza
“is about as far away from a decision by a secured lender to call in a loan as it is possible to conceive.”37
145. The Chief Master reviewed relevant authorities, including Braganza and a subsequent decision in which the Court of Appeal of England and Wales38 considered the Braganza principles in the context of a bank facility. The Chief Master drew the following principles from the authorities:
(1) It is not every contractual power or discretion that will be subject to a Braganza limitation. The language of the contract will be an important factor.
(2) The types of contractual decisions that are amenable to the implication of a Braganza term are decisions which affect the rights of both parties to the contract where the decision-maker has a clear conflict of interest. In one sense all decisions made under a contract affect both parties, but it is clear that Baroness Hale had in mind the type of decision where one party is given a role in the on-going performance of the contract; such as where an assessment has to be made. This can be contrasted with a unilateral right given to one party to act in a particular way, such as right to terminate a contract without cause.
(3) The nature of the contractual relationship, including the balance of power between the parties is a factor to be taken into account: per Braganza per Baroness Hale. Thus, it is more likely for a Braganza term to be implied in, say, a contract of employment than in other less ‘relational’ contracts such as mortgages.
(4) The scope of the term to be implied will vary according to the circumstances and the terms of the contract.
146. The Chief Master then observed:
“The language of the contractual terms in this case could not be more stark. The loan was made on an uncommitted basis and repayable on demand. UBS’ standard conditions were amended to remove the need for there to be a trigger event before it was entitled to call in the loan and UBS was entitled to call in the loan in its absolute discretion. There was what was described as a fundamental term that UBS was entitled to cancel the facilities. This language does not obviously provide fertile ground for implying a Braganza term.
147. The Chief Master then found that a Braganza type clause could not be found in a contract of the type under consideration as a matter of the proper construction of the contract.
148. The Chief Master then considered the test for the implication of terms into contracts by reference to Marks and Spencer plc v BNP Paribas Securities Services Trust Co (Jersey) Ltd39. The Chief Master found that based on the express terms of the agreement there was no basis for implying a Braganza term.
149. The Chief Master concluded that it was not appropriate to construe the contractual terms as if the fetter to call in the loan is part of them or to imply a term to import them into the contract.
150. In Cathay Pacific Airways Ltd v Lufthansa Technik AG40 the England and Wales High Court referred to with apparent approval to UBS v Rose Partners.
151. In Union Bank of India v Velocity Industries41 the DIFC CFI applied these principles to reject the argument that a bank’s right to decide whether to continue to make a facility available to a borrower was subject to an implied term that
“such a decision had to be exercised rationally and reasonably so as to prevent the right to exercise a discretion in such circumstances from being exercised oppressively or abusively - the so-called Braganza duty.” 42
152. Justice Lord Angus Glennie said43:
“I reject this argument. One can readily see that such a term may be implied into a decision-making process in some circumstances. But in a case, such as the present the decision whether to continue to make the Facility available to the Borrower after the Annual Review period is one to be taken by the bank in its own interests. I see no reason why, in making that decision, the bank should be constrained by a concern as to whether making the Facility available to the borrower is or is not in the Borrower's best interests. Nor need the bank take account of whether the decision would prejudice the Guarantors of the Borrowers obligations under the MFA. The Guarantors have signed up to guarantee the Borrowers obligations under the MFA, and included within that package of obligations is the possibility that the bank will make a particular decision one way or the other as to whether to make the Facility available to the Borrower following the Annual Review. I cannot anticipate that the bank will act otherwise than in its own interests in making that decision.”
The alleged breaches of implied terms
153. The Defendants describe the Bank’s alleged breaches of the implied terms as follows:
(a) the Bank’s arbitrary and unilateral re-evaluation of the loan to value ratio of the Landstone bond;
(b) the Bank’s attempts to frustrate the Defendant's refinancing efforts;
(c) misrepresentations by the Bank in relation to the (Landstone and Nordrock) Bonds;
(d) the Bank's unauthorised communication to the issuer of the Bonds;
(e) The Bank's failure to load the limits under the Facilities; and
(f) the margin calls made by the bank were adequately met by MARJ.
154. At the hearing of this application the Defendants argued that that conduct of the Bank breached implied terms of the Facility Agreement and disclose a real prospect of the Defendants successfully defending the Bank’s debt claim against MARJ.
155. I will consider each of those alleged breaches by the Bank of implied terms of the Facility Agreement.
Arbitrary re-evaluation of Landstone bond LTV
No Braganza duty is to be implied
156. The Defendants contend that the Bank unilaterally and arbitrarily re-evaluated the loan to value ratio (LTV ratio) of the Landstone bond in breach of the Braganza duty (the irrationality implied term) or the good faith duty.
157. The right or power of the Bank to value collateral and demand maintenance of margin is not subject to a Braganza duty.
158. The Defendants’ case does not meet the criteria set out in Marks and Spencer for the implication of a Braganza type duty for the following reasons.
159. The parties expressly agreed that no terms are to be implied into the Facility Agreement. The Services Agreement at clause A provides:
(A2) “You further agree that subject to any duties or obligations imposed by mandatory applicable law which the Bank cannot derogate from, the Bank owes no other duties or obligations to you save as expressly set out herein and that no implied duties or obligations shall be imposed on the Bank under or by reason of this agreement.”
160. Such a limit on the Bank’s right to value collateral and demand maintenance of margin is inconsistent with the express terms of the Facility Agreement:
(a) “The Services Agreement at clause A provides:
(A17) “The Collateral Value ascribed to each item of Collateral furnished shall be calculated as a percentage of its market value. Such percentage and market value shall be determined from time to time by the Bank in its discretion. The Bank may, in its discretion, ascribe a zero Collateral Value to any item of Collateral.
The Bank may specify from time-to-time Margin levels to be established before a Facility may be utilised and to be maintained during the utilisation of a Facility, failing which the Bank may require topping up of Collateral or the repayment of obligations. The Bank may also specify Margin which if exceeded will entitle the Bank to Close Out or liquidate positions and Contracts. These Margin levels may be varied by the Bank from time to time in its absolute discretion.
If at any time the Collateral Value is not sufficient to comply with any Margin stipulated by the Bank, the Bank shall be entitled to:
…
(b) notify the Client to furnish additional Collateral or to repay such part of its outstanding obligations to the Bank and the Client shall forthwith upon such notification furnish such additional Collateral or make such repayment so that after the top-up or repayment, the stipulated Margin requirements are complied with; and
(b) The Services Agreement at clause D7 provides:
(i) The Bank may at its absolute discretion grant to the Client overdrafts on the Client’s Account(s) and on such terms and conditions as it may impose.”
161. On an objective assessment of the terms of the Facility Agreement, restricting the right or power of the Bank to value collateral and demand maintenance of margin in the way asserted by the Defendants is not necessary to give business efficacy to the contract nor is it so obvious that it goes without saying. The Facility Agreement does not lack commercial or practical coherence without it. A loan facility on an uncommitted basis, at the sole discretion of the lender is not an unknown commercial arrangement and there is nothing about the terms of the Facility Agreement that make the contract incoherent without the asserted implied term.
162. The terms of the Facility Agreement make it clear that the Agreement does not require the Bank in valuing collateral and demanding maintenance of margin to make an assessment for the benefit of both parties. To the contrary, the right or power of the Bank to value collateral and demand maintenance of margin is a unilateral right to act in its own interests. The Bank may consider its subjective evaluation of collateral and its interests in maintaining margin and its commercial interest in reviewing and varying those matters at any time.
No breach of Braganza duty or duty of good faith
163. There is no evidence that the Bank breached a Braganza type duty let alone a duty of good faith, by re-evaluating the LTV ratio of the Landstone bond.
164. The LTV ratio is the amount of a secured loan relative to the value of the securities held by the Bank as collateral for the loan.
165. The Defendants’ case is that the Bank reduced the LTV without any basis or justification, and to create a margin deficit on the account, thereby triggering a margin call.
166. The Defendants argue that the Bank reduced the LTV ratio from 80% to 30% and then eventually to zero. Furthermore, the Defendants argue that, assuming that the LTV ratio was to reduce, the extent of reduction requires further examination because a reduction from 80% to 30% does not coincide with the normal course of market fluctuation.
167. The Bank was entitled to re-evaluate the LTV at its discretion. The Services Agreement at clause A17 provides that the collateral value ascribed to each item of collateral furnished shall be calculated as a percentage of its market value, that such percentage and market value shall be determined from time to time by the Bank in its discretion and the Bank may, in its discretion, ascribe a zero collateral value to any item of collateral.
168. There is no evidence that the Bank re-evaluated the collateral as alleged by the Defendants or did so arbitrarily, capriciously, perversely, or irrationally or to vex the Defendants and not for a legitimate commercial purpose.
169. The evidence does not support the factual basis of the Defendants’ contention.
170. The Defendants have adduced evidence from Dr Haider Khan that the Bank “unilaterally reduced the LTV from 80% to 30%, which further fell to nil”.
171. Dr Haider Khan's assertion appears to be based on an e-mail of 4 February 2022 from Mr Sahni to Dr Haider Khan which stated that margin shortfall was then USD 17,027,511 and set out in a table “the fixed approved LTV against each of your holding for margin calculations’. The stated LTV for most securities was 70%. Some securities, which appear to be government bonds, had an LTV of 85%. The Landstone bonds had an LTV of 30% and the Nordrock bonds an LTV of 0.
172. Mr Huebscher gives evidence that the Bonds were initially given a zero collateral value. However, the Bank granted an exception in respect of the Landstone Bonds. Initially, this amounted to a USD 30m valuation, rising to USD 60m from 16 November 2021. This is apparent from system screenshots before and after the exception was imposed. The email of 23 March 2022 from Manoj Tuteja, a Bank officer, to Dr Haider Khan and others including Mr Juma, shows that the Bank maintained the exception after the Bank demanded repayment to allow an orderly exit.
173. The Historical Snapshot Summaries provided by the Bank show there was no reduction in January or February 2022 of the margin value attributable to the Bonds.
174. Ultimately, Dr Haider Khan himself suggested that the valuation of the Landstone Bonds be reduced to EUR 1. Even with the LTV attributed to the Bonds, the security was insufficient to cover the debt.
175. If a Braganza duty is to be implied into the Facility Agreement as asserted by the Defendants, there is no evidence that the Bank arbitrarily or irrationally re-evaluated the loan to value ratio (LTV ratio) of the Landstone bond in breach of that duty.
176. There is no evidence that the Bank re-evaluated the collateral as alleged by the Defendants or that the Bank valued securities and collateral and calculated and revised LTV ratios in bad faith or other than in its interest for a legitimate commercial purpose.
177. The Defendants submit that Mr Huebscher’s evidence, including the documents on which it is based, was evidence in reply, they have not been given a chance to rebut this “new evidence” and this new evidence only raises further queries which require due and proper investigation.
178. During the hearing of the immediate judgment application counsel for the Defendants stated in effect that the Defendants had not had enough time to consider and respond to the second witness statements of Mr Huebscher.
179. The Bank filed the second witness statement of Mr Huebscher within the time specified by an order made with the consent of the Defendants. The Defendants had an opportunity to apply for leave to put on further evidence in response but elected not to do so. I am satisfied that the Defendants have had a proper opportunity to answer the Bank’s application for immediate judgment.
180. The Defendants have not adduced evidence that documents or oral evidence that would advance their “improper re-evaluation” case is likely to exist and can be expected to be available at trial. Again, the Defendants argue in effect that the case should be allowed to go to trial because something may turn up which would have a bearing on the question of whether the Bank re-evaluated the collateral arbitrarily, capriciously, perversely, or irrationally or to vex the Defendants and not for a legitimate commercial purpose. That is nothing more than speculation that something might turn up
Attempts to frustrate MARJ refinancing
181. The Defendants assert that in breach of a Braganza type duty or a duty of good faith, the Bank persistently hindered MARJ’s efforts to transfer its account to another Bank.
182. In their skeleton argument the Defendants submit:
“It has always been [MARJ's] intention to repay its dues to the [Bank]. Whilst the claim amount has been called into question, the defendants do not deny that they are required to repay the [Bank]; however, the [Bank] never cooperated with the defendants’ efforts in obtaining a refinancing arrangement with another Bank.”
No Braganza duty is to be implied
183. The right or power of the Bank to advance and operate the Facilities, including allowing or not allowing transfers of securities held by the Bank, is not subject to a Braganza type duty for the following reasons.
184. The Defendants’ case does not meet the criteria set out in Marks and Spencer.
185. The parties expressly agreed that no terms are to be implied into the Facility Agreement.
186. Such a limit on the Banks right to hold securities until MARJ met its obligations under the Facility Agreement, including its obligation to maintain margin, is inconsistent with the express terms of the Facility Agreement. By the Charge, MARJ charged in favour of the Bank by way of fixed first charge and assigned absolutely to the Bank all its rights title and interest in the securities as security for its obligations under the Facility Agreement, including its obligation to maintain margin. The charge provides that it was not obligatory upon the Bank to make or to continue to make any advance or give any other accommodation to MARJ.
187. The Services Agreement provides at (A2) that the continued availability of any service shall be subject to the Bank’s consent, in its sole discretion, and to the fulfilment by MARJ of such conditions as the Bank may require. The Bank reserved the right to, at any time to cancel, withdraw, suspend, vary, change, add to or supplement any one or more of the services provided to MARJ.
188. The very purpose of MARJ providing securities to the Bank was as security for MARJ meeting its obligations to the Bank including maintaining margin and repaying outstanding liabilities if and when demanded by the Bank.
189. On an objective assessment of the terms of the Facility Agreement, the asserted implied term is not necessary to give business efficacy to the contract nor is it so obvious that it goes without saying. Indeed, it may be said that an obligation to have regard to MARJ’s interests when MARJ requested the transfer of securities when it was in margin default would be inconsistent with the purpose of the provision of the securities.
190. The Facility Agreement does not lack commercial or practical coherence without the alleged implied term. There is nothing about the terms of the Facility Agreement that make the contract incoherent without the implied term.
191. The terms of the Facility Agreement make it clear that the Agreement does not require the Bank to hold securities for the benefit of both parties. To the contrary, the right or power of the Bank to hold the securities is a unilateral right to act in the Bank’s own interests. The Bank may consider its commercial interests in deciding whether to transfer securities out of MARJ’s account.
No breach of Braganza duty or duty of good faith
192. There is no evidence that the Bank breached a Braganza type duty or an implied duty of good faith by hindering MARJ’s efforts to transfer its account to another Bank.
193. The Defendants say that had the Bank allowed the transfer, MARJ could have cleared its liabilities due when they were at a manageable level i.e., around USD 10m (during the transfer attempt to Credit Suisse). Instead, the Bank allowed the liabilities to increase by arbitrarily re-evaluating the LTV of the collateral, thereby causing a deficit in margin, and triggering a margin call.
194. The defendants refer to three proposed transfers – to Credit Suisse, EFG Bank, and ONE Swiss Bank.
Credit Suisse
195. In December 2021 Mr Juma requested the MARJ account be transferred to Credit Suisse. In his second witness statement Dr Haider Khan says that on 12 January 2022, Mr. Juma received an email from Credit Suisse requesting for help owing to the delay from the Bank in approving the transfer. On 17 January 2022, the Managing Director of Credit Suisse expressed his discontent at the lack of a response from the Bank. Credit Suisse sent emails to the Bank on 10, 11, 12 and 14 January 2022 in addition to trying to reach them over the phone. However, there was no response from the Bank. The Defendants say the Bank was deliberately preventing the transfer of the portfolio.
196. Clause 17 of the Services Agreement provides that the Bank may from time to time require MARJ to provide security or collateral or both in such form as the Bank may in its discretion require and maintain such margins or deposit with the Bank such amount of money, other assets, or additional security as the Bank may specify in order to maintain such margins as the Bank may in its absolute discretion consider appropriate as security for all MARJ’s present and future liabilities to the Bank. The clause further provides:
“Unless with the Bank's written consent, security, collateral or margin so provided is not to be, amongst other things, transferred until all amounts owing by MARJ to the Bank are satisfied or paid in full.”
197. By the Charge MARJ charged in favour of the Bank by way of first fixed charge and assigned and agreed to assign absolutely to the Bank all MARJ’s rights, title and interest in and to, amongst other things, securities standing to the credit of MARJ’s accounts with the Bank as a continuing security for the due payment by MARJ to the Bank of all sums for which MARJ is or may become indebted or liable to the Bank.
198. The Defendants do not, and could not, dispute that the Bank was entitled to retain the securities and collateral until all amounts for which MARJ was indebted or liable to the Bank were paid.
199. Mr Huebscher’s evidence is that MARJ requested the Bank to transfer part of its liquid portfolio to Credit Suisse. That is supported by the letter of instructions of 13 December 2021 from Mr Juma on behalf of MARJ and Mr Juma’s revised letter of instructions of 30 December 2021 which requested the transfer of additional securities. On 16 December 2021 Credit Suisse e-mailed the Bank stating that Credit Suisse had received instructions from MARJ to receive the securities specified in Mr Juma’s letter of instructions and to transfer approximately USD 10m to cover the payment.
200. There was an exchange of emails between the Bank and Credit Suisse in January 2022 in which the Bank and Credit Suisse requested and exchanged information.
201. Mr Huebscher ‘s evidence is that the Bank was not prepared to transfer the portfolio requested until the outstanding balance was cleared. The proposed transfer was being requested at a time when the Bank was concerned that the Landstone bonds coupon payment due had not been received. In an email of 4 January 2022, the Bank’s credit team said:
"Before we proceed with the LOU, l would suggest we check on the bond coupon interest first, if there is no bond interest paid to the account, the illiquid bond would be deemed to have defaulted and we should not further increase any net outflow amount under this account.”
202. In an email of 5 January 2022, the Bank credit risk manager said, referring to the Bank not having received payment of the coupon:
“In my opinion, this is a red flag on the risk aspect of this illiquid bond. The coupon interest does not get paid to the account holding the security and requires client to transfer it once he receives it in his BNY account. In such a scenario, I would deem that the maturity proceeds will likely not come into the account with us that holds the bond and this may mean that there is no recourse over any early redemption/sale/coupon proceeds from this bond that AAV exception has been granted. Key risk is the uncertainty on where the proceeds will flow to in an event of early redemption/sale/maturity of the bond. On a side note, for implementing Lou with CS (with net outflow), I am not inclined to support until we receive the bond coupon interest in the account.”
203. Despite assurances from Dr Haider Khan on behalf of MARJ that the coupon would be paid to the Bank, it never was.
204. An email from the Bank to Dr Haider Khan on 13 January 2022 confirmed that the Bank had put the portfolio transfer to Credit Suisse on hold awaiting credit approvals which were pending due to the coupon payment issue and the Bank could not commit to the transfer until the credit conditions were met for approval.
205. The Bank emailed Credit Suisse on 17 January 2022 (with copy to Mr. Juma), informing Credit Suisse that the Bank was keeping MARJ “updated of the status of this transfer” and suggested Credit Suisse reach out to MARJ.
206. The credit conditions were not met by MARJ. Dr Haider Khan told the Bank that MARJ was working to transfer around USD 50m cash that would be available on 27 January 2022. On 19 January 2022 the Bank informed Dr Haider Khan that the current deficit was over USD 10m due to market movement and the shortfall due to the missing coupon credit. The Bank said that its credit team was concerned and needed concrete action to cure the margin deficit and demonstrate liquidity. But MARJ did not take the necessary action.
207. In summary, the Bank did not transfer the requested portfolio of securities because MARJ was in default under the terms of the Facility Agreement and the Bank would not transfer the securities unless and until MARJ acted to remedy the default by paying cash, as Dr Haider Khan undertook, or otherwise. MARJ did not take the necessary action and the portfolio transfer did not proceed.
208. The Bank’s action was in accordance with its rights under the Facility Agreement.
209. Further, the exercise by the Bank of its rights cannot be characterised as arbitrary, capricious, perverse, or irrational or not for a legitimate commercial purpose. The Bank acted in its commercial interest.
210. There is no evidence that the Bank acted in bad faith or other than in its commercial interests as it saw them.
211. The Defendant’s case in relation to the requested Credit Suisse transfer has no real prospect of succeeding.
EFG Bank
212. The Defendants assert that the Bank refused to transfer the portfolio of assets and loans to EFG Bank until margin shortfall had been cleared and thereby hindered the transfer.
213. Any transfer of MARJ’s assets out of the Bank would need to be accompanied by a corresponding repayment to the Bank of the sums due. The Bank was not obliged to release security before repayment, and it would be contrary to its interests to do so.
214. The Defendants requested the Bank to transfer MARJ’s asset portfolio and loans to EFG Bank.
215. The Bank responded in effect that the transfer would be against the repayment of MARJ’s loans of approximately USD 190m. EFG responded that the loan would be paid against LoU (letter of undertaking). On 11 February 2022 the Bank responded:
“We have shared all the below information with our Chief Risk Officer. However, he has refused to hold the sale of securities till portfolio transfer next week. He wants the margin shortfall to be addressed via sale of securities or a swift confirmation of incoming funds by Monday, failing which we will have to sell securities to cover the shortfall on Monday evening. The portfolio transfer can happen post regularisation of margin shortfall.”
216. In response Dr Haider Khan said that MARJ will work with EFG to expedite transfers aiming for Monday and MARJ “will work to narrow the margins”. Dr Haider Khan asked the Bank to wait before selling securities to remedy the margin shortfall.
217. On Monday 14 February 2022 the Bank emailed Mr Juma, Dr Haider Khan and others stating that the Bank needed the shortfall cleared that day and in the absence of the shortfall being cleared the Bank would that day initiate appropriate sales of collateral needed to clear the shortfall. As to the EFG transfer, the Bank said it would initiate the transfer BAU ASAP, which I take to mean business as usual as soon as possible.
218. On 19 February 2022, V Gowribalan, on behalf of MARJ, emailed the Bank that Mr Juma had informed him that there was a change in composition of the portfolio constituents in that MARJ had had to seek revisions on the initial proposition outlined to EFG and for which approval had been sought and this was the reason for the delay in EFG reaching out to the Bank to take over the portfolio.
219. On 9 March 2022 the Bank emailed V Gowribalan to provide an update on MARJ’s current margin shortfall and asked how the shortfall was to be resolved. The Bank noted that it had not heard anything yet from EFG on the portfolio transfer and requested an update on the situation.
220. There is no evidence that EFG or MARJ made any further contact with the Bank to transfer its accounts to EFG.
221. In summary, the Bank did not refuse to transfer MARJ’s assets and loans to EFG, nor did the Bank make it a condition of the transfer that margin shortfalls be remedied before it would effect the transfer. At the time MARJ requested the transfer, it was in margin default and the Bank was intending to sell some of its securities to remedy the default. In its e-mail of 14 February 2022, the Bank said that it intended to proceed with the sale of appropriate securities that day to remedy the margin shortfall. The Bank said in effect that it would initiate the transfer as soon as possible consistent with the usual conduct of business.
222. The failure of the transfer to proceed was not caused by any action or inaction of the Bank. The transfer did not proceed because MARJ had to seek revision of its initial proposal to EFG and thereafter neither EFG nor MARJ asked the Bank to transfer MARJ’s accounts to EFG. By April 2022, the Defendants had moved on to seeking an arrangement with ONE Swiss.
223. The defendants have no real prospect of successfully defending the Bank’s claim based on its case in relation to the requested transfer of its account to EFG Bank.
ONE Swiss
224. The Defendants allege that the Bank hindered or prevented MARJ from transferring its account to ONE Swiss Bank.
225. There is no evidence to support that allegation.
226. On 11 March 2022, the Bank gave notice that it intended to close MARJ’s account and terminate the agreement with MARJ. Upon receipt of the letter of 11 March 2022, MARJ says it began the process of arranging for its portfolio held with the Bank to be transferred to ONE Swiss Bank. In an e-mail of 22 March 2022 Dr Haider Khan asked whether there would be any block on transferring out the unencumbered positions /surplus cash as and when requested. By email of 23 March 2022, Mr Manoj Tuteja on behalf of the Bank stated that the Bank would not allow transfer out of the portfolio until “all amounts owing to the Bank have been repaid in full.”
227. The Defendants say that the Bank contacted ONE Swiss Bank directly, without the authority of the Defendants and in breach of the terms of the Facility Documents (the documents constituting the Facility Agreement) and that, as a result of the Bank’s contact, ONE Swiss Bank subsequently decided not to proceed with the proposed transfer of the First Defendant’s portfolio to them.
228. The Bank denies it had any unauthorised contact with ONE Swiss Bank. It says the only contact between the Bank and ONE Swiss Bank was at the request of MARJ, for the purposes of setting up mechanisms by which ONE Swiss Bank could arrange to settle the First Defendant’s liabilities to the Bank. The Bank is a stranger to the negotiations between MARJ and ONE Swiss Bank
229. On 27 April 2022, the Bank emailed MARJ that the margin shortfall in the account stood at USD 1,256,161 and asked how it was to be resolved. Mr Gowribalan emailed to say that MARJ would cover the shortfall by a sale of securities and stated that the transfer of MARJ's portfolio to ONE Swiss was in progress. The margin shortfall had increased to USD 1,800,000 by the next day and no sale of securities had taken place. Dr Haider Khan confirmed that MARJ would sell off 'ASML' in that day's trading session.
230. The transfer to ONE Swiss was still pending as of 5 May 2022, Mr Gowribalan emailed the Bank:
“ONE Swiss has informed us they are in the midst of receiving credit/risk committee approvals on the proposed terms which enable the complete transfer of portfolio from BoS. With regards to the LoU – as mentioned to you, they wanted to provide the same post all relevant committee approvals have been received – as they view it as a sequential process.”
231. On 6 June 2022, Dr Haider Khan emailed the Bank to request that the Bank:
"hold any action on the accounts and allow us a seamless transfer of relationship to the new lender."
232. On 7 June 2022, Mr Tuteja replied to Dr Haider Khan, referring to the lack of any update as to the account opening at ONE Swiss since May 2022. Mr Gowribalan replied that afternoon to say he was having a meeting with the Bank, in Zurich. On 8 June 2022, Dr Haider Khan confirmed that ONE Swiss was the first priority for MARJ to transfer the account.
233. In response to an email from Mr Vivek Gehani of the Bank, on 10 June 2022 Mr Juma added his "deepest condolences" for the ongoing issues with the MARJ account.
234. On 10 June 2022, Mr Gowribalan informed the Bank that in addition to ONE Swiss, discussions had been initiated with five other Banks - CBH, CIM, Hyposwiss, and two others with a view to exiting the Facilities.
235. By letter of 15 June 2022 to MARJ the Bank terminated the Facilities and demanded repayment of all outstanding amounts.
236. On 15 June 2022, Mr Sahni sent a letter, by email, to Dr Haider Khan regarding a decision by the Bank's credit team placing a deadline of 21 June 2022. Dr Haider Khan replied to request an extension of the deadline to 7 July 2022, and referred to the possibility of replenishing the account with cash and taking the non-liquid securities out as well as confirming that ONE Swiss was at the final stage of onboarding.
237. On 27 June 2022, Dr Haider Khan emailed a redacted document which was stated to be a term sheet from Deutsche Bank, Luxembourg. He stated that MARJ would proceed with Deutsche Bank if the transfer to ONE Swiss did not materialize.
238. By 29 June 2022, MARJ had not transferred its securities to ONE Swiss. On 29 June 2023 Mr Gowribalan emailed Mr Tuteja (with Mr Juma and Dr Haider also in copy) in which he stated that MARJ was working toward a complete takeover of MARJ assets from the Bank singly by ONE Swiss or jointly.
239. On 19 September 2022, the Bank asked Mr Juma to update it on status of the portfolio transfer to ONE Swiss. A reply on behalf of MARJ said:
“to the best of our knowledge, ONE Swiss (OS) shall be able to send the transfer instructions by tomorrow. Today OS is in the process of setting up the limits in their system.”
240. There is no evidence that the Bank hindered or prevented MARJ transferring its account to ONE Swiss. In its email of 23 March 2023, the Bank confirmed that once "all the amounts owing to the Bank have been repaid in full, the Bank will then continue to allow transfer-out requests in this account." The Defendants did not take issue with that position. Nor could they. The Facility Agreement gave the Bank the right not to transfer any assets or collateral assigned to the Bank until the whole of the amount outstanding had been repaid. A transfer of MARJ’s account to ONE Swiss did not happen because MARJ did not manage to agree terms with ONE Swiss Bank.
241. Further, the exercise by the Bank of its rights cannot be characterised as arbitrary, capricious, perverse, or irrational or not for a legitimate commercial purpose. The Bank acted in its commercial interest in circumstances where MARJ was persistently in margin default. There is no evidence that ONE Swiss at any time offered an undertaking that it would pay to Bank all amounts owing by MARJ to the Bank.
242. There is no basis for the plea that the Bank contacted ONE Swiss without authority, causing ONE Swiss to withdraw. Mr Huebscher denies there was any contact and the Defendants have adduced no evidence there was.
243. There was no reason for the Bank to discourage ONE Swiss. The Bank demanded repayment on 11 March 2022. Its aim was to be repaid.
244. The Bank was never presented with a proposal for repayment of the sums owed by MARJ to the Bank.
245. There is no evidence that the Bank breached a Braganza duty, if it is to be implied into the Facility Agreement, by hindering MARJ’s efforts to transfer its account to another bank.
246. There is no evidence that the Bank hindered MARJ’s efforts to transfer its account to another bank in bad faith or other than in its interest for a legitimate commercial purpose.
Irrationally demanding repayment
247. The Defendants did not expressly argue that the Bank breached a Braganza type duty or a duty of good faith in demanding repayment of the amounts outstanding under the Facilities but for completeness and in case the Defendants intended to rely on such arguments I will address them.
248. The Bank’s right to demand repayment is not subject to a Braganza type duty.
249. There is no foundation in the Facility Agreement for finding such a duty as an implied term of the agreement for the following reasons.
250. The parties expressly agreed that no terms are to be implied into the Facility Agreement.
251. The Defendants’ case does not meet the criteria set out in Marks and Spencer.
252. Such a limit on the Bank’s right to demand repayment is inconsistent with the express terms of the Facility Agreement:
253. The Facility Letter provides that the Bank agreed to provide the Facilities:
“subject always to the Bank's overriding right to demand repayment at any time”.
254. The Services Agreement at clause D7 provides:
“The Bank may at its absolute discretion grant to the Client overdrafts on the Client’s Account(s) and on such terms and conditions as it may impose.
Where an overdraft is permitted by the Bank, each principal amount advanced by the Bank at its sole discretion shall be payable by the Client immediately upon demand by the Bank together with interest accrued and, if applicable, all other commissions, discounts and Bank charges”
255. The GCTFA provides at clause A:
“Any credit and trading facility offered to the Client by the Bank pursuant to the terms and conditions in this Agreement shall be on an uncommitted basis unless otherwise specified and subject always to the overriding right of the Bank to demand repayment at any time.”
256. On an objective assessment of the terms of the Facility Agreement, the alleged implied term is not necessary to give business efficacy to the contract nor is it so obvious that it goes without saying. The Facility Agreement does not lack commercial or practical coherence without it. A call loan where the lender can demand to be repaid at any time is a conventional commercial arrangement. A call loan is designed to reduce the financial risk of the lender. A lender may choose to recall a loan to mitigate the risk that the borrower will not be able to satisfy its debt in the future. This may be evidenced by declining credit, declining collateral value, or unfavourable macroeconomic conditions. There is nothing about the terms of the Facility Agreement that make the contract incoherent without the implied term.
257. There are further reasons why there is no basis for implying a Braganza duty.
258. First, the Facility Agreement is a commercial contract between sophisticated parties. The Defendants’ purpose was to use the Facilities to invest in securities. The Defendants had substantial assets with which to provide collateral for the advances under the Facilities.
259. Secondly, and critically, the exercise of the right of the Bank to demand repayment at any time is not the exercise of a discretion in the sense in which the notion is adopted in the discretion cases. The exercise of the right or power to demand repayment does not require the Bank to make an assessment for the benefit of both parties. To the contrary, it is a unilateral right to act in its own interests. That distinguishes this case from the discretion cases where a Braganza term has been implied.
260. Thirdly, whilst every agreement must be considered in its circumstances, to imply such a term is inconsistent with authorities such as UBS AG v Rose Capital Ventures Ltd and the decision of this Court in Union Bank of India v Velocity Industries.
261. The Bank may be subject to a duty of good faith, but that duty does not assist the Defendants because of its narrow scope as explained in UBS. I adopt the explication of the duty of good faith explained by the Chief Master in UBS. In the absence of evidence that the Bank’s decision to call in the loan was disconnected from a desire to obtain repayment of the loan and to enforce its security, the duty of good faith does not provide a defence to the Defendants.
262. There is no evidence that, or from which it may be inferred that, the Bank's decision to demand repayment was disconnected from a desire to obtain repayment of the loans. To the contrary, the documentary evidence and the uncontradicted testimonial evidence of Mr Huebscher inevitably leads to the finding that the Bank demanded repayment of the loans having regard to the way in which MARJ conducted its accounts, which I have referred to when considering the Defendants’ claims that the Bank arbitrarily re-evaluated the loan to value ratio of the Landstone bond and attempted to frustrate the Defendant's refinancing efforts and which I refer to later in these reasons when considering the Defendants’ assertion that margin calls made by the Bank were adequately met by MARJ, to obtain repayment of the loans in the exercise of its commercial judgement that it was in its interest to do so, and not for the purpose of vexing the Defendants maliciously or for purposes unconnected to the Bank’s commercial interests.
263. In summary, there is no evidence that in demanding repayment of the amounts owing under the Facilities the Bank breached a duty of good faith owed to MARJ
Misrepresentation by the Bank in relation to the bonds
264. The Defendants submit in their skeleton argument that the Bank has misrepresented that the Defendants had fraudulently represented that the Landstone bonds were not in default. The Defendants say that is not the case.
265. The Defendants further say that assuming that the Bonds were given as collateral, the Bank did not utilise the collateral and the Bank states that it was not possible to sell the bonds as no counterparty was willing to buy the Bonds. The Defendants say that the Bank's failure to utilise the Bonds towards the outstanding liabilities should not be held against the Defendants because if the Bonds were utilised, the claim amount may have significantly reduced, or it may not have led to an outstanding liability. Therefore, the Defendants say, there are a lot of unresolved questions that arise in relation to the Bonds.
266. The Defendants say that the defence concerning the Bonds requires further investigation by the DIFC Court, for example:
57.1. Whether the Bonds were agreed between the parties to be the collateral for the Facility?
57.2. If the above is answered yes, then the Court needs to examine the following:
57.2.1. Did the Defendants misrepresent to the Bank that the Bonds were in default?
57.2.2. What is the status of the Bonds, and what is their current value?
57.2.3. Did the Bank make a genuine and honest effort to sell the Bonds, in compliance with the implied terms under the Facility Agreements?
57.2.4. How much loss was caused to the First Defendant’s account due to the failure of the Bank to utilize the Bonds?
(numbers are from Defendants’ skeleton argument)
267. The Defendants’ defence may be a response to the Bank’s misrepresentation case. It is not a defence to the Bank’s debt claim.
Bank’s unauthorised communication to the issuer of the Bonds
268. The Defendants allege that the Bank approached the CEO of the Larmag Group (which was the issuer of the Landstone bonds) in relation to a specific Landstone bond and there was confirmation from Colajacomo and Partners (Colajacomo) that several Landstone bonds were fully paid up by ARJ holdings Limited (“ARJ”), but the one inquired by the Bank was not fully paid up.
269. The Defendants do not assert that the communication was a breach of the Facility Agreement, a breach of confidence or any other wrongful act giving rise to a cause of action or any claim against the Bank. Rather, the Defendants submit that the interaction between the Bank and Colajacomo should be further examined by the Court and propose the following issues should be investigated:
63.1. Whether the Bank breached confidentiality by directly approaching the issuer of the Bond?
63.2. Whether the identified Bond was in fact provided as the collateral for the Facility?
63.3. If ARJ failed to fully pay up for the Bond, can the First Defendant be liable for the non-payment?
63.4. If the answer to 56.2 is yes, whether Colajacomo was authorised by the issuer to communicate and provide information to the Bank in relation to the identified Bond?
63.5. If the question at 56.3 is yes, based on what document did Colajacomo confirm that the identified Bond was not paid up.
(numbers are from Defendants’ skeleton argument, 56.2 and 56.3 appear to be intended to be 63.2 and 63.3)
270. This does not raise a defence to the Bank’s debt claim.
Failure to load full Facility
271. The Defendants assert a breach of the Facility Agreement by the Bank by failing to make available the full facility by 12 October 2021. The Defendants plead that by 12 October 2021 the Bank had not made available the EUR 240m short term advance /overdraft facility offered under the terms of the Facility Letter; the Bank's failure to do so amounted to a breach of the terms of the Facility Agreement, which obliged the Bank to make available an on demand short term advance / overdraft facility from the date of the Facility Letter, subject to MARJ’s obligation under GCFTA clause B (6) to provide two business days’ notice of drawdown.
272. By the Facility Letter the Bank agreed to offer to MARJ credit facilities on the terms and conditions set out in the letter, which incorporated the Services Agreement and the GCFTA, and the Annexes. Annex 1 provided for short term advances /overdraft facility up to EUR 240m and trading facility up to an aggregate line utilisation amount of USD 5m.
273. The Bank did not make available the full amount of the facilities referred to in the Facility Letter.
No Braganza duty is to be implied
274. The Bank had no obligation to make the full amount of the Facilities available on request. The Facility Letter provides that the Bank agreed to provide the Facilities “on an uncommitted basis”. As opposed to a committed facility, an uncommitted facility is a credit facility in which the lender is not obligated to loan funds when there is a request from the borrower.
275. Further, the Services Agreement clause A (2) provides that the availability and/or continued availability of any Service shall be subject to the Bank’s consent, in its sole discretion, and to the fulfilment by the borrower of such conditions as the Bank may require. Services are defined in clause A to include facilities provided by the Bank. The Services Agreement at clause D7 provides that the Bank may at its absolute discretion grant to MARJ overdrafts on its accounts and on such terms and conditions as it may impose. The GCTFA provides at clause A that any credit and trading facility offered to MARJ by the Bank pursuant to the terms and conditions in the agreement shall be on an uncommitted basis unless otherwise specified. The Bank, at the request of MARJ, may (not must) extend a short-term advances (“STA”) / overdraft facility to MARJ for an amount as may be approved by the Bank. The Bank may review and revise the limits of any STA / overdraft facility extended to MARJ without notice if it regards such review and revision to be necessary or expedient.
No breach of Braganza duty or duty of good faith
276. The evidence is that the Bank declined to advance amounts requested because MARJ had not provided security for the advances to the satisfaction of the Bank. There is no evidence that the Bank did so arbitrarily, capriciously, perversely, or irrationally or to vex the Defendants and not for a legitimate commercial purpose.
277. If a Braganza duty is to be implied into the Facility Agreement as asserted by the Defendants, there is no evidence that the Bank failed to make available the full facility by 12 October 2021 in breach of that duty.
278. There is no evidence that the Bank failed to make available the full facility by 12 October 2021 in bad faith or other than in its interest for a legitimate commercial purpose.
279. The Defendants submit that they need to be given the opportunity to provide further evidence on this contention and therefore there is a compelling reason why the case should proceed to trial and cannot be decided at the immediate judgment application hearing.
280. The Court must consider not only the evidence placed before it on the application for immediate judgment, but also the evidence that can reasonably be expected to be available at trial. The Court should hesitate about making a final decision without a trial, where reasonable grounds exist for believing that a fuller investigation into the facts of the case would add to or alter the evidence available to a trial judge and so affect the outcome of the case. If it is possible to show by evidence that although material in the form of documents or oral evidence that would put the evidence in another light is not currently before the court, such material is likely to exist and can be expected to be available at trial, it would be wrong to give immediate judgment because there would be a real, as opposed to a fanciful, prospect of success.
281. I am satisfied that the Court has before it all the evidence necessary for the proper determination of the question and that the Defendants have had an adequate opportunity to address it in argument. The Defendants have not adduced evidence that documents or oral evidence that would put the case in another light is likely to exist and can be expected to be available at trial. In effect, the Defendants argue that the case should be allowed to go to trial because something may turn up which would have a bearing on the question of whether the Bank did not advance the full amount of the Facilities when requested arbitrarily, capriciously, perversely, or irrationally or to vex the Defendants and not for a legitimate commercial purpose. That is nothing more than speculation. Like Mr Micawber, who was always in debt, the Defendants optimistically submit that something will turn up. That is not an answer to an application for immediate judgment.
Margin calls made by the Bank were adequately met by MARJ
282. The Defendants say that the Bank’s assertion that MARJ consistently failed to meet the required margin levels and to meet the margin calls in good time which led to the Bank issuing the 11 March 2022 letter with the intention to close the account, is false.
283. The Defendants say that at the outset, MARJ properly and adequately met the margin calls and did everything in its power and capacity to meet the continuous and insistent margin calls.
284. The Defendants say they are likely to succeed in their defence and therefore the Court ought not to grant an immediate judgment of the claim, based upon this issue alone. The Defendants say they should be given the right to provide evidence on how the Bank has misrepresented that the Defendants failed to meet any of the margin calls.
285. Adjectives aside, the Bank maintains that MARJ failed to meet margin calls. However, even if MARJ did meet margin calls, that is not an answer to the Bank’s debt claim. The Bank's claim is that MARJ owed an amount to the Bank and the Bank was and is entitled to demand repayment at any time.
286. The Defendants’ argument appears to be related to its pleading that the Bank breached an implied term of the Facility Agreement that it would exercise its discretion to demand the maintenance of margin honestly, genuinely and in good faith and in the absence of arbitrariness, capriciousness, perversity, and irrationality. The pleaded breach(s) of that implied term appears to relate to the Bank re-evaluating collateral rather than making margin calls. Nevertheless, I will consider the factual basis of the Defendants’ argument.
287. The Defendants were obligated to maintain such margin as the Bank required in its discretion. Services Agreement Clause A (17) provides that the Defendants must maintain such margin(s) (or deposit with the Bank such amount of money, other assets, or additional security as the Bank may specify in order to maintain such margin(s)) as the Bank may in its absolute discretion consider appropriate as security for all the Defendants’ present and future liabilities to the Bank. The Bank was entitled to specify from time-to-time margin levels to be established before a facility may be utilised and to be maintained during the utilisation of a facility, failing which the Bank would require topping up of collateral or the repayment of obligations. The Bank was also entitled to specify margin which if exceeded would entitle the Bank to close out or liquidate positions. The Bank could vary the margin levels from time to time in its absolute discretion.
288. In his first witness statemen Mr Huebscher gives uncontradicted evidence which is largely supported by emails and other documents. The evidence of Mr Huebscher and the documents show that the Bank sent numerous notifications by email to MARJ between January and July 2022 to notify MARJ that its account was in margin shortfall. On 11 January 2022, the Bank issued a margin call letter to MARJ. The Bank subsequently notified MARJ of margin shortfall on numerous occasions and sent further margin call letters to MARJ on 4 February 2022 and 6 May 2022.
289. MARJ's account had been in margin shortfall since 31 December 2021. Dr Haider Khan confirmed to the Bank on 7 February 2022 that MARJ would not default on its obligations, but the default had not been rectified by 11 February 2022.
290. On 8 February 2022, the Bank notified MARJ that, unless the margin was addressed, it would sell securities to reduce the deficit. In response, Dr Haider Khan said that the account would be “regularised” that day. On the following day, Dr Haider Khan said that he expected the margin shortfall to be reduced from USD 9.1m to USD 7.5m, that he needed two more days to eliminate the shortfall and that, if he was unable to do so, “the total outstanding shall be taken over by EFG”. Dr Haider Khan said that the Bank would receive formal communication from EFG “during the day”.
291. On 11 February 2022, Mr Sahni was copied on an email from Mr Gowribalan to Mr Ali Sandila, Managing Director and Head of Private Banking at EFG (Middle East) Limited, in relation to the proposed transfer of MARJ's portfolio of securities from the Bank to EFG. In further email exchanges on the same day, Mr Sahni explained (copying in Dr Haider Khan and Mr Juma) that the transfer was in respect of a loan payment in the amount of USD 190 m. Mr Sandila indicated that the transfer was to be initiated the following week. This was not satisfactory to the Chief Risk Officer at the Bank given the ongoing margin call on MARJ's account. Mr Sahni confirmed that the Bank would have to sell securities to cover the shortfall on Monday.
292. On 14 February 2022, Mr Vikram Malhotra (then Global Market Head, Global South Asia and Middle East of the Bank) attended a call with Mr Juma and Mr Gowribalan to discuss the shortfall on MARJ's account. Following the call, Mr Gowribalan emailed a summary (with Mr Juma and Dr Haider Khan in copy) of what had been discussed, including the proposed transfer to EFG and Mr. Juma's appreciation for the Bank's patience in addressing the shortfall. On the same day, Mr Malhotra replied and reiterated the need for MARJ to clear the shortfall on its account.
293. By 5pm on 14 February 2022, the Bank had still not received any SWIFT communication from either EFG Bank or MARJ. Mr Sahni explained, by email later that evening, that the Bank would cover margin shortfall of around USD 11.6m by selling securities after the US markets had opened. Dr Haider Khan replied on the same day committing MARJ to a sale of open positions during US trading if there was no communication from EFG Bank as to the account transfer. Nevertheless, Mr Malhotra intervened to confirm the Bank's intention to sell pursuant to its right under the Services Agreement. MARJ, itself, sold USD 21.5m of securities that day, but there was still a USD 5.5m margin deficit. A further sale of securities was required, which was later actioned by MARJ.
294. By 19 February 2022, the transfer to EFG had still not happened. The Bank was told the delay was due to a change in composition of the portfolio constituents.
295. By 7 March 2022, the MARJ account had a margin deficit of USD 1.1m, which increased to USD 3,904,323 by 9 March 2022. The transfer of MARJ's portfolio to EFG had still not taken place.
296. On 8 March 2022, Dr Haider Khan requested a transfer of AED 10 m out from MARJ's account. The Bank declined this request because the account was in margin deficit.
297. On 11 March 2022 the Bank wrote to MARJ:
“As we have not received your instructions for the transfer of the cash and securities balance in the Account, we will be exercising our right to sell, liquidate and redeem all securities and investments in the Account pursuant to Clause A(24)(c) of the Services Agreement on or after 26 April 2022.”
298. On 17 March 2022, Dr Haider Khan again requested a transfer out of AED 10m. The Bank again declined this request on 18 March 2022.
299. On 22 March 2022, Dr Haider Khan, by email to the Bank, stated that MARJ's portfolio would be transferred prior to 7 April, and he sought a response in relation to margin, purchase of new positions and the transfer out of unencumbered positions. Mr Manoj Tuteja (the Bank's Assistant Relationship Manager at the time) replied on 23 March 2022 confirming that once all the amounts owing to the Bank have been repaid in full, the Bank would then continue to allow transfer-out requests in the account. He also confirmed that margin availability reflected in the account was only due to an exception granted against the Landstone Bond' and that removal would immediately result in margin call.
300. On 7 April 2022, Mr Gowribalan (with Dr Haider Khan and Mr Juma in copy) requested an extension of time to 30 April 2022 to settle the outstanding balance.
301. On 27 April 2022, the margin shortfall in the account stood at more than USD 1.2m. Mr Gowribalan emailed to say that MARJ would cover the shortfall by a sale of securities and stated that the transfer of MARJ's portfolio to ONE Swiss was in progress. The margin shortfall had increased to USD 1.8 by the next day and still no sale of securities had taken place. Dr Haider Khan confirmed that MARJ would sell off 'ASML' in that day's trading session.
302. The transfer to ONE Swiss was still pending on 5 May 2022, as ONE Swiss was still awaiting credit/risk committee approvals.
303. On 9 May 2022, the margin shortfall in the account stood at USD 5.41m and the margin call level at USD 1.45m. Dr Haider Khan, again, confirmed by email on 9 May 2022 that MARJ would sell some positions to cover the shortfall.
304. By 10 May 2022, the margin shortfall in the account stood at USD 7.25 m and the margin call level at USD 3.64m. That margin call level was inclusive of sell orders placed the day before. The Bank sold further shares.
305. By 17 May 2022, the margin shortfall in the account stood at USD 3.2m. Dr Haider Khan emailed the Bank stating that MARJ would sell some of the securities to reduce the margin shortfall. On 18 May 2022 the margin shortfall was USD 1.7m.
306. On 19 May 2022 the margin shortfall had increased to USD 3.1m. It was USD 3m on 20 May 2022. Mr Tuteja informed Dr Haider Khan on 24 May 2022 that MARJ needed to sell approximately USD 8.8m worth of marketable securities to cover the shortfall and leave a small buffer. Mr Tuteja also informed Dr Haider Khan that the account had been in margin since 27 April 2022 and that the Bank's credit team may sell the assets to resolve the shortfall in the MARJ account.
307. Despite MARJ selling some assets, its account remained in margin shortfall on 25 May 2022, in the amount of USD 2.1m. Dr Haider Khan stated, by email on 25 May 2022, that MARJ would settle the shortfall issue that day.
308. On 1 June 2022 (and referring to the 11 March and 12 April 2022 default letters), Mr Tuteja emailed Dr Haider Khan (with Mr Gowribalan in copy) informing MARJ that a final deadline of 9 June 2022 was to be imposed by the Bank for all the liabilities in the account to be repaid and for the cash and assets in the account to be transferred out failing which the Bank would liquidate the securities in the account.
309. On 6 June 2022, Dr Haider Khan emailed the Bank to ask that the Bank hold any action on the accounts and allow MARJ a seamless transfer of relationship to a new lender. On 7 June 2022, Mr Tuteja replied to Dr Haider Khan, referring to the lack of any update as to the account opening at ONE Swiss since May 2022. Mr Gowribalan replied that afternoon to say he was having a meeting with the Bank in Zurich. On 8 June 2022, Dr Haider Khan confirmed that ONE Swiss was the first priority for MARJ to transfer the account. He also sent a letter, purportedly from the paying agent for the Nordrock Bonds and further confirmed the Bank would receive the Landstone Coupon on 30 June 2022.
310. In response to an email from Mr Vivek Gehani of the Bank, on 10 June 2022, Mr Juma added his "deepest condolences" for the ongoing issues with the MARJ account. Mr Juma in effect accepted that MARJ was liable to repay the outstanding liabilities to the Bank but made repeated requests and assurances that the amounts would be repaid by effecting a transfer of the portfolio to a different bank, which would repay the liability due to the Bank.
311. In summary, MARJ’s account was persistently in margin default. The factual assertion underlying the Defendants’ claim has no basis in fact.
312. Further, there is no basis for implying into the Facility Agreement a term that the Bank would exercise its power to demand the maintenance of margin honestly, genuinely and in good faith and in the absence of arbitrariness, capriciousness, perversity, and irrationality. Such a term is inconsistent with the terms of the Facility Agreement.
313. If a Braganza duty is to be implied into the Facility Agreement as asserted by the Defendants, there is no evidence that the Bank required margin levels or issued the 11 March 2022 letter in breach of that duty.
314. There is no evidence that the Bank required margin levels or issued the 11 March 2022 letter in bad faith or other than in its interest for a legitimate commercial purpose.
Breach of implied term to comply with regulatory duties
315. The Defendants argue44 that it was an implied term of the Facility Agreement, implied in fact, that the Bank would exercise any powers or discretions conferred on it under the terms of the agreement in accordance with its regulatory obligations, including under the following rules contained in the General Module of the DFSA rules (DFSA Rules):
4.2.1 - an Authorised Firm must observe high standards of integrity and fair dealing;
4.2.2 - in contacting its business activities an Authorised Firm must act with due skill, care and diligence;
4.2.6 - an Authorised Firm must pay due regard to the interests of its customers and communicate information to them in a way which is clear, fair and not misleading;
4.2.9 - where an Authorised Firm has control of or is otherwise responsible for assets or money belonging to a customer which it is required to safeguard, it must arrange proper protection for them in accordance with the responsibility it has accepted.
316. In Emirates NBD v Advanced Facilities45, the DIFC Court of Appeal agreed with the following passage from Target Rich v Forex46:
“Whilst the court will give effect to clear expressions of incorporation, the cases demonstrate a consistent recognition that regulatory obligations are distinct from contractual rights, that they may operate in parallel without fusion and, in particular, that mere references in contractual terms to the existence and content of regulatory obligations will not, or at least will not lightly, be treated as an incorporation of any specific obligations mentioned, let alone of the rules as a whole.”
317. The Defendants submit that the Facility Agreement incorporates regulatory rules notwithstanding there is no express statement to that effect in the Facility Agreement.
318. That submission is unsupported by principle or authority. I do not accept it.
319. Furthermore, the Defendants point to no provisions of the DFSA Rules which impose obligations restricting an Authorised Firm’s contractual rights to value or revalue LTV ratios in its commercial judgment, decline to transfer securities for outstanding loans until they are repaid, advance loans before agreed or adequate security has been provided, require margins to be maintained, or demand payment of an outstanding loan or terminate a loan agreement or facility in accordance with the terms of the loan agreements and charges.
320. Where, as here, the agreement expressly provides that the Bank has the right to demand repayment at any time, there is no basis for a duty which restricts the right of the Bank to demand repayment in its commercial judgment in its interests.
Counterclaim for compensation for breach of regulatory rules
The pleaded regulatory duties and right to compensation
321. The Defendants counterclaim for compensation pursuant to Article 94(1) of the DIFC Regulatory Law No 1 of 2004, which relevantly provides that where a person intentionally, recklessly or negligently, commits a breach of a duty, requirement, prohibition, obligation or responsibility imposed under the Law or Rules or other legislation administered by the DFSA, the person is liable to compensate any other person for any loss or damage caused to that other person as a result of such conduct, and otherwise is liable to restore such other person to the position they were in prior to such conduct.
322. I have set out the regulatory duties which the Defendants say the Bank breached when considering the Defendants claim that it was an implied term of the Facility Agreement that the Bank would exercise any powers or discretions conferred on it under the terms of the agreement in accordance with its regulatory obligations. For convenience I will again set out the regulatory duties which the Defendants say the Bank breached. They are the following rules in the DFSA Rulebook contained in the General Module of the DFSA Rules (the “GEN Rules”):
4.2.1, An Authorised Firm must observe high standards of integrity and fair dealing.
4.2.2, In conducting its business activities an Authorised Firm must act with due skill, care and diligence.
4.2.6, An Authorised Firm must pay due regard to the interests of its customers and communicate information to them in a way which is clear, fair and not misleading.
4.2.9, Where an Authorised Firm has control of or is otherwise responsible for assets or money belonging to a customer which it is required to safeguard, it must arrange proper protection for them in accordance with the responsibility it has accepted.
323. The Defendants plead that the Bank’s actions in refusing to transfer MARJ’s portfolio to EFG Bank prior to the margin shortfall being cleared and/or threatening to sell MARJ’s portfolio amounted to a breach of its obligations under those GEN Rules in that:
(a) The Bank failed to act with high standards of integrity and fair dealing; it failed to act with due care, skill, and diligence, and failed to pay due regard to the interests of the MARJ.
(b) The Bank’s exercise of its discretion to demand the maintenance of margin as a condition for the transfer of MARJ’s entire portfolio to EFG Bank was not honest or genuine or made in good faith and instead was arbitrary, perverse, capricious, and irrational and/or was not exercised for a legitimate commercial purpose.
(c) As a result of the Bank’s actions, MARJ was forced to liquidate a section of its portfolio to meet the margin call and at a significant loss.
324. The Defendants plead that the Bank’s conduct in relation to MARJ’s proposal to transfer its account to ONE Swiss Bank was also a breach of the DFSA Rules referred to. The Defendants say that MARJ began the process of arranging for its portfolio to be transferred to ONE Swiss Bank and the transfer would, if completed, have resulted in full repayment of any sums then due to the Bank. Further, the Defendants plead:
(a) By email dated 23 March 2022, Mr Manoj Tuteja on behalf of the Bank stated that the Bank would not allow transfer out of the portfolio until all amounts owing to the Bank had been repaid in full. The Defendants also say that the Bank contacted ONE Swiss Bank directly, without the authority of the Defendants and in breach of the terms of the Facility Agreement and that, as a result of the Bank’s contact, ONE Swiss Bank subsequently decided not to proceed with the proposed transfer of the MARJ portfolio.
(b) The Bank’s actions in refusing to engage with the proposed transfer of MARJ’s portfolio and/or its contact with One Swiss Bank amounted to a breach of its obligations under the GEN Rules. By insisting on the discharge of all amounts owed to the Bank as a condition for authorising the transfer, in circumstances where the transfer itself would have resulted in all amounts owed to the Bank being discharged, the Bank failed to act with high standards of integrity and fair dealing; it failed to act with due care, skill and diligence, and failed to pay due regard to the interests of MARJ.
325. The Defendants plead that the Bank breached the DFSA Rules recklessly alternatively negligently within the meaning of Article 94(1)(a) of the DIFC Regulatory Law. The Defendants say the Bank’s actions were deliberate and it must have been obvious to the Bank that it was acting otherwise than in accordance with high standards of integrity and fair dealing, that it was not paying due regard to the interests of MARJ, and that it was thereby exposing MARJ to harm.
326. The Defendants say that pursuant to Article 94(1) of the DIFC Regulatory Law, the Bank is by virtue of its breaches of the DFSA Rules liable to compensate MARJ for all loss or damage caused as a result of such conduct and otherwise restore MARJ to the position it was in prior to such conduct. The Defendants say the loss and damage suffered is at least equivalent to the loss of: the chance to transfer the portfolio of assets to another bank; the loss of profits that MARJ would have made thereby; and the losses suffered through the forced liquidation of assets within MARJ’s portfolio at a price below the value at which MARJ would have sold such assets (if they would have been sold at all) but for the Bank’s breach.
The proposed portfolio transfer to EFG Bank
327. The Defendants’ case rests on the assertion that the Bank demanded the maintenance of margin as a condition for the transfer of MARJ’s portfolio to EFG Bank, refused to transfer MARJ’s portfolio to EFG Bank prior to the margin shortfall being cleared and/or threatened to sell MARJ’s portfolio.
328. The Defendants’ case rests on the emails I have referred to when addressing the Defendants’ contention that the Bank breached an implied term of the Facility Agreement by refusing to transfer MARJ’s portfolio to EFG Bank. The emails do not disclose that the Bank refused to transfer MARJ’s portfolio to EFG Bank prior to the margin shortfall being cleared.
329. In the emails the Bank did not refuse to transfer the portfolio to EFG Bank until margin was reinstated. The Bank warned that if margin was not reinstated, it would sell MARJ’s securities in order to make up the margin shortfall. The Bank was saying that it would not hold up that process while EFG Bank put forward terms for the transfer.
330. It is not open to infer from the evidence before the Court that the Bank did not observe high standards of integrity and fair dealing so as to breach the Regulatory Law. The Bank was contractually entitled to sell MARJ’s securities to make up the margin shortfall. It is clear from the emails and Mr. Huebscher’s witness statements that in warning that it would sell the securities to make up the margin shortfall and refusing to delay doing so whilst EFG Bank put forward terms for the portfolio transfer, the Bank was acting rationally and in its own commercial interests.
331. It is not open to infer from the evidence before the Court that the Bank failed to conduct its business with due skill, care, and diligence. The Bank was contractually entitled to sell securities provided by MARJ to regularise the margin shortfall. It was not obliged to delay doing so pending receipt of a proposal from EFG Bank for the transfer of MARJ’s portfolio. The Bank was entitled to exercise its commercial judgement in its own interest not to delay sale of the securities and increase the risk of the margin shortfall increasing and the loans becoming less secure.
332. It is not open to infer from the evidence before the Court that the Bank failed to pay due regard to the interests of its customers and communicate information to them in a way which is clear, fair, and not misleading. In this context “due regard” means such regard as is proper and appropriate in the circumstances. The Bank was entitled to act in its interests alone so long as it did so for a commercial purpose and not to vex the Defendants. It is not open to infer from the evidence before the Court that the Bank did not act in the exercise of its commercial judgment in its own interest or in breach of good faith to vex the Defendants. The Bank communicated its intention and reason for it to the Defendants.
333. There is no evidence that the Bank was responsible for assets or money belonging to MARJ; the Bank had taken an assignment of the securities. In any event, it is not open to infer that the Bank failed to arrange proper protection for the securities it held.
Transfer to ONE Swiss Bank
334. I have referred to the evidence concerning the Defendants’ request to transfer its account to ONE Swiss Bank when addressing the Defendants’ case that the Bank breached implied terms of the Facility Agreement. There is no evidence that the Bank hindered or prevented MARJ transferring its account to ONE Swiss. In its email of 23 March 2023, the Bank confirmed that once "all the amounts owing to the Bank have been repaid in full, the Bank will then continue to allow transfer-out requests in this account." The Defendants did not take issue with that position. Nor could they. The Facility Agreement gave the Bank the right not to transfer any assets or collateral assigned to the Bank until the whole of the amount outstanding had been repaid. A transfer of MARJ’s account to ONE Swiss did not happen because MARJ did not manage to agree terms with ONE Swiss.
335. There is no foundation for the Defendants’ assertions that the conduct of the Bank in relation to transfers of securities to ONE Swiss Bank breached any of the Regulatory Law requirements referred to.
No evidence that other material evidence would be adduced at trial
336. I am satisfied that the Defendants have had a proper opportunity to put evidence before the Court. The Defendants have not shown by evidence that material in the form of documents or oral evidence that, or from which it might be inferred that, the Bank breached the Regulatory Law by refusing to transfer MARJ’s portfolio to EFG Bank prior to the margin shortfall being cleared and/or threatening to sell MARJ’s portfolio or the Bank’s conduct in relation to MARJ’s proposal to transfer its account to ONE Swiss Bank amounted to a breach of its obligations under the DFSA Rules is likely to exist and can be expected to be available at trial. It is not enough simply to argue that the case should be allowed to go to trial because something may turn up which would have a bearing on the case.
Loss and damage
337. The Defendants counterclaim that by reason of the Bank's breaches of the implied terms of the Facility Agreement and the DFSA Rules, MARJ has suffered loss and damage at least equivalent to:
(a) the loss of chance to transfer the portfolio of assets to another bank;
(b) the loss of profits that MARJ would have made thereby; and
(c) the losses suffered through the forced liquidation of assets within MARJ’s portfolio at a price below the value at which MARJ would have sold such assets (if they would have been sold at all) but for the Bank’s breach.
338. There is no evidence that the Defendants suffered any of the alleged loss or damage or any loss or damage as a result of the conduct of the Bank they complain of.
Counterclaim has no real prospect of success
339. For the reasons stated, the Defendants have no real prospect of succeeding on their counterclaim and no real prospect of successfully defending the Bank’s debt claim by setting off the amounts claimed under the counterclaim against the amounts owing by MARJ to the Bank.
Bank’s claim under the Guarantee
The Guarantee
340. By an instrument entitled “Deed of Guarantee’ signed by Mr Juma on 6 October 2021, Mr Juma, in consideration of the Bank extending or agreeing or continuing to extend loans, advances, accommodation, credit or other financial facilities for so long as the Bank may think fit, whatsoever to MARJ, Mr Juma unconditionally and irrevocably:
(a) guarantees to the Bank from time to time the prompt and complete performance of the Guaranteed Obligations;
(b) undertakes to pay to the Bank from time to time immediately on demand the unpaid balance of every sum (of principal, interests or otherwise) now or hereafter owing to payable by MARJ to the Bank in respect of the Guaranteed Obligations; and
(c) agrees as an independent and primary obligation to indemnify and hold harmless the Bank from time to time immediately on demand from and against any cost, loss or liability incurred by the Bank as a result of any of the Guaranteed Obligations being or becoming void, voidable, unenforceable or ineffective for any reason whatsoever, whether or not known to the Bank, the amount of such loss being the amount which the bank would otherwise have been entitled to recover from MARJ.
341. “Guaranteed Obligations” means each and every obligation and liability due, owing or incurred by MARJ to the Bank including the obligation to pay the unpaid balance of every sum now or hereafter owing, to or payable by MARJ to the Bank.
342. The Guarantee contains a no set - off clause, providing that all sums payable by the guarantor shall be paid without any deduction or withholding unless such deduction or withholding is required by an applicable law, judicial or administrative decision or practise of any relevant government authority in which case the guarantor shall pay to the bank in addition to the payment to which the bank is otherwise entitled such additional amount as is necessary to ensure that the net amount actually by the bank will be equal to the full amount which the bank would have received had no such junctional withholding being required47
Mr Juma’s defence to the claim under the Guarantee
343. In answer to the Bank’s claim against him under the Guarantee, Mr Juma pleads:
(a) he is entitled to avail himself of MARJ's right of set off under its counterclaim to reduce or extinguish his liabilities if any to the Bank under the Guarantee;
(b) it was an implied term of the Guarantee that the Bank would advance and operate the Facilities with MARJ honestly, genuinely and in good faith and in the absence of arbitrariness, capriciousness, perversity and irrationality, and for legitimate commercial purposes and not for the purpose of vexing the Defendants maliciously or for purposes unconnected to the Bank's commercial interests and or in accordance with its regulatory obligations including the DFSA Rules;
(c) the Guarantee was ineffective and does not bind Mr Juma because the Guarantee was not properly attested and is unable to take effect as a deed because:
(i) the Guarantee was purportedly witnessed by Mr Sahni, but Mr Sahni did not sign the Guarantee as witness in the presence of or contemporaneously with Mr Juma;
(ii) Mr Sahni is an employee of the Bank and is therefore a party to the Guarantee; and
(d) the Guarantee was executed on or after the Bank had already agreed to make available the Facilities to MARJ and accordingly no consideration passed in respect of the purported execution of the Guarantee.
Defence of set-off of MARJ’s counterclaim
344. I have found that the Defendants have no real prospect of succeeding on the counterclaim and no real prospect of successfully defending the debt claim by setting off the amounts claimed by MARJ under the counterclaim against the amounts owing by MARJ to the Bank.
345. Furthermore, the Guarantee contains a no set-off clause, which provides48
“all sums payable by the Guarantor hereunder shall be paid … without any deduction or withholding unless such deduction or withholding is required by an applicable law, judicial or administrative decision or practice of any relevant government authority … “
Implied term defence
346. The Defendants plead that the Bank breached the implied terms of the Guarantee as set out above for the same reasons as alleged in relation to MARJ. I have found that the Defendants have no real prospect of succeeding on that issue.
Defence that Guarantee ineffective because not properly witnessed
Evidence
347. Mr. Sahni, in his first witness statement says as follows. On 6 October 2021 he attended the office of MARJ in Dubai and witnessed Mr Juma sign the Guarantee. Dr Haider Khan and two employees or officers of GRIP (which acted for or on behalf of MARJ) as well as Mr Imran Qayyum (formerly managing director, market head - global South East Asia at the Bank) were also present. Mr Sahni returned to his office and added his signature to the Guarantee to confirm that Mr Juma had signed it in his (Mr Sahni’s) presence as a witness.
348. The Defendants submit that this evidence is purely circumstantial, and therefore the Defendants must be given the chance to cross-examine Mr. Sahni.
349. There is no merit to that submission. The evidence is not circumstantial; it is direct evidence from Mr. Sahni of what he saw and what he did. The evidence is uncontradicted. Dr Haider Khan has submitted a detailed witness statement after Mr Sanhi's witness statement but does not challenge Mr Sahni’s evidence. Mr Juma has not challenged Mr Sahni’s evidence or denied that he signed the Guarantee.
350. The Defendants submit that the Court needs to examine what the requirements are for a witness to sign a document and to examine the effect of a guarantee that does not bear a witness signature, and whether it can be enforced, if at all.
351. There is no merit to that submission. It is for the parties to submit to the Court the relevant law and how it applies to the facts of the case. The defendants have had adequate opportunity to do that.
352. I will consider each of the reasons advanced by the Defendants why the Guarantee is unenforceable.
Formal requirements of a deed
353. The Bank says that the Guarantee was executed as a deed and therefore no consideration needs to pass for the Guarantee to be enforceable against Mr Juma.
354. It is necessary to consider the formal requirements for an instrument to be effective as a deed. That is a question of law. The Court has the material before it to enable it to determine that issue on this application for immediate judgment.
355. The Guarantee provides that it shall be governed by and construed in accordance with Singapore law.
356. In Lim Zhipeng v Seow Suat Thin49 the Singapore Court of Appeal considered the requirements for a deed. A mother provided a guarantee in respect of her son’s debts. At trial, the guarantee was found to be invalid as a deed as it was not sealed. It was not valid as a contract because there was no consideration. The Singapore Court of Appeal confirmed that, to be effective as a deed under Singapore law, an instrument must be signed, sealed, and delivered50. The requirement for a seal is derived from the English common law51. The Court had regard to the development of the English common law to the effect that the sealing requirement no longer required a distinct physical seal. The usual approach was to print a circle, sometimes with the letters “L.S.”, which was sufficient52. The Court noted that English law had been amended in 1989 to abolish the need to seal deeds in many situations. In 2017, the Singapore Companies Act 1967 was amended to dispose of the need for Singapore incorporated companies to use seals in the execution of deeds. The amendment was spurred by similar amendments in Australia, Canada, Hong Kong, New Zealand, and the UK, which no longer require the use of common seals53. The statutory requirement amendment applies only to companies. Where the provisions of the Companies Act do not apply, the common law derived from England continues to apply54.
357. The guarantee complied with the common law requirements for the validity of a deed. The guarantee bore a circular mark bearing the letters “LS” over which a seal had been applied. The Singapore Court of Appeal recognised that could be capable of amounting to a seal55.
Deed does not have to be witnessed
358. The Defendants contend that unless the witness signed in the presence of the signatory, he has effectively not borne witness to the execution of the document, Mr. Sahni did not sign in the presence of Mr Juma, the Guarantee was not duly signed and therefore Mr Juma is not liable under the Guarantee
359. The requirement for witnessing a deed is a statutory requirement. The history of the formal requirements of a deed was reviewed by Edelman J in the Supreme Court of Western Australia in Netglory Pty Ltd v Caratti56.
360. Netglory’s claim was for the repayment from the Hocking Land Company of a loan. Netglory also sued Mr Caratti under an alleged guarantee of the repayment by Hocking Land Company. Mr Pollock claimed to have witnessed the signature but applied his own attesting signature to the documents more than 7 years later, while in jail. The Court rejected his evidence and found that he had not witnessed the signature of the documents. Accordingly, the Court’s findings were strictly obiter on whether, had Mr Pollock witnessed the signing, he had validly attested the documents.
361. The reason why the validity of attestation was or could be relevant, was that this was a requirement under Western Australian law for the validity of a deed. That requirement had been introduced by statute, which had, in the Court’s words “implemented dramatic reforms to the law of property”57
362. Section 9 (1)(b) of the Property Law Act 1969 (WA) provides:
“9. Formalities of deed
(1) Every deed, whether or not affecting property –
(b) shall be attested by at least one witness not being a party to the deed but no particular form of words is required for the attestation.”
363. The statute therefore introduced a requirement of attestation by a witness.
364. However, Edelman J explained that, under the pre-existing common law, there was no requirement that a deed be witnessed or attested. His honour referred with approval to a previous case, where it was said58:
“[w]itnessing of a deed was not essential for formal execution at common law but it is under s 9 of the Property Law Act”.
Justice Edelman further observed59:
“At common law there was no particular requirement for attestation. But attestation could be required by statute or by a power of appointment.”
365. The common law requirements of a deed were considered by Ward CJ in Eq in the New South Wales Supreme Court in Brown v Tavern Operator Pty Ltd60.
366. A commercial agreement was recorded in an instrument which purported to be executed as a deed. In consequence of a finding that the person who had purported to sign as witness was not present when the deed was executed, it became necessary to decide whether valid attestation occurred where a person present at that time did not sign but later deposed by affidavit to having witnessed the execution. The requirements for a document to be attested in compliance with the requirements for the execution of a deed were prescribed by statute - Conveyancing Act 1919 (NSW). Her honour found that for a document to be attested in compliance with the statute, the witness present at the time of execution of the document must sign it at the time as witness for the purpose of attesting the execution. However, her honour made observations about the common law requirements for the execution of a deed.
367. Chief Justice in Equity Ward said61:
“[459] Prior to the intervention of statute, there was no requirement that a deed would be either signed or attested. A deed was “a writing or instrument, written on paper, or parchment, sealed and delivered to prove and testify the agreement of the parties, whose deed it is, to the things contained in the deed” (Edward Hilliard (ed) Sheppards Touchstone of Common Assurances (7th ed, 1820, J & WT Clarke) at 50).
[460] In Norton on deeds … at 7, the authors note:
“Signing is not necessary to make a deed valid as such at common law, nor contrary to Blackstone’s opinion, Com BK II, c 20 (2nd ed, p 305) by the Statute of Frauds (29 Car.2. c.3). ‘But whether the parties to the deed write in the end their names or set to their marks, as it is commonly used, it matters not at all (as I think) for that is not meant where it is said that every deed ought to have writing’: Termes de la Ley, s.v. ‘Fait’; Preston in Shep Touch. 56; Shep. Touch. 60; 3 Prest. Abst. 61.”
and at 24 as to attestation, they write:
“Attestation of the signature, sealing or delivery of the deed is not necessary to make a deed as such valid: Co. Litt. 6a, 7a, 7b, Bl Com. Bk. II, c 20 (8th ed p 307) Goddard’s Case (1583) 2 Rep 4b, at p 5a; Garrett v Lister (1662) 1 Lev 25; but of course, in practise it should never be omitted, and in the case of many instruments attestation is required by law.”
[461] See also Gerald Dworkin, Odgers’ Construction of Deeds and Statutes (5th ed, 1967, Sweet & Maxwell), 13-14; R.A. Donnell (ed), Gibson’s Conveyancing (21st ed, 1980, Eastern Press Ltd), 198; Peter Butt, Land Law (6th ed, 2010, Lawbook Co), [19-115]. In Victoria there is still no requirement that a deed be witnessed (see Nicholas Seddon, Seddon on Deeds (2015, Federation Press), 50-51; Property Law Act 1958 (Vic), s 73).
[462] Thus, as Edelman J noted in Netglory at [124]:
“At common law there was no particular requirement for attestation. But attestation could be required by statute or by a power of appointment.”
368. Her honour observed that in New South Wales the Conveyancing Act had altered the common law requirements for the execution of a deed by adding the requirement that the deed be signed and that it be attested by a witness.
369. There is no evidence and neither party submitted that there is any statutory requirement under Singapore law for a deed to be witnessed.
370. I find that under Singapore law there is no requirement that a deed be witnessed. Therefore, Mr Juma’s defence that the Guarantee is unenforceable because Mr Sahni did not add his signature as witness in the presence of Mr Juma has no real prospect of succeeding.
Attestation must be contemporaneous with the signature witnessed
371. In England and other jurisdictions, it is a statutory requirement for the validity of a deed that it is signed in the presence of one or more witnesses who must attest their signature. There is a conflict of authority whether the attestation must be contemporaneous with the signing by the signatory
372. In Netglory v Carratti Justice Edelman summarised the Victorian cases62 as establishing a rule that ‘attestation must be contemporaneous with the signature witnessed’.63 Contemporaneous does not mean simultaneous. Indeed, a witness could not sensibly witness the signatory signing the document and simultaneously add their signature as a witness. Justice Edelman referred to Wright v Wakeford64 where:
“[151] … one question was the effect of subsequent attestation of a deed purportedly made under a trust power for the sale of land. That trust power required attestation by two or more credible witnesses. At first instance, the Lord Chancellor considered 'the question, whether an attestation, not contemporaneous, but subsequent, would do'. He said that he had 'a very strong opinion, that a subsequent attestation would not do'. The reason for this was that the execution of the power, by deed, was a limitation upon the use so that unless the limitation arose at the time of the use then it could not arise at all. In other words, if the limitation were not valid at the time, it could not subsequently become valid.
.[152] The Lord Chancellor then directed a case for the Court of Common Pleas, where a majority of the Court (Sir James Mansfield CJ dissenting) held that the attestation was required to be contemporaneous.
[153] In a joint judgment, Heath, Lawrence and Chambre JJ held that 'the attestation required to constitute a due and effectual execution of the power, ought to make a part of the same transaction with the signing and sealing ... such being the usual and common way of attesting the execution of all instruments requiring attestation'. Their Lordships did not confine themselves to the circumstance that the party to be bound had died at the time of subsequent attestation.”
(citations omitted)
373. Read in context, Edelman J considered attestation ‘making a part of the same transaction with the signing and sealing’ in Wright was synonymous with it being ‘contemporaneous with the signature attested’, especially as ‘sealing’ had been abolished. I respectfully agree, given the word Edelman J used (following the Lord Chancellor in Wright) was ‘contemporaneous’, not ‘simultaneous.” The ordinary meaning of ‘contemporaneous’ is two events occurring in the ‘same period of time’, not simultaneously.
374. In Wood v Commercial First Business Ltd65 the High Court of England and Wales held that, although there is a requirement for the person executing the deed to sign in the presence of the attesting witness, it is not a requirement of the Law of Property (Miscellaneous Provisions) Act 1989 (UK) for the witness to sign the attestation in the presence of the person executing the deed (or indeed of anybody else). The decision opens up the possibility of a time-lag between the witnessed execution of the deed and the signature by the attesting witness.
375. I will assume, contrary to my finding, that it is reasonably arguable that a witness must add their signature to the deed contemporaneously with the signatory signing the deed. However, if so and the witness attests within a relatively short time and on the same day as the signature witnessed as Mr Sahni did, then on any reasonable view, that is ‘contemporaneous’ or indeed ‘part of the same transaction with the signing’66. That would still be the case even if the witness does not sign in the presence of the signatory party, or effectively simultaneously with them. If the signature and attestation are the same day, none of the legitimate concerns of Edelman J in Netglory and of the judges in the Victorian cases he cited, about a time lag in attestation of several years or even after a party’s death, would apply. Attestation the same day would be perfectly consistent with its purposes set out in Netglory to ‘confirm the person executing the deed actually did so’. The purpose of requiring attestation was explained in Shah v Shah67:
“[T]he requirement for attestation is integral to the requirement for signature in that the validity of the signature is stipulated to depend on the presence of the attesting witness. I also accept attestation has a purpose in that it limits the scope for disputes as to whether the document was signed and the circumstances in which it was signed … It gives some, but not complete, protection to other parties to the deed who can have more confidence in the genuineness of the signature by reason of the attestation.”
376. Even assuming that the witness must sign contemporaneously with the signature witnessed, that is satisfied if the witness attests on the same day, which is what Mr Sahni did.
377. Mr Juma’s defence that the Guarantee is unenforceable because Mr Sahni did not add his signature as witness in the presence of Mr Juma has no real prospect of succeeding.
Witness was an employee of the Bank
378. The Defendants say that Mr. Sahni signed the Guarantee in the capacity as an employee of the Bank, and not as a private third party. The Bank is effectively the beneficiary of the Guarantee, and therefore Mr. Sahni (an employee of the Bank) cannot be a proper and impartial witness.
379. The Bank submits that Mr Sahni is not a party to the Guarantee.
380. Mr Sahni is not a parry to the Deed. The Bank is a corporation, a legal entity separate from its officers and employees. Even if some officers of the company could be considered the company for some purposes, Mr Sahni is not one. He is not the directing mind and will of the company.
381. Mr Juma has no real prospect of succeeding on that issue.
Guarantee is enforceable as a deed
382. Mr Juma has no real prospect of succeeding on his defence that the Guarantee was ineffective and does not bind him because the Guarantee was not properly attested and is unable to take effect as a deed.
Guarantee is enforceable as a contract
383. The Bank submits alternatively that the Guarantee took effect as a contract. The Defendants submit there was no consideration. Although it is not necessary to express a view on that issue, I will set out my opinion in case the case goes on appeal and because it confirms my view that Mr Juma has no real prospect of succeeding on his defence that the Guarantee is not enforceable against him.
384. The Facility Letter is dated 5 October 2021, but the documents were signed on 6 October 2021. The Facility Letter was merely an offer which was yet to be accepted and could have been withdrawn.
385. The Guarantee was provided to secure the lending under the Facilities. It was a condition precedent of each utilisation of the agreements that the Guarantee be provided: GCTFA clause G (3). There was consideration for the provision of the Guarantee – lending was provided.
386. Further, the Bank was under no commitment to lend, even after the agreements were concluded. The Guarantee was provided in exchange for future lending, which was advanced.
387. In any event, the Bank submits, in deciding whether consideration provided for a deed is past, the exact order of the relevant events will not be decisive. The authors of The Law of Guarantees (7th Ed.)68 write:
“The court is entitled to look at the substance of the matter, and it may determine in an appropriate case that the underlying transaction for which the guarantee is given, and the guarantee itself, are really part of a single transaction or a series of inter-related and mutually supportive linked transactions.”
388. In Classic Maritime Inc v Lion Diversified Holdings Bhd69, a guarantee was entered into 15 days after a contract of affreightment. The argument that there was therefore no consideration for the guarantee was dismissed as being “totally devoid of commercial sense”. The guarantee had been provided as part of a single transaction since it was specifically required by the contract70. Consideration moved “in the context of the transaction as a whole”.
389. Further, the Bank submits and I accept, an act done before the giving of a promise can be good consideration if it was done at the promisor’s request, the parties had understood that the act was to be remunerated by the conferment of a benefit, such as providing a guarantee, and the conferment of the benefit would have been enforceable if it had been promised in advance71
390. The Guarantee is effective as a contract.
The estoppel argument
391. The Bank submits that if it is wrong about the Guarantee being a valid deed or a valid contract, the Defendants would be estopped from denying its effect.
392. In Lim Zhipeng the Singapore Court of Appeal recognised that the English common law approach to estoppel applied, albeit it had not been pleaded in that case72.
393. The Defendants submit that the argument of estoppel raised by the Bank is insufficiently pleaded, and ought to be dismissed. In its Reply the Bank pleads:
“In any event, [Mr Juma] is estopped from denying the effect of the Guarantee as a deed. The Guarantee was presented to the Claimant by [Mr Juma] as a validly executed deed, and as security for the Facilities. It was relied upon by the [Bank] for those purposes.”
394. Further the Defendants submit, even considering, but not admitting, that the Bank has sufficiently pleaded estoppel, this is a triable issue, and the Defendants must be afforded an opportunity to examine or cross-examine any witnesses or respond to any evidence that the Bank may lead and/or provide. The Court in Netglory vs Caratti disregarded the Bank’s estoppel argument for those two reasons.
395. It is unnecessary to express a view on this issue because I have found that the Guarantee is enforceable as a valid deed or alternatively as a valid contract. It seems obvious that the Bank relied on the Guarantee as security for the Facilities; that is the purpose of the Guarantee. However, the Bank has not adduced evidence from Mr Huebscher or anyone else that the Bank did in fact rely on the Guarantee as security for the Facilities. In all the circumstances, I refrain from deciding the issue.
Guarantee is enforceable
396. The Guarantee is enforceable as a deed and as a contract. Mr Juma has no real prospect of successfully defending the claim against him on the basis that the Guarantee is not enforceable.
No compelling reason case should be disposed of at trial
397. The Defendants submit that there are compelling reasons why the case should be disposed of at a trial. Those reasons overlap with the Defendants’ reasons why the Bank has not established that the Defendants have no real prospect of successfully defending the claim. I find that the matters raised by the Defendants do not give rise to compelling reasons why the case should be disposed of at a trial.
398. The Defendants have not adduced evidence that documents or oral evidence that would support their defences are likely to exist and can be expected to be available at trial. In effect, the Defendants argue that the case should be allowed to go to trial because something may turn up which would support the defences raised by the Defendants. That is nothing more than hopeful speculation. The Defendants optimistically submit that something will turn up. That is not an answer to an application for immediate judgment.
Bank is entitled to immediate judgment
399. For the reasons stated, the Defendants have no real prospect of succeeding on any of the defences they have raised in answer to the Bank's debt claim, the Defendants have no real prospect of successfully defending the Bank’s debt claim and there is no other compelling reason why the Bank’s debt claim should be disposed of at trial.
400. The Bank is entitled to immediate judgment for the amount outstanding under the Facilities.
Amount payable
401. The sum payable by MARJ and Mr Juma (as guarantor) comprises the outstanding principal amount of advances to MARJ under the Facilities and interest. Since 7 October 2022, when the liquidating security transactions were settled, the Bank has applied a default interest rate.
402. Clause A6 of the Services Agreement provides in effect that the Bank will send to MARJ statements of account setting out a summary of the transactions done for any account established by MARJ with the Bank (Account(s)) and if MARJ does not notify the Bank within 14 days of any errors, discrepancies, omissions or unauthorised debits, trades, transactions, or entries, the details and information contained in the statement of account shall be conclusive evidence against MARJ without any further proof that the Account(s), the entries therein and the contents of the statement of account are correct.
403. The Bank sent to MARJ statements of account for each month from October 2021 to October 2023. The Bank has produced those statements of account to the Court.
404. At the hearing of its application for immediate judgment, the Bank relied on its statement of account as of 31 May 2023 produced by Mr Huebscher in his witness statement of 19 June 2023. The statement of account showed that the outstanding amount as of 31 May 2023 was USD 53,169,618.94. Mr Huebscher stated at [11]:
“The remaining amount outstanding is USD 53,169,618.94 [BCH 1/202]. Interest continues to accrue. The total liabilities as at end October 23 while USD 55,561,607.29”. ([BCH 1/202] is the 31 May 2023 statement of account).
405. At the request of the Court, on 10 November 2023, the Bank provided written submissions on the amount that would be outstanding under the Facilities on 15 November 2023. Since 31 May 2023 further interest has accrued as a result of which the amount outstanding under the Facilities increased and the Defendants’ liabilities on 15 November 2023 would be USD 55,803,863.73.
406. The Defendants did not notify the Bank within 14 days of any errors, discrepancies, omissions or unauthorised debits, trades, transactions, or entries, contained in the 31 May 2023 statement of account or any other statement of account sent by the Bank. Accordingly, the statement of account of 31 May 2023, and the other statements of account, are conclusive evidence against MARJ without any further proof that the Account(s), the entries therein and the contents of the statements of account are correct.
407. Nevertheless, the Defendants challenge the correctness of the 31 May 2023 statement of account, the subsequent statements of account, and the Bank’s calculation of interest up to 15 November 2023.
408. First, the Defendants submitted that the Bank has failed to specify the extent to which the securities were utilised to satisfy the outstanding amounts due under the Facilities.
409. That is not correct. In his witness statement of 21 June 2023 Mr Huebscher stated that on 29 September 2022, the Bank exercised its rights under the Services Agreement and sold the liquid securities. Mr Huebscher set out he value realised from the sales in a table produced at [78] of his witness statement. Those transactions were credited to MARJ’s account and recorded in the 30 September 2022 statement of account. The Defendants did not notify the Bank of any errors, discrepancies, omissions or unauthorised debits, trades, transactions, or entries in that statement of account.
410. Secondly, the Defendants say that the Bank has relied on the Bank’s statements of account but has portrayed that the account was in deficit from October 2021 but has failed to address that the assets on the account were valued at more than the liabilities.
411. I do not accept that argument. The securities were collateral. They did not reduce the outstanding principal amount of advances to MARJ under the Facilities unless and until the Bank realised the security as it did in September 2022 and accounted for the proceeds. The Bank was under no obligation to exercise its rights over the collateral. The Defendants did not notify the Bank of any errors or omissions in its statements of account. In any event, as I have found, the Bank was entitled to demand payment of the outstanding amount as it did on 15 June 2023.
412. The Defendants in their written submissions of 15 November 2023 in response to the Bank’s submission on the outstanding amount as of 15 November 2023, “deny” the Bank’s interest calculations. The Defendants say the Bank has not applied the formula in the Facility Agreement for calculating interest.
413. The Bank calculated interest in accordance with the contract. Clause B (3) of the GCTFA states:
“The Client shall pay the Bank interest on all Advances drawn under the STA [short term advance] facility and/or any principal amount for the time being owing under the overdraft facility at a rate to be agreed between the Bank and the Client…”.
414. The agreed rate is set out in Annex 1 to the Facility Letter:
“Interest for the short-term advances drawn under the Facility shall be at the rate per annum calculated by the Bank to be the aggregate of:
(1) 1% and the Bank’s cost of funds where an advance (s) is used to finance your investments within or through the Bank; and
(2) 1.75% and the Bank’s cost of funds where an advance (s) is used to finance your investments, which are: (i) not made with or through the Bank, or (ii) not held in your account with the Bank.”
415. Default Interest is provided for by Clause B (9) of the GCTFA:
“The Bank shall be entitled to charge the Client default interest (Default Interest Rate) on any Advance that is due and repayable but not paid. The Default Interest Rate shall be 5% (or such other rate that the Bank may specify from time to time) above the interest rate agreed between the Bank and the Client pursuant to paragraph B (3) above.”
416. The Bank was entitled to charge up to an amount calculated in accordance with the amount specified in Clause B (3) of the GCTFA and Annex 1 to the Facility Letter plus the amount specified in Clause B (9) of the GCTFA. That is an aggregate amount of up to 5% plus cost of funds plus 1% (or 1.75% if funds were utilised externally) in the manner described in the Facility Letter plus Default Interest. However, the Bank only charged 5% plus cost of funds, to the benefit of the Defendants.
417. The Defendants say that that calculation is not in accordance with the Facility Agreement. The Defendants say that the (default) interest rate specified at Clause B (9) of the GCTFA conflicts or is inconsistent with the interest rate specified in Annex 1 to the Facility Letter. Next, the Defendants refer to the term of the Facility Letter which says:
“In the event of any conflict or inconsistency, the documents shall be given a descending order of precedence:
a. the annex (es);
b. the Facility Letter; and
c. the standard terms and conditions.”
418. The Defendants submitted that Clause B (9) of the GCTFA conflicts or is inconsistent with Annex 1 to the Facility Letter and therefore is not to be applied in calculating interest.
419. I do not accept that argument. There is no conflict or inconsistency between Clause B (9) of the GCTFA and Annex 1 to the Facility Letter. It is common for loan agreements to provide an interest rate and a default rate if the borrower is in default. There is no conflict or inconsistency between such provisions.
420. Next, the Defendants challenge the Bank’s calculation of the cost of funds in its calculation of interest. The Defendants submit that the Bank alleges that the cost of funds varies monthly without providing any further explanation as to the criteria for variation or the authority issuing the interest rates and therefore, the cost of funds that the Bank has applied must be proved at trial.
421. I do not accept that argument. The cost of funds is included in Annex 1 of the Facility Letter, which provides that interest shall be at the rate calculated by the Bank to be the aggregate of the specified rates and the Bank’s cost of funds. The determination of the Bank’s costs of funds is provided for by Clause B(2)(iii) of the Services Agreement which provides:
“All rates of interest, determination and calculation of cost of funds, prevailing market rate and commissions under any Facility shall be conclusively determined by the Bank.” (emphasis added)
422. The Bank determined the cost of funds applicable to the Facility and later to the outstanding balance, fixing the rate on a monthly basis.
423. Finally, the Defendants challenged the Bank’s use of the terms “standard spread interest “and “Interest Margin” in the Bank’s calculations, which the Defendants submitted are inconsistent with the formula used by the Bank to calculate interest.
424. The Bank responds, and I accept, that there is no meaningful difference between the words used to describe the application of a 5% interest ‘margin’ or ‘spread’ and however it is expressed, the Bank was entitled to charge a default interest rate of 5% plus the cost of funds.
425. In summary, the Defendants have no real prospect of resisting the outstanding principal amount outstanding and interest claimed by the Bank.
426. The Bank calculated the amount of the Defendants’ liability as of 15 November 2023 to be USD 55,803,863.73. Interest accrues at the daily rate of USD 16,143.76. Therefore, the total liabilities as of 20 November 2023, the date on which this judgment will issue, is USD 55,884,582.50.
Costs
427. The parties may file and serve within 7 days of the issue of this judgement a minute of the orders in relation to costs which they submit are appropriate together with submissions in support of those orders of no more than 5 pages.
Conclusion
428. The Bank's application for immediate judgment should be granted. Judgment shall be entered in favour of the Bank against each of the Defendants in the sum of USD 55,884,582.50.
429. The parties may file and serve within 7 days a minute of the orders in relation to costs which they submit are appropriate together with submissions of no more than 5 pages.