Gowling WLG's finance litigation experts bring you the latest on the cases and issues affecting the lending industry.

Repeat bites at the cherry is contrary to the public interest

It is an abuse of process for a debtor to continue to dispute a debt when the court has already dismissed the debtor's arguments on their merits in earlier proceedings between the parties.

We have reported on the Harvey v Dunbar Assets PLC proceedings on a number of previous occasions. It will be recalled that the lender issued a statutory demand (the first demand) in relation to a guarantee entered into by Harvey (and others) guaranteeing a company loan. Harvey applied, unsuccessfully, to set the first demand aside on the basis of promissory estoppel. He alleged he had been told by the lender that the guarantee was a mere formality and would not be enforced against him (the estoppel argument). The court rejected that argument as having no real prospect of success and dismissed the application. Harvey appealed. The first demand was set aside by the Court of Appeal but on other grounds (alleged non-signature by all guarantors). Harvey had expressly abandoned his estoppel argument before he got to the Court of Appeal stage.

The lender issued a further statutory demand (the second demand) in respect of the same debt once it had been determined in other proceedings that the guarantee had been properly signed by all signatories. Harvey again applied to set the second demand aside on the basis of the estoppel argument. The court refused to consider the estoppel argument again and dismissed the application. Harvey unsuccessfully appealed with the High Court holding that absent a change of circumstances or some other special reason, a debtor could not reiterate arguments presented earlier.

Harvey appealed again on the basis that the principle of res judicata (re-litigating a matter that has already been litigated) did not apply as, given the Court of Appeal had set aside the first demand (albeit on other grounds), there was no existing previous judgment against him on the merits of the estoppel argument.

The Court of Appeal agreed that this was not a case of res judicata, or issue estoppel. However, that did not mean that the judgment on the estoppel argument in the first demand proceedings should not be taken into account in determining whether it was an abuse of process for Harvey to re-litigate the same question in relation to the second demand.

The court applied the Turner principle (Turner v Bank of Scotland plc [2000]), that, based on abuse of process and public policy and absent a change of circumstances or some other special reason:

  • it was a waste of the court's time and the parties' money to rehearse arguments which had already been run and had failed; and
  • if the debtor wished to run new arguments, the court would want to know why they had not been run earlier when they could and should have been.

Harvey was pursuing the same argument he had run before, but had specifically chosen not to appeal before the Court of Appeal in the first demand proceedings. There were no special or exceptional circumstances to justify re-opening the estoppel argument. It would be an abuse of process and public policy for Harvey to re-argue the point on the same grounds as previously.

Things to consider

A debtor cannot continue to repeat arguments previously presented and dismissed on their merits at earlier hearings where the circumstances remain unchanged. The Court of Appeal also confirmed that the Turner principle applies at all key stages of the bankruptcy procedure including when the petition is heard or applications are made to review, rescind or annul an order, as well as at the statutory demand stage, as in this case.

No implied term restricting marketing of loan

The Court of Appeal has recently reaffirmed the cardinal rule that an implied term must not contradict an express term in a contract.

In Irish Bank Resolution Corp Ltd (in special liquidation) v Camden Market Holdings Corp and others (Camden), the Bank advanced facilities to Camden. The facilities agreement (FA) expressly allowed the Bank to assign or transfer any of its rights under the FA to another bank or financial institution (with the consent of Camden) and to disclose any information about Camden and the loans to any potential assignee or transferee (without the consent of Camden). Any person to whom such information was given was to sign a confidentiality undertaking.

After being placed in liquidation, the liquidators started to market the Bank's loan book. Some of the Bank's loans were distressed. Camden was concerned that the FA was being marketed as part of a package containing distressed debt which gave the false impression that their loans were distressed and that potential purchasers would be more interested in acquiring the loans than the properties with a view to enforcing the security and obtaining the properties for less than their market value.

Camden argued that the FA contained an implied term that the Bank would not do anything to hinder Camden's marketing of the properties to achieve the best price by marketing the sale of the loans under the FA in competition with them.

Camden commenced proceedings for breach of this implied term. The Bank sought to strike the claim out on the basis that there was an express term in the FA permitting it to market the loans and any implied term could not be inconsistent with that right. At first instance the court held that it was arguable that there was such an implied term and that it was not inconsistent with the express term. The Bank appealed.

The Court of Appeal agreed with the Bank. The Court of Appeal reiterated that where a contract is lengthy and carefully drafted, the courts are reluctant to imply a further term. The fact the FA worked without the implied term was a serious impediment to implying a term dealing with a subject matter which had been expressly dealt with in it. The express terms had to be considered first. The FA provided for Camden's prior consent to assignment but Camden's prior consent was not required before providing information to potential assignees. The implied term sought was substantially inconsistent with the express term and would be a significant restriction of the Bank's power to deal with its assets under the FA.

Things to consider

The court will seek to give effect to the parties' intentions set out in the express terms of a contract. It is only once the express terms have been considered that the existence of implied terns will then be determined. Where an express term confers an express and unrestricted power, it will not, as a matter of law, be circumscribed by an implied qualification.

Time's up - on the claimant's own evidence

The court has held that where a claim looks like it might be time barred, summary judgment is not inappropriate simply because a claimant may obtain evidence more favourable to it at a later date.

In Bridging Loans Ltd v Toombs, the Court of Appeal, following Nykredit Mortgage Bank PLC v Edward Erdman Group Ltd, held that in a claim for negligent valuation of loan security, when determining for the purposes of limitation when damage first occurred, the court had to compare the difference between

  • the amount of money lent plus interest, and
  • the value of the rights acquired by a lender, namely the value of the borrower's covenant to repay the loan and the true value of the property.

In 2006, the defendant had valued a property at £730,000 and the claimant had advanced a six-month bridging loan of £500,000 secured against it. Repayment was due on 2 May 2007 but the borrower defaulted and the claimant obtained possession in August 2007. The claimant alleged the 2006 valuation was negligent and that the property's true value at that time was only £450,000. A claim form was issued on 16 May 2013. The defendant applied for summary judgment on the basis the claim was time barred on 2 May 2013.

The High Court (on appeal) found the claim was time barred and granted summary judgment against the claimant. The claimant appealed and also argued that the claim was inappropriate for summary judgment as the valuation of the property was a moving target and there might be evidence available contradicting its own expert evidence as to the true valuation of the property.

The Court of Appeal dismissed the appeal. It held it was not to be assumed that a borrower's covenant had any value. The covenant would appear to be good where payments were made but where they were not made, that indicated that the covenant was worthless. The borrower in this case had not made any repayments and so the covenant was worthless by 2 May 2007.

It had not been suggested by the claimant in the lower courts that its expert valuation evidence might turn out to be wrong. Where it looked like the case might be time barred, it was not inappropriate to make such a finding on a summary judgment application simply because material might become available by the time of trial to contradict the claimant's own expert evidence. The claim had no real prospects of success.

Things to consider

A defendant is entitled to know the claim it has to answer and in a negligent valuation case, this means the amount of the alleged overvaluation, the starting point for which must be the claimant's own (expert) view of the true valuation. The court found the claimant could not rely on unidentified, unknown evidence. It had, after all, had six years to consider its position.

Fraud and finality of litigation

It is often said that fraud will unravel all. However, the courts will not allow a party alleging fraud to try and unravel a previous judgment or settlement on the grounds of fraud where the relevant evidence of that fraud was available, or could have been discovered with reasonable diligence, at the time of the first judgment or settlement.

This has recently been reaffirmed by the High Court in Ackerman v Thornhill and others, in which Thornhill acted as an expert in proceedings arising out of a demerger of family interests in a group of companies. The claimant brought proceedings against Thornhill and other family members alleging Thornhill was guilty of actual bias, collusion and partiality in favour of the other defendants. The claim was dismissed with the court finding Thornhill had acted in good faith and rejecting the allegations of actual bias and collusion. The claimant appealed and that appeal was settled by consent.

The claimant then brought the instant claim to set aside the consent order and the court's earlier judgment on the basis he had found evidence to show that Thornhill was a party to two transactions with the other defendants which placed him in a position of conflict of interest and duty and which prevented him from acting fairly and impartially. He also alleged that the other defendants had paid Thornhill a bribe or secret commission to induce him to favour them in the demerger process. He alleged that the transactions were deliberately and dishonestly concealed during the earlier proceedings.

The defendants not only denied the allegations but also argued the claimant was seeking to raise again issues that had already been decided against him in the earlier proceedings, or that could or should have been raised by him in the earlier proceedings.

The High Court held that the principle of res judicata would not apply:

  • if the court was satisfied that the earlier judgment was obtained by fraud or collusion, and
  • the claimant could show that the evidence of fraud relied on in the second proceedings was evidence that was not available and could not have been discovered with reasonable diligence at the time of the first judgment.

The same fundamental issues were raised in the second proceedings as had been determined in the first proceedings and unless the material upon which the claimant relied was not available or could not have been obtained by him at that time, they could and should have been raised in the first proceedings. The evidence that the claimant was seeking to rely upon had been disclosed to him in the earlier proceedings and he had chosen not to use it. He was now prevented from doing so by reason of res judicata, issue estoppel and abuse of process. The claim was struck out.

Things to consider

The decision emphasises the substantial public interest in the finality of litigation. Even where fraud is alleged, earlier proceedings will not be re-opened if a party could, or could with reasonable diligence, have dealt with those allegations in those earlier proceedings.

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