Bank of Scotland v Hussain

Neutral Citation Number: [2011] EWHC 1934 (QB) IN THE HIGH COURT OF JUSTICE QUEEN’S BENCH DIVISION BIRMINGHAM DISTRICT REGISTRY Before : The Hon Mr Justice Kitchin - - - - - - - - - - - - - - - - - - - - - Between: Bank of Scotland - and - Mr Mazamal Hussain - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Case No: 9BM90228 Royal Courts of Justice Strand, London, WC2A 2LL Date: 25/07/2011 Claimant Defendant Gregory Banner (instructed by Eversheds LLP) for the Claimant William Evans (instructed by Bridgehouse Partners LLP) for the Defendant Hearing date: 4 July 2011 - - - - - - - - - - - - - - - - - - - - - Judgment Mr Justice Kitchin: Introduction 1. This is an application by the claimant (“BoS”) for summary determination of its claim against the defendant (“Mr Hussain”) to enforce a personal guarantee given by Mr Hussain on 15 February 2007 in respect of the liabilities of Junared Two Limited (“J2”), a property development vehicle owned and controlled by Mr Hussain. Mr Hussain’s liability under the guarantee is limited to £500,000. Background 2. 3. Mr Hussain was known to BoS as a member of a well respected family responsible for the development of a substantial number of residential units each year. Each of the family’s projects was developed through a new development vehicle. J2 was used by Mr Hussain to develop a site known as the Mint at a prestigious location in the Jewellery Quarter district of Birmingham. In January 2007, Mr Hussain negotiated with BoS for a substantial overdraft facility to fund the purchase and development of the Mint. Mr Hussain’s Relationship Director at BoS was Mr James Harris (“Mr Harris”). At that time, Mr Harris reported to Mr Martin Clarke (“Mr Clarke”), the Area Director for the East Midlands, and he in turn reported to Mr Gary Middleton (“Mr Middleton”), Head of Corporate Real 4. 5. 6. Estate, Midlands and East Anglia. With effect from 1 October 2008, Mr Harris reported to Mr Colin Anderson (“Mr Anderson”), the Area Director for the South Midlands, and he too reported to Mr Middleton. The internal procedures within BoS in early 2007 provided that overdraft facilities in excess of £15 million required approval from the Managing Director’s Credit Committee (“the Credit Committee”) based in Edinburgh. Accordingly, Mr Harris and his team at BoS prepared on behalf of J2 a credit application for submission to the Credit Committee. It was proposed an overdraft facility of £19.5 million would be granted by BoS to assist in the purchase of the entire issued share capital of another company owned and controlled by Mr Hussain called Burridge Land Limited (“Burridge”). Burridge would own the Mint and J2, through the acquisition of Burridge’s issued share capital, would control and develop it. It was planned that the construction work would be split into three parts, described as Phase I, Phase II and Phase III. The narrative to the credit application includes a full cost analysis and cash flow projection which suggests that BoS anticipated incurring a peak exposure in Phase I and being repaid the loan after the completion of Phase II. More specifically, it shows that, in February 2007, J2 would incur acquisition and other costs of about £10.5 million, to be financed by deposits on pre-sales of about £1 million, a contribution from Mr Hussain of about £3 million, and the balance of about £6.5 million to be debited to the overdraft. Thereafter BoS’s exposure would increase to about £18.5 million in November 2007 before falling to about £6.3 million at the end of January 2008 following the sale of all of the units in Phase I. BoS anticipated about £17.5 million would be received from the sale of the units in Phase II allowing the overdraft to be paid off in full. Phase III would then progress to completion without J2 needing to draw on the facility because its construction would be funded from the credit balances arising from the sale of units following completion of Phase II. On 24 January 2007, the Credit Committee approved the application and, on 30 January 2007, BoS instructed its transactional lawyers, EMW Law LLP (“EMW”). On 9 February 2007, BoS imposed the requirement of the personal guarantee from Mr Hussain. On the same day, EMW sent to Bowermans, the solicitors for J2 and Mr Hussain, a series of security documents for execution and return. They included a debenture from J2, a debenture from Burridge, a charge over the Mint and the personal guarantee. On 14 February 2007, Bowermans returned all these security documents signed in escrow. 7. On 15 February 2007 BoS provided a facility letter (“the Facility Letter”) to J2 for up to £19.5 million. It began: “We are pleased to offer Junared Two Limited (the “Borrower”) property development facilities of £19,500,000.00 (the “Facilities”). The Facilities will also be used for business purposes to assist with the purchase of the total shareholding of Burridge Land Limited. This offer is open for acceptance by the Borrower for a period of 21 days from the date of this letter, when it will lapse. If accepted, this letter and its schedules will form the agreement between the Borrower and BoS for the Facilities.” 8. Clause 2 addressed the overdraft facility and, at 2.2, its limit, in these terms: “2.2 Limit The limit applicable to the Overdraft is £19,500,000.00 (the “Limit”). 2.2.1 …. 2.2.4 The Borrower must at all times provide sufficient funds to ensure that the Limit is not exceeded. If the Limit is likely to be exceeded, the Borrower must notify BoS and advise which cheque(s) or other requests for utilisation are to be honoured in the case of competition. If the Borrower fails to do so, BoS may, in its discretion, refuse to pay a cheque or allow any other drawing or utilisation of the Overdraft which would have the effect of exceeding the Limit. If BoS does pay a cheque or allows a utilisation of the Overdraft so as to exceed the Limit, that does not mean that the Limit has changed or that BoS will agree to pay any other cheque or meet any other payment instruction which would have the effect of exceeding the Limit.” 9. Clause 2.3 addressed the availability of the overdraft facility and provided for its review annually on the day immediately preceding each anniversary of the facility letter (“the Review Date”): “2.3.2 BoS shall review the Overdraft annually on the Review Date. On the Review Date, the Overdraft shall cease to be available unless BoS has agreed in writing to its renewal or extension. The Borrower shall deliver such financial or other information as BoS shall require to de delivered prior to that decision being made.” 10. Clause 2.5 was concerned with repayment and provided: “2.5 Repayment 2.5.1 In accordance with normal banking practice, the Overdraft will be repayable on demand at all times.” 11. Clause 6 made provision for default: “6. 6.1 6.1.1 Default and Indemnity If an Event of Default occurs and has not been waived by BoS in writing, BoS may by notice in writing to the Borrower: declare that all or part of the Overdraft is due and payable together with accrued interest and all other amounts outstanding under the BoS Documents; and/or 6.1.2 cancel any part of the Overdraft then undrawn; and/or 6.1.3 require repayment (immediately or otherwise as BoS may require) of the Overdraft together with accrued interest and all other amounts outstanding under the BoS Documents; and/or 6.1.4 require that interest is payable on the Overdraft at the Default Rate.” 12. Schedule 4 contained the following financial covenant: “1. 1.1 The Borrower covenants with BoS as follows: Security Cover The Realisation Value of the Property shall not be less than 133% of the amount of the Facilities outstanding from time to time. 2. For the purpose of this Schedule 4: “Realisation Value” means (1) in regard to land or an interest in land over which BoS has security, the [Market Value] [for the Existing Use as a [fully equipped] [an] operational entity valued having regard to trading potential] as that term is defined or referred to in the RICS Appraisal and Valuation Manual (current edition) published by the RICS.” 13. 14. 15. 16. 17. 18. Schedule 6 defined “Events of Default” as including a failure to pay under the guarantee or a failure to comply with the terms of Schedule 4. The transaction completed on that same day, 15 February 2007. Mr Hussain gave the guarantee and BoS and J2 agreed the terms of the Facility Letter. It is clear that the development of the Mint did not proceed as planned. J2 had problems with its main contractor, Elmondstone Construction Limited (“Elmondstone”), which went into administration on 6 December 2007. Further, J2 undertook parts of Phases II and III prior to completion of Phase I. In the result, by 18 September 2008, J2 had drawn down £19.98 million on the facility and had exceeded the limit defined in 2.2.1 of the Facility Letter, contrary to the terms of clause 2.2.4. On 19 September 2008, BoS instructed Savills to assess the current market value of the Mint using the Market Value Definition of the Royal Institution of Chartered Surveyors, as required by Schedule 4 of the Facility Letter. On 22 September 2008, Mr Harris sent Mr Hussain an email stating that BoS was looking to be supportive of the scheme but needed to minimise the increase in facilities required and to understand its exposure to risk and, for that purpose, sought clarification of various matters including details of pre-sales, the contractors instructed on the project, the further funding needed and the approach to be adopted to phasing. On 17 October 2008, Ms Tracey Drumm, a BoS employee in Mr Anderson’s office, sent Mr Hussain an email attaching a reminder of the information required by BoS to prepare a full update for submission to the Credit Committee. The email emphasised it was essential that the information be gathered as soon as possible. Specifically BoS sought an up to date valuation of the site on a current and completed basis; clarification as to the phased build out strategy; a schedule of pre-sale income for each block to allow an understanding of the best phasing strategy to employ; and confirmation of the costs that would be incurred to deliver build out on a phased basis. 19. On 9 November 2008, Mr Hussain sent Mr Harris an email complaining about BoS’s behaviour. He acknowledged that he had changed the phasing of the project but stated that this was in the full knowledge of BoS and its monitors, the rationale being to get the site to market as soon as possible. He continued that, unless BoS provided further funds, he would have to rely upon his family to assist him and stated that: “I appreciate that the markets have changed and that in hindsight I was rash to exchange without full credit approval but even so you must understand too the situation in which I now find myself and why I may feel a certain amount of resent [sic].” He said that he had introduced £700,000 of his own funds into the project to pay the builders on the understanding that BoS would be working with him to move the project forwards and referred to the problems Savills were creating by requesting further information in order to produce their valuation. He also pointed out that BoS appeared to be releasing funds on an unpredictable basis and this was causing him real practical problems. He concluded: “I still do not have faith in the Bank living up to Martin Clarke’s repeated comments/assurances that the Bank of Scotland isn’t the most aggressive lender but is there in partnership in good times and bad.” 20. On 4 December 2008, Mr Anderson sent Mr Hussain an email explaining that BoS was currently reviewing the project but remained supportive. He said: “Further to our recent telephone conversation, I write to confirm Bank of Scotland’s position regarding development of the above site. Whilst the Bank remains supportive of the development, as you are aware, the present economic climate has meant that the previously planned build out of the scheme requires to be reviewed to reflect the current marketplace. Accordingly, we are currently reviewing the costs relating to the build out to achieve a controlled phase development strategy. The aim, as you fully appreciate, being to link expenditure to delivery of potential sales both to quantify ongoing costs and maximise income to support future build expenses. I would confirm that I have discussed the strategy in detail with Gary Middleton, Regional Head of Real Estate for The Midlands and he is fully supportive of the plans. To allow matters to progress, I am currently compiling, with the assistance of our professional advisors, details of funding required to meet expenditure in the short term, to allow me to submit a request to our Credit Executive for consideration regarding the release of monies to meet the relative payments. In addition, a more detailed Credit Submission will be forwarded thereafter, for consideration, post completion of the phased build out review costs to support the longer term development strategy proposed. As you will appreciate, formal approval by the Bank’s Credit Executive requires to be obtained for both the short and longer strategies proposed. To allow matters to be progressed, I require to finalise the costs required to be met, both in the short term, say to the end of December 2008, relating to both costs incurred but not yet settled and those expected to be incurred up to the end of the present year. In addition, I still await formal confirmation of the current site values from Savills and as discussed have contacted them today to endeavour to progress the position.” 21. 22. 23. Shortly afterwards, by letter dated 16 December 2008, Savills provided their valuation report pursuant to the instructions given on 19 September 2008. They estimated the current market value of the Mint on a realistic basis as being only £5.6 million or, on an optimistic basis, £21.9 million. They also estimated the value of the completed development on a realistic basis as £27.7 million or, on an optimistic basis, £41.7 million. This was plainly of the greatest concern to BoS because it indicated that the value of the site was less than its lending. Mr Middleton and his colleagues reviewed the position and decided to “mothball” the site until a credible application could be made to fund the remainder of the development. In March 2009, and having discovered what they believed to be irregularities in J2’s funding position, Mr Anderson and other colleagues, including Mr Middleton, formed the view they could not recommend to the Credit Committee that further funds be provided and so, on 25 March 2009, BoS informed Mr Hussain that it was not prepared to fund the project further and, by letter dated 30 March 2009, informed Mr Hussain in writing of alleged breaches by J2 of its facility. Specifically it complained that the overdraft Review Date had expired and J2 had drawn down in excess of £21.9 million without an agreed facility in place. Further, J2 was in breach of the financial covenant that the realisation value of the site should not be less than 133% of the amount of the facility outstanding from time to time, whereas in fact it was only 25%. 24. On 5 June 2009 Mr Hussain placed J2 into administration and, on 30 November 2009, BoS issued these proceedings. 25. Mr Hussain has made a witness statement dated 14 April 2011 in response to this application in which he says that the picture painted by the correspondence to which I have referred is partial and misleading. At the outset he says that his main contact at BoS was Mr Harris and that almost all of the discussions that he had with BoS about the project and its financing were conducted through him. He continues that he believed at all times that Mr Harris was acting with the full authority of BoS. 26. Mr Hussain also says that his defence to these proceedings has been prepared from memory because J2’s documents were taken by the liquidator and he does not have access to them. Furthermore, he says does he have access to the documents held by BoS. 27. Mr Hussain says that he was always aware that the application for the overdraft facility had to be approved by persons in BoS other than Mr Harris. Nevertheless, he was told by Mr Harris in February 2007 that BoS had approved an overdraft facility of approximately £30 million, this being the sum necessary to fund the entire development, but that initially BoS would offer a facility for £19.5 million, with the balance being provided as and when it might be required. In this regard Mr Hussain says that the construction plan was originally drawn up on the basis that the development would be completed phase by phase. However, by February 2007, BoS was well aware that J2 intended to develop all three phases in one go and, at about that time, J2 entered into a contract with its contractor, Elmondstone, for the entire development. Indeed, Mr Hussain says that the contract was not only approved by BoS but that it was also party to it. 28. In his defence, Mr Hussain therefore contends that he caused J2 to enter into the development contract and agreed to the terms of the Facility Letter and caused J2 to commence the development and to borrow the amount of the facility in reliance upon BoS’s agreement to provide about £30 million in order to complete the project. He contends that BoS was aware of the total sum required and agreed to provide it in three phases. 29. Mr Hussain does not dispute BoS’s account of the level of J2’s borrowings over the course of 2007 and 2008. Indeed, he says that in or about August 2008 he discussed with Mr Harris the need for further funds to complete the development. He says that Mr Harris told him that market conditions had changed and that BoS required further information and a further application before further funds could be provided. Mr Hussain continues that Mr Harris also told him that this was merely a formality and assured him that the approval that had previously been given was not at risk. Mr Hussain understood from what Mr Harris said that the provision of further information would not result in a refusal to provide further funds but that it might result in a demand by BoS to change the construction programme and alter its phasing. 30. Mr Hussain relies both in his defence and his witness statement upon a particular conversation with Mr Harris which, he says, took place between August and October 2008. In his defence, Mr Hussain says that in or about October 2008 Mr Harris informed him that BoS would provide further funds but that at that time J2 had exceeded its borrowing limit by some £275,000. Mr Harris asked him to pay into the account sufficient funds to reduce the borrowing to within the permitted limit and made it clear that, if he did so, further funds of approximately £10 million would be made available. Within a few days of that conversation and in reliance upon Mr Harris’ promise that further funds would be made available, Mr Hussain paid, from his personal resources, the sum of £275,000 into J2’s account. 31. Mr Hussain corrects aspects of this allegation in his witness statement. He says that it is clear to him now that he has had an opportunity to see various documents produced by BoS that the sum of £475,000 was paid into J2’s account by Mr Hussain’s new contractor, Nynex Limited (“Nynex”). He continues that he had earlier deposited these funds with Nynex for the purposes of a separate construction project. But when, in August 2008, Mr Harris told him that it was necessary to reduce J2’s borrowing, he asked Nynex to release some of those monies. He would not have done so had he not been assured by Mr Harris that the further application for funding was a formality and had he not understood that the only issue that required a decision was whether the construction phasing should be amended further. Had he been told there was any risk there would be no further funding he could and would have used the funds to complete Phase I and realise the pre-sales. Mr Hussain also asserts that, as a result, he paid a further £17,000 to J2 in December 2008 and that later BoS “took money” from his other accounts and credited J2’s account in a total sum of over £156,000. 32. Mr Hussain raises three further issues which I should mention. First, he does not admit the date of the guarantee was 15 February 2007. 33. Second, Mr Hussain contends in his defence that a company called Imagine Homes Limited (“Imagine”) contracted to purchase apartments in the development to the value of £8 million. However, in or about July 2009, BoS placed Imagine into administration thereby avoiding the contract and with the consequence that Mr Hussain’s attempts to complete the construction of the development were rendered useless and he had no choice but to place J2 into administration. Mr Hussain further alleges that, in taking this action, BoS deliberately determined that it should place its interest in Imagine above its interest in J2 and Mr Hussain and, in doing so, was in breach of its fiduciary duty to Mr Hussain. 34. The final defence is raised by Mr Hussain in his witness statement. He asserts that the guarantee that he was asked to provide was not against default by J2 but rather against an overrun of the construction costs. Further, he says the construction costs did not overrun and so he is not liable under it. The defences in summary 35. Pulling these threads together, Mr Hussain relies upon the following defences: i) ii) iii) iv) v) BoS is put to proof that he gave the personal guarantee on 15 February 2007; BoS agreed by collateral warranty to finance the entire cost of the project; Between August and October 2008 Mr Harris promised Mr Hussain that if the overdraft facility was brought back within its £19.5 million limit, BoS would provide the further funds required to complete the development amounting to approximately £10 million; BoS was in breach of its fiduciary duty to Mr Hussain by placing its interest in Imagine above its duty to J2 and Mr Hussain; Mr Hussain intended to enter into a different guarantee, namely a guarantee against a costs overrun. General principles 36. The Court may give summary judgment against a defendant on the whole of a claim or on a particular issue if it considers that the defendant has no real prospect of successfully defending the claim or issue, and there is no other compelling reason why the claim or issue should be disposed of at a trial. In Celador Productions Ltd v Melville [2004] EWHC 2362 (Ch), Sir Andrew Morritt V-C explained that it is for the applicant for summary judgment to demonstrate that the respondent has no real prospect of success in his claim or defence as the case may be. A real prospect of success is one which is more than fanciful or merely arguable. If it is clear beyond question that the respondent will not be able at trial to establish the facts upon which he relies then his prospects of success are not real. Finally, the court is not entitled on an application for summary judgment to conduct a trial on documents without disclosure or cross-examination. 37. In Doncaster Pharmaceuticals Group Ltd v The Bolton Pharmaceutical 100 Ltd [2006] EWCA Civ 661 Mummery LJ provided the following further helpful guidance at [4] – [5], [9] – [12] and [17] – [18]: “4. Summary judgment procedures, which are designed for the swift disposal of straight forward cases without trial, are only available where the applicant demonstrates that the defence (or the claim, as the case may be) has no “real” prospect of success and if there is no other compelling reason why the case or issue should be disposed of at a trial: CPR Part 24.2 . Thus, without the assistance of pre-trial procedures, such as disclosure of documents, and without the benefit of trial procedures, such as cross examination, the court's function is to decide whether the defendant's prospect of successfully establishing the facts relied on by him is “real”, that is more than “fanciful” or “merely arguable.” The test to be applied was summarised by Sir Andrew Morritt V-C. in Celador Productions Ltd v. Melville [2004] EWHC 2362 (CH) at paragraphs 6 and 7. Although the test can be stated simply, its application in practice can be difficult. In my experience there can be more difficulties in applying the “no real prospect of success” test on an application for summary judgment (or on an application for permission to appeal, where a similar test is applicable) than in trying the case in its entirety (or, in the case of an appeal, hearing the substantive appeal). The decision-maker at trial will usually have a better grasp of the case as a whole, because of the added benefits of hearing the evidence tested, of receiving more developed submissions and of having more time in which to digest and reflect on the materials. …. 9. I also wish to say a few words about the litigation expectations and tactics of claimants and defendants. Claimants start civil proceedings (including intellectual property actions) in the expectation that they will win and often in the belief that the defendant has no real prospect of success. So the defence put forward may be seen as a misconceived, costly and time- wasting ploy designed to dodge an inevitable judgment for as long as possible. There is also a natural inclination on the part of optimistic claimants to go for a quick judgment, if possible, thereby avoiding the trouble, expense and delay involved in preparing for and having a trial. Everyone would agree that the summary disposal of 10. rubbishy defences is in the interests of justice. The court has to be alert to the defendant, who seeks to avoid summary judgment by making a case look more complicated or difficult than it really is. 11. The court also has to guard against the cocky claimant, who, having decided to go for summary judgment, confidently presents the factual and legal issues as simpler and easier than they really are and urges the court to be “efficient” ie produce a rapid result in the claimant's favour. 12. In handling all applications for summary judgment the court's duty is to keep considerations of procedural justice in proper perspective. Appropriate procedures must be used for the disposal of cases. Otherwise there is a serious risk of injustice. … 17. It is well settled by the authorities that the court should exercise caution in granting summary judgment in certain kinds of case. The classic instance is where there are conflicts of fact on relevant issues, which have to be resolved before a judgment can be given (see Civil Procedure Vol 1 24.2.5). A mini-trial on the facts conducted under CPR Part 24 without having gone through normal pre-trial procedures must be avoided, as it runs a real risk of producing summary injustice. In my judgment, the court should also hesitate about 18. making a final decision without a trial where, even though there is no obvious conflict of fact at the time of the application, 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.” 38. Most recently, Carnwath LJ explained the approach to be adopted in Mentmore International Ltd v Abbey Healthcare (Festival) Ltd [2010] EWCA Civ 761 at [20] – [23]: It is important to keep in mind the principles to be “20. applied in deciding whether a case is suitable for disposal on a summary basis. The most authoritative up-to-date statement is that of Lord Hope in Three Rivers DC v Bank of England (No 3) [2001] 2 All ER 513: “In other cases it may be possible to say with confidence before trial that the factual basis for the claim is fanciful because it is entirely without substance. It may be clear beyond question that the statement of facts is contradicted by all the documents or other material on which it is based. The simpler the case the easier it is likely to be to take that view and resort to what is properly called summary judgment. But more complex cases are unlikely to be capable of being resolved in that way without conducting a mini-trial on the documents, without discovery and without oral evidence. As Lord Woolf said in Swain v Hillman, [2001] 1 All ER 91, at p. 95 that is not the object of the rule. It is designed to deal with cases that are not fit for trial at all.” 21. Another frequently cited passage on the same theme is the judgment of Colman J in De Molestina v Ponton [2002] 1 Lloyd's Rep 271, 280 para 3.5, speaking of the difficulty of basing summary judgment on inferences of fact in a complex case: “…, as Three Rivers District Council shows, where the application in such complex cases relies on inferences of fact, the overriding objective may well require the claim to go to trial in the interest of a fair trial. That is because the relevant inference could not be safely drawn without further discovery and oral evidence at the trial. It is thus necessary, where such inferences are relevant, to guard against the temptation of drawing them as a matter of probability, because the achievement of the over-riding object requires a much higher degree of certitude. Where in a complex case, as may often be the situation, the frontier between what is merely improbable and what is clearly fanciful is blurred, the case or issue should be left to trial.” 22. To these familiar citations, Mr Reza adds the words of Potter LJ in ED&F Man Liquid Products v Patel [2003] EWCA Civ 472 para 10: “However, that does not mean that the court has to accept without analysis everything said by a party 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 contemporary documents. If so, issues which are dependent upon those factual assertions may be susceptible of disposal at an early stage so as to save the cost and delay of trying an issue the outcome of which is inevitable…” If Mr Reza was hoping to find in those words some qualification of Lord Hope's approach, he will be disappointed. The Three Rivers case was specifically cited by Potter LJ. He was in my view intending no more than a summary of the same principles. Lord Hope had spoken of a statement contradicted by “all the documents or other material on which it is based” (emphasis added). It was only in such a clear case that he was envisaging the possibility of rejecting factual assertions in the witness statements. It is in my view important not to equate what may be very powerful cross-examination ammunition, with the kind of “knock-out blow” which Lord Hope seems to have had in mind.” 39. The procedure is therefore designed to deal with cases that are not fit for trial at all. More complex cases are unlikely to be capable of being resolved without conducting a mini-trial on the documents, without discovery and without oral evidence. If, however, it is clear that there is no substance in assertions made in a claim or defence, for example if the statement of facts is contradicted by all the documents or other material on which it is based, then those assertions may be successfully disposed of at an early stage so as to save the cost of and delay of trying an issue, the outcome of which is inevitable. Does the defence have a real prospect of success? Proof of the guarantee 40. Mr Hussain does not advance a positive case on this issue. He simply puts BoS to proof that he signed the guarantee on 15 February 2007 in light of the observation that the signature page of the faxed copy of the guarantee does not bear the same fax header line as the other pages of the document. 41. I am satisfied there is nothing in this point. Mr Kamlesh Vara, a solicitor in EMW, has made a witness statement dated 28 May 2010 in which he explains that, on 9 February 2007, and on the instructions of BoS, he sent the guarantee and the other security documents to Bowermans for execution by Mr Hussain, J2 and Burridge. On 12 February 2007, Mr Vara received a letter from Bowermans stating that they had received all the security documents and were arranging for them to be signed. On 14 February 2007, Bowermans returned all the security documents, including the guarantee, signed in escrow, pending completion of the transaction. On 15 February 2007, the transaction completed and, on 23 April 2007, Mr Vara sent all the security documents to BoS. He says EMW did not retain a copy of the guarantee. EMW’s file has since been passed to Eversheds LLP (“Eversheds”), who are now instructed by BoS. Tracey Cole-Oates, an employee of BoS, has made a witness statement dated 3 November 2010 in which she explains that, with the exception of the details of Mr Hussain’s name and address, the limit of the guarantee and the definition of the “Borrower”, the guarantee is in the standard form used by BoS. She also relates that she has tried, without success, to locate the original guarantee which Mr Hussain actually signed. However, in January 2009, as part of a security review, the Milton Keynes office of BoS sent to Eversheds a faxed copy of the guarantee signed by Mr Hussain and, on 24 February 2010, she travelled to the Milton Keynes office where, following a full search, a further clean copy of the guarantee signed by Mr Hussain was found. Finally, Mr Brian Rawlings, a Senior Associate at Eversheds with conduct of the matter on behalf of BoS, explains in a witness statement dated 3 November 2010 that he has searched EMW’s file and found a copy of the guarantee, including the parties’ names and other amendments, as sent by EMW to Bowermans on 9 February 2007. In light of all this evidence BoS submits, and I agree, that there can be no doubt that Mr Hussain’s signature page is part of the guarantee. On 15 February 2007 Mr Hussain guaranteed the payment or discharge of J2’s liabilities to BoS to a limit of £500,000. 42. 43. 44. Collateral warranty 45. 46. 47. Mr Hussain alleges that he entered into the guarantee, agreed to the terms of the Facility Letter and caused J2 to commence the development and borrow the entire amount available under the overdraft facility in consideration of and in reliance upon BoS’s agreement to provide enough finance to complete the entire project. Further, in refusing to finance the completion of the project, BoS is in breach of its warranty and, as a result, Mr Hussain has a claim against BoS for sums in excess of the amount claimed under the guarantee. Alternatively, BoS is not entitled to enforce the guarantee by reason of its breach of warranty or its false representation. There can be no doubt that when a person gives a promise or assurance to another, intending that he should act on it by entering into a contract, and he does act on it by entering onto the contract, the court will hold it to be binding. Intention is to be ascertained objectively. In deciding the question of intention one consideration will be whether the statement is followed by further negotiations and a written contract not containing any term corresponding to the statement. In such a case it will be harder to infer that the statement was intended to have contractual effect because the prima facie assumption will be that the written contract includes all the terms the parties wanted to be binding between them: Inntrepreneur Pub Co Ltd v East Crown Ltd [2000] 2 Lloyd’s Rep. 611. 48. BoS submits that Mr Hussain’s case has no prospect of success for a number of interrelated reasons. First, it is well known that banks do not provide “blank cheques” when agreeing to lend for commercial purposes; nor do banks commit themselves to lending where the sole contractual term is as to the amount of the loan. Second, Mr Hussain knew that the loan had to be approved by others in BoS, notably the Credit Committee, and so must also have known that Mr Harris had no authority to commit BoS to the arrangement for which he contends. Third, Mr Hussain knew that BoS was processing a credit application which, if granted, would result in a legally binding written agreement. Fourth, the Facility Letter to which Mr Hussain agreed is flatly inconsistent with the claim he now advances. Finally, when J2 breached the terms of the Facility Letter, Mr Hussain did not claim that BoS was obliged to lend further funds to J2 without limitation. On the contrary, he accepted that, once the limit on the facility had been exceeded, BoS was entitled to release funds at its discretion on a case by case basis, and put his case for such releases. 49. Appreciating, I think, the force of these submissions, Mr Hussain responds that BoS agreed to provide the finance necessary to complete the entire project on the same terms as those contained in the Facility Letter. Accordingly, and subject to the overall limit of the extended overdraft facility, there was no uncertainty as to its terms. 50. Mr Hussain also submits that BoS has failed to produce evidence from the one person, Mr Harris, with whom he had the conversations upon which his belief and actions were based. Further, although the evidence shows that Mr Harris prepared, with involvement from others, an application to the Credit Committee which is inconsistent with Mr Hussain’s case, this was not something with which Mr Hussain was involved. Moreover, there is nothing in the evidence to show that the conversations upon which Mr Hussain relies did not take place. Accordingly, Mr Hussain’s defence cannot be disposed of without the benefit of full disclosure and cross examination. 51. In assessing these rival submissions I am conscious that it is not appropriate to attempt to carry out a mini-trial on a summary judgment application, of the need to keep considerations of procedural justice in proper perspective and that the court must exercise great caution in cases involving conflicts of fact. However, I find it striking that Mr Hussain is not able to point to a single document which records the promise which he says Mr Harris made to him or the collateral agreement which he contends they made together. But even more significantly, the documents which are in evidence and to which I have referred are inconsistent with Mr Hussain’s case. The Facility Letter to which Mr Hussain agreed on behalf of J2 is unambiguous in its terms and the communications between the parties in the course of 2008 reveal a real anxiety by BoS at the state of the project and a wish to support it but, at the same time, a concern that it needed further information before it could properly do so. The email from Mr Hussain of 9 November 2008 is, I think, particularly revealing. It contains no suggestion that BoS had failed to live up to a promise or contractual obligation to provide a further or extended overdraft facility. To the contrary, it suggests that Mr Hussain was working closely with BoS’s representatives to satisfy their concerns that the project remained viable, minimise costs and maximise revenues with a view to securing their agreement to release more funds. 52. Powerful though these matters are, there is, however, a further point which is, in my judgment, fatal to this aspect of Mr Hussain’s defence. As I have said, Mr Hussain contends it was agreed the additional funds would be provided on the same terms as the original overdraft facility of £19.5 million or, put another way, the original overdraft facility would be extended. These terms included, by clause 2.5 of the Facility Letter, and in accordance with normal banking practice, an obligation upon J2 to repay the overdraft on demand and by Schedule 4, a covenant by J2 that the 53. 54. 55. Realisation Value should be not less than 133% of the overdraft outstanding from time to time. Throughout September 2008 the overdraft stood at in excess of £19 million. In late October 2008 it grew to in excess of £20 million and in November 2008 it grew to in excess of £21 million. In December 2008 Savills valued the development at £5.6 million on a realistic basis and £21.9 million on an optimistic basis. Moreover, the estimated costs to complete the development were about £10 million and, on Savills’ realistic estimate, it would at that stage be worth only £27.7 million. In these circumstances it was hardly surprising that BoS took the decision to mothball the site until a credible application could be made to the Credit Committee for the release of further funds. In March 2009 BoS decided it was not prepared to lend further funds. At this time J2 was plainly in breach of its covenant in schedule 4 of the Facility Letter, an event of default under schedule 6. Even on Savills’ optimistic estimate of the current value of the development, the value to loan ratio was well below 133%. Under clause 6, BoS was fully entitled to declare the overdraft due and payable and cancel the overdraft then undrawn. Further and in any event, the overdraft was repayable on demand under clause 2.5. It follows that, even on Mr Hussain’s case, BoS was not under any obligation to lend further funds and was fully entitled to take the action it did. Representation by Mr Harris 56. Mr Hussain alleges in his defence that, in or about October 2008, Mr Harris informed him that BoS would provide the funds necessary to complete the development but that at time J2’s account was over its original limit by about £275,000. He asked Mr Hussain to pay into the account funds to bring the borrowing down to the original limit. Further, he made clear to Mr Hussain that, if he did so, further funds of approximately £10 million would be made available. Within a few days, and in reliance upon the promise given by Mr Harris that these further funds would be made available, Mr Hussain paid, from his personal resources, the necessary sum into J2’s account. 57. Mr Hussain further contends that he would not have paid this sum into J2’s account from his own resources but for the representation by Mr Harris that, if he did so, the further funds necessary to complete the development would be approved. Further, he argues that BoS is not entitled to enforce the guarantee against Mr Hussain by reason of its false representation. 58. 59. 60. As I have explained, Mr Hussain’s witness statement presents a rather different picture. He says that the conversation with Mr Harris took place in August 2008 and that he paid into J2’s account £475,000 through Nynex and, later, £17,000, and then BoS itself took a further £156,000 which was also credited to J2’s account. BoS submits and I agree, that if any such conversation took place, it must have been between 18 and 25 September 2008. It was not until 18 September 2008 that J2’s account exceeded the £19.5 million overdraft limit and the payment from Nynex was made on 25 September 2008. In my judgment this allegation is highly implausible. On 22 September 2008 Mr Harris sent to Mr Hussain the email to which I have referred to paragraph [17] of this judgment. This makes clear that BoS was looking to be supportive of the scheme but needed to minimise the increase in facilities required and to fully understand BoS’s exposure in so doing. It sought clarification of a series of points and asked for Mr Hussain’s response as soon as possible. This is wholly inconsistent with the alleged conversation. It follows that it must have taken place, if at all, in the small window between 22 and 25 September 2008. However, shortly thereafter, on 17 October 2008, Ms Drumm sent to Mr Hussain the email to which I have referred in paragraph [18] of this judgment. And on 9 November 2008, Mr Hussain sent to Mr Harris the email to which I have referred in paragraph [19]. Neither of these emails refers to any promise or agreement by BoS to provide further funds. To the contrary, Mr Hussain’s email of 9 November 2008 explains all of the efforts he and J2 had been making to move the development forward, to accelerate sales revenue and to reduce BoS’s exposure. He stated that he had introduced what he described as his last £700,000 into J2 to pay the builders four weeks earlier on the understanding that “we were going to work together on moving this forwards”. It also seems to me to be highly unlikely that BoS would promise to provide an additional £10 million facility to J2 if Mr Hussain injected sufficient funds to reduce its borrowing below the original overdraft limit when BoS must have appreciated that shortly thereafter the overdraft would, once again, exceed that limit. 61. More fundamentally, however, Mr Hussain’s case on this issue suffers from exactly the same flaw as his case on collateral warranty. Mr Hussain accepts that the additional facility the subject of the alleged collateral warranty was subject to the terms of the Facility Letter and, specifically, the obligation in clause 2.5 to repay the overdraft on demand and the default provisions in clause 6 if J2 failed to comply with the loan to value covenant contained in schedule 4. Mr Hussain has not suggested or advanced any evidence to support a claim that any additional facility Mr Harris represented would be made available would be subject to different terms. Indeed, his evidence is to the contrary. In paragraph 7 of his witness statement, Mr Hussain says that, in about August 2008, Mr Harris told him that market conditions had changed and the Bank required further information and a further application before the balance of the money could be provided but that this was a mere formality and that the approval previously given was not at risk. Similarly, in paragraph 23 of his witness statement, Mr Hussain says that he was told by Mr Harris that it was necessary for him to reduce J2’s borrowing so that the further loan would be approved and, again, that the further application for funding was a formality. 62. In my judgment it is therefore inescapable that both the original overdraft facility and any further facility of £10 million or thereabouts would necessarily be subject to the same loan to value covenant and be repayable on demand. Further, for the reasons I have explained, BoS was entitled to take the action that it did. Accordingly, BoS has not been guilty of any misrepresentation and Mr Harris’ alleged statement was not causative of Mr Hussain’s losses. Breach of fiduciary duty to lend 63. In Bristol & West Building Society v Mothew [1998] Ch 1 Millett LJ explained that a fiduciary is someone who has undertaken to act for or behalf of another in a particular matter in circumstances which give rise to a relationship of trust and confidence. The distinguishing obligation of a fiduciary is the obligation of loyalty. The principal is entitled to the single-minded loyalty of his fiduciary. The fiduciary must act in good faith; he must not make a profit out of his trust; he must not place himself in a position where his duty and his interest may conflict; and he may not act for his own benefit or the benefit of a third person without the informed consent of his principal. 64. Mr Hussain has failed to establish any basis upon which it could be contended that BoS agreed to act for or on behalf of Mr Hussain or J2 in circumstances which gave rise to a general fiduciary relationship. BoS, Mr Hussain and J2 entered into a 65. 66. 67. 68. 69. 70. commercial banking relationship whereby BoS agreed to provide to J2 an overdraft facility of £19.5 million on the terms and conditions of the Facility Letter and Mr Hussain personally guaranteed the payment or discharge of J2’s liabilities. Further, Mr Hussain’s case has no prospect of success on the facts. Mr Alexander McIntyre has made a witness statement dated 8 October 2010 in which he explains that he is and has since 27 July 2007 been a director of Imagine Homes Holdings Limited (“Holdings”) and Imagine, its wholly owned subsidiary. He says that Imagine did not enter into a contract with J2 for the purchase of apartments in the Mint but did enter into 56 agreements for lease of apartments with Junared Property Limited on 30 July 2007 for a total consideration of £8.67 million payable on completion. Imagine paid a total deposit of £867,000 on exchange of all 56 agreements for lease with completion to take place no later than 31 December 2009. He further explains that in July 2007 Uberior Limited (“Uberior”), a subsidiary of BoS, acquired a 19.9% shareholding in Holdings. Prior to that date, BoS had no interest, directly or indirectly, in the shares of Imagine. Further, BoS made available to Holdings and its subsidiaries overdraft facilities of at least £37.5 million. As for the assertion that in or about June 2009 BoS placed Imagine into administration, thereby avoiding the contract to purchase properties for £8 million from J2, Mr McIntyre says this is simply not correct. The true position is that by the summer of 2007 Imagine had various interests in residential development properties. In particular, in May 2006, Imagine had entered into a contract with a developer of a site known as “Icon Development”, a 350 unit development at Canary Wharf in London. Imagine had contracted to purchase 152 of those units. From the summer 2007 onwards, Imagine suffered from the general downturn in the property market and the liquidity crisis which had a particularly severe effect upon the buy to let market for residential properties. Funding for investors dried up almost completely. Those few investors who did not require funding were nevertheless reluctant to complete because of the fall in property values. Following completion of the Icon Development, Imagine became contractually obliged to complete the purchase of the 152 units from the developer. Imagine had entered into contracts for the sale of 127 units to investors, most of whom had paid substantial deposits. However it rapidly became clear that the vast majority of these investors would not or could not complete. In these circumstances it became apparent to Mr McIntyre and Mr Rutherford, his co-director, that Imagine could not meet its contractual obligations to purchase the 152 units and, on 11 May 2009, he and Mr Rutherford held a board meeting at which they resolved to place Imagine into administration. There has been no response to this evidence from Mr Hussain. It is therefore clear that BoS did not make the decision to place Imagine into administration. The decision was that of Mr Rutherford and Mr McIntyre and it was taken because Imagine could not fulfil its contractual obligation to complete the purchase of the 152 units in the Icon Development. Different guarantee 71. Mr Hussain does not accept that the guarantee he was asked to give was a guarantee against default by J2. He continues that his memory is supported by evidence produced by BoS and, in particular, Mr Clarke who, in his witness statement of 1 October 2010, reviews the credit application and observes that Mr Hussain was to be required to provide a costs overrun guarantee. In these circumstances, Mr Hussain states that he believes that the guarantee he was asked to provide was not against default by J2 and that, since there was never a costs overrun, he has an answer to the claim. 72. It is apparent from Mr Clarke’s witness statement and from the credit application that, during the course of the negotiations preceding the agreement by BoS to provide funding of £19.5m on the terms of the Facility Letter, Mr Hussain was indeed asked to provide a guarantee against a costs overrun. However, it is absolutely clear that, by 9 February 2007, BoS required from Mr Hussain a personal guarantee in respect of the liabilities of J2. This guarantee and the other security documents were then sent by EMW to Bowermans for execution by Mr Hussain, J2 and Burridge in the manner I have described and Mr Hussain duly signed the guarantee. He does not say that he signed the guarantee by mistake and he was, of course, advised by solicitors throughout. Nor does he seek rectification of the guarantee. Conclusion 73. For the reasons I have given I have reached the conclusion that none of the defences raised by Mr Hussain has a real prospect of success and BoS is therefore entitled to summary judgment.