Accountability Update - August 2016

Dismissal of defence and counterclaim precludes a fresh claim being made on the same basis.

The Court of Appeal (CA) has upheld a decision of the Chancery Court that dismissal of a defence and counterclaim to a bank's claim for payment of debts prevented a fresh claim from being made against the bank on the same basis. It has also re-affirmed the duties owed by administrative receivers.

In Amir Ahmad & others v Bank of Scotland Plc & Others, the appellants appealed against the decision of the Chancery Court to strike out its claim for damages against the defendant bank and against the receivers appointed by that bank.

Background

The claimants were shareholders and directors and their corporate entities (ZDL and ZTL), as well as individuals trading in a partnership. The claimants had a number of facilities with the bank, secured by properties and subject to guarantees given by the individuals and the corporates.

The claimants fell into arrears, following which the bank made demands for payment totalling just over £5.2 million. The individual claimants were liable under the terms of their personal guarantees for £1.25 million.

The bank appointed the PwC receivers as fixed charge receivers of the properties, as well as administrative receivers of the assets and undertakings of one of the corporate entities, ZTL. For regulatory reasons, the PwC receivers were subsequently replaced as the fixed charge receivers by the Grimley receivers. However, the PwC receivers remained as administrative receivers for ZTL.

The PwC and the Grimley receivers realised the value of the various assets over which they had been appointed. The realisation of the properties made enough to settle the partnership account, however the sale of ZDL's and ZTL's assets was insufficient to discharge the corporate borrowing. The bank sought payment of just over £900,000 under the Personal Guarantees. No payment was made and the bank issued proceedings.

The claimants filed a defence and counterclaim, however, the judge at first instance found that the defence disclosed no real prospect of successfully defending the claim and that the counterclaim had no real prospect of success.

The claimants appealed and applied to amend the defence and counterclaim. The main defence to the claim under the personal guarantee relied on an alleged agreement with the bank - reflected in a letter from the bank dated 27 May 2008 (the May 2008 Agreement).

The claimants alleged that the May 2008 Agreement allowed them to market the properties and pay over the proceeds of sale to the bank before receivers would be appointed. They argued that the properties had been placed on the market as agreed. The appointment of receivers in September 2008 was therefore a breach of the May 2008 Agreement, as a result of which the claimants had lost the opportunity to control and realise or retain the fair market value of the assets of the businesses. The claimants argued that they would have realised more and counterclaimed for damages.

Both the appeal against the first instance decision and the application to amend were dismissed. The claimants applied for permission to appeal to the CA.

The CA confirmed the decision that there was no answer to the guarantees and, as judgment was given in the bank's favour, it was also right to refuse permission to bring in cross-claims by way of counterclaim. The court did, however, go on to say that "the right course would be for those claims to be made the subject of a fresh claim by guarantors as against the bank".

The claimants (which now included ZDL and ZTL) did just that - issuing a new claim against the bank and the PwC and the Grimley receivers. The Defendants applied to strike out the claims and for summary judgment.

The judge...