Unfair Contract Terms In Bank Guarantees

The Commercial Court has decided

in Barclays Bank Plc v Alfons Kufner [2008] EWHC 2319 (Comm)

that a wealthy businessman was not entitled to rely upon unfair

contract terms legislation to prevent the bank from relying on

certain clauses in its loan and guarantee documentation.

Mr Kufner gave a guarantee to Barclays as security for a

€3,494,322.00 loan ("the Kel loan") made to a

company beneficially owned by Mr Kufner, Kel Maritime Limited, to

finance its purchase of a motor yacht. It was stipulated that the

loan could not be drawn down until a mortgage over the vessel had

been formally registered in the Isle of Man. Shortly after a

mortgage had been registered, it was decided that the vessel would

be sold to a company called Paelten, based in Madeira, also owned

by Mr Kufner. The bank executed a further loan agreement ("the

Paelten loan"), containing the same condition precedent

requiring the mortgage to be registered in Madeira (a step which

required the mortgage in respect of the Kel loan to have been

discharged), and backed by a further guarantee from Mr Kufner. When

the bank attempted to register the Paelten mortgage the Madeira

Shipping Registry refused to do so, because the supporting

documents had not been notarised. Three months later, and before

the bank had managed to register the Paelten mortgage, the vessel

was transferred to another Madeira company. In February 2007, the

bank served a stop order on the Madeira Shipping Registry in

respect of the vessel. However, the vessel had already been

transferred off the register.

Only two payments were ever made, totalling €71,040.01,

under the Kel loan. The bank argued that there had been no drawdown

under the Paelten loan, there was never any transfer between the

accounts of the two companies on the bank's books and, as such,

the Kel loan had never actually been discharged. As a result, the

bank issued a notice of default and in April 2007 gave formal

notice of demand to Mr Kufner under the guarantee in the sum of

€3,540,000 plus interest and costs. The bank issued an

application for summary judgment in respect of its claim.

Mr Kufner put forward a series of defences to the Court, each of

which he argued had a real prospect of success. The Court rejected

Mr Kufner's first argument, which was that the Kel loan had

effectively been discharged when the Paelten loan was executed. The

Court was satisfied that all parties had proceeded on the basis

that the original loan would only have been...