Adare Finance Dac v Yellowstone Capital Management SA
| Jurisdiction | England & Wales |
| Judge | Mr Peter MacDonald Eggers,Peter MacDonald Eggers |
| Judgment Date | 19 October 2020 |
| Neutral Citation | [2020] EWHC 2760 (Comm) |
| Court | Queen's Bench Division (Commercial Court) |
| Docket Number | Case No: CL-2019-000807 |
| Date | 19 October 2020 |
[2020] EWHC 2760 (Comm)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Royal Courts of Justice
Strand, London, WC2A 2LL
Mr Peter MacDonald Eggers QC
(sitting as a Deputy Judge of the High Court)
Case No: CL-2019-000807
David Allison QC and Ryan Perkins (instructed by Allen & Overy LLP) for the Claimant
Andrew Stafford QC and James Chapman-Booth (instructed by Kobre & Kim LLP) for the Defendants
Hearing dates: 20 July 2020
Approved Judgment
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
Mr Peter MacDonald Eggers QC sitting as a Deputy Judge of the High Court
Peter MacDonald Eggers QC:
Introduction
The Claimant applies, pursuant to CPR rule 24.2, for summary judgment to allow its claim against the Defendants and to dismiss the Defendants' counterclaim against the Claimant. Alternatively, the Claimant applies for an order striking out the Defendants' Defence and Counterclaim pursuant to CPR rule 3.4(2)(a) on the ground that the Defendants' statement of case discloses no reasonable grounds for defending the claim or bringing the counterclaim.
The Claimant's claim is for an order for payment of sums outstanding under finance agreements relating to a loan advanced by the Claimant to the First Defendant, Yellowstone Capital Management SA, which was guaranteed by the Second Defendant, Mr Michel Ohayon (who beneficially owns and controls the First Defendant). The claims are made principally under or by reference to (i) a credit facility agreement dated 29th August 2019 between the Claimant and the First Defendant (“the New Facility Agreement”), a deed of guarantee and indemnity dated 29th August 2019 between the Claimant and the Second Defendant (“the Personal Guarantee”), and (iii) the Extension Fee Deed dated 27th September 2019 (“the Extension Fee Deed”).
The Claimant's claim is for US$10,539,779, comprising (i) US$9,571,015 under the New Facility Agreement, (ii) US$968,764 under the Extension Fee Deed, (iii) default interest, and (iv) costs and expenses (including legal fees) incurred in connection with the enforcement of or the preservation of any rights under the relevant finance agreements.
The Defendants' defence to the Claimant's claim is that:
(1) The Extension Fee Deed is an unconscionable bargain and therefore unenforceable.
(2) The Defendants were the victims of economic duress, because the Claimant refused to extend the date for the completion of the refinancing, without being paid a fee, which led to the agreement of the Extension Fee Deed.
(3) The acceleration clause in the New Facility Agreement is an unlawful penalty.
(4) The First Defendant had an option to pay the amounts set out in the Extension Fee Deed by 18th November 2019 such that there had been no Event of Default.
The Defendants' counterclaim is based on alleged breaches of contract resulting in damages of US$2,300,000. The Defendants' Defence and Counterclaim pleads that the damages are due to the First Defendant, but both Defendants in fact are presenting the counterclaim.
The Claimant disputes the counterclaim because the cause of action on which the First Defendant relies has been released under a Deed of Termination in favour of the Claimant and, in any event, the First Defendant has no locus standi to bring the counterclaim.
The basis of the Claimant's application is that the Defendants' defences and counterclaim have no real prospect of success. Alternatively, the Claimant claims a conditional order pursuant to CPR PD 24, para. 4–5.
Factual background
I set out below a summary of the factual background to the dispute between the parties. Except where I have indicated to the contrary, the following facts as summarised are not substantially in dispute.
The Original Facility Agreements
In 2018, the Claimant provided financing to Mr Ohayon and certain of his companies to fund the acquisition of the equity interest in the Waldorf Astoria Hotel in Jerusalem (managed by the Hilton Group) and an apartment complex in Jerusalem (the “Properties”).
The financing took the form of a US$105,300,000 term loan facility agreement dated 18th January 2018, between the Claimant as lender and one of Mr Ohayon's companies, Silverstone Capital Management SARL (“Silverstone”), amongst other parties (“the Hotel Facility Agreement”) and a US$8,000,000 term loan facility agreement dated 27th April 2018 between the Claimant and Silverstone amongst other parties (“the Apartment Facility Agreement”). The First Defendant owns 100% of the share capital of Silverstone.
Certain of the sums owing under the Hotel Facility Agreement and the Apartment Facility Agreement (“the Original Facility Agreements”) were guaranteed by Mr Ohayon pursuant to a personal guarantee dated 24th May 2018.
The commercial purpose of the Original Facility Agreements was to enable Silverstone to acquire the entire share capital of IPC Jerusalem Limited (“IPC”), which was the owner of the Properties.
The acquisition of IPC's share capital by Silverstone completed on or about 24th May 2018 using the funds borrowed under the Original Facility Agreements. On the same date, IPC acceded to the Original Facility Agreements as a borrower.
Following completion, IPC duly issued utilisation requests amounting to US$113,300,000 so that the funds could be applied to the intended purpose of financing the acquisition of the Properties. The Defendants contend that, in breach of the Original Facility Agreements, the Claimant transferred to IPC only US$111,000,000, having deducted unilaterally sums which it asserted represented its costs of the transaction; the Defendants argue that the Original Facility Agreements did not contain any term which permitted the Claimant to make this deduction and the Claimant did not obtain IPC's or Mr Ohayon's consent to this deduction. According to Mr Ohayon at para. 27–29 of his first witness statement dated 26th May 2020, because the acquisition of the Properties could not proceed until the shortfall of US$2,300,000 had been closed, Mr Ohayon was forced to direct the First Defendant to remit that sum to enable the transaction to complete; Mr Ohayon said that he did not think that the Claimant could make this deduction “ but there was nothing I could do”.
The refinancing
Starting in November 2018, a dispute arose as to whether a series of Events of Default had occurred under the Original Facility Agreements. According to Mr Ohayon's first witness statement, at para. 32–48, there were no Events of Default, but they were alleged by the Claimant in respect of matters which were either inconsequential or disputed and were relied on by the Claimant to demand an increase in the applicable interest rates.
At para. 49–50 of his first witness statement, Mr Ohayon stated that, following a meeting in February 2019, because the Defendants were concerned that the Claimant was seeking to forcibly acquire the Properties, Mr Ohayon ultimately decided to refinance the loans in order to exit the relationship with the Claimant.
On 29th August 2019, it was agreed that the Original Facility Agreements would be partially refinanced. Pursuant to the refinancing transaction, the majority of the amounts outstanding (in total, US$121,941,414) to the Claimant were to be repaid primarily using the funds provided by a consortium of new lenders. This sum was to be held in escrow by an Escrow Agent, and was to be paid to the Claimant by the Escrow Agent in accordance with the terms of two escrow agreements dated 29th August 2019.
The unpaid balance (US$12,026,015), by way of novation under a deed of assumption, was to remain owing to the Claimant by the First Defendant, instead of IPC. The advance was restated as three fully-drawn loans owing by the First Defendant to the Claimant under the New Facility Agreement. Under the New Facility Agreement, it was provided that:
“ Definitions
In this Agreement:
Finance Document means this Agreement, the Personal Guarantee and any other document designated as such by the Lender and the Company …
1.2 Construction
(a) Unless a contrary indication appears, any reference in this Agreement to:
(vi) a Finance Document or any other agreement or instrument is a reference to that Finance Document or other agreement or instrument as amended; …
(e) An Event of Default is “continuing” if it has not been waived …
3. CONDITIONS PRECEDENT
This Agreement shall have effect on and from the earliest date on which: (i) the Lender has received (or waived receipt of) all of the documents and other evidence listed in Schedule 1 (Conditions precedent) in form and substance satisfactory to the Lender (and the Lender shall notify the Company promptly upon being so satisfied); and (ii) the Existing Lenders' Repayment Amount (as defined in the First Escrow Agreement) has been received in immediately available cleared funds to the account designated by the Original Lender in accordance with the First Escrow Agreement.
4. REPAYMENT
4.1 Repayment of Loans
(a) Subject to Clause 6 (Early redemption), the Company shall repay the Loans in full together with (in the case of the Deferred Shortfall Loan and the Deferred Escrow Amount Loan) all accrued interest and any other amounts owed to the Lender on the Termination Date.
(b) The Company may not reborrow any part of the Loans which is repaid …
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