African Export-Import Bank and Others v Shebah Exploration & Production Company Ltd and Others
| Jurisdiction | England & Wales |
| Judge | Mr Justice Phillips |
| Judgment Date | 19 February 2016 |
| Neutral Citation | [2016] EWHC 311 (Comm) |
| Docket Number | Case No: CL-2014-000815 |
| Court | Queen's Bench Division (Commercial Court) |
| Date | 19 February 2016 |
[2016] EWHC 311 (Comm)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Royal Courts of Justice, Rolls Building
Fetter Lane, London, EC4A 1NL
Mr Justice Phillips
Case No: CL-2014-000815
Tom Smith QC (instructed by Baker & McKenzie LLP) for the Claimants
Richard Gillis QC (instructed by Winston & Strawn LLP) for the Defendants
Hearing dates: 22 July and 28 September 2015
The claimants apply for summary judgment against the defendants under CPR 24.2 for sums outstanding under a syndicated loan facility agreement ('the Facility Agreement') totalling over US$144.2m 1, together with interest on those sums. The main issue is whether it is arguable that, in entering the Facility Agreement, the parties were contracting on the claimants' written standard terms of business so as to engage section 3 of the Unfair Contract Terms Act 1977 (' UCTA').
The claimants are the Lenders under the Facility Agreement, the first defendant ('Shebah') is the Borrower and the second defendant ('Allenne') is the Guarantor. When first executed on 1 July 2011, the Facility Agreement provided for a US dollar term loan of US$100m. On 11 May 2012 it was amended and restated, at which point the loan was increased to US$150m, each of the claimants' commitment being US$50m.
Shebah is a Nigerian company engaged in oil exploration and production. The purpose of the loan was (i) to discharge certain of Shebah's existing borrowing and (ii) to provide Shebah with working capital, including funding for a work-over programme to stimulate production at oil wells in the Ukpokiti oil field, part of an offshore oil block in Nigeria in which Shebah is interested, being entitled to 80% of the revenue.
The third defendant ('Dr Orjiako'), the President of Shebah, is a personal guarantor of the liabilities of Shebah and Allenne pursuant to a Deed of Guarantee and Indemnity dated 1 July 2011 ('the Personal Guarantee'), amended and restated on 11 May 2012. Neither Dr Orjiako nor Allenne disputes that, if and to the extent that Shebah is liable to the claimants, they are correspondingly liable as guarantors of that liability.
The defendants do not deny that the claimants advanced US$150m to Shebah pursuant to the Facility Agreement, nor do they dispute that, apart from paying one instalment of US$6,111,111.11 in June 2012, Shebah has failed to meet any further repayment instalments, despite the claimants agreeing to the deferral of several instalments. The claimants have accelerated repayment of the entire debt under clause 24.7 of the Facility Agreement and have made demand on Allenne and Dr Orjiako 2.
Indeed, in previous proceedings commenced by the claimants in this court on 11 March 2014, the defendants agreed (albeit without admission of liability) that, in exchange for the claimants discontinuing the proceedings, Shebah would repay all sums outstanding under the Facility Agreement in two tranches: US$49,999,999.86 (with accrued interest under the terms of the Facility Agreement) by 30 April 2014 and the balance of the loans and interest by 1 July 2014 3 ('the Discontinuance Agreement'). In the event, Shebah failed to pay any part of the sum due on 30 April 2014. The claimants were therefore entitled, under the terms of the Discontinuance Agreement, to commence fresh proceedings in respect of their claims. These proceedings were commenced on 2 June 2014, repeating the claims previously made
and adding a claim against Shebah in respect of the US$49,999,999.86 due under the Discontinuance Agreement 4. The present application for summary judgment was issued on 27 June 2014. The claimants seek judgment for the sums due under the Facility Agreement, not those due under the Discontinuance Agreement.Even in these proceedings the defendants have agreed to make payments to the claimants of sums due under the Facility Agreement (and have partially honoured one such promise). On 3 October 2014, the day this application for summary judgment was originally due to be heard, Shebah agreed to pay US$50m to the claimants by 2 December 2014 in exchange for the claimants agreeing to the adjournment of the application for not less than 60 days to permit the defendants time to seek alternative finance. In the event, no payment was made. The application was thereafter re-listed for 19 December 2014 and 15 April 2015, and on each occasion was adjourned by consent to allow the defendants time to attempt to refinance the debt. The adjournment of the hearing listed for 15 April 2015 was agreed by the claimants on terms that the defendants would pay US$20,579,239.24 towards outstanding interest by 30 April 2015. In the event, the defendants paid US$10m less than the agreed sum. Attempts to refinance the loan have been unsuccessful.
Notwithstanding their previous stance, the defendants now contend that no sums whatsoever are due to the claimants. The defendants assert that they have arguable defences to the claim (set out in a draft Defence and Counterclaim), contending as follows:
i) that Shebah has a counterclaim against the first claimant ('Afrexim') for damages for alleged breaches of Afrexim's obligations as Arranger of the Facility Agreement. It is alleged that Afrexim, in breach of implied duties of care and skill, arranged both the original loan and the re-stated loan in a 'dilatory' fashion, causing Shebah to incur wasted expenditure and to lose revenue from the oil wells. The defendants claim that Shebah is entitled to set-off those damages, said to total US$137.1m, against the sums claimed by Afrexim in these proceedings;
ii) that Shebah has a counterclaim against the second claimant ('Diamond'), in respect of a previous loan to Shebah which was re-financed by the original loan pursuant to the Facility Agreement. Shebah asserts that Diamond breached an agreement that the previous loan would be 'capped' at US$60m, resulting in Diamond wrongly retaining US$10.8m from the sums advanced to Shebah under the Facility Agreement and causing Shebah consequential losses of at least US$20.4m. Again, the defendants claim that Shebah is entitled to set-off those sums against the sums claimed by Diamond in these proceedings;
iii) that the claimants, in commencing these proceedings, acted in breach of an alleged agreement, said to have been made on 16 May 2014, not to commence proceedings pending the conclusion of negotiations to refinance the debt with Zenith Bank. The defendants assert that the appropriate remedy for that breach is that these proceedings be stayed for 6 months. Alternatively, Shebah counterclaims damages on the basis that pursuit of these proceedings will
cause the loss of Shebah's business, including its licence, resulting in damages estimated at US$830m.iv) that the claimants' purported acceleration of the loan as of 16 October 2013 was ineffective, so that the only sums immediately due and owing (subject to the alleged defences referred to above) are quarterly repayment instalments which remained unpaid at the date proceedings were commenced. The defendants acknowledge that the claimants have subsequently served an effective notice of acceleration and valid demands on Allenne and Dr Orjiako, but contend that the causes of action arising from such service cannot be pursued in these proceedings as they post-date the issue of the claim form.
v) that certain default interest charges and hedging fees have been wrongly included in the sums claimed, in particular a hedging fee of US$150,000. The claimants, however, have confirmed that they have excluded the charges referred to and that they will not pursue summary judgment for the hedging fee. Therefore no issue remains between the parties in relation to this minor aspect of the alleged defence.
Whether the defendants have an arguable right to set-off any counterclaims
The immediate answer to the defendants' claim to set-off the alleged counterclaims referred to above is that both the Facility Agreement and the Personal Guarantee (both being governed by English law) contain standard provisions expressly excluding any right of set-off:
Clause 32.6 of the Facility Agreement provides:
" All payments to be made by an Obligor under the Finance documents shall be calculated and made without (and free and clear of any deduction for) set-off or counterclaim."
Clause 9.1 of the Personal Guarantee provides:
" All sums payable by the Personal Guarantor under this Deed shall be paid in full to the Security Trustee in the currency in which the Guaranteed Obligations are payable:
(a) without any set-off, condition or counterclaim whatsoever; and
(b) free and clear of any deductions or withholdings whatsoever except as may be required by law or regulation which is binding on the Personal Guarantor."
The defendants accept that, as a matter of contract, the above provisions are effective to exclude any right to set-off their counterclaims. It is common ground that any such rights (both at law and in equity) can be excluded by agreement (see HSBC v Kloeckner & Co AG [1990] 2 QB 514, Coca-Cola Financial Corp v Finsat International Ltd [1998] QB 43 CA and Newcastle Buildings Society v Mills [2009] 2 BCLC 137) and that such agreement also precludes the grant of a stay of execution of judgment pending a counterclaim (see Continental Illinois National Bank & Trust Company of Chicago v Papanicolaou [1986] 2 Lloyd's Rep 441 CA).
The...
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