Bank of India v Nirpal Singh Riat
| Jurisdiction | England & Wales |
| Judge | Mr David Casement |
| Judgment Date | 04 June 2014 |
| Neutral Citation | [2014] EWHC 1775 (Ch) |
| Court | Chancery Division |
| Docket Number | Claim no: HC11C00466 |
| Date | 04 June 2014 |
[2014] EWHC 1775 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Mr David Casement QC
sitting as a Deputy Judge of the High Court
Claim no: HC11C00466
This judgment is in seven parts:
Part 1. Introduction
| Part 1 Introduction | §1–5 |
| Part 2 The issues | §6–10 |
| Part 3: The witnesses | §11–17 |
| Part 4: Globepark Development Limited and the search for facilities | §18–38 |
| Part 5: Misrepresentation | §39–54 |
| Part 6: Economic duress | §55–71 |
| Part 7: Conclusion | §72–73 |
This case arises out of two limited guarantees signed by Mr Nirpal Singh Riat, the Defendant, as security for facilities provided by the Bank of India ("the Bank") to Globepark Developments Limited ("the Company"). The Company was a family run business with Mr Riat and his son Ashwin Riat being the sole directors and shareholders at all material times. Mr Riat was a 98% shareholder in the Company whereas Ashwin Riat held 2%. The business of the Company was property development including renting properties.
Mr Riat signed a guarantee on 10 January 2006 ("the first guarantee") in respect of facilities provided to the Company by the Bank as set out in a facility letter dated 15 December 2005 and which was signed by the parties on 10 January 2006 ("the first facility"). The first guarantee was limited to £1,237,000 together with interest, costs and expenses as set out therein. Mr Riat also signed a further guarantee on 2 August 2006 ("the second guarantee") in respect of facilities provided by the Bank to the Company as set out in a letter dated 7 July 2006 ("the second facility"). The second guarantee was limited to £490,000 together with interest, costs and expenses as set out therein.
The Company entered administration on 31 March 2010. The Bank has made formal demands of Mr Riat under the guarantees and which demands he has resisted on various bases since the proceedings commenced on 1 March 2011. Following a summary judgment application before Master Price on 11 October 2011 and an appeal to Mrs Justice Asplin on 12 December 2012 the matters in dispute have now been distilled to two lines of defence, namely that it is asserted by Mr Riat that both guarantees are vitiated by misrepresentation alternatively the first guarantee was vitiated by economic duress.
At trial the Bank was represented by Mr Geoffrey Zelin of Counsel and Mr Riat was represented by Mr Stuart Cakebread of Counsel. I am grateful to both Counsel for their very clear written and oral submissions. The trial commenced on 12 May 2014 and submissions concluded on 16 May 2014.
Part 2: The Issues
The first issue is whether the guarantees are rescinded for negligent misrepresentation. The misrepresentation relied upon is that set out in paragraph 10 of the Re-Amended Defence and Counterclaim:
"Prior to the First Facility the Claimant represented to the Defendant that the Claimant wished to expand its involvement in the property development sector."
It is then asserted at paragraph 11 of the Re-Amended Defence and Counterclaim that "the said representation was not true insofar as it was a representation as to the then existing intention of the Claimant" and that Mr Riat was induced by this untrue statement to enter into both of the guarantees.
The Bank does not admit that the alleged statement was made by any of its employees but if it was said it contends that the statement was true, and even if the statement were untrue it was the genuine and reasonably held belief of Mr Sukhdev Singh, the Bank's manager at the Wembley branch who is first alleged to have made it, and also of Mr Sushil Kumar. In any event, says the Bank, any such representation could not reasonably be relied upon but was a mere puff and was not in fact relied upon by Mr Riat who would have entered into the guarantees in any event.
The second issue is whether the first guarantee is vitiated for economic duress. It is asserted by Mr Riat that the requirement of a guarantee was not mentioned at all by the Bank's personnel until the last possible moment and at a point when Mr Riat had "burned his bridges" with Natwest Bank who were the current bankers for the Company and left him with no practical alternative with other financiers. The Bank contends that Mr Riat was informed of the need for a guarantee earlier than he alleges and in any event in good time for him to make a decision. It is contended by Mr Riat that he was the subject of illegitimate pressure for which there was no commercial justification and which left him with no reasonable alternative other than to sign the first guarantee.
The Counterclaim advanced by Mr Riat is for a declaration that he is entitled to rescind the guarantees for the reasons set out in the Defence, namely misrepresentation and economic duress, and for consequential relief.
Part 3: The witnesses
I heard the testimony of a number of witnesses called by the Bank. Mr Hemant Kumar is the current Chief Executive of the Bank's main office in London ("the main office"). His witness statement was limited to setting out the account balances in respect of the Company's indebtedness. In cross-examination he was asked about more wide-ranging matters including the Bank's record keeping and preservation of documents. I then heard the evidence of Mr Sushil Kumar who was the former Bank Manager of the main office and he gave evidence of his direct dealings with Mr Riat including discussions regarding the terms of the facilities and securities required as well as the Bank's lending procedures and document preservation system. I also heard from Mr Satish Gupta who was the former Chief Executive Officer during the period that is relevant to this dispute who gave evidence of the Bank's general policy and procedures as well as his direct involvement with Mr Riat. Finally I heard from Mr Moolchand Dubey who was the former India Desk Officer of the Bank during the relevant period.
There was also some brief evidence that was provided by Mr Milan Kapadia of Royds LLP, solicitor for the Bank as well as Sateesh Kumar Vagle, Credit Manager with the Bank, in respect of certain documents that were disclosed during the trial.
The Bank's witnesses who are central to the matters in dispute and who were party to the relevant discussions and events namely Mr Sushil Kumar, Mr Gupta and Mr Dubey are no longer employed by the Bank. In advance of the trial they had been able to consider the documents referred to in their statements. Mr Sushil Kumar appears to have been able to consider documents that were not only not referred to in his witness statement but also were not in the trial bundle. He was thereby able to identify that there were relevant documents missing from the trial bundle which he had seen and the Bank eventually produced those documents. I granted permission pursuant to CPR Rule 31.21 for the Bank to rely upon those documents subject to conditions including the filing of witness statements to verify the search carried out and allowing cross-examination on those statements in respect of the customer file.
I found the aforementioned witnesses called by the Bank and in particular the three key witnesses namely Mr Sushil Kumar, Mr Gupta and Mr Dubey to be credible, open and trying to do their best to assist the court in their testimony.
Mr Riat gave evidence in respect of not only the transactions in question but also the circumstances facing the Company at that time. It was clear that Mr Riat, whilst not intending to mislead anyone in his evidence, found it difficult to accurately recollect important events around the time of his entering the first guarantee without substantial reference to the documents. One example of that, in addition to the others referred to in this judgment, is that in his witness evidence and in the early stages of cross-examination he maintained that the Company had a good relationship with its existing bank, Natwest, in the period around October to December 2005: see paragraphs 8 and 15 of Mr Riat's witness statement (1/333). It was said that the relationship with Natwest only became difficult when Mr Riat asked for a redemption statement from Natwest and he informed them he would be moving the account to the Bank in early December 2005. The documentary evidence however clearly showed that Natwest had been chasing for management accounts since June 2005 and that the relationship had reached breaking point by 17 November 2005 when the Natwest wrote to the Company with notice of termination of the relationship with effect from 7 December 2005 and requesting that the Company immediately refinance at its earliest convenience and that its credit card be destroyed. It granted a short extension to that deadline until 31 January 2006. Eventually Mr Riat conceded under cross-examination that the relationship with the Natwest was not good, a fact for which he blamed the Company accountants for their slowness in producing accounts, but believed that the relationship might have been capable of being salvaged.
The state of the Company's relationship with the Natwest was important in this case because the first facility provided by the Bank was primarily to refinance indebtedness with the Natwest and it provided important background as to why the Company moved banks at all. The reluctance of Mr Riat to accept that the existing relationship with Natwest was not good and was in fact terminated by Natwest, or even to mention the termination letter in his Defence or witness statement, leads me to exercise particular care in considering whether the other evidence he has provided is supported by the documentation available.
Part 4: Globepark Developments Limited and the search for financial facilities
The Company was incorporated in 1999 and was...
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