Deutsche Bank (suisse) Sa v Gulzar Ahmed Khan & Others
| Jurisdiction | England & Wales |
| Judge | Mr Justice Hamblen |
| Judgment Date | 13 March 2013 |
| Neutral Citation | [2013] EWHC 482 (Comm) |
| Docket Number | Case No: 2011403 20111109 20111111 20111107 20111105 20111108 20111106 |
| Court | Queen's Bench Division (Commercial Court) |
| Date | 13 March 2013 |
[2013] EWHC 482 (Comm)
Mr Justice Hamblen
Case No: 2011403
20111110
20111109
20111111
20111107
20111105
20111108
20111106
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Royal Courts of Justice
Rolls Building, Fetter Lane, London, EC4A 1NL
Raymond Cox QC and Michael Pryor and James McClelland (instructed by Simmons & Simmons) for the Claimant
Nigel Jones QC, Clive Wolman and Emily Betts (instructed by Richard Slade & Co) for the Defendants
Hearing dates: 15, 17, 21, 22, 23, 24, 28, 29, 30, 31 January. 4,5 and 6 February 2013
The Claimant is a Bank incorporated in Switzerland, (the "Bank").
The Defendants consist of five members of the Khan Family ("the Individual Defendants") and seven family controlled property owning companies ("the Corporate Defendants"), together with an additional company "Octavia Resources Limited" ("Octavia") as the thirteenth Part 20 Claimant.
The Khan Family are prominent commercially and politically in Pakistan. The male family members are all (or have been) Senators in the upper house of the Pakistan Parliament. Senator Gulzar Khan has held Federal Ministerial posts in the Government of Pakistan. Senator Waqar Khan and Senator Ammar Khan are sons of Senator Gulzar Khan. Senator Waqar Khan has been Federal Minister for Privatisation and Minister for Investment. Razia Sultana, the wife of Senator Gulzar Khan, has served as a member of the National Assembly of Pakistan. Sehr Asher is a daughter of Senator Gulzar Khan and Razia Sultana.
The male family members are senior executives in WAKGROUP, a group of family companies in Pakistan including "Global Broadcasting", "Horizon Construction", "Progress Energy", "WAK Housing", "WAK Steel", and "WAKGAS". According to the WAKGROUP website Senator Gulzar Khan is the Founder and still part of the management team, Senator Waqar Khan is the Chairman, and Senator Ammar Khan is the CEO. "WAKGAS" is described on the website as the flagship of the group, and also as the largest Liquefied Petroleum Gas Company in Pakistan.
The seven Corporate Defendants, which are companies incorporated in the Bahamas or the British Virgin Islands, are beneficially owned and controlled by the Khan Family. Their respective roles are as single purpose company owners of one of the seven leasehold and freehold properties charged to the Bank which are the subject of the present proceedings.
The present proceedings are concerned with the Bank's claims in debt and for possession of the charged properties.
In August 2007, March and May 2008 the Bank lent in excess of £50,000,000 to the Corporate Defendants on a five year facility secured by conventional mortgages on high value residential properties in London. Nearly all of the capital remains outstanding and unpaid along with substantial interest.
The Defendants had entered the London property market in 2004 and 2005, buying six flats in Knightsbridge for a total of £12,265,000, and a large property on Bishops Avenue for £12,000,000 ("Dryades"). The Defendants had enjoyed a very substantial rise in the value of the properties, and, as they rose in value, had taken advantage of that rise by remortgaging four of the flats with Coutts & Co to release cash for themselves. Then, by a Facility Agreement ("the Facility Agreement") with the Bank in 2007, the Defendants released a further £18,000,000 for themselves on remortgaging the properties. Shortly afterwards they committed themselves to buying another substantial property on Bishops Avenue, No. 58 ("No.58"), for £23,000,000, which transaction completed on 25 January 2008 with finance from Barclays.
Following the collapse of Lehman Brothers in September 2008 property prices in London substantially declined. During 2008 and 2009 the Defendants failed to provide repayment or alternative collateral satisfactory to the Bank or to service the borrowing to its satisfaction. The Bank made demand on 14 February 2011, and commenced proceedings on the debt (in this Court) and for possession (in the County Court initially) in March 2011.
In defence of these claims the Defendants rely upon misrepresentations allegedly made before the Facility Agreement and alleged breach of that Agreement. These are said to give rise to substantial counterclaims by them. It is contended that the Defendants should have been able to, and would have, borrowed more than they did in 2007, if they had not been misled or the Facility Agreement had not been breached. These funds would have been used to develop the two properties in Bishops Avenue, Dryades and No. 58, and they would have sold them for very substantial profits of up to £62,000,000. It is also said that the Bank misrepresented the returns available on investment products ("the Investment Products") sold to the Defendants as part of the facility and are liable in damages. Claims are also made to set aside supplemental agreements to the facility, based on unilateral mistake and misrepresentation.
At the heart of the Defence and Counterclaim as developed at trial was the allegation that the Bank wrongfully refused to allow drawdown of £10,050,000 in accordance with the Facility Agreement. Further, having insisted that the Defendants agree to new conditions upon which those funds would be released, they then refused to honour those conditions, having misled the Defendants into signing a supplemental agreement which varied those conditions.
There were also issues between the parties concerning accelerated termination of the facility and liability for default interest; whether various clauses relied upon by the Bank fall foul of protective legislation and whether the Bank acted in breach of a duty of confidence.
By Orders of 9 and 16 November 2012 Andrew Smith J split off claims for liability for breach of any COBS or COBS rules, and most issues of causation and quantification relating to the counterclaims.
As a consequence the only issues of quantification for determination at the present trial related to losses said to have been suffered in relation to the Investment Products. The split trial Order also meant that the trial was to cover whether the alleged misrepresentations were made, whether they were true, and whether, "based on what they knew" the Defendants would have entered into the Facility Agreement in any event, or would have withheld and investigated other potential sources of finance. It was not, however, to include an examination of the counterfactual scenario of what such investigations would have revealed or what steps might have been taken as a result.
Evidence at trial
The evidence at trial focused on the period of May to September 2007, the period leading up to and immediately following the Facility Agreement dated 12 August 2007.
The principal bank witnesses were Laurent Kuster, a Lending Officer with the Bank's Private Wealth Management ("PWM") business in Geneva; Markus Rau, a Relationship Manager with PWM in Geneva, and Nasim Ahmad, a Senior Relationship Manager based in Dubai with good contacts in Pakistan who had a long standing relationship with the Khan Family and had introduced them to the Bank. There was also evidence from Paul Walker, a director of Deutsche Bank AG, London, who worked in its Credit Risk Management ("CRM") real estate valuation division; George Hammon, who was Business Manager for the Bank's Global South Asia sub-Market team ("SMT") and Rai-Rummaan Kharal, an investment adviser in Deutsche Bank AG, Singapore. There were also Civil Evidence Act statements from David Brown and Nico Van der Beken dealing with a document authenticity issue.
The principal witness for the Defendants was Senator Waqar Khan. Although he was not a director of any of the Defendant companies he was the family member who had responsibility for their London property investments and was the person who dealt most with the Bank. He has been a senator in the Pakistan national parliament since 1994 and was a minister of the national government of Pakistan and a cabinet minister from 2008 to 2011. His brother, Ammar Khan, gave evidence by video link. He is CEO of the family business, WAKGAS and was a Senator in the Upper House of the Pakistan Parliament until 2012. Oral evidence was also given by Rashad Yaqoob, a director of Middle East at Savills Capital at the material time; Adil Yousfuzai, Market Head for the Pakistan region in the PWM division of Coutts bank from 2005 to 2008, and Sheraz Ijaz (by video link), an office administration manager at WAKGAS. There were also written statements and accompanying Civil Evidence Act notices from Senator Gulzar Khan and his wife, Razia Sultana.
There were expert valuation reports and expert reports addressing document authenticity but in the event no expert evidence was called at trial.
There were a number of disputed factual issues. Most of these issues turned on disputed recollections. Inevitably recollections over time will fade and attempts at later reconstruction can lead to false but still honest recollections. In resolving the disputed factual issues the contemporaneous documents and the overall probabilities are of particular importance — see, for example, Grace Shipping v. Sharp & Co. [1987] 1 Lloyd's Rep 207, 215 (PC); Inntrepreneur Estates Limited v Hollard and Hollard [2000] EWCA Civ 246 at [85].
The Issues
There was a much revised detailed List of Issues. I shall set out those issues when addressing each head of dispute. The various heads of dispute and the main issue arising under each head may be summarised as follows:
(1)The Facility Agreement
Whether the Bank was in breach of the Facility Agreement in failing to advance the full Tranche B drawdown.
(2)Pre-Facility Agreement Misrepresentations
Whether...
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