Gaetano Alfano and Others v National Westminster Bank Plc
| Jurisdiction | England & Wales |
| Judge | Lord Justice Pitchford,Lord Justice McFarlane,Lord Justice Richards |
| Judgment Date | 20 December 2013 |
| Neutral Citation | [2013] EWCA Civ 1703 |
| Docket Number | Case No: A2/2012/1077 |
| Court | Court of Appeal (Civil Division) |
| Date | 20 December 2013 |
[2013] EWCA Civ 1703
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM
HIGH COURT QUEEN'S BENCH DIVISION
Royal Courts of Justice
Strand, London, WC2A 2LL
Lord Justice Richards
Lord Justice Pitchford
and
Lord Justice McFarlane
Case No: A2/2012/1077
David Alexander QC and Henry Phillips (instructed by Lake Jackson Solicitors) for the Appellants
Stuart Hornett (instructed by Addleshaw Goddard LLP — Solicitors) for the Respondent
Hearing date: 5 December 2013
Approved Judgment
On 20 April 2012 Cranston J gave judgment for National Westminster Bank plc (the claimant/respondent), to whom I shall refer as "the Bank", in its claim against four members of the Alfano family (the defendants/appellants), to whom I shall refer as "the appellants", to enforce personal guarantees each in the sum of £100,000, given to the Bank on 6 February 2009. Seventeen grounds of appeal are advanced, all of which concern or depend upon challenges to the judge's findings of fact.
Cranston J set out the factual background to the claim at paragraphs 4 – 40 of his judgment at [2012] EWHC 1020 (QB) and I shall confine my summary to the essentials. Ciborio Limited ("Ciborio" or "the company") was a family business established in 1951 to supply (principally) Italian food and drink products to restaurants and other outlets in the United Kingdom. In 2007 Paul Alfano was finance director and managing director elect. His father was one of the founders. Other members of the family were directors or senior managers. Ciborio owned the freehold of its main office and warehouse in Greenford, Middlesex. Ciborio's parent company was Alfano Brothers Limited. Alfano Brothers Limited Retirement Benefits Scheme ("Alfano Retirement") held leases on further Ciborio premises in Rochdale, Newcastle, Cardiff and Glasgow.
In October 2007 Ciborio re-financed its business with a loan of £3.4 million from Five Arrows Commercial Finance Limited ("Five Arrows") secured against the Greenford property, then valued at £4.5 million. Five Arrows, which also provided revolving stock and confidential invoice discounting facilities, held a debenture (a fixed and floating charge) over Ciborio's assets. Five Arrows was subsequently taken over by GE Commercial Finance ("GE").
The claimant Bank was the banker for Alfano Retirement. The company's contact at the Bank was Mr Paul Stevens who was then a commercial relationship manager working from the Bank's offices at Charing Cross in London. Mr Paul Alfano and Mr Stevens enjoyed a good business relationship. They happened to live within 3 miles of one another, sometimes shared transport from meetings, and attended Bank social functions together. In 2007 and 2008 talks took place between Mr Stevens and Mr Paul Alfano with a view to the Bank replacing HBOS as Ciborio's banker. Mr Andy Thomson joined the Bank from HBOS on 7 January 2008 as associate director, business development, also working from the Charing Cross branch. He assisted Mr Stevens in his development of the working relationship with Ciborio from the summer of 2008. The objective was that the Bank should replace HBOS and GE. The Bank would become Ciborio's sole banker/banking creditor by:
(1) providing a net nil currency facility account, the effect of which was to permit an overdraft of up to £1 million in Ciborio's sterling bank account provided that the overdraft was matched by funds standing in other currency accounts;
(2) making a loan to redeem and replace GE's mortgage of the Greenford property;
(3) introducing Royal Bank of Scotland Invoice Financing ("RBSIF") to replace GE's stock facility and confidential invoice discounting arrangement;
(4) taking a debenture over the company's assets thereby replacing GE as the sole debenture holder.
The currency facility was completed by an agreement dated 9 June 2008. The Greenford security had however reduced in value to £3.5 million. An arrangement was made that the Bank would lend £2.83 million against the Greenford security. The agreement was signed on 16 October 2008. The balance of about £500,000 required to redeem GE's mortgage was found from Ciborio's stock facility with GE, hopefully as a temporary measure. The four point plan referred to in paragraph 4 above faltered when RBSIF, having examined Ciborio's underlying asset and trading position, declined to take over GE's stock facility and confidential invoice discounting arrangement. By this time it was evident that Ciborio was experiencing significant cash flow problems, partly as a result of the pressure on the stock facility caused by the shortfall in the Greenford security. On 6 October 2008 Mr Stevens wrote to Ciborio deferring the requirement for the provision of a debenture for a period of three months after the date that the property loan was drawn down, that is until 17 January 2009.
On 6 January 2009 Mr Thomson put to the Bank's commercial credit section a proposal to overcome the cash flow difficulties. The Bank would make a loan of £500,000 to Alfano Retirement against the security of a Scottish property. In turn, Ciborio would borrow that sum from Alfano Retirement. By this means it was hoped that the informal overdraft on Ciborio's sterling currency account would no longer be required. The deputy head of commercial credit at the Bank, Mr Tony Conroy, reviewed the proposal on 21 January 2009. That month Ciborio's overdraft had fluctuated between £114,319 and £246,819. Mr Conroy noted that Ciborio was in default of repayments of the secured loan and the overdraft limit had been exceeded. He responded to the application as follows:
"If I am to consider continuation of the existing facilities and agree to the pension loan I would wish further conversations to be undertaken with the company as I believe the updated position calls for additional equity to be made available to support the business going forward. I accept that the current position we are in does point to the need to support this business, however this must be in tandem with shareholders to ensure that sufficient working capital is available to support the business (PGs [personal guarantees] may have a role to play here)."
On 26 January 2009 a meeting took place at the Bank's Charing Cross offices between Mr Thomson, Mr Stevens and Mr Paul Alfano. The overdraft then stood at £295,244. Monthly salaries and duty payable to HMRC were due for payment at the end of the month. Mr Alfano said that he would recommend that eight members of the family should give personal guarantees to the Bank. Asset and liability forms were despatched that day for completion, although Mr Paul Alfano completed his before he left. The Bank authorised payments of £170,000 for salaries on the following day and a payment of £164,000 to HMRC on 29 January. On 5 February 2009 the Bank revised the company's currency facility by permitting a net overdraft in the sterling account of £150,000.
On 6 February 2009 Mr Stevens met with six members of the Alfano family by arrangement at Brookman's Park hotel in Hertfordshire for the completion of the guarantees. It was a convenient venue for Mr Paul Alfano and Mr Stevens since they lived close to the hotel. The guarantors signed their personal guarantee and waiver of legal advice forms. The date of each of the deeds (6 February 2009) was inserted by Mr Stevens' assistant at some stage after the return of the documents to the Bank. However, the waiver of legal advice forms appear to have been signed and dated then and there. Two members of the family, Mr Franco Alfano and Ms Pina Alfano, were not directors of Ciborio. They received independent legal advice from Lester Aldridge, solicitors, on 16 February 2009. Their signed personal guarantees were sent to the Bank on the same date. By this stage Ciborio's overdraft had risen to £542,796; on 1 March it was £678,289. Ciborio's position worsened in the following months and at the end of July 2009 the directors gave notice of their intention to appoint administrators. On 3 August 2009 the Bank gave notice of default and sought re-payment of the loan (£2,728,983.38 and interest) and the overdraft (£692,597.55). The Greenford security was realised and £2,442,813 was recovered by this means. On 13 October 2009 the Bank sent letters of demand to the personal guarantors and on 17 February 2011 commenced proceedings against the four appellants.
Shortly before trial, in circumstances to which I shall return later in this judgment, the thrust of the appellants' case was recast. By the close of the evidence the appellants raised the following defences for consideration by the judge:
(1) it was a condition precedent to the enforcement of the personal guarantees that the Bank would take a second debenture over the assets of Ciborio (see TCB Limited v Gray [1988]1 All ER 108; Byblos Bank SAL v Al Khudhairy [1987] BCLC 232);
(2) the guarantees were not delivered as deeds intended to be immediately binding (see Longman v Viscount Chelsea [1989] 58 P & CR 189 at 195, 196; Bolton MBC v Torkington [2004] Ch 66 at paragraph 35);
(3) the guarantees had been materially altered by the insertion of dates after delivery;
(4) the guarantees had been procured by the Bank's misrepresentation; or
(5) there was a relationship of trust between Paul Alfano and the appellants; the Bank knew of that relationship and were liable for the consequences of his misrepresentations to the appellants ( Royal Bank of Scotland v...
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