Gmac Commercial Credit Development Ltd v Kalvinder Singh Sandhu and Another

JurisdictionEngland & Wales
CourtQueen's Bench Division (Commercial Court)
JudgeRICHARD SIBERRY QC
Judgment Date31 March 2004
Neutral Citation[2004] EWHC 716 (Comm)
Date31 March 2004
Docket NumberClaim No. 2003 Folio 16

[2004] EWHC 716 (Comm)

IN THE HIGH COURT OF JUSTICE

COMMERCIAL COURT

QUEEN'S BENCH DIVISION

Before:

Mr Richard Siberry QC, Sitting as a Deputy High Court Judge

Claim No. 2003 Folio 16

Between:
Gmac Commercial Credit Development Limited
Claimant
and
(1) Kalvinder Singh Sandhu
(2) Kewal Singh Sandhu
Defendants

Mr Richard King (instructed by Paul Davidson Taylor) for the Claimants Mr Steven Berry QC and Mr Edmund King (instructed by Stephenson Harwood) for the First Defendant Mr T W E Evans (instructed by Nicholas Drukker & Co. ) for the Second Defendant

Hearing dates : 24 th—26 th February and 1 st March 2004

Approved Judgment

RICHARD SIBERRY QC
1

In these proceedings the Claimant, GMAC Commercial Credit Development Limited ("GMAC") claims against the Defendants, Kalvinder Singh Sandhu ("Kalvinder") and his father Kewal Singh Sandhu ("Kewal"), under separate Deeds of Guarantee and Indemnity in identical terms, each dated 18 th June 1999 ("the Guarantees"). The Guarantees were expressed to be given in consideration of GMAC, then known as BNY Financial Limited (and before that called UCB Invoice Discounting Limited), among other things continuing with an agreement for the factoring or discounting of debts made between GMAC and a company called Palmier Plc ("Palmier"), then in administrative receivership, of which the Defendants were former directors. (For convenience, I shall ignore the previous appellations of the Claimant, and refer to it throughout as "GMAC"). By the Guarantees, the Defendants agreed, among other things, to pay GMAC on demand all sums then or at any time thereafter due to GMAC from a British Virgin Islands company, Donnaway Ventures Limited ("Donnaway"), subject to the terms of and aggregate limit of liability set out in each Guarantee.

2

This judgment follows a Case Management Conference at which various applications were before the Court, including applications for permission to amend the parties' respective statements of case, and applications under CPR Parts 3.4 and 24. I shall describe these applications in more detail below, but before doing so I shall first outline the background against which the Guarantees were signed, and then describe the history of the proceedings between the parties —the present proceedings being the third set of proceedings in which GMAC have claimed against the Defendants under the Guarantees.

The background to the Guarantees

3

The background against which the Guarantees were signed was summarised in paragraphs 2–9 of the judgment of Potter LJ in the previous proceedings. In the description that follows, I acknowledge my indebtedness to that judgement.

4

Kalvinder is an international businessman. He was the principal director of and moving spirit behind Palmier, and the overall controller of its activities. Palmier was in the garment business. Kalvinder built up the business over the years, and conducted business not only in this country but in association with companies established in various countries to further Palmier's foreign business.

5

On 20 th September 1994, Palmier entered into an Invoice Discounting Agreement with GMAC ("the IDA"), whereby Palmier (referred to therein as "the Client") sold to GMAC all its book debts and ancillary rights as at the date thereof and arising thereafter, at a purchase price defined in clause 5 of the IDA. The procedure provided for in respect of future sales was that under clause 6 Palmier would notify GMAC, on delivery of the relevant goods, by delivery to GMAC of a completed transmittal form, upon receipt of which GMAC would credit Palmier with its purchase price on Palmier's client account and would otherwise account as set out in clause 7, the purchase price payable by GMAC being "the Gross Purchase Price" less discount and administration charges as provided for in clauses 5 and 8 of the IDA. Under clause 11 GMAC was entitled to debit the client account with the amount of any obligations owed to it by Palmier, any such debits to be treated as a payment on account of the purchase price of receivables. Whereas the property in the receivables passed to GMAC, and Palmier agreed to receive and pay into a trust account for GMAC all moneys received on account of the goods sold, and whereas under clause 20 of the agreement GMAC had the sole rights of collection and enforcement in respect of the receivables, under clause 20.3 GMAC appointed Palmier as its agent for administering the accounts of the debtors and procuring payment and enforcing all ancillary rights for GMAC's account, Palmer undertaking to act promptly and efficiently in that respect. By clause 15 Palmier also had the obligation to keep and maintain all appropriate books and records and to deliver monthly to GMAC a schedule of all receivables owed, aged by date of invoice, together with a copy of Palmier's sales ledger control account, including all details required by GMAC.

6

Clause 17 of the IDA provided, under the heading "RECOURSE TO CLIENT":

"17.1. [GMAC] may require the Client at any time after receiving a written notice from [GMAC] ('the Repurchase Notice') to immediately repurchase any Receivable:

17.1.1 which remains unpaid, whether in whole or in part after payment thereof has become due; or

17.1.2 which even if not due remains unpaid by the end of the Permitted Credit Period; or

17.1.3 where the Debtor at any time disputes liability for payment or asserts any right or lien retention or set-off

17.2 The Repurchase Notice shall detail the relevant Receivable to be repurchased and the price at which it is to be repurchased which shall be the amount of the Receivable as included in the relevant Transmittal Form less any amount already paid by a Debtor in respect of such Receivable ('the Repurchase Price')

17.3 Until all the monies payable by the Client under the Repurchase Notice to [GMAC] have been paid the Receivables included in such notice and its Ancillary Rights any Transferred Goods relating therefore shall remain vested in [GMAC].

17.4 After the ownership of any Receivable shall be revested in the Client [GMAC] will credit the Client with all sums subsequently recovered by [GMAC] in respect of such Receivable as a result of [GMAC]'s enforcement of any of the Ancillary Rights vested in [GMAC] pursuant to Clause 2.2.

17.5 [GMAC] has an additional right to require the Client to repurchase any Receivable at any time in its absolute discretion whether or not the Client is in breach of any of its obligations hereunder."

By clause 19.1, the IDA was terminable on one month's written notice by either party. Clause 19.2 gave GMAC a right to terminate forthwith in the event of breach by or insolvency of Palmier, or on the happening of various other specified events, including, by clause 19.2.7, the making of a request by GMAC in accordance with clause 17.

7

Clause 7.5 of the IDA provided that:

"At any time when [GMAC] shall have the right to terminate this Agreement pursuant to clause 19.2 (whether or not it shall have exercised such right) [GMAC] may withhold all payments of or on account of the Purchase Price of any Receivable and shall have the right on demand to the immediate repayment by the Client of all payments previously made in respect of the Purchase Price of Receivables then Outstanding."

8

At the time the IDA was made a debenture was taken as a security over the book debts of Palmier. However, it ranked second to a debenture in favour of Midland Bank Plc, Palmier's principal bankers.

9

Palmier's business was faltering in 1998. On 3 rd December 1998 Midland Bank Plc appointed two partners of BDO Stoy Hayward ("BDO") as joint administrative receivers ("the Receivers") of Palmier's business and undertaking pursuant to powers granted to it under its debenture. At that time there were outstanding receivables which had been purchased by GMAC pursuant to the IDA which were said to amount to some £7.5m. Some £4m was quickly collected in by the Receivers and paid over to GMAC, leaving then due from debtors an unrecovered sum said to have been in excess of £3m according to Palmier's book debts ledger. However, GMAC was not concerned to hold out for that sum, being content to recover what it had paid out under the IDA, which it calculated at £1,618,000 (inclusive of anticipated discounting charges).

10

The Receivers who, as the administrative receivers of Palmier, were in possession of the records and were still GMAC's agents for collection of the debts, were anxious to enlist the assistance of Kalvinder, who had an intimate knowledge of the business and customers and was in the best position to supply information and assist in the recoveries. Kalvinder also had a keen interest in doing so. As he put it at paragraph 17 of his first witness statement in the previous proceedings:

"I appreciated that there could be a commercial advantage in facilitating [GMAC's] collection of the book debts providing as part of any deal the entity which was to act as [GMAC's] collection agent could also purchase from Palmier its rights to the book debts in excess of those Palmier owed to [GMAC], ie. the difference between the £1.6 million owed to [GMAC] and the £3 million outstanding (being approximately £1.4 million)."

11

With this in mind, Kalvinder having ceased to be a director of Palmier on 31 st December 1998, on 22 nd January 1999 Palmier, acting by the Receivers, sold the goodwill and other assets of Palmier, including its books and records to P&P Designs Plc., another company controlled by Kalvinder. It was proposed that Donnaway, another vehicle for Kalvinder's interests, should purchase the book debts of Palmier.

12

However it...

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