Grove Park Properties Ltd v The Royal Bank of Scotland Plc

JurisdictionEngland & Wales
JudgeMr Justice Males
Judgment Date18 December 2018
Neutral Citation[2018] EWHC 3521 (Comm)
Docket NumberCase No: CL-2018-000431
CourtQueen's Bench Division (Commercial Court)
Date18 December 2018
Between:
Grove Park Properties Ltd
Claimant
and
The Royal Bank of Scotland Plc
Defendant

[2018] EWHC 3521 (Comm)

Before:

Mr Justice Males

Case No: CL-2018-000431

IN THE HIGH COURT OF JUSTICE

BUSINESS & PROPERTY COURTS OF ENGLAND & WALES

QUEEN'S BENCH DIVISION

COMMERCIAL COURT

Royal Courts of Justice

Strand, London, WC2A 2LL

Lance Ashworth QC and Philip Riches (instructed by Cooke, Young & Keidan LLP) for the Claimant

John Taylor QC and Rupert Allen (instructed by Dentons UK & Middle East LLP) for the Defendant

Hearing date: 6 December 2018

Approved Judgment

Mr Justice Males Mr Justice Males

The issue

1

This judgment deals with the question whether the claimant should be permitted to plead, either in its Particulars of Claim or its Reply and Defence to Counterclaim, that in other proceedings between the defendant bank and a director of the claimant company, the bank knowingly put forward a false and misleading case. At present the claimant has pleaded such a case in its Particulars of Claim, but the bank applies to strike out the relevant paragraphs. The claimant resists that application but in the alternative submits that it should be permitted to amend its Reply and Defence to Counterclaim to make the same allegations.

Background

2

The claim arises out of loan and interest rate swap agreements concluded in or about late October or early November 2007 which were entered into between the claimant, a property investment and development company, and the bank.

3

On 30 October 2007 there was a meeting between the claimant's director, Mr Gary Wyatt, and Mr Derek Bradstock, an employee of the bank. It was agreed that the following agreements would be concluded:

(1) an interest only loan for £10.5 million (“the Primary Loan”);

(2) an interest only loan for £1.9 million repayable by 1 May 2008 (“the Secondary Loan”);

(3) an authorised overdraft facility of £100,000 (“the Overdraft”); and

(4) a 10 year interest rate swap (“the 2007 Swap”).

4

There is, however, a dispute as to what was agreed about repayment of the Primary Loan. The claimant's case is that the parties agreed orally on a 10 year loan, repayable on 1 November 2017 and co-terminous with the 2007 Swap. The bank's case is that a five-year loan, repayable in 2012, was agreed.

5

It is common ground that the Primary Loan document then drawn up by the bank and dated 5 November 2007 provided, in clause 5.1, for repayment on 1 November 2012 and that this was altered in manuscript by Mr Wyatt to read 1 November 2017. The claimant's case is that Mr Wyatt drew the date to the attention of Mr Bradstock who said that “2012” was a typographical error and that Mr Wyatt should amend it to read “2017”. Mr Wyatt did so by writing the number “7” over the number “2” in 2012. He then initialled this change, signed the document and retained a photocopy.

6

The bank does not accept that Mr Bradstock or anyone else on its behalf agreed to the change. Its case is that the loan document as drawn up and providing for repayment in 2012 correctly reflected the parties' oral agreement and that there was no agreement for Mr Wyatt to change it to 2017.

7

It is further common ground that the signed document was altered again, this time by changing the date of 2017 back to 2012. As I shall explain, this is the critical alteration to the document. Following this alteration, at some point prior to drawdown of the loan funds on 19 November 2007 the altered clause, now reading “2012”, was initialled by Mr Daniels, another employee of the bank, who wrote his initial “D” in blue ink above the altered date. However, this final version of the document showing the change back to 2012 with Mr Daniels' initial was not provided to Mr Wyatt.

8

The claimant's case is that this further change back to 2012 (which I shall call “the Alteration”) was done by Mr Bradstock (or possibly another employee of the bank) without Mr Wyatt's knowledge or authority and was concealed from him. The bank, on the other hand, says that it does not know whether the Alteration was made by Mr Wyatt or by a bank employee. Its case, however, is that if it was made by a bank employee there would first have been a conversation between Mr Wyatt and the bank to confirm that the term of the Primary Loan was indeed five years.

9

Thus the claimant's case is that the initial correction from 2012 to 2017 reflected the parties' oral agreement and that Mr Wyatt remained in ignorance thereafter of the changes which had been made to the document to provide for repayment in 2012. These were made for the bank's own internal reasons without the claimant's knowledge or authority and it did not discover that they had been made until 2012. Conversely, the bank's case is that the agreement was always for a five-year loan repayable in 2012, that Mr Wyatt's initial manuscript change of the date to 2017 was contrary to what had been agreed, and that the final version providing for repayment in 2012 was in accordance with what was agreed at the 30 October 2007 meeting.

10

About a year later, on 18 December 2008, there was a meeting between Mr Wyatt, two individuals who were considering an investment in the claimant, and Mr Bradstock and Mr Edwards of the bank. It appears from some minutes of this meeting which were signed by Mr Wyatt apparently without protest, as well as by the potential investors, that one purpose of the meeting was to clarify the term of the Primary Loan. The minutes record that “the facility was for 5 years maturing in November 2012”. Witness statements from the two potential investors confirm that this is indeed what was said. The claimant's case, however, is that Mr Wyatt was taken by surprise when the bank's representatives said that the Primary Loan was repayable in 2012, but that he did not want an embarrassing disagreement in front of the potential investors which would cause them to lose confidence and that the bank's representatives were deliberately exploiting this.

11

It may be thought that on both sides this is a very odd story. However, where the truth lies will be for the trial. It is not a matter for determination on this application.

The issues in the action

12

The claimant's case in these circumstances is that the Primary Loan is void, and that the Secondary Loan, the Overdraft and the 2007 Swap are likewise void as they formed part of one overall transaction. It contends that it was and is under no liability to repay the principal totalling £12.5 million advanced to it under the Primary and Secondary Loan or interest thereon and is entitled to restitution of the payments which it has made under each of these agreements. It relies on the rule in Pigot's Case (1614) 11 Co. Rep 27 that a material alteration in a deed will render it void and on what was said about this by Lord Kenyon CJ in Master v Miller (1791) 4 TR 320 at 329 when the principle was extended to “all written instruments”, although the case was actually concerned with a bill of exchange:

“That the alteration in this instrument would have avoided it, if it had been a deed, no person can doubt. And why, in point of policy, would it have had that effect in a deed? Because no man shall be permitted to take the chance of committing a fraud, without running any risk of losing by the event, when it is detected. At the time when the cases cited, of deeds, were determined, forgery was only a misdemeanor: now the punishment of the law might well have been considered as too little, unless the deed also were avoided; and therefore the penalty for such an offence was compounded of those two circumstances, the punishment for the misdemeanor, and the avoidance of the deed. And though the punishment has since been increased, the principle still remains the same. … The cases cited, which were all of deeds, were decisions which applied to and embraced the simplicity of all the transactions at that time; for at that time almost all written engagements were by deed only. Therefore those decisions, which were indeed confined to deeds, applied to the then state of affairs: but they establish this principle, that all written instruments which were altered or erased, should be thereby avoided. Then let us see whether the policy of the law, and some later cases do not extend this doctrine farther than to the case of deeds. It is of the greatest importance that these instruments, which are circulated throughout Europe, should be kept with the utmost purity, and that the sanctions to preserve them from fraud should not be lessened.”

13

Lest it be thought that these are ancient cases which no longer represent the law, the claimant points to Chitty on Contracts, 33 rd Edition, para 5–020, where the law is stated, citing Pigot's Case and Master v Miller, as follows:

Material alteration If a promisee, without the consent of the promisor, deliberately makes a material alteration in a specialty or other instrument containing words of contract, this will discharge the promisor from all liability thereon, even though the original words of the instrument are still legible.”

14

It is important to note that the rule in Pigot's Case and the policy rationale described by Lord Kenyon are concerned with fraud. The rule does not apply to alterations which are accidental or merely mistaken: see Chitty, para 25-022 and the cases cited.

15

In response the bank contends that this case is misconceived. Although it accepts that an alteration of the date for repayment would be material, its case as summarised above is that the agreement between the parties was always for repayment in 2012 and that the Alteration of the Primary Loan document to make this clear was agreed, so that the rule in Pigot's Case is not engaged. Alternatively it says that whatever may have been the position before the December 2008 meeting, the effect of the meeting together with Mr Wyatt's signature without protest of...

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