Ibrahim v Barclays Bank Plc and another
| Jurisdiction | England & Wales |
| Judge | MR JUSTICE VOS,Mr Justice Vos |
| Judgment Date | 21 July 2011 |
| Neutral Citation | [2011] EWHC 1897 (Ch) |
| Docket Number | Case No: HC10C01527 |
| Court | Chancery Division |
| Date | 21 July 2011 |
[2011] EWHC 1897 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Royal Courts of Justice
Strand, London, WC2A 2LL
Mr Justice Vos
Case No: HC10C01527
Mr Romie Tager QC and Mr Hugh Jackson (instructed by Winckworth Sherwood LLP) for the Claimant, Mr Ibrahim
Mr Patrick Goodall (instructed by Addleshaw Goddard LLP) for Barclays Bank PLC
Ms Sarah Harman (instructed by the Treasury Solicitor) for the Secretary of State
Hearing dates: 4 th to 8 th, 11 th and 12 th July 2011
Approved Judgment
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
The Claimant, Mr Syed Azman Bin Syed Ibrahim ("Mr Ibrahim"), seeks, in this action, to be subrogated to the rights of the 2 nd Defendant, the Secretary of State for Business, Innovation and Skills (the "Secretary of State"), in relation to secured funding provided by the 1 st Defendant, Barclays Bank plc ("Barclays"), to the LDV Group, the well-known van manufacturer in the Midlands. At the relevant time, the Secretary of State's department was called the Department of Business Enterprise and Regulatory Reform. I shall call the Secretary of State's Department "BERR" in this judgment notwithstanding that it has undergone frequent changes of name both before and since the events in issue in this case.
LDV Holdings Limited ("LDV Holdings") had been owned by the English subsidiary of a well known Russian corporation, GAZ International Limited ("GAZ"), since 2005, but had been forced, by cash flow difficulties, to suspend production in December 2008. LDV Holdings owned two operating companies LDV Group Limited ("LDV Group") and Birmingham Pressings Limited. I shall refer to these three LDV companies together in this judgment as "LDV".
Mr Ibrahim is a successful Malaysian businessman who controls Weststar LDV Sdn Bhd ("Weststar"), a Malaysian company that had distribution rights for LDV's products in South East Asia and other areas. Weststar had invested sums approaching 100 million in Malaysia in the assembly and distribution of LDV vehicles. LDV stood for both "Leyland DAF Vans" and "light duty vehicle".
In broad terms, this action turns on the contractual relationships that the parties established, and the extent to which the equitable remedy of subrogation can or should be applied in the context of those contractual relationships. Much of the evidence concerned the negotiations between the parties that gave rise to the contracts that were ultimately signed up, and the expectations of the parties in entering into those contracts.
The facts are actually quite simple and may be summarised in the simplest of terms as follows:—
i) LDV was indebted to Barclays for some £8.5 million. That loan was secured by debentures and by a guarantee from GAZ's Russian parent. LDV also owed Barclays a further sum of about £1.6 million in relation to asset finance facilities secured only by the debentures.
ii) The Secretary of State was keen to save LDV from insolvency, and agreed to guarantee a £2.5 million new monies facility under which some £1.4 million was advanced by Barclays to LDV, on the basis that recoveries in LDV's insolvency would go 50/50 to Barclays and the Secretary of State up to £3.2 million. These arrangements were intended to keep LDV going so as to allow Weststar the time to undertake due diligence on LDV, Weststar having entered into a conditional sale and purchase agreement with GAZ, under which it had agreed to procure short term finance for LDV.
iii) LDV entered into a counter-indemnity (the "Counter-Indemnity") by which it agreed to reimburse the Secretary of State for any monies he paid to Barclays under his guarantee.
iv) The Secretary of State had asked Weststar to back his guarantee in case it was called. Ultimately, at Mr Ibrahim's personal request, UBS (Singapore) ("UBS") issued an irrevocable standby letter of credit (the "Letter of Credit") in favour of the Secretary of State payable on a certification that the "amount demanded represents and covers the unpaid sums due" to the Secretary of State from LDV. It will be noted that the wording of the Letter of Credit did not make it payable on proof that the Secretary of State had paid Barclays under his guarantee.
v) Mr Ibrahim indemnified UBS against any sums it had to pay under the Letter of Credit.
vi) In due course, Barclays called just over £1.4 million under the Secretary of State's guarantee, and the Secretary of State called for payment by UBS under the Letter of Credit, and Mr Ibrahim (and his wife) ultimately indemnified UBS.
The way in which Mr Romie Tager Q.C. and Mr Hugh Jackson, counsel for Mr Ibrahim, put their case changed somewhat during the course of the trial. But, in essence, when matters concluded, Mr Tager argued the case for subrogation in two ways, which I shall explain in a moment. He said that the payment by UBS to the Secretary of State did not discharge the debt due under the Counter-Indemnity from LDV to the Secretary of State. Mr Tager had to put his case that way, because he acknowledged that if the payment of the Secretary of State had discharged the debt due from LDV to the Secretary of State, Mr Ibrahim could not recover because the sharing provision (clause 2.1 of the so-called Realisation Agreement (the "RA") between the Secretary of State and Barclays) made it a condition of recovery by the Secretary of State that the debt due from LDV to the Secretary of State had not been discharged.
The two types of subrogation on which Mr Tager relied were what are described as follows in the academic texts:—
i) Subrogation to extinguished rights (or what I called in argument "type 1 subrogation"). The most normal example of this kind of subrogation is when a guarantor discharges (or extinguishes) the principal debtor's liability, he (the guarantor) is subrogated to the principal creditor's rights against the principal debtor. It is axiomatic, as Mr Tager accepted, that for such subrogation, the guarantor must have discharged the principal debtor's liability to the principal creditor.
ii) Subrogation to subsisting rights (or what I called in argument "type 2 subrogation"). The most normal example of this type of subrogation is where an indemnity insurer pays the insured in respect of an insured loss, and is then subrogated to the insured's claims against third parties. In this situation, the insurer's payment to the insured does not extinguish the insured's rights against the third party, but the insurer is allowed to benefit from those rights in place of the insured to avoid double recovery and unjust enrichment by the insured.
Mr Tager submits that Mr Ibrahim is entitled to engage type 1 subrogation (on the basis that the arrangements with UBS were simply a mechanism to ensure that Mr Ibrahim paid the Secretary of State, so that one should look at the substance rather than the form), because the debt due from LDV to the Secretary of State was not discharged by the payment by UBS. He submits that Mr Ibrahim can also engage type 2 subrogation because the agreement or understanding between all the relevant parties was that Mr Ibrahim (again regarding the arrangements with UBS as purely mechanistic) would be entitled to stand in the shoes of the Secretary of State to share in Barclays' recoveries from an administration of LDV if UBS paid up.
Mr Patrick Goodall, counsel for Barclays, raises a number of answers to these claims, but his primary submission is that Mr Ibrahim is faced with a Morton's fork. He submits that:—
i) Mr Ibrahim cannot succeed under type 1 subrogation, because the debt owed by LDV to the Secretary of State under the Counter-Indemnity was expressly discharged by the mechanism employed when the Letter of Credit was called from UBS. The Secretary of State expressly certified that the amount demanded "represents and covers" the unpaid sums due from LDV. Under clause 2.1 of the RA, the discharge of the LDV debt terminated the Secretary of State's right to share in recoveries, and also, of course, the rights of anyone subrogated to that right.
ii) As for type 2 subrogation, this is also affected by the same difficulties, because clause 2.1 of the RA allows no sharing once the debt due from LDV is discharged. But even if Mr Ibrahim were claiming to share in those recoveries outside the RA, or even if the debt due to LDV were not discharged, Mr Goodall submits that Mr Ibrahim cannot recover for three primary reasons:—
a) Because it was never the understanding or agreement of the parties that Mr Ibrahim would be able to subrogate in the light of the wording of the Letter of Credit, the demand under it, and clause 2.1 of the RA.
b) Because the Letter of Credit is an autonomous instrument whereby UBS is discharging its own primary, not secondary, liability, and there can be no rights of subrogation of any kind in UBS, or taken through UBS.
c) Because Mr Ibrahim has not sued in the Secretary of State's name as would be required for type 2 subrogation.
Issues
Against this background, it seems to me that I shall have to decide the following main issues:—
i) When UBS paid under the Letter of Credit, did its payment discharge LDV's liability under the Counter-Indemnity to the Secretary of State?
ii) If so, can Mr Ibrahim claim to be subrogated to the Secretary of State's rights against Barclays?
iii) Was there an understanding or agreement between the parties (BERR, Ibrahim and Weststar) that Mr Ibrahim would be subrogated to the Secretary of State's rights under the RA?
iv) Can UBS, and through UBS Mr Ibrahim, be subrogated to the Secretary of State's rights...
To continue reading
Request your trial
-
Alliance Bank JSC v Aquanta Corporation and Others
...case in which (though seemingly without accreditation to the authors), subrogation has been considered in this way, Syed Azman bin Syed Ibrahim v Barclays Bank plc [2011] EWHC 1897 (Ch), was described by Vos J as "type 1 subrogation" (at paragraph 7), and Subsisting Rights Subrogation, whic......
-
The European Union (Represented by the European Investment Bank) v The Syrian Arab Republic
...without accreditation to the authors), subrogation has been considered in this way, Syed Azman bin Syed Ibrahim v Barclays Bank plc [2011] EWHC 1897 (Ch), was described by Vos J as “type 1 subrogation” (at paragraph 7), and Subsisting Rights Subrogation, which Vos J called “type 2 subrogat......
-
Ibrahim v Barclays Bank Plc
...agreement ceased and there were no rights to which appellant could become entitled by assignment. This was an appeal against a decision([2011] 2 CLC 589)dismissing the subrogated claim of the appellant (Mr Ibrahim) against the defendant bank Barclays was the principal lender to LDV, a well-......