Ibrahim v Barclays Bank Plc
| Jurisdiction | England & Wales |
| Judge | Rimer,McFarlane,Lewison L JJ |
| Judgment Date | 16 May 2012 |
| Court | Court of Appeal (Civil Division) |
| Date | 16 May 2012 |
[2012] EWCA Civ 640
Court of Appeal (Civil Division).
Rimer, McFarlane and Lewison L JJ.
Romie Tager QC and Hugh Jackson (instructed by Winckworth Sherwood LLP) for the appellant.
Patrick Goodall and Rupert Allen (instructed by Addleshaw Goddard LLP) for the respondent.
The following cases were referred to in the judgment:
Brook's Wharf and Bull Wharf Ltd v Goodman BrosELR[1937] 1 KB 534.
Caledonia North Sea Ltd v British Telecommunications plc[2002] CLC 741.
Commercial Banking Co of Sydney Ltd v Jalsard Pty LtdELR[1973] AC 279.
Electricity Supply Nominees Ltd v Thorn EMI Retail Ltd(1992) 63 P & CR 143.
Exall v PartridgeUNK(1799) 8 Term Rep 308; 101 ER 1405.
Moule v GarrettELR(1872) LR 7 Ex 101.
Owen v TateELR[1976] QB 402.
Rowe, ReELR[1904] 2 KB 483.
Simpson v EggingtonENR(1855) 10 Ex 845; 156 ER 683.
Banking Guarantee Counter-indemnity Letter of credit Payment under letter of credit discharged debtor's obligations under counter-indemnity Guarantor's rights under realisation 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).
Barclays was the principal lender to LDV, a well-known van manufacturer in the Midlands. As at May 2009 LDV's overdraft was about 8.5 million and there were outstanding loans of 1.6 million. Barclays had the benefit of various securities, together with a guarantee from LDV's parent for the overdraft up to 8.5 million.
Mr Ibrahim controlled a Malaysian company (Weststar) which distributed LDV's vehicles in south east Asia. He was interested in arranging for Weststar to buy LDV's business. The British government was also keen to see LDV survive.
The decision of the directors of LDV to petition for its administration prompted discussions between the Department of Business, Enterprise and Regulatory Reform (BERR), Weststar and LDV, with the consequence that Weststar agreed to purchase LDV.
The following further arrangements were also put in place: Barclays agreed to provide further finance up to 2.5 million guaranteed by BERR; LDV agreed by way of counter-indemnity to pay BERR on demand all sums paid by BERR or demanded by Barclays under the BERR guarantee; Mr Ibrahim arranged for a letter of credit to be issued by UBS in favour of BERR and agreed to indemnify UBS; Barclays and BERR agreed in a realisation agreement that the first 3.2 million of recoveries in LDV's insolvency would be shared equally between them; and any surplus over 3.2 million would go to BERR until such time as it had been repaid in full for any liability incurred under the BERR guarantee.
In the course of conducting its due diligence Weststar decided not to proceed with the acquisition of LDV. LDV went into administration, having drawn down just over 1.4 million of the new finance. BERR paid that sum to Barclays underthe guarantee and demanded payment from LDV under the counter-indemnity. BERR also demanded payment from UBS under the letter of credit, and was paid. Mr Ibrahim repaid UBS under his indemnity.
Mr Ibrahim claimed to be entitled to share in the recoveries made by Barclays in the same way as BERR would have been entitled to share in them. Barclays contended, and the judge agreed, that once UBS had paid BERR, BERR had no further right to share in Barclays' recoveries and Mr Ibrahim's claim failed.
After trial the Secretary of State executed an assignment of his rights arising out of or in relation to the realisation agreement and the counter-indemnity to Mr Ibrahim. Notice of the assignment was given to Barclays and Mr Ibrahim obtained permission to introduce the assignment into evidence on the appeal. The issues about subrogation therefore fell away and the only issue was whether payment by UBS to the Secretary of State discharged LDV's obligations under the counter-indemnity.
Helddismissing the appeal:
1. The authorities justified the propositions that payment by a third party to a creditor under legal compulsion on account of a debt owed by a debtor would automatically discharge the debtor's debt; and that that was the case even if the legal compulsion arose out of a contractual obligation voluntarily assumed by the third party. Where the case was one of payment under compulsion, questions of agency, authority and ratification did not arise. UBS had paid the Secretary of State under compulsion.
2. The principle of the autonomy of letters of credit did not preclude looking at the terms of the letter of credit to see what it was that UBS was paying. The letter of credit said that it was issued in favour of the Secretary of State covering credit facilities provided by yourselves to [LDV]. Thus LDV was the only potential debtor identified in the terms of the letter of credit. The triggering event was certification by the Secretary of State that the amount demanded represents and covers the unpaid sums due to yourselves by [LDV]. The judge was right to hold that the word cover in this context meant discharge, rather than is sufficient to discharge. In addition to certifying that the amount demanded covers the amount unpaid by LDV, the certificate also had to say that the amount demanded represents that amount. If it represented the amount unpaid by LDV it followed that as between LDV and the Secretary of State it had the legal consequences of a payment by LDV. Moreover, the payment made by UBS was undoubtedly on account of LDV's debt in the sense that it was referable to that debt and to nothing else. That was sufficient to bring the compulsion principle into play.
3. A payment to a creditor made under an indemnity would discharge any liability to indemnify under an equal or co-ordinate indemnity. Even if the letter of credit were to be characterised as an indemnity, it could only be an indemnity co-ordinate with LDV's counter-indemnity. (Caledonia North Sea Ltd v British Telecommunications plc[2002] CLC 741 applied.)
5. The Secretary of State could have sued LDV for the amount that he had been required to pay to Barclays plus the other amounts that LDV was liable to pay under the counter-indemnity; LDV would have had no answer to that claim; the claim against UBS was for the same amount computed in the same way, and was in respect of the same action on the part of the Secretary of State, i.e. payment to Barclays plus the other amounts recoverable under the counter indemnity. In the circumstances, as the judge held, the payment by UBS discharged LDV's liability to the Secretary of State under the counter-indemnity, as well as any liability that LDV might have had to the Secretary of State under principles of subrogation. It followed that once UBS had paid the Secretary of State, the guarantor liabilities as defined in the realisation agreement had been paid and discharged in full; and the Secretary of State's rights under the realisation agreement came to an end. There was, therefore, nothing for him to assign to Mr Ibrahim and no rights to which Mr Ibrahim had become entitled. (Electricity Supply Nominees Ltd v Thorn EMI Retail Ltd(1992) 63 P & CR 143applied.)
1. The only remaining issue in this appeal is whether a debtor's liability to his creditor is discharged when the creditor recovers an equivalent amount to the debt from a bank that has provided a standby letter of credit.
2. The factual background is as follows. LDV Group (LDV) was at the relevant time a well-known van manufacturer in the Midlands. It was an important regional employer. Since 2005 it had been owned by GAZ International Ltd (GAZ). However, it had run into chronic cash-flow difficulties and had suspended production in about December 2008. Although its cash-flow position was poor, it had assets; and it was thought that their value exceeded its liabilities. It was also hoped that if it could raise working capital it would shortly be able to restart production. GAZ was looking to sell LDV. But it was unwilling to put more money into the business. The demands of LDV's numerous creditors, and its outgoings, meant that it had an immediate cash need of the order of 1 million per week to keep afloat pending some form of disposal and refinancing of the business.
3. Barclays Bank plc (Barclays) was the principal lender to LDV. It had provided both overdraft facilities and equipment finance loans. As at May 2009 the overdraft was of the order of 8.5 million and the finance loans were of the order of 1.6 million. Barclays had the benefit of various securities for their loans, in the shape of a charge over land and a debenture over LDV's assets, together with a guarantee from GAZ for the overdraft up to 8.5 million. But it was also unwilling to put more money into the business.
4. Weststar LDV Sdn Bhd (Weststar) was a Malaysian company. It was already familiar with LDV's vehicles, having enjoyed arrangements with LDV since 2006 for the purchase of vehicles for import to, or manufacture in, Malaysia, as well as distribution rights in South East Asia, Australia and New Zealand. Mr Ibrahim, who was himself a successful businessman, was the controller of Weststar. He was interested in arranging for Weststar to buy LDV's business. The British government were also keen to see LDV survive. However the government were unwilling at the time to finance LDV pending its sale.
5. Ultimately the directors of LDV decided that they had no choice but to petition for the administration of LDV. That petition was to be heard on 6 May 2009. The imminent petition prompted a flurry of activity. The British government in the shape of the Department of Business, Enterprise and Regulatory Reform (BERR) modified its position. If GAZ were out of the way it might be prepared to assist with the interim financing of LDV. Discussions followed between BERR, Weststar and LDV, with the consequence...
To continue reading
Request your trial