Lombard North Central Plc v European Skyjets Ltd ((in Liquidation))
| Jurisdiction | England & Wales |
| Judge | Mr Justice Foxton |
| Judgment Date | 30 March 2022 |
| Neutral Citation | [2022] EWHC 728 (QB) |
| Docket Number | Claim No: QB-2013-006737 |
| Court | Queen's Bench Division |
[2022] EWHC 728 (QB)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
Royal Courts of Justice
Strand, London, WC2A 2LL
Mr Justice Foxton
Claim No: QB-2013-006737
Nicholas Craig QC and Charlotte Eborall (instructed by Addleshaw Goddard LLP) for the Claimant/Part 20 Defendant
Philip Coppel QC and Natasha Peter (instructed by Ballinger Law Ltd) for the Defendant/Part 20 Claimants
Hearing dates: 1 to 4, 7 to 8 and 10 March 2022
Further written submissions: 11 and 17 March 2022
Draft sent to parties: 18 March 2022
Approved Judgment
I direct that 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 HONOURABLE Mr Justice Foxton
A INTRODUCTION
This action arises out of a secured loan made by the Claimant ( Lombard) to the Defendant ( Skyjets) in respect of a Bombardier Learjet aircraft ( the Aircraft). In brief summary:
i) Lombard says it validly terminated the loan ( the Loan Agreement) on 8 November 2012, and thereafter has validly enforced its security over the Aircraft ( the Mortgage) by selling it for $3.1m (all $ figures in this judgment being US$). It claims what it says is the outstanding balance of some $5.78m.
ii) Skyjets and the other Part 20 Claimant ( Skytime and together with Skyjets, the Sky Parties) say that Lombard had no entitlement to terminate the Loan Agreement or sell the Aircraft, that in any event Lombard breached its duties as mortgagee when selling the Aircraft, and they counterclaim for damages in the sum of £26m for breach of contract and/or conversion.
It will be apparent from that brief summary that the first issue which arises is whether Lombard validly terminated the Loan Agreement so as to be able to take possession of the Aircraft under the Mortgage. If that issue is decided in Lombard's favour, it is then necessary to consider whether Lombard breached its duties as mortgagee when selling the Aircraft. If the termination issue is resolved in Skyjets' favour, then it is necessary to consider Skyjets' and Skytime's claims for damages.
The Sky Parties raised a significant number of issues in the course of their 120-page opening, many of which were not developed in oral opening or closing submissions, given the time constraints. I have focussed on the real issues between the parties, having regard to every point raised.
B THE WITNESSES
Lombard called two witnesses.
Mr Simon Hallows took over responsibility for Skyjets' account with Lombard in August/September 2012. I found Mr Hallows to be an honest witness. His memory of the detail of events of nearly 10 years ago was understandably limited, as he was willing to accept. He had no personal knowledge of events before he took over the file, his understanding of those events being derived from the documents, a hand-over discussion with Mr Kit Holding who had had responsibility for the file up to that point, and what might be termed the “institutional memory”. It is right to record that Skyjets came to Mr Hallows as a “problem” account, and he approached it throughout in those terms, viewing default and re-possession as realistic outcomes from the outset. That perception was honestly held and given Skyjets' repeated inability to pay instalments on time over many years, a view which it was reasonably open to him to take. However, it meant that some of his communications with Skyjets had a rather hard-nosed character, and that Skyjets did not get the benefit of any doubt.
As he acknowledged, and I as explain below, Mr Hallows made a significant error in the calculation of the amount required for Skyjets to comply with the asset coverage percentage ( ACP) requirement in an email of 8 October 2012. While Mr Hallows was right to state that this was not “the standard of work I would expect from myself or my colleagues”, I am satisfied the error was made in good faith and not dishonestly (as Mr Coppel QC suggested in closing). On the other key issues on which Mr Hallows' honesty was attacked, for reasons I explain below:
i) I am satisfied that Mr Hallows did honestly believe that Lombard was entitled to charge late payment fees as a condition of not exercising its right to terminate.
ii) I reject the suggestion that Mr Hallows wanted to influence the content of the independent accountant's report into the Sky Parties in October 2012 so as to produce an unfairly negative assessment.
iii) I reject the suggestion that Mr Hallows made a dishonest statement about the history of the ACP issue at the meeting of 8 November.
Lombard also called Mr Ian Cox of Lombard Asset Management ( LAM) who was involved in the subsequent sale of the Aircraft. Mr Cox was an honest witness who understandably sought to defend the process Lombard had followed. He joined LAM in December 2012, by which point the decision to appoint a sales agent to handle the sale, and the identity of the agent, had effectively already been taken. The issues which arise on this aspect of the case are essentially objective ones, and I deal with the evidence of Mr Cox (to the limited extent relevant) when addressing the complaints made about the sales process and outcome below.
The Sky Parties called Mr Westlake, the founder and principal mover behind the business. In some respects, I found Mr Westlake a sympathetic figure. He had clearly made a substantial financial and emotional investment in the Sky Parties' business, strongly believed in it, and found himself in an increasingly desperate position as the financial position of the Sky Parties worsened during 2011 and 2012. Under the pressures to which that financial deterioration gave rise, Mr Westlake sometimes resorted to disingenuous communications with the Sky Parties' creditors or stakeholders, or ignored communications, in an effort to keep the show on the road or to buy time. He remained optimistic throughout that if the Sky Parties' business could only survive, it would eventually prosper, an optimism which it became increasing difficult to reconcile with the harsh reality of the prevailing business environment. Under the pressures of cross-examination, there were also occasions when Mr Westlake resorted to dissembling rather than openly acknowledging unhelpful facts or events, and the ungrounded optimism which he had maintained throughout 2011 and 2012 was similarly apparent in his evidence as to the position the business would have been in had the Loan Agreement not been terminated.
For these reasons, I have approached Mr Westlake's evidence with a degree of caution. For all the witnesses, I regard the contemporary documents and the inherent probabilities as the most reliable guide.
C WAS LOMBARD ENTITLED TO TERMINATE THE LOAN AGREEMENT ON 8 NOVEMBER 2012?
C1 The factual background
C1(1) Delays in payment
Mr Westlake decided to establish a business which offered private jet charter services, and he incorporated Skytime for this purpose on 20 December 1999. On 30 April 2007, Mr Westlake incorporated Skyjets for the purpose of acquiring aircraft to be used in that business, and Skyjets set about raising funding. In August 2008, Lombard was approached to finance the greater part of the acquisition cost of the Aircraft, which Skyjets intended to acquire from Learjet Inc for $11.690m. That funding was provided through the Loan Agreement and the Mortgage, which were completed on 28 October 2008, and involved a secured loan to Skyjets of $8.771m to be repaid in 120 monthly instalments, with Lombard acquiring a first priority legal charge over the Aircraft. On 22 December 2008, the Loan Agreement was varied to provide for payment by Skyjets of 119 monthly instalments of $82,804.63, to be paid on the 28th day of every month. These obligations were guaranteed by Mr Westlake.
Skyjets acquired a second Learjet at a cost of $9,240,000, with the benefit of secured financing from Clydesdale Bank Plc (“the Clydesdale Aircraft”), although this had a lower passenger carrying capacity and range than the Aircraft.
The Civil Aviation Authority, the UK regulator, requires every aircraft operating commercially to have an Operator who holds an Air Operator Certificate. In the case of the Aircraft, a company called TAG was initially the Operator, but Manhattan Jet Charter Limited ( Manhattan) replaced TAG in early 2009. Skyjets was initially party to an engine reserve programme with the engine manufacturer Honeywell Inc ( Honeywell) under which regular payments were to be made into a fund which would be used to pay for any required work on the engine – the MSP Service Plan. Skyjets stopped making payments under the MSP Service Plan, which was terminated on 24 February 2010 with effect from 30 November 2009.
Skyjets failed to make the payment due under the Loan Agreement on 28 October 2009, and Mr Westlake sought unsuccessfully to negotiate a variation to the payment terms. There were further defaults in making timely and full payments for every month from January to October 2010, which led to the Skyjets' account being identified, and managed, within Lombard as an account of concern. By the end of October 2010, arrears under the Loan Agreement had reached over $421,000. There were exchanges between Lombard and Mr Westlake regarding proposals to pay off the arrears, and while these were ongoing, Skyjets made...
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