The Royal Bank of Scotland Plc v Michael Patrick McCarthy
| Jurisdiction | England & Wales |
| Judge | The Honourable Mr Justice Picken |
| Judgment Date | 21 December 2015 |
| Neutral Citation | [2015] EWHC 3626 (QB) |
| Court | Queen's Bench Division |
| Date | 21 December 2015 |
| Docket Number | Case No: 2MA91153 |
[2015] EWHC 3626 (QB)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
MANCHESTER DISTRICT REGISTRY
Royal Courts of Justice
Strand, London, WC2A 2LL
The Honourable Mr Justice Picken
Case No: 2MA91153
Ms Charlotte Eborall (instructed by Addleshaw Goddard LLP) for the Claimant
Mr Duncan Kynoch and Mr Steven Fennell (instructed by Teacher Stern LLP) for the Defendant
Hearing dates: 19, 20, 21, 22 and 27 October 2015
Introduction
This is a case which has as its backdrop the demise of the well-known and well-established Manchester firm of solicitors, Halliwells LLP ('the LLP'), previously known as Halliwell Landau ('Halliwells'), in 2010. I make it clear straightaway that the Defendant, Mr Michael McCarthy ('Mr McCarthy'), who became a Full Member of the LLP on 3 July 2007, when he and the LLP entered into the Limited Liability Partnership Deed (the 'LLP Deed'), and who remained a Full Member until 31 May 2010, had nothing whatever to do with the circumstances in which the LLP got into the difficulties which it did.
On the contrary, it was common ground at trial that, on joining the LLP, Mr McCarthy was led to believe that the LLP had only modest borrowings and that he knew nothing at any stage about the financial arrangements surrounding the LLP's move to new Manchester premises in Spinningfields, a move which had already taken place by the time that he became a Full Member. It was, therefore, common ground specifically that Mr McCarthy was unaware that the LLP's 32 Full Members at the time of the move had personally and handsomely profited from the move as a result of a reverse premium paid by the landlord of the new premises, whilst the LLP had had to take on borrowings in the order of £17.8 million to finance fit-out costs. Mr McCarthy referred, in cross-examination, to feeling "contempt" for the 32 members involved, whom he regarded as having been 'greedy' and as having acted contrary to what he considered to be the "cornerstone of partnership", namely "trust and faith", and it was this high level of debt which resulted in the financial difficulties which led to the LLP's demise, marked initially by the appointment of administrators pursuant to an administration order on 14 July 2010 and ultimately by a court order winding up the LLP on 13 January 2012.
In these proceedings the Claimant, The Royal Bank of Scotland PLC ('RBS'), seeks the repayment of the loan taken out by Mr McCarthy with RBS when he joined the LLP as a Full Member in order to finance his capital contribution in the sum of £120,000 pursuant to the LLP Deed. The loan took the form of an agreement which was described as a "Professional Practice Loan Scheme Agreement" (or 'PPL') and which was signed by Mr McCarthy on 1 November 2007 shortly after the LLP had provided RBS with an irrevocable letter of undertaking dated 29 October 2007 ('the LOU') under which the LLP undertook to repay Mr McCarthy's loan upon his ceasing to be a member of the LLP.
After only two years, in October 2009, the LLP gave Mr McCarthy 12 months' notice, requiring his compulsory retirement and placing him on gardening leave. The LLP agreed to pay Mr McCarthy's drawings whilst he was on gardening leave. Subsequently, however, Mr McCarthy and the LLP entered into a Retirement Deed on 5 March 2010 (the 'Retirement Deed'), under which it was agreed that Mr McCarthy's retirement date would be brought forward to 31 May 2010 and it was further agreed that the LLP would pay directly to RBS the £120,000 standing to the credit of Mr McCarthy's capital account on that date.
In the event, however, the LLP did not pay RBS this or any other sum of money, and that remained the position when the LLP went into administration in July 2010. Mr McCarthy's position is that the only reason why his capital was not repaid in accordance with the Retirement Deed and, indeed, pursuant to the LOU is that RBS actively prevented the LLP from repaying it. Specifically, Mr McCarthy points to the fact that RBS required the LLP to enter into a document described as a "Reservation of Rights Letter" (or 'ROR Letter') dated 16 April 2010 (albeit that it was never formally executed by the LLP), and so after the Retirement Deed had been executed by the LLP and Mr McCarthy, which contained an undertaking by the LLP not to repay the capital of any retiring Member of the LLP without first obtaining RBS's written consent. Mr McCarthy maintains that, notwithstanding the LLP's financial difficulties at the time, the LLP was in a position where it was able to repay his capital, in that it had sufficient 'headroom' in the facility which it had with RBS to enable it to pay £120,000, and that the only reason why there was no repayment was because RBS actively prevented it.
Mr McCarthy's case, therefore, is that, although under Clause 6.1 of the PPL he became obliged to repay the loan when he retired, on 31 May 2010, he is not liable to RBS primarily (although in opening this was Mr McCarthy's alternative case) because RBS induced the LLP to act in breach of its obligations under the Retirement Deed and/or the LOU and/or the LLP Deed to repay RBS the amount of his capital and thereby discharge Mr McCarthy's own liability to RBS under the PPL. Mr McCarthy also contended, ultimately in the alternative rather than as his primary case, that he is entitled to rely upon the Contracts (Rights of Third Parties) Act 1999 to enforce the LOU notwithstanding that he is a third party to the LOU. Where this contention, even if right, ultimately takes Mr McCarthy is a matter which will need to be explored. Next, it was submitted on Mr McCarthy's behalf that the PPL should be treated as containing an implied term that, as it was put in the Written Closing Submissions served on Mr McCarthy's behalf, "either party thereto will not do anything which will prevent performance of the terms of the contract". The submission made is that RBS thwarted performance of the repayment obligation contained in the PPL (an obligation which, it was submitted, was expressed in neutral terms) by inducing the LLP not to repay RBS the amount of his capital in breach of the Retirement Deed and/or the LOU and/or the LLP Deed. Lastly, although in opening this was his primary case, Mr McCarthy's case is that there was a collateral contract as between RBS and him arising from RBS's assurance, so it is argued, that it would require the LLP to provide the LOU so as to enable discharge of the PPL loan, and under which RBS undertook to call on the LLP, immediately on Mr McCarthy's retirement, to discharge the PPL loan in accordance with the terms of the LOU. It was submitted by Mr Duncan Kynoch and Mr Steven Fennell, on Mr McCarthy's behalf, that RBS failed to call on the LLP to discharge its obligation under the LOU, and that but for this failure there would have been no liability under the PPL.
Miss Eborall, counsel for RBS, took issue with each of the ways in which Mr McCarthy's case is put. She maintained that there is no defence to what is, in truth, a simple debt claim. Indeed, she referred to the fact that, in cross-examination, it was accepted by Mr McCarthy, himself a very experienced solicitor albeit specialised in insolvency law, that, but for the defences now relied upon, he is liable under the PPL. Miss Eborall went on to highlight how those defences have changed significantly from how the case was put in opening, not only because the inducement case has become Mr McCarthy's primary case but also because previously Mr McCarthy's primary case, based on collateral contract, had entailed the contention that there was a tri-partite contract as between RBS, Mr McCarthy and the LLP rather than a collateral contract only as between RBS and Mr McCarthy. Miss Eborall went on also to submit that there is no merit in any of the matters raised, specifically: (i) that the procurement of breach of contract case cannot succeed in circumstances where, so it is submitted, there is strong evidence that the LLP would not have repaid Mr McCarthy's PPL loan regardless of RBS's insistence that the LLP should enter into the ROR Letter; (ii) that Mr McCarthy's reliance on the 1999 Act is misconceived; (iii) that the case based on implied term is not sustainable; and (iv) that the collateral contract alleged did not exist.
These are matters to which I shall, obviously, have to return. First, however, I should say something about the witnesses who gave evidence at trial, and then set out some of the factual background.
The witnesses
A number of witnesses gave evidence before me. Mr McCarthy did so on his own behalf. There was no other witness called by him. For RBS, six witnesses were called: Lynne Kerr, at the relevant time a Senior Policy Analyst in RBS's Documentation Policy team; Peter Broughton, who in 2010 managed a team of private banking managers and who became Mr McCarthy's primary contact with the retail side of RBS; Grierson Banton, a portfolio management director in RBS's Corporate team who managed the banking relationship with the LLP from 2006; Dave Clark, a regional director in the Corporate Restructuring Unit (CRU) within RBS's Global Restructuring Group ('GRG'), who was the key RBS contact with the LLP in the period from April to June 2010; Peter Ballard, who between 2009 and 2010 was head of CRU and the person to whom Dave Clark reported; and Stephen Hair, a solicitor by training who worked at the relevant time in GRG's Recoveries & Litigation team.
As for the RBS witnesses, Mr Kynoch's and Mr Fennell's...
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