Ventra Investments Ltd (in Creditors Voluntary Liquidation) v Bank of Scotland Plc
| Jurisdiction | England & Wales |
| Judge | Ms Sara Cockerill |
| Judgment Date | 03 March 2017 |
| Neutral Citation | [2017] EWHC 199 (Comm) |
| Date | 03 March 2017 |
| Court | Queen's Bench Division (Commercial Court) |
| Docket Number | Case No: CL-2015-000559 |
2017 EWHC 199 (Comm)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Royal Courts of Justice, Rolls Building
Fetter Lane, London, EC4A 1NL
Ms Sara Cockerill QC
(sitting as a Deputy Judge of the High Court)
Case No: CL-2015-000559
Stephen Davies QC (instructed by Hausfeld & Co LLP) for the Claimant
Rosalind Phelps QC and Rupert Allen (instructed by DLA Piper UK LLP) for the Defendant
Hearing dates: 26 January 2017
Judgment Approved
Ms Sara Cockerill QC:
By an application dated 26 October 2016, the Defendant ("BOS") seeks to strike out parts of the Particulars of Claim because they are immaterial to the pleaded causes of action or seek to reserve the position on unpleaded causes of action but nevertheless have the potential to increase very substantially the disclosure burden and evidential scope of the proceedings. Summary judgment dismissing a part of the claim on limitation grounds was also sought, but was withdrawn on agreed terms before the hearing.
In essence the claim relates to the purchase by the Claimant ("Ventra") of four replacement interest rate swaps ("the Replacement Trades"). Ventra alleges that it was induced to enter into the Replacement Trades by alleged negligent and fraudulent misrepresentations or negligent misstatements and negligent failure to provide an adequate explanation of the nature and effect of the swaps. The key period for these purposes is between September 2008 and February 2009.
The relevant factual background is as follows. Prior to the events giving rise to the claim, Ventra, a family owned company, operated a successful property investment and letting business that had a substantial portfolio of properties, principally in central London. As at February 2008, the value of this portfolio was in excess of £86 million. When it entered administrative receivership on 16 May 2011, Ventra owned some 99 properties and was indebted to BOS in the amount of almost £94 million. It is now in liquidation.
BOS began to provide lending services to Ventra in 1997. Over the period 2004–2008, BOS made 10 loan facilities available to Ventra (some fixed term loans and other credit facilities).
In connection with that borrowing, Ventra entered into a number of interest rate swaps with BOS. Ventra entered into three swaps with BOS on 23 June 2005, 6 February 2007 and 4 February 2008 ("the Original Trades"). The Original Trades were replaced by the Replacement Trades entered into between 1 October 2008 and 6 February 2009.
This claim is concerned with the circumstances in which Ventra entered into the Replacement Trades. Ventra's claim against BOS is put in three different ways.
First, it is alleged that BOS induced Ventra to enter into the Replacement Trades by making negligent misrepresentations to the effect that:
i) There was "significant value" in the Original Trades that could only be accessed if Ventra embedded that value in the Replacement Trades; and/or
ii) BOS was unwilling at that time to accept a proposal from Ventra to increase the amount of Ventra's term loan borrowing from BOS to replace its revolving credit facilities (described in the Particulars of Claim as "the Proposed Increase"), but that the prospects of BOS granting the Proposed Increase would be improved if Ventra entered into the Replacement Trades.
In this connection I should note that part of the pleading as to the representations relates to something called the "Continuity Assurances". These are pleaded separately at paragraph 21 of the Particulars and are, in essence, that during 2008 representations were made by BOS that Ventra was regarded by BOS as a "good" customer whose relationship would be likely to be retained, but that when Ventra's facilities came to be considered for renewal it would be advisable for it to take such steps as were necessary to enhance its status as a "good" customer.
The falsity of the representations is pleaded to at paragraph 37 of the Particulars. It is alleged:
i) None of the Original Trades had any embedded value to Ventra;
ii) There were other reasons for the short term reduction in interest rates payable under the Replacement Trades;
iii) BOS had no intention of sanctioning an increase in Ventra's loan facilities.
Importantly for present purposes it is also alleged that "until after disclosure, [Ventra] reserves the right to plead that BOS had no intention to continue the relationship with [Ventra]". This is a step back both from the draft Particulars and from the pleading summary served pursuant to paragraph C1.1 of the Commercial Court Guide which both asserted a full case in falsity.
The other facets of the case are not central to this application, but should be outlined briefly. Secondly, it is alleged that BOS negligently failed to provide a full and accurate explanation of the nature and effect of the Replacement Trades and, in particular, as to the long-term effect of a fall in interest rates on the Replacement Trades (in particular, as regards the potentially increased level of break costs). Thirdly, it is alleged that BOS induced Ventra to enter into the Replacement Trades by making fraudulent or negligent misrepresentations in relation to LIBOR.
The focus of the current application is very much on the way in which Ventra puts its first case. Some of the passages of which strike out is sought are said by Ventra to be relevant to the second way in which Ventra puts its case but neither party suggested that those passages were relevant to the third way of putting the case.
Ventra claims that it has suffered loss and damage as a result of entering into the Replacement Trades. Its case is that the cost of the Replacement Trades was essentially the cause of Ventra's failure. If it had not entered into the Replacement Trades, it would have terminated one of the Original Trades at a cost of approximately £1.5 million in or about June 2009. It refers to this course of action as "the Termination Strategy". Ventra claims that this would have improved its cash flow so as to generate a quarterly cash flow surplus. Ventra says, however, that it could not pursue the Termination Strategy because it had entered into the Replacement Trades and as a result it was transferred to BOS's Business Support Unit ("BSU") in or about May 2010. Administrative receivers were appointed by BOS on 16 May 2011.
Ventra claims that it has paid about £5.5 million more to BOS under the Replacement Trades than it would have done if it had adopted the Termination Strategy and in addition that it has suffered further consequential losses of just under £75.5 million, including losses suffered because of an alleged sale of Ventra's property portfolio by the administrative receivers at an undervalue for which BOS is said to be liable.
BOS denies that it has any liability to Ventra. BOS's position is that it did not make the alleged misrepresentations to Ventra and/or that Ventra was not induced to enter into the Replacement Trades by the alleged misrepresentations. BOS also denies that it acted negligently in breach of any common law duty of care that it owed to Ventra. In any event, BOS contends that any claim for negligence in respect of two of the Replacement Trades (Swap 6 and Swap 7) is time-barred. It is further denied that BOS made any misrepresentations to Ventra in relation to LIBOR or that they induced Ventra to enter into the Replacement Trades or that BOS acted fraudulently or negligently as alleged. Finally, BOS says that if it has any liability to Ventra it is entitled to set off the sum of around £30 million still owing to it from Ventra in relation to its borrowing. In sum, BOS says that this is a relatively clear and narrow dispute, which should be capable of being tried without a vast panorama of factual issues.
The basis of this application to strike out is that BOS say that there are within the Particulars of Claim, principally in sections D and K, a number of very general and wide-ranging allegations about the effect of the global financial crisis on BOS, BOS's acquisition by Lloyds Banking Group ("LBG"), the involvement of the Government in effecting rescue measures for the banking sector and the measures taken to remove riskier assets from LBG's balance sheet.
They contend that these allegations are irrelevant to the central issues of whether in fact the alleged representations were made to Ventra or not and, if so, whether they were false and caused Ventra to enter into the new swaps and/or of whether BOS provided an adequate explanation of their nature and effect. BOS has not pleaded to these allegations in its Defence pending the determination of this application.
It is part of BOS's case that dealing with these allegations would impose a very heavy burden on BOS in terms of time and costs at each stage of the proceedings, especially in giving disclosure and preparing witness evidence and that if pursued, the allegations will also significantly increase the length of the trial, without in any way assisting the Court to resolve the factual issues between BOS and Ventra.
BOS also note in connection with their application that this is a case with limitation issues already. They are concerned that allegations which are not strictly relevant may be used as a springboard for arguing in the event of some future amendment to introduce a new cause of action, that the claim arises out of the same or substantially same facts and thus falls within CPR 17.4. It would therefore be wrong, they say, to leave matters which are extraneous to the current pleading in when the result might be to open this door to Ventra. This concern arises from the fact that prior to service of the Particulars of...
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