Clydesdale wins at High Court in claim against dishonest borrower

Published 7 marzo 2017

In a recent decision in Clydesdale Bank v Stoke Place Hotel Ltd (in administration) & Ors, the High Court has given judgment in favour of a bank seeking to recover money from a dishonest borrower.

Background

Over a period from 2008 to 2012, the Claimant bank ("Clydesdale") provided a number of facilities to companies run by Person X, through which Person X ran a group of hotels in the South East. During this period a Clydesdale employee ("Mr Seavers") made unauthorised facilities available to Person X's companies totalling over £17m. Person X's companies are now insolvent, with the result that Clydesdale was facing a large shortfall on its facilities. In a separate episode, in 2009 Clydesdale was persuaded to release security held over the assets of one of Person X's companies in order to facilitate a share sale. That share sale did not materialise, and instead Person X completed a re-financing of the company by means of a re-mortgaging of its principal asset, a hotel.

The Claims

The companies formerly run by Person X are all now insolvent. Clydesdale therefore brought claims against Person X personally. Separately, Clydesdale had brought a claim against Mr Seavers for his role in the unauthorised lending. Summary judgment against Mr Seavers was entered at a date before this hearing, and Mr Seavers appeared as a witness for Clydesdale.

Clydesdale made three claims:

The Guarantee claims: Clydesdale sued Person X on the basis of two personal guarantees given by Person X to Clydesdale in respect of lending to one of his companies in 2005 and 2008. The principal sums under the guarantees totalled £1.1m.

The Stoke Place claim: This claim related to the release of security secured by Person X in 2009. Person X persuaded Clydesdale to give up security it held over Person X's company's assets on the basis, so Clydesdale argued, of false representations made by Person X's solicitor ("Mr Bains") to the bank. Clydsedale's claim under this heading was therefore in deceit on the basis of Person X's responsibility for the false representations of his solicitor.

The unauthorised facilities claim: Clydesdale claimed damages from Person X for the facilities made available to him and his companies by Mr Seavers. Clydesdale's primary case was that Person X was well aware that the facilities were unauthorised and that he was party to a conspiracy to injure the bank by unlawful means.

The decision

Mr Justice Nugee has now given judgment in favour of Clydesdale on all of its claims.

• On the Guarantee claims, Person X was unable to make good his defence that Clydesdale had released the guarantees and that they were therefore unenforceable. In reaching this decision, Nugee J preferred the evidence of Mr Seavers to that of Person X in finding that at no stage had Mr Seavers told Person X that the guarantees had been released.
• On the Stoke Place claim, the judge granted a suitable declaration to reflect his finding that Person X was responsible as joint tortfeasor for the deceit consisting of the false representations made by Mr Bains to Clydesdale. The judge did not give any judgment on the loss that may have been suffered as a result of the false representations.
• On the unauthorised facilities, judgment was given against Person X for damages for conspiracy in the provisional sum of £12.7m. This decision was based on evidence from Mr Seavers that he had made it clear to Person X at an early stage that the facilities being granted were unauthorised. The judge found that Clydesdale had established its case in conspiracy against Person X on the bases of: (i) the combined objective of Person X and Mr Seavers to make Clydesdale's monies available to Person X's companies; (ii) the unlawful nature of Mr Seavers' acts in making these monies available in breach of his contractual and equitable duties to his employer; (iii) the intention to injure Clydesdale insofar as exposing it to risks Mr Seavers had no right to take; and (iv) the damage suffered by the bank in the sum of £17m as a result of Mr Seavers' actions. Person X was consequently found liable for damages.

Conclusion

This decision represents a complete victory for Clydesdale but highlights the risks faced by banks in the form of internal fraud. In the course of evidence it became apparent that internal procedures had not been sufficient to protect the bank against fraud perpetrated by one of its employees. Whether Clydesdale is able to recover its awarded damages from Person X awaits to be seen.