Loan - appeal against the decision of the Master - application to admit fresh evidence and costs

[2022]JRC072

Royal Court

(Samedi)

18 March 2022

Before     :

Sir William Bailhache sitting as a single judge

 

Advocate W. A. F. Redgrave for the Appellants.

Advocate K. L. Hooper for the Respondent.

REISSUED judgment

the COMMISSIONER:

INTRODUCTION

This judgment has been re-issued on 18 March 2022. It was circulated in draft on 25 February 2022 and comments received back from the Respondent on 28 February 2022. Subsequently it was issued by the Bailiff’s Chambers as a result of a clerical error on 2 March 2022, the Commissioner not having approved it and not having had the opportunity of taking into account Counsel’s comments. Those comments now having been reviewed, the Commissioner has considered whether he is functus officio in relation to this judgment. In the circumstances that the judgment was issued on 2 March by administrative error, not being of his making, he has reached the conclusion that he is able to correct it. Neither counsel advances the view he is not able to do so. As a result, the judgment is reissued with this date, taking into account the comments of counsel as well as some minor revisions of my own by way of clarification.

Background

1.        The Respondent has brought proceedings against the Appellants pursuant to the provision of a loan to the First Appellant of the sum of £2,400,000.00 agreed by a facility letter issued on 19 June 2007, with a number of guarantees given by the Second to Fourth Appellants, some of which predate the facility letter.  A formal demand was made by the Respondent to the First Appellant for immediate repayment of the loan on 15 January 2019; a second demand, with updated quantum figures, in the sum of £2,094,350.86, was issued on 17 November 2020.  Neither demand has been satisfied and proceedings were issued by a Summons dated 13 January 2021.

2.        The Summons was placed on the pending list and particulars of the claim filed on 19 February 2021.  The answer and counterclaim was filed on 16 April 2021 and shortly thereafter an application for summary judgment was issued by the Respondent.  This came before the Master on 8 September 2021.  At the heart of the defence lies a contention on the part of the Appellants that one or more of them had an unresolved claim against the Respondent for damages and consequential loss relating to the mis-selling of an interest rate swap.  The amount of the counterclaim is said to be £9.7m plus interest.

3.        In the skeleton argument for the Respondent before the Master, it was argued that summary judgment should be granted for two reasons:

(i)        Any counterclaim is time barred; and

(ii)       Even if there were a valid counterclaim, such a claim for unliquidated damages could not be set off against the Respondent’s reliance upon a legal hypothec in its favour, even if the value of the claim for unliquidated damages exceeded the amount of the loan made with the security of the hypothec.

4.        The Master considered that the claims by the Appellants were time barred, and accordingly provided no defence to the action.  He thus granted to the Respondent summary judgment on that ground.  He specifically did not grant summary judgment on the basis that an equitable set off is unavailable in Jersey for counterclaims against a secured lender of funds.

5.        In addition, the Master awarded the Respondent its costs on an indemnity basis, not because he was expressing any displeasure at the way in which the Appellants had conducted the matter before him, but simply because he considered the Respondent was entitled to indemnity costs by virtue of its agreements with the Appellants. 

The Counterclaim

6.        In response to the counterclaim, the Respondent had these two primary arguments:

(i)        The First Appellant and the Respondent had entered into a Settlement Agreement dated 21 February 2014, which contained this language:

“If you accept this offer, then the settlement between us will be a full and final one in relation to any claim or complaint arising out the sale of the Swap.  By accepting it, you will be agreeing that you could not then bring a claim or complaint whatsoever against HSBC Bank PLC, or any other HSBC company to a regulatory body or Court, whether in Jersey or elsewhere, arising out of or relating to the Swap, your decision to purchase the Swap or any dealing with HSBC in relation to the Swap, whether before, during or after the life of the Swap.  However, you remain fully entitled to bring such a claim or complaint in relation to consequential losses arising from the sale of the Swap which will be fully investigated by HSBC notwithstanding this agreement.  For the avoidance of doubt HSBC will assess a consequential loss claim and (if appropriate) will offer redress in accordance with accepted legal principles for recovery”.

It followed that the counterclaim was limited to a claim for consequential losses, because a claim in respect of the mis-selling itself had been compromised.

(ii)       Pursuant to that agreement between the parties, the consequential loss claim was assessed by an independent firm of English solicitors, who dismissed it.  This process, as set out by the Master, was described as an “independent review” with the outcome of the review being binding on HSBC only.  It follows that the Appellants were not obliged to accept the outcome and the First Appellant challenged the process and outcome with a complaint to the Channel Islands Financial Ombudsman.  A determination was issued by the Ombudsman on 7 November 2019, in summary dismissing the First Appellant’s complaints.  A standstill agreement had been made between the First Appellant and the Respondent in respect of the consequential loss claim which initially expired on 30 November 2017, but it may be – and there is no finding one way or another in that respect at this stage - that in correspondence it was by subsequent agreement extended until 6 weeks from the date of the Ombudsman’s final determination. The Respondent relied on the assertion that this claim for consequential loss was a claim for breach of the contract in 2007, that 10 years from that date was the relevant prescription period and that the facts set out above demonstrated that the Appellants had been aware of their ability to bring a consequential loss claim but had not done so. Accordingly, the Respondent contended that the relevant time limit, extended by the standstill agreements referred to, expired at the very latest 6 weeks after 7 November 2019, i.e. on 19 December 2019.

7.        The Master accepted that if the claim for consequential loss were a claim in contract, the relevant claims would need to be brought within 10 years of the date of the alleged breach.  Thus he said that the claims in contract were prescribed because the date of the breach was the date when the original borrowing was entered into or guaranteed, even if the quantification of losses could not occur until a later date.  He held that this was not a case where prescription should be suspended on the basis of an empêchement de fait.  The fact that the Appellants had put their quantification of loss to the independent third-party solicitors made it plain that no empêchement could be relied upon.  Thus he held that the claims were prescribed and should be struck out because they were bound to fail.

8.        It is against that decision that the Appellants appeal and seek leave to adduce fresh evidence on appeal.

Fresh evidence

9.        The Appellants have applied to admit fresh evidence namely an affidavit sworn by the Fourth Appellant on 10 December 2021, the Fourth Appellant being the sole director and sole shareholder of the other Appellants.  No evidence had been adduced before the Master by the Appellants, and the evidence contained in the affidavit now sought to be admitted is said to be such that, had it been admitted, the Master would have ruled differently on the counterclaim and allowed it to proceed to trial.  In short, the Fourth Appellant’s affidavit, which runs to 12 pages with a further 162 pages of exhibits, is said to provide evidence justifying reliance on an empêchement de fait namely, that the Fourth Appellant was unaware that he had been mis-sold a Swap product (as opposed to being charged an incorrect amount under it) until 2012.  Accordingly, it is said that the Appellants could not have appreciated that they had a claim for consequential loss arising out of that mis-selling until that point, and time did not start running until then.

10.      That contention was not aired before the Master, who naturally could not consider it.

11.      I indicated at the outset of the hearing that I was minded, subject to anything which might be urged upon me by the Respondent, to accept that the affidavit would be allowed in.  The purpose of giving that indication was to avoid further expensive argument.  After a short adjournment, for the purpose of enabling the advocates to take instructions, Advocate Hooper (having been unable to obtain instructions during that adjournment) indicated that she wished to address me, which she did.

12.      In summary, her contention was that although there was a wide discretion on appeal from the Master, the Royal Court may be guided by the practice applied for the admission of fresh evidence in the Court of Appeal, and, in particular, in the English case of Ladd v Marshall [1954] 1 WLR 1489, in which Denning LJ, said this:

“The principles to be applied are the same as those always applied when fresh evidence is sought to be introduced.  In order to justify the reception of fresh evidence or a new trial, three conditions must be fulfilled; first it must be shown that the evidence could not have been obtained with reasonable diligence for use at the trial; second, the evidence must be such that, if given, it would probably have an important influence on the result of the case, although it need not be decisive; third, the evidence must be such as is presumably to be believed, or in other words, it must be apparently credible although it need not be incontrovertible.”

13.      In support of her contention that this was an appropriate approach to take to the decision as to whether to allow the affidavit from the Fourth Appellant to be admitted on this appeal, Advocate Hooper relied upon two cases – the first was Campbell v Campbell [2016] JRC 190 where the Court considered Ladd v Marshall in the context of the application of the Court’s discretion to admit new evidence post hearing but pre judgment.  In that context, the Court also had regard to the comments of Neuberger J, in Charlesworth v Relay Roads [2000] 1 WLR 230 at 295 F where the learned judge indicated that the Ladd v Marshall factors were very much at the forefront of the Court’s mind when considering an application to admit new evidence after judgment has been handed down, but the Court was entitled to be rather more flexible in cases where the final order had not been drawn up. 

14.      Advocate Hooper also relied on dicta of Sir Peter Crill, Commissioner, in Murphy v Collins [2000] JLR 276 where reference was made first to commentary in the Supreme Court Practice 1999, paragraph 58/1/3 at page 967:

“.… It is common practice for the Judge in Chambers, subject of course to the question of costs, to admit further or additional evidence by affidavit to that which was before the Master or District Judge; but if a party has taken his stand on the evidence as it stood before the Master or District Judge, the Judge in Chambers may in his discretion, by analogy with the practice in the Court of Appeal, refuse to allow him to adduce further evidence…”

15.      Crill, Commissioner, then referred to Marsh v Marsh [1993] 1WLR 744, [1993] 2 All ER 794 where the WLR headnote describes the case as follows: -

“Held, allowing the appeal, that, under rule 8.1 of the Family Proceedings Rules 1991, on an appeal from the district judge the circuit judge should exercise his own discretion but might give such weight as he thought fit to the manner in which the district judge had exercised his discretion; that no party had an unfettered right to begin entirely de novo but was subject to the discretion of the judge as to the admission of further evidence and the reopening of matters already determined by the district judge; that in exercising that discretion the judge would consider whether such evidence was credible and relevant; and that the matter would be remitted to the judge to proceed with the substantive appeal in the light of the court’s ruling.”

16.      The Commissioner found the words of Brown, P. most helpful (ibid., at 753):

“It follows that (1) the judge should exercise his own discretion but may give such weight as he thinks fit to the manner in which the district judge exercised his discretion. (2) No party shall be entitled as of right to adduce further evidence or oral evidence but the judge may in his discretion admit such further or oral evidence as he thinks relevant and just upon such terms as he thinks fit”.

17.      The Commissioner concluded:

“This is not a de novo hearing. Nonetheless this court, in my view-and the Royal Court has always taken this view in a long line of cases-will not have its discretion fettered unless there is clear reason for doing so. I therefore rule that this court has an unfettered discretion to conduct an appeal from the Judicial Greffier [or the Registrar of the Family Division] as it thinks the circumstances and justice of the case require.”

18.      Campbell was a case where there was an application to admit new evidence after the end of a trial but before the judgment had been circulated in draft or handed down.  I do not need to consider whether the Ladd v Marshall principles would be rightly applicable in such a case, because it is in any event a different procedural question from the one which appears here, namely an appeal against a decision of the Master.  Murphy v Collins concerned an appeal against a decision of the Registrar of the Family Division, who in strict terms is a Greffier Substitute and therefore of similar status to the Master.  The case is probably now of rather more limited application, give the decision of this Court in Downes v Marshall [2010] JLR 265.  That case involved an appeal against an order of the Deputy Family Registrar who had awarded 53% of the matrimonial assets to the appellant husband and 47% to the respondent wife.  The husband appealed challenging the Registrar’s exercise of discretion as to what was a fair distribution of capital between the parties, and he did not suggest that the Registrar had made any error of law.  One question which arose was the nature of the appeal.  Having referred to Murphy v Collins, the Court concluded an appeal should only be allowed if there had been a procedural irregularity, or if, in exercising discretion, the Family Registrar had taken into account irrelevant matters, or ignored relevant matters, or otherwise arrived at a conclusion which the Court believed to be wrong.  That test, which is not the same test as the test applied on an appeal from the Royal Court to the Court of Appeal, reserved a wider discretion for the Royal Court to intervene but it nonetheless placed greater weight on the Registrar’s exercise of discretion. 

19.      There is no doubt that an influential factor in considering the test was that of proportionality – the matrimonial dispute had consumed 4 days of expensive legal time before the Registrar and 1½ days before the Royal Court; and it was unattractive that a system should be in place which effectively encouraged litigants to try for a better solution on appeal, with a fresh bite of the cherry.  It should be emphasised that the comments of the Court in Downes v Marshall are expressly limited to cases on appeal from the Family Registrar.  In other cases of appeal from the decisions of the Judicial Greffier or the Master, the old rule as summarised by the Royal Court in Murphy v Collins continues to apply, no doubt substantially because hearings before the Master and the Judicial Greffier are procedural hearings, rather than substantive hearings where viva voce evidence is heard and assessed.

20.      In my judgment, the Ladd v Marshall principles, which are regularly applied in the Court of Appeal on appeals from this Court, are not directly applicable to appeals to this Court from the Master.  To adopt that course would be inconsistent with the long standing approach of this Court in relation to appeals from the Judicial Greffier where the Royal Court’s discretion has been held to be unfettered, subject always to giving proper weight to the views expressed below.  Nonetheless, in my judgment there is much to be said for the practice referred to in the Supreme Court Practice 1999, cited above, that the Royal Court, like the judge in chambers, may well not permit new evidence to be admitted if the party making that application has taken his stand on the evidence as it was below; or indeed if the evidence which he sought to have admitted on appeal was contradicted by the evidence which had been submitted below and which he had not criticised there.

21.      I was taken through the various communications between the Master and the parties following the issue of the application for summary judgment in April 2021.  In summary, those communications showed that the Master had given the Appellants every opportunity to apply properly for an adjournment, if that was what was sought, and/or to provide evidence dealing with the assertions made by the Respondent as to why summary judgment should be given.  In fact, the Appellants did not provide any medical evidence to support the application for an adjournment, and, notwithstanding that the Fourth Appellant had had plenty of time to respond to the allegations of the Respondent, no evidence in support was provided.  Unsurprisingly, on the evidence available to him, the Master concluded that it was right to dismiss the application for an adjournment and conclude that the substantive application for summary judgment should be granted.  In that connection, the Master was undoubtedly not assisted by the fact that the Appellants were neither represented nor was the Fourth Appellant present.

22.      The circumstances before me are different.  An explanation has been given, with medical evidence, which explains the failure to provide appropriate evidence to the Master.  As Advocate Redgrave submitted, it is clear that the Fourth Appellant was unwell and unable to take decisions: as a result he made a bad decision not to face up to the problem and instruct lawyers.  I accept the submission that he should not suffer completely for that mistake, as the bank has submitted, and be prevented forever on that ground from bringing his claim for consequential loss.  The question is what is necessary to do justice, and I have no doubt that I should grant the Appellants leave to file the affidavit sworn by the Fourth Appellant in December 2021.

23.      In the course of her submissions, Advocate Hooper asserted that the witness statement filed by the Fourth Appellant in the independent review proceedings and indeed his letters to the Respondent on 17 March and 25 May 2010 revealed that he was aware he had a consequential loss claim by at least 25 May of that year and probably earlier. He had realised in 2007/8 that the interest charges increased as a result of the swap and indeed the fact that he threatened legal proceedings in that year showed he was aware of his potential claim. I do not find it necessary to deal with the merit of those submissions in the context of the application to file fresh evidence and no doubt they will be renewed when the appeal comes on for hearing.

24.      The appeal will therefore proceed to a hearing and I note that a date has been fixed for 20 June 2022.  It is clear that the answer and counterclaim needs to be amended.  I ordered the Appellants to make an application for such amendment by 18 February, with leave to the Respondent to file and serve evidence in response to the affidavit of the Fourth Appellant by close of business on 18 March 2022.

Costs

25.      The Respondents contended that they should have the costs of and occasioned by the application to rely on the affidavit of the Fourth Appellant and indeed of the hearing generally on an indemnity basis pursuant to the contract between the parties.  In that connection, the facility letter sets out these terms:

“11.     Costs and Expenses

(a)       The Borrower will pay to the Bank the amount of all costs and expenses (including any legal, security and valuation fees), stamp duty, taxes and other charges and registration costs incurred or charged by the Bank in connection with:

(i)        the negotiation, preparation, administration, amendment, variation, replacement or supervision of the Facility, the Facility Letter and/or any Security; and

(ii)       the enforcement of or the preservation of any rights under the Facility Letter and/or any Security and any proceedings instituted by or against the Bank as a consequence of taking or holding the Security or enforcing these rights. 

(b)       The Bank will debit these costs to either the Borrower’s current account with the bank or the Borrower’s loan account with the Bank as agreed between the Borrower and the Bank.  The Bank will advise the Borrower of the amount of such costs before they are debited.

12.      Indemnity

(a)       The Borrower will indemnify the Bank on demand against any cost, loss or liability incurred by the Bank as a result of the occurrence of any Termination Event.

(b)       The Borrower will indemnify the Bank on demand against any cost, loss or liability incurred by the Bank in connection with or arising out of:

…………..

including:

·         those incurred in connection with any litigation, arbitration or administrative proceedings or regulatory inquiry concerning the Loan or its application; or

·         …..”

26.      I do not consider that these provisions enable the Respondent to have its costs of and incidental to the appeal or the application to admit further evidence on appeal, whether on an indemnity basis or otherwise.  I well see that the Respondent is entitled pursuant to the contract to claim indemnity costs in respect of any litigation to enforce its security in respect of the facility letter or the guarantees.  The litigation which the Respondent has commenced falls in that category; but the litigation with which the Court has been concerned on this appeal does not fall in that category at all.  This is litigation about a counterclaim which the Appellants have against the Respondent.  In my judgment, it falls outside the provisions set out in clauses 11 and 12 of the facility letter.  The more accurate way of looking at the present litigation is that the Respondent would be entitled to a judgment in respect of its claims under the facility letter and guarantees, but such a judgment could not be enforced without leave, and that leave would not be granted until the conclusion of the proceedings concerning the counterclaim for consequential loss.  That approach has not been advanced before me by either party, but it seems to me to be the position which reflects the litigation which is before the Court.  There is no defence as such, but the Court would not give leave for the enforcement of the judgment until the counterclaim has been dealt with.  As at present advised, I would find it difficult to refuse such an application were it to be made. 

27.      Because I take this view of the contractual position between the parties and of the litigation currently before the Court, I think the ordinary rules as to costs should apply.  In this case, Advocate Redgrave was correct to say that the Respondent did not have to oppose the application made to adduce further evidence and to appeal the decision of the Master.  He is right in that respect, but on the other hand it is also right to say that the costs below the Master were largely wasted as the result of the failure of the Fourth Appellant to put forward the relevant evidence at the relevant time.  Because I consider that the Master was incorrect to see the real argument before him as an argument which fell within the four corners of the contract, the basis for his order for indemnity costs below was wrong, and I therefore set aside his order as to costs.

28.      I consider that the costs of the application for summary judgment before the Master should be costs in the cause of the appeal because there remains the possibility that such costs concern mostly the counterclaim rather than the application for summary judgment, which would fall within clauses 11 and 12 of the facility letter.  The present application has been necessary only because the Appellants failed to get their tackle in order before the Master. On the face of it, they should have to pay the costs of the application – however, the argument on the day was avoidable for the reasons which Advocate Redgrave gives and those costs should be awarded against the Respondent. In the exercise of my discretion, it will be swings and roundabouts and the fair solution is an order that each party pays their own costs of the application. That seems to be to be an outcome which fits the justice of the position.

Authorities

Ladd v Marshall [1954] 1 WLR 1489. 

Campbell v Campbell [2016] JRC 190. 

Charlesworth v Relay Roads [2000] 1 WLR 230. 

Murphy v Collins [2000] JLR 276. 

Marsh v Marsh [1993] 1WLR 744, [1993] 2 All ER 794.

Downes v Marshall [2010] JLR 265