Jersey Unreported Judgments

Loan - claim to recover outstanding principal together with accrued interest.

[2013]JRC133

Royal Court

(Samedi)

28 June 2013

Before     :

H. W. B. Page, Commissioner, and Jurats Morgan and Liston.

 

Advocate M. H. D. Taylor for the Plaintiff.

Advocate A. D. Hoy for the Defendants.

judgment

the commissioner:

1.        The action concerns a series of loans made by what was then known as the Irish National Building Society ("INBS") to the second defendant ("Stormex"), a Jersey incorporated company which appears to be closely associated with the third defendant ("Mr Halabi") and a claim by INBS to recover long outstanding principal together with interest accrued over many years from Stormex as debtor and from the fourth defendant ("Immofra"), a Luxembourg company, as guarantor. 

2.        The proceedings were initiated in November 2010 by Order of Justice in which INBS was named as the plaintiff.  Subsequently, INBS as such ceased to exist when in July 2011 it was merged as the plaintiff.  Subsequently, INBS as such ceased to exist when in July 2011 it was merged with Anglo Irish Bank and in October 2011 the latter became Irish Bank Resolution Corporation Limited ("IBRC").  On 7^th February this year IBRC was placed in special liquidation pursuant to an Act of the Irish Parliament and, with the leave of the Court, the Order of justice has been amended to name the joint liquidators, Mr Kieran Wallace and Mr Eammon Richardson of KPMG, Dublin, as plaintiff.  As a matter of convenience we shall, however, continue to refer to the plaintiff as "INBS". 

3.        The trial of this matter was fixed some considerable time ago to start on Monday 24^th June, 2013, with an estimated duration of five days.  On the morning of the first day, earlier this week, Advocate Hoy, representing Stormex and Immofra, informed the Court that early that morning he had received an e-mail accusing his firm of negligence in relation to prior conduct.  The author of the message (which, understandably, we were not shown) was Mr Simon Halabi, the third defendant in these proceedings, but it was said to be couched in terms that were indicative of a complaint by his client Immofra and possibly also Stormex.  The matter was, as Mr Hoy put it "not a discreet one".  It put him in a position of professional embarrassment such that he would find it difficult, he said, to continue to act in the proceedings and he accordingly applied for an adjournment of the trial in order that his clients might arrange alternative representation.  In support of this application, he referred us by way of precedent to In the matter of the Representation of Ogden [1992] JLR 106, a case in which, as it happens, Mr Hoy himself was also concerned.  What happened there was that as a result of the merger of his firm with another he considered himself unavoidably involved in a conflict of interest and discharged himself from continuing to act for Mr Ogden in dégrèvement proceedings which were then on foot.  The Court having ordered that a new advocate be appointed to represent Mr Ogden, the Acting Bâtonnier did just that, but Mr Ogden wanted Mr Hoy to continue to act for him and sought an order that he resume that role.  The Royal Court (Tomes DB) held that it had no power to compel an advocate against his will to act for a party and adjourned the dégrèvement proceedings in order to allow the new advocate appointed by the Acting Bâtonnier to prepare. 

4.        Advocate Taylor, representing INBS, strenuously resisted the idea of an adjournment. 

5.        In the event we declined to adjourn the matter generally but permitted Mr Taylor to proceed with his clients' case with regard to outstanding loan principal and so much of the claim to interest as he felt he could satisfy the Court was incontestably due and owing (the intention being that any balance of the claim to interest should be left over to an adjourned hearing).  Having received evidence adduced by Mr Taylor, including that of Mr Paul Jacobs of Grant Thornton, his client's independent expert accountant, and a joint report by Mr Jacobs and Mr Steven Johnstone of Roscoe Management Limited on behalf of the defendants, we were satisfied beyond any doubt whatsoever that judgment for INBS in an amount of £2,407,191-51 as regards principal and an amount of £1,100,000-00 as regards interest (being interest due and owing in at least that amount as at 10^th May, 2001,) could and should properly be given.  The balance of the claim was adjourned to a date to be fixed on certain conditions to be fulfilled by Stormex and Immofra; by that time there will have been an opportunity for those parties to instruct another advocate and for him or her to prepare fully.  Our reasons for taking this course and for giving judgment to the extent that we did are as follows. 

6.        Before the start of the trial we were already concerned that the precise extent and basis of Stormex's and Immofra's defence to the claim was difficult to grasp.  The Answer filed by Stormex and Immofra, Mr Hoy's skeleton argument and the accompanying witness statement of Mr Halabi all complained in various generalised ways that the manner in which INBS maintained its accounts in respect of Stormex's borrowings had, over a long period of time, been complicated and confusing and that INBS had repeatedly failed to supply accurate, comprehensible and timely statements of outstanding principal and interest.  But on the face of things no discernible defence to the claim to principal was offered and no particularised case was advanced as to the extent to which the interest alleged to be owing ought to be to be reduced by reason of such matters and the basis for such reduction. 

7.        Prior to ruling on Mr Hoy's application for an adjournment we had asked him to tell us what case he had been expecting to advance on behalf of Stormex and Immofra.  The answer, in short, was first that, while he was not in a position formally to concede the claim to outstanding loan principal, that part of the claim would not be actively challenged; and secondly that, while it was not suggested that no interest at all was due and owing, the Court would be invited to conduct - in effect - an open ended inquiry into the extent to which it was unconscionable for INBS to have continued to charge interest at times when it was unable to provided accurate, comprehensible and timely statements of account or when events implied or warranted the suspension of accrual of interest.  That was the extent of the defendants' case.  There was no suggestion that Stormex and Immofra were not otherwise liable, as debtor and guarantor respectively, for sums properly due and payable to INBS. 

8.        The fact of the matter is that, despite pressure from INBS, at no stage since December 2001 has Stormex repaid any part of outstanding loan principal amounting at that stage to some £2.4 million; nor since August 1998, almost fifteen years ago, has it paid any interest on its outstanding borrowings: and this, despite repeated assurances from time to time by or on behalf of Stormex and/or Mr Halabi in correspondence that they were anxious to clear off the indebtedness to INBS in its entirety or would shortly be doing so.  Even if there were good reason for the defendants to have been critical of INBS's account-keeping and interest computations, this could not of itself have begun to justify such an extreme state of affairs.  It is impossible to escape the conclusion that Stormex has been engaged in a prolonged exercise of procrastination and evasion. 

9.        The role of Mr Halabi in these events and in relation to the present proceedings is of central materiality in a number of respects:-

(i)        Until he provided a witness statement - apparently intended to support Stormex's and Immofra's defence of the current claims - Mr Halabi had played no formal part in these proceedings.  He had not served any Answer to the Order of Justice or taken any other steps in his capacity as third defendant to defend the proceedings.  (In fact, though this was not clearly drawn to our attention until shortly before the close of the hearing, in the absence of any move by Mr Halabi to defend the proceedings, INBS took judgment against him personally for the full amount of its claim as long ago as November 2010.  Nothing, however, has been recovered pursuant to that judgment - probably because Mr Halabi was at some stage declared bankrupt in proceedings in England, though it may be that he has subsequently been discharged.  The precise course of events and present position is unclear). 

(ii)       The precise nature of the relationship between Mr Halabi and the two active defendants, Stormex and Inmofra, is obscure.  There was nothing in the material before us to suggest he is a formally appointed director of either company; and, while he claims not to be beneficiary of the family trust, The Ironzar Trust, which apparently owns Stormex through the first defendant, Volaw Corporate Trustees Limited as trustee, he describes himself in his "Witness Statement" as "a representative of the beneficiaries" of that trust. 

(iii)      But whatever his formal position may be, all the indications from that witness statement and from extensive correspondence and other documentation to which we were taken, in part by Mr Taylor and in part by Mr Hoy, are that the dominant natural personal and decision-maker so far as Stormex is concerned is and has been Mr Halabi.  Nor was there anything anywhere in the papers to indicate in whom, if not in the person of Mr Halabi, the governance of Stormex actually lies. 

(iv)      As indicated earlier, it was an e-mail message from Mr Halabi early on Monday morning that gave rise to Mr Hoy's predicament and precipitated the difficulties with which the Court and Mr Taylor have been obliged to contend. 

(v)       We understood from Mr Hoy that he had expected Mr Halabi to be present in Court at the start of the proceedings on the Monday - no doubt because, for all practical purposes, he was "the client".  Having provided a witness statement he was of course also expected to give evidence in person at some point.  As it was, he did not appear at any time that day.  Nor did he appear the following day, despite assurances apparently given to Mr Hoy that he would be there. 

10.      Against this background, the nature and timing by Mr Halabi of his e-mail message on Monday morning appeared to us to have all the hall-marks of a cynical attempt to engineer an adjournment of the proceedings and thus postpone once again the day of reckoning.  We had little doubt that he understood perfectly that Mr Hoy would feel obliged to ask for an adjournment.  It also appears likely that Mr Halabi, himself, had no intention of being present.  It emerged at a later stage during Mr Jacobs' evidence that when he (Mr Jacobs) had spoken to Mr Johnstone, the defendants' accountancy expert, last Thursday with a view to discussing the one or two unresolved minor points of difference between them, Mr Johnstone had told him that he was no longer instructed.  The picture which thus emerged was one in which the Court and the plaintiff's team - and Mr Hoy too it seems - were allowed to continue in the belief that the matter would be proceeding to trial on Monday morning as planned when, in truth, Mr Halabi had no such intention.  In retrospect it now also appears likely that the belated, more or less hopeless application made earlier this month by the defendants for leave to amend their Answer was all of apiece with this week's events, given that (as referred to in the Court's judgment of 12^th June, 2013,) granting that amendment would inevitably have meant adjourning the start of the trial.  

11.      While in the ordinary way it is, of course, undesirable for any party to proceedings in this Court to be without effective legal representation, to have adjourned the totality of the proceedings generally in the present case would have been to allow Stormex and Immofra to manipulate the judicial process to their advantage and to the prejudice of the plaintiff.  If as a result of our decision to decline to grant such an adjournment they have been without effective legal representation the situation is one of their own making.  In this respect at least, the circumstances here differed markedly from those in Ogden. 

12.      The Court having made known its decision on the matter of adjournment, Mr Hoy, while remaining in Court, took no active part in the proceedings other than to make brief submissions at a later stage as to the portions of the claim to interest that should on any view be left to an adjourned hearing.  Mr Taylor opened his case and called Mr Jacobs to give evidence and verify his report and its conclusions.  

13.      The position as regards expert reports was this. The Court had before it a report by Mr Jacobs dated 15^th November, 2010, a report by Mr Johnstone dated 21^st November, 2012, and a Joint Memorandum dated 25^th February, 2013.  The "Joint Summary" section of the Joint Memorandum (paragraph 2.9) concluded that there were only minor differences between the two experts as regards both outstanding principal (capital) and interest.  As regards principal Mr Johnstone assessed the total outstanding at 30^th September, 2010, as £2,407,191-51 and Mr Jacobs as £2,411,531-16, a difference of (£4,339-65).  (In his own report Mr Johnstone indicated that he had not seen documentation recording the reasons for an advance of £300,000 to Stormex in May 1999 and a further series of advances totalling £49,573-01 but was satisfied that they been made).  In the case of interest their respective calculations of the outstanding amount as at 30^th September, 2010, were £4,699,982-83 (Mr Johnstone) and £4,695,641-41 (Mr Jacobs), a difference of £4,341-42.  And the respective combined figures for principal and interest were £7,107,174-34 (Mr Johnstone) and £7,107,172-57 (Mr Jacobs), a difference of £1.77. 

14.      It was clear from the evidence given by Mr Jacobs in the witness box that his conclusions had been based on an extensive, painstaking trawl through INBS's records, with particular emphasis being placed wherever possible on documentation emanating from third parties.  That exercise had, it appeared, then been the subject of detailed scrutiny by Mr Johnstone.  Subject to the relatively small range of difference described above there was no reason to doubt the conclusions of the two men so far as outstanding principal at 30^th September, 2010, is concerned - the figures for which remain the same today, there having been no subsequent repayment of any part of that sum.  In fact, Mr Jacobs informed us that he was now satisfied that the small differences to which we have referred could be reconciled and produced a meticulously presented tabulation explaining the position.  In the event, we considered it more appropriate in the current circumstances to limit judgment at this stage to the lower of the two figures. 

15.      When it came to interest, Mr Taylor invited us to address the matter by reference to four distinct periods of time:-(1) 1997 to 31^st December ,2000, (2) 1^st January, 2001, to 31st December, 2003, (3) 1^st January, 2004, to 30^th September, 2010, (the date to which the experts' calculations had been done and on the basis that), and (4) 1^st October, 2010, to 21^st June, 2013, (i.e. up to date as of the end of last week).  The appropriate course, he suggested, was for the Court to give judgment for interest referable to periods (1), (3) and (4) and to defer assessment of period (2) interest to an adjourned hearing - period (2) being, he appeared to concede, one in which there was indeed a good deal of confusion about the state of Stormex's accounts with INBS.  Adopting this breakdown, Mr Jacobs had laboured overnight to prepare a table showing his calculation of the total amount of interest referable to each period. 

16.      In the event, we took the view that at this stage of proceedings the appropriate course was to limit judgment for unpaid interest to an amount of £1.1 million.  This was on the basis first and foremost of a letter dated 5^th June, 2001, from SJ Berwin, Stormex's then solicitors to William Fry, IBS's solicitors saying that Stormex itself had had interest "assessed by professional bankers" and that they calculated the amount payable as at 10^th May, 2001, as "just over £1,000,000" (the computation itself, which evidently accompanied the original letter, was not in the trial bundles) and secondly on the basis that Mr Jacobs' own assessment of interest owing in respect of the slightly shorter period to 31^st December, 2000, was £1,107,883.  On any view a sum £1.1 million at the very least appeared incontestably to be due and owing.  

17.      For the rest we considered that the right course was to adjourn the balance of the INBS claim for interest (a sum in excess of £4.3 million) to an adjourned hearing on terms that an amount of £3 million is paid into Court within the next three months and the other conditions that we set, as referred to below, are met - conditions that may be regarded as tough but which we consider to be no more than fair in the particular circumstances of this case. 

18.      The fact that we limited judgment at this stage to a comparatively modest figure as regard interest (though "modest" only in the context of the present case) should not be thought to imply that we were satisfied that Stormex has an arguable defence or defences to the balance of the interest claimed or anything remotely like that.  On the contrary, we have yet to see anything that could be called persuasive evidence of a case for any major abatement of interest recoverable by INBS.  The reason we took the course we did was because it undoubtedly appeared to be the case that, for some periods of time at least, INBS's book-keeping in relation to Stormex's borrowings and its provision of information to its customer fell short of what would be expected of any well-conducted bank or building society and because there were just enough threads of uncertainty about events over the course of the many years that the interest, compounded quarterly, has continued to accrue (on INBS's case) for us to have felt that, despite the circumstances that had disrupted the proceedings, it would be right to adopt a conservative approach and that justice would best be served by leaving the balance of INBS's interest claim for determination in a hearing at which Stormex and Immofra could be duly represented by another Advocate in place of Mr Hoy. 

19.      The orders that we accordingly made were:-

(i)        that there be judgment for the INBS against the Stormex as debtor and against Immofra as guarantor

(a)       for £2,407,191-51 as regards principal; and

(b)       for £1,100,000-00 as regards interest due and owing in at least that amount as at 10^th May, 2001;

(ii)       that INBS's costs of and in connection with the proceedings for recovery of the foregoing amounts (as part but not the whole of its claims) be paid by Stormex and Immofra on an indemnity basis;

(iii)      that all other issues in the proceedings  would be adjourned to a date to be fixed on the following conditions:-

(a)       that by 12 noon on Friday 5^th July, 2013, INBS receives payment in full of the as yet unpaid order for costs made in its favour in earlier related pleadings;

(b)       that by 12 noon on Friday 26^th July, 2013, INBS receives payment in full of the judgment sums referred to above;

(c)       that by 12 noon on Friday 27^th September, 2013, a sum of three million pounds (£3,000,000) has been paid into Court at the instigation of Stormex and/or Immofra pending determination of the remaining issues in the proceedings;

(d)       that INBS's costs occasioned by such adjournment be paid by Stormex and Immofra on an indemnity basis;

(e)       that Stormex and Immofra comply with any order that the Court may make on any application by INBS for an interim payment order in relation to costs or for security for costs (as regards the costs orders in INBS's favour referred to above or future costs);

(f)        that in default of prompt fulfilment of any of the foregoing conditions INBS has leave on 48 hours' notice to the Stormex and Immofra to apply for leave to enter judgment for the full amount of the balance of its claim and for such further or other relief as the Court may think fit. 

Authorities

In the matter of the Representation of Ogden [1992] JLR 106.