Bank & Clients Plc v King & Anor, Court of Appeal - Commercial Court, December 01, 2017, [2017] EWHC 3099 (Comm)

Issuing Organization:Commercial Court
Actores:Bank & Clients Plc v King & Anor
Resolution Date:December 01, 2017
 
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Case No: CL-2017-000284

Neutral Citation Number: [2017] EWHC 3099 (Comm)

IN THE HIGH COURT OF JUSTICE

QUEEN'S BENCH DIVISION

COMMERCIAL COURT

Royal Courts of Justice

7 Rolls Building, Fetter Lane

London, EC4A 1NL

Date: 1 December 2017

Before:

Lionel Persey QC

(Sitting as a Judge of the High Court)

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Between:

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Mr. Thomas K. Sprange QC and Ms. Hannah Glover (instructed by King & Spalding International LLP) for the Claimant

The First Defendant appeared in person

The Second Defendant did not attend and was not represented

Hearing dates: 20 and 21 November 2017

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JudgmentLionel Persey QC:

Introduction and Procedural History

  1. There are two applications before the Court. In the first application the Claimant (``the Bank'') seeks summary judgment against the First and Second Defendants under two Personal Guarantees dated 31 October 2016. In the second, the Bank seeks a worldwide freezing injunction against both Defendants.

  2. The application for a freezing order was the first to be issued, on 18 May 2017, and came before Blair J. at a with notice hearing on 16 June 2017. The Defendants were represented by Mr Richard Gillis QC and Mishcon de Reya (``Mishcon'') at this hearing. In the event, the application was adjourned, with the Defendants providing undertakings that were subsequently incorporated in a Consent Order sealed on 23 June 2017. Blair J. considered that it would be sensible to resolve the question of the Defendants' obligations under the Personal Guarantees at an early stage. The Consent Order accordingly provided that the Bank was to file any application for summary judgment with respect to its debt claim under the Personal Guarantees on or before 19 June 2017.

  3. The summary judgment application was issued on 19 June 2017 and both applications were listed for hearing on 21-22 August 2017. The application was supported by the First Witness Statement of the Bank's Chief Executive, Pedro Errazuriz. The Defendants each filed a witness statement on 10 July 2017. The Claimant subsequently served two further witness statements in support of the summary judgment application.

  4. On 27 July 2017 the Bank issued an application for third party disclosure from Ve Interactive Ltd (``Ve'') which was granted by Order of HHJ Waksman QC on 10 August 2017. Some of that disclosure has been exhibited to witness statements served on behalf of the Bank.

  5. The applications were adjourned shortly before the August hearing because the Defendants issued IVA proposals, the effect of which was to place a moratorium over these proceedings. The IVA process was terminated when it became apparent that the Defendants had failed to disclose the existence of a major creditor (in excess of £5 million) and the IVA Chairman withdrew his consent to act as nominee.

  6. On 7 and 9 November 2017 Mishcon provided the Claimant with Notices of Change of Legal Representative in respect of both Defendants. The Defendants thereafter ceased to have legal representation. It would appear that they owed substantial sums to Mishcon.

  7. The Claimant provided the Defendants with electronic copies of the hearing bundles and their skeleton arguments on 15 November 2017.

  8. At 1554 on Friday, 17 November 2017, Mr. Brown emailed the Court in the following terms:-

    ``...Despite the elaborate pleadings of K&S please expect communication from Martin Adrian King on behalf of us both, shortly, against this wholly unjustified claim brought by B&C against us. Having exhausted resources against this frivolous claim we will be seeking an adjournment of the hearing since we have both filed Bankruptcy Applications with the Official Receiver and expect them to be approved shortly...''

    Shortly afterwards Mr King emailed the Court and confirmed that the Defendants had filed Bankruptcy Applications (which he attached) and that they would be seeking an adjournment of the hearing. The attachments showed that Mr Brown had filed his application for bankruptcy on 13 November and that Mr King had filed his application later, on 17 November 2017.

  9. Mr King represented himself at the hearing before me on 20 and 21 November 2017. He struck me as being highly intelligent and was very articulate. Mr Brown did not attend. I was informed by Mr King on the first day of the hearing that Mr Brown was in Spain, was unwell, and could not afford to come to the hearing. On the second day Mr King told me that Mr Brown had wanted to attend that day but that he was still unwell.

  10. I declined an application to adjourn or stay the proceedings for the reasons set out in my ruling on 20 November 2017. I was advised on 21 November 2017 that a Bankruptcy Order had been made in respect of Mr King on the previous day and was asked to take this into account. That order does not affect my decision to allow the applications to proceed. I would have reached the same conclusion had Bankruptcy Orders in respect of both Defendants been made shortly before the hearing of the applications.

    The Parties

  11. The Bank is a private bank which offers loans to medium and large businesses, in addition to providing savings and deposit accounts for retail and business clients. The Bank is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority.

  12. The Defendants were both closely involved in the management of Ve. Ve is a London-based company specialising in online advertising and e-commerce software products. In 2016 it was regarded in the market as a unicorn company, with a perceived value of over £1 billion. Mr Brown was Ve's CEO at the relevant time and had been a director of Ve since its start up in 2009. Mr King became a director in 2011. He resigned in September 2016 because he was facing criminal proceedings brought by HMRC (he was later acquitted). He nevertheless remained closely involved with the management of Ve and was a major shareholder.

    The Personal Guarantees

  13. Towards the end of October 2016 Ve was facing what Mr Brown described as ``short term but immediate funding issues and money was urgently needed''. The Defendants approached the Bank and a meeting was set up on Friday, 28 October. The Defendants attended the Bank's office and met Mr Errazuriz and Mr Bridel of the Bank. The Defendants advised the Bank that £2 million was needed as a short term bridging loan to be used for the purchase of the ve.com domain name, the acquisition of a company and for working capital prior to Ve obtaining new equity of up to £50 million. The Defendants indicated that they had been offered funding by one of Ve's existing shareholders, Ve Vegas Investors IV LLC (``Ve Vegas''), but that they were reluctant to accept this as it was being offered on a ``down round'' basis.

  14. At this meeting it was agreed in principle that the Bank would provide a loan of £2.15 million to Ve, that the loan would be repayable on demand and in any event by 31 March 2017, and that it would be secured by fixed and floating charges over Ve's assets and guaranteed by way of personal guarantees from each of the Defendants as well as a number of corporate guarantors. There is an issue between the parties as to whether certain representations were made by the Bank at the meeting and I will return to this below.

  15. Following the meeting the bank corresponded with the Defendants and Ve with regard to the loan and the personal guarantees. The Bank sought information as to the nature and extent of Ve's and the Defendants' assets and liabilities. On 29 October 2016 Mr King responded to the Bank's requests for further information regarding Ve and later that day identified the holders of a number of convertible loan notes and the sums advanced by them. Ve Vegas was the second largest note holder, having advanced £5 million to Ve.

  16. Later on 29 October 2016 Mr Errazuriz asked the Defendants each to provide an individual signed statement of net worth in which they were to list every one of their assets worth more than £100,000, together with details of its location, value and, if any, of co-owners together with percentages of ownership. Mr King responded that evening, attaching an Assets and Liabilities spreadsheet in which he valued his Personal Net Worth as over £92 million and the Net Corporate Assets of 55 Prestige Ltd., a company in which he was closely interested, as just under £15 million.

  17. Mr Brown had by then returned to Spain. He wrote to the Bank at 1725 on 30 October 2016 and made what he described as some straight-forward comments. He advised that it would not be possible to get Ve Vegas to subordinate their loan because they were ``part of the group that would love a down round to steal some stock''. Loan subordination was therefore a ``no go'' although he indicated that Ve would be prepared to allow a debenture to be filed and for Ve Vegas then to be approached for the purposes of subordination. Mr Brown also stated that the joint asset accounts at the Pictet bank in Switzerland were essentially out of his reach. He concluded by saying that the choice for the Bank was either to advance to Ve and ``trust us on a post closing basis'' or to loan the money to himself and Mr King personally and advance the funds to Ve. He observed that the Bank would be heavily over-collateralized and that this should suffice personally.

  18. At 2043 Mr Errazuriz wrote to his solicitors at King & Spalding (``K&S'') to record the headline points that had been agreed with the Defendants by telephone. The Defendants were copied into this email. The headline points were as follows:-

    · The loan would be made to Ve.

    · The Bank would take a Personal Guarantee from Mr Brown and Mr King.

    · All of the Defendants' shares in Ve and all of their directors' and shareholders' loans would be pledged within 48 hours of signing.

    · One condition subsequent would be to have a pledge on all assets backing...

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