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URL: http://www.bailii.org/ew/cases/EWHC/Comm/2018/469.html
Cite as: [2018] EWHC 469 (Comm)

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Neutral Citation Number: [2018] EWHC 469 (Comm)
Case No: 3BM40047

IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS IN BIRMINGHAM
CIRCUIT COMMERCIAL COURT (QB)

The Rolls Building, Fetter Lane, London EC4A 1NL
9 March 2018

B e f o r e :

HHJ WORSTER
(sitting as a Judge of the High Court)

____________________

Between:
West Bromwich Commercial Limited
Claimant
- and -

Mukesh Unadkat
Defendant

____________________

Mark Anderson QC and Steven Reed (instructed by Shakespeare Martineau)
for the Claimant
Geraint Jones QC (instructed by AKL Solicitors) for the Defendant

Hearing dates: 6-8 December 2017

____________________

HTML VERSION OF JUDGMENT APPROVED BY THE COURT FOR HANDING DOWN (SUBJECT TO EDITORIAL CORRECTIONS)
____________________

Crown Copyright ©

    HHJ WORSTER:

  1. Introduction
  2. This is a claim brought on eight guarantees provided to the Claimant by the Defendant in relation to the indebtedness of a number of companies in which he was interested. The indebtedness of the various companies is a number of millions of pounds, but the guarantees are limited and the total claim on the guarantees is for £417,000. I heard the trial of the claim over 3 days and reserved judgment. The Claimant called 3 witnesses, Mark Pagett, Michelle McLoughlin and Charles Wilson. The Defendant gave evidence on his own account. The trial bundle runs to 6 volumes, and I refer to the documents by bundle and page number.

  3. The claim was issued in 2013, and a Defence was filed. The Claimant obtained summary judgment on 17 March 2014. The Defendant appealed, and the Court of Appeal allowed his appeal on 1 March 2017. Rather than rehear the summary judgment application the parties agreed to bring the trial on as soon as possible. The claim is relatively straightforward. The issues arise principally from the defence. The Defendant served an Amended Defence and Counterclaim on 2 June 2017. I gave permission subject to the provision of some further voluntary particulars in relation to the oral assurances which lie at the heart of a major part of the Defendant's defence. I return to the pleaded case later on.
  4. The Claimant was in the market to lend money to people looking to invest in commercial property, and in the period from 2004-2007 it lent something in excess of £50M to companies controlled by the Claimant (or in which he had an interest) for that purpose. Whilst the property market was booming, that was an arrangement which profited both parties. The Defendant was a skilful investor, and had an eye for properties with the potential for profit. That made him attractive to the Claimant. On a number of occasions in the course of his evidence the Defendant described his relationship with those who made the decisions to lend on behalf of the Claimant as "cosy". Mr Jones QC reminded me that the commercial property market in those days was quite different to the market after 2008, and the evidence is to be seen in the context of the times. The Claimant relies upon the documents the Defendant signed at the time, but Mr Jones QC submits that the reality was different. The Defendant's case in a nutshell is that the Claimant was keen to lend to him and his companies, and that it gave him assurances about the circumstances in which his guarantees would be called in which provide a defence to these claims.
  5. The table below sets out the name of the company which took a loan from the Claimant, the date upon which the Defendant gave the Claimant a guarantee in respect of that company's liability (the transactions are in chronological order rather than the order followed in the pleadings), and the limit on the guarantee.
  6. Company Date Limit
         
    Pyari Properties Limited 23 May 2005 £150,000
    Zipdale Properties Limited 10 June 2005 £170,000
    Wohlabend Properties Limited 30 June 2006 £20,000
    Seafold Limited 12 March 2007 £26,400
    Commerce Properties Ltd (Signal House) 19 June 2007 £20,000
    Commerce Properties Ltd (L. Parliament St.) 12 July 2007 £41,400
    Dreamfield Properties Limited 16 July 2007 £6,000
         
    All Investments Limited 5 October 2007 £10,000

  7. The only material difference in the terms of the various guarantees is the amount by which they were limited. They provide as follows:
  8. 1. GUARANTEE AND INDEMNITY

    1.1 The/each Guarantor irrevocably and unconditionally:

    1.1.1 guarantees to the Lender punctual performance by the .. Borrower of the … Borrowers obligations under the Facility Documents.
    1.1.2 undertakes with the Lender that whenever the … Borrower does not pay any amount when due under or in connection with any Facility Document, the Guarantor shall immediately on demand pay that amount as if it were the principal obligor; and
    1.1.3 agrees as a primary obligation to indemnify the Lender immediately on demand against any costs … [etc.]

    1.2 The maximum amount payable by the Guarantor under this Guarantee shall be limited to [£…] plus all costs, fees and expenses incurred by the Lender in enforcing or seeking to enforce payment of any demand on the Guarantor [under] this Guarantee.

    2. GENERAL CONDITIONS

    The Commercial Mortgage Conditions 2006 (the "General Conditions") are incorporated into and form part of this Legal Charge. Terms and phrases defined in the General Conditions bear the same meaning unless separately defined in this Guarantee.
  9. The Defendant admits signing the guarantees. In relation to the claims on some of them he raises defences arising from the facts of the particular transactions. I deal with those when I come to the facts of each transaction. However in relation to each the Defendant raises a common line of defence, pleaded individually in relation to each guarantee, but in essentially the same terms. The following is taken from paragraphs 4-8 of the Amended Defence and Counterclaim served on 2 June 2017, which deals with the guarantee given in relation to All Investments Limited [1/51]. Having admitted the fact of the guarantee, and that the Defendant agreed as a primary obligation to indemnify the Claimant immediately on demand, subject to the stated limit, paragraph 4 pleads the following:
  10. (1) The first guarantee was required as security for and in respect of any unpaid rentals (the right to receive same being assigned by [the company] to the Claimant) in respect of the security property and not generally in connection with the Claimant's agreement to lend to the borrower [the company] a total of £862,000 secured on a property referred to in its facility letter …

    (3) It was executed by the Defendant only after he had been orally assured by the Claimant's credit manager Mr Nixon that it would be called on only in the event that there were "rent voids" in the lettings by [the company] of the said premises (i.e. periods when they were not let out) which resulted in a shortfall in the payments received by the Claimant against what it was entitled to receive as assignee of the rents if the property had been let continuously (with no rental voids).

    (4) Accordingly there was a collateral warranty that the Claimant would call upon this guarantee only in this event, which collateral warranty overrode clause 1.1.1 or any other clause which purported to widen the effect of the guarantee.

    (5) Alternatively the Claimant is estopped from asserting the written terms of the guarantee so far as they are inconsistent with the said representation/assurance, as the Defendant relied upon it to his detriment in executing the guarantee and it would be inequitable to allow the Claimant to resile from it.

  11. The balance of the pleading raises issues of whether the guarantee was an agreement in writing, whether there had been an effective demand, whether the covenant about the loan to value ration had been breached, and brings a Counterclaim for rectification. However, by the end of the trial, none of those matters remained in issue (although the breach of the covenant as to loan to value ratio was only conceded when Mr Jones QC had inspected the relevant valuation evidence). The key point was that there were no rental voids and so no liability on the various guarantees.
  12. This common line of defence was referred to as an "in principle" agreement in the voluntary particulars provided by the Defendant on 28 July 2017 [1/65].
  13. 3. A business relationship was discussed between the Defendant and Mike Nixon at which an "in principle" agreement was reached that the Claimant would lend monies to companies owned/operated by the Defendant with the quantum of the loan to be agreed transaction by transaction. During the "in principle" discussions the Defendant was orally informed that personal guarantees would only be required if there was likely to be any rental shortfalls or rental voids in respect of the investment properties which the Defendant's various companies might purchase. The "in principle" agreement was reached at Allsops Auction Rooms and thereafter at the Four Seasons, Park Lane, London, where the Defendant and Mike Nixon took luncheon (at the Defendant's expense). The Defendant is unable to particularise the date of that luncheon save that it was shortly after Colin Barnes had introduced Mike Nixon to the Defendant.

    4. The agreement in principle was reached prior to any guarantee being executed in 2004/5. The companies which the Defendant was a director, purchased only "investment" properties, that is to say, properties that were tenanted and/or were to be tenanted. The interest on each loan was to be serviced from the rental income and… that is why the Claimant requested various limited guarantees to cover the potential rent void periods.

    5. … in respect of each transaction the Defendant agreed to provide the respective guarantees on the basis of the representations made to him as to their limited purpose and the limited circumstances in which [the] same would be relied upon and/or called in, say, same would be relied upon and called in only in the event of there being rental shortfalls resulting from void letting periods.

    The pleading of the Defendant's case in this way in the Amended Defence and in these particulars is by Mr Jones QC in June and July 2017.

  14. The Claimant denies that these oral representations were made. The Reply also denies that, if made, any of its employees had actual or ostensible authority to make the alleged representations. The former was established on the evidence. The latter is in issue. Usual authority was not alleged or relied upon.
  15. Finally the Claimant relies upon an entire agreement clause (clause 28 of its Commercial Mortgage Conditions) incorporated into the individual guarantees by reference; see paragraph 5(v) of the Reply [1/76]. I deal with the issues arising from this line if argument at the end of this Judgment.
  16. It is a feature of the case that the Claimant did not call Mike Nixon to give evidence. On any view his is an important role in the history. Mr Jones QC asked the Claimant's witnesses about the reason for this, beginning with Mark Pagett. Mr Pagett's evidence was that he left the Claimant's employment in July 2007 when Mr Nixon was still there, and that he had had no contact with him since that time. He could not assist. Michelle McLoughlin's evidence was that Mr Nixon had left the Claimant in 2008. She had had no contact since then but had heard that he was living in Scotland. She could not assist. Finally Charles Wilson confirmed that no attempt had been made to contact Mike Nixon about this case because Mr Nixon had made it clear on a previous occasion (in relation to a different matter) that he would not assist the Claimant. Mr Wilson did not have an address for Mr Nixon, and did not know why he had left the Claimant. The decision not to pursue his evidence was made by Mr Wilson and the Claimant's legal team. Mr Jones QC also asked him about Colin Barnes, another potentially relevant witness. Again it seems that Mr Barnes was unwilling to assist the Claimant.
  17. The Claimant was a little coy about why Mike Nixon was not giving evidence. But it is not for me to speculate about what he may or may not have said. Mr Jones QC suggested that the Claimant could have served a witness summons on Mr Nixon and brought him to court. Mr Anderson QC suggested that if the Defendant was so confident that Mr Nixon would support his case he could have asked the Claimant for his address and done the same. Either is possible, but I have to decide the case on the evidence I do have and reach decisions on the basis of the civil standard. The fact that Mr Nixon is not giving evidence means that when I come to the disputed conversations about the circumstances in which the guarantees would be called in, I only have one side of that conversation, so that whilst the Defendant can rely upon his own direct evidence, the Claimant cannot. What it can (and does) rely upon includes the factual background to the loans provided by the evidence of the internal systems at the Claimant at the material times, the lack of written support for or contemporaneous references to the alleged representations, the evidence of Mark Pagett, and the contemporaneous documents. But principally Mr Anderson QC and Mr Reed point to the unreliability of the Defendant's own evidence on the key issues and the inherent improbability of the Claimant agreeing to limit the enforceability of its security in this way.
  18. The Factual Background
  19. As I indicate in the opening paragraphs, the Defendant was a successful property developer and a good customer of the Claimant, and these are by no means all the guarantees he entered into as security for the borrowings of companies in which he was involved. This is not someone who was in the habit of failing to meet his financial obligations. The problem has arisen because of the falls in the commercial property market. Prior to the events of 2008, the commercial property market was buoyant, and the Defendant took advantage of that market. He had originally been involved in the residential letting market, but by 2005 he had moved into commercial property. Mark Pagett agreed that so far as the Claimant was concerned he had a "recognised track record". Mr Pagett thought that was a good way of putting it.

  20. The Defendant told me about how he came to meet Mike Nixon and how their relationship worked. They met in an auction room. He had been introduced to Colin Barnes but (as he put it) he soon found that Colin Barnes was a salesman and it was Mike Nixon who had the authority. They discussed loan to value ratios and the terms upon which the Claimant would lend, and Mike Nixon told him that the Claimant was very competitive on margins. They would only take nominal guarantees and only ask for them for rental voids.
  21. The Claimant's representatives attended these auctions to lend money to finance purchases. The relationship between the Defendant and Mike Nixon and his staff developed and reached a position such that when the Defendant bid for a property, and became liable to buy it on the fall of the hammer, he did so confident in the fact that his purchase would be funded by the Claimant. His evidence was that he would tear out the catalogue page and hand it to Mike Nixon saying – this is what I've bought – I want 80-85% usual terms. They would say - fine no problem. It was teamwork. He described is cosy. I do not doubt that it was.
  22. At paragraph 6 of his witness statement of 15 September 2017 the Defendant says this:
  23. In 2005 I met Mike Nixon at the auction house of Cushman & Wakefield. We discussed the possibility of loans and the Claimant agreed, that in principle it would lend monies to companies owner and/or operated by me. I explained the corporate investment strategy which was to invest in investment quality realty, with the loans being serviced from rental income. It was understood that relevant properties would be subject to a first legal charge to secure any agreed lending and the issue of further security, by way of possible guarantees, was also mentioned. During the discussions I was orally informed that personal guarantees would only be required if there was likely to be any shortfalls between rental receipts and the interest payments or to cover rental voids in respect of the investment properties which my various companies might purchase.
  24. There is a distinction between when a guarantee would be required, and the circumstances in which it would be enforced. Whilst the Defendants pleaded case was to the effect that at this "in principle" stage it was agreed that guarantees would only be enforced when there were rental voids and income shortfalls, the Defendant's evidence (in answer to a question I put to him at the end of his evidence) was that it was only the issue of requirement that was discussed at this first meeting. The question of the limitation on the circumstances in which the Claimant would enforce these guarantees came later.
  25. In his voluntary particulars, and again in his evidence, the Defendant refers to the friendly nature of his relationship with Mike Nixon and Mark Pagett, their meetings at auction rooms, the long lunches they had afterwards at the Four Seasons hotel at his expense, and the way the conversation would go. When it came to guarantees Mike Nixon would say that the Defendant bought good properties, and he would never have to pay his personal guarantee. Once again he said that they were on very cosy terms; "almost like friends" was his description. The best example of the speed with which terms were agreed with the Defendant is the exchange of e mails about an increase in the loan facility on Signal House [4/178]. The Defendant's e mail to Mark Pagett is timed at 16.37 on Saturday 31 March 2007, and Mr Pagett's reply is 1 hour later.
  26. Mr Jones QC does not put the case too high when he says that the Defendant was a valued client. The document headed "Mark Unadkat Connection" at [6/82-4] is compelling evidence of that. It is dated 20 April 2005, and was written to provide background information for those who would be taking the individual lending decisions. That document indicates that by April 2005, the Claimant had offered the Defendant 17 facilities totalling £16M, all but one drawn and "properly conducted". There are a number of particularly relevant matters referred to in this document, but just the fact that it exists and is placed on a file speaks volumes for the Defendant's general standing with the Claimant. The particular references of interest are these:
  27. (i) The Defendant generally buys property with an angle to exploit to add either income or capital value or sometimes both.

    (ii) He has personal assets of in excess of £11M, including a house worth £2.5M mortgage free.

    (iii) He is described as a well-known participant at London Commercial property auctions, both as a buyer and seller.

    (iv) He had introduced 5 applications to the Claimant adding £7.3M to the lending book, all facilities being "properly conducted"

    (v) The author had met the Defendant on a number of occasions and says that he had always been very open in his dealings and provision of information, and before bidding he was said to be "well researched".

  28. The final paragraph says this:
  29. From all the evidence available I believe Mark is an experienced property investor and manager who has made considerable short term progress in the commercial investment sector. Although some of his deals have angles he has already demonstrated his ability to enhance property rental streams and capital values and turn properties at good short term profit. The Society has first hand knowledge of a number of transactions that constitute elements of his asset and liability statement and as such underpin the net worth figures. This provides comfort for our longer term investments, shorter term dealings and when required his personal guarantee commitments.

  30. Of course, it is those "personal guarantee commitments" which give rise to this litigation. For whilst the commercial property market in 2005-2007 was buoyant, by 2008 it had stopped rising, and thereafter it fell. The loan to value ratios required by the loan arrangements made between the Claimant and the Defendant's companies were breached, and as a consequence the Claimant was entitled to call in its security. The primary security in all cases would have been a first charge on the property concerned, but in all the cases the subject of this litigation there was also a limited guarantee from the Defendant.
  31. In the absence of direct evidence, the Claimant sought to explain why a limited guarantee had been required in these cases by reference to the contemporaneous documents and by calling evidence of the lending criteria it had in place at the relevant time. Those criteria were for internal use, and the detail would not have been part of any discussion with the Defendant, but it has a relevance to the question of how likely it was that a member of the Claimant's staff would have acted in a certain way or said a certain thing at a particular time. Mr Jones QC put to the Claimant's witnesses that they would not have discussed the detail of it with the Defendant. They all agreed with that.
  32. That is an important point, but there is a limit to it. The Defendant would not have known the detail, but he did know that there were some sort of lending criteria, in the sense that however ready the Claimant was to lend money to his companies for these acquisitions, there were terms of that lending which took account of the value of the property and the level of income it generated. In particular, the Defendant would have been aware from the facility letters themselves that:
  33. (a) The maximum loan amount offered to the relevant company was subject to a percentage of the value of the property, and that if the value of the property fell below the loan to value ratio, that was an event of default for the purposes of the loan and the security. Typically this was 75 to 80% of the loan;

    (b) The rental income from the property was to be a percentage (over 100%) of the interest and scheduled repayments of the loan. Internally this had a number of acronyms, the most common being ISCR ("interest servicing cover ratio") and whilst it varied, 115% was a typical ratio.

  34. None of that is really in issue, but it is worth spelling out. For a short term loan in particular, the relationship between the level of the rent and the repayment had an obvious importance. For it was the rent which provided the income stream from which the loan repayments and/or the interest payments were to be made. From the Claimant's point of view (broadly speaking) there were two major factors to consider when it came to the lending decision. Firstly how reliable was the income stream. That turned largely on the strength of the covenant and the length of the lease (pre break). Secondly the potential effect of interest rate rises, for the interest rate on the loan was expressed as a percentage over LIBOR.
  35. In simple terms the Claimant's procedure began with an application form. This was filled out by the member of its staff who had dealt directly with the Defendant. I come to the detail of that below. The application would then be sent to an underwriter. Michelle McLoughlin was such an underwriter from 2004 to 2008, and her evidence was that her job involved considering whether the application complied with the "Lending Manual". She had delegated authority to approve applications, but cases outside her delegated authority required the preparation of a written report for presentation to and the approval (or "sanction") of either the Senior Underwriter, the Head of Commercial Lending, or the Executive Credit Committee, depending on the amount of the loan [2/38]. The Head of Commercial Lending was Mike Nixon, and he had authority to approve a loan up to £1.5M. Over that it was the Credit Committee [4/4].
  36. The point the Claimant makes from all this is that before a loan can be approved, an application had to go through the process of being examined by an underwriter to see that it complied with the lending criteria, and only then would it go forward for approval. It was the need to comply with those criteria which explains the requirement for a personal guarantee and the setting of the limit, and (so the Claimant would say) makes it unlikely that the Claimant's staff would have made the alleged representations as to the circumstances in which these guarantees would be enforced. A point the Defendant would make is that there is at least one example in the papers of those directly involved with the Defendant "taking a view" and recommending a loan for approval even though it failed to satisfy others within the Claimant that it met the criteria.
  37. I accept that the Defendant would not have known of the detail of these internal procedures, but he was at least aware that there was a Credit Committee. For example, his evidence includes reference to being told that a guarantee was required for the All Investments loan to keep the Credit Committee happy; see paragraph 20 of his witness statement [2/47], that the Credit Committee required a limited guarantee to cover any rental voids on the Signal House transaction; see paragraph 38 of his witness statement [2/52] and that a personal guarantee was required because the Credit Committee was nervous about a short lease in the Zipdale purchase; see paragraph 71 of his witness statement [2/57]. That said, his oral evidence was that he thought the Credit Committee was Mike Nixon or Mike Nixon and Mark Pagett.
  38. Pyari Properties
  39. With that background I turn to the first of the individual transactions. I begin with Pyari. This is one of the claims where the Defendant has a defence in addition to the "agreement in principle" line of defence I refer to above. Pyari was an Isle of Man registered company set up to buy a commercial property in Leicester for £3M. The property was bought at auction with 60 days to complete. The application for the loan is dated 20 April 2005 and was completed by Colin Barnes [5/73]. The loan was for £2.7M, so the ratio of loan to purchase price was 90%. There was a desktop market value of £3.25M (which may explain why the LTV on market value was said to be 85%). The interest rate was 1.25% over LIBOR and the servicing cover was 113% of the interest payments. The primary security proposed in the application was a first legal charge over the property purchased. Under "Additional Security" the application refers to a floating charge, rental assignment "only effected in the event of default", and a Director's Guarantee limited to £100,000.

  40. A Credit Report was prepared to go to the Credit Committee [5/75-78]. It identified the two tenants. The first was the Cooperative Bank, who only had 2 Ό years of a 20 year lease to run at a rent of £101,000 pa, and the second was Blindells who traded as Shoefayre. It is apparent from the report provided to the Credit Committee that the Defendant was in negotiation with the Co-op for a further 20 year lease and that the indications were promising. Once he had achieved that the plan was either to sell on that part of the property, or to hold it as a longer term investment. The plan for the Shoefayre unit was to sell it, and the Defendant had apparently had some interest from potential purchasers. A sale of the Shoefayre unit would raise about £1.5M which would reduce the outstanding loan to £1.2M.
  41. The credit report recommended a personal guarantee of £100,000 from the Defendant as additional security for the following reason:
  42. To cover the potential void in the highly unlikely even[t] the bank does not renew their lease … This equates to 12 months rent. The PG is to be released upon renewal of the lease.

    The proposal is described as a "typical Mark Unadkat proposal and similar to a number of others we have funded over the last 18 months"

    The penultimate paragraph begins with the words:

    This is not the type of proposal we would offer to any client other than one with proven credentials. Over the last 18 months we have provided 26 other facilities to Mark Unadkat, all of which have been properly serviced (excepting only short term administration issues on both sides). Of equal importance Mark has clearly demonstrated his property skills by enhancing rents and capital values, splitting and diverting of units to leave an improved position, developing vacant accommodation and turning properties at strong short term profit.
  43. The proposal put to the Committee was prepared by Michelle McLoughlin and recommended by Mark Pagett as Commercial Lending Manager. It noted that the repayment cover was tight [5/83]. It was approved by the Credit Committee on 28 April 2005 [5/85] but the guarantee was increased to £150,000. A facility letter was issued dated 5 May 2015. Clause 9.1.3 provides that the facility was to be secured by:
  44. A Guarantee in the amounts of £150,000 of the liability of the Borrower given by Mark Unadkat, which is to be released upon completion of the renewal of the Lease to the Cooperative Bank plc, which is satisfactory to the lender.
    [5/89]
  45. On 23 May 2005 the Defendant executed a form of guarantee in the Claimant's standard form limited to £150,000 [5/93]. The document does not record the name of the principal, but despite his lawyers reserving his position on that basis, when he came to give evidence the Defendant readily accepted that this document was his Guarantee in relation to Pyari's loan. That evidence is admissible to identify the lender. It is obviously correct and I accept it. Even without it, it is apparent from the other terms of the document and its place within the Claimant's papers that that is what it was.
  46. The Amended Defence relies upon the collateral contract/estoppel line of defence. However, in his witness statement the Defendant does not say that there was a particular representation about enforcement in relation to this guarantee. In closing Mr Jones QC sought to argue that even if not made expressly, such a representation was implicit in the general arrangements between the parties. It was not implicit in the "in principle" discussion, not least because even the Defendant would recognise the distinction between when a guarantee was required and the question of when it would be enforced. But it might be argued that the cumulative effect of the in principle agreement, the various individual representations and the various assurances given during these "cosy" times amounts to the same. I return to that issue below.
  47. The individual line of defence in Pyari arises from the express terms of the facility letter to the effect that the guarantee would be released upon completion of a further lease by the Co-op, because the Co-op did renew the lease on terms that were satisfactory to the Claimant. Mr Jones QC submits that in those circumstances the guarantee lapsed, or as he puts it at paragraph 24 of his closing note, became discharged.
  48. Firstly, Mr Anderson QC submits that the terms of the facility letter do not provide that the Defendant is released upon a satisfactory renewal of the lease, only that the guarantee is "to be" released. There is nothing in the guarantee itself which provides for such an effect, and there is no evidence of a formal release being entered into. Whilst I accept that there is provision within the documentation for a formal release to be executed, the words in the facility letter are capable of meaning that the Defendant is released upon completion of the lease without more. That would accord with the natural and ordinary meaning of the words, and would be consistent with the overall purpose of the term within the contractual arrangements between made between these parties and Pyari. On balance I favour the Defendant's interpretation of that element of the retainer letter.
  49. Secondly Mr Anderson QC submits that even if the guarantee was released upon the renewal of the Co-op lease in relation to the 2005 advance, the Defendant became liable upon the Guarantee once more as a result of a further advance made by the Claimant to Pyari in 2006 and/or the subsequent extension of that facility after the Co-op lease had been renewed. The following is established by the contemporaneous documents.
  50. In June 2006 Pyari sought a further advance of £318,000. Richard Early, who was the Claimant's Assistant General Manager, was not prepared to support it. It seems that at this stage the Co-op had not yet renewed, and in his e mail of 16 June 2006 Mr Early says this:
  51. I acknowledge that the owners of the company are experienced investors with whom we have a good relationship and who appear to regularly stretch our lending criteria, but this is, to my mind, several steps too far and I believe we should put an appropriate marker down at this stage.

    However, Mark Pagett was prepared to support the application because of the relationship with the Defendant and his track record [5/103], and on 27 June 2016 a further facility letter was issued for £318,000 [5/107]. Clause 9.1.4 requires that the facility shall be secured by:

    A guarantee in the amount of £150,000 of the liability of the Borrower given by Mr Mark Unadkat and Mrs Smita Unadkat – Already held.

    The Defendant and his wife initialled two handwritten amendments to two of the preceding sub clauses, and the letter is signed for the company by its Directors and by the Defendant and his wife "As Guarantor" [5/112].

  52. Subsequently the facility was extended by a number of Side Facility letters. The first the Defendant signed as a guarantor is dated 3 December 2008 and includes this Acknowledgement on the signature page:
  53. Acknowledgement
    I/We unconditionally accept the terms of this Side Facility letter and agree that all terms and conditions contained within WBCL's Facility Letter dated 5 May 2005 & 27 June 2006 and the side facility letter dated 11 March 2008 remain except as amended above.

    The amendments were to the term of the loan, the interest rate and the payment of a further fee. The Defendant went on to sign three more similar acknowledgements within Side Facility letters as guarantor; see [5/128, 131, 133A, 136].

  54. Mr Jones QC submits that:
  55. (i) the acknowledgement refers not only to the June 2006 facility letter, but to the letter of 5 May 2005 with its provision for the guarantee to be released upon completion of a satisfactory lease; and that:

    (ii) such an acknowledgement cannot revive a guarantee which has lapsed or has been discharged upon renewal of the Co-op lease.

  56. Mr Anderson QC submits that:
  57. (i) I should look for the intention of the parties. He draws a distinction between the 2005 facility for £965,000, and the 2006 facility for a further £318,000 and argues that in that context, there is no reason for the terms of the May 2005 facility letter to govern the 2006 facility and the terms upon which that later facility was granted.

    (ii) In any event, after the Co-op lease was renewed in 2008, the Defendant signed a series of Acknowledgements as part of an agreement for an extension of the facility as guarantor, thereby indicating an intention to be bound by the guarantee. Even if it the guarantee had been discharged (which Mr Anderson QC does not accept) or the Defendant had been released from his liability pursuant to the terms of the 2005 advance, it was open to the parties to subsequently agree that it had effect in relation to the 2006 advance.

  58. The effect of Mr Anderson QC's argument is that the discharge of the guarantee and/or the Defendant's release from it in relation to the 2005 advance was not a discharge or release for all time and for all purposes. He submitted that the guarantee was not a document with a validity independent of the agreement of the contracting parties. It was a contract enforceable in the circumstances agreed between the parties; see paragraph 32 of his closing note.
  59. I agree with the Claimant's case on this point. The 2006 facility letter refers to the guarantee "already held". In the context of these arrangements, that must refer to the 2005 guarantee. That guarantee contained no express provision for its release. The agreement about the Defendant being released from the guarantee on renewal of the Co-op lease was a term of the 2005 facility. The 2006 facility was a separate borrowing and made no provision for the release of the guarantee "already held" upon the renewal of the Co-op lease or otherwise. There is no good or obvious reason why the terms upon which the first advance was made should govern the terms upon which the second advance was made.
  60. But even if there were some ambiguity arising from the existence of the two facility letters and the construction of the acknowledgement and its reference to both, the objective evidence of the Defendant's signature "as guarantor" on a document he plainly intended to have a legal effect and entered into after the renewal of the Co-op lease, is a clear indication of the parties' intention that the Defendant was bound by the 2005 guarantee. I return below to the common defence arising from the in principle agreement, but the Claimant succeeds on this aspect of the Pyari defence.
  61. Zipdale
  62. The proposal in this instance was for the purchase of a property in Torquay for £7.2M with an advance of £6.4M. The property was let to six tenants providing a rent roll of £462,707 pa. Of that £170,707 pa was from the Torquay Borough Council, whose lease expired in March 2008. The risk was that the Council would not renew. The potential for profit arose if it did. The Defendant's assessment was that it was highly likely that the Council would renew its lease [6/68].

  63. The Defendant's application form dated 15 April 2005 was for a 3 year interest only loan to tie in with the period up to the end of the Council's current lease. Security was to be provided by way of a first fixed charge together with a rental assignment. The Credit Report [6/69] explains the proposal that the surplus rent over and above the interest only payments should be paid into a separate account to provide a contingency reserve to cover the risk of a void should the Council not renew. Over three years the calculation was that a reserve of £180,000 would accumulate providing 12 months cover for any rent void should the Council not renew. Initially there was no proposal that there be a personal guarantee. The Credit Report concluded that there was a short term risk, but the 3 years unexpired term and the "cash sweep" meant that the author considered it an acceptable proposition [6/71]. A document entitled "Note to Executive Credit Committee" at [6/86A-B] written by Mark Pagett dated 26 April 2005 suggests that whilst this was an unusual deal, it made sense and had been well thought out by the Defendant. The file contains a copy of the "Mark Unadkat Connection" document, which was written at much the same time [6/82-4]. From all that it seems that Mr Pagett was behind the deal. On 28 April 2005 he recommended it to the Executive Credit Committee which approved the proposal the same day [6/87]. The loan facility letter was issued on 6 May 2005 [6/89] and reflects the position as approved so far as security is concerned; see in particular clause 9.1.3.
  64. The application was prepared and approved on the basis of a desktop market valuation of £7.75M, a vacant possession value of £6.655M and a servicing cover of 115%. When the actual valuations were obtained, they were lower. The open market value was £7.535M, and the vacant possession valuation was £6.35M [6/88]. The proposal was reconsidered by the Claimant, and on 6 June 2005 a loan at the lower figure of £6.25M was confirmed but with the requirement of a £170,000 personal guarantee; see the handwritten note by Mark Pagett at the foot of [6/87].
  65. The Defendants evidence was that the day the drawdown was due to take place Mike Nixon telephoned him and informed him that the Claimant required a personal guarantee of £170,000. The explanation given was that the Credit Committee was nervous because of the short lease remaining to the Council, and that £170,000 was one year's rental cover. The Defendant says this at paragraph 71 of his witness statement [2/72]:
  66. … Mike Nixon orally assured me that once the lease was renewed the guarantee would no longer apply and would lapse.
  67. The facility letter was not amended to reflect the changes to the loan until October 2005 [6/102-3], well after the loan had been drawn down. The Defendant probably never signed the amended letter (the copy on the Claimant's file is not signed by the Defendant). But he accepts that he agreed to provide a Guarantee, which he did on 10 June 2005 [6/98], witnessed by his solicitor. Whilst not expressed in the amended facility letter, the purpose of the guarantee was to cover the risk of a rent void if the Council did not renew its lease.
  68. The amended facility letter makes no reference to the guarantee lapsing or no longer applying once the Council renewed its lease. Whilst that contrasts with the position in Pyari, the fact that the agreement to give a guarantee was so last minute, and that the amended facility letter appears to have been something of a tidying up exercise some months later, means that there is no great significance in that. The Defendant's evidence is not inherently improbable, and is unanswered. Mr Anderson QC may be right when he submits that it would have been pointless to give such an assurance or to include such a term, because the facility had to be renegotiated in 2008 anyway. But that does not necessarily mean that something along those lines was not said by Mr Nixon. The real question is whether the Defendant's evidence about what was said can be relied upon given his subsequent conduct, and/or whether what was said had any legal effect.
  69. In a witness statement the Defendant made for the purposes of his appeal to the Court of Appeal dated 26 November 2014 [3/51] he says this:
  70. 24. Mike Nixon promised me that the Claimant would review the entire loan upon Torbay Council renewing the lease of the property. Mike Nixon also assured me that the personal guarantee was there only to cover 1 year's rental void in the event that Torbay Council did not renew its lease and that the guarantee would fall away as soon as Torbay Council renewed its lease.

  71. In his evidence at trial the Defendant said that he took it for granted that the agreement to review the facility was a promise to renew it. He was cross examined about that. He accepted that Mr Nixon did not actually say that – it was (as he put it) "an unsaid situation" – deriving from the nature of their relationship. Mr Anderson QC explored how the Defendant could have thought that the facility would be renewed. What would the terms be? Didn't the Defendant see that there were differences between a 3 year facility and an indefinite one? The Defendant maintained his position.
  72. Whilst I can accept that in 2005 the relationship between the Defendant and Mr Nixon was cosy, and that in making a last minute demand for a personal guarantee Mr Nixon may well have said something reassuring to one of his valued clients, this was an example of the Defendant believing what he wanted to hear. How could he take for granted that Mr Nixon would secure the renewal of the loan? This may have been a cosy relationship, but the Defendant was an experienced businessman. The Defendant's evidence on this point was not believable, and the fact that he maintained his position in the face of some simple questions which must have brought home to him the fundamental problems with his case on this point weakens his overall credibility.
  73. In 2008 the Claimant decided not to renew the facility. The Defendant asked for a 12 month extension to sell or refinance; the Claimant agreed to extend to the end of 2008 [6/105]. In a Side Facility Letter of 25 July 2008 the terms of the facility were amended to make provision for that extension and for changes to the interest provisions. On the second page the Defendant has signed below this "Acknowledgement":
  74. We acknowledge receipt of and accept the terms of the side facility letter and agree that all terms and conditions contained within WBCL's Facility Letter dated 06 May 2005 and the side facility letter dated 04 October 2005 remain current save for the above amended clauses.
  75. The side facility letter of 4 October 2005 refers to the £170,000 personal guarantee without reference to it lapsing on the renewal of the lease to the Council, and on the face of it this is an acknowledgment by the Defendant that he is bound by that Guarantee. Indeed, as was pointed out to him in the course of his cross examination, he has signed the acknowledgment twice, once on behalf of Zipdale, and once "As Guarantor". I find that he was accepting that he was bound by the guarantee he executed in June 2005.
  76. The Council renewed its lease with effect from March or April 2008 [2/72; 6/118]. It was, however, only a 3 year lease. So far as the Claimant was concerned, this was a short lease, and would not have justified any change in the requirement for a personal guarantee. Whilst the terms of the internal policy have affected the view of the Claimant's employees, there is force in the point Mr Jones QC makes for the Defendant. The internal policy was not discussed with his client who knew nothing of it. I have to consider what was agreed by the parties.
  77. Pausing there, the Defendant's evidence is to the effect that (i) his personal guarantee would only be enforced if there was a rental void; and (ii) the Zipdale guarantee would lapse on the renewal of the Council's lease. The Claimant's case is that the Defendant's conduct in relation to the Zipdale guarantee in particular runs entirely contrary to that position, and demonstrates that his evidence on these matters is not to be relied upon.
  78. Having extended the loan once in July 2008 [6/106] it was extended again for a further 2 years on 25 November 2008. The Defendant signed a further acknowledgement to the same effect as part of that agreement for an extension. Once again he signed twice, once on behalf of Zipdale and once as Guarantor [6/116].
  79. However the evidence which really confirms that the Defendant knew that he remained liable on his guarantee begins with an e mail which he sent to Chris Miller at the Claimant on 22 January 2010 [6/126]. By this stage the commercial property market has fallen, and it is becoming apparent that the loan will be called in. The e mail is headed Re Zipdale Ltd and says this:
  80. … As you know I have always worked closely with you to achieve the best result for both of us and I am always conscious that West Brom do not lose out unnecessarily.
    Strictly in Confidence I agree with you taking assignment of rents or even control as I do not think come December – jointly with Dilip Magecha I would be able to refinance in view of short leases etc and as such I have my PG on the line and he has nothing to lose.
  81. When he was cross examined about the e mail the Defendant said that there was a verbal understanding that the guarantee would only be called on for a rent void, and that there had been a renewal so the guarantee was not in place. My note of the following exchange is this:
  82. Q: Quite, so why mention it [the personal guarantee]

    A: Because I was cooperating with Chris Miller

    I fail to see how that explains his reference to having his personal guarantee "on the line". I find it hard to believe that the Defendant did not understand the significance of this part of the evidence, and once again his attempt to hold his position in those circumstances undermines the credibility of his evidence overall.

  83. This is not the only reference by the Defendant to the Zipdale guarantee. There was further e mail correspondence with Chris Miller about it in May 2010 [6/134;138], and a copy of the formal demand against Zipdale was sent to the Defendant as Guarantor. At [6/137] is a letter dated 28 May 2010 to the Defendant referring to that formal demand, drawing his attention to the guarantee an including this:
  84. Please be advised that you are bond by the Guarantee for the debts of the Borrower and we continue to rely upon such Guarantee as security.
    We can call on you to pay in terms of the above Guarantee the sum of £170,000 being the extent of the borrowed liability enforced against yourself and owing to [the Claimant by Zipdale] at any time

    The Claimant is making its position clear, but there is no response from the Defendant pointing out that the guarantee had lapsed or that it did not have effect because there was no rent void.

  85. On 8 October 2010 the Defendant had a meeting with Chris Miller. Mr Miller minuted the meeting and on 12 October 2010 e mailed a copy to the Defendant asking him to cast his eyes over them and to let him know if they were agreed. The e mail says in terms that he is happy to make any suggested amendments so that they are a record of what we discussed; [4/69]. The Defendant replied later the same day making four suggested amendments to matters which had been discussed [4/74]. The e mail ends by saying:
  86. Otherwise the recorded minutes seem to be what we discussed.

    Mr Miller made the suggested changes and sent the Defendant a revised copy the next day [4/75-80]. The draft minute and the approved minute include this under the heading Zipdale Ltd.

    As and when value has been optimised via lease re-gears and improved market conditions, we will review any disposal strategy with the LPA Receiver but clearly, any subsequent loss would trigger the calling in of MU's personal guarantee on that loan.
  87. When the Defendant was asked about this he said that he told Mr Miller at the meeting that there was no guarantee, and that he had assured him that he would not call in any guarantee. The minute was sent to him to sign and he did not sign it. Mr Anderson QC then took the Defendant to the exchange of e mails on 12 October 2010 and to the Defendant's apparent confirmation of the minute subject to the changes he had suggested. My note is this:
  88. Q: You knew the personal guarantee was still valid.

    A: No

    Q: You fully understood that the Torquay lease was not enough to warrant the extension of the facility – that it wasn't to be renewed long term, anf that the guatantee was still required.

    A: [The Defendant disagreed].

    Once more I find myself unable to accept what the Defendant says in his evidence. No doubt he was told that his personal guarantee was required because of the risk of a rent void, and it may be that he has now convinced himself that Mike Nixon must have told him that his personal guarantee would only be enforced if there was a rent void. But when that case is set against his own actions in the context of the Claimant's expressed intention to enforce the guarantee in the absence of a rent void, it holds no water. If he truly had been promised that his personal guarantee would only be called in in those circumstances, he would have been objecting to Mr Miller's letters and minutes, and not raising the subject of the guarantee himself and approving minutes which ran directly counter to his case.

  89. The same is to be said in relation to his case that Mike Nixon told him that the Zipdale guarantee would lapse on the renewal of the Council lease. No doubt Mike Nixon made reassuring noises about renegotiating the Zipdale loan when he was telling him that the terms had changed and a personal guarantee was required. But it is quite a leap from that to the Defendant's position that it was taken for granted that the facility would be renewed. The Defendant's thinking on the topic shines some light on his approach. The arrangement was "unsaid". On the one hand it is easy to see how the Defendant comes to that conclusion. Here was a cosy relationship. He had been generous to his friends at the Claimant and in his mind it was reasonable to assume that those friends would smooth his path and get him what he needed. He had been a good customer of the Claimant. But whilst he may have been able to count on their influence in the good days, there was no contractual promise and no assurance with anything approaching the necessary clarity to give rise to an estoppel.
  90. Perhaps more fundamentally, this part of the evidence demonstrated that whilst the Defendant's evidence about his exchanges with Mike Nixon went unanswered by direct evidence, his evidence is not to be taken at face value. The contemporaneous documents, an examination of his own actions, and simply the testing of the rationality of what he is saying point to a witness who gives the evidence he wants to hear, rather than evidence which is factually accurate. The fact that he persists in that evidence when the objective problems with it are pointed out is a further cause for concern.
  91. In so far as the Zipdale defence is concerned, I am far from satisfied that there was any assurance or agreement to the effect that the guarantee would lapse on renewal of the Council's lease. The evidence I have summarised above also has consequences for the " principle" defence, which I deal with later in this Judgment.
  92. All Investments
  93. The All Investments loan application was dated 20 October 2005. It was for a property in Wembley. The ground floor was let to Corals on a 15 year lease with 14 ½ years unexpired at £38,000 pa. The first floor was divided into two flats, one let on an Assured Shorthold Tenancy for £7,000 pa and the other on a regulated tenancy at £40 pa. The purchase price was £786,000, the loan was £628,000 for 5 years, the servicing cover was 113% and no personal guarantee was offered. Corals were a good covenant, and had just signed a lease. The only concern was the level of servicing cover, which at 113% was a little below the 115% the Claimant usually looked for. The facility letter is dated 21 October 2005 and offers the loan in the sum sought with a fixed charge over the property, a floating charge over the assets of All Investments and a rent assignment. That was all agreed and the loan drawn down.

  94. On 5 June 2007 an application was made for a further advance on this property of £270,000. The long leasehold of the one flat had come up at auction and the Defendant had bought it. This further loan was a restructuring, increasing the borrowing on the property to £900,000. Corals were still there at £38,000 pa, and there were now two residential flats and garages which between them were expected to bring in a rent of £24,000 pa. The interest cover was 102%, and the Credit Report at [4/112] says this:
  95. MP has then mentioned that a nominal guarantee will be required to cover the interest cover shortfall to supplement this to 115%.
  96. The level of interest was a stated percentage above LIBOR, and the Claimant's case is that the concern in this case was not rent void, but having a sufficient level of interest cover (115%) to cater for increases in LIBOR. On the internal documents that seems to be right, but once again there is some force in the points Mr Jones QC makes about these being internal matters. He puts it better than I do, but the essence is this. So far as his client was concerned, the issue was whether the property was fully let, and the effect the lack of rent on day one had on the ability of the property to service the loan. Whether it is a lack of a tenant producing rent on day one, or the possibility of losing one along the way, it is still a "rent void" to the outside world. Mr Jones QC suggested to Mr Wilson in the course of his cross examination on the Commerce Properties loan, that the distinction was splitting hairs. He said that it was not, but he also accepted that it may have been put over to the Defendant in terms that led him to understand it in that way.
  97. Of course, Mr Wilson was not a party to any of these conversations, and his view is not strictly evidence. What Mr Jones QC was doing was putting his case to the witness the Claimant put up. He did not have Mr Nixon to cross examine on the point. But what it does is illustrate the force of the Defendant's case on this particular issue – the difference between a vacant property on day one and a loss of a tenant leading to a vacant property later on, may be described as a rent void. Whilst I accept the distinction is a real one for the Claimant, the point has force when the matter is considered from the Defendant's point of view.
  98. Where Mr Anderson QC makes some headway is the chronology. The Defendant's evidence is that before the receipt of the offer Mike Nixon telephoned him and said that because the property was vacant (this is a reference to the flat) the Claimant required a personal guarantee of £10,000 to cover any shortfall in the rent. He said this was to keep the Credit Committee happy; see paragraph 20 of his witness statement [2/49].
  99. However it is apparent from the Claimant's file that the requirement for the personal guarantee came well before the Claimant discovered that the flat was vacant. It is referred to in the original underwiring report approved by Ms McLoughlin on 7 June 2007 [4/115] and it appears as an express requirement at clause 9.1.5 of the facility letter of 24 September 2007 [4/120]. That letter proceeds on the basis that the Lenders solicitors are to confirm that the property is fully let; see clause 11.19 [4/122]. It is only on 2 October 2007 that it becomes apparent to the Claimant that this is not so; see the referral to underwriter at [4/124].
  100. The Defendant indicated that the flat will be let very shortly [4/130] and the issue was quickly resolved by the Claimant taking a £20,000 cash deposit (in effect holding back £20,000 from the loan) and the loan was completed on 5 October 2007. The deposit was to be held until the property was fully let and achieving 115% interest cover, in addition to the £10,000 guarantee. In his closing submissions Mr Jones QC (see paragraph 44 of his closing note) suggests that the e mail to Mike Nixon of 2 October 2007 at [4/131] indicates that the guarantee was given on the same terms. That is not what the e mail says. The evidence satisfies me that the requirement for a guarantee was not a consequence of the flat being vacant. It had always been a requirement for the loan. A personal guarantee limited to £10,000 in the usual form was executed the same day [4/136]. In 2012 the Claimant demanded payment of the loan because the loan to value ratios had fallen below the contractual levels [4/144].
  101. Despite the Defendants evidence it is apparent that the vacant flat did not lead to the requirement for a personal guarantee or even to the increase in the limit of the guarantee. It was always a feature of this loan, and (so far as the Claimant was concerned) a requirement of its lending criteria. Mike Nixon would not have been ringing the Defendant before the offer was sent out to him saying that a personal guarantee was required because the flat was vacant. The offer was originally put on the basis that the property was fully let, and required a personal guarantee. When the Defendant was taken through that chronology he seemed to accept that the phonecall about the property not being fully let must have been after the facility letter, and that it was not a reason for the guarantee, but was the reason for the retention from the loan. That was to his credit. He must have been mistaken about the timing or the content or both.
  102. But perhaps the more fundamental point to note is that the Defendant does not say in his witness statement that Mike Nixon made a specific promise not to enforce this personal guarantee save where there was a rent void. The question of whether or not this is truly a "rent void" case is not as clear as some of the others, but for the reasons I have considered above the better course is to treat it as if it was. Consequently liability in respect of this part of the claim turns upon my overall decision on the in principle defence.
  103. Commerce Properties – Signal House
  104. The application was for a 10 year loan of £1.4M, in part to buy Signal House in Harrow and in part to restructure other loans on two other properties, one in Carshalton and one in Hull. In addition to the usual forms of security, the application offered personal guarantees from the Defendant and his business partner Mr Thakrar limited to £50,000.

  105. A note to the Executive Credit Committee prepared by Mark Pagett on 24 November 2004 [4/165] regarded the Carshalton and Hull properties as good quality low risk transactions, but Signal House was "more risky". He recommended requesting a guarantee for 12 months income on the Signal House property (£88,000) to protect the Claimant's position. The facility letter required a joint and several guarantee from the Defendant and Mr Thakrar limited to £88,000. The Defendant is referred to as a borrower with an exemplary track record.
  106. The Defendant made a success of the investment. The property was fully let and had increased in value significantly. On 31 March 2007 he contacted Mark Pagett with a view to increasing the loan. The exchange of e mails is at [4/178]. The Defendant anticipates that the value of the property is c £2M, and is asking for 80% loan to value for 5 years interest only at 1.1% above 3 month LIBOR. Mark Pagett replies the same day as follows:
  107. This is fine and I'm happy to confirm terms.
    The only issue is that it is a bit tight on int cover on LIBOR. We could really do with a PG for say £20K to make it work …
    Will this by ok? Sorry to ask but out policy makers will pick us up on this if we don't.

    The Defendant replied by e mail about 20 minutes later [4/177-178];

    Guarantee fro[m] Directors Mukesh Unadkat and Vijay Thakara for £20,000 is fine – please instruct professionals.
  108. At paragraph 38 of his witness statement [2/52] the Defendant says that before he received the offer letter of 25 April 2007 he had a call from Mike Nixon who explained the rationale behind the requirement for the £20,000 guarantee saying that it was to "cover any rental voids". The witness statement says this:
  109. He explained that this is solely to provide comfort for interest rate cover as required, and that, in case of any shortfall between the rent received and interest payment then the guarantee would be called upon but that it did not have any other purpose. Upon this basis I agreed to provide a personal guarantee for the sum of £20,000.
  110. This evidence does not accord with the e mails of 31 March 2007 in two respects. Firstly the e mails show that the Defendant agreed to provide the guarantee following a request and explanation from Mark Pagett. He accepted that he "didn't rebel" against the idea of a guarantee, and on the evidence I heard there is no obvious reason why there should be a subsequent telephone call from Mike Nixon. Secondly the reason for the guarantee was that it was a bit tight on interest cover on LIBOR. The Defendant was asked what he thought that meant. He said that it was a rent void or shortfall. It was pointed out that the issue was expressed to be interest cover on LIBOR. He said that was how they expressed it but he understood that it meant rent voids or shortfalls.
  111. It is apparent that the level of the guarantee required in 2004 was calculated by reference to the annual rent from Signal House, and required because of the risk of a rent void. But the position had changed by 2007. The £20,000 limit imposed in 2007 bears no relation to the rent from the property, and the reason for a guarantee was not the risk of rent void. The property was well let, and the e mail from Mark Pagett spells out the reason. The Defendant's evidence is that he understood this to mean rent void or shortfall. It may be that in the Defendant's mind the requirement for the guarantee was to cover a shortfall in the rent, but it is not a shortfall caused by a void. The risk of shortfall arises from the potential for the increase in LIBOR.
  112. In other instances the Claimant's case on this point rests on their internal documents, and there is some scope for the Defendant to understand what the Claimant was saying as falling within the meaning of a rent void. But in this instance the words of these e mails (short and simple as they are) have to be stretched well out of shape before they bear the meaning the Defendant now seeks to put on them. I find that this is not a case where the guarantee was required to cover a rent void. The Defendant's evidence was that by this time it was normal practice to put these guarantees in place to cover for rent voids. It may be that he assumed that was the position here, when in fact there is no reliable evidence to the effect that anyone at the Claimant told him that, or that he gave the guarantee in reliance upon a specific assurance to that effect.
  113. Mr Jones QC makes the general point that the Defendant is a man of good character who is being asked to remember back many years. No witness could be expected to remember the precise details of these transactions, only the gist or thrust of what was agreed in the course of the relevant conversations. He was an extremely able and experienced businessman, but his expertise was not banking or its intricacies. I take those points. The concern is that when the Defendant gives evidence of particular conversations, as he does here, and they are set against the documents from the time, his evidence is found to be wrong.
  114. Commerce Properties – Lower Parliament Street
  115. The application was made on 30 May 2007 for nearly £2.5M for 5 years interest only to purchase a commercial property in Nottingham. There were 3 tenants, Lloyds Bank (who had a break clause), the Nationwide Trust, and some hairdressers. The Defendant's evidence is that he met Mark Pagett at the auction and a loan was agreed. There is support for that in the Claimant's "Sanction sheet" at [4/209].

  116. The issue arises from the Defendant's evidence set out at paragraph 45 of his witness statement [2/53]:
  117. Mike Nixon orally informed me that because of the break clause and the possible weakness of the rental covenant of the hairdressing business, a limited guarantee to cover any rental voids was required in the sum of £41,400. He explained that this was mainly because the Credit Committee was not happy with one of the tenants being a hairdressing business which, it was perceived, did not provide a strong rental covenant. I agreed to provide a personal guarantee on that basis to cover that identified risk; that is the hairdressing business failing to pay its rent. I cannot particularise the date upon which the said conversation took place, but it was shortly prior to receipt of the Offer Letter (4 June 2007) and was a conversation that took place by telephone.
  118. The limit to the guarantee was £41,400; see clause 9.1.4 of the Offer letter. There was some evidence about how that rather precise sum was arrived at. The Claimants case was that the guarantee was required so that the loan satisfied a minimum repayment cover of 120%. That is indeed what it says in the underwriting report supporting the proposal and which was approved on 11 July 2007 [4/224], the day before the guarantee was executed, and is reflected in the terms of clause 10.1.1 of the offer letter which require the rental income "including Guarantees taken" to be not less than 120% of the interest repayments on the loan". A spreadsheet was produced which showed how the arithmetic worked.
  119. The Defendant's case was that it was a figure arrived at by reference to the rents from the property, a feature which suggested that the guarantee was there to cover the possibility of a rent void. He was asked about the figures:
  120. Q: The guarantee was limited to £41,400 – why that amount?

    A: There was a short lease for one tenant, and a hairdresser

    Q: That was the reason why a guarantee was taken yes, but why the amount?

    A: The rental income from the hairdresser and the Nationwide - its about the same figure

    Q: Page 4/205 – the Nationwide is £14.5K pa and the hairdresser is £11.5K pa – that's £26,000 a year.

    Judge: How do you get to £42,000 from those figures

    A: 2 years of Nationwide and 1 year of hairdressers – that was the explanation given to me

    Q: £40,500 – near enough

    A: £41,400 – VAT as well – to do with Nationwide and hairdresser.

    Q: Why 2 years of one and 1 year of the other?

    A: Because the Nationwide income was shorter term – there were difficulties reletting Nationwide - so a void though paying the rent – hairdresser had 5 years to go.

  121. On the face of it, the Defendant's attempt to explain this figure is hard to credit. The Claimant's explanation is by far the more convincing. That said, an element of the reasoning behind the requirement for a personal guarantee was to cater for a rent void. It is expressed in the underwriting report in the following way [4/223]:
  122. … it is imperative that we have some mitigation for the serviceability shortfall and the drop off of the leases prior to facility expiry. This should be made up from appropriate supporting valuer commentary and the proposed Directors Guarantees.

    Included within that is the risk of not being able to let the whole of the building when leases expire. If that had been explained to the Defendant then it could well have been in terms of rent void.

  123. There is no Mr Nixon to deny this conversation, and no contemporaneous documents to directly contradict what the Defendant says. But even then the evidence the Defendant gives is unsatisfactory. According to him, Nixon's (or the Credit Committee's) concern is the hairdresser, and he agrees to provide a guarantee to cover the hairdresser not paying its rent. There is no mention of the other tenants. Yet when he comes to give evidence about how the limit was calculated, £29,000 is explained by the Nationwide and only £11,500 by the hairdresser. That makes no sense. I have some sympathy for the point Mr Jones QC makes about the difficulty of giving evidence about the detail this long after the event, but this is more than detail, and it is by no means an isolated example of the unreliability of the Defendant as a witness. The likelihood is that there was no such conversation with Mr Nixon, and even if there was I cannot rely upon the Defendant's recollection of it.
  124. Wohlabend Properties
  125. This was a 10 year loan to buy a property in Ipswich, which was tenanted by ASK Restaurants trading as Zizzi, at a rent of £70,000 on a 30 year lease (from 2006) with a break after 25 years. The advance was £1.088M. The covenant was good, and there is no mention in the Claimant's documents of the risk of rent void. The issue was that the repayment cover was low and the recommendation was to take a guarantee of £20,000 [6/47]. That was a term of the facility letter and the Defendant and his wife signed such a guarantee on 30 June 2006.

  126. In the November 2014 witness statement made for the appeal, the Defendant says that the reason Mike Nixon gave for requiring the guarantee was the risk of rent void "in the event that the tenant exercised the break clause" [3/52]. That cannot be right. Ask were plainly a strong tenant and there were 25 years of the lease to run before the break. The loan only ran for 10 years, so there was no risk of the break being exercised during the term of the loan.
  127. At paragraph 28 of the Voluntary Particulars he gave in July 2017 [1/72] and at paragraph 65 of the witness statement he made for the trial in 2017 [2/56] the Defendant says this:
  128. Just prior to the Claimant sending out the Offer Letter in respect of the loan the Claimant's Mark Pagett telephoned me and informed me that when I received the facility letter I would note that it required me to provide a personal guarantee "to cover a quarter's rent" The guarantee executed by me was limited to £20,000 being £125 less than one quarter's rent (£17,500 plus 15% VAT (£2625) = £20,125

    There is no reference to a conversation with Mike Nixon. Mr Pagett's evidence was that he had no recollection of this call; see paragraph 34 of his witness statement [2/34]. When cross examined Mr Pagett confirmed that he was not saying that no such conversation took place, simply that he had no recollection of one.

  129. Mr Anderson QC cross examined the Defendant about his apparent change from this being a conversation with Mike Nixon to one with Mark Pagett. He took the Defendant to the witness statement he had made in 2014 and to his evidence that Mike Nixon had been saying that the guarantee was required because of the break clause. That was, said the Defendant "absolutely correct". His evidence was that he had had a conversation with Mike Nixon.
  130. Mr Anderson QC then went to the evidence about that conversation and pointed out that this was a 10 year loan and the break was after 25 years. How could the break justify the guarantee? The Defendant's evidence was that he was told that if he wanted to extend beyond 10 years they would have to build in a quarters rent and put in a £20,000 guarantee. I am bound to say I could not see how that explained the need for such a guarantee in the first 10 years. Mr Anderson QC continued:
  131. Q: So you are giving a guarantee which could not be called upon for 25 years

    A: Who knows after 25 years

  132. Mr Anderson QC then asked why this conversation did not appear in the 2017 witness statement. After some exchange it transpired that the Defendant was saying that he spoke to Mike Nixon and Mark Pagett. He was speaking to them both all the time. He had forgotten that he had spoken to Mike Nixon when he made his 2017 witness statement, but he had a categoric recollection of it now. And he had forgotten that he had had a conversation with Mark Pagett when he made his witness statement in 2014. He had no explanation for that.
  133. Whilst I can accept that the Defendant was regularly speaking with Mike Nixon and Mark Pagett, and that witnesses do forget, the evidence about the break clause is hard to explain away. There really was no prospect of a rent void in this case, and it is not credible to suggest that Mike Nixon said that there was. The fact that the Defendant ended up saying that it was built in to the deal so that it could go beyond 10 years, was a witness caught out by the objective facts but unwilling to give ground. Notwithstanding Mr Pagett's evidence, I do not accept that there was any such conversation in respect of Wohlabend which can give rise to the defence the Defendant is running here.
  134. Dreamfield Limited
  135. The application is dated 31 May 2007 [5/1]. It is for an interest only loan of £357,000 over 5 years with a servicing cover of 110% - although that entry on the form is annotated "with Gtee". The property was let to Alldays for 25 years from 1995, so there was another 12-13 years to run. Alldays were owned by the Co-op, whose covenant the Claimant regarded as "suitably strong for this transaction" [5/5]. The rent was £23,950 pa.

  136. The loan was initially approved by Mark Pagett with a Guarantee of £3,000 to bring the servicing cover to 110%, and a facility letter was sent out with that requirement. But at [5/28] the Underwriters decision is as follows:
  137. … given the recent rises in LIBOR interest rates I would suggest … an increase in guarantee in order to achieve the sanctioned 120% servicing.

    On 5 July 2007 the Claimant wrote to the Defendant varying the requirement for a guarantee to one limited to £6,000 [5/29]. The letter said "This is required due to the increase in LIBOR rates". The Defendant executed a guarantee limited to £6,000 on 16 July 2007 [5/31].

  138. In the witness statement he made in 2014 at paragraph 36 [3/53] the Defendant says this:
  139. Mike Nixon said that the Claimant wanted one quarter's rent comfort in respect of any potential rent void and that the guarantee would be limited to that purpose. As the annual rental income for this property was £24,000, a quarter's rent equated to £6,000. I recall that when I told Mike Nixon that the Facility letter referred to a guarantee of only £3,000 he said this was a mistake and he arranged for the Claimant to issue a side letter dated 5 July 2007 changing the guarantee requirement to £6,000. As before I was satisfied that the sole purpose of the guarantee was to cover a quarter's rent. Thus, I was content to execute the guarantee on that basis.
  140. In the witness statement made in September 2017 for the trial he says this [2/54]:
  141. 49.2 In the Loan Offer letter, under the heading "Security", the Claimant required a personal guarantee from me limited to the sum of £3,000. I knew that this requirement would be made because shortly prior to the receipt of the Offer, Colin Barnes had telephoned me to inform me of the requirement for that personal guarantee which he put on the basis that it was to cover the risk of any rent void and would be relied upon only if there was any such rental void.

    52. On the day prior to drawdown of the said loan solicitors acting for the Claimant, Cobbetts, wrote to the solicitors acting for the company, Redferns, and stated that the Claimant required my personal guarantee to be in the sum of £6,000 "to cover a quarter's rent". A full quarter's rent was £6,000. I entered into that guarantee in reliance upon the representation made by Colin Barnes.

  142. Mr Anderson QC took the Defendant to these differing accounts. Firstly paragraph 49.2. The Defendant confirmed that what is set out there. Then he took him to the statement made for the Court of Appeal and asked why, if that was true, there was no mention of it in the 2017 statement. The Defendant said that both had happened but that he had just thought about Colin Barnes when he was preparing the 2017 statement. He had no real explanation for not mentioning the Colin Barnes conversation in the 2014 statement.
  143. Mr Anderson QC then examined the Claimant's reason for the guarantee as given by the Defendant. This was a 5 year loan. The lease was to 2020 and the tenant had a strong covenant. Where was the risk of a rent void? The Defendant said that the premises were assigned to the local Costcutter (which they were) and that:
  144. if he went down the fear from Mike Nixon or Colin Barnes was really it would take time for legalities for the lease to go from X to Y, and it was to cover a void

    Mr Anderson QC pointed out that Alldays were liable for the rent (which they were). He then asked about the letter from Cobbetts. This had not been produced. The Defendant said that he had asked his solicitors for it but he did not have it. He said that it was a last minute change and he remembered that it was the day before the drawdown. It may be that there was a solicitors letter, but given the concerns I have about the accuracy of the Defendant's evidence, I cannot be satisfied that he can remember its terms. That is particularly so when the letter of 5 July 2007 which was sent to him (and acknowledged on 11 July 2007) expressly refers to the guarantee being varied because of the increase to LIBOR.

  145. The problem once again is that the Defendant has changed his evidence, and whilst there is no Mike Nixon or Colin Barnes to refute what he says, the documents from the time provide a cogent alternative explanation for the guarantee. There is a letter communicating the reason, and good evidence that there was no real risk of a rent void. I can have no confidence in what the Defendant now says. He may believe what he is saying, but I do not.
  146. Seafold Limited
  147. This is a claim on a guarantee limited to £26,400 dated 12 March 2007. The Amended Defence runs the in principle defence [1/61]. The Defendant refers to the transaction at paragraph 32 of the witness statement he made in 2014 [3/52], but there is no reference in the witness statement he gave for the purposes of the trial, and he gave no evidence about it.

  148. The Common Defence
  149. With that review of the individual transactions which make up the claim, I turn to the common line of defence which arises from the evidence the Defendant gives of his discussion principally with Mike Nixon about the circumstances in which personal guarantees would be required and called upon. There are a number of attractive features to this defence.

  150. Firstly the requirement of a personal guarantee is over and above the primary security, which was a first fixed charge over the property purchased. The sums loaned are far in excess of the sums guaranteed, and that underlines the point that there was a specific reason for the guarantees. The Defendant says it was to cover the risk of rent void. The Claimant accepts that in some cases that was the case, but in others puts forward an alternative reason. In some instances that alternative reason could properly have been understood by the Defendant to be rent void; in others it could not. But the requirement of a guarantee because there was a risk of a rent void was something which would have been discussed by the Defendant and Mike Nixon.
  151. Secondly, the limits on some of these guarantees relate to the rent. On some they do not, or that is in issue.
  152. Thirdly, these transactions occurred at a time of rising prices in the commercial property market. The Defendant was a successful investor and the Claimant was keen to lend to him. When writing reports on proposed loans, the Claimant's employees refer to him as a borrower with an exemplary track record. He had a cosy relationship with Mike Nixon and Colin Barnes, and that is an important part of the context for the discussions they had.
  153. Fourthly, neither Mike Nixon nor Colin Barnes gave evidence. I have only the Defendant's evidence about what they said to him.
  154. There is, however, an important distinction between when a personal guarantee would be required, and the circumstances in which it might be enforced. The guarantees themselves are limited in amount, but otherwise unconditional. Quite how the Claimant could operate a system of only calling on them if the tenant were not paying its rent is not entirely clear. Mr Anderson QC and Mr Reed submit that such an arrangement is unworkable, and thus unlikely. That does not mean the assurance was not given, but it goes to the likelihoods. But the more fundamental submission is that even if the risk of rental void was mentioned as a reason for taking a guarantee, a reasonable businessman would not take that as a collateral promise that the guarantee would not be enforced in any other circumstances.
  155. In the final analysis the issue comes down to one of evidence. It will be apparent from the views I have expressed in the course of dealing with the individual issues which arise in relation to these transactions that the Defendant was at times a most unsatisfactory witness. In isolation it may not be a big point, but his evidence about where he was when this representation was made changed from 28 July 2017 when he signed the statement of truth to the Voluntary Particulars [1/65] to 15 September 2017 when he signed the statement of truth on his witness statement [2/46]. In July it was at Allsops Auction Rooms and thereafter at the Four Seasons Park Lane, London, and in September it was at the auction house of Cushman and Wakefield. It is not that he is saying that he cannot remember detail – it is that the evidence changes.
  156. At times the Defendant seemed to be saying what he thought he needed to say to make good his case. When his evidence was flatly contradicted by the documents, he told me things that I simply did not believe, and which he should have realised were untenable. I can accept that it is hard always to be accurate or consistent when you are giving evidence about things which happened many years before. But as the review of the evidence given by the Defendant in relation to the individual transactions illustrates, and even without witness evidence from the Claimant, the Defendants evidence was repeatedly found to be wrong. Whether that was by reference to the contemporaneous documents, or his own prior evidence and conduct, the cumulative effect leads me to conclude that I cannot properly rely upon the evidence he gives as to the nature of the assurances he says he was given by Mike Nixon and/or Colin Barnes in relation to the common line of defence.
  157. I accept that some of the guarantees were required because of the risk of rent void, and I accept that the Defendant could properly understand that others were required for the same purpose. But requiring a guarantee because there is a risk of a rent void is not the same as saying that the guarantee will only be called in if there is a rent void. It is to be noted that this line of defence does not appear until 1 June 2012, even though there was some lengthy correspondence between the parties solicitors in which other defences were mentioned. If the Defendant truly had been told that he would only be liable if there was a rent void (or to that effect) the probability is that he would have said so by that stage. The Zipdale correspondence with Chris Miller in 2010 is perhaps the best illustration of the point – here was the Defendant saying that he was on the line for his personal guarantee, not that he was only liable if there was a rent void.
  158. This line of defence had some obvious attractions, of which Mr Jones QC made the best. The cumulative effect of the Defendant's cross examination was to leave that defence and the Defendant's credibility (as Mr Anderson QC puts it) in tatters. To establish an estoppel requires a promise or representation which must be clear or unequivocal; see paragraph 4-092 of Chitty on Contracts 32nd ed, a print of which is incorporated into Mr Jones QC's skeleton argument. For there to be a collateral warranty requires something of similar clarity and certainty. The Defendant has failed to establish anything approaching the necessary standard. The likelihood is that over time he has come to see the conversations he had with Mike Nixon and others as including some sort of enforceable promise that his guarantees would not be called in unless there was a rent void. He told me that they had said to him that he was a good business man and that he bought good properties – he would never be liable on his guarantees. There may have been some sort of comment to that effect, but that is all it would have been – a comment on how good the Defendant was as a developer.
  159. The clear impression the Defendant gives is that he has been let down by Mike Nixon and others, who were prepared to eat the lunches he paid for and benefit from the business he brought in, but when times changed deserted him. I can see that point of view. But on the evidence I have heard I find that they did not promise him that his personal guarantees would only be enforced if there was a rent void.
  160. There are two final points. The first is ostensible authority. Mike Nixon was a senior member of the Claimant's staff. At one point he is referred to as a Managing Director. Whilst I am satisfied that he did not have actual authority to make the assurances the Defendant relies upon, and that this is not really a case of attribution, I have concluded that his position within the Claimant, and the role he played, gave him ostensible authority to make these sorts of promises. If further reasons are required I will give them, but the issue is not determinative. Secondly the Claimant's general conditions.
  161. Clause 28
  162. Again I deal with this relatively briefly. Clause 28 of the Claimant's Commercial Mortgage Conditions provides that:

    The Lender may from time to time waive any requirement of any Facility Document. No amendment or waiver of a Finance Document will be valid unless made to or agreed in writing by the Lender.

    Facility Documents are defined as the Facility letter, each Security Document, the General Conditions and any other document the parties agree is a Facility Document. Security document is defined to include a Guarantee. Finance Document is not defined anywhere. It is not clear what a Finance Document would be if not a Facility Document, and Mr Reed submits that as a matter of interpretation I ought to treat it as such. I agree. Finance Document must mean something, and it seems to be used in clause 28 to mean the same thing.

  163. Clause 2 of the guarantees provides that:
  164. The General Mortgage Conditions 2006 … are incorporated into and form part of this Legal Charge. Terms and phrases defined in the General Conditions bear the same meaning in this Guarantee unless separately defined in this Guarantee.
    [my emphasis]

    The reference to "this Legal Charge" is an obvious error, because "this" document is a Guarantee, as the two subsequent references make plain. This clause cannot sensibly be taken to refer to a document other than the one it appears in. Consequently my view is that the general conditions are incorporated into the Guarantees.

  165. Mr Jones QC submits that the error is not "Legal Charge", but the preceding word "this". He submits that if "this" read "the", the clause would make sense. What reason could there be for the guarantor to agree that the terms of the general conditions are incorporated into the Legal Charge? Mr Jones QC submits that it puts the Guarantor on notice of the terms and conditions of mortgage in respect of which the guarantee is given. I disagree. This is a two clause document. The first sets out the operative provisions. The second is headed "General Conditions". The second sentence plainly refers to the Guarantee and reads as if it follows on from the first. They are not divided into sub clauses. It would be very odd if the first sentence referred to an entirely different document.
  166. The real question is whether the terms of clause 28 are wide and/or precise enough to have the effect contended for by the Claimant, of preventing the Defendant from relying upon the oral assurances given by its agents. Mr Jones QC submits that an entire agreement clause does not extend to a pre contractual representation – in other words to the sort of in principle ("overarching") assurance given by Mike Nixon. He referred me to Axa v Campbell Martin [2011] EWCA Civ 133, and to the judgment of Stanley Burnton LJ at [34] and [37].
  167. As a matter of interpretation I agree with Mr Jones QC's submission that Clause 28 is referring to a "Finance Document" which is in force. Otherwise there would be nothing to amend, and no requirement to waive. It follows that it would not apply to a representation made prior to the relevant Guarantee being executed of the kind contended for by the Defendant.
  168. Conclusion
  169. For the reasons set out above the claim succeeds


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