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England and Wales High Court (Commercial Court) Decisions
You are here: BAILII >> Databases >> England and Wales High Court (Commercial Court) Decisions >> Barclays Bank Plc v L. Londell McMIllan  EWHC 1596 (Comm) (09 June 2015)
Cite as:  EWHC 1596 (Comm)
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QUEEN'S BENCH DIVISION
Fetter Lane, London, EC4A 1NL
B e f o r e :
| Barclays Bank PLC
|- and -
|L. Londell McMillan
L. Londell McMillan appeared in person with written submissions from John Brisby QC and Alexander Cook, and from John Wardell QC (instructed by CANDEY Limited)
Hearing dates: 6, 11, 12, 13 & 18 May 2015
Crown Copyright ©
The Hon. Mr Justice Popplewell :
(1) A letter dated 24 June 2010 addressed by the Bank to Mr McMillan and signed by him on 30 June 2010 (together with the Schedules "the Loan Agreement");
(2) Schedule A to the Loan Agreement comprising a letter of instruction signed by Mr McMillan on 30 June 2010 addressed to the Firm ("the Instruction"); and
(3) Schedule B to the Loan Agreement comprising a letter of undertaking addressed to the Bank signed on behalf of the Firm ("the Undertaking").
"Dear Mr McMillan
We are pleased to advise you that Barclays Bank PLC (the "Bank") has agreed to provide a Loan (the "Loan" which expression, where the context so admits, means the outstanding amount thereof for the time being) of US$540,000.00 (Five hundred and forty thousand) to L. Londell McMillan (the "Borrower") subject to the following terms and conditions.
The Schedules attached hereto form part of the terms and conditions of this letter.
The Loan is to be used to assist the Borrower with a partnership capital subscription to Dewey & LeBoeuf LLP (the "Firm").
2. Offer Period
This offer will be available to the Borrower for acceptance for a period of two calendar months from the date of this letter, after which date the offer will lapse. Acceptance will be signified by completion of the formalities in clause 13.
3.1 Following completion of the matters detailed in clause 8 and the acceptance formalities detailed in clause 13, the Loan will be available for drawing in a single amount within three calendar months of the date of this letter (at which date the Bank's commitment to provide the Loan shall lapse).
3.2 The Borrower agrees that any amount drawn will be credited to an account in the name of the Firm.
a. Interest on the loan will consist of the aggregate of the Bank's margin of 2.25% per annum and the Bank's Base Rate for US dollars current from time to time and will be calculated on the basis of actual days elapsed over a 360 day year and will be payable quarterly in arrears on behalf of the Borrower (without any deduction, set-off or counterclaim) on the Bank's usual charging dates in March, June, September and December each year.
b. If the sterling equivalent of the Loan exceeds £25,000, the Bank reserves the right to increase the margin over Base Rate in the event that the cost to the Bank of maintaining the Loan is increased as a result of changes in law or regulations by the Bank of England or other Governmental authorities (whether having the force of law or otherwise) to cover such increased costs.
c. Interest shall, unless otherwise mutually agreed, be debited to a designated current account maintained by the Firm with the Bank (account number 54083200, sort code 20-00-00).
d. Interest which is not paid on the due date will be compounded and interest will be charged both before and after any demand."
a. Subject to Clause 5 (b) and Clause 5 (c), the Loan shall be repaid in full no later than the second anniversary of drawdown (the "Repayment Date").
b. Shortly before the first anniversary of the acceptance of this offer and annually thereafter: (i) the Borrower shall be deemed to request that the Repayment Date be extended by a year, unless the Borrower notifies the Bank in writing otherwise, and (ii) the Bank shall, at its absolute discretion, either extend the Repayment Date by a year or notify the Borrower in writing of any decision not so to extend.
c. In the event of: (a) the Borrower ceasing to practice as a partner with the Firm including by reason of the death of the Borrower: and (b) the provisions of Article X of the Firm's Partnership Agreement preventing immediate repayment of the Borrower's partnership capital, the Loan shall become due and payable at the times and in such amounts as the Borrowers capital account is repaid in accordance with the Firm's Partnership Agreement (as in effect at date of this Agreement) and in any event no later than the date falling 120 months after the date upon which the Borrower ceases to practice as a partner with the Firm.
By its acceptance of this letter, the Borrower appoints as its agent, and grants power of attorney to, Frank Canellas from time to time of the Firm (the "Agent") to sign all documents and do all acts on the Borrower's behalf in connection with drawing the Loan, paying interest on the Loan and repaying the Loan.
The Loan will be collateralised by the Borrower executing the letter of instruction that forms Schedule A, (the "Instruction Letter") and the Firm executing the undertaking that forms Schedule B, (the 'Undertaking")
The Borrower undertakes that whilst any part of the Loan is outstanding:
a. The Borrower will inform the Bank, promptly on becoming aware of it, of (i) any breach by the Borrower in the performance of any terms or conditions of this agreement or (ii) the occurrence of any of the circumstances referred to in clause 10.1.
10. Events of Default
10.1 In the event of:
a. The failure by the Borrower, or the Agent, to make any repayment of principal, or payment of interest or other monies, in respect of the Loan on its due date unless the Borrower demonstrates that the failure to pay is solely due to a technical or administrative failure and the relevant amount is duly paid within 3 business days after the due date; or
b. a breach in the performance of any other term or condition of the Loan; or
c. the presentation of a bankruptcy petition against, or the application for an order in respect of, or the insolvency, or the mental disorder, of the Borrower and in any such event such process is not discharged, stayed, withdrawn or vacated before the 30th day after receipt by the Borrower of such process; or
d. the Borrower entering into a composition with the Borrower's creditors: or
e. a distress, execution or other legal process being levied against any of the assets of the Borrower, either jointly or alone and in any such event such process is not discharged, stayed, withdrawn or vacated before the 30th day after receipt by the Borrower of such process; or
f. any indebtedness in excess of US$25,000 of the Borrower becoming immediately due and payable, or capable of being declared so due and payable, prior to its stated maturity, by reason of default on the part of any person; or
g. the Borrower failing to discharge any indebtedness in excess of US$25,000 on its due date; or
h. the balance standing to the credit of the Borrower's capital account with the Firm reducing to a sum below the amount of the Loan; or
i. the statement made in paragraph (ix) of the Undertaking being untrue in any respect; or
j in the event of any indebtedness of the Firm in excess of US$250,000 becoming immediately due and payable, or capable of being declared so due and payable, prior to its stated maturity, by reason of default on the part of any person
then the Bank may, at any time while any such event continues unremedied or unwaived, serve written notice on the Borrower declaring that the Bank's commitment to advance the Loan or any balance thereof shall cease and/or demand repayment of the whole amount of the outstanding Loan and all accrued interest and other amounts owing hereunder will become repayable forthwith on demand in writing made by the Bank at any time and/or place the Loan on demand.
10.4 The Borrower shall indemnify the Bank on demand against any loss, liability, cost or expense that the Bank may reasonably sustain or incur as a consequence of making such demand or as a consequence of non-performance by the Borrower of any obligation under this letter.
Acceptance by the Borrower of the Loan on the terms and conditions stated herein will be signified by the Borrower signing the attached copy of this letter and returning it, together with the Instruction Letter, duly executed, and the Undertaking, duly signed by authorised partners of the Firm, to the Bank."
"To: Dewey & LeBoeuf LLP (the "Firm")
FAO: Frank Canellas
I confirm that have I applied to Barclays Bank PLC (the "Bank") to borrow for the purpose of injecting capital into the Firm and that I may in future make further such applications.
In order for the Bank to authorise such borrowings the Bank requires that the Firm issue a Letter of Undertaking under which, inter alia, the Firm will undertake to pay any funds withdrawn at anytime (and from time to time) on or after the date hereof from my partnership capital account with the Firm (the "Capital Account") directly to the Bank for application in or towards repayment of such borrowings to the extent necessary to repay such borrowings and to ensure that the outstanding balance of such borrowings shall not at any time exceed the balance of the Capital Account.
I hereby request the Firm to issue the Letter of Undertaking in such form as may be required by the Bank and agreed by the Firm, and I confirm that I instruct the Firm irrevocably (unless the Bank should consent in writing to the cancellation of such instruction) to apply any funds withdrawn from time to time from the Capital Account in payment directly to the Bank to the extent required by the terms of such Letter of Undertaking.
I submit to the jurisdiction of the courts of England. This Letter shall be governed by the laws of England."
"We confirm that on receipt of any amount provided by Barclays Bank PLC (the "Bank") to the Partner by means of a partnership capital subscription (each a "Loan") pursuant to a partnership capital subscription loan facility letter from the Bank to the Partner (the "Facility Letter"), such amount will be placed to the credit of the Partner's partnership capital account (the "Capital Account") in the Firm's books.
In connection with each Loan:
i. we confirm that under the partnership agreement between all the partners in the firm (the "Partnership Agreement"), the sums standing to the credit of the Partner's Capital Account with the Firm shall be repayable within 3 years (subject to Article X of the Partnership Agreement) following the Partner ceasing to be a partner in the Firm, whether by reason of death, retirement or otherwise;
ii. provided that the Instruction Letter remains in force, we irrevocably undertake that upon the earliest of: (a) the Partner ceasing to be a Partner in the firm, (b) the occurrence of any event of default under the Facility Letter, and (c) the making or docketing of judgment in England or New York against the Partner in respect of amounts due under the Facility Letter, we will apply the balance of the Partner's Capital Account in satisfying (so far as is possible) any indebtedness remaining outstanding under the Loan with the Bank, before paying any residue to the Partner or to the Partner's legal personal representatives; ……"
(1) Mr McMillan did not want or need to fund his capital account.
(2) The purpose of the loan was not to fund his capital account; it was to provide working capital for the Firm which was in financial difficulties.
(3) The loan was part of a programme whose terms were negotiated by the Bank with the Firm, not the individual partners, and which was intended to be administered by the Firm rather than the partner. There was not intended to be any direct contact between the Bank and the partners, and there was none between the Bank and Mr McMillan. The Firm was to receive the loan proceeds, pay the interest, and keep an account of the amounts outstanding. The substance of the scheme was that the loan was intended and expected to be repaid not by the partner but by the Firm. The Bank was looking to the Firm rather than any individual partner in assessing the credit risk.
(4) The Firm, as agent for the Bank, represented to Mr McMillan that he would receive the benefit of the loan, whereas he did not, and the loan was solely for the benefit of the Firm.
(5) The Firm, as agent for the Bank, represented to Mr McMillan that the loan was without recourse to him, alternatively that his liability was only as guarantor.
(6) At the time of signing the Loan Agreement there was an unremedied event of default in existence under clause 10.1(j) such that Mr McMillan's liability, if personal, had already arisen. The argument was that at the time of Mr McMillan's Loan Agreement the Firm's liability to the Bank on its undertaking in PCSLs which had been extended to other partners exceeded $250,000, which amounted to an existing event of default under clause 10.1(j) resulting in the borrower being personally liable to repay the loan at the moment it was entered into.
(a) the purpose of the loan was not to fund his capital account; and/or
(b) the loan involved his personal liability as primary obligor; and/or
(c) the Firm was in poor financial health so as to render the borrowing imprudent; and/or
(d) at the time of signing the Loan Agreement there was an unremedied event of default in existence under clause 10.1(j); and/or
(e) (after he had entered into the loan) that the Firm was in poor financial health such that Mr McMillan was deprived of the opportunity to take steps to ensure that the loan was repaid by the Firm.
The Bank's dealings with the Firm
(1) Mr Johnman assumed that the partners would have access to information about the financial state of the Firm. This was a reasonable assumption on his part. Mr McMillan relied on evidence in recent criminal proceedings to the effect that the Firm's financial officers, including Mr Sanders and Mr Canellas, had been guilty of financial fraud and manipulation of the Firm's books and in relation to partner distributions, so as to deceive partners about the financial health of the Firm, conduct of which he and other partners had been unaware at the time. There is no basis for suggesting that Mr Johnman or anyone else at Barclays had grounds to know of or suspect such behaviour.
(2) There had been a number of points in the relationship between the Bank and the Firm where the Bank had information which raised questions about the credit quality of the Firm. This was in the context of many firms suffering reduced income from 2008 in the economic downturn, with their results for 2009 and into the first quarter 2010 reflecting this marketwide downturn. As Mr Johnman said, generally firms weathered this downturn. In December 2009 when the Firm indicated that it would breach its cash flow covenant in the RCF and sought a waiver, this raised what Mr Johnman described as a red flag which prompted the Bank internally to recommend that the Firm should reduce partner distributions, which the Bank was told by Mr Sanders the Firm was doing independently of its own recommendation. Mr Johnman explained that when this and a subsequent concern raised "red flags", they were met with a plausible explanation and coherent response from Mr Sanders or Mr Canellas and so the red flag went down again.
(3) At the date of Mr McMillan's Loan Agreement, the Bank's perception was that the Firm had suffered the same financial distress as many other firms in the economic downturn, but there was no expectation that it would not be able to weather the circumstances by the reduction in partner distributions which it said it was undertaking. Mr Johnman's evidence, which I accept, was that there were good reasons for the Bank not to be concerned from a credit perspective; that the Bank believed that the capital available to the Firm had not reduced below the value of the PCSLs; and that if the Bank had issued letters of non extension to prevent the loans being evergreen so that they gradually fell due for repayment in the coming years, the Firm would have been able to pay them. In short, the Bank did not anticipate an event of default under the loans.
(4) At some point between April 2010 and 15 July 2010 the Bank received the Firm's management accounts with results for the first quarter of 2010. Mr Johnman explained that these reflected what he would expect to see with the market problems working through. Mr McMillan relied upon an internal credit paper in which the Bank expressed concerns over the results. It appears that the relevant part was prepared on 15 July 2010 and so postdates Mr McMillan entering into his Loan Agreement. There were further discussions in which by the end of July 2010 Mr Sanders was telling the Bank that the Firm's financial position was secure on the basis that it had refinanced its RCF facilities, raised $150 million by loan notes and was following a strategy of de-equitising by managing out some partners. Although Mr Johnman described the strategy put forward by Mr Sanders as compelling and persuasive, in the end the absence of underlying financial information led the Bank to lose confidence in what it was being told by Mr Sanders. A further "nail in the coffin" in the loss of confidence in Mr Sanders was his attempt to persuade the Bank to release the Firm from its undertaking in the PCSLs with the promise of some sort of payment to the Bank or increase in the rates on partner loans future business, a negotiating tactic described internally as "a bribe", not in the sense of anything improper but in the sense of a crude bargaining tactic. The Bank decided to consider strategies to reduce its exposure, which by this time was confined to the PCSL programme. The strategy adopted involved giving notices of non extension of the loans in July or August 2010 so that they ceased to be evergreen. This marked a greater level of concern over the Firm's finances than existed on 30 June 2010 when Mr McMillan signed his Loan Agreement, but still fell far short of any perception that the Firm was insolvent or likely to cease business as a going concern or commit an event of default. At this stage the Bank still had no reason to doubt the ability of the Firm to make repayments from the capital accounts of partners. The exit strategy was driven by the fact that the terms of the loans were unprofitable to Barclays. As Mr Johnman put it: "we only exited because the economics didn't make sense, not because we didn't think we would be repaid".
(5) The information about the Firm's financial health which the Bank received thereafter did not cause it to suspect that the Firm was insolvent or likely to cease business as a going concern or commit an event of default until very shortly before the bankruptcy in 2012. Prior to that point the Bank reasonably believed that repayment of the loans would be made by the Firm in the normal course as a going concern.
Mr McMillan's dealings with the Firm
(1) His admission as a partner was on the terms of the Firm's partnership agreement.
(2) His target compensation would be at the annual rate of US$1.5 million per annum for 2007, 2008 and 2009, with the figure prorated for 2007 for the period between his start date and the end of the calendar year.
(3) The target compensation would be paid by way of monthly "draws" of US$25,000 and the balance as "distribution" payable from time to time if and as warranted by the firm's cash flow. In his evidence to me Mr McMillan sought to portray this as an absolute entitlement to US$1.5 million per year. That was not what the offer letter said and was not in accordance with the partnership agreement at least from the time of the merger onwards (the partnership agreement before the Court was that of the Firm which I was told followed closely that of LeBoeuf prior to the merger; there is nothing to suggest that Dewey Ballantine's partnership agreement was in this respect different, but it is in any event common ground that from the time of the merger Mr McMillan was engaged on the terms of the Firm's partnership agreement to which he subscribed). The partnership agreement in essence provided that the Firm's profits were to be shared prorata in accordance with the target compensations decided upon by the Compensation Committee for each partner, subject to an ability to make special discretionary payments to individual partners up to a cap of 10% of distributable profits. Mr McMillan's perceived worth to the partnership was reflected in his target compensation, but his entitlement to that sum depended on the firm making sufficient profits to pay all the partners their target compensations (in the absence of the exercise of discretion in particular cases), failing which he would only be entitled to a prorata proportion of his US$1.5 million per annum. I have no doubt that Mr McMillan understood this. He told me that on occasions whilst at the Firm that he was assured that he was doing well and that he would be paid his target compensation. Even if that be so, I have no doubt that he understood that such compensation was discretionary, not a matter of entitlement, in circumstances where the profits of the Firm were insufficient to meet all partners' target compensations.
(4) In relation to capital contributions the offer letter provided:
As a Partner you will be required to contribute capital to the Firm. The Capital requirement is 36 percent of your Target Compensation. Your initial Capital obligation is $540,000 payable over two years commencing in 2008 and shall be deducted proportionately from your distributions. Capital funds required or due you as a result of any change in Target Compensation in years subsequent to 2007 shall be paid each year accordingly by you.
To assist you with meeting the Firm's capital contribution requirement, the Firm has negotiated an optional loan program. If you are interested in exploring this option, please contact David Rodriguez, Partner Relations Specialist, in the New York office at (212) 424-8036."
"To: McMillan, L. Londell
From: The Executive Committee
Re: Capital Account Balance
In order to fund the Firm's working capital needs the Executive Committee has approved a capital loan program sponsored by Barclay's Bank. Barclay's has agreed to finance all partners' outstanding unpaid capital balances as of 12/31/2007 thereby satisfying all such obligations (this will not address any changes in capital attributable to 2008 partner compensation adjustments). The firm would like to close this loan by the end of March 2008.
There will be no financial impact to you with respect to this loan, until such time as your capital is actually due to the firm. At that time you may elect to continue to participate in the loan program or just pay your capital directly to the firm thereby satisfying your loan obligation. This will not impact the timing of when your capital is actually due to the firm.
Please sign the attached form and return it to Joel Sanders in the NY office no later than March 12, 2008 to facilitate this process.
Further details of the loan program are available by request.
Thank you in advance for your help with this.
Note: Based on 2007 Participation Target of $1,500,000.00, your 2007 capital obligation is $540,000.00, of which $0.00 has already been paid, leaving you an unpaid capital balance of $540,000.00."
"………. I would like to speak to you about your capital
I understand that you will not be participating in the Barclays loan program for personal reasons which is fine. However if you don't participate in any loan program your 2008 capital will be due at the end of this month which means absent a check from you we will have to deduct your 2008 capital obligation from your draws and distributions until your obligation is satisfied which I know you won't like. So I am recommending you choose one of our other participating banks quickly to avoid this result. I can set this up for you tomorrow if you give me a call in the morning.
Please don't shoot the messenger on this one - I'm just trying to help."
"I have attached a reconciliation of the compensation owed to you as of today. Please note that you have not paid any of your capital into the firm and you have not executed any capital loan documents. In order to receive any compensation payments you must get current on your capital account. You can easily do so by executing the Barclay's loan form today."
"Further it was my understanding that the loan documentation had been signed for my contribution to the capital account and payments were being deducted from my draw. If not, I should sit with someone and go over my payment history for accuracy. Thanks again."
"You did not sign the loan docs because you said it was a diversity issue. I did not know you didn't sign the loan docs when I spoke to you. David Rodriguez is emailing you the loan docs from every one of our partner banks. Pick one - sign it - return it to me and I will process your wire immediately."
"So let me understand, do we now have this type of relationship on everything? I just want to understand how you and Steve are coming at me."
"No. On everything else we love you and we're pretty flexible. It's just the financial stuff that's a pain in the ass this year. I have to close our books in less that a month and the auditors are pretty picky about the numbers which is no surprise so I need to button us up for the audit. Right now I'm over distributed and under capitalized because we've been really lenient in the past so I'm just doing my job and tightening things up for the year end audit. I'm kicking everybody's ass so please don't take it personally. When the money starts rolling in again we'll go back to our normal easy going style of fiscal management."
"Understood but I have not been compensated much this year (and fully for 08) and it is killing me. I made a few tough investments based on my firm agreement with expectations of payment. What also really disturbed me was my little daughters Child Support was cut off by the firm. We discussed it and you promised to fix it but it is not corrected so I have paid all my expenses with no income. I was and remain dealing with much, missed a few timely diary submissions and a [high profile client] died. We are now up to speed and I am still jammed up. The conditional accomodations to everything lately and the way you initially was handling me and the situation was a bit unfair under the circumstances. For some reason, the firm directed my client matters to another partner and not discuss it for some matters that have nothing to do with him. That is improper. When we went over billing, collections and everything, I showed you proof that I did send outstanding sums owed to our firm regarding [the high profile client] and we did the best we could do on collections at the time since no Executor was put in place and our billing entries were not proper and final. Nonetheless, my relationship with the client and now that the Estate has just been settled, we will get paid.
Finally, I love you too but fair is fair. Let's move on please... Thanks.
"So does this mean you're not going to pay your capital by signing a loan form? Right now that's the only thing standing between you and a check unless Steve or Steve waives it."
"I will sign but you are holding my income for me and my family because we found out that was yet to be done and that doesn't feel right to me. One has nothing to do with the other. I have worked hard, generated income and earned my right to receive my compensation. Your approach with me based on this issue and the ones I raised earlier indicates there is a problem. I want no problems. Just want to be productive."
"the exercise of construction is essentially one unitary exercise in which the court must consider the language used and ascertain what a reasonable person, that is a person who has all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract, would have understood the parties to have meant. In doing so, the court must have regard to all the relevant surrounding circumstances. If there are two possible constructions, the court is entitled to prefer the construction which is consistent with business common sense and to reject the other."
(1) The Loan Agreement is addressed to Mr McMillan personally and is signed by him in a personal capacity.
(2) The opening paragraph defines Mr McMillan as the Borrower and states that the loan is to be provided to him.
(3) Clause 1 identifies the purpose of the loan as being to assist Mr McMillan with his partnership capital subscription, i.e. to assist him in fulfilling his personal obligation towards the Firm.
(4) Clause 2 identifies that acceptance of the letter is to be signified by completion of the formalities in clause 13 which dictate, amongst other things, that Mr McMillan's signing of the copy of the letter will amount to an acceptance by Mr McMillan of the loan.
(5) Clause 7 provides that Mr Canellas of the Firm is to act on Mr McMillan's behalf in relation to drawdown of the loan, payment of interest on the loan and repayment of the loan.
(6) Paragraph 8 refers to the Undertaking given by the Firm as collateral, that is to say as a secondary and security obligation.
(7) Clause 9(a) imposes an obligation on Mr McMillan to inform the Bank on becoming aware of any breach by him in the performance of any terms or conditions of the agreement.
(8) Clause 10.1(a) makes it an Event of Default for Mr McMillan to fail to make any repayment of principal or interest.
(9) Clause 10.1 provides that when there is an Event of Default, the Bank may demand repayment of the whole amount of the outstanding loan by serving a written notice on Mr McMillan.
(10) Clause 10.4 imposes on Mr McMillan an obligation to indemnify the Bank against the consequences of making such a demand or as a consequence of non-performance by Mr McMillan of any of the obligations under the Loan Agreement.
(11) Clause 11.2 provides for Mr McMillan to submit to the personal jurisdiction of the English Court in the event that the Bank sues here to enforce repayment of the loan.
(12) The Loan Agreement contains no obligation on the part of the Firm, whose obligations are identified and defined in the Undertaking.
(1) In the Instruction Letter Mr McMillan confirms that it is he who has applied to the Bank to borrow and that it is for the purpose of his injecting capital into the Firm.
(2) The Undertaking confirms in its opening paragraph that the amount drawn down under the loan will be provided to the Partner, i.e. Mr McMillan, and that it will be by means of a partnership capital subscription. Paragraph (ii) identifies that the partners' capital loan account balance is to be used to discharge any indebtedness under the loan.
(1) It is not correct to say he did not want or need to fund his capital account. He signed the document in the full knowledge and understanding that that was indeed its purpose. Moreover the Bank understood that such was its purpose, as stated in the document which Mr McMillan signed. There is no warrant for suggesting that the Bank knew or had any ground to suspect that Mr McMillan was signing the document for a different purpose.
(2) There is no force in the suggestion that the purpose of the loan was not to fund his capital account but to provide working capital for the Firm which was in financial difficulties. Mr McMillan's suggestion that the purpose of the loan was to provide working capital to the Firm does not assist him, because that is what provision by partners of a capital contribution is intended to provide to the Firm. Insofar as it is suggested that it was not intended that Mr McMillan should get the benefit of such a loan:
(a) As between Mr McMillan and the Firm, that is inconsistent with the entire course of the correspondence and Mr Sanders' promise in his email of 24 June 2010 that when the loan proceeds from the Bank were received by the Firm the amount would be remitted to Mr McMillan. In the written final submissions it was suggested that this was "no doubt" a dishonest promise by Mr Sanders. This allegation, which had not been pleaded or previously foreshadowed was not justified. The mere fact that in the event it does not appear that the money was transferred once received by the Firm does not justify the allegation. On the material before me I am simply unable to say why it was not immediately passed on. Another partner, Mr Landgraf signed his agreement on 13 May 2010 and his loan proceeds were received by the Firm on 21 May 2010, but they were not passed on until 25 June 2010 and only as a result of Mr Landgraf chasing for them.
(b) In any event, even if the Firm did not intend to pass to Mr McMillan the benefit of the loan, its intention is not to be imputed to the Bank, which had no reason to know or suspect any such intention, which would have been contrary to the purpose expressed in the written agreement. It would not therefore form part of the relevant factual matrix.
(3) It does not assist Mr McMillan to point to the fact that the loan was part of a programme whose terms were negotiated by the Bank with the Firm, not the individual partners, and which was intended to be and was administered by the Firm rather than the partner. The Bank could properly assume, as it did, that the Firm was negotiating for the benefit of its partners in seeking to have personal loans available; and that the Firm was seeking to act in its partners' interests in administering the loans on their behalf. None of this suggests that the Firm was acting as the agent of the Bank or that the loans were something different from what their plain terms indicated. Nor does it assist Mr McMillan to point to the fact that the Bank assessed the credit risk on the portfolio by reference to the Firm rather than individual partners. The loans were collateralised by the Firm. Mr Johnman characterised this credit risk as "double default". It is not in any way inconsistent with the partner being the borrower in accordance with the terms of the contractual documentation.
(4) Nor does it assist Mr McMillan to point to the fact that, as Mr Johnman accepted in evidence, the loan was intended and expected to be repaid not by the partner but by the Firm. That was what was intended and expected in the normal and anticipated course of the Firm continuing as a going concern. That was what the written terms provided for, but they equally provided for recourse to the personal liability of the partner in certain circumstances, which have eventuated in this case.
(5) There is nothing in Mr McMillan's argument that the Firm, as agent for the Bank, represented to him (a) that he would receive the benefit of the loan whereas he did not; or (b) that the loan was solely for the benefit of the Firm; or (c) that the loan was without recourse to him, alternatively that his liability was only as guarantor. In fact:
(a) no such representations were made by the Firm; and
(b) in any event the Firm was not the agent of the Bank for making any such representations; and
(c) in any event the entire agreement clause prevents reliance on such alleged representations.
(6) The argument that at the time of signing the Loan Agreement there was an unremedied event of default in existence under clause 10.1(j) such that Mr McMillan's liability, if personal, had already arisen, fails as a matter of fact and law:
(a) The factual basis for the argument was that in April 2007 (prior to the merger), four partners had left Dewey Ballantine with balances on their capital accounts which were insufficient to repay the loans because they had been allowed to deduct their liability for losses of Dewey Ballantine in 2006 from their capital accounts; this was a default under clause 10.1(h) of their agreements which was said to give rise to an immediate right of payment from the firm to the Bank of the amount which was on their capital account under (ii)(b) of the undertakings in their loan agreements. However subsequent documents confirm that by the time of Mr McMillan's loan in 2010 there were no outstanding balances in shortfall in relation to former partners who had left Dewey Ballantine or the Firm.
(b) The legal basis for the argument is unsound because it assumes that paragraph (ii)(b) of the undertaking imposes an obligation on the Firm to pay a sum to the Bank as an immediately enforceable debt, whereas the undertaking is negative in form, being merely not to pay the balance of the capital account to the partner in preference to the Bank. If there is no payment to the partner there is no breach of obligation to the Bank.
(7) In these circumstances it is unnecessary to address the additional argument advanced on behalf of the Bank that the terms of the agreement give rise to an estoppel by deed or by contract preventing Mr McMillan from denying that the purpose of the loan was to assist him in making his capital subscription to the Firm as set out in clause 1.
"As regards the contention of the plaintiff that the transactions between himself, Auto Finance and the defendants were a 'sham', it is, I think, necessary to consider what, if any, legal concept is involved in the use of this popular and pejorative word. I apprehend that, if it has any meaning in law, it means acts done or documents executed by the parties to the 'sham' which are intended by them to give to third parties or to the court the appearance of creating between the parties legal rights and obligations different from the actual legal rights and obligations (if any) which the parties intend to create. But one thing, I think, is clear in legal principle, morality and the authorities (see Yorkshire Railway Wagon Co. v Maclure and Stoneleigh Finance Ltd v Phillips), that for acts or documents to be a 'sham', with whatever legal consequences follow from this, all the parties thereto must have a common intention that the acts or documents are not to create the legal rights and obligations which they give the appearance of creating. No unexpressed intentions of a 'shammer' affect the rights of a party whom he deceived. There is an express finding in this case that the defendants were not parties to the alleged 'sham'. So this contention fails."
Misrepresentation of unremedied event of default
(1) Applying the principles I endeavoured to summarise in Mabanga v Ophir Energy  EWHC 1589 (Comm) at paragraphs - and/or by virtue of the entire agreement clause in clause 15 of the Loan Agreement, there was no implied representation that there were no unremedied events of default.
(2) In any event there was no unremedied event of default as alleged for the reasons I have explained.
Unfair debtor creditor relationship
"140A Unfair relationships between creditors and debtors
(1) The court may make an order under section 140B in connection with a credit agreement if it determines that the relationship between the creditor and the debtor arising out of the agreement (or the agreement taken with any related agreement) is unfair to the debtor because of one or more of the following–
(a) any of the terms of the agreement or of any related agreement;
(b) the way in which the creditor has exercised or enforced any of his rights under the agreement or any related agreement;
(c) any other thing done (or not done) by, or on behalf of, the creditor (either before or after the making of the agreement or any related agreement).
(2) In deciding whether to make a determination under this section the court shall have regard to all matters it thinks relevant (including matters relating to the creditor and matters relating to the debtor).
(3) For the purposes of this section the court shall (except to the extent that it is not appropriate to do so) treat anything done (or not done) by, or on behalf of, or in relation to, an associate or a former associate of the creditor as if done (or not done) by, or on behalf of, or in relation to, the creditor.
(4) A determination may be made under this section in relation to a relationship notwithstanding that the relationship may have ended.
140B Powers of court in relation to unfair relationships
(1) An order under this section in connection with a credit agreement may do one or more of the following–
(a) require the creditor, or any associate or former associate of his, to repay (in whole or in part) any sum paid by the debtor or by a surety by virtue of the agreement or any related agreement (whether paid to the creditor, the associate or the former associate or to any other person);
(b) require the creditor, or any associate or former associate of his, to do or not to do (or to cease doing) anything specified in the order in connection with the agreement or any related agreement;
(c) reduce or discharge any sum payable by the debtor or by a surety by virtue of the agreement or any related agreement;
(d) direct the return to a surety of any property provided by him for the purposes of a security;
(e) otherwise set aside (in whole or in part) any duty imposed on the debtor or on a surety by virtue of the agreement or any related agreement;
(f) alter the terms of the agreement or of any related agreement;
(g) direct accounts to be taken, or (in Scotland) an accounting to be made, between any persons.
(2) An order under this section may be made in connection with a credit agreement only–
(b) at the instance of the debtor or a surety in any proceedings in any court to which the debtor and the creditor are parties, being proceedings to enforce the agreement or any related agreement; or
(c) at the instance of the debtor or a surety in any other proceedings in any court where the amount paid or payable under the agreement or any related agreement is relevant.
(3) An order under this section may be made notwithstanding that its effect is to place on the creditor, or any associate or former associate of his, a burden in respect of an advantage enjoyed by another person.
(9) If, in any such proceedings, the debtor or a surety alleges that the relationship between the creditor and the debtor is unfair to the debtor, it is for the creditor to prove to the contrary."
" Section 140A is deliberately framed in wide terms with very little in the way of guidance about the criteria for its application, such as is to be found in other provisions of the Act conferring discretionary powers on the courts. It is not possible to state a precise or universal test for its application, which must depend on the court's judgment of all the relevant facts. Some general points may, however, be made. First, what must be unfair is the relationship between the debtor and the creditor. In a case like the present one, where the terms themselves are not intrinsically unfair, this will often be because the relationship is so one-sided as substantially to limit the debtor's ability to choose. Secondly, although the court is concerned with hardship to the debtor, subsection 140A(2) envisages that matters relating to the creditor or the debtor may also be relevant. There may be features of the transaction which operate harshly against the debtor but it does not necessarily follow that the relationship is unfair. These features may be required in order to protect what the court regards as a legitimate interest of the creditor. Thirdly, the alleged unfairness must arise from one of the three categories of cause listed at sub paras (a) to (c). Fourthly, the great majority of relationships between commercial lenders and private borrowers are probably characterised by large differences of financial knowledge and expertise. It is an inherently unequal relationship. But it cannot have been Parliament's intention that the generality of such relationships should be liable to be reopened for that reason alone. …
 Section 140A was undoubtedly intended to introduce a broad definition of unfairness, in place of the narrowly framed provisions which had previously governed extortionate credit bargains. That much is clear from section 140A(1)(c), whose effect is to extend the concept of unfairness beyond cases where the terms or the way that the creditor applied them makes the relationship unfair. Under that subsection, it extends to any case whatever in which human action (or inaction) produces unfairness. The only limitation on the extreme breadth of sub-paragraph (c) is that the action or inaction in question must be 'by or on behalf of the creditor'. Putting the matter at its very lowest, those words envisage a relationship between the creditor and the person whose acts or omissions have made the relationship unfair. If it had been intended to extend the sub-paragraph to any conduct beneficial to the creditor or contributing to bringing about the transaction, irrespective of that person's relationship with the creditor, it would have been easy enough to say so, and very strange to use the language which the legislator actually employed."
(1) The terms of the loan were negotiated on behalf of all the partners of the Firm by the Firm's financial officers, whom the Bank was entitled to assume and did assume were acting in the best interests of the partners.
(2) Mr McMillan was an experienced and senior partner in a major international law firm whom the Bank could reasonably expect to understand the clear terms of the agreement which he signed, and to be able to assess the financial implications of doing so. Mr McMillan was not a naïve or vulnerable consumer.
(3) The structure of the loan followed that which was standard at the time for partner capital loan programmes to many professional firms including law firms. There was nothing in the terms as to default or recovery from partners which was unusual or unfair.
(4) The interest rate and tenor of the loan was not unusual or unfair, and not disadvantageous to Mr McMillan; it was not suggested otherwise.
(5) Mr McMillan was under no obligation to finance his capital contribution by a loan from the Bank. He was free to do so from other partner capital loan schemes which the Firm had negotiated with other banks or by any other personal source of funding.
(1) Clause 10.1 provided for an Event of Default which the Bank knew, or ought reasonably to have known, would be triggered immediately.
(2) Mr McMillan was not given sufficient information about the interest to be paid on the loan, such as APR or other cost of credit indication.
(3) The Bank made no assessment of Mr McMillan's ability to repay the loan.
(4) The Bank knew, or ought to have known, that the poor financial state of the Firm was such that the loan might not in the event be repaid from Mr McMillan's partnership capital account with the Firm, and failed to tell him of that fact.
(5) The Firm as agent of the Bank misrepresented the nature of the arrangements to Mr McMillan.
(6) The Firm as agent of the Bank procured Mr McMillan to enter into the Loan Agreement by duress, stating that unless he did so, the Firm would not make any distributions to him of the monies owed to him.
(7) Following the execution of the Loan Agreement the Bank failed to provide Mr McMillan with any documentation or information in relation to the Loan, including, statements of account and information about interest charged and paid.
(8) The Firm as agent of the Bank failed to comply with the terms of the Undertaking upon the departure of Mr McMillan from the partnership in December 2010 by repaying his loan over the following 18 months.
(1) As to an existing event of default, this is the clause 10.1(j) argument which I have rejected for the reasons given.
(2) As to interest rates, the rate was clearly stated in clause 4(a) of the Loan Agreement as 2.25% over the Bank's base rate for US Dollars payable quarterly in arrears. There is no suggestion that this was an unreasonable or unfair rate, and interest paid was generally available for tax relief for the partners. The interest rate was something which could be expected to be readily understood by a senior partner in a major international law firm.
(3) As regards Mr McMillan's ability to repay, Mr McMillan's application asserted an entitlement to an annual partnership compensation of US$1.5 million, and the Bank was entitled to assume, as it did, that as a senior partner in a major law firm his past and current earnings would have put him in a position to be able to repay such sum. Further and in any event, the Loan Agreement envisaged that repayment would in the ordinary course come from Mr McMillan's partnership capital account with the Firm.
(4) The Bank did not know or have grounds to suspect that the financial state of the Firm was such that the Loan might not be repaid from Mr McMillan's partnership capital account with the Firm. In any event the Bank was entitled to assume, as it did, that Mr McMillan as a partner had at least as much knowledge of the financial health of the Firm as was available to the Bank.
(5) The Firm did not misrepresent the nature of the arrangements to Mr McMillan, and was in any event not the agent of the Bank in relation to any such representation. The Bank knew of no such representation and was entitled to assume, as it did, that Mr McMillan was an experienced and senior partner in a major international law firm who understood the clear terms of the agreement which he signed and was able to assess the financial implications of doing so.
(6) The Firm did not procure Mr McMillan to enter into the Loan Agreement by duress. He voluntarily did so because he understood that otherwise his capital contribution would be deducted from his distributions. In any event the Firm was not the agent of the Bank for these purposes and the Bank had no reason to know of any such duress had there been any. The Bank was entitled to assume, as it did, that Mr McMillan freely and voluntarily entered into the agreement and understood what he was signing.
(7) As regards information and documentation after the Loan Agreement was entered into, this was sent by the Bank to the Firm. If and to the extent that this was not was not passed on to Mr McMillan, this has little bearing on whether the relationship was unfair. Mr McMillan was aware that one of the virtues of the programme was that loans were centrally administered by the Firm on behalf of the partners.
(8) There is no evidential basis for the assertion that the Firm failed to comply with the terms of the Undertaking upon the departure of Mr McMillan from the partnership in December 2010. I am unable to conclude that he ceased to be a partner at that date given his substantial receipts in 2011, and there is no ground for concluding that he was entitled to a withdrawal from his capital account at any time before the bankruptcy of the Firm.
Counterclaim: breach of duty to advise
(1) the purpose of the loan was to fund Mr McMillan's capital account; and
(2) in any event the Bank had no knowledge, or reason to suspect, that that was not the purpose of the loan, which was the purpose clearly stated in clause 1 of the Loan Agreement.
(1) until very shortly before the bankruptcy the Bank did not know, and had no reason to suspect, that the Firm was in such financial distress as to make repayment of the loan by the Firm unlikely; and
(2) in any event Mr McMillan has failed to establish that if at any time after he had entered into the loan he had been told that there was a risk that it would not be repaid by the Firm, he would have been in a position to do something, and would have done something, which would have resulted in repayment of any part of the loan by the Firm; accordingly had there been any breach of duty by the Bank he would have failed to prove any loss.