Estoppel

Promissory estoppel - Reliance on representation - Claimant bank entering into facility agreements with group of companies

Standard Bank Plc v Bin Issa Al Jaber: Queen's Bench Division, Commercial Court (Mr Justice Burton): 8 November 2011

The defendant was the controlling shareholder of a group of companies which included JJW and AJWA (the MBI group). Between April and September 2008, JJW and AJWA entered into two facility agreements (the facility agreements) with the claimant bank (the bank), in relation to which the defendant entered into guarantees (the guarantees).

By mid 2009, the bank began to be concerned about repayment of the loans under the facility agreements. Discussions took place between the parties as to a possible alternative method of securitisation of assets of the MBI group by way of re-financing. The method proposed was the issuance of a Sukuk, a form of financial instrument compliant with Sharia law (the Sukuk transaction). The Sukuk transaction required a lead manager and the defendant was in discussion with another bank, BNP Paribas, about it becoming the lead manager. The bank was also very keen to act as lead manager.

On 17 March 2010, it was agreed that the bank would be appointed as lead manager on the basis of exclusivity for a limited period of three-and-a-half months. Two documents were accordingly entered into on 17 March: (i) an agreement pursuant to which the bank, as lead manager, was given an exclusive mandate to arrange the Sukuk transaction, which was itself conditional upon a series of matters including the successful completion of due diligence (the Sukuk mandate); and (ii) a side letter which stated that the appointment of the bank as lead manager had been made on the understanding that, on or prior to 15 April, the bank would confirm: (a) its commitment to underwrite at least $150m of the Sukuk instruments to be issued under the financing; and (b) that it would provide a bridge facility to MBI in an amount to be agreed (the side letter).

The side letter further stated that, in the event that those conditions were not satisfied on or prior to 15 April, then MBI, inter alia, would be entitled to terminate the appointment of the bank. Due diligence was not successful and on 20 May, the bank wrote to the defendant confirming that his companies were released from any exclusivity obligation in relation to the securitisation. The bank did not proceed with the Sukuk transaction as lead manager, nor was the bridging loan provided.

A total of €121m and $22m remained due and unpaid pursuant to the facility agreement and guarantees, and the bank brought an application under CPR Pt 24 for summary judgment against the defendant as guarantor of the facility agreements. The defendant submitted that there were three matters which showed that the defendant had a real prospect of successfully defending the claim: (i) estoppel (the estoppel case); (ii) breach of implied term by reference to the alleged role of SK, who represented the MBI group at the time of the proposed Sukuk transaction and who also entered into an introducing agreement with the bank (the introducing agreement) which terminated in June 2009 (the SK case); and (iii) breach of implied terms of a contract by which the bank carried out and supervised Forex Trading (the Forex case).

In relation to the estoppel case, it was alleged by the defendant that, during a meeting which took place between the parties on 17 March at which the Sukuk mandate and side letter were executed, the bank's head of securitisation made an oral representation to the defendant to the effect that if the defendant appointed the bank as lead manager of the Sukuk transaction and conferred upon the bank an exclusive mandate to arrange the contemplated financing, then the bank would: (i) refrain from enforcing payment under the facility agreements or the guarantees; and (ii) provide the defendant with the bridge facility by no later than 15 April (the representation). The defendant submitted that there should be implied into the representation the proposition that the claimant would refrain from exercising its rights under the facility agreements and guarantees (the rights) until 15 April.

If, by that date, the bridge facility and/or the Sukuk transaction were not in place, then the claimant would refrain from exercising the rights until they were, for to do otherwise would be inequitable. It was further submitted that the effect of the estoppel doctrine was 'generally suspensive', that was to say that notice could be given to end its effect, but that it had 'extinctive effect in exceptional cases', of which the instant case was one (the extinctive effect argument).The defendant submitted that, in consequence of his reliance on the representation, he had signed the Sukuk mandate and had suffered detriment.

Had he not signed the Sukuk mandate, he would have obtained the contemplated financing from BNP Paribas or from another finance provider. That opportunity had been lost by the time that discussions between the parties concerning the Sukuk transaction had broken down. The defendant's commercial relations with BNP Paribas had been damaged, and as a consequence of the absence of financing, the financial difficulties of the MBI group had been materially aggravated. The claimant denied that the representation had been made and submitted, inter alia, that there had been no reference to the alleged representation anywhere in the communications between the parties and that the conduct of the defendant had been entirely inconsistent with there being, or having been, such a representation.

In relation to the SK case, the defendant submitted that a counterclaim existed against the bank arising out of the breach of an implied term within the facility agreements and guarantees. Such implied term was that the claimant would not, inter alia, enter into, maintain in force, or enforce any agreement such as the introducing agreement with an individual such as SK who held a senior and influential position within the MBI group and/or in relation to the defendant personally and who would thereby be subject to a fundamental conflict of interest (the implied term).

Accordingly, the entrance by the bank into the introducing agreement in June 2007 had constituted a breach of the implied term. It was further submitted that, as a consequence of the claimant's breach of the implied term, the defendant had suffered loss and damage. Had SK not exerted pressure on the defendant to grant the Sukuk mandate to the bank, the defendant would have granted it to BNP Paribas and would thereby have obtained financing with which to discharge the facility agreements and guarantees.

In relation to the Forex case, the defendant submitted that a counterclaim existed against the bank resulting from breaches of implied terms of a contract by which the bank had carried out or supervised Forex trading, which had resulted in losses of €55m. It was the defendant's contention that SK, on behalf of the defendant and/or MBI 2 Partners (UK) Ltd, had conducted Forex trades performed through the bank.

The bank contended that the FX trading account had been set up by MBI International (MBI), as indicated by the fact that the account opening form in respect of the account on which the losses were said to have been suffered was with MBI. As such, any losses suffered through that trading account were suffered by MBI and not the defendant personally or the borrowers. Accordingly, no counterclaim would be available to reduce the liability of the borrowers under the facility agreements or the defendant under the guarantees.

The defendant submitted that, following the losses, SK had arranged for the facility agreement entered into by JJW indirectly to be deployed to cover the losses. It was further submitted that JJW had effectively taken an assignment of any Forex claims; essentially, that it had agreed to pay off the loan and in return, MBI or the defendant had assigned to JJW claims for the losses against the bank (the assignment submission).

The issues that fell to be determined were: (i) whether there was any realistic prospect of success for the alleged defence of estoppel; (ii) whether there was any realistic prospect of success for the alleged defence of set-off by way of counterclaim with regard to the SK case; (iii) whether there was any realistic prospect of success for the alleged defence of set-off by way of counterclaim with regard to the Forex case; and (iv) whether, pursuant to Miles v Bull [1969] 1 QB 258, there ought for some other reason to be a trial.

The court ruled: (1) It was established law in relation to the effect of the estoppel doctrine that, an apparently timeless representation stating that a party will not enforce its rights would normally only be suspensive, but could, in certain circumstances, be extinctive if there were equitable grounds for concluding that the representor should not be entitled to terminate it (see [20] of the judgment).

There was no realistic prospect of success for the asserted defence of estoppel. On the facts, the contemporaneous evidence was overwhelmingly inconsistent with the existence of an alleged representation leading to an estoppel. Quite apart, however, from the factual context, there was the need for the defendant to be able to build upon such facts as could be found to establish an arguable estoppel. It was inconceivable that there could have been, by implication or otherwise, spelt out of what had occurred, a representation that the bank would not enforce the rights simply in return for the opportunity to have an exclusive period of three-and-a-half months to try to put together the Sukuk transaction.

That would effectively be to purchase an option on the possibility of the Sukuk transaction for three-and-a-half months, in return for giving up the rights.

Even assuming that there was any materiality in an implicit representation that there would be no enforcement of rights until 15 April, that would only be the starting point of the defendant's submissions, which would require an implied representation that such otherwise short-term estoppel would be implicitly extended beyond 15 April in certain eventualities. No case had been put forward as to why it would be inequitable for the bank to be entitled to enforce its rights after 15 April and nothing inequitable could be spelt out of the bank's decision not to proceed with the Sukuk transaction in the light of the due diligence.

With regard to the extinctive effect argument, the cases referred to by the defendant in his submissions were quite different to the instant case. The instant case was one in which the original representation, if made, either had no time limit or would implicitly contain a time limit of 15 April and equity was suggested to have had the effect of impliedly continuing the representation. That was not a question of a representor not being allowed to resile from, or retract a representation, but of his being compelled to extend it. That would be an entirely novel form of equitable estoppel and would involve the use of estoppel, contrary to its nature, as a 'sword, not a shield'.

It was difficult to see that even the law of contract would accommodate the proposition without the incorporation of some fairly extensive implied terms (see [18]-[20], [49] of the judgment).

(2) There was no realistic prospect of success for the asserted defence of set-off by way of counterclaim in respect of the SK case. The pleading of the case that, in June 2007, the bank had entered into the introducing agreement in breach of an implied term in the facility and guarantee agreements which had not been executed until 10 months later was impossible.

Further, the loss and damage claimed was hopelessly speculative. There was no evidence to support it at all and certainly not in the light of the difficulties which the bank had faced by way of due diligence in trying to progress the Sukuk transaction (see [37]-[38], [49] of the judgment).

(3) There was no realistic prospect of success for the asserted defence of set-off by way of counterclaim in respect of the Forex case. Whereas there had plainly been Forex losses and it might be that somebody might be able to bring an action against the bank in respect of them, that claim was a very difficult one to attempt to set up by way of defence in the instant proceedings with any degree of reality.

Whilst the case pleaded by the defendant was that the bank's Forex customer was said to have been the defendant and/or MBI 2 Partners (UK) Ltd, it was plainly not the latter and, if the account opening form was correct, it was not the former. In relation to the assignment submission, there was no evidence of that at all; it was pure speculation and legal theorising (see [40], [48]-[49] of the judgment).

(4) The Miles v Bull question arose only if and when the conclusion had been reached that there was no arguable defence (see [52] of the judgment). On the facts, there was no other reason for trial, compelling or otherwise. In the instant case, the loans were undoubtedly repayable and the guarantees undoubtedly enforceable and there was no defence of estoppel.

If there was matter to investigate in relation to the role of SK, it gave rise to neither of the alleged set-offs/counterclaims in the action (see [52] of the judgment). Judgment would accordingly be given for the claimant (see [55] of the judgment).

Ian Mill QC and Leona Powell (instructed by Jones Day) for the claimant; Catharine Otton-Goulder QC and Sarah Ford (instructed by King and Spalding International LLP) for the defendant.