Kotonou v National Westminster Bank Plc [2010] EWHC 1659 (Ch) (05 July 2010)

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England and Wales High Court (Chancery Division) Decisions

You are here: BAILII >> Databases >> England and Wales High Court (Chancery Division) Decisions >> Kotonou v National Westminster Bank Plc [2010] EWHC 1659 (Ch) (05 July 2010)
URL: http://www.bailii.org/ew/cases/EWHC/Ch/2010/1659.html
Cite as: [2010] EWHC 1659 (Ch), [2011] 1 All ER (Comm) 1164

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		Neutral Citation Number: [2010] EWHC 1659 (Ch)
		Case No: HC07C00673

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION

Royal Courts of Justice
Strand, London, WC2A 2LL

05/07/2010

B e f o r e :

MR JUSTICE MORGAN
____________________

Between:

	Angeli Luki Kotonou	Claimant
	- and -
	National Westminster Bank PLC	Defendant

____________________

Isaac Jacob (instructed by Messrs Bates NVH) for the Claimant
Alan Gourgey QC (instructed by Berwin Leighton Paisner) for the Defendant

Hearing dates: 3rd, 4th and 5th March 2010
____________________

HTML VERSION OF JUDGMENT
____________________

Mr Justice Morgan:

Introduction

In around February 2000, Olympic Resources & Services PLC ("ORS") wished to borrow £500,000 from National Westminster Bank Plc ("Nat West"). Nat West was only prepared to lend £500,000 to ORS if repayment of that sum by ORS was adequately secured.

At the time, Mr Kotonou was a director of, and the majority shareholder in, ORS. ORS, acting through Mr Kotonou, entered into an arrangement with Mr & Mrs Theodossiades. As a result of that arrangement, Mr & Mrs Theodossiades procured their bank, Barclays, to open a standby letter of credit in the maximum sum of £500,000, in favour of Nat West. This standby letter of credit provided the security requested by Nat West for a loan to ORS and a loan of £500,000 was duly made.

The standby letter of credit provided that it could be called upon by Nat West up to 30^th December 2000 and, if not called upon by that date, the standby letter of credit would lapse. The period covered by the standby letter of credit was extended on a number of occasions and, finally, extended to 16^th March 2001.

On 16^th March 2001, Mr and Mrs Theodossiades asked Barclays to extend the standby letter of credit to 31^st March 2001. Barclays declined to extend the standby letter of credit on the ground that it had not been given enough notice prior to the lapse of the standby letter of credit on 16^th March 2001.

Nat West did not call on the standby letter of credit before it lapsed. Mr & Mrs Theodossiades later declined to procure Barclays to renew the standby letter of credit in favour of Nat West.

Nat West recovered some £75,000 in respect of the debt of £500,000 due to it from ORS. On 12^th July 2001, Mr Kotonou gave a personal guarantee to Nat West in relation to the outstanding indebtedness of £425,000. ORS did not pay any part of the debt of £425,000. (ORS went into insolvent liquidation on 2^nd February 2005.)

On 2^nd April 2004, Nat West sued Mr Kotonou on the guarantee of 12^th July 2001. Mr Kotonou defended those proceedings on various grounds and the proceedings were tried before Mr Sher QC, sitting as a Deputy Judge of the High Court, in March 2006. The Deputy Judge gave a reserved judgment on 22^nd May 2006, the upshot of which was that he found in favour of Mr Kotonou that Mr Kotonou's guarantee of 12^th July 2001 had been induced by a misrepresentation made to him by Nat West, so that the guarantee ought to be set aside and could not be enforced by Nat West.

On 15^th March 2007, Mr Kotonou commenced the present proceedings against Nat West. In these proceedings, Mr Kotonou advances two claims. First, he claims as the assignee of causes of action previously vested in ORS and, secondly, he asserts a personal cause of action.

The causes of action said to have been vested in ORS, prior to assignment to Mr Kotonou, were for damages for alleged breaches of contract, alleged breaches of a common law duty of care and alleged breaches of fiduciary duty, all such breaches having been committed by Nat West.

Mr Kotonou's personal cause of action is for damages for alleged breaches of a common law duty of care said to be owed by Nat West to him personally.

On 8^th October 2007, Nat West issued an application notice seeking summary judgment pursuant to CPR Part 24 dismissing Mr Kotonou's claim in its entirety and, in the alternative, seeking an order that Mr Kotonou's claim, or at least part of it, should be struck out pursuant to CPR Part 3.4(2)(a) and/or (b).

This application was heard by Master Teverson and he delivered a reserved judgment dealing with the application on 11^th July 2008. On 21^st August 2008, Master Teverson made his order in the application. He ordered, pursuant to CPR Part 3.4(2)(b), that the Particulars of Claim dated 20^th July 2007, served in support of the Claim Form, be struck out. He gave Mr Kotonou permission to appeal against that striking out order. The Master adjourned Nat West's application for summary judgment to the judge who was to hear Mr Kotonou's appeal against the striking out order. The Master reserved the costs of the application to the judge hearing Mr Kotonou's appeal. The Master directed that Mr Kotonou was to serve draft Amended Particulars of Claim so that any application for leave to amend was to be made to the judge hearing his appeal against the striking out order.

Mr Kotonou has appealed the striking out order and Nat West has served a Respondent's Notice seeking to uphold the striking out order on an additional ground. Mr Kotonou's appeal and Nat West's application for summary judgment came before me.

The matter was argued over three days and I reserved my judgment. I was provided with a substantial amount of material and, in particular, a great deal of information as to the conduct of the earlier action which had been tried by the Deputy Judge. In the course of the judgment which follows, it is necessary for me to recite a considerable amount of detail as to the history of this matter and, in particular, the history of the earlier action.

Although it is necessary to go into the history in this amount of detail, I have endeavoured at all times not to lose sight of the fact that, insofar as the matters before me involve an application for summary judgment, such an application should not be allowed to become a mini-trial of the relevant claims. Conversely, insofar as the matters before me involve an examination as to whether some part or all of the present claim involves an abuse of the process of the court, having regard to what happened in the previous action, I have to consider by an intense focus on the facts of the particular case, whether the present proceedings involve something which would be manifestly unfair to Nat West or would otherwise bring the administration of justice into disrepute; I refer to how the matter was put by Buxton LJ in Laing v Taylor Walton (a firm) [2007] EWCA Civ 1146 at [12].

As appears from Aldi Stores Ltd v WSP Group plc [2008] 1 WLR 748 at [16], per Thomas LJ, an issue as to whether proceedings involve an abuse of process requires a decision one way or the other. In particular, I should not hold, simply because there are arguments on both sides of that issue, that the underlying claim should go to trial and be determined on its merits. Further, it seems to me that the issue of abuse of process should be decided now and not left to be determined as part of any subsequent trial: compare Meretz Investments NV v ACP Ltd [2007] Ch 197 at [201] – [203].

The facts

On 24^th February 2000, ORS entered into an agreement, called a standby letter of credit agreement, with Mr & Mrs Theodossiades. In that agreement, Mr & Mrs Theodossiades were described as "the Lender" and ORS was described as "the Borrower". The agreement recited that the Lender had been requested to provide loan facilities to the Borrower by way of a standby letter of credit which the Lender had agreed to do. By clause 1 of the agreement, the Lender agreed to make available to the Borrower, by way of a standby letter of credit, loan facilities of £500,000, which was referred to as "the Loan". Clause 2 of the agreement provided that the standby letter of credit was not to be called on before 30^th September 2000 nor later than 31^st December 2000. By clause 3, the Loan was to be repaid on 31st December 2000. Those straightforward provisions were followed by clauses 5 and 6 which were much more complex. By way of very brief summary, clauses 5 and 6 provided that the Lender was entitled to convert the Loan or a part of it into shares to be issued to the Lender in a number of specified companies. In addition, the Borrower was to transfer further shares by way of gift to the Lender.

Mr & Mrs Theodossiades procured their bank, Barclays, to issue a standby letter of credit in favour of Nat West. The standby letter of credit was duly issued on 25^th February 2000. The letter of credit was for a maximum amount of £500,000 and was available for payment between 30^th September 2000 and 30^th December 2000. For Nat West to be able to call on the letter of credit it needed to produce to Barclays confirmation that the amount claimed under the letter of credit had become due to Nat West by ORS and remained unpaid. The letter of credit expressly stated that if Nat West did not request payment under it by 30^th December 2000 the letter of credit would become null and void. The letter of credit was subject to the Uniform Customs and Practice for Documentary Credits (1993 revision).

The period during which a call could be made on the letter of credit was extended on a number of occasions and, finally, extended to 16^th March 2001. On that date, Mr & Mrs Theodossiades requested a further extension to 31^st March 2001 but Barclays declined to extend the letter of credit on the basis that the request for an extension came too late. Accordingly, the letter of credit lapsed on 16^th March 2001. Nat West had not made a call on the letter of credit before that date and could not make a call on it after that date. Mr & Mrs Theodossiades declined to procure a renewal of such a letter of credit from Barclays.

Nat West had made a facility of £500,000 available to ORS on the strength of the standby letter of credit and it now found that the monies due from ORS were not properly secured. Nat West did recover some £75,000 towards the debt of £500,000 but a balance of £425,000 was outstanding. This state of affairs led to discussions between Nat West and Mr Kotonou which culminated in further security for the ORS debt being provided in July 2001. On 12^th July 2001, Mr Kotonou gave his personal guarantee to Nat West for £425,000 due from ORS. On 13^th July 2001, Mr & Mrs Kotonou mortgaged their home to Nat West to secure repayment of the same sum.

On 5^th March 2004, ORS executed a deed of assignment in favour of Mr Kotonou. It is not necessary to set out the operative provisions in that deed of assignment. The Master held that it was arguable that this deed of assignment could be construed as an assignment by ORS to Mr Kotonou of certain claims, which included the claims which are now put forward by Mr Kotonou in the present proceedings where he asserts that he is the assignee of causes of action previously vested in ORS. Nat West has not appealed this part of the Master's decision.

It is relevant to refer to one provision in the deed of assignment. The relevant assignment was only to take effect in the event that ORS should be "unable to continue as a going concern by entering into a voluntary liquidation or be the subject of a successful winding up petition". There was initially an issue before me as to whether an assignment in those terms infringed the anti-deprivation rule: see Perpetual Trustee Co Ltd v BNY Corporate Trustee Services Ltd [2010] 1 BCLC 747. It was later accepted by Mr Gourgey on behalf of Nat West that an issue of that kind would require some further investigation into the facts and that was not appropriate on the present application for summary judgment.

On 2^nd April 2004, Nat West brought proceedings against Mr Kotonou claiming the sum of £425,000 plus interest pursuant to the guarantee of 12^th July 2001.

ORS went into liquidation on 2^nd February 2005.

The earlier proceedings

Mr Kotonou served a defence in the claim based on the guarantee. At the time of the original defence, Mr Kotonou was acting in person and he drafted his own defence. Mr Kotonou pleaded that the financial exposure of Nat West was the result of its own negligence or incompetence and was self inflicted. He referred to Nat West's wrongdoing against Mr Kotonou and his company and Nat West's failure to carry out their obligations to Mr Kotonou and his companies resulting in loss. He referred to the standby letter of credit which was lost by Nat West "through their own negligence". The pleading cross referred to an exhibit to Mr Kotonou's witness statement but I was not shown the specific exhibit. Paragraph 19 of the pleading referred to the standby letter of credit and to the fact that it could not be controlled by ORS but was under the full control of Nat West. Mr Kotonou pleaded that as a result of Nat West's actions or omissions in failing to call on the standby letter of credit, ORS was left with a debt to Nat West. This left ORS with an acute financial shortfall that had a serious adverse effect on the operation of the group of companies of which it was a member. Mr Kotonou then pleaded the discussions between Nat West and himself as to the provision of a personal guarantee.

Mr Kotonou became represented in the earlier proceedings in around April 2005. At that time, he instructed solicitors, Hugh Cartwright & Amin. Mr and Mrs Kotonou started fresh proceedings around that time seeking declarations as to the meaning and effect of the charge dated 13^th July 2001 in favour of Nat West. There followed a series of interlocutory hearings in those proceedings, before Pumfrey J. Mr Kotonou wished to raise money to fund his defence of the guarantee proceedings by offering to a funder security over his home. The hearings were necessary to resolve the rival claims of any such funder and of Nat West under its mortgage of 13^th July 2001. In the event, Mr Kotonou was able to obtain funding to instruct solicitors and counsel to act for him in his defence of the earlier proceedings. The proceedings brought by Mr and Mrs Kotonou were finally determined by a judgment given on 12^th April 2006. When I refer, later in this judgment, to "the earlier proceedings" I am referring only to the proceedings brought by Nat West against Mr Kotonou seeking to enforce the guarantee.

One result of the interlocutory hearings referred to above was that the original trial date was lost and the matter was re-scheduled to be tried in March 2006.

Some two weeks before the earlier proceedings were due to be tried, Mr Kotonou instructed Mr Wormington of counsel to act on his behalf. Mr Wormington prepared a lengthy draft amended defence. Mr Wormington did not delete anything of substance from the earlier defence settled by Mr Kotonou. The amended pleading included a detailed counterclaim which set out detailed allegations in relation to the standby letter of credit. It was pleaded that the extensions of the period covered by the standby letter of credit were dealt with by Nat West through direct communication with Mr & Mrs Theodossiades and Barclays. It was said that Nat West had failed to take timely steps in relation to the extension of the standby letter of credit with the result that it lapsed at the end of 16^th March 2001. It was pleaded that Nat West owed to ORS a duty of care in contract or in tort and various matters were put forward in support of the alleged duty. One of these matters was the averment that the standby letter of credit was the equivalent of cash which was said to be "the highest form of security". It was also alleged that Mr Frampton of Nat West had been informed by Mr Kotonou of the commercial terms agreed between ORS (acting through Mr Kotonou) and Mr & Mrs Theodossiades. It was then pleaded that Nat West was in breach of its contractual and tortious duty of care and particulars of the breach were given. It was alleged that ORS had suffered loss and damage and the claims which could have been made by ORS had been assigned to Mr Kotonou by various assignments including the assignment in writing of 5^th March 2004. It was then pleaded that Mr Kotonou was entitled to set off ORS's claims, as assigned to him, against any liability he might have under the guarantee to Nat West. The draft amended pleading continued by alleging various representations made by Nat West to Mr Kotonou in relation to the guarantee he gave on 12^th July 2001.

The draft amended defence and counterclaim was provided to Nat West shortly before the trial fixed for 8^th March 2006. Nat West stated that it would oppose Mr Kotonou's application for permission to amend the defence and counterclaim. The question whether Mr Kotonou should be given permission to amend the defence and counterclaim was argued before the Deputy Judge on the 8^th and 9^th March 2006 and he gave a judgment dealing with that application on 9^th March 2006.

In the course of the hearing on 8^th March 2006, Mr Wormington on behalf of Mr Kotonou explained in detail how Mr Kotonou intended to put his case by reference to the draft amended pleading. It seems that Mr Gourgey QC, who appeared in earlier proceedings on behalf of Nat West, had largely accepted that Mr Kotonou could plead the factual history in relation to the operation of, and the subsequent lapse of, the standby letter of credit. There was however a difference as to whether Mr Kotonou should be allowed to plead an assignment to himself of ORS' causes of action, if any, against Nat West. Mr Wormington submitted to the Deputy Judge that, even without an assignment to those causes of action, it was open to Mr Kotonou as guarantor to point to the fact that the principal debtor, ORS, did not owe the debt alleged because the principal debtor ORS had a set off against Nat West of its claim to damages for Nat West's alleged breach of the duty allegedly owed to ORS. Later in the course of 8^th March 2006, Mr Wormington stated that he wished to withdraw the application to amend the defence and counterclaim "to plead assignment or anything founded upon assignment". As I understand it, Mr Kotonou adopted this position because there was a risk that if he pleaded an assignment of ORS's causes of action to himself, there would be a dispute of fact as to the alleged assignment which would necessitate an adjournment of the trial and Mr Kotonou wished to avoid such an adjournment.

On 9^th March 2006, the Deputy Judge gave a detailed judgment, extending to some 29 pages of transcript, on the application for permission to amend the defence and counterclaim. The Deputy Judge referred to the original defence and counterclaim and to the parts of it which referred to the history relating to the standby letter of credit. The Deputy Judge commented that Mr Kotonou unmistakably was putting forward in his defence the factual background concerning the lapsed standby letter of credit. He then recorded that he had indicated to the parties that he would be receptive to amendments which merely fleshed out Mr Kotonou's original defence and identified the legal means whereby the relevant history in relation to the standby letter of credit furnished him a defence to the claim on the guarantee. Following that indication, the area of dispute on the application for permission to amend was considerably narrowed. Later in his judgment, the Deputy Judge referred to a concession by Nat West to permit Mr Kotonou to plead the whole background relating to the lapse of the standby letter of credit. However, Nat West opposed an amendment of the pleading to allege that it owed a duty to ORS in this respect. The Deputy Judge referred to the fact that Mr Wormington conceded that he should not be given permission to amend to plead the assignment of ORS's causes of action to Mr Kotonou. The Deputy Judge indicated that without a pleading of an assignment, the allegations of a contractual or tortious duty of care went nowhere. He held that the existence of a duty was irrelevant although, possibly, the perception of Nat West's employees as to whether Nat West owed such a duty might be relevant. He concluded that he should not give permission to Mr Kotonou to plead the existence of a duty or the breach of that duty or loss flowing from such breach of duty.

In the course of his submissions on 8^th March 2006, having conceded that Mr Kotonou should not be given permission to amend to plead an assignment by ORS to Mr Kotonou, Mr Wormington said:

"… my client would like me to point out that of course he, so far as he is able to, is proceeding to reserve the right to pursue that in the future in subsequent proceedings, but he understands that my learned friend not having been able to give any comfort in relation to res judicata or Henderson v Henderson, he takes the risk as to whether or not such pursuit would be barred by anything that happens in these proceedings."

Following the Deputy Judge's ruling on 9^th March 2006, Mr Kotonou served an amended defence and counterclaim. This pleading repeated the original defence and counterclaim and set out Mr Kotonou's averments as to the standby letter of credit and the circumstances in which it was allowed to lapse. In accordance with the draft amended defence and counterclaim, the final version of the defence and counterclaim pleaded, amongst other things, that the administration of the extensions to the standby letter of credit had been dealt with by Nat West through communication with Mr & Mrs Theodossiades and Barclays, that Mr Frampton of Nat West had been informed by Mr Kotonou of the commercial terms which had been agreed between ORS and Mr & Mrs Theodossiades and that Nat West was at fault in not extending and/or calling on the standby letter of credit. The amended defence and counterclaim, as served, did not allege that Nat West owed a duty in contract or in tort to ORS nor that there was a breach of duty causing loss and damage nor that ORS's causes of action had been assigned to Mr Kotonou.

I should also point out that at no stage, whether in the original defence or in the draft amended defence and counterclaim, or in the final version of the amended defence and counterclaim, did Mr Kotonou allege that Nat West owed a duty of care directly to him in relation to the standby letter of credit. Although paragraph 20(E) of the original defence and counterclaim pleaded that Mr Kotonou in his capacity as the majority shareholder (98%) in the Olympic Group had suffered harm and loss for which he held Nat West responsible, he did not identify any cause of action to recover the alleged loss as being pursuant to a duty of care owed to him. If Mr Kotonou had alleged a duty of care of that kind then, subject to the possibility of an application to strike out such a claim, the matter would have been tried at the trial in March 2006. Even if the allegation of a duty owed directly to Mr Kotonou had not been pleaded in the original defence, if Mr Wormington had applied for permission to make such an averment then, subject to the Deputy Judge regarding such a claim as arguable, it may well have been the case that permission to amend would have been given to put forward that averment. It seems to me that the principal reason why the Deputy Judge did not allow Mr Kotonou to allege the existence of a duty of care owed by Nat West to ORS was because of the risk of an adjournment of the trial necessitated by a pleading of an assignment by ORS to Mr Kotonou. That risk would not have arisen in relation to an alleged duty of care owed direct to Mr Kotonou.

The trial of the earlier proceedings took some 12 days in March 2006.Mr Frampton of Nat West, Mr Kotonou and Mrs Theodossiades all gave evidence and were cross-examined. I have been shown the transcript of the cross-examination of Mr Frampton, but not his witness statement. I have not been shown the witness statement of Mr Kotonou nor the transcript of his cross-examination. I have been shown the witness statement dated the 6^th March 2006 from Mrs Theodossiades and the transcript of her cross-examination.

Both Mr Wormington on behalf of Mr Kotonou and Mr Gourgey on behalf of Nat West prepared lengthy written submissions in closing. Mr Wormington made submissions as to the appropriate findings of fact made in relation to the standby letter of credit. He submitted that the Deputy Judge should find that Mr Frampton of Nat West was well aware of the commercial terms between ORS and Mr & Mrs Theodossiades and the ability of Mr & Mrs Theodossiades to convert the loan into shares. Mr Wormington also submitted that the administration of the extensions to the period of the standby letter of credit was always the responsibility of Nat West and that Mr Kotonou himself was not involved in those matters.

Mr Gourgey's written closing submissions also dealt with the factual history in relation to the standby letter of credit. He made detailed submissions as to what findings of fact were appropriate. However, he prefaced those submissions by stating that the determination of the conflicts of evidence in those respects was not necessary for the purpose of deciding whether or not the guarantee of 12^th July 2001 was valid and had no direct bearing on the critical issues which the court had to decide, although it was "background".

On 22^nd May 2006, the Deputy Judge gave his judgment in the proceedings brought in reliance on the guarantee of 12^th July 2001. The judgment as handed down extends to some 55 pages. It is convenient to set out in full what the deputy Judge said in paragraphs 5 to 20, 23 to 29 of the judgment:

5. I have been provided with a considerable amount of historical financial detail much of which is quite irrelevant to the issues I have to decide, even by way of background. I am conscious that there are other proceedings pending (under the directors' disqualification legislation) in which this detailed financial history is likely to be more pertinent than it is here. In these circumstances, I am going to restrict myself in this judgment to the facts which are relevant to and impact upon the issues which arise in these proceedings. There is one exception to this and that relates to a standby letter of credit issued by Barclays Bank Plc for £500,000 on 24th February 2000 (the Barclays SLOC) which has loomed very large in ALK's case, in my judgment out of all proportion to its real significance. However, Mr Wormington, his Counsel, has made it clear that he wishes me to make findings in relation to this aspect and I shall do so as economically as I can,

even though I consider this part of the story has limited relevance.

The Barclays SLOC

6. With that introduction I think I can take up the story in late 1999 when the amount owing to the Bank by various members of the ORS group was of the order of £4.5 million. Security at that stage consisted of a series of cross-guarantees given by the companies supported by debentures and a personal guarantee for part of the indebtedness by ALK.

7. By late January 2000 the group needed further significant facilities. £500,000 was made available against a standby letter of credit opened by the Union Bancaire Privée of Geneva (the Union Bancaire SLOC). By early February 2000 further facilities were sought by the group. The Bank regarded this as a cash crisis to be solved by an accelerated programme of capital raising so that the outstanding amount owing under the facilities (other than the £500,000 secured by the Union Bancaire SLOC) was repaid by the end of April 2000. The Bank made it clear that any further funding was only to be provided on a fully secured basis. It was envisaged that a further £500,000 could be raised

against the security of another standby letter of credit.

8. ALK then proceeded to agree with a Mr and Mrs Theodossiades arrangements for the provision of a further standby letter of credit. Mr Frampton, who I have mentioned above and who was a senior corporate manager, wrote to ALK as the chairman of ORS on 23rd February 2000 as follows:-

"Dear Angelos,

I write with reference to the expected receipt of a Standby Letter of

Credit in the sum of £500,000 from Barclays Bank Plc, in favour

of the company Olympic Resources & Services Plc.

My understanding is that this Standby Letter of Credit will be valid

until 30th December 2000 and I will write to confirm that demand

under this Letter of Credit will not be made before 30th November

2000 or any later than the maturity date.

This should allow you to make any further arrangements necessary

in order to see the Standby Letter of Credit released prior to its

maturity.

I trust that this is sufficient for your purposes. However, please

contact me should you require any further information."

9. On 24th February 2000 the standby letter of credit referred to in Mr

Frampton's letter was issued by Barclays. That was the Barclays SLOC. It was for a maximum sum of £500,000 and was valid until 30th December 2000.

It was:-

"AVAILABLE BY PAYMENT AT SIGHT UPON RECEIPT OF

YOUR TESTED TELEX OR AUTHENTICATED SWIFT

CONFIRMING TO US THAT THE AMOUNT CLAIMED

UNDER THIS IRREVOCABLE STANDBY LETTER OF

CREDIT NO: ST LC HAS BECOME DUE TO YOU BY

OLYMPIC RESOURCES AND SERVICES PLC, 8 LLOYDS

AVENUE, LONDON AND REMAINS UNPAID."

10. The Barclays SLOC was the product of a complicated agreement between the Theodossiades and ORS dated 24th February 2000 which I need to refer to but only briefly. The Theodossiades agreed to lend ORS £500,000 by way of the provision of the Barclays SLOC. The loan was to be repaid by ORS by 31st December 2000. Upon a public listing of any of the red companies, the Theodossiades were entitled to convert the loan or part of it into ordinary shares in the capital of such listed company at a discount of 10% to the placing or offer price. ORS was further obliged on any such listing to give to the Theodossiades ordinary shares in such listed company up to a minimum

market value at the date of listing of £100,000.

11. It is plain from Mr Frampton's evidence, including his letter of 23rd February 2000, that the Bank's understanding at the date of the issue of the Barclays SLOC was that ORS would be looking to replace the SLOC before its expiry. This is consistent with the evidence in relation to the way in which the Union Bancaire SLOC was treated. It is also consistent with the evidence of Mrs Theodossiades. The Barclays SLOC was, after all, simply a security for ORS's underlying indebtedness, which was repayable on demand. To trigger the discharge of the Barclays SLOC by payment under it by Barclays, the

Bank would have had to have made a demand on ORS, ORS would have had to have defaulted in meeting that demand and the Bank would then have had to have communicated those facts to Barclays precisely in accordance with the provisions of the Barclays SLOC which I have quoted above. The underlying indebtedness of £500,000 would thus have had to be repaid or secured in some other way by the expiry date of the Barclays SLOC in order to avoid a call being made on the SLOC. In an ongoing banking relationship one would not expect a call to be made. In practice one would expect the customer to

procure payment of the underlying indebtedness or alternative security or an extension of the expiry date of the SLOC. Mr Frampton envisaged that ORS would use the time available down to maturity to raise funds to repay the loan, following which the SLOC would be released. The SLOC was there simply to cover the eventuality that ORS failed to fulfil its obligations.

12. What happened in fact is that by arrangement between ORS, the

Theodossiades and Barclays the final date by which the Barclays SLOC had to be called was extended from time to time, no doubt to give ORS time to make other arrangements for payment of the underlying indebtedness (as, incidentally, happened in the case of the Union Bancaire SLOC).

13. To cut a long story short, Mr Frampton wrote to ALK on 21st December 2000 highlighting the fact that the Barclays SLOC was due to expire on 30th December 2000 and asking for instructions as to a clear way forward by 28th December 2000. Not having received confirmation as to the way forward, the Bank made a demand of ORS on 28th December 2000, but agreement was then reached between the Theodossiades and ALK to extend the Barclays SLOC to 31st January 2001 and this was confirmed to the Bank by Barclays on 29th December 2000. Then, towards the end of January, there was a similar

extension to the end of February 2001. Again, on 21st February a demand was made by the Bank on ORS. Then there was an extension to 9th March 2001 and then another to 16th March 2001.

14. It was ALK's evidence that ORS was, in his words, "out of the loop" by the time of the extensions in March 2001 and that the Bank was arranging these extensions with the Theodossiades. I do not accept this evidence. The Bank had no interest in using its own initiative in obtaining an extension. If ORS did not want to secure an extension, the Bank was in a position to make a demand on ORS followed, in the case of default, by a call on the SLOC.

15. The case put forward by ALK was that the Bank became pro-active in procuring these extensions from the Theodossiades without his involvement on behalf of ORS, and he points to the fact that he was in Australia in the first half of March 2001. As I have indicated I do not accede to this contention. I infer that all the extensions up to 16th March were instigated by ALK on behalf of ORS. Certainly, there is no reason at all why the Bank would have requested extensions, let alone such short ones. A similarly short extension

was obtained by ORS in relation to the Union Bancaire SLOC (from 30th September 2000 to 13th October 2000). The motivation for the allegation that ALK was out of the loop in this regard is to form the basis for a contention that the Bank had assumed a duty to ORS to preserve the Barclays SLOC.

The lapse of the Barclays SLOC

16. A further intended extension from 16th March 2001 to the end of March 2001 failed to take effect. Mrs Theodossiades made the request of Barclays for this extension at 10 a.m. on 16th March but, under the arrangements between her and Barclays, that request came too late to be acted upon. Barclays did not issue an extension and, it seems, no one in the Bank sufficiently monitored the situation (as had been done conscientiously on each previous extension) to enable the Bank to be protected against a failure to extend. The Barclays SLOC therefore expired completely on 16th March 2001. This was a serious

embarrassment and loss to the Bank, and it is impossible on the detailed evidence before me to conclude otherwise than that that loss to the Bank was due to some failure within the Bank, not necessarily that of Mr Frampton himself. But the loser on the face of it was the Bank, not ORS. If Mr Frampton's department is to be criticised, it is not for letting the customer down but for letting down the Bank itself. For all the Bank knew, if the Barclays SLOC lapsed, the Theodossiades would not have had to have paid the £500,000 and would not have been entitled to call for repayment of their

loan. It was the Bank that was left high and dry, without security. The

personnel in the Bank had a duty to look after the Bank's interests and not let this happen. The Bank had no duty owed to ORS, or anyone else, not to let it happen.

17. Of course the position of ORS was complicated by its arrangements with the Theodossiades. The fee for the arrangement by way of gifted shares to the Theodossiades would, no doubt, continue to be payable by ORS. But ORS was committed to that outgoing in any event. As to the provision for conversion of the loan into shares at a discount to the issued price, there was one flotation that did occur, namely that of E-Comsport which I mentioned above. That happened in May 2000 and shares to the appropriate value were issued to the Theodossiades and paid for from within the group. That event might have put ORS, after lapse of the Barclays SLOC, in a position of having to claim payment from the Theodossiades to the extent of that value. It seems, however, from the oral evidence that there was no recovery in this respect from the Theodossiades, but it matters not for the purposes of this judgment whether there was a right of recovery or not. I do not have nearly enough material to form any view as to the true position between the Theodossiades and ORS but, even if ORS ended up losing as a result of the lapse of the Barclays SLOC, it does not follow that that loss can be laid at the door of the Bank.

18. I am comforted in this view by the fact, as I hold, that Mr Frampton had no knowledge of the conversion by the Theodossiades of part of their loan into E-Comsport shares pursuant to the options they enjoyed under their agreement with ORS. Indeed, I find that Mr Frampton had no knowledge of that agreement at all. ALK asserted otherwise and I have been asked by Mr Wormington to make a specific finding on this contested issue, and I make it now against ALK's assertion. I accept Mr Frampton's evidence in this respect.

19. I am conscious that one of the many amendments disallowed on the second day of the trial raised the issue whether there was a duty owed by the bank to ORS to preserve the Barclays SLOC. However, it was always part of ALK's case, and remained so in closing written submissions, that the administration of the extensions to the SLOC was the responsibility of the Bank, and I was invited by Mr Wormington in oral closing to form a view on whether there

was fault in the sense of breach of duty owed by the Bank to ORS in this regard.

20. My view on the existence of such a duty has accordingly been expressed above. However, Mr Wormington has very recently submitted that the disallowance of the amendment in this respect has limited the presentation of ALK's case on this issue and, in the light of the fact that a concluded view on whether the Bank owed ORS a duty to preserve the SLOC is not a necessary finding leading to the final outcome of this judgment, I am prepared (so far as it may assist) to express my view in this regard as a provisional one based on the limited material put before me. It is sufficient for the purposes of this

judgment to record my view that the management of the Bank were at fault in the sense of breach of duty to the Bank itself.

…

23. I pause there to note that the position at that time was that the Bank was exposed to the extent of £500,000 or thereabouts, having lost the benefit of the Barclays SLOC. No further facilities had been granted pursuant to the requests by ALK mentioned above. Mr Brown and Mr Wilson had just taken over the account and were not, until the end of May 2001, aware of the exposure and that it was due to the loss of the Barclays SLOC. It is fairly clear from the evidence that I have heard and seen that Mr Frampton was embarrassed by the loss of the Barclays SLOC, and he was doing everything that he could to restore the position in discussions with ALK. ALK initially thought that it would be easy to persuade the Theodossiades to procure a renewal or reissue of the SLOC. In the weeks after the expiry of the SLOC on

16th March, Mr Frampton held on to the account at least for the purposes of restoring the position. He told Mr Brown that there was a problem but that it was being sorted out, and it was thought best to leave this aspect in Mr Frampton's hands as he knew the customer and the circumstances giving rise to the problem.

24. There have been accusations in the evidence by ALK that Mr Frampton was involved in a cover up internally in the Bank concealing the fact that the Barclays SLOC had been lost inadvertently. It has been said that he engaged in this cover up in an attempt to sort the problem out himself in the hope that a solution by way of replacement security would be found before his superiors found out the true circumstances surrounding the loss. I say immediately that

it is not necessary for me to make findings in detail as to what happened in relation to the loss of the SLOC and the attempt to rectify the position thereafter. It is quite sufficient for purposes of this judgment to find, as I do, that something went wrong in the Bank in letting the Barclays SLOC lapse without securing payment and that Mr Frampton tried desperately to recover the security position before he finally relinquished the problem to Mr Brown and Mr Wilson at the end of May 2001, when he informed them of the loss and the failure to rectify. Mr Wormington very fairly indicated in his closing submissions that a more detailed investigation in relation to Mr Frampton's conduct would be unfair to Mr Frampton as he has not been separately represented in these proceedings. In my view such detailed investigation is not going to help me one bit in reaching a judgment on the issues that do arise and I readily accede to his invitation to avoid such detailed enquiry.

Mr Frampton's handover

25. On 29th May 2001, Mr Frampton sent an email to Mr Brown in which he eventually told Mr Brown that the Bank was in his words "unsecured contrary to sanction". As I have indicated, he had, earlier in April, simply told Mr Brown that there was a problem with the account and a standby letter of credit but that he would sort it out. Now he was telling Mr Brown that such attempt to sort it out had failed and that the account was unsecured contrary to the agreement under which the indebtedness had been created and sanctioned by

the Bank. ALK complains that Mr Frampton was unjustifiably implying in his email that the fault was ALK's in bringing about this situation and that this had a serious detrimental effect on ALK's relationship with Mr Brown and Mr Wilson. I do not agree that Mr Frampton was throwing the blame entirely on ALK. The email was a little unclear, it must be said, but I think it accepted that Mr Frampton was in part himself to blame. If it carried the implication that ALK was to blame as well, I think that that was not unjustified.

26. I have gone into the history of the Barclays SLOC and its expiry in some detail (though not nearly in as much detail as it was gone into by Counsel in the course of trial). I have done that because it forms such a central part of ALK's defence: indeed, until the extensive amendments to that defence permitted by me in an interlocutory judgment given on the second day of the trial, the allegations of ALK concerning the lapse of the SLOC formed the central part of the original defence and counterclaim; and it continues to form a part, albeit not a central part, of ALK's currently pleaded case. The changes in ALK's case permitted by me in that interlocutory judgment are, to put it

bluntly, that he was tricked into giving the guarantee of 12th July 2001 by fraudulent misrepresentations made by the Bank to him in the period between 30th May and 12th July 2001. The story behind the SLOC and its expiry is, at best, of background relevance to the issues as to whether such fraudulent misrepresentations were made and relied upon. I must come in a moment to the events that led up to the giving of the guarantee (and the granting of a charge over the matrimonial home in support of that guarantee), but I say immediately that, in my judgment, ALK has latched onto the events surrounding the lapse of the SLOC and tenaciously hung on to those events because he (rightly) sensed that the bank had done something wrong or at least something embarrassing to it and he, opportunistically, tried to turn this to his

advantage by exonerating himself from payment under the guarantee. He realised that the Bank had indeed made a mistake in letting the SLOC lapse and when, ultimately, the companies began to fail and it became clear that the guarantee and charge were not going to save them, he exploited the Bank's mistake as if it were a breach of duty towards his companies. This is not the only occasion in the story where ALK's stance at the time of trial stands in distinct contrast to his stance at the time when the relevant events occurred.

27. Another, rather stark, example of such opportunism was demonstrated on the first day of this trial. ALK sought to raise a defence challenging ORS's liability to the Bank on the ground that he had signed the agreement giving rise to that liability on ORS's behalf but without the authority of the Board of Directors. Once it became apparent that I would not permit such a new defence (at least not without an expensive adjournment), he sought, for the very first time, to raise a factual defence that when that agreement was sent by him to the Bank, it was sent with a covering note which made it clear that the

execution of the agreement was conditional on further negotiations. That was, simply, quite incredible given the fact that there was no suggestion that any subsequent negotiations ever took place. ALK offered no explanation through his Counsel as to why such an absolutely critical piece of factual information had not been included in his very lengthy witness statement or the pleadings, even in the form as proposed to be amended on that day. Neither had it been

included in any correspondence in this matter which is overburdened with years of correspondence. Needless to say no covering note survived in either side's disclosure. This episode sounded for me a significant warning to treat ALK's evidence with extreme caution.

The witnesses

28. I raise this aspect of ALK's personality to indicate my perception of ALK who was a critical witness in his own defence. One important function I have to perform in this judgment is to decide whether to believe his evidence against that of the Bank's witnesses. I heard eight witnesses in the course of this trial and I have to say that, apart from ALK, I found all of them, including Mrs Kotonou, to be quite straightforward and to have given evidence on which I can rely.

29. The same cannot be said for ALK. He was not only wholly unrealistic in his optimism, he grasped at any explanation to get himself out of a tight corner. He talked endlessly and discursively in the witness box so that the point of the question was blunted or evaded. I thought it best at this early stage of this judgment to indicate, before I relate the rest of the story, that I consider that I cannot safely rely on ALK's evidence except where it is corroborated by contemporary documentation (or is otherwise in accord with the probabilities as I have found them, on all the evidence, to be). I regret to have to say that because it is obvious that ALK is a likeable and extremely talented person and was liked by those he came into contact with at the Bank. I acquit him of any intention deliberately to mislead. It is simply that his exuberance and his unrealistic optimism has led him to elaborate some of the events to a point where I cannot accept his evidence. Where it conflicts with that of the Bank's witnesses, I prefer theirs. As I say, I found all the other witnesses on both sides of the record quite straightforward and reliable and, save where I indicate otherwise, I accept their evidence. As to the precise details of what

went wrong in relation to the Barclays SLOC and what Mr Frampton did or did not do in keeping those details from his superiors, I make no findings at all, following the invitation of Counsel, in relation to Mr Frampton's evidence. I shall identify later in this judgment where I accept ALK's evidence as being in accord with the probabilities as I find them.

Having set out those paragraphs from the Deputy Judge's judgment, I draw attention to a number of specific matters:

(1) in paragraph 5 , the Deputy Judge referred to Mr Wormington, on behalf of Mr Kotonou, requesting findings in relation to the lapse of the standby letter of credit ;

(2) in paragraph 11, the Deputy Judge stated that the standby letter of credit was simply a security for ORS's underlying indebtedness;

(3) in paragraph 11, the Deputy Judge stated that Mr Frampton of Nat West envisaged that the standby letter of credit would be released in circumstances where ORS had repaid the loan;

(4) in paragraph 14, the Deputy Judge did not accept Mr Kotonou's evidence that he was "out of the loop" in relation to the extensions of the standby letter of credit and that Nat West was arranging these extensions.

(5) In paragraph 15, the Deputy Judge did not accept the contention of Mr Kotonou that the bank was proactive in procuring extensions of the standby letter of credit without his involvement;

(6) In paragraph 15, the Deputy Judge remarked that Mr Kotonou's motivation for alleging he was "out of the loop" was to form the basis for a contention that Nat West had assumed a duty to ORS in relation to the standby letter of credit;

(7) in paragraph 16, the Deputy Judge referred to the lack of knowledge on the part of Nat West as to the arrangements between ORS and Mr & Mrs Theodossiades;

(8) in paragraph 16, the Deputy Judge said that Nat West had no duty to ORS, or anyone else, not to let the standby letter of credit lapse;

(9) in paragraph 17, the Deputy Judge said that even if ORS ended up losing as a result of the lapse of the standby letter of credit, it did not follow that the loss could be laid at the door of Nat West;

(10) in paragraph 18, the Deputy Judge held that Mr Frampton of Nat West had no knowledge of the arrangement between ORS and Mr & Mrs Theodossiades and in particular had no knowledge of the conversion by Mr & Mrs Theodossiades of part of their loan into shares; the Deputy Judge noted that Mr Wormington had asked for a specific finding on that point and the Deputy Judge's finding was to accept Mr Frampton's evidence and to reject Mr Kotonou's case;

(11) in paragraph 20, the Deputy Judge referred to his conclusion that there was no duty owed by Nat West to ORS but he then added a qualification in view of the submission made by Mr Wormington so that his conclusion on the duty of care was "a provisional one based on the limited material put before me";

(12) in paragraph 24, the Deputy Judge indicated that it was not necessary for him to make finding as regards Mr Frampton's later actions following the lapse of the standby letter of credit;

(13) in paragraph 26, the Deputy Judge explained why he had made findings of fact as regards the history of the standby letter of credit; he commented upon the way in which Mr Kotonou had put his case in that respect;

(14) in paragraphs 27, 28 and 29, the Deputy Judge made a number of comments on Mr Kotonou as a witness and the need for the Deputy Judge to treat his evidence with extreme caution.

In the remainder of his lengthy judgment, the Deputy Judge dealt with Mr Kotonou's case that Nat West made five misrepresentations to him which entitled him to avoid the guarantee. The Deputy Judge rejected Mr Kotonou's case on four of these five representations but he upheld his case in part in relation to the fifth misrepresentation. The result was that Mr Kotonou was entitled to set aside the guarantee of 12^th July 2001 so that the same was not enforceable against him and the action against him was dismissed.

I have quoted paragraph 20 of the Deputy Judge's judgment when he referred to recent submissions from Mr Wormington. What happened in that respect was as follows. Shortly before 22^nd May 2006 (when the judgment was handed down), the Deputy Judge had released a draft of his intended judgment. The draft judgment contained paragraphs 19 and 20 in these terms:

"19. However, I would add that even if the bank knew of the terms of the agreement between the Theodossiades and the ORS and the conversion into stock of E-Comsport that would not (without very much more) have imposed upon the Bank a legal duty not to avoid the lapse of the Barclays SLOC. That is not to say, of course, that there could not exist circumstances in which a bank took on the responsibility of preserving the value of a standby letter of credit in its hands and ensuring, in the interests of the customer, that it would be called before expiring. But I see nothing on the facts of the case before me to show that the bank assumed such a duty to ORS in relation to the Barclays SLOC.

20. Recognising that I have sacrificed a lot of detail in the evidence in relation to the SLOC and its extensions and its expiry, I think I have said enough about it to get sufficient of the picture across for purposes of this judgment, and I move on to the more pertinent part of the factual history."

Following receipt of the draft judgment, Mr Wormington sent an e-mail to the Deputy Judge. The relevant part of the e-mail reads:

"On a different note at paras 16 last sentence, para 17 last sentence, para 19 and at the end of para [20] the Judge refers to no duty being owed by NWB to ORS or anyone else to the preservation/call etc of the Standby Letter of Credit – is it intended to make a finding that no legal duty was so owed? Such a legal duty was alleged in the proposed amendment, but it did not form any part of the amendment for which permission was granted (in part I thought I had understood, because of the difficulties in attempting to address that point at the late stage at which it was raised and because of the failure of the proposed amendment to rely on assignment by ORS). As a result this matter was not made the subject of submissions in the case. Could you please draw this query to the Judge's attention."

It was following receipt of this e-mail that the Deputy Judge amended his draft judgment, before handing it down, and in particular made the reference in paragraph 20 of the handed down judgment to recent submissions from Mr Wormington.

There was a later hearing before the Deputy Judge in relation to the question of the costs of the earlier proceedings. In the course of explaining his reasons for his award of costs, the Deputy Judge said (in a judgment given on the 19^th June 2006) the following:

"As to the further representation concerning the standby letter of credit, namely, that it was the bank's intention to launch an investigation into the circumstances of its loss and that if it were shown to be at fault it would release the replacement security, that claim too was rejected by me as untrue and it lengthened the trial considerably because it prompted a vast excursion into the history of the standby letter of credit. I indicated in my judgment that the time devoted to that history was out of all proportion to its significance. It would have been quite sufficient to deal with the standby letter of credit by indicating that the bank made some sort of internal mistake and lost the benefit of that security and that the embarrassment of that event caused it to be over eager to plug the gap caused by its own mistake, and that this led it to misrepresent the position to Mr Kotonou. Instead, to the end, Mr Kotonou fought on the basis that the bank was in some way responsible to him and his companies for failing to extend the standby letter of credit. This, again, considerably increased the size of the case. These separate issues in which Mr Kotonou lost amply justify departure from the normal rule that the winner takes all. But it is not only the fact of separate issues which justify such a departure. In my judgment, Mr Kotonou unreasonably and improperly raised those further allegations, which turned out to be untrue, and the allegation of fraud against upright bank officials was wholly unjustified."

I have not seen the formal order made by the Deputy Judge following the conclusion of the guarantee proceedings. I was told that Mr Kotonou did not ask the Deputy Judge to make declarations to give effect to the findings of fact, adverse to Mr Kotonou, in relation to the bank's involvement in the lapse of the standby letter of credit. It was suggested to me by Mr Gourgey that it would have been open to Mr Kotonou to seek declaratory relief in that respect, even though he had no claim for such declaratory relief in his counterclaim, in order to enable Mr Kotonou to appeal the adverse findings in those respects.

The present proceedings

The present proceedings were commenced by the issue of a Claim Form on 15^th March 2007. Mr Kotonou served Particulars of Claim dated 20^th July 2007.

In paragraph 5 of the Particulars of Claim, Mr Kotonou pleads that the terms of the proposed agreement between ORS and Mr & Mrs Theodossiades were explained by Mr Kotonou to Mr Frampton of Nat West in the period between 22^nd and 24^th February 2000.

In paragraph 6, Mr Kotonou pleads that the agreement ORS made with Mr & Mrs Theodossiades on 24^th February 2000 had already been articulated to Mr Frampton.

In paragraph 7, Mr Kotonou pleads that Nat West held the standby letter of credit on trust for ORS.

In paragraph 10, Mr Kotonou pleads that Nat West knew that Mr & Mrs Theodossiades intended to fully convert their loan into shares.

In paragraph 12, the circumstances in which Mr & Mrs Theodossiades converted some £300,000 of their loan into shares is described. It is pleaded that Mr Kotonou also informed Mr Frampton of this conversion by Mr & Mrs Theodossiades. It is pleaded that Mr Frampton and Nat West were aware that ORS had provided value in the sum of £470,000 to Mr & Mrs Theodossiades and that Nat West was aware that ORS had effectively repaid part of the loan to Mr & Mrs Theodossiades.

In paragraph 14, it is pleaded that Nat West was fully aware of the reasons for extending the standby letter of credit; the reasons there referred to appear to be the reasons set out in detail at paragraph 13 and involved Nat West being aware of the detailed arrangements between ORS, acting through Mr Kotonou, and Mr & Mrs Theodossiades.

In paragraph 16, it is alleged that the administration of the extensions of the standby letter of credit was carried out solely by Nat West and its staff, including Mr Frampton.

The Particulars of Claim then plead various duties owed by Nat West to ORS. It is said that there was an implied term of the contract between Nat West and ORS that Nat West would exercise the reasonable skill and care to be expected of reasonably competent and prudent bankers in its administration of and reliance of the standby letter of credit and in particular in extending the period of the letter of credit and in exercising its rights to call on the letter of credit. It is then said that Nat West owed ORS an equivalent duty of care in tort. This is said to be because Nat West assumed a responsibility to ORS arising out of its earlier involvement in extending the period of the standby letter of credit. In addition to this assumption of responsibility it is pleaded that it would be fair just and reasonable to impose a duty of care on Nat West.

Paragraph 20 pleads a number of matters of which, it is alleged, Nat West was aware. These include the commercial terms between ORS and Mr & Mrs Theodossiades and that Mr Frampton was aware that Mr Kotonou was not available or contactable for two weeks in March 2001.

It is next alleged that Nat West owed ORS a fiduciary duty to act in the best interests of ORS in the administration and renewal of the standby letter of credit. This fiduciary duty is said to arise from the relationship of banker and client and from the fact that Nat West held the standby letter of credit on trust for ORS.

In addition to the duties owed by Nat West to ORS, it is pleaded that Nat West owed essentially the same duty to Mr Kotonou personally. It is said that Nat West assumed a responsibility to Mr Kotonou personally and that it would be fair, just and reasonable to impose such a duty on Nat West.

The Particulars of Claim allege that Nat West was in breach of the various duties upon it and this caused loss to ORS and to Mr Kotonou. The pleaded losses are of various kinds and although I had submissions in relation to the foreseeability and remoteness of the claimed losses, it is not necessary to give more detail of the pleaded claim in this respect.

On 14^th August 2007 Nat West pleaded a detailed defence to the claim. Nat West denied the existence of the duties alleged and set out its version of the relevant facts drawing heavily upon the findings of fact made by the Deputy Judge in the earlier proceedings.

On 8^th October 2007, Nat West made the application which later came before Master Teverson. Nat West sought summary judgment under CPR Part 24 leading to the dismissal of the claim and, in the alternative, an order striking out the entirety or part of the claim; the striking out order was sought pursuant to CPR Part 3.4(2)(a) or (b).

Nat West's application came before Master Teverson at a one-day hearing on 14^th April 2008. The Master reserved his judgment until 11^th July 2008. In his judgment he set out the history of the matter with admirable concision. At paragraph 22, he stated that the Particulars of Claim in the present proceeding pleaded facts relating to the standby letter of credit which were in many material respects inconsistent with findings of fact made by the Deputy Judge in the previous action. The Master gave examples of such inconsistency.

The Master then considered an argument put to him by Nat West to the effect that Mr Kotonou was prevented from putting forward assertions of fact by reason of an issue estoppel arising from the findings in the earlier action. The Master accepted the submissions of Mr Jacob acting for Mr Kotonou that there was no issue estoppel. That finding has not been challenged on the appeal before me.

The Master then turned his attention to arguments as to abuse of process. He identified two different aspects to this part of the case. He said that the first possible abuse of process arose from Mr Kotonou putting forward in his Particulars of Claim in the present action matters which were contrary to findings of fact in law made in the previous action. The second aspect of possible abuse of process was Henderson v Henderson abuse of process.

The Master dealt first with a possible abuse of process due to Mr Kotonou relying on matters which were contrary to findings of fact in law made by the Deputy Judge in the previous action. The Master analysed the Particulars of Claim in the present action with some care. At paragraph 37 of his judgment he said:

"The facts alleged in the Particulars of Claim in the present action correspond closely to those set out in the amended defence and counterclaim relating to the SLOC, which were the subject of the findings by the judge. In my view, the way in which the Particulars of Claim are pleaded in the present action amounts to a collateral attack on the findings of the judge in the previous action relating to the SLOC. The Particulars of Claim ought, in my view, to be struck out on that ground. The Particulars of Claim contain so many extensive factual averments which are inconsistent with the findings of fact, that I do not think it would be profitable for me to define or attempt to define in this judgment, the precise parts which are contrary to the findings of fact made by the judge."

The Master then considered the second alleged way in which there was an abuse of process, which he referred to as Henderson v Henderson - type abuse. The Master held that the potential abuse of that kind had been overtaken by the fact that the Judge did make findings of fact at the specific request of Mr Kotonou's then counsel on issues relating to the standby letter of credit and it was the inconsistency between those findings of fact and the pleading in the present action which was the basis of his decision that there was an abuse of process.

The Master then considered what should be done. He directed that the Particulars of Claim in their present form be struck out. He then considered the application for summary judgment under CPR Part 24. He dealt with a submission from Nat West that on the true construction of the assignment of 5^th March 2004, any causes of action available to ORS against Nat West had not been assigned by ORS. He accepted a submission on behalf of Mr Kotonou that the construction of the assignment of 5^th March 2004 needed to be viewed against its factual background and it was not suitable to determine the issue on a Part 24 application. He then considered whether the claim had a real prospect of success. He directed himself that one should consider that question in the light of the findings of fact made by the Deputy Judge in the earlier proceedings rather than the averments of fact in the Particulars of Claim in the present action. The Master held that, even if one based oneself on the findings of fact of the Deputy Judge, it did not follow automatically that the court would conclude that no duty of care existed in the present case. In his view, the appropriate course was to adjourn the balance of Nat West's application for summary judgment to give Mr Kotonou an opportunity to plead new Particulars of Claim which were not inconsistent with, or a collateral attack on, the findings made by the Deputy Judge in the previous action.

On 21^st August 2008, the Master made the order to which I have already referred. He permitted Mr Kotonou to serve draft amended Particulars of Claim on Nat West so that any application for leave to amend should be before the judge hearing Mr Kotonou's appeal against the striking out order. Mr Jacob argued his case on behalf of Mr Kotonou before me on the basis that Mr Kotonou already had permission to serve an amended particular of claim. In my judgment, it is clear that the Master's order did not confer a blanket permission to amend the Particulars of Claim in any way that Mr Kotonou wished. In the ordinary way, if Mr Kotonou is to seek permission to amend he must draft the amended Particulars of Claim and obtain the permission of the court to all or part of the draft pleading.

The Master gave Mr Kotonou permission to appeal against the striking out order. Mr Kotonou duly appealed. His grounds of appeal are as follows. It is said that the Particulars of Claim in the present action do not amount to a collateral attack on the findings of the Deputy Judge. It is said that Mr Kotonou was the successful party in the previous action, was quite content with the judgment and does not attack it in any way. It is also said that the findings of fact in the previous action were expressly stated to be "provisional". Mr Kotonou relies on the fact that the pleading of a duty of care in the previous action was successfully opposed by Nat West. It is also said that it was not possible for Mr Kotonou to appeal the outcome of the previous action. Finally, Mr Kotonou says that if he is not now permitted to put forward his present claim, he will have been denied the right to have the basis of that claim properly determined by a court which is contrary to his Article 6 rights.

Nat West has served a Respondent's Notice in which it asks the court to uphold the Master's order on the additional ground that the claim in the present action is an abuse of process under the rule in Henderson v Henderson.

Mr Kotonou has now served draft amended Particulars of Claim. Although the Master struck out the entirety of the original Particulars of Claim, the draft amended Particulars of Claim repeat all of the original Particulars of Claim. The amendments in the draft involve the addition of a lengthy paragraph 17A with 10 sub-paragraphs.

Paragraph 17A states that from and after January 2001, the question of extending or calling in the standby letter of credit was dealt with by Mr Frampton (of Nat West) and Mrs Theodossiades, to the exclusion of Mr Kotonou. It is said that Mr Kotonou was aware of this and he and ORS relied on that matter. It is pleaded that "accordingly" Nat West owed ORS a duty of care and assumed responsibility for dealing with the standby letter of credit and ensuring it was either extended or called in. It is then said that Mr Frampton failed to deal with the matter appropriately.

There are 10 sub-paragraphs of particulars. Sub-paragraph (i) refers to Mr Frampton dealing with Mrs Theodossiades in relation to the standby letter of credit. Sub-paragraph (iii) refers to what would have happened if Mr Frampton had not been dealing with the matter; the suggestion is that Mr Kotonou would have been kept better informed in such a case. Sub-paragraph (iv) avers that Mr Frampton was aware of Mr and Mrs Theodossiades' commercial involvement with ORS. Sub-paragraph (vi) states that Mr Kotonou was no longer involved in the question of the extension of the standby letter of credit or in relation to any call on the letter of credit. Sub-paragraph (vii) pleads that Mr Kotonou reasonably believed and accepted that Mr Frampton had undertaken responsibility in the matter of the extension or calling in of the standby letter of credit. Sub-paragraph (vii) states that Mrs Theodossiades felt that Mr Kotonou was no longer involved with the standby letter of credit in view of the fact that Mr and Mrs Theodossiades had converted the majority of their loan into shares and that Mr Frampton was dealing directly with Mrs Theodossiades. Sub-paragraph (x) pleads that Mr Frampton was "perfectly well aware" of the arrangements between Mr and Mrs Theodossiades and ORS.

My assessment of paragraph 17A of the draft amended Particulars of Claim is that the averments essentially repeat matters which are already pleaded. The averment that Nat West assumed a responsibility to ORS is something that was already pleaded in paragraph 20 of the original Particulars of Claim. The other averments as to the involvement of Nat West in the extensions of the standby letter of credit, the alleged non-involvement of Mr Kotonou and the alleged knowledge of Nat West of commercial arrangements between ORS and Mr and Mrs Theodossiades had also been earlier pleaded and, indeed, are still pleaded in the original part of the Particulars of Claim.

The greater part of the evidence before the court at the hearing of Mr Kotonou's appeal and of Nat West's application for summary judgment was in the form of witness statements of the solicitors for the parties. Much of their evidence was concerned with the course of the previous proceedings. In addition, the solicitor for Mr Kotonou has dealt with the question whether ORS suffered any loss and damage as a result of the lapse of the standby letter of credit and whether (as Nat West claims) Nat West is entitled to set off against any loss and damage claimed by ORS (through its assignee Mr Kotonou) the amount of the debt owned by ORS to Nat West. That latter question raised a further issue as to whether the debt owed by ORS to Nat West had been discharged by others who were secondarily liable.

In addition to the evidence from the parties solicitors' Mr Kotonou has also relied on a new witness statement from Mrs Theodossiades signed on 4^th December 2008 and a witness statement from Mr Theodossiades signed on 5^th December 2008. Mr Theodossiades essentially confirms the statement of his wife and gives more detail about a conversation he had with Mr Frampton on 16^th March 2001.

In the present case, it is accepted that the findings of fact made by the Deputy Judge in the previous proceedings do not give rise to an issue estoppel. This is on the ground that those findings of fact were not essential to the outcome of the earlier proceedings: see Thoday v Thoday [1964] P 181 at 198. Equally, it is accepted that there is no cause of action estoppel which is relevant.

Abuse of process: the legal principles

I will begin by considering the legal principles relating to when a second set of legal proceedings can be held to be an abuse of process, by reason of what has happened in relation to an earlier set of legal proceedings. Both parties accepted before me that a second set of proceedings can be held to be an abuse of process even where the claims put forward in the subsequent proceedings are not barred by a cause of action estoppel, nor an issue estoppel.

In Hunter v Chief Constable [1982] AC 529 at 536 B-D, Lord Diplock referred to the inherent power of the court to prevent misuse of its procedure. He referred to two sets of circumstances in which it might be appropriate to restrain proceedings which were not otherwise inconsistent with procedural rules. The first was where the proceedings would be manifestly unfair to a party to litigation and the second was where the proceedings would bring the administration of justice into disrepute among right-thinking people.

Before the Master, and again before me, it was suggested that there were two relevant categories of case which might involve an abuse of process. The first category consisted of those cases where a litigant in subsequent proceedings wished to challenge adverse findings in earlier proceedings. The second category of case consisted of those cases where a litigant in subsequent proceedings wished to make a claim which he had not made in earlier proceedings, but which he could have made, and which it was alleged, he should have made.

Many of the recent cases, such as Johnson v Gore Wood & Co [2002] 2 AC 1 are cases in the second category. However, in his speech in that case, Lord Bingham reviewed the authorities, including those which recognised the existence of the first category. At pp 24 and 29-30, Lord Bingham referred to passages in the judgments in Bragg v Oceanus Mutual Underwriting Association (Bermuda) Ltd [1982] 2 Lloyds Rep 132 and Bradford and Bingley BS v Seddon [1999] 1 WLR 1482.

In Bragg v Oceanus Mutual Underwriting Association (Bermuda) Ltd [1982] 2 Lloyds Rep 132, Kerr LJ referred at p 137 to the possibility of an abuse of process by an attempt to relitigate an issue which had been fully investigated and decided in a former action, even where there was no res judicata or issue estoppel. Such a possibility could arise where, for example, some of the parties to the second action were different from those in the first action, and were not privies of the parties in the first action. However, the principles are not confined to such cases and the present is not such a case. Bragg was a case involving different parties to the two actions and the defence put forward in the second claim was held not to be an abuse of process even though the facts contended for had already been rejected by way of a defence to the first action.

In Bradford and Bingley BS v Seddon [1999] 1 WLR 1482 at 1490-1491 and 1492-1493, Auld LJ referred to the possibility that there could be such an inconsistency between what had been said in an earlier set of proceedings and what was being said in later proceedings, which would lead the court to consider that it was unjust to permit the later proceedings to continue.

It is clear that, in cases in the first category, it is open to a court to conclude that an attempt to relitigate a matter, in order to challenge findings of fact which were made in earlier proceedings, is an abuse of process, even though the earlier findings are not, for whatever reason, the subject of an issue estoppel.

In Johnson v Gore Wood, Lord Bingham began his discussion of the subject of abuse of process by quoting the passage from the speech of Lord Diplock in Hunter v Chief Constable [1982] AC 529 at 536, to which I referred above. Although Johnson v Gore Wood was a case in the second category referred to above, in my judgment, the statements of general principle in that case are not restricted to cases in that category but are also relevant to the first category of case. The relevant general principles appear, in particular, from the following extracts from the speeches of Lord Bingham and Lord Millett.

At page 30H –31 F, Lord Bingham said:

It may very well be, as has been convincingly argued (Watt, "The Danger and Deceit of the Rule in Henderson v Henderson : A new approach to successive civil actions arising from the same factual matter" (2000) 19 CLJ 287), that what is now taken to be the rule in Henderson v Henderson has diverged from the ruling which Wigram V-C made, which was addressed to res judicata. But Henderson v Henderson abuse of process, as now understood, although separate and distinct from cause of action estoppel and issue estoppel, has much in common with them. The underlying public interest is the same: that there should be finality in litigation and that a party should not be twice vexed in the same matter. This public interest is reinforced by the current emphasis on efficiency and economy in the conduct of litigation, in the interests of the parties and the public as a whole. The bringing of a claim or the raising of a defence in later proceedings may, without more, amount to abuse if the court is satisfied (the onus being on the party alleging abuse) that the claim or defence should have been raised in the earlier proceedings if it was to be raised at all. I would not accept that it is necessary, before abuse may be found, to identify any additional element such as a collateral attack on a previous decision or some dishonesty, but where those elements are present the later proceedings will be much more obviously abusive, and there will rarely be a finding of abuse unless the later proceeding involves what the court regards as unjust harassment of a party. It is, however, wrong to hold that because a matter could have been raised in earlier proceedings it should have been, so as to render the raising of it in later proceedings necessarily abusive. That is to adopt too dogmatic an approach to what should in my opinion be a broad, merits-based judgment which takes account of the public and private interests involved and also takes account of all the facts of the case, focusing attention on the crucial question whether, in all the circumstances, a party is misusing or abusing the process of the court by seeking to raise before it the issue which could have been raised before. As one cannot comprehensively list all possible forms of abuse, so one cannot formulate any hard and fast rule to determine whether, on given facts, abuse is to be found or not. Thus while I would accept that lack of funds would not ordinarily excuse a failure to raise in earlier proceedings an issue which could and should have been raised then, I would not regard it as necessarily irrelevant, particularly if it appears that the lack of funds has been caused by the party against whom it is sought to claim. While the result may often be the same, it is in my view preferable to ask whether in all the circumstances a party's conduct is an abuse than to ask whether the conduct is an abuse and then, if it is, to ask whether the abuse is excused or justified by special circumstances. Properly applied, and whatever the legitimacy of its descent, the rule has in my view a valuable part to play in protecting the interests of justice.

At page 58 G – 60 A, Lord Millett said:

As the passages which I have emphasised indicate, Sir James Wigram V-C did not consider that he was laying down a new principle, but rather that he was explaining the true extent of the existing plea of res judicata. Thus he was careful to limit what he was saying to cases which had proceeded to judgment, and not, as in the present case, to an out-of-court settlement. Later decisions have doubted the correctness of treating the principle as an application of the doctrine of res judicata, while describing it as an extension of the doctrine or analogous to it. In Barrow v Bankside Members Agency Ltd [1996] 1 WLR 257, Sir Thomas Bingham MR explained that it is not based on the doctrine in a narrow sense, nor on the strict doctrines of issue or cause of action estoppel. As May LJ observed in Manson v Vooght [1999] BPIR 376, 387, it is not concerned with cases where a court has decided the matter, but rather cases where the court has not decided the matter. But these various defences are all designed to serve the same purpose: to bring finality to litigation and avoid the oppression of subjecting a defendant unnecessarily to successive actions. While the exact relationship between the principle expounded by Sir James Wigram V-C and the defences of res judicata and cause of action and issue estoppel may be obscure, I am inclined to regard it as primarily an ancillary and salutary principle necessary to protect the integrity of those defences and prevent them from being deliberately or inadvertently circumvented.

In one respect, however, the principle goes further than the strict doctrine of res judicata or the formulation adopted by Sir James Wigram V-C, for I agree that it is capable of applying even where the first action concluded in a settlement. Here it is necessary to protect the integrity of the settlement and to prevent the defendant from being misled into believing that he was achieving a complete settlement of the matter in dispute when an unsuspected part remained outstanding.

However this may be, the difference to which I have drawn attention is of critical importance. It is one thing to refuse to allow a party to relitigate a question which has already been decided; it is quite another to deny him the opportunity of litigating for the first time a question which has not previously been adjudicated upon. This latter (though not the former) is prima facie a denial of the citizen's right of access to the court conferred by the common law and guaranteed by article 6 of the Convention for the Protection of Human Rights and Fundamental Freedoms (1953). While, therefore, the doctrine of res judicata in all its branches may properly be regarded as a rule of substantive law, applicable in all save exceptional circumstances, the doctrine now under consideration can be no more than a procedural rule based on the need to protect the process of the court from abuse and the defendant from oppression. In Brisbane City Council v Attorney General for Queensland [1979] AC 411, 425 Lord Wilberforce, giving the advice of the Judicial Committee of the Privy Council, explained that the true basis of the rule in Henderson v Henderson 3 Hare 100 is abuse of process and observed that it "ought only to be applied when the facts are such as to amount to an abuse: otherwise there is a danger of a party being shut out from bringing forward a genuine subject of litigation". There is, therefore, only one question to be considered in the present case: whether it was oppressive or otherwise an abuse of the process of the court for Mr Johnson to bring his own proceedings against the firm when he could have brought them as part of or at the same time as the company's action. This question must be determined as at the time when Mr Johnson brought the present proceedings and in the light of everything that had then happened. There is, of course, no doubt that Mr Johnson could have brought his action as part of or at the same time as the company's action. But it does not at all follow that he should have done so or that his failure to do so renders the present action oppressive to the firm or an abuse of the process of the court. As May LJ observed in Manson v Vooght [1999] BPIR 376, 387, it may in a particular case be sensible to advance claims separately. In so far as the so-called rule in Henderson v Henderson suggests that there is a presumption against the bringing of successive actions, I consider that it is a distortion of the true position. The burden should always rest upon the defendant to establish that it is oppressive or an abuse of process for him to be subjected to the second action.

Mr Jacob relied on what was said by Lord Hoffmann in Arthur J S Hall & Co v Simons [2002] 1 AC 615 at 705H. It will be remembered that that case concerned the question of immunity of an advocate from a claim in negligence. Many arguments were put forward in support of maintaining such an immunity. One such argument was that a claim in negligence would involve undesirable relitigation of matters determined in an earlier criminal or civil trial. The House of Lords decided that it was no longer appropriate for an advocate to have immunity from a claim in negligence. However, the House of Lords considered in detail the scope of the principle in Hunter v Chief Constable [1982] 2 AC 529 and how that principle might be applied in criminal cases and in civil cases. Against that background, Lord Hoffmann said at page 705H that he could see no objection on the grounds of public interest to a claim that a civil case was lost because of the negligence of the advocate, merely because the civil case had gone to a full trial. There is much in the speeches of all their Lordships in that case on the principle in Hunter v Chief Constable and the question of abuse of process but I was not asked to consider what was said, apart from the one comment of Lord Hoffmann. It was not suggested that there was anything in Arthur S Hall & Co v Simons which is at variance from the statements of principle in Johnson v Gore Wood.

Mr Jacob does not say that the present case comes within the comment made by Lord Hoffmann in Arthur S Hall & Co. The present case does not involve a claimant suing his lawyer for alleged negligence in the conduct of earlier proceedings, which were decided adversely to the claimant. I have already referred to the general principles as they appear from Johnson v Gore Wood. It is clear that those principles do not lay down strict inflexible rules for the court to apply when deciding whether relitigation is or is not an abuse of process. Lord Hoffmann's comment is entirely consistent with the flexibility of the rules which are to be applied. Conversely, Lord Hoffmann's comment cannot possibly be used to support a submission that relitigation will always be permissible. There can be cases where a court can find that a claim by a client against his lawyer for negligence is an abuse of process by reason of the fact that the client is putting forward assertions of fact which are contrary to findings of fact in earlier proceedings concerned with the same factual matters: see Laing v Taylor Walton (a firm) [2007] EWCA Civ 1146. As Buxton LJ made clear in that case at [12]:

"The court therefore has to consider, by an intense focus on the facts of the particular case, whether in broad terms the proceedings that it is sought to strike out can be characterised as falling under one or other, or both, of the broad rubrics of unfairness or the bringing of the administration of justice into disrepute. Attempts to draw narrower rules applicable to particular categories of case (in the present instance, negligence claims against solicitors where an orginal action has been lost) are not likely to be helpful."

In relation to the arguments as to abuse of process (but not in relation to the arguments as to whether the court should give summary judgment for Nat West), I am sitting in an appellate capacity reviewing the judgment of the Master. The approach to be adopted by an appellate court in such a case is described in Aldi Stores Ltd v WSP Group plc [2008] 1 WLR 748 at [16] per Thomas LJ, whose comments were again considered in Stuart v Lindberg Linde (a firm) [2008] EWCA Civ 2, in particular, at [76] and [81]. Applying those principles to the present case, I adopt the following approach. The Master's decision did not involve the exercise of a discretion. His decision involved the assessment of a large number of relevant factors. There is only one correct answer to the issue whether the present proceedings involve an abuse of process. I should be reluctant to interfere with the Master's decision in so far as it turned upon a balancing of competing factors. Nonetheless, I should interfere with that decision if the Master took into account immaterial factors, omitted to take into account material factors, or erred in principle or came to a conclusion that was impermissible or not open to him, in particular, a decision that was plainly wrong.

Summary judgment: the legal principles

The legal principles which apply to an application for summary judgment are well settled. Under CPR rule 24.2, the court may give summary judgment against a claimant on the whole of a claim, or on a particular issue, if it considers that the claimant has no real prospect of succeeding on the claim or issue and there is no other compelling reason why the case or issue should be disposed of at a trial (rather than on a summary application).

In the present case, if I consider that the claimant has no real prospect of succeeding on this claim, it is not suggested that there is any other compelling reason why the case should be disposed of at a trial rather than on a summary application.

The burden of proving that the claimant has no real prospect of success is on the applicant for summary judgment, in this case that is Nat West. Where the applicant for summary judgment shows some credible evidence or argument why the claimant has no real prospect of success, then there is an evidential burden on the claimant to show that after all he has a real prospect of success.

The words "no real prospect of success" are perhaps self explanatory. It is clearly established that the court on the summary application does not ask itself whether the claimant will probably succeed or probably fail. A claim which will probably fail is not the same as a claim which has no real prospect of success. The test is not one of probability but of whether there is an absence of reality in the claim.

On an application for summary judgment, the court must not conduct a mini-trial. If the claimant has a real prospect of success, then the claim should go to trial and the claimant can have the benefit of disclosure and the testing of evidence by cross-examination. The court should also take into account any real possibility that at trial there may be evidence which is not available at the summary application stage.

Abuse of process: discussion and conclusions

The issue in the present case is whether the allegations made by Mr Kotonou in the present proceedings as to the involvement of Nat West in the various extensions of the standby letter of credit and/or as to Mr Kotonou being "out of the loop" and/or as to Nat West's awareness of the commercial arrangements between Mr and Mrs Theodossiades and ORS are an abuse of process on the ground that it would be manifestly unfair to Nat West to allow Mr Kotonou to make those allegations or on the ground that the re-litigation of those matters of fact would bring the administration of justice into disrepute.

I have set out in detail the history of the earlier litigation. I have also set out the relevant passages from the judgment of the Deputy Judge given on 22^nd May 2006. At paragraph 39 above, I have summarised the essential findings of the Deputy Judge which are relevant for present purposes.

The allegations of fact which are now put forward by Mr Kotonou are flatly contrary to the findings of the Deputy Judge. Those findings were made after a full trial when the relevant matters of fact were thoroughly investigated. Counsel who then appeared for Mr Kotonou specifically invited the Deputy Judge to make findings on the matters of fact in issue. The state of the pleadings in the earlier action did not in any real way curtail the extent to which those matters of fact were investigated. The findings of fact were based on the Deputy Judge's detailed consideration of all of the evidence. He heard evidence from Mr Kotonou, Mrs Theodossiades and Mr Frampton. The findings of fact depended upon the Deputy Judge's assessment of the credibility of the various witnesses and especially Mr Kotonou himself. Nothing which happened in the earlier trial causes there to be any concern about the way in which the Deputy Judge investigated the matters of fact and made his findings on them.

If Mr Kotonou is permitted to repeat in the present proceedings essentially the same allegations of fact as he put forward in the earlier proceedings, and which were rejected by the Deputy Judge, it will be necessary for the court to investigate for a second time the same matters of fact. It does not seem likely that there will be any real difference in the evidence given at a second trial as compared with the trial before the Deputy Judge. Mr Kotonou has provided a further witness statement from Mrs Theodossiades. That witness statement could have been provided for use in the first trial. Nothing has happened which has changed the evidence which Mrs Theodossiades was at all times able to give. Further, on my reading of the further witness statement from Mrs Theodossiades, the new witness statement does not contain any significant piece of evidence which was not already before the court on the last occasion although the witness statement is more detailed in some respects. Mr Kotonou has also served a witness statement from Mr Theodossiades; he did not give evidence at the first trial. However, the witness statement which Mr Theodossiades has now provided does not contain any significant piece of evidence which was not already before the court on the earlier occasion.

Mr Jacob submitted that the Deputy Judge's findings of fact, so far as they are now relevant, were provisional only. They are said to have been provisional because they were not relevant to what the Deputy Judge really had to decide. The fact that the Deputy Judge did not really have to decide those matters was a point stressed by Nat West in its submissions on the earlier occasion and accepted by the Deputy Judge. Mr Jacob also says that the Deputy Judge made clear, in paragraph 20 of his judgment, that his findings of fact were only provisional. Because the Deputy Judge's findings of fact did not matter first time around and were only provisional it is submitted that there is no abuse of process in allowing Mr Kotonou to put forward his present claim where these matters of fact are now of critical importance.

I do not accept the submission that the Deputy Judge's findings of fact on the matters which are now relevant were provisional only. Counsel then appearing for Mr Kotonou pressed the Deputy Judge to make findings of fact on those matters. A great deal of time and effort was devoted by both parties and by the Deputy Judge to those matters. The Deputy Judge set out his findings of facts in detail. He did not say that the findings of fact were provisional only. No such comment is implicit in his judgment. When Counsel then appearing for Mr Kotonou saw the Deputy Judge's draft judgment, he did not ask the Deputy Judge to qualify the draft findings of fact or to record that they were provisional only. Counsel did ask the Deputy Judge to qualify his finding as to the existence of a duty of care owed to ORS and the Deputy Judge did so. That qualification did not detract in any way from the relevant findings of fact.

Mr Jacob stressed that it would be unfair to Mr Kotonou to prevent him challenging the findings of facts made by the Deputy Judge in the earlier proceedings in circumstances where he had been unable to appeal those findings of fact. It was said that he was unable to appeal the relevant findings of fact because he had won the earlier proceedings and there was no part of the order made in his favour which he would have wished to appeal.

Mr Gourgey countered this argument by saying that it would have been technically open to Mr Kotonou to appeal the earlier findings of fact. He submitted that what Mr Kotonou should have done was that he should have invited the Deputy Judge to make declarations in accordance with his adverse findings of fact so that Mr Kotonou could then have appealed those declarations. Mr Gourgey cited the decision of the Court of Appeal in Compagnie Noga D'Importation et D'Exportation SA v Australia & New Zealand Banking Group Ltd [2002] EWCA Civ 1142. In that case, the respondent bank had lost on the facts and won on the law. It therefore won overall. The appellant appealed on the point on which it had lost. The respondent wished to support the judgment on the law but it also wished to challenge the judge's finding of fact. If the judge had not made a declaration to give effect to his finding of fact, then the respondent would not have needed permission to cross-appeal in order to challenge the finding of fact. Because the judge had made a declaration to give effect to the finding of fact, the Respondent did need permission to appeal in order to challenge the finding of fact. The respondent appealed, first, against the form of the judge's order. It was held by a majority in the Court of Appeal that it was open to the judge to make a declaration to give effect to his finding of fact which was adverse to the respondent even where he was deciding the case overall in favour of the respondent.

I think that the possibility of the Deputy Judge being asked to make declarations to give effect to his findings of fact which were adverse to Mr Kotonou is wholly unreal. Those findings of fact were based on the Deputy Judge's detailed assessment of the evidence and, criticially, on his assessment of the credibility of the various witnesses. There was no real prospect of a successful appeal to the Court of Appeal against those findings. If the Deputy Judge had been asked to make declarations as to the facts for the purpose of facilitating an appeal against those findings, I would have expected him to have declined to do so.

Mr Gourgey did not submit that it would have been open to Mr Kotonou to appeal the findings of fact for the purpose of appealing against the order for costs, which was less favourable to Mr Kotonou by reason of the adverse findings of fact, amongst other things. In theory, Mr Kotonou might have been able to mount an appeal on such a ground but it is most unlikely that permission to appeal would have been granted for such an appeal.

I am therefore far from persuaded that Mr Kotonou would have been technically able to appeal against the adverse findings of fact made by the Deputy Judge but even if an appeal were technically open to Mr Kotonou, such an appeal would not have had any real prospect of success because of the nature of the findings. If an appeal had been technically possible, then such an appeal had no real prospect of success and Mr Kotonou did not try to bring such an appeal. If an appeal was not technically possible, then Mr Kotonou could not try to bring such an appeal and he did not do so. In those circumstances it does not seem to me to be a matter of any weight whether an appeal was or was not technically possible. I also bear in mind that whilst the availability of an appeal is a relevant factor in considering whether certain findings do or do not give rise to an issue estoppel, it is possible in some cases for there to be an issue estoppel even where there was no possibility of an appeal against the relevant finding: see the decision of the Court of Appeal in Re State of Norway's Application (No. 2) [1990] 1 AC 723 at 743A-H, 754E-G and 771H-772A.

Mr Jacob also submitted that it would be wrong to prevent Mr Kotonou putting forward his claims in the present proceedings because that would be to deny him his right under Article 6 of the Convention for the Protection of Human Rights and Fundamental Freedoms, which is given effect by the Human Rights Act 1998. Under Article 6, Mr Kotonou has a right to a fair and public hearing by an independent and impartial tribunal established by law for the purpose of determining his civil rights. I do not accept this submission. As regards the alleged matters of fact on which Mr Kotonou wishes to rely, those matters have been investigated at a trial which satisfied the requirements of Article 6. As regards his allegations as to the existence of a duty of care owed by Nat West to ORS and to himself, I will proceed to deal with those matters in the remainder of this judgment. In that way, Mr Kotonou's right under Article 6 is fully respected. More generally, the domestic legal principles as to striking out claims which are an abuse of the process of the court are entirely compatible with the requirements of Article 6: see Stuart v Goldberg & Linde [2008] EWCA Civ 2 at [65] per Lloyd LJ.

I can now express my conclusion on the appeal against the Master's finding that the original Particulars of Claim in the present proceedings give rise to an abuse of process because the central allegations of fact which are made are inconsistent with the Deputy Judge's findings of fact in the earlier proceedings.

In my judgment, the Master did not take into account any immaterial consideration; nor did he fail to take into account any material consideration. Further, he did not commit any error of principle nor did he come to a conclusion that was impermissible or which was not open to him. Further, his decision was not plainly wrong. It must follow that I should dismiss the appeal against the Master's decision on abuse of process.

I also wish to make it clear that if the decision on abuse of process had come before me at first instance, and not on appeal from the Master, I would have reached the same conclusion as he did. I have set out what was involved in the earlier proceedings and what Mr Kotonou now wants to happen in relation to a further set of proceedings. On the facts of this particular case, in my judgment, it would be manifestly unfair to Nat West to allow Mr Kotonou to relitigate these issues of fact. Further, relitigation of these issues of fact would, in my judgment, bring the administration of justice into disrepute.

Having reached his conclusion on abuse of process, the Master held that the correct way to give effect to his conclusion was to strike out the entirety of the Particulars of Claim so as to enable Mr Kotonou, if he wished, to put forward any case as to breach of duty by Nat West on grounds which avoided the abuse of process. There was no separate appeal about this aspect of the Master's decision, assuming him to have been right on the main point about abuse of process.

It follows that I will dismiss the appeal against the Master's order to strike out the Particulars of Claim.

It will be remembered that Nat West served a Respondent's Notice which contended that the Master ought to have gone further and held that the present claim is an abuse of process because it puts forward claims that Nat West owed a duty of care to ORS and to Kotonou, when those matters could have been, and should have been, put forward in the earlier proceedings. I will refer again to that contention when I consider later in this judgment the case which is put forward for a duty of care owed by Nat West to ORS and to Mr Kotonou.

The draft Amended Particulars of Claim

The Master directed that Mr Kotonou should be permitted to seek permission to amend his claim and to put forward a new Particulars of Claim which did not involve allegations of fact which would amount to an abuse of process. The Master plainly envisaged a new Particulars of Claim which removed the allegations which amounted to an abuse of process and instead asserted a duty of care and a breach of such duty without reliance on such allegations of fact.

Mr Kotonou has not sought to put forward a new Particulars of Claim of the kind envisaged by the Master. He has done something quite different. He has put forward an amended Particulars of Claim which retains all of the allegations of fact which the Master held amounted to an abuse of process. Mr Kotonou has gone further. In paragraph 17A of the draft amended Particualrs of Claim, Mr Kotonou has repeated the essential allegations of fact which were held to have amounted to an abuse of process.

If I had allowed Mr Kotonou's appeal against the order striking out the original Particulars of Claim, then Mr Kotonou would have needed permission to amend the original Particulars of Claim. In the event, I have dismissed his appeal against the striking out order. In those circumstances, I do not see how Mr Kotonou can now seek to amend Particulars of Claim in accordance with the draft. That draft repeats what has been struck out. Further, paragraph 17A does not help him. The allegations in that paragraph essentially mirror the original allegations which have been struck out and they too would be struck out rather than permitted.

In case Mr Kotonou does apply for permission to amend the Particulars of Claim in accordance with the draft, I therefore refuse permission to amend.

Mr Kotonou has not applied to me for permission to serve new Particulars of Claim of the kind envisaged by the Master.

The application for summary judgment

It is now necessary for me to consider what should be done as a matter of procedure in the circumstances which have now arisen where Mr Kotonou has served a Claim Form but has had his Particulars of Claim struck out and where there is no current application for permission to serve any new Particulars of Claim. One course would be to dismiss the claim by reason of his failure to serve Particulars of Claim. An alternative course would be to consider the application for summary judgment made by the Defendant and to see what emerges.

The application for summary judgment was fully argued and I have decided that it would be better for me to deal with it in an attempt to produce greater certainty as to the final outcome of these proceedings.

For the purpose of considering the application for summary judgment, I will proceed on the basis of the findings of fact made by the Deputy Judge. The alternative of proceeding on the basis of the facts alleged by Mr Kotonou in the Particulars of Claim which have been struck out would be plainly wrong. I have held that Mr Kotonou is not able to make the allegations of fact in those Particulars of Claim because to do so is to abuse the process of the court.

As a preliminary to my discussion of the arguments for and against summary judgment, it is useful to consider first some general points as to the nature of a standby letter of credit and the general principles which usually apply to the relationship of creditor and debtor.

The nature of a standby letter of credit

The parties did not agree about the legal character of a standby letter of credit. At one point in his submissions, Mr Jacob repeated what Mr Wormington had originally submitted to the Deputy Judge to the effect that a standby letter of credit was effectively equivalent to cash. Indeed, Mr Jacob was prepared to say that the duties of Nat West in relation to the standby letter of credit should be similar to those of a bailee in relation to a bailment of cash. Following the oral argument, Mr Jacob made a further written submission in relation to the character of a standby letter of credit. His submission was concerned to distinguish such a letter of credit from a guarantee, including a guarantee given by a bank. He submitted that in the case of a call on a guarantee, the guarantor would need to satisfy himself that the principal debt had fallen due, that any security was unaffected, that there was no set off, that neither the principal debt nor the guarantee were liable to be avoided and, indeed, other matters. He submitted that by contrast, a standby letter of credit gave rise to none of these considerations and had the characteristics of a bank note, save that the bank was Barclays and not the Bank of England.

Mr Gourgey submitted that the closest analogy to the standby letter of credit in this case was a guarantee. He pointed to the terms of the standby letter of credit which required Nat West to confirm to Barclays that the sum being claimed had become due and had not been paid. He rejected the analogy of cash or a banknote.

Neither counsel referred me to any authority on the nature of a standby letter of credit. In the course of argument, it seemed to me that in order to understand what was involved in the standby letter of credit in this case, one need only have regard to the express terms of the letter of credit in this case. Those terms are quite clear as to their meaning and effect. It seemed to me that the rights (and any possible duties) of Nat West under the standby letter of credit were not the same as the rights and duties of a bailee of cash. It also seemed to me that there were differences between the rights of Nat West under the letter of credit and the rights it would have had under a traditional contract of guarantee in respect of the debts of ORS, even a guarantee given by a bank.

In view of the considerable differences in the approach of the parties to the legal nature of a standby letter of credit, and in case it was not enough simply to read and apply the express terms of the letter of credit in this case, I have consulted some standard text books on the subject of letters of credit.

Benjamin's Sale of Goods, 7^th ed., contains (at chapter 23) a discussion of documentary credits. It is said at paras. 23-052 and 23-237 that the function of a standby letter of credit resembles that of a first demand guarantee or a performance bond. The text book then discusses standby letters of credit at paras. 23-239 to 23-247; it proceeds to discuss first demand guarantees and performance bonds at 23-270 and following. At para. 23-270, it is stated that there is no distinction in practice between first demand guarantees and performance bonds. At 23-271, the view is repeated that first demand guarantees and performance bonds served the same functions as standby credits. At paras. 23-272 to 23-273, distinctions are drawn between these instruments and "traditional guarantees".

In Gutteridge and Megrah's Law of Bankers' Commercial Credits, 8^th ed., it is said at para. 2.15 that a standby credit is a guarantee of the obligations of a party under a contract and it operates in a similar manner to a performance bond or first demand guarantee.

In Jack, Documentary Credits, 4^th ed., at para. 12.3, a standby letter of credit is compared with a commercial credit and, at paras. 12.4 to 12.10, it is described as an "independent guarantee" and then compared with what is described as a "conditional guarantee". It is said that a conditional guarantee imposes an accessory or secondary liability for the primary liability of a principal debtor whereas an independent guarantee is an autonomous obligation of the person providing it. The textbook then identifies a number of the consequences which flow from these differences.

I can now express my conclusions on this question. In my judgment, the legal nature of the standby letter of credit in this case appears clearly from its express terms. The underlying debt is the debt owed by ORS to Nat West. ORS is the principal debtor. By the letter of credit, Barclays takes on a liability to Nat West to pay the underlying debt. Barclays is only liable to pay the underlying debt to Nat West if Nat West confirms to Barclays that the underlying debt is due from ORS to Nat West and remains unpaid. In one sense, the liability of Barclays is secondary to the liability of ORS. In another sense, the liability of Barclays is autonomous and arises on Nat West producing conforming documents as specified in the letter of credit. A call on the letter of credit can only be made between 30^th September 2000 to 30^th December 2000. The rights under the letter of credit cannot be assigned or transferred by Nat West. The rights under the letter of credit are not the same as cash or bank notes. The obligations of Barclays under the letter of credit are clearly defined and some matters which might provide a defence to liability under a traditional guarantee will not fall to be considered. Nat West holds the letter of credit as a security for payment of the underlying debt due from ORS to Nat West.

A creditor's remedies

It is helpful to consider the general principles governing the issue whether a creditor owes a duty to a debtor in relation to various securities or other rights which a creditor may have and which arise when the debtor fails to pay the debt.

The case of China & South Sea Bank v Tan [1990] 1 AC 536 involved an appeal to the Privy Council from the Court of Appeal in Hong Kong. In that case a creditor (the bank) was owed money by the debtor and had the benefit of a guarantee by the surety (Mr Tan) and of a mortgage granted by a third party over shares in an associated company of the debtor. The bank sued Mr Tan on the guarantee. He defended on the ground that the bank was in breach of an alleged duty owed to him as surety in the way in which it dealt with the shares, the subject of the mortgage. It was alleged that the bank ought to have exercised its power of sale of the shares at a time when the shares were worth more than the loan, instead of allowing the shares to become valueless. The judgment of the Privy Council was given by Lord Templeman. He set out the principles of equity whereby a measure of protection is given to a surety (who is not merely a simple debtor). He held that those principles were not infringed. The creditor had three sources of payment: the debtor, the surety and the sale of the mortgaged shares. The creditor was entitled to make his own decision as to how to pursue those three sources of payment. He could pursue them simultaneously or successively or not at all: see at page 545C. The creditor was not a trustee of his powers for the benefit of the surety: page 545D. The creditor was not under an obligation to the surety to do anything: page 545E.

The principles in China & South Sea Bank apply also in this jurisdiction: see Palk v Mortgage Services Funding plc [1993] Ch 330 at 337G. The position as between mortgagor and mortgagee was considered in Silven Properties Ltd v Royal Bank of Scotland plc [2003] BPIR 1429, a decision of the Court of Appeal. It was said by Lightman J at [14] that a mortgagee was at all times free to consult his own interests alone whether and when to exercise a power of sale. His decision was not constrained by reason of the fact that the exercise or non-exercise of the power will occasion loss or damage to the mortgagor.

In my judgment, it emerges from those authorities that, in the ordinary case, a creditor will not owe a duty to a debtor as to when and whether he chooses to exercise any powers the creditor may have in relation to securities given to the creditor for the payment of the debt.

A duty of care to ORS?

If one applies the general legal principle identified in paragraph 132 above to the facts as found by the Deputy Judge then, in my judgment, there is no arguable case for saying that Nat West owed a duty, whether a common law duty of care, or a duty in equity, to make a call on the standby letter of credit. Having considered the legal nature of a standby letter of credit there is nothing in the nature of the security in this case which would justify the court in applying a different principle from that identified above.

It was no doubt because of the general legal principle which applies in the ordinary case that Mr Kotonou sought in his Particulars of Claim to take this case out of the ordinary and to argue that, by reason of the special facts of this case, Nat West had assumed a responsibility to ORS so that it should be held to have taken on a duty to ORS, in relation to a call on the standby letter of credit. However, those allegations of fact are not open to Mr Kotonou in view of the findings of fact made by the Deputy Judge.

Mr Kotonou also alleges that there should be implied into the contract between ORS and Nat West a duty of care in relation to a call on the standby letter of credit. In my judgment, just as there is a clear general principle that a creditor does not owe such a duty to a debtor in relation to a security for the debt, no such term falls to be implied. It is not necessary to give business efficacy to the relationship of banker and customer nor is such a term so obvious that it goes without saying. Nor would such a term be implied at law in the view of the general principle which is to the opposite effect. If a customer wishes to impose a contractual duty of this kind on his bank, it will be necessary to make an express contract to that effect.

Mr Kotonou also alleges that there was a fiduciary relationship between ORS and Nat West and that fiduciary relationship placed obligations on Nat West as regards a call on the standby letter of credit. It is clear that the normal relationship of banker and customer is not a fiduciary relationship. The fact that Nat West had the benefit of a standby letter of credit does not convert that relationship into a fiduciary relationship. Mr Kotonou also alleges that Nat West held the standby letter of credit on trust for ORS. There is no material on which one could find that that was the situation.

For these reasons, I reach the conclusion that Mr Kotonou does not have an arguable case for saying that Nat West owed ORS a duty to make a call on the standby letter of credit before it lapsed. If there was no such duty, then it is not necessary to consider whether Nat West owed ORS a duty to bring about an extension of the standby letter of credit. I would hold that there was no such duty, but even if there were, if there were no duty to make a call on the standby letter of credit then the failure to extend it would not seem to have caused any loss.

These conclusions make it unnecessary to decide other matters which were argued. It is not necessary to decide whether I would still have reached the same conclusions on the application for summary judgment even if I was considering the claim as pleaded by Mr Kotonou. I might, for example, have been persuaded that even if it were open to Mr Kotonou to put forward his contentions of fact, those contentions had no real prospect of success in view of the fact that they had already been thoroughly investigated by the Deputy Judge and had been rejected and Mr Kotonou was not putting forward anything new or different on this occasion. Similarly, it is not necessary for me to consider the point raised by the Respondent's Notice that because Mr Kotonou could and should have alleged the existence of a duty of case (if it was arguable at all) in the earlier proceedings it is for that further reason an abuse of process to bring these new proceedings making such an allegation. If I had to consider that point, I would have to give careful attention to the fact that although Mr Kotonou could have put forward such an allegation (if it was arguable at all) at an early stage in the earlier proceedings, when he tried to allege a duty to care owed to ORS in a pleading served just before the trial, the Deputy Judge did not give permission to make that amendment to the pleading.

In the course of argument, various other points were advanced. In the end Mr Gourgey accepted on behalf of Nat West that the validity of the alleged assignment of the alleged cause of action by ORS to Mr Kotonou should not be dealt with on the application for summary judgment. Similarly, Mr Gourgey accepted that I should not deal with the issue whether Nat West was entitled to set off against ORS, and any assignee of ORS, the monies owed by ORS to Nat West or whether that debt had been discharged in some way or other.

A duty of care to Mr Kotonou?

Mr Kotonou has also alleged that in addition to a duty of care owed by Nat West to ORS, Nat West also owed a duty of care to Mr Kotonou personally.

In my judgment, based on the findings of fact of the Deputy Judge and in view of the general principle as to the absence of such a duty between creditor and debtor and in view of my conclusion that Nat West did not owe such a duty to ORS, I do not see any material which would allow me to hold that it is arguable that such a duty was owed by Nat West to Mr Kotonou.

This conclusion makes it unnecessary to consider the point raised by the Respondent's Notice that this allegation by Mr Kotonou is an abuse of process because if the point had been an arguable one, it could and should have been put forward in the earlier proceedings.

The result

I dismiss the appeal against the Master's order.

I refuse permission to Mr Kotonou to amend the Particulars of Claim in accordance with the draft.

I give summary judgment for Nat West and dismiss the claim.

I will hear counsel on any other matters arising.

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	England and Wales High Court (Chancery Division) Decisions
You are here: BAILII >> Databases >> England and Wales High Court (Chancery Division) Decisions >> Kotonou v National Westminster Bank Plc [2010] EWHC 1659 (Ch) (05 July 2010) URL: http://www.bailii.org/ew/cases/EWHC/Ch/2010/1659.html Cite as: [2010] EWHC 1659 (Ch), [2011] 1 All ER (Comm) 1164