FBN Bank (Uk) Ltd v (1) Leaf Tobacco A Michailides Sa (2) Leaf Tobacco A Michailidea Ad (2) Mika Korca Sha (4) Alexandros Michailides (2017)
A bank was granted summary judgment on its claim against a group of companies involved in the tobacco trade and their majority shareholder for the full unpaid principal amount of an outstanding loan plus interest.
The claimant bank applied for summary judgment against the defendants (D1-D4).
D1 was a company involved in the tobacco trade. D2 and D3 were subsidiaries of D1. D4 was the majority shareholder and principal behind D1 and its group. Pursuant to a revolving borrowing base facility agreement, the bank offered D1 €200m in borrowing facilities. D2 and D3 agreed to indemnify D1. D4 was liable by way of a personal guarantee in respect of D1's obligation, up to a cap of €30m. Under the agreement, D1 was to ensure that its collection accounts would not fall into overdraft. In December 2016, the collection accounts were overdrawn and all the interest due went unpaid. The bank gave notice of default and that it required the immediate repayment of the total principal amount of the loan, which was over €142 million, plus interest. In January 2017, D1 called a meeting of the board of directors to ask for declaration of insolvency. By early 2017, D1 owed the bank around €160 million under different tranches. The defendants played no part in the proceedings.
Preliminary matters - The bank was entitled to seek summary judgment pursuant to CPR Pt 24 in the absence of the defendants' acknowledgement of service. The defendants had no intention of defending the claims. That gave rise to a procedural requirement under r.24.4(1)(i) for the need for permission to be granted. The bank had served the documents properly and validly. The court was satisfied that each defendant had been formally served and had had actual adequate notice of the claim and the hearing. It was appropriate to hear the argument on the merits and proceed to judgment despite the defendants' non-attendance. Rule 24.4(1)(i) did not mean that there had to be a separate and prior application for permission. It was entirely proper that the application issued included within it the application for permission and that that was part and parcel of a single hearing. Permission was granted.
Summary judgment - There had been indisputable defaults. One of the tranches had been unpaid and D1 was effectively insolvent. The court was not satisfied for the purpose of summary judgment that an additional breach relied upon, namely allowing the collection accounts to be overdrawn, was sufficient. If that had been the only default then it might not have been possible to grant summary judgment. However, there had been plenty of other defaults admitted by D1. The court was satisfied that the total principal outstanding amount under the agreement had been properly accelerated so as to become immediately payable by February 2017. There was judgment against D1-D3 for €146m, and judgment against D4 capped at €30m with regard to the principal debt.
Interest - The bank was entitled to default interest. The agreement stated that such interest was payable "as if a loan had been made for successive interest periods". The court disagreed with the bank that that meant compound interest. The wording qualified the rate at which interest should accrue following default. Compounding the interest was not the natural meaning when considering that the overdue amounts were being treated as if they were loans for successive interest periods. Interest periods under the agreement were not always of a set duration; as a result, the principal rate by which interest was calculated was the Euribor rate published on a particular day for a particular interest period. The Euribor interest rate applicable therefore depended on the length of the interest rate provision. All the agreement was saying was that any amount due and payable, but unpaid, attracted default interest at a higher rate, and to determine that rate the bank could pick an interest rate period by way of the appropriate fixed Euribor rate. That conclusion was reinforced by the fact that there was no reference to compound interest in the agreement. The interest should be calculated on a simple basis.
D4's position - The agreement stated that the amount recoverable from D4 should not exceed €30m "together with a further sum for interest and other costs as shall be accrued". The words "together with" provided an additional liability in excess of the €30m cap. However, the language should not be stretched to an unnatural extent to mean that D4 should be liable for all interest due by D1. Rather, it meant that D4's liability was capped €30m, but that did not include his liability for default interest due under his personal guarantee. The bank was awarded final judgment on its claim for the full principal amount against D1-D3 plus interest calculated on a simple basis. D4 was liable for €30m by way of a personal guarantee, plus interest.