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CONTENTS

Domestic Banking .......................................................... 2

Domestic General .......................................................... 3

European Banking .......................................................... 4

European General .......................................................... 4

International Banking..................................................... 4

International General ..................................................... 5

Press Releases ................................................................ 5

Case Law ....................................................................... 8

BANKING & FINANCE LITIGATION UPDATE

Issue 55

mailto:[email protected]

DOMESTIC BANKING

BANK OF ENGLAND

1. The Treasury Select Committee is to put pressure

on the Bank of England to take on powers which

will enable it to restrict mortgage lending during a

housing boom. The International Monetary Fund

has weighed into the debate, saying the bank

should have the power to ban certain mortgages

by limiting loan-to-value and loan-to-income

ratios to restrain property bubbles.

Financial Times, 30 May 2012

BARCLAYS

2. A recent study by Barclays has shown that

wealthy individuals are shunning financial

markets, preferring to invest their money in luxury

items such as precious jewellery, art and vintage

wines.

Times, 11 June 2012

3. Absa Bank, a South African subsidiary of

Barclays, is acquiring the store cards business of

Edcon for £800m. Edcon runs over a thousand

shops in countries in southern Africa ranging from

discount to department stores.

Independent, 7 June 2012

4. A US judge has ruled that Barclays can recover

$1.8bn of disputed assets and interest from the

estate of Lehman Brothers while rejecting an

appeal for a further $1.3bn. An earlier ruling by a

US federal judge in bankruptcy was reversed by

the decision.

Daily Telegraph, 6 June 2012

5. Simon Hayes, UK economist at Barcap, has said

the Government must cut taxes and instruct the

Bank of England to buy bank bonds through

quantitative easing to break the UK's "slow and

measly recovery" and minimise long-term damage

to the economy.

Daily Telegraph, 31 May 2012

6. Barclays has decided not to sell its businesses in

France and Italy and ended talks with potential

buyers. The bank has decided to concentrate

instead on improving the profitability of the

businesses.


7. Barclays is set to make a £630m loss on the sale

of its stake in BlackRock on its 2009 purchase

price, although, having written down the stake last

year, it is likely to book a small gain.


HSBC

8. New claims have been made against HSBC over

the alleged mis-selling of interest-rate hedging

products. Thailand-based hotelier, Manit

Limratana, who owns two hotels in north-east

England, has said the bank did not obtain his

authorisation for a £1 million interest-rate hedge

sold to him six years ago and is claiming

£100,000.

Sunday Telegraph, 10 June 2012

9. HSBC has decided to sell its Greek securities unit

to a group of investors led by managing director

Nikos Pantelakis as part of its plan to offload non-

essential assets.

Times, 8 June 2012

10. HSBC's chief executive has warned that HSBC

may, at some point in the future, have to charge

customers in Britain for having a bank account,

agreeing with the recent comment by the

Executive Director of the Bank of England,

Andrew Bailey, that free banking is a myth.

Times, 26 May 2012

11. HSBC has avoided a shareholder rebellion at its

annual meeting after just 10.2 per cent of investors

voted against remuneration packages, less than the

number of votes against in the previous year.


LLOYDS BANKING GROUP

12. The Children’s Investment Fund, the activist

hedge fund manager, has called on regulators to

force Lloyds Banking Group to bolster the bank’s

capital reserves. Christopher Hohn has written to

the U.K.’s Financial Services Authority urging it

to compel Lloyds to replace £10 billion of

contingent convertible debt – or cocos – with

ordinary shares.

Financial Times, 19 June 2012

13. Lloyds has made a further £375m provision

against PPI claims this year, which could result in

senior managers' bonuses being cut.


02 |

14. Morgan Stanley and Blackstone have acquired a

portfolio of £809m non-performing loans from

Lloyds for £388m. The bank will use the cash to

pay off debt.


15. Banks, including Lloyds, which made loans to

Luminar, the collapsed nightclub operator, have

been told to expect "significant" losses on £112m

of outstanding debts.


THE ROYAL BANK OF SCOTLAND

16. The sale of 318 The Royal Bank of Scotland

("RBS") branches to Santander, which has been

in the pipeline since 2010, will not now be

completed until June 2013. It will take time to get

the business into an 'oven-ready' format

acceptable to Santander and the Financial Services

Authority ("FSA").

Times, 20 June 2012

17. RBS is planning to cut 618 jobs across its

financial planning service, blaming the effect of

regulatory changes which introduce stricter rules

concerning the sale of financial products to

consumers. The bank will create 351 new roles

which will help to mitigate the effect.


18. The FSA is examining RBS's core tier one capital

ratio by means of a stress test to be concluded by

the end of this month. The FSA is unhappy with

the bank's £8 billion government-backed

contingent convertible instrument.


19. RBS and NatWest customers with accounts at the

310 branches in England and Wales which are to

be sold to Santander are being urged to act soon if

they do not want their account automatically

transferred to Santander when the sale is

completed.

Sunday Times, 10 June 2012

20. RBS has consolidated its shares by giving

investors one new share for every ten old ones.

Shares started trading at 200p on 6 June as

opposed to 20p at COB on 1 June 2012.

Guardian, 7 June 2012

21. The investment banking arm of RBS is reviewing

its property portfolio in London as part of a drive

to cut costs which has also involved the loss of

3,500 jobs. The list of properties under review is

believed to include buildings in the City and West

End, including locations at Great Tower Street

and Devonshire Square.


22. Sir Philip Hampton, chairman of RBS, has said

that investors who owned shares in the bank

before its bail-out in October 2008 may never

recover the money they lost in the wake of the

bank's collapse.


23. Direct Line Group has said it will pay a £500m

dividend to parent group RBS. RBS aims to sell a

minority stake in Direct Line through an initial

public offering or sale in the second half of the

year.


24. Months after the sale of Hoare Govett, RBS is

reported to be severing ties with the City broker.

The bank's relationship with the broker became

strained after chief executive, Stephen Hester,

took steps to reduce RBS's exposure to investment

banking.

Independent, 28 May 2012

25. There is unlikely to be a protest vote at RBS's

annual meeting as the chief executive has already

waived his near-£1 million remuneration package.

Stephen Hester is still likely to face questions over

remuneration.


DOMESTIC GENERAL

26. RBS, Barclays, Lloyds Banking Group and HSBC

and 12 other world banks have been downgraded

by Moody's, the credit rating agency. The

changes could require some of the banks to post

additional collateral.

Times, 22 June 2012

27. The run on Northern Rock was the result of

failure on the part of the Labour government and

the Bank of England, according to Hector Sants,

outgoing FSA chief. In an interview with the

BBC, Sants warned that the next governor of the

Bank of England is being handed too much power

by the coalition government and suggested that

EVERYTHING MATTERS | 03

RBS and Lloyds should have been fully

nationalised in 2008.

Guardian, 13 June 2012

28. UK banks are anticipating an important

concession for their small business operations

when the government delivers its long-awaited

response to the Vickers Report. The White Paper

is expected to enhance the range of activities

allowed within the ring-fenced business.


29. According to research by Boston Consulting

Group British banks were the second most

unprofitable in the world after Italy.


30. PIRC, the shareholder advisory group, has

analysed the 2011 accounts of the UK's top five

banks to calculate how much they expect to write

off as bad debt in the coming years but have yet to

take against profits and concluded that the banks

are sitting on a £40bn black hole of undeclared

losses that are preventing them from making vital

loans to businesses and households.


31. The Business Growth Fund which was set up with

funds from five British banks to bank-roll fast-

growing businesses has invested £7m in Primrose

(an online garden products retailer) and ATM

services group Cennox.


32. The Chancellor has launched legal action at the

European Court of Justice to prevent the EU

giving a pan-European supervisor the power to

ban the short selling of financial products.


EUROPEAN BANKING

COMMERZBANK

33. Commerzbank has launched an appeal in the

English Court of Appeal from an earlier High

Court decision to force the bank to honour unpaid

bonuses of £42m.


CREDIT SUISSE

34. According to reports, Credit Suisse has been hired

to sell a minority stake in Into University

Partnerships, the £200 million company involved

in encouraging foreign students to study at UK

universities.


DEUTSCHE BANK

35. Employees Provident Fund, a Malaysian pension

fund, is to sign a £375m deal to acquire Battersea

power station, together with SP Setia, the

Malaysian property developer and RREEF,

Deutsche Bank’s real estate arm. The £1.4bn

scheme will include offices, shops and housing.


36. Deutsche Bank is in exclusive talks with

Kleinwort Benson about selling BHF-Bank after

talks with LGT Bank of Liechtenstein fell

through. Kleinwort is hoping the acquisition will

allow it to expand its footprint in private and

merchant banking.


UBS

37. Sachin Karpe and Laila Karan, former traders at

UBS, have been fined £1.3m and banned from

working in the City after two years of dishonest

trading on the foreign exchange markets.


EUROPEAN GENERAL

38. José Manuel Barroso, the President of the

European Commission, is urging all EU countries

to submit their major banks to a single cross-

border supervisor as part of an EU-wide banking

union. The plan would also include a deposit

guarantee scheme and rescue fund which would

be paid for by levies on banks. Mr Barroso said

the plan could be implemented as soon as 2013.


INTERNATIONAL BANKING

JPMORGAN CHASE

39. The US House of Representatives Financial

Services Committee has been questioning Jamie

Dimon, CEO of JPMorgan Chase as part of its

04 |

investigation into a trading loss of $2bn which the

bank announced in May 2012.

Times, 20 June 2012

MORGAN STANLEY

40. Morgan Stanley has received "in-principle

approval" from the Reserve Bank of India for a

licence to enter India's commercial banking

market.


INTERNATIONAL GENERAL

41. US banks are taking advantage of the Federal

Reserve's proposals for rules on bank capital by

retiring billions of dollars of high-interest debt

securities. A standard clause in trust preferred

securities (Trups) suggests banks can repay them

early in light of the new rules.


42. Sumitomo Mitsui Trust, one of Japan's largest

banks, is being investigated by Japanese

regulators over allegations of insider trading by

one of its employees. The probe by the Securities

and Exchange Surveillance Commission (SESC)

is the latest episode in a widening investigation

into insider trading at Japan's leading institutions.


43. The UK and the US are currently working on

plans to protect the financial system in the event

of the collapse of any of the seven cross-border

banks.


44. The New York Federal Reserve is to investigate

how Wall Street banks invest their excess deposits

as a result of JP Morgan’s recent $2 billion

trading loss.


PRESS RELEASES

45. Competition in the financial services sector

On 21 June 2012, the Office of Fair Trading

(OFT) published a speech by Clive Maxwell,

Executive Director of the OFT, on competition in

the financial services sector. Mr Maxwell focuses

on problems in the retail banking sector, asking

what a well-functioning market in retail banking

would look like, and how this could be achieved.

Office of Fair Trading, 21 June 2012

Further information can be found on the OFT

website:

http://www.oft.gov.uk/shared_oft/

speeches/2012/0412.pdf

46. Inter-jurisdictional regulatory recognition:

facilitating recovery and streamlining

recognition

On 19 June 2012, the EU-US Coalition on

Financial Regulation, a group of transatlantic

trade associations, published a report calling for

EU and US regulatory authorities to resume pre-

crisis negotiations on regulatory recognition. The

Coalition's members include the Association of

Financial Markets in Europe (AFME), the British

Bankers' Association (BBA) and the International

Swaps and Derivatives Association (ISDA). The

Coalition considers that, before the financial

crisis, considerable progress was made by EU and

US regulators on increased regulatory recognition

and calls for the establishment of a working group

drawn from key EU and US regulators

EU-US Coalition on Financial Regulation, 19

June 2012

Further information can be found on the FOA

website:

http://www.foa.co.uk/admin/tiny_mce/jscripts/

tiny_mce/plugins/filemanager/files/Regulation/

Industry_developments/EU-

US_Coalition_Report_-_18th_June_2012.pdf

47. Wolfsberg anti-money laundering principles

for private banking (2012)

The Wolfsberg Group has published revised anti-

money laundering principles for private banking

(dated May 2012). The principles, which have

been revised in conjunction with the Basel

Institute on Governance, were first issued in 2000

(and revised in 2002). On its website, the

Wolfsberg Group states that the new version

maintains the "general thrust" of the earlier

editions, but has been clarified and updated to

outline practices not referenced before, including

additional guidance relating to beneficial

ownership. A new appendix has also been added

setting out due diligence information that should

be obtained when establishing a new business

relationship.

Wolfsberg Group, 19 June 2012


http://www.oft.gov.uk/shared_oft/speeches/2012/0412.pdf

http://www.oft.gov.uk/shared_oft/speeches/2012/0412.pdf

http://www.foa.co.uk/admin/tiny_mce/jscripts/tiny_mce/plugins/filemanager/files/Regulation/Industry_developments/EU-US_Coalition_Report_-_18th_June_2012.pdf




Further information can be found on the Group's

website:

http://www.wolfsberg-principles.com/pdf/

Wolfsberg-Private-Banking-Prinicples-May-

2012.pdf

48. Green Paper on Shadow Banking

Responding to a European Commission Green

Paper on shadow banking, the International

Securities Lending Association argues that

regulatory proposals should be proportionate and

not risk damaging the benefits that securities

lending brings to the markets. It also welcomes

further discussions on transparency.

International Securities Lending Association, 18

June 2012

Further information can be found on the ISLA

website:

http://www.isla.co.uk/latest-news/190-isla-

responds-to-ec-green-paper-on-shadow-banking

49. Banking reform: delivering stability and

supporting a sustainable economy

The government has published its White Paper,

"Banking reform: delivering stability and

supporting a sustainable economy", setting out

detailed proposals for implementing the

recommendations of the Independent Commission

on Banking (ICB). Ring-fencing involves

separating investment banking activities from

personal and business lending to reduce structural

complexity. The focus is on making banks more

resilient to shocks and more resolvable after

failure to protect vital services. The consultation

runs until 6 September 2012.

HM Treasury, 15 June 2012

Further information can be found on the Treasury

website:

http://www.hm-treasury.gov.uk/d/

whitepaper_banking_reform_140512.pdf

50. Report to G20 Leaders on Basel III

implementation

This Basel Committee on Banking Supervision

report details the progress the members of the

Committee have made in implementing the Basel

III regulatory framework (including Basel II5 and

Basel 2.5,6). The report also describes various

implementation issues identified through the

comprehensive process the Committee has

adopted to monitor members' implementation of

Basel III.

Basel Committee on Banking Supervision, 11 June

2012

Further information can be found on the BIS

website:

http://www.bis.org/publ/bcbs220.pdf

51. Green Investment Bank

This House of Commons Library Standard Note

outlines the Government's proposals for a Green

Investment Bank which will support green

infrastructure investment. It also discusses the:

Bank's structure, priorities for investment and

location, the Enterprise and Regulatory Reform

Bill and reaction to the Bill.

House of Commons Library, 8 June 2012

Further information can be found on the

Parliament website:

http://www.parliament.uk/briefing-papers/

SN05977.pdf

52. New crisis management measures to avoid

future bank bail-outs

The European Commission has adopted proposals

for EU-wide rules for bank recovery and

resolution to ensure that in the future authorities

will have the means to intervene decisively both

before problems occur and early on in the process

if they do.

European Commission, 7 June 2012

Further information can be found on the Europa

website:

http://europa.eu/rapid/pressReleasesAction.do?

reference=IP/12/570&format=HTML&aged=0&la

nguage=EN&guiLanguage=en

53. Treasury Committee publishes terms of

reference for inquiry into Bank's

macroprudential tools

The Commons Treasury Committee has published

the terms of reference for an inquiry into the

macroprudential tools that are set to be handed to

the Financial Policy Committee of the Bank of

England (FPC).

Parliament, 1 June 2012

06 |

http://www.wolfsberg-principles.com/pdf/Wolfsberg-Private-Banking-Prinicples-May-2012.pdf



http://www.isla.co.uk/latest-news/190-isla-responds-to-ec-green-paper-on-shadow-banking

http://www.isla.co.uk/latest-news/190-isla-responds-to-ec-green-paper-on-shadow-banking

http://www.hm-treasury.gov.uk/d/whitepaper_banking_reform_140512.pdf

http://www.hm-treasury.gov.uk/d/whitepaper_banking_reform_140512.pdf

http://www.bis.org/publ/bcbs220.pdf

http://www.parliament.uk/briefing-papers/SN05977.pdf

http://www.parliament.uk/briefing-papers/SN05977.pdf

http://europa.eu/rapid/pressReleasesAction.do?reference=IP/12/570&format=HTML&aged=0&language=EN&guiLanguage=en



Further information can be found on the

Parliament website:

http://www.parliament.uk/business/committees/

committees-a-z/commons-select/treasury-

committee/news/treasury-committee-publishes-

terms-of-reference-for-inquiry-on-

macroprudential-tools-/

54. Bank capital rules: General approach agreed

ahead of talks with Parliament

The Council of the EU has unanimously agreed a

general approach on two proposals - the so-called

"CRD 4" package - amending the EU's rules on

capital requirements for banks and investment

firms, with a view to negotiations with the

European Parliament. The proposals set out to

amend and replace the existing capital

requirement directives by two new legislative

instruments: a regulation establishing prudential

requirements that institutions need to respect and a

directive governing access to deposit-taking

activities.

European Commission, 31 May 2012

Further information can be found on the Europa

website:

http://europa.eu/rapid/pressReleasesAction.do?

reference=PRES/12/186&format=HTML&aged=0

&language=EN&guiLanguage=en

55. FSA introduces rules telling banks to display

depositor compensation arrangements

The FSA will require all banks, building societies

and credit unions to prominently display posters

and stickers in branches and on websites

explaining which deposit guarantee scheme

applies to their customers' deposits. These rules

will take effect from 31 August this year.

Financial Services Authority, 28 May 2012

Further information can be found on the FSA

website:

http://www.fsa.gov.uk/library/communication/

pr/2012/058.shtml

56. Guidance: deposit protection - raising

consumer awareness

The FSA has issued a policy statement on the

limits of the protection that applies to the deposits

consumers hold in banks, building societies and

credit unions if their deposit taker fails. The

policy statement sets out the steps taken by the

FSA to strengthen the disclosure requirements

placed deposit takers, including a requirement for

them to display posters prominently in branches

and on websites explaining compensation

arrangements.

Financial Services Authority, 28 May 2012

Further information can be found on the FSA

website:

http://www.fsa.gov.uk/static/pubs/policy/ps12-

10.pdf

57. The future of UK banking – challenges ahead

for promoting a stable sector

The Executive Director of the Bank of England,

Andrew Bailey, has given a speech on the future

of the UK banking sector post financial crisis. He

says, “Whatever happens in the euro area, there is

a cost of adjustment [that] will act as a drag on the

returns earned by banks, and in the worst scenario

present a clear threat to financial stability. This is

the biggest risk to stability that we face today.” He

also anticipates the government will publish a

White Paper on ring fences in retail banking at a

later time.

Bank of England, 25 May 2012

Further information can be found on the BoE

website:

http://www.bankofengland.co.uk/publications/

Documents/speeches/2012/speech574.pdf

58. Court of the Bank of England commissions a

set of reviews to learn lessons

The Court of the Bank of England has

commissioned three reviews into areas of the

Bank's performance and current capabilities in

order to learn lessons and ensure that the Bank is

best equipped to carry out its responsibilities in

the future. The reviews will be led by

independent experts and will cover: the provision

of Emergency Liquidity Assistance in 2008/9; the

Bank's framework for providing liquidity to the

banking system as a whole; and the Monetary

Policy Committee's forecasting capability.

Bank of England, 21 May 2012

http://www.bankofengland.co.uk/publications/

Pages/news/2012/049.aspx


http://www.parliament.uk/business/committees/committees-a-z/commons-select/treasury-committee/news/treasury-committee-publishes-terms-of-reference-for-inquiry-on-macroprudential-tools-/





http://europa.eu/rapid/pressReleasesAction.do?reference=PRES/12/186&format=HTML&aged=0&language=EN&guiLanguage=en



http://www.fsa.gov.uk/library/communication/pr/2012/058.shtml

http://www.fsa.gov.uk/library/communication/pr/2012/058.shtml

http://www.fsa.gov.uk/static/pubs/policy/ps12-10.pdf

http://www.fsa.gov.uk/static/pubs/policy/ps12-10.pdf

http://www.bankofengland.co.uk/publications/Documents/speeches/2012/speech574.pdf

http://www.bankofengland.co.uk/publications/Documents/speeches/2012/speech574.pdf

http://www.bankofengland.co.uk/publications/Pages/news/2012/049.aspx

http://www.bankofengland.co.uk/publications/Pages/news/2012/049.aspx

CASE LAW

59. Appropriate and clear language needed for

demand bond

Wuhan Guoyu Logistics Group Co Ltd and

Yangzhou Guoyu Shipbuilding Co Ltd ("Seller")

jointly operated a shipyard in China. They

entered into a shipbuilding contract ("Contract")

with a buyer ("Buyer"). Emporiki Bank of

Greece S.A. ("Bank") provided finance to the

Buyer.

The Contract price was payable in five

instalments. The first instalment due was paid

after receipt by the Buyer of a Refund Guarantee

issued by the Seller's bank, Bank of China,

securing the first instalment for the Buyer. The

second instalment was payable within "5 New

York banking days of receipt by the Buyer of a

Refund Guarantee" in a specified form issued by

the Seller's bank together with "a certificate of the

cutting of the first steel plate of the Vessel in the

Seller's workshop."

The Buyer assigned to the Bank all the moneys

and claims for moneys due to the Buyer under the

Contract at any time and also the Refund

Guarantee and any other guarantee given to the

Buyer as security for the money due to it under

the Contract. Notice of Assignment was given to

the Seller which was duly acknowledged.

The Bank then issued what was described as a

guarantee ("Payment Guarantee") in respect of

the second instalment. That instalment was not

paid.

There was a dispute as to whether the cutting of

the first steel plate had taken place. The Seller

made a demand under the Payment Guarantee

stating that the steel had been cut. The Buyer

disputed that the second instalment was due,

claiming that there was no proof that the steel had

been cut, that no representative of the Buyer had

given its approval (as provided for in the Payment

Guarantee) and that the Seller had not provided a

Refund Guarantee in respect of the second

instalment in a form finally approved by the banks

of both Buyer and Seller. These issues and others

were to be determined at arbitration.

The Contract came to an end with both parties

arguing that the other was in repudiatory breach.

The Seller issued proceedings against the Bank

and claimed summary judgment for the principal

and interest it said was due under the Payment

Guarantee. It argued that the Payment Guarantee

was in the nature of a demand or performance

bond and that payment was due upon written

demand whether or not the payment was actually

due.

The Bank disputed this. It argued that the

Payment Guarantee was a guarantee properly so

called. If the second instalment was not due, there

could be no liability under the guarantee. As there

was a dispute as to whether the Buyer was liable

to pay the second instalment which could not be

determined summarily the Seller must await the

determination of that question in arbitration. If

successful then it could then recover under the

Payment Guarantee.

The court concluded that the Payment Guarantee

was not a demand or performance bond. The

instrument continuously referred to itself as a

guarantee. Whilst that label could not be

conclusive on its own, it was a pointer. Clause 1

of the Payment Guarantee set out the core

obligation in the classic language of a guarantee.

It guaranteed the due and punctual payment of the

second instalment. It was not a guarantee of what

was not due. The fact that the undertaking was

given as primary obligor and not merely as surety

did not automatically mean that the instrument

was not a guarantee.

The effect of clauses 1 and 2 was that the Bank

was not simply agreeing to pay the second

instalment on demand if it was not paid by the

Buyer. It was undertaking the liability of a

guarantor in respect of the second instalment as

defined in clause 2, which had the added

requirement, not to be found in the Contract, of a

certificate countersigned by the Buyer's

representative.

Clause 3 contained a guarantee of interest from

and including the "first day after the date of

instalment in default". That would be difficult to

reconcile with a free standing obligation to pay

interest from any given date or following demand.

The Buyer had to be "in default" if interest were to

start to run.

Clause 4 did provide for immediate payment upon

first written demand stating that the Buyer had

been in default for 20 days. This would have been

an indicator of a demand bond. If the Payment

Guarantee had done no more than provide that, in

the event that the second instalment was not paid,

the Bank would pay it on a first written demand

stating that it was due and unpaid then the basis

for saying that the Payment Guarantee was a

demand bond would be very strong. But clause 4

followed on from clause 1 which expressed the

core obligation in the language of a guarantee,

from clause 2 which defined the second instalment

in terms which were not identical to the Contract

08 |

and clause 3 which contemplated interest only

after default. The words of clause 4 indicated that

there was not only one condition of payment - a

first written demand with the requisite statement.

The fact that an instrument refers to the

contractual default to which it relates does not

necessarily mean that the beneficiary has to show

that default has occurred. Here however, the

phraseology used in clauses 1, 2 and 4 went well

beyond what was needed for the purpose of

identifying the obligation for which security was

being given and introduced an element of

conditionality.

The wording in clause 7 did not signify or say in

terms that it was not open to the Bank to contend

that the conditions specified in in the Contract and

clause 2 of the Payment Guarantee for the second

instalment to become due had not occurred.

Clause 7 also contained words intended to ensure

that the Seller was not at risk of having the

guarantee rendered inoperative because of one or

more of the classic reasons, such as variation or

extension of time, which would discharge the

guarantor at common law.

The contractual background did not provide any

sure guide to correct interpretation. Banks are

used to providing performance bonds with all that

that entails but they also provide guarantees

(including guarantees to pay on demand) and it

may be in their interest to limit their obligation to

that. What they have undertaken must largely

depend on what they have provided for in the

relevant document.

The Payment Guarantee was, in law, a guarantee.

If the Seller had wanted the additional security of

a demand bond it should have used appropriate

language to make it clear that that was so and not

used the language, form and provisions habitually

found in a guarantee.

The court refused to grant the Seller summary

judgment.

(1) Wuhan Guoyu logistics Group Co Ltd (2)

Yangzhou Guoyu Shipbuilding Co Ltd v Emporiki

Bank of Greece SA, Commercial Court, 22 June

2012

60. Decision to refer request for assistance from

Italian prosecutor to SFO deemed unlawful

Criminal proceedings were taking place in Italy in

relation to swap transactions between JP Morgan

Chase Bank National Association, Depfa Bank

Plc, UBS Ltd, Deutsche Bank AG ("Banks") and

the City of Milan. The Prosecutor of Milan issued

a letter of request ("LOR") to the English

Secretary of State for the Home Department

seeking assistance in gathering evidence located in

the UK for the purposes of establishing various

elements of the alleged offences. The Secretary of

State referred the request to the Serious Fraud

Office ("SFO") which subsequently issued

notices to the Banks under s.2 of the Criminal

Justice Act 1987.

The Banks made repeated representations to the

Secretary of State and the SFO not to act on the

LOR arguing that the Prosecutor had lacked the

requisite authority to issue the LOR when he had

done so. The Prosecutor disputed this and

maintained that he had acted within the scope of

his authority. Ultimately both the Banks and the

Prosecutor served expert evidence on Italian law

on the Secretary of State and the SFO. The

Secretary of State decided not to withdraw the

referral to the SFO and the SFO decided not to

withdraw the s.2 notices.

The Banks sought judicial review of these

decisions.

The court considered that the Prosecutor's

authority to issue the LOR at the stage in the

Italian criminal proceedings when he did so could

only be justified if his actions fell within Article

430 of the Italian Code of Criminal Procedure

("Code").

The Prosecutor's own expert (Professor Giarda)

had made clear there is a stark distinction in Italian

law between a request to exhibit documents

(which will be based on a hope that the defendant

will co-operate) and a coercive action including a

request backed "subordinately or as an alternative"

by a coercive action.

The LOR had included a request for interviews

and for "any requisite court order" to "enable the

provision of the above requested assistance". On

that basis the court could not see how the LOR

could be sensibly characterised as no more than a

request for voluntary production of the documents

sought. The LOR was outside the scope of the

Prosecutor's authority under Article 430 of the

Code and was therefore unlawful under Italian

law.

Although it was not incumbent on the Secretary of

State to form a view as to rival opinions on Italian

law, it would not be imposing an unrealistic

burden on her to expect her to test the LOR in

light of the analysis of the expert instructed by the

Prosecutor, Professor Giarda. Had the LOR been

scrutinized in this light it would have been


obvious that the Prosecutor's action in issuing the

LOR was unlawful.

The Secretary of State had reached the conclusion

that Prosecutor's response to the opinions served

by the Banks and the reports of Professor Giarda

provided "a coherent and full response to the

challenges made to legitimacy". That conclusion

was untenable as Professor Giarda's analysis

demonstrated that the Prosecutor acted without

authority. The Secretary of State's conclusion was

Wednesbury unreasonable and, as a result, neither

her decision nor that of the SFO could stand and

had to be quashed.

(1) JP Morgan Chase Bank National Association

(2) Depfa Bank Plc (3) UBS Ltd (4) Deutsche

Bank AG (Claimants) v (1) Director of the Serious

Fraud Office (2) Secretary of State for the Home

Department (Defendants) & Public Prosecutor of

Milan (Interested Party), Administrative Court, 20

June 2012

61. Debtor's liability discharged when creditor

recovered a sum equivalent to the debt from a

third party

Barclays Bank PLC ("Barclays") provided

secured funding to the LDV Group ("LDV")

which was indebted to Barclays for some £8.5

million.

The Secretary of State for the Department of

Business Enterprise and Regulatory Reform

("BERR") was keen to save LDV from

insolvency and agreed to guarantee a £2.5 million

new monies facility ("Guarantee Facility

Agreement") under which some £1.4 million was

advanced by Barclays to LDV on the basis that

recoveries in LDV's insolvency would go 50/50 to

Barclays and BERR up to £3.2 million. These

arrangements were supposed to keep LDV going

so as to allow a Malaysian company, Weststar

LDV Sdn Bhd ("Weststar"), time to undertake

due diligence on LDV, Weststar having entered

into a conditional sale and purchase agreement to

purchase LDV under which it had agreed to

procure short term finance for LDV.

LDV entered into a counter-indemnity ("Counter

-Indemnity") by which it agreed to reimburse

BERR for any monies it paid to Barclays under its

guarantee.

In turn BERR had asked Weststar to back its

guarantee in case it was called. Weststar was

controlled by a successful Malaysian business

man, Mr Ibrahim. At his request, UBS

(Singapore) ("UBS") issued an irrevocable

standby letter of credit ("Letter of Credit") in

favour of BERR payable on a certification that

"the amount demanded represents and covers the

unpaid sums due" to BERR from LDV.

Mr Ibrahim indemnified UBS against any sums it

had to pay under the Letter of Credit.

In due course Barclays called just over £1.4

million under BERR's guarantee and BERR paid

out. BERR demanded payment from LDV under

the Counter-Indemnity and called for payment by

UBS under the Letter of Credit. UBS paid BERR

and ultimately Mr Ibrahim (and his wife) repaid

UBS under the indemnity.

Mr Ibrahim issued proceedings arguing that he

was entitled to share in the recoveries made by

Barclays in the same way as BERR would have

been entitled to share in them. In defence,

Barclays argued that once UBS had paid BERR,

BERR had no further right to share in Barclay's

recoveries.

The judge at first instance agreed with Barclays

and found the payment by UBS under the Letter of

Credit had the effect of discharging LDV's

liability under both the Counter-Indemnity and the

Guarantee Facility Agreement. In those

circumstances Mr Ibrahim could not claim to be

subrogated to the BERR's rights to distribution

monies because those rights terminated on the

discharge of LDV's liability.

After the trial BERR executed an assignment of its

rights to Mr Ibrahim and he appealed the first

instance decision. As a result of the assignment

any arguments about subrogation fell away and the

appeal focused solely on the issue as to whether

UBS' payment to BERR discharged LDV's

liability under the Counter-Indemnity. If it did

then Mr Ibrahim's claim was doomed to fail.

Mr Ibrahim's counsel argued that UBS was a

"stranger" so as far as the debt owed by LDV to

BERR was concerned and that in those

circumstances a payment by UBS could not have

discharged LDV's debt unless it was made by UBS

as agent for LDV. Agency, he argued, was

essential if LDV's debt was to be discharged by

UBS' payment.

Having considered the authorities, the Court of

Appeal concluded that payment by a third party

(such as UBS) to a creditor (such as BERR) under

a legal compulsion on account of a debt owed by a

debtor (LDV) will automatically discharge the

debtor's debt. This will be so even if the legal

compulsion arises out of a contractual obligation

voluntarily assumed by the third party. Where the

case is one of payment under compulsion,

10 |

questions of agency, authority and ratification do

not arise.

BERR could have sued LDV for the amount that

it had been required to pay to Barclays plus the

other amounts that LDV was liable to pay under

the Counter- Indemnity. LDV would have had no

answer to the claim. The claim against UBS was

for the same amount computed in the same way

and was in respect of the same action on the part

of BERR (ie payment to Barclays plus the other

amounts recoverable under the Counter-

Indemnity).

In those circumstances the payment by UBS did

discharge LDV's liability to BERR under the

Counter-Indemnity (as well as any liability that

LDV might have had to BERR under principles of

subrogation). It followed that once UBS had paid

BERR, the guarantor liabilities had been paid and

discharged in full and BERR's rights came to an

end. There was therefore nothing for BERR to

assign to Mr Ibrahim and no rights to which he

had become entitled.

62. Mr Ibrahim's appeal was dismissed.

Ibrahim v Barclays Bank PLC and Another, Court

of Appeal, 16 May 2012

63. Data subject access requests under the Data

Protection Act 1998

Mr Elliott ("E") claimed that Lloyds TSB Bank

PLC had not fully complied with a data subject

access request under s.7(1) of the Data Protection

Act 1998 ("Act"). He commenced proceedings

seeking damages for breach of the Act and an

order for further disclosure. After the proceedings

were commenced, Lloyds did supply further

information to E but resisted searching the records

of six senior managers on the grounds that such

searches would be disproportionate.

Lloyds argued that the real or dominant purpose

behind E's request was that he was conducting a

fishing expedition and was hoping to turn up

material he could use to further claims he was

contemplating against Lloyds. It argued that his

application was an abuse of process.

The court stated that if E's only motive had been

to fish for information then Lloyds could

legitimately refuse to deal with the request.

However, it found that E had mixed motives,

some of which were legitimate. In particular, E

had been concerned that Lloyds had made use of

his personal data without his consent in relation to

matters affecting his companies. In those

circumstances E's application was not an abuse of

process unless it could be shown that but for the

collateral (ie improper) purpose the application

would not have been made at all. This was not the

case.

Lloyds was however only obliged to supply such

personal data to E as was found after a reasonable

and proportionate search. Lloyds had already

carried out a reasonable and proportionate search

and it would not be proportionate to order it to

extend its searches to the records of the six senior

managers. Any information these managers might

hold was likely to relate to E's companies and not

E and would probably duplicate that already

retrieved from less senior staff.

Although Lloyds escaped having to carry out

further searches, it did have to pay a substantial

part of E's costs. This was on the basis that that

the searches which Lloyds had initially carried out

were not sufficient to satisfy its obligations under

the Act and it had disclosed a substantial amount

of information after the proceedings had been

commenced. E was, however, only entitled to his

costs up to the point when Lloyds gave the

disclosure it was obliged to give under the Act.

There was no order for costs for the period after

that.

Keith Martin Elliott v (1) Lloyds TSB Bank PLC

(trading as Lloyds TSB Corporate Markets) (2)

Lloyds TSB Development Capital Limited (trading

as LDC), Leeds County Court, 24 April 2012


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