North Shore Ventures Ltd v Anstead Holdings Inc & Ors

A creditor’s duty to disclose information to a prospective guarantor is not confined to unusual features of the principal contract. It may extend to unusual circumstances connected with the transaction, provided the guarantor could not reasonably be expected to know them and they are material to the risk undertaken. Disclosure is unnecessary where the guarantor knew, or could reasonably be expected to know, the relevant risk in general terms. Non-disclosure permits avoidance only where it would in fact have influenced the guarantor. Contractual protective clauses may exclude non-fraudulent pre-contractual non-disclosure if their natural wording is sufficiently wide.

A certificate of indebtedness is conclusive unless manifestly incorrect. A loan agreement may contain an implied term concerning the usability of the money lent, but that term does not protect against risks known, or reasonably discoverable, by the borrower. The claims against the guarantors succeeded.

North Shore Ventures Limited lent $50 million to Anstead Holdings Inc under a written loan agreement. Ruslan Fomichev and Vasily Peganov executed a joint and several guarantee. Part of the loan was paid into Swiss bank accounts and frozen for several years because of investigations connected with Boris Berezovsky.

The guarantors alleged non-disclosure, challenged the operation of the default-interest clause, disputed the effect of a certificate of indebtedness, alleged implied terms, variations and promissory estoppel, and relied on frustration. Anstead did not defend the claim and a default judgment had been entered against it. The central issues were whether the guarantee was enforceable and whether the alleged matters reduced liability under the loan agreement.

1. Non-disclosure. The creditor’s obligation may extend beyond features of the contract between creditor and principal debtor. It may include an unusual and highly relevant risk connected with the transaction. The obligation does not extend to matters the prospective guarantor knew, or could reasonably be expected to know, or to immaterial matters. Avoidance also requires proof that disclosure would have made a difference to the guarantor.
2. On the facts, Fomichev knew, and could reasonably be expected to know, the substance of the Swiss investigations and the continuing risk that funds associated with Berezovsky might be frozen. Peganov could reasonably be expected to have obtained that information from Fomichev. Neither guarantor could avoid the guarantee.
3. Clauses 5.4 and 5.5 of the guarantee, construed according to their natural meaning, extended to non-fraudulent pre-contractual non-disclosure. They did not exclude liability for fraudulent non-disclosure, but fraud was not alleged. The clauses independently prevented avoidance.
4. The certificate clause made North Shore’s certificate conclusive evidence of the indebtedness unless manifestly incorrect. The certificate was not manifestly incorrect merely because its calculation might ultimately be shown to depend on disputed questions concerning interest. It was conclusive as at its date.
5. The default-interest clause was not a penalty. The increase from 15 per cent to 20 per cent was commercially justifiable and operated prospectively.
6. A loan agreement will typically contain an implied term that the money lent will not be rendered wholly useless throughout the loan term by the lender’s conduct, without borrower fault, where the borrower had no reason to know of the risk. No such term protected Anstead because it knew, or ought reasonably to have known, of the Swiss risks.
7. No valid variation or promissory estoppel was established. The alleged arrangements lacked sufficient agreement, consideration, causal connection or evidential support. Nor was the loan frustrated. The freezing affected only part of the loan, the money remained capable of producing interest and foreign-exchange profits, its availability for particular trading purposes was not the foundation of the contract, and the event was self-induced by the decision to pay the money into Switzerland.
8. North Shore’s claims against Fomichev and Peganov succeeded. The parties were invited to agree the sums payable, failing which further argument would be heard.

First-instance decision. The judgment records that a default judgment had previously been entered against Anstead Holdings Inc on 27 February 2009, but the present trial concerned the claims against the individual guarantors and the underlying loan issues.