Deutsche Bank AG & Ors v Unitech Global Ltd & Anor

Permission to amend a defence should be granted only where the proposed amendment has a real, rather than fanciful, prospect of success. A prior decision between the parties may create an issue estoppel unless overturned on appeal.

A guarantee carries a limited duty to disclose unusual features of the contractual relationship between creditor and debtor. The duty does not extend to matters merely material to the guarantor, such as alleged unsuitability, manipulation of a benchmark, or extraneous illegality. A no-set-off clause may prevent fraud-based counterclaims being used as a defence.

Under the conflict rule in Ralli Brothers, illegality in the place where preparatory steps are taken does not excuse performance where the contractual place of performance is elsewhere.

The court determined interlocutory applications in two related commercial actions concerning a loan exceeding US$150 million and an interest-rate swap exceeding US$11 million. The defendants sought permission to amend their defences to plead rescission, competition-law illegality, foreign-exchange illegality, breach of a guarantor’s limited disclosure rights, public-policy defences, and claims concerning LIBOR and suitability.

The claimants sought summary judgment on existing defences, including alleged illegality in India, accounting errors, rescission, and set-off. The central questions were whether the proposed defences had a real prospect of success, whether summary judgment was appropriate, and whether the defendants could pursue counterclaims without using them as a defence to payment.

1. Amendments. Permission to plead rescission of the Credit Agreement for misrepresentation was refused. The earlier decision of Cooke J., [2013] EWHC 471 (Comm), created an issue estoppel that rescission was unavailable following novation. The correctness of that decision and complaints about the earlier hearing were matters for the Court of Appeal.
2. The proposed competition-law defence was refused. Even assuming that a horizontal LIBOR arrangement between banks was void under Article 101 TFEU and section 2 of the Competition Act 1998, the separate vertical loan and swap agreements were not thereby void. The reasoning in Courage Limited v Crehan [1999] ECC 455 was applied. The agreements were legally distinct, and damages could protect customers without treating the customer contracts as void.
3. The proposed defence under Article VIII s.(2)(b) of the IMF Agreement was refused. A guarantee and indemnity securing repayment of a US-dollar loan was not an exchange contract merely because the guarantor might need to exchange rupees to perform it. The court considered substance as well as form, but found no disguised exchange transaction.
4. The guarantor’s disclosure duty was limited to unusual features of the contractual relationship between creditor and debtor. It did not extend to alleged unsuitability, manipulation of LIBOR, or competition-law breaches. Non-disclosure was properly analysed as an implied representation, for which rescission would be the remedy; rescission was nevertheless barred by the issue estoppel. Clause 15.1(c) separately made the guarantor liable as principal obligor if liability was not recoverable on the basis of a guarantee.
5. The LIBOR implied-term and suitability amendments were allowed to proceed, but resulting damages could be counterclaimed only. Repudiation did not automatically terminate the contracts or discharge accrued liabilities. The no-set-off clause prevented fraud-based counterclaims from operating as a defence.
6. Summary judgment. Summary judgment was granted on the Ralli Brothers defence, accounting-error issue, implied term concerning lawful collateral, rescission, and set-off. It was refused on the alleged duty of care, express and implied suitability representations, and the effect of the disclaimers, which required trial. The lenders obtained judgment for the amount due assuming the alleged accounting errors, with the balance and the relevant counterclaims proceeding to trial.

The judgment records that an earlier interlocutory decision by Cooke J., [2013] EWHC 471 (Comm), was subject to an appeal listed for October 2013. This judgment proceeded on the basis that the earlier decision remained binding unless overturned.