Avonwick Holdings Ltd v Webinvest Ltd & Anor

A written loan agreement and guarantee will be enforced according to their terms where the alleged collateral oral agreement is not proved. A party cannot establish a binding collateral agreement through authority or ratification principles where the parties understood that the relevant negotiations were non-binding and the alleged agent lacked authority. A mistake as to the beneficial ownership of the lender will not avoid the transaction where the identity of the lender as the company providing the loan was all that mattered to the borrower.

Avonwick lent US$100 million to Webinvest under a written loan agreement. Mr Shlosberg, Webinvest’s beneficial owner, gave a personal guarantee. After Webinvest failed to repay the loan, Avonwick claimed repayment against Webinvest and Mr Shlosberg.

The defendants alleged a collateral oral “pay if paid” agreement, under which repayment would depend on Webinvest receiving corresponding payments from Globoid, the borrower of a related US$200 million loan. They also relied on estoppel, rectification, mistake and authority or ratification principles. The central issues were whether the collateral agreement existed and whether any of those defences prevented enforcement of the written instruments.

1. The claim succeeded. The Loan Agreement and Guarantee were enforceable according to their terms. Webinvest was required to repay the US$100 million loan and Mr Shlosberg was liable under his personal guarantee.
2. The alleged collateral “pay if paid” agreement was not made. The court preferred the evidence of Avonwick’s witnesses and found Mr Shlosberg and Ms Mutieva dishonest. The contemporaneous documents, the parties’ conduct and commercial common sense all contradicted the alleged agreement. The written instruments imposed unconditional obligations to pay interest and repay principal.
3. The collateral contract, estoppel by convention and rectification defences therefore failed. They also failed because Mr Shlosberg knew that Mr Gayduk had no authority from Avonwick to make a binding commitment on its behalf. The parties understood that Avonwick and Webinvest would become contractually bound only through agreements signed by their respective directors. The principles concerning shareholder authorisation or ratification could not convert an arrangement which the parties knew and intended to be non-binding into a binding agreement.
4. The unilateral mistake defence also failed. The defendants’ case depended on Mr Shlosberg’s alleged reliance on Mr Gayduk as Avonwick’s owner. Since no “pay if paid” agreement existed, that alleged reason for the importance of Mr Gayduk’s identity disappeared. The precise beneficial ownership of Avonwick was immaterial: Webinvest intended to contract with the company which would lend it US$100 million. The disclosure that Mrs Gayduk owned Avonwick, and the assignment provision in the Loan Agreement, reinforced that conclusion.
5. The court concluded that all defences failed and that the Loan Agreement and Guarantee fell to be enforced according to their terms.