Deutsche Bank AG & Ors v Unitech Global Ltd & Ors

A loan agreement requiring repayment in one currency is not an exchange contract merely because the borrower must convert another currency to perform it. Nor does foreign illegality excuse performance unless the contract requires performance in the place where it is unlawful.

Illegality affecting a horizontal agreement or concerted practice does not, without a sufficiently close connection, invalidate subsequent vertical loan or swap agreements.

An interim payment may include restitution which the defendant will necessarily have to make if rescission is granted. The court may also condition the setting aside of summary judgment upon payment into court under its general case-management powers, particularly where the defendant will owe the amount whatever the outcome at trial.

The lenders sought sums due under a credit facility agreement made with UGL and guaranteed by Unitech. Deutsche Bank also claimed under an associated interest-rate swap. Both agreements used LIBOR. UGL and Unitech alleged LIBOR-related misrepresentation, contractual breaches and other defences.

Teare J refused permission for five proposed defences and had granted summary judgment. After the summary judgment was set aside following an earlier appeal, he refused to require payment into court or an interim payment.

UGL and Unitech appealed the refusal of their amendments. The lenders cross-appealed on payment. The central questions were whether the proposed guarantee, exchange-control, foreign-illegality and competition-law defences were arguable, and whether UGL could be required to pay about US$120 million before trial.

1. The Unitech parties’ appeal was dismissed and the lenders’ cross-appeal was allowed. Clause 15.1(c) created a genuine indemnity. Its express application where an amount was irrecoverable under the guarantee “for any reason” encompassed irrecoverability arising from non-disclosure of unusual features. It also defeated the proposed argument that the Bank’s contractual breach discharged Unitech. Permission to introduce those defences was properly refused.

2. An exchange contract within Article VIII section 2(b) of the IMF Agreement is a contract to exchange one country’s currency for another. A dollar loan repayable in dollars does not acquire that character because the borrower expects to convert dollars into rupees for investment and later convert rupees into dollars for repayment.

3. The foreign-illegality defence was unarguable. The contractual place of payment was New York. The relevant rule concerns illegality under the law of the place where the contract requires performance. It does not concern steps which the debtor may need to take elsewhere to put itself in funds.

4. Even assuming that LIBOR submissions, publication or manipulation infringed competition law, the resulting horizontal illegality did not make the subsequent credit and swap agreements void. The analogy with individual beer-supply contracts in Courage Ltd v Crehan was compelling. Remedies remained available through the implied term against manipulation, damages and potentially rescission. Difficulty in calculating damages did not invalidate the contracts.

5. Section 32 of the Senior Courts Act 1981 and CPR Part 25 permitted an interim payment. The expression “other sum” covered restitution which UGL would necessarily have to make as the condition of effective rescission. Whether rescission succeeded or failed, UGL would have to pay at least US$120 million.

6. CPR Part 3.1(3) also empowered the court to condition the setting aside of summary judgment upon payment into court. CPR Part 24 contained no special rule excluding that general power. Requiring payment served justice, proportionality and the avoidance of futile litigation. UGL’s general and unparticularised evidence did not establish that payment was impossible or would stifle its defence. The court therefore ordered the preferred remedy: UGL’s defence was conditional upon payment of US$120 million into court.

1. Court of Appeal (Civil Division): In [2016] EWCA Civ 119, dismissed the Unitech parties’ appeal, allowed the lenders’ cross-appeal and required UGL’s defence to be conditional upon payment of US$120 million into court.
2. High Court, Commercial Court: In [2014] EWHC 3117 (Comm), Teare J set aside the earlier summary judgment but refused to require payment into court or an interim payment.
3. Court of Appeal (Civil Division): In [2013] EWCA Civ 1372, permitted LIBOR-related misrepresentation amendments and held that it was arguable that the credit facility had not been wholly novated.
4. High Court, Commercial Court: In [2013] EWHC 2793 (Comm), Teare J determined the proposed amendments and granted summary judgment to the lenders.