Clydesdale Bank plc v Stoke Place Hotels Ltd

The Bank sued Mr Novtej Dhillon on two personal guarantees, in deceit arising from a fabricated share-sale story concerning Stoke Place Hotel, and in conspiracy arising from extensive unauthorised lending made by the Bank's relationship manager, Mr Andrew Seavers. The court found that the 2005 and 2006 guarantees were valid and had not been released; collateral contract and estoppel defences based on alleged assurances were rejected. The court found that the ostensible share-sale documentation and related representations (SPA, SHA, MSA and associated correspondence) were deliberate fabrications made to induce the Bank to release security; Mr Dhillon was a knowing and active participant and therefore liable as a joint tortfeasor for deceit. The court also found that Mr Dhillon knew, by mid-2010, that substantial facilities had been advanced without sanction and joined the unlawful means conspiracy with Mr Seavers; damages for that conspiracy were provisionally calculated. The court accepted that Mr Seavers acted dishonestly but treated his factual evidence with caution; by contrast it rejected Mr Dhillon’s oral evidence as unreliable except where supported by contemporaneous documents or inherently probable.

This was a first-instance trial of claims by Clydesdale Bank plc ("the Bank") against Mr Novtej Dhillon arising from facilities advanced to a number of hotel companies run by him. The Bank sought (i) sums recoverable under two personal guarantees (a £250,000 guarantee and an £850,000 joint and several guarantee), (ii) damages for deceit and conspiracy in respect of a transaction said to have caused the Bank to release security over Stoke Place Hotel, and (iii) damages and alternative remedies in respect of unauthorised lending made by the Bank's relationship manager, Mr Seavers.

Background and parties: Mr Dhillon ran several hotels through separate companies. SPHL (Stoke Place) had re-financed with HSBC in late 2009. The Bank alleged that Mr Dhillon, acting with his solicitor Mr Bains, presented an entirely fabricated share-sale transaction to the Bank to procure release of the Bank's security; the Bank also alleged that over several years Mr Seavers made very large unauthorised advances to the Dhillon companies, and that Mr Dhillon knew of and participated in concealing and exploiting those advances.

Issues for decision:

• whether the 2005 and 2006 guarantees were enforceable or had been released, by collateral contract or estoppel;
• whether the Bank was induced by fraudulent misrepresentations (deceit) in respect of the Stoke Place transaction and, if so, whether Mr Dhillon was a knowing participant and therefore liable as a joint tortfeasor;
• whether Mr Dhillon knew that the facilities advanced by Mr Seavers were unauthorised and joined a conspiracy to injure the Bank by unlawful means (and, if so, the quantum of loss); and
• application of privilege and the effect of Fraud Act 2006 s.13 and Civil Evidence Act 1968 s.14 to questions put to Mr Dhillon.

Court’s reasoning and findings: The judge found Mr Seavers to have acted dishonestly and to have been responsible for unprecedented unauthorised lending, but accepted much of his factual evidence where supported by documents. Mr Dhillon was found to be repeatedly dishonest and his oral evidence generally unreliable. On the guarantees, the contemporaneous documents and committee decisions showed no Bank promise to release the 2005 guarantee and did not support the alleged collateral promise or estoppel; the 2006 guarantee had not been released and the Bank was entitled to judgment for the guaranteed sums plus interest. On Stoke Place the court found that the share-sale narrative was a deliberate fiction, largely concocted by or with the knowledge and participation of Mr Dhillon and his solicitor, and that Mr Dhillon was liable as a joint tortfeasor in deceit; questions of causation and quantum for that claim were reserved for later hearing. On the unauthorised facilities, the court accepted that by around 30 June 2010 Mr Dhillon knew that monies were being advanced without authority, and that he joined the conspiracy; damages for the conspiracy were provisionally calculated (fresh advances after that date net of certain credits) and the Bank was to be heard on interest under s.35A Senior Courts Act 1981 and final quantification.

Relief sought: Recovery of sums under guarantees, damages or declarations for deceit and conspiracy, alternative claims in unjust enrichment and knowing receipt; declaratory relief as to liability.

Context and observations: the judgment records the exceptional scale of Mr Seavers' unauthorised lending, significant weaknesses in the Bank's internal controls, the interplay of legal privilege with s.13 Fraud Act 2006 and s.14 Civil Evidence Act 1968, and reserves quantification and some causation/loss issues for further hearing.

At first instance the court gave judgment for the claimant in part. The court (i) ordered judgment against Mr Dhillon on the two guarantees for the principal sums of £250,000 and £850,000 with interest (the court found no release of the guarantees), (ii) declared that Mr Dhillon was liable as a joint tortfeasor in deceit for the false representations made by his solicitor in relation to the fictitious share-sale of Stoke Place (matters of loss and quantification in respect of that claim were reserved), and (iii) found that Mr Dhillon joined an unlawful means conspiracy with the Bank's relationship manager in respect of unauthorised facilities and provisionally assessed damages for that conspiracy (with interest under s.35A Senior Courts Act to be addressed). The rationale was documentary and oral-evidence based: contemporaneous documents did not support any release of the guarantees; the share-sale narrative was a contrived fiction and Mr Dhillon participated in it; and by mid-2010 Mr Dhillon knew of and participated in the misuse of Bank funds advanced without sanction.