FBN Bank (UK) Ltd v Leaf Tobacco A. Michailides SA & Ors

Summary judgment may be granted in the same hearing as permission to apply under CPR rule 24.4(1), where the defendants have proper notice and the court considers a reasoned determination appropriate. Contractual default interest provisions do not provide for compound interest unless their wording clearly does so. A certificate stated to be conclusive remains open to challenge for manifest error where the certified calculation adopts an erroneous and manifest approach. A guarantee cap may limit liability for the guaranteed obligations while leaving separately expressed liabilities, such as interest on sums due under the guarantee, outside the cap. Judgment may therefore be entered for undisputed accelerated debt, subject to correcting calculations that adopt an incorrect construction of the contract.

FBN Bank sought summary judgment against three corporate borrowers or guarantors and an individual guarantor in respect of substantial lending under a revolving borrowing base facility agreement and a personal guarantee. The defendants had not acknowledged service, served a defence, appeared or been represented. The bank relied on payment defaults, cross-defaults, enforcement of security and inability to pay debts as events of default, and on contractual provisions concerning default interest and the individual guarantee cap.

The court considered service, permission to seek summary judgment, acceleration of the debt, the proper construction of the default interest clause, the effect of a certification clause, and the scope of the individual guarantee cap.

1. Procedure. The defendants had received formally valid service and adequate actual notice of the proceedings, application and hearing. Permission under CPR rule 24.4(1) could properly be sought and determined within the same application and hearing as the substantive summary judgment application. It was appropriate to grant permission because the claimant sought a reasoned judicial determination rather than administrative judgment based solely on procedural default.
2. Events of default and acceleration. Payment defaults under clause 16.1(a) were clearly established. The unpaid sums remained unpaid for substantially longer than the contractual period, and there was no evidence that the failures resulted solely from administrative or technical transmission delays. Cross-default, enforcement of security and inability-to-pay events under clauses 16.1(f), 16.1(h) and 16.1(i) were also established. The alleged default based on allowing collection accounts to become overdrawn was not sufficiently clear for summary judgment under clause 16.1(b), but the other defaults independently justified acceleration. The outstanding principal was therefore properly accelerated by the bank’s letter of 7 February 2017.
3. Default interest. Clause 6.5 required interest on overdue amounts at a rate calculated by reference to a selected interest period, the applicable EURIBOR rate, the contractual margin and an additional 2 per cent. It did not clearly provide for compound interest. The reference to successive interest periods described the applicable rate and did not create periodic rests. The bank’s certification under clause 6.7 did not determine the amount because the compound calculation involved a manifestly erroneous construction of clause 6.5.
4. Personal guarantee. Clause 2.3 capped the individual guarantor’s liability for the principal debtor’s guaranteed obligations at €30 million. The additional wording beginning with “together with” excluded separately arising liabilities from that cap, including default interest payable by the guarantor under clause 8.5. It did not make the guarantor liable for all interest owed by the principal debtor after the €30 million cap had been exhausted.
5. Final judgment was entered for the claimant. The first three defendants were liable for the accelerated principal of €142,658,677 and simple default interest to be calculated under the agreement. The fourth defendant was liable for €30 million by way of principal and default interest at 8 per cent per annum under the personal guarantee.

First instance judgment. No prior appellate decision was stated in the judgment.