Promontoria (Chestnut) Ltd v Simpson & Anor

Permission to amend a defence should be refused where the proposed case has no real prospect of success. In assessing that question, the court may examine the evidence and contractual documents in detail where the application is made at trial and the parties have addressed the merits fully.

An assignment or security agreement must be construed as a whole, having regard to substance rather than form. A security arrangement which provides for reassignment on redemption, preserves the chargor’s control before enforcement and contemplates a later receiver may create a charge rather than an absolute assignment. A payment-services allegation must identify an actual payment service. Merely applying interest to an unused account is not acquiring payment transactions. Any resulting illegality would require a proportionate consequence.

Promontoria (Chestnut) Limited claimed approximately £300,000 under guarantees given by Scott and Tracy Simpson in support of lending to their former company. During the adjourned trial, the defendants sought permission to re-amend their defence, a stay, specific disclosure and admission of additional documents.

The proposed amendments alleged that the claimant lacked title because of earlier or subsequent assignments, that the claimant’s security in favour of Nomura was an absolute assignment, and that the claimant had unlawfully operated a current account under the Payment Services Regulations 2009. The court also considered the relevance of disclosure and the effect of the authorities on redacted assignment documents.

1. Amendment application. All proposed amendments were refused because none had a real prospect of success. The court had heard full argument and could properly assess the merits. Discretionary factors under the overriding objective could not justify allowing defences that were legally or evidentially unsustainable.
2. Prior disposal defence. The fully disclosed deed of assignment, relevant incorporated provisions, novation agreement, notices and transfer of the legal charges established an effective absolute assignment to the claimant. The sale and purchase agreement did not provide a credible basis for an earlier assignment to Promontoria Holding 97 BV. The reasoning in Promontoria (Oak) (No. 1) Ltd v Emanuel & Anor, [2020] EWHC 104 (Ch), depended on materially different evidence and disclosure. The approach in Hancock v Promontoria (Chestnut) Ltd, [2020] EWCA Civ 907, was applied.
3. Nomura charge. The court construed the security agreement as a whole. Although clause 2.2 used language of absolute assignment, the agreement’s provisions concerning charges, notices, control before enforcement, receivers and proceeds showed that the arrangement created a charge, not an absolute assignment. In any event, the later deed of release reassigned the rights to the claimant. Any issue concerning Nomura was procedural and had been overtaken by events.
4. Payment services. The evidence did not show that the claimant operated a continuing current-account service after the assignment. Applying interest was not acquiring payment transactions within Schedule 1 to the Payment Services Regulations 2009. Even if there had been a contravention, denying recovery of the pre-existing debt would be disproportionate under the approach in Patel v Mirza, [2016] AC 467.
5. The stay was refused. Specific disclosure of the unredacted sale and purchase agreement was unnecessary. The application was refused in its entirety, subject to limited rulings on documents admitted to the trial bundle.

The judgment was a first-instance decision during the trial of the claim. The court recorded that the trial had previously been adjourned because of the first defendant’s ill health. It refused the defendants’ applications for permission to amend, a stay and specific disclosure.