Property – Mortgage – Possession – Claimant assignee applying for possession order over property subject to legal charge – Defendant challenging application on grounds loans not due and payable by virtue of oral agreements – Whether claimant establishing loans due – Ruling in favour of claimant.
The claimant was a credit institution incorporated in Iceland. It was in liquidation pursuant to an order of a district court in Iceland. In its capacity as assignee of the mortgage of a property in Ennismore Gardens, SW7, it sought an order for the possession of the property and a money judgment against the defendant for the principal sum and interest in a total amount of more than £21m. The matter arose originally out of the banking relationship between the part 20 defendant and the defendant. In particular, the part 20 defendant contended that it had advanced two loans to the defendant. Both loans were subject to loan agreements governed by Luxembourg law. The defendant had granted to the part 20 defendant a legal charge over the property to secure the mortgage under which the claimant sought possession. The part 20 defendant assigned the relevant loan book and associated collateral to the claimant which, together with the part 20 defendant, contended that the defendant had not made any payments in respect of interest under the loan agreements since November 2008 and that that failure to pay interest constituted an event of default under the terms of the loan agreements.
The defendant contended that the loans were not due and payable because he had reached oral agreements with the part 20 defendant prior to the entry into the loan agreements that: (i) they would be repayable only from his share of the profits arising from a joint venture to develop properties in India; and (ii) that interest would be “rolled up” and would also be repayable only from his share of the profits arising from the joint venture. In fact, the joint venture failed and there were no profits, nor would there be. In so far as the loans were found to be due and payable, the defendant counterclaimed for damages against the part 20 defendant under section 2(1) of the Misrepresentation Act 1967 Act, for breach of warranty, negligent misstatement or as a result of the joint venture agreement which he argued could be set off to extinguish the sums owed in respect of the loans.
Held: The ruling was made in favour of the claimant.
(1) In the circumstances, but for the small amount of interest which had been treated as capital, the claimant had proved its case. The unchallenged sums were due, they were covered by the mortgage and, in relation to set-off, they had been governed by the principles of Luxembourg law. Although the loans had been extended against the background of enthusiasm about the profitability of the joint venture and there had been an expectation that it would be possible to repay them from part of those profits which might be distributed to the defendant, there had been no actual agreement as to the alleged main obligation or terms, which had been neither determined or determinable. Nor had it been the common will of the parties that anything that had been said would form a legally binding agreement.
(2) The defendant did not have a counterclaim for damages under any of the heads alleged. In any event, as a matter of both English private international law and as a result of Council Directive 2001/24/EC on the Reorganisation and Winding-up of Credit Institutions and the Credit Institutions Reorganisation and Winding-Up Regulations 2004, the issue of set-off and admission of counterclaims was governed by Luxembourg law, under which the defendant could not proceed with the counterclaims against the part 20 defendant because he had not filed a proof of debt in respect of it before the bar Date And the debts which were assigned were not susceptible to set off. As a result of the effect of the Directive and the Regulations, it made no difference whether the proper law of a counterclaim was English or Luxembourg law. The defendant could not raise the counterclaims against the claimant as assignee.
David Alexander QC and Stephen Robins (instructed by Morrison & Foerster (UK) LLP) appeared for the claimant; John McDonnell QC and Robert Bourne (instructed by Richard Slade & Co) appeared for the defendant; David Allison QC (instructed by Hogan Lovell International LLP) appeared for the part 20 defendant.
Eileen O’Grady, barrister
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