UK: Finance Litigation Briefing January 2017

Gowling WLG's finance litigation experts bring you the latest on the cases and issues affecting the lending industry.

  • Bankrupt's legal professional privilege upheld
  • The doctrine of strict compliance and bank guarantees
  • Forbearance is sufficient consideration for promissory note
  • Effective disclaimer saves banks from untrue representations


The Court of Appeal has found that legal professional privilege in documents is not property that vests in a trustee in bankruptcy and neither can it be used under the Insolvency Act 1986 (IA) s311 so as to waive privilege.

In Avonwick Holdings Ltd and others v Shlosberg, solicitors acting for a creditor and the trustees in bankruptcy had seen and reviewed a large number of documents belonging to the bankrupt, some of which were subject to legal professional privilege (LPP). The trustees intended to permit the creditor to use those documents in proceedings for conspiracy against the bankrupt and others. The bankrupt sought an order that the solicitors cease acting for the creditor on any matter relating to him or his affairs.

At first instance the court held that the bankrupt's right to LPP did not devolve to the trustee under the IA although the trustee could use LPP information in the discharge of his statutory duty. The solicitors were ordered to stop acting for the creditor in any matters relating to the bankrupt. The trustees and creditor appealed.

The Court of Appeal upheld the first instance decision. It held that on the proper interpretation of the IA, privilege was not property of a bankrupt which automatically vested in the trustee in bankruptcy. There was no express provision in the IA that deprived the bankrupt of his/her privilege and it was not necessary to imply such a provision into the express language used.

The express terms of s311 of the IA, described the trustee's duty to take possession of documents (including privileged ones) but said nothing expressly about their use. It was implicit, however, that the trustee could use privileged documentation and the information contained in it for the statutory purpose of realising the bankrupt's estate. It was implicit that the trustee must be able to look at privileged documents to obtain information from them for that purpose. It was not implicit that they could be used in any way that waived LPP - such as by taking steps against third parties for the benefit of the bankrupt's estate, desirable though that may be to creditors.

The intended use of the documents was not one that was, in any event, within the ancillary powers or duty of the trustee i.e. getting in, realising and distributing the bankrupt's estate. The order made would protect the bankrupt's fundamental right to LPP.

Things to consider

The inter-relationship between two public interest policies was at issue in this case: the public interest that the trustee in bankruptcy should be able to realise and distribute the bankrupt's estate in accordance with the IA and the public interest in that a person is able to consult their lawyer in confidence in the knowledge that what is told to the lawyer will never be revealed without their consent. In the absence of express words (or necessary implication) in the IA, the court was not prepared to allow the bankrupt's fundamental right to LPP to be waived.


The High Court has recently held that the doctrine of strict compliance does not necessarily apply to demand guarantees.

In MUR Joint Ventures BV V Compagnie Monegasque de Banque, the claimant demanded payment of US$500,000 plus interest under a demand guarantee issued by the defendant bank pursuant to a joint operations agreement between the claimant and another company (Seatrade). Seatrade failed to pay under that agreement, so the claimant issued two demands under the guarantee. The first demand was signed by V, the claimant's director, and sent by courier, fax and email to the bank.

The bank denied liability, alleging that neither demand complied with the requirements of the guarantee in that:

  • they did not include the requisite authentication or authorisation of the power of the person who had signed on behalf of the claimant;
  • the demand was to be signed by 'representatives' but only one person signed; and
  • the first demand had not been sent by registered post as required by the guarantee.

The High Court held that, as a general principle, the terms for demanding payment under a demand guarantee should be clear and precise. If certain documents were required to be presented when the demand was made, that should be clearly stated in the guarantee. The doctrine of strict compliance did not necessarily apply to demand guarantees. It was settled law that, generally, demand guarantees were conditional on the presentation of documents, rather than upon the actual existence of the facts asserted in those documents. The reason for this was that bankers could check documents but did not have the means or inclination to check facts.

The guarantee provided that the demand had to be signed by a duly authorised legal representative of the claimant and that there should be a notarisation and apostilization of the demand letter and certain other documents, all of which was provided. If the guarantee had required a legal opinion as to the director's powers/authorisation to make the demands on the claimant's behalf, it should have said so expressly. It did not and there should not be a strained interpretation of the guarantee to produce that result. Moreover, the defendant's experts had accepted that the director's signature was binding on the claimant.

The guarantee was internally inconsistent as to whether multiple signatories were required, but that was not a matter of importance on the face of the guarantee. As the guarantee did not demand two signatories, two signatories could not be interpreted as an essential requirement needing strict compliance. What was important was that the demands were authorised by the claimant, which they were.

The requirement to send the demand by registered post was directory, not mandatory. The importance of registered post was that once signed for, it precluded any suggestion that it had not been received. Here, there was no issue as to whether the demand had been received.

Presentation of the first demand was effective and judgment was given in the claimant's favour.

Things to consider

Whether the degree of compliance required by a performance guarantee is strict, or not so strict, is a question of construction of the guarantee itself.


The High Court has held that where a promissory note was not executed as a deed, forbearance by a bank from enforcing its security for a reasonable time was adequate consideration.

In Banque Cantonale de Geneve v Sanomi, the bank provided trade finance to Sanomi's company, which traded in gas and oil, but became worried about its exposure. It suggested Sanomi enter into a personal guarantee to cover the company's indebtedness and Sanomi subsequently signed two promissory notes, which it was agreed would be returned after repayment of the outstanding sums. The bank later sought to enforce the promissory notes. Sanomi resisted an application for summary judgment on the basis that the notes were not in fact promissory notes as they were not negotiable, he had been assured by the bank that no demand would be made under the promissory notes, and the bank had provided no consideration for the signing of the notes.

The High Court held that the notes were promissory notes. They each satisfied the definition of a promissory note set out in the Bills of Exchange Act 1882 s83. A promissory note that was not negotiable was still valid between the parties. However, the particular notes were negotiable as they lacked any wording prohibiting transfer. The fact that the notes were unlikely to be transferred and more likely to be cancelled on repayment of the secured liability did not affect the notes' legal status.

The court found that Sanomi had no real prospect of successfully arguing that the bank had assured him that it would not draw down on the notes. The bank's contemporaneous evidence showed that it intended to obtain enforceable instruments as valuable security.

The notes had not been executed as deeds but the bank had provided consideration for Sanomi's signature in the form of forbearance. The bank had been pressing hard for payment and then for a personal guarantee from Sanomi. There did not have to be a formal agreement for forbearance for a definite or particular time. It was enough if an implied request for forbearance could be inferred and that forbearance for a reasonable time had been extended. There had been both promised and actual forbearance in this case.

Had Sanomi refused to provide the notes, the bank would have taken alternative steps open to it to enforce its security - which it had not done. The bank was entitled to summary judgment on the promissory notes.

Things to consider

In English law, holders of promissory notes and bills are usually entitled to summary judgment because, in principle, such notes are treated as cash. The court will look at the surrounding circumstances and the commercial realities when determining the issue of consideration to uphold this general principle.


We first reported on the case of Taberna Europe CDO II Plc v Selskabet (formerly Roskilde Bank A/S (in Bankruptcy) in April 2015 from which the facts of the case can be ascertained.

In a nutshell, the High Court found the bank liable under the Misrepresentation Act 1967 (the Act) to the claimant purchaser of subordinated notes it had issued. The claimant alleged it had relied on untrue statements as to the amount of non-performing loans on the bank's books made in public investor presentation documents and which had induced it to buy the notes. Those presentation documents had been sent to shareholders, not the secondary market, but had also been published on the bank's website so anyone looking to buy its notes on the secondary market could see them. The presentation also contained a disclaimer that the bank would not accept liability for the accuracy of the presentation's content.

The high court held the bank liable to the claimant despite the fact that there was no direct contract between them, the subordinated notes having been acquired by the claimant on the secondary market from a third party. The court held the disclaimer had no contractual effect. The bank appealed.

The Court of Appeal allowed the appeal. It held that there was a danger in allowing third parties to rely on documents produced for purposes other than that to which they had been put, or which were directed at an audience of which they were not members. The placing of material on a website did not of itself create the degree of proximity necessary to give rise to a duty of care. There had to be a connection between the author and the recipient to show that the author had intended the recipient to rely on the information in a particular way.

In this case, the bank had actively directed potential investors to the presentation on its website for them to consider when deciding whether to invest in its subordinated securities. Such investors were entitled to rely on the representations made in the presentation when investing. Any representations it contained were therefore made by the bank to the claimant.

However, overturning the decision at first instance, the Court of Appeal held that the bank was entitled to rely on its disclaimer. As there was no contract between the parties, the disclaimer took effect as a non-contractual notice. Subject to the requirements of reasonableness, section 2 of the Unfair Contract Terms Act 1977 allowed, in principle, a party to insert a notice into a document limiting the scope of any representations or indicating he would not accept liability for any statements in the document. The court held that commercial parties were entitled to make their own bargain and the wording used made it clear that the bank accepted no responsibility for the information contained in the presentation.

Things to consider

Caution should be exercised when publishing investor material on websites as risks could arise where that material is used by a third party for other purposes, as here. Appropriately worded disclaimers should be included and be prominent.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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