“Mr Ridley, whose career has been predominately in trade finance in the Middle East, was party to a receivables fraud pursuant to trade financing arrangements made by the Bank with the Fifth Defendant, CCH (Europe) GmbH, and its parent company in 2002. That fraud involved the presentation to the Bank of false documentation. The fraud was brought to the attention of the Bank in 2007 by Mr Ridley himself, who recognised the failure of the genuine business schemes in which the Bank’s funds had been invested to generate the revenues necessary to repay the Bank. The fraud forms the background to the two agreements of the summer of 2007, but the Bank in comprehensive terms (cl. 12.4 of the RSA) waived and compromised all its claims against Mr Ridley and the other parties. The purpose of the RSA was to ensure that the Bank was repaid all that was owed.”
“Not every default justifies the creditor enforcing the guarantee. Where the default is caused by the creditor’s own conduct or by the creditor’s failure to accept the debtor’s proper performance of the principal obligation, the guarantee cannot be enforced. Nor is the surety liable for a default which occurs with the connivance of the creditor.”
“It is, however, undeniable that the courts of equity will look narrowly to everything in the conduct of the obligee which has a direct tendency to wrong the surety and injure his rights and equities, and will, as Lord Loughborough said in Rees v Berrington, lay hold of such errors to release him…. …..yet it cannot avail to discharge a surety who has expressly bound himself for a person’s doing certain things, unless it can be shown that the party taking the security has, by his conduct, either prevented the things from being done, or connived at their omission, or enabled the person to do what he ought not to have done, or leave undone what he ought to have done, and that but for such conduct the omission or commission would not have happened.”
“…as a matter of principle I cannot accept Mr. Murray’s submission that a surety is discharged if a creditor acts towards the principal debtor in a manner which is irregular and prejudicial to the interests of the surety. Leaving aside what may be the special case of fidelity guarantees, I consider the true principle to be that while a surety is discharged if the creditor acts in bad faith towards him or is guilty of concealment amounting to misrepresentation or causes or connives at the default by the principal debtor in respect of which the guarantee is given or varies the terms of the contract between him and the principal debtor in a way which could prejudice the interests of the surety, other conduct on the part of the creditor, not having these features, even if irregular, and even if prejudicial to the interests of the surety in a general sense, does not discharge the surety.”
“Connection between the Bank and the UAE Government I understand that it has been alleged on behalf of the Bank that it has nothing to do with the arrest of Messrs Ridley and Cornelius in Dubai. I firmly believe that this is untrue. I wish to draw the Court’s attention to a recent meeting I had (in early June, in Istanbul) with Mr Al Sharif (the Banks’ CFO) in Istanbul, where he said that the Bank’s management had been replaced by representatives of the UAE government “who have a different approach to the RSA”
“In response to this request, Mr Taylor QC confirmed to me that he does not consider himself able to provide a witness statement at present, as he considers that the ongoing professional obligations he owes to the Second and Third Defendant preclude him from doing so without careful consideration of, inter alia the issues of privilege that may arise. Mr Taylor QC has confirmed to me that as an officer of the court and Her Majesty’s counsel he will, of course, attend court to give evidence at the trial of this claim if summoned to do so. It is the Second Defendant’s intention to summon Mr. Taylor QC to give evidence at the trial of this claim so that the Court may have the opportunity to fully consider all material evidence relevant to the issues in dispute.”
“I spotted that Clause 18 did not require DIB to sell Plantation in the event they called in the guarantee. I was assured by all that as a bank this was the natural course of action. DIB nevertheless avoided inserting wording into the RSA obliging them to sell, but my lawyers did not find this suspect or worrying. I thought it self-evident that DIB, having already said they were interested only in the villa plots, would simply take a sufficient number of villa plots to cover their outstanding debt and leave me the rest. This is why, when DIB foreclosed, I immediately obtained valuations. The purpose of those valuations was to determine the value so that I could seek the difference from DIB. I saw the device of selling off plots at an artificially low value as a way that they could possibly cheat me of Plantation’s true value and thus obtain more for themselves (or one of their friends or subsidiaries). I therefore insisted on Clause 18.3 to thwart this possibility. Without that provision, DIB could have sold at an undervalue shortly after taking title and then argued that the sale price rather than any independent valuation was the true value of Plantation for determining the transfer value. Therefore, I required that any sale be at a market value, and as a further measure of protection, I would be allowed to match any offer if I so chose. This, I thought, would effectively block any sale at undervalue. Crucially, this clause only applied at a second stage: “in the event that”, makes it clear that the bank first had to decide to sell. That there was no obligation to sell is clear from the words of the RSA itself, even without reference to the Conditional Assignment. My expectation was that if DIB chose not to sell, as was their right, the value of the plots and therefore the number of plots that they would be entitled to would be determined by the then current valuation. No other basis would have made sense. Apart from Mr Cornelius, who attended some of the negotiations in London, I was the only non-lawyer at the meetings. I repeatedly asked all the lawyers – Clifford Chance for me, Timothy Taylor (now QC) of SJ Berwin for Mr Cornelius and Mr Ridley and Mr Lyons at Lovells for DIB whether the RSA would work in the way I understood, including that the value would be assessed at the time of the security. They all, including DIB said that this was the case. …. ..my understanding of the commercial deal we struck was that the security right was the right to perfect the CA. Upon perfection, all Holdings’ interest in the site was to pass to DIB and there would then be an accounting to settle how much change I should receive. This is also how DIB presented the proposal to me. When I asked the RSA negotiations if it would work like this, all the lawyers on all sides, including DIB, said “yes”. …. The obligations do not exist “if the bank enforces its security” but if, having enforced its security, DIB then decides to sell. All the parties understood that if DIB chose to develop and not to sell, we apply the current value to set off the debt: no other figure makes sense and no other calculation would have been equitable to both parties. Hence my haste in applying for valuations.”
“During the negotiations which led to the signing of the Restructuring Agreement in August 2007 (the “RSA”), Mr Fitzwilliam was very concerned as to how Plantation would be valued in the event that the Bank called in the Guarantee. It was agreed that Plantation was to operate as a type of security that could be enforced in the event that there was a default under the RSA. As to the valuation of the land, I understood, and firmly believe all parties to the RSA (and their lawyers) shared this understanding, that in the event that the Bank called in the Plantation security, it would be valued at the market rate prevailing at the time at which it was assigned to the Bank. My understanding was that Mr Fitzwilliam would be able to regain ownership of Plantation by paying any outstanding amounts owed to the Bank pursuant to the RSA at that time; or the Bank could elect not to sell and proceed with the development themselves, in which case it would have to pay Mr Fitzwilliam the difference between the market value of Plantation and the debt owed pursuant to the RSA. Given that all parties and their lawyers shared this understanding of how the Plantation security would operate, I was surprised that this did not seem to be properly reflected in the terms of the RSA. My understanding of the valuation mechanism was confirmed to me in December 2007 by Mr Ayman Adil, who was head of the bank’s property department at that time. Mr Adil and I met in Bahrain in or around December of 2007 so that I could show him the Marina West site. During the course of our meeting and site visit I had discussed the RSA with Mr. Adil and we talked about the effect of default and what this would mean to the parties in financial terms. His unequivocal response was that a value would be attributed to Plantation upon the Bank exercising its right of assignment and any additional value over and above the outstanding sums owed under the RSA would be remitted to Mr. Fitzwilliam.”