High Court determines that the restructuring of a corporate loan to an individual was not unfair

In Bank of Beirut (UK) Ltd v Moukarzel [2021] EWHC 3777 (Comm), the High Court considered the Bank of Beirut (UK) Ltd’s (Bank’s) application for summary judgment in respect of a counterclaim brought against the Bank by a high net worth Ghanaian businessman (M) on the grounds that the relationship between the Bank and M was ‘unfair’ for the purposes of section 140A of the Consumer Credit Act 1974 (the CCA).

M and the Bank had entered into a facility agreement after the Bank had previously lent monies to a Swiss company trading in West Africa (Acacia). M was the majority shareholder in Acacia’s parent companies.

Acacia had fallen behind with its repayments. The Bank had suggested that instead of enforcing the guarantees which it held against M, it could loan M the sums required to repay Acacia’s borrowing, and M would be required to repay the loan. M accepted this proposal and drew down monies under the new facility agreement. Acacia subsequently became insolvent in 2016 and the Bank attempted to recoup its loan advances to M of over £4.3 million.

In March 2020, the Bank brought a claim for all outstanding sums due under the facility agreement. M denied the claim, on the basis that the relationship arising from the facility was unfair for the purposes of section 140A CCA.

Decision

The High Court granted the Bank’s application for summary judgment and determined that:

1. M was a sophisticated borrower, “who was an international trader on a very significant scale”. M held a significant shareholding in the international group of companies and was familiar with offshore corporate holding structures. The facility agreement between the Bank and M was negotiated against a backdrop of a corporate restructure, which was carried out with professional advice.
2. The terms of the facility agreement were not penal or unreasonable. The interest rate provision was based on a sound commercial reason, namely that the Bank was simply charging M the same interest rate as it had been charging Acacia, and it was difficult to see why M would consider this to be unfair, since the loan was simply being restructured.
3. The Bank would not be expected to have informed a sophisticated borrower like M, that banks charge compound interest.
4. The terms of the facility agreement, in some respects, were extremely favourable to M given that Acacia was already in default.
5. The facility contained a written warning suggesting that M seek independent legal advice. Even if that written warning was ignored, M was sufficiently sophisticated to seek his own legal advice, as needed.
6. Even if the Bank had carried out an inadequate assessment of M’s creditworthiness, this could not amount to unfair conduct in a relationship as developed as it was in this particular case.
7. There was no evidence to support the contention that M had not read and understood the terms of the facility agreement. M had not suggested that he was under any form of pressure and there was no complaint by M at any earlier stage.

The High Court also considered that the Bank did exercise its right to call upon the loan in restraint, since M had been afforded a considerable amount of time to pay the outstanding monies, even after making repeated and unsuccessful promises to pay.