Merren v Cayman Natl Bank

JurisdictionCayman Islands
Judge(Forte, Ag. P., Mottley and Vos, JJ.A.)
Judgment Date10 December 2008
CourtCourt of Appeal (Cayman Islands)
Date10 December 2008
Court of Appeal

(Forte, Ag. P., Mottley and Vos, JJ.A.)

MERREN
and
CAYMAN NATIONAL BANK

J.R. McDonough for the plaintiff;

S.N. Diamond for the defendant.

Cases cited:

(1) Banque de Paris et des Pays-Bas (Suisse) S.A. v. Costa de Naray, [1984] 1 Lloyd”s Rep. 21, dictum of Ackner, L.J. applied.

(2) Bradford & Bingley plc v. Rashid, [2006] 1 W.L.R. 2066; [2006] 4 All E.R. 705; [2006] UKHL 37, applied.

(3) Christofi v. Barclays Bank plc, [2000] 1 W.L.R. 937; [1999] 4 All E.R. 437; [1999] Lloyd”s Rep. Bank. 469; [2000] 1 F.L.R. 163; [1999] B.P.I.R. 855, dictum of Chadwick, L.J. considered.

(4) National Westminster Bank plc v. Daniel, [1993] 1 W.L.R. 1453; [1994] 1 All E.R. 156, dictum of Glidewell, L.J. applied.

(5) Panier S.A. v. Burns, 2002 CILR N[6], considered.

(6) Pao On v. Lau Yiu Long, [1980] A.C. 614; [1979] 3 W.L.R. 435; [1979] 3 All E.R. 65, applied.

(7) Royal Bank of Scotland plc v. Etridge (No. 2), [2002] 2 A.C. 773; [2001] 3 W.L.R. 1021; [2001] 4 All E.R. 449; [2002] 1 Lloyd”s Rep. 343; [2002] H.L.R. 4; [2002] 1 P. & C.R. DG14; [2001] UKHL 44, dicta of Lord Nicholls applied.

(8) Tournier v. National Provncl. & Union Bank of England, [1924] 1 K.B. 461, [1923] All E.R. Rep. 550; (1923), 93 L.J.K.B. 449; 130 L.T. 682; 40 T.L.R. 214; 68 Sol. Jo. 441; 29 Com. Cas. 129, dictum of Atkin, L.J. applied.

(9) Zuiderent v. Christiansen, 2004–05 CILR N[23], considered.

Banking-bank and customer-bank”s duty of confidentiality-bank owes duty of confidence to customer but not prevented from disclosing customer”s information, if available from another source-customer with important professional reputation may be given leave to defend claim for debt if bank discloses his inability to meet liabilities

Civil Procedure-judgments and orders-interest on judgment debt-bank may not seek interest on pre-judgment debt at rate pursuant to Judicature Law (1995 Revision), and later substitute higher rate-may not be awarded more than originally specifically claimed, unless successfully applies for leave to amend

Contract-undue influence-evidence-customer to show relationship with bank one of trust and confidence and that bank abused dominant position, or exploited client”s vulnerability, resulting in manifestly disadvantageous transaction or one requiring explanation, e.g. exceptionally large loan-customer must provide detail of alleged ‘pressure’

The respondent bank brought an action against the applicant in the Grand Court to recover funds owed to it by him as a result of their mutual business dealings.

The applicant, an experienced attorney, had banked with the bank since 1983 and had, at times, represented and advised it in matters of banking law. Over the years, he had taken out many loans from it, both personally and professionally, and had also operated accounts for various businesses with which he was involved. In 2002, after the consolidation of various of the applicant”s overdrawn accounts, loans and guarantees (including one in particular-the ‘Fix-It guarantee’), the bank claimed that he owed it $250,471.86, including interest, and instituted the present proceedings. The applicant contested the proceedings and filed a defence and counterclaim. In response, the bank denied his allegations against them, and applied for summary judgment on the issue, which was opposed, with conflicting evidence being filed.

The Grand Court (Quin, Ag. J.) rejected that evidence, relying instead upon the evidence of the bank, including correspondence between the parties. The applicant was ordered to pay the bank the sum claimed, which

by then amounted to $421,677.48, minus a reduction of $42,516.32 in respect of a limitation within the wording of the Fix-It guarantee. The applicant was granted leave to appeal on his ex parte application and, on the hearing of the inter partes application, the court ordered that the application be treated as the hearing of the appeal itself.

The applicant submitted that (a) the Grand Court should have given him leave to defend the bank”s claims, as he could demonstrate a fair or reasonable probability that he had a real or bona fide defence or counterclaim, by showing that (i) his communications with the bank were protected by the ‘without prejudice’ privilege and the Grand Court had therefore been wrong to rely on them; (ii) the bank had abused its dominant position within its relationship of trust and confidence with him, by exerting pressure on him to enter into certain disadvantageous transactions, which required explanation, all of which amounted to undue influence and/or economic duress; and (iii) it had breached various contractual obligations and other duties it owed to him; (b) the bank had, similarly, broken its duty of confidence to him, as an employee of the bank had discussed with a third party the fact that he could no longer meet his obligations to it; (c) while he accepted his liability to the bank, the amount of interest the bank claimed on the debt was too high, as initially, in 2002, it had claimed simple interest under the Judicature Law (1995 Revision), at a rate of 4.5% (as specified in the Judgment Debts (Rate of Interest) Rules 1995), and that pleading made clear that while that rate would be claimed, there would be no claim for any contractual interest on the sum; the bank had, however, then abandoned that position in 2007, in favour of a higher rate of interest, without applying for leave to amend its initial statement of claim and the court had therefore wrongly awarded the bank more than it had specifically claimed in its writ, contrary to O.14, rr. 1 and 3 of the Grand Court Rules; the correct rate of interest was 7.5% (or $48.65 a day); and (d) the Grand Court”s deduction in respect of the Fix-It guarantee was correct and the bank could not seek to overturn that decision without a respondent”s notice, which it had not lodged.

The bank submitted in reply that (a) the applicant could not demonstrate a fair or reasonable probability that he had a real or bona fide defence or counterclaim in respect of its claims, as (i) he could not show that its correspondence with him had been ‘without prejudice,’ as although that privilege might apply to negotiations between parties in respect of disputed liabilities, it did not apply to open discussions about the repayment of a clearly admitted liability, as was the case here; (ii) he had given no evidence of the alleged ‘economic duress’ or ‘undue influence,’ and could not establish that he had entered into any disadvantageous transactions, or which needed explanation, as a result of the bank”s abusing its dominant position in their relationship; and (iii) it had already admitted liability for the breaches of contract and/or duty alleged by the applicant, and they had reached an agreement whereby the sum sought was reduced to reflect those breaches; (b) it had not broken its duty of confidence to the applicant, as it was a well-established principle that

the duty of confidence between a bank and its client did not prevent the bank from referring to, or disclosing, information which was available from another source, and as its writ had already been filed in the public registry, the fact that the applicant could not longer meet his obligations to the bank was public knowledge; (c) the applicant could not oppose the quantum on appeal, as he had already admitted liability for the sum claimed by them in 2007; and (d) the Grand Court had been wrong to reduce the sum owed by the applicant in respect of the Fix-It guarantee, as that extra $2,516.32 reflected interest accruing since before the writ was filed, but it acknowledged that a respondent”s notice, which it had not filed, would be required to reverse that decision, and it would therefore accept the reduction.

Held, granting leave to appeal and allowing the appeal in part:

(1) The sum that the applicant would be ordered to pay the bank would be reduced from $419,161.16 to $318,881.29, minus $10,000 in respect of its breach of the duty of confidence it owed to him, and $2,516.32 in respect of the Fix-It guarantee. The final figure owed was therefore $306,364.97, with interest accruing from November 27th, 2008, at a daily rate of $48.65. Although, in the circumstances, the appropriate order would have been for conditional leave to defend in respect of the bank”s balance, such an order would inevitably lead to further delay and would therefore be inappropriate (paras. 36–38).

(2) The applicant would be granted leave to defend his claim in respect of breach of confidence, up to $10,000. While it was a well-established principle that the duty of confidence between a bank and its client did not prevent the bank from referring to, or disclosing, information which was available from another source, the facts alleged by the applicant were very different from those envisaged by that principle. Therefore, as a professional man, whose reputation was important, he might well be awarded substantive damages for that claim. When there was conflicting or competing affidavit evidence in respect of an application for summary judgment, under O.14 of the Grand Court Rules, the defendant had to show a fair or reasonable probability that he had a real or bona fide defence if leave to defend were to be granted, and the applicant had only managed to do so in respect of the issues of breach of confidence. Although it was not possible to evaluate whether the facts alleged by the applicant in respect of that issue were accurate, he had shown a fair or reasonable probability that he had a real or bona fide defence or cross-claim (paras. 5–8; paras. 32–35).

(3) The applicant was entitled to dispute the amount of interest accruing on the debt after the issue of the initial writ by the bank, despite his earlier admission as to the quantum. The bank had been wrong to abandon its initial 2002 claim in respect of the interest on the debt in favour of a higher claim...

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