The defence of two recent sets of proceedings brought by asset based lenders, conducted by a team of lawyers from Olswang's leading finance and litigation teams, has brought to light a number of flaws in the handling and processing of documents by asset based lenders (ABLs).
A recent judgment delivered by HHJ Richard Seymour QC following a month long court battle in the Royal Courts of Justice found that the guarantees and warranties given by the directors did not take effect despite the signing, witnessing and passing of the deeds to the financier. In Bibby Financial Services Limited & Anor and Richard Magson & Ors , QCFS Limited (the trading company of which the first two defendants were directors) had requested an invoice discounting facility with Bibby (which involved making a loan to a company against invoices it issued which allows that company to receive its income earlier than it would if it waited to be paid by customers). Whilst the case was decided on its facts and the court determined that there had been no breach of the guarantees and warranties provided by the directors, poor document handling processes led to the decision that the invoice discounting agreement itself (in addition to the guarantees and warranties) had not been 'delivered' as a deed (in the sense that the directors had not intended to be bound by the document handed to Bibby despite the fact that it was signed and witnessed) and therefore all of Bibby's claims under the invoice discounting agreement as well as the underlying guarantees and warranties failed and were dismissed.
In similar proceedings in respect of a vehicle lease finance agreement entered into with Esdale Tooling Limited (the predecessor company to QCFS Limited), the Bristol court ruled that Lombard North Central PLC had made a number of material amendments to the finance agreement (amongst other documents) after these had been signed by the customer resulting in the documents becoming void . Furthermore, the court confirmed that any underlying security documents, here the guarantee, would therefore also fall away.
Olswang Restructuring & Insolvency Partner, Séamas Gray said: "Deeds are more formal than contracts and the Courts have now reaffirmed that it is not enough to go through the process of signing, witnessing and providing the deed to the other party, it must also be clear that the party is willing to be bound by the document, that it has been 'delivered', in order for the document to become enforceable."
Séamas continues, "Even where a document is not a deed, it is important that the financier can demonstrate that any annotated amendments made to the documents after signature, such as the insertion of 'start date' or the description of the assets included in any schedules, were agreed at the time. In the heat of the moment it's easy to forget the importance of maintaining document process standards, having the right team and processes in place is key to minimising liability and safeguarding investments."
Olswang Litigation Associate Ned Beale said: "The Bibby matter was a complex case in which the parties put forward starkly different versions of events and in which Bibby continued to call new witnesses and make new disclosure up to and during the trial itself. We worked closely with our client in order to identify the flaws and inconsistencies in the document handling process, leading to a successful result for our client."
The Olswang team was led by Restructuring & Insolvency Partner Séamas Gray and Senior Litigation Associate Ned Beale, instructing David Alexander Q.C. of 3-4 South Square.
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