Category: Banking

A choice of expert discipline

On By Geoff GreenIn Banking, Expert Witness, Non-bank lendingLeave a comment

Background

Astor provided funding in 2004 to restart mining operations of a Spanish Copper mine, secured by security over the shares in the mining company (technically described as a Pledge).

In 2008 there was litigation about whether Astor was entitled to enforce the Pledge, and whether a transfer of shares to Atalya was valid.  Astor was successful at Court, and it negotiated an arrangement by Atalya would pay €63.3m to keep the shares.

Most of the purchase amount was deferred until production had restarted under an arrangement which also included a so-called Cash Sweep.  That Cash Sweep required the mining company (ARM) to make additional payments from “Excess Cash,” as defined.  Notably, the agreement also prevented ARM from arranging senior debt unless that debt raising included arrangements for payment of €17.5m to Astor.

ARM was unable to arrange any new funding, and by the time of the GFC it was experiencing financial difficulties, and Astor agreed to amend the agreement so that ARM could borrow from associated companies to fund operating expenses.

ARM relied on that intra-group exemption to borrow “huge amounts” that Atalya had raised in the equity markets, which it used to restart and fund the rapid expansion of the mine.  Notably, ARM did not pay €17.5m to Astor, because it said that the intra-group borrowings were not “senior debt.”

Legal Action

Astor took legal action seeking repayment of the deferred balance.  The Court ruled that the intra-group borrowing did not trigger the requirement to pay the €17.5m, but the debt raising did result in Excess Cash of an amount which that hearing did not determine, thereby resulting in a repayment obligation of an unquantified amount.

That led to a further round of disputes (and the case described here): first, over the calculation of the amount of Excess Cash and repayment obligation; second, whether there was any entitlement to interest.

A choice of expert evidence?

The parties were given permission to tender submit reports by experts “in the field of accountancy and/or mine finance.”

Notably, the alternatives available under the “slashmark” resulted in Astor arranging a report from a finance expert, and ARM arranging a report from an accountancy expert, who, as the Court noted, “viewed the intended operation of the Excess Cash Clause from fundamentally different perspectives.”

Outcome

In Astor Management AG & Anor v Atalaya Mining PLC & Ors [2022] EWHC 628, the Court found that:

  • Both experts did their best to assist the Court and gave their evidence in a candid and straight-forward manner.
  • An “accounting approach” to the interpretation of Excess Cash was not appropriate. The parties were not accountants, and had negotiated the wording without accountancy advice, and the phrase had “no standard or universally accepted meaning in accounting or valuation literature.”
  • Finance was the appropriate field of expertise for the interpretation of the wording, and the finance discipline did provide a standard definition for a critical definition of “sustaining capital.”
  • ARM had “huge quantities of cash,“ and the Excess Cash definition made no distinction between cash derived from revenues and cash derived from any other source.
  • Astor was entitled to compound interest under the agreement from the date that Excess Cash became payable.

Expert evidence – “bordered on the absurd”

On By Geoff GreenIn Banking, Expert Witness, Non-bank lending, SME lendingLeave a comment

Background

The National Credit Code (the Credit Code) applies to credit provided wholly or predominantly for “personal, domestic or household purposes.” In practical terms, purpose is established by a borrower declaration – unless the declaration is found to be ineffective.

This case dealt with two specific loan transactions.  ASIC said that the two borrowers had lied in making those business purpose declarations – to access credit more readily available to unregulated borrowers – and that the lender would have detected the false declarations if it had made reasonable inquiries.  More significantly for the sole director, ASIC said that those bad lending outcomes evidenced a failure to take appropriate steps to ensure that the company did not contravene the Credit Code, which meant that the sole director had breached her statutory duty under s 180(1) of the Corporations Act.

A complex theoretical framework

Central to ASIC’s case was a long report from a credit expert, which set out a detailed business management framework said to be applicable to all business lenders.  The framework extended well beyond credit management, into general business and human resources management.

The Court described the Report as creating “the very real impression that [the expert] had essentially constructed in his own mind, based on his experience, an ideal sense of the Execution Framework and Minimum Requirements he considered were “necessary” for every lender to have in place, irrespective of its particular circumstances.”

Size does matter

The Court described the expert’s Execution Framework as proposing a gold standard, because it did not allow for adjustment to suit the circumstances of the lender, or the size of the loan.

The Court held that requiring a gold standard approach for a business seeking a loan of $2,000 was “as counter-intuitive as it is entirely unrealistic” and said that “there was considerable force” in submissions that “some of [his] opinions, with respect, bordered on the absurd” for example, requiring an applicant for a $2,000 loan “to prepare a detailed business plan…including an explanation of how the business will be marketed, including target market and pricing; a market analysis; staffing; a budget containing forecast revenues and costs; provision for premises including a lease agreement; and evidence of the equipment needed to undertake the business.”

Conclusions on the expert evidence

The Court noted that the expert had only been involved with one comparable business – an un-identified start up business – and that there was no evidence that any Australian non-bank small business lender followed any of the policies and procedures that he identified as necessary.

In terms of his evidence, in ASIC v Green County Pty Ltd [2025] FCA 367 the Federal Court held that:

  • It was “unsatisfactory and less than compelling in several critical respects…of low weight and [providing] little assistance.”
  • His opinions “did not seek to differentiate between lenders depending on the relative cost and burden.”
  • He “demonstrated a willingness to express definitive conclusions which did not withstand scrutiny when tested by reference to the particular circumstances.”
  • Some of his opinions “took a particular example to an extreme conclusion” – most notably expressing broad conclusions about the management of a portfolio of many thousands of loans, based on a review of only three loans.
  • He “was prepared to express inflexible and single-minded opinions in his report from which he was only willing to resile in limited respects (and even then, only reluctantly) when met with logical propositions countering the extremities of his opinions.”

Outcome

The Court held that the lender had breached the Credit Code, but dismissed the claims against the director, finding that although “[the lender] should have done more by way of reasonable inquiries…and that more generally [its] systems and training could have been better,” ASIC had not established the specific pleaded case that it brought.

Expert’s evidence accepted – on appeal

On By Geoff GreenIn Banking, Expert WitnessLeave a comment

In a previous blog I wrote about the decision in Cooper as Liquidator of Runtong Investment and Development Pty Ltd (In Liquidation) v CEG Direct Securities Pty Ltd [2024] FCA 6,

In that case, a liquidator attacked the granting of a mortgage to secure the borrowings of two associated companies, both guaranteed by its directors, as an “unreasonable director-related transaction.”

There was expert evidence about normal banking practice, provided by a forensic accountant who, notably (at least from my perspective) did not have experience in banking – which was not accepted by the Court.

In CEG Direct Securities Pty Ltd v Cooper as liquidator of Runtong Investment and Development Pty Ltd (in liq) [2025] FCAFC 47, the Full Court allowed the appeal.

Although the Full Court accepted that the granting of the mortgage was “for the benefit of the directors,” it did not accept that the liquidator had satisfied his evidentiary obligation to establish that a reasonable person in the company’s circumstances would not have granted the mortgage.

In relation to the expert evidence, a majority held that the primary judge was was wrong to reject the opinion of the expert as to whether a lender would regard the various associated entities as a “group” notwithstanding that they did not satisfy the Corporations Act definition of “related body corporate,” and was therefore wrong to reject her consequential opinion that cross-collateralisation in such circumstances was common practice amongst commercial lenders. It found that she was “clearly qualified to give opinion evidence on the critical issues on which she opined, ” noting that “the primary judge did not suggest otherwise.”

The “missing” banking expert

On By Geoff GreenIn Banking, Expert Witness, Non-bank lending, SME lendingLeave a comment

Background

A lender took action to recover a debt of $430,000 which in three years had grown to $3.61m, due to the impact of fees, and interest of $3.18m.

The borrowers disputed the amount of the debt. They said that a compounding monthly interest rate of 70.72% per annum was excessive, and amounted to a penalty.  They also claimed that the loan agreement was unenforceable due to misleading and deceptive conduct on the part of the Lender, and that it an unjust contract under the Contracts Review Act 1980 (NSW).

The loan agreement adopted an interest rate structure which is typical of non-bank lenders: a specified “Higher Rate” (in this case, 1.36% per week), which reduced to a “Lower Rate” (in this case 0.35% per week) if paid on time.

The “Missing” expert

The Court noted that there was no expert evidence provided by either party as to whether the Higher Rate was “excessive or even unusual in the context of a short term financing by way of a second mortgage.”

Outcome

In Commercial N Pty Limited v Huang & Ors [2024] NSWSC 23, the New South Wales Supreme Court held that:

  • Higher Rate – Lower Rate mechanisms had been subject to judicial review on many occasions, and the position was well-established: if drafting made it clear that a Lower Rate was a discount for timely payment then a such a mechanism could not of itself amount to a penalty.
  • The Higher Rate of 70.72% per annum was “very high” relative to the lower interest rate and “seemingly extravagant” – but there was no expert evidence on the point, and the rate was within the range of rates accepted by the Court in other matters.
  • Although the Higher Rate was not of itself unconscionable, monthly compounding at that Rate was “inherently oppressive and unconscionable” because it equated to an “utterly crushing” effective annual rate of interest of about 417% per annum.
  • The Lender took no steps to highlight the effect of the compounding rate to the Borrowers other than to refer to “a lengthy set of interest provisions” which included a formula “attended by a degree of ambiguity,” and was aware that they may need to sell their home to repay the loan.
  • In the circumstances, the Lender’s conduct was “irreconcilable with what is right and reasonable” and involved “a level of sharp practice and unfairness that [was] unconscionable”

The Borrowers were successful in obtaining orders removing the compounding regime from the loan contract, which reduced the interest charge by almost $2m.

Comment

This case pre-dates the 9 November 2023 amendments to the Unfair Contracts legislation (discussed here), which shifts the burden of proof to lenders.  There may well have been a different outcome under the now current regime.

How quickly is the finance required?

On By Geoff GreenIn Banking, Concurrent evidence, Expert WitnessLeave a comment

Background

A property developer arranged for a prospective lender (the Lender) to sign a confidentiality and exclusivity agreement before submitting a request for funding to acquire the Olympia Exhibition Centre in London.

The Lender declined the request, and some twelve months later became involved in arranging finance for another bidder who became the successful purchaser (the Purchaser).

The unsuccessful developer commenced legal action against the Lender, claiming damages said to arise due to breaches of the confidentiality agreement.

The Lender admitted that there had been “repeated and continuous breaches” of its obligations under the agreement – but denied that there was any damage caused by those breaches, for two reasons.  First, it claimed that the purchaser’s bid would have been successful if the funding had been provided by another lender.  Secondly, it claimed that the unsuccessful developer would have been unable to complete the project successfully.

The Banking Expert Evidence

The parties provided banking expert evidence including expert reports, memoranda from joint meetings, oral evidence under cross examination and concurrent oral evidence.  The Court noted that “each made a considerable contribution even if some of their reports cover areas of fact that did not need an expert.”

Outcome

In Bugsby Property LLC v LGIM Commercial Lending Ltd & Anor [2022] EWHC 2001 the Court held that:

  • The lender’s breaches were inadvertent, and there was no misuse of confidential information.
  • The Lender have provided a full credit approval, which saved the Purchaser’s bid at a crucial juncture – and had therefore reduced the unsuccessful bidder’s chances of success.
  • The unsuccessful bidder was no more or less reputable or reliable than the Purchaser, and it was “a near certainty” that the vendor would have sold to the unsuccessful bidder if required, and equally “a near certainty” that the unsuccessful bidder would have been able to secure finance and complete the development.
  • It was also “a near certainty” that the Purchaser would have been able to finance its bid without the Lender, given enough time – but the central question was whether any other lender would have been able to provide funding in the time required to meet the vendor’s timetable – and it was likely that they would have missed the deadline by at least two weeks.
  • The most likely outcome of the missed deadline was that the vendor would have extended the timetable rather than switch to the unsuccessful developer, but the possibility that it might have refused – assessed by the Court as a 40% probability – entitled the unsuccessful purchaser to damages for “loss of chance” which the Court quantified as £14,980,000.

Arm’s length lender loses their security due to a liquidator’s attack on related-party transactions

On By Geoff GreenIn Banking, Expert Witness, Non-bank lending, SME lending1 Comment

[edit on 10 April 2025  to note that this decision was overturned on appeal, a blog on the appeal decision is now on the to-do list!]

Background

A company (the Guarantor) had provided a mortgage to secure the borrowings of two associated companies, which were guaranteed by its directors.

Almost four years later the Guarantor was placed into liquidation, and the liquidator attacked the mortgage as an unreasonable director-related transaction, asking the lender to disgorge $12.15m in net proceeds, received after the land was sold and the first mortgagee repaid.

The Expert Evidence

The Lender arranged expert evidence to the effect that:

(1) It was common for lenders to take cross-securities from related entities when the security on offer from a borrower was inadequate.

(2) It was reasonable for the Guarantor to provide a mortgage in the circumstances; and

(3) The Lender acted in accordance with reasonably accepted lending practices in the circumstances.

That opinion was provided by an insolvency practitioner, rather than a banking expert, but it appears that there was no challenge to her expertise.

Conclusion

In Cooper as Liquidator of Runtong Investment and Development Pty Ltd (In Liquidation) v CEG Direct Securities Pty Ltd [2024] FCA 6, the Federal Court held that:

  • The evidence was “incomplete and lacking a number of important respects.” None of the directors of the three companies gave evidence, and the purpose of at least some of the funding was never explained.
  • The Expert’s conclusion that the three companies were a part of a group was “no more than speculation on her part” given the “paucity of the evidence,” and so her conclusions based on that assumption could not be accepted.
  • It was true that some part of the advances were later used to develop the mortgaged land but that did not demonstrate any benefit to the Guarantor at the time the mortgage was entered into. Once that was recognised, there was no benefit to the Guarantor in providing the mortgage whereas the detriment to the Guarantor was “obvious and substantial.”
  • The liquidator was successful in having the mortgage declared an unreasonable director-related transaction – but was not entitled to the whole of the proceeds, because the Lender was entitled to credit for the circa $10m used to develop the mortgaged land, and which increased its value.

Comment

If the circumstances of the transaction had been properly understood and documented by the Lender it may well have been able to show that there was a genuine corporate benefit to the Guarantor in entering into the mortgage – but that opportunity being missed it was not something that could be later remedied in the absence of directors who had no reason to return to Australia.

“As far removed from serious, credible expert evidence as I find it possible to imagine”

On By Geoff GreenIn Banking, Expert WitnessLeave a comment

An apparently successful property developer turned out to be a “conman and a forger.”  After the collapse of his £600m property empire, he and an accomplice were prosecuted for fraud, convicted, and sentenced to lengthy prison sentences.

Some years later, in his capacity as the beneficiary of a purported trust, the conman’s son took legal action against his father and the lender to the property empire (which lost at least £150m).

The court held that all the claims had failed, on multiple grounds: it did not accept the existence of the claimed trust;  it held that the litigation was an abuse of process because the real litigant was the conman father, who had manipulated his son (and about whom it said “the extent of his dishonesty is astonishing, and some of the individual charades in which he engaged are almost comical”); and, finally, that the actions of the lender did not in fact cause any loss.

Before arriving at those conclusions, the role and evidence of a banking expert was the subject of severe criticism, which is the focus here.

Which expert, by whom engaged?

The son was given permission for expert evidence “in the field of real estate valuation” – limited to the issue of the best price reasonably obtainable for the portfolio properties, at the time of their sale by the lender.

The father sought permission to submit an expert report “relating to [the bank’s] banking misconduct.” When that application was refused, the banking expert proposed for the father’s report on banking misconduct was engaged by the son to prepare the real estate valuation report for which permission had been given.

Should the expert have accepted the engagement?

On the question of whether the banking expert should have accepted the engagement, it was said:

[205] [the banking expert] should not have been asked to give expert evidence…He was not competent to do so. Having been asked, he should have declined to assist, recognising that he was not an expert in the field of expertise from which expert evidence had been permitted. In a rare moment of concession, [the banking expert] said in answer to my direct question that had he been told that [the son] had been given permission to provide expert evidence in the field of real estate valuation…‘I would say go for a – go for a working chartered surveyor.’

The expert’s evidence

On the evidence actually given by the banking expert, it was said:

[206] Having thus failed in his most basic duty to the court to ascertain whether he was competent to provide the kind of expert evidence for which the court had granted permission, in my judgment [the banking expert] presented an ill-reasoned and for the most part obviously unsustainable or irrelevant argument about the case that had very little to do with the issue…His opinions did not withstand serious scrutiny, he declined to make obviously appropriate, reasonable concessions, and I regret to say that on a number of occasions, I was left in no real doubt that [the banking expert] was making his evidence up as he went along, which involved him not telling the truth to the court about how he had derived some of the opinions he had expressed in writing.

[215] In re-examination, in response to an obviously loaded series of questions…[the banking expert] invented [a]  thesis…[216] …about as far removed from serious, credible expert evidence as I find it possible to imagine.

The (lengthy) judgement is available here: Kallakis v Kallakis & Ors [2023] EWHC 2148.

Under the radar?

On By Geoff GreenIn Banking, Non-bank lending, SME lending1 Comment

From 9 November 2023, small business loans of less than $5m will become subject to the existing Unfair Contracts regime.  New definitions and presumptions that operate against lenders will make prosecution easier, and severe penalties will make adverse outcomes very expensive.

The fees and interest charged by lenders following borrower default will be caught by the changes.  In my opinion the changes will not affect banks greatly because they already operate within the Banking Code of Practice, but they will have a very significant impact on some non-bank lenders.

The current position – a high bar

As things stand, a business borrower unhappy with the default fees or interest charged by a non-bank lender has very limited options.  They can argue that the charges are unenforceable because they are “penalties” – but this requires the borrower to show that the charges are “out of all proportion” to the greatest loss that the default might cause,[i] a high bar.

The new test – a much lower threshold

After 9 November 2023, the key question will be whether the default provisions sit within a standard form contract, and are unfair.

An unfair term is defined in the ASIC Act, [ii] as one that (my highlighting):

(a) …would cause significant imbalance in the parties’ rights and obligations arising under the contract; and

(b) it is not reasonably necessary in order to protect the legitimate interests of the party who would be advantaged by the term; and

(c) it would cause significant detriment (financial or otherwise) to a party if it were to be applied or relied on.

Critically, the onus is on the lender to establish that a term is reasonably necessary to protect their legitimate interests.[iii]

What is a standard form contract?

Whether a contract is a standard form contract will be determined by the Court on a case by case basis.  The legislation does not provide a specific definition, instead it identifies matters for the Court to take into account, including whether:

(a)  one of the parties has all or most of the bargaining power relating to the transaction;

(b)  the contract was prepared by one party before any discussion relating to the transaction occurred between the parties;

(ba) one of the parties has made another contract, in the same or substantially similar terms, prepared by that party, and, if so, how many such contracts that party has made.

(c)  another party was, in effect, required either to accept or reject the terms of the contract…in the form in which they were presented;

(d)  another party was given an effective opportunity to negotiate the terms of the contract…

(e)  the terms of the contract…take into account the specific characteristics of another party or the particular transaction;

Notably, here again the onus is on the lender to establish that a contract is not a standard form contract.[iv]

Well-advised lenders will be reviewing their documentation to minimise the risk that it can be categorised as standard form – but that would appear to require more than repeated boilerplate invitations to negotiate.

Consequences

Individual borrowers will be able to take action, as now, but there will now also be a regulator on the scene, with a remit, and a very significant enforcement budget.

The Court will have wide powers to address unfair terms in a standard form contract: voiding part or all of the contract, injuncting to restrict enforcement, and making orders for redress.

Far more significantly, the Court will be able to impose civil penalty charges of (at least) $50m for each contravention.  Crucially, the penalties can be imposed regardless of whether or not the lender has actually relied upon, or invoked, the offending clause.

Which loans are affected?

Unsurprisingly the new regime applies to new loans made on or after 9 November 2023.  More significantly it will apply to existing loans that are renewed or varied after that date, which means that a lender might expose themselves to a $50m penalty by doing nothing more than (for example) agreeing to a one-month extension of an expiry date without a complete re-documentation.

[i] The test in Paciocco v Australia and New Zealand Banking Group Limited [2016] HCA 28

[ii] ASIC Act, Section 128G.

[iii] ASIC Act sub-section 12BG(4).

[iv] ASIC Act, sub-section 12BK(1).

Crystal ball not required

On By Geoff GreenIn Banking, Expert WitnessLeave a comment

Background

The owner of a large development site in the Western suburbs of Sydney (the Owner) entered into negotiations to set up a joint venture to develop the land.  From his point of view, it was essential that a $20m loan and mortgage on the land be transferred to the new joint venture, because he did not have any other way to repay the loan.

It turned out that the joint venture agreement signed after extensive negotiations didn’t transfer the debt as he wanted – in fact, it included a clause which, critically, required him to pay out the loan and arrange clear title once planning approval was obtained.

In due course planning approval was obtained.  The Owner was unable to pay out the loan and clear the mortgage – just as he had anticipated.  The JV partner relied upon that non-compliance with the JV agreement to call a default, and force the early sale of the undeveloped property.

In Lindsay-Owen v HWL Ebsworth Lawyers [2023] NSWSC 68 the Owner took legal action claiming damages from the legal firm that assisted with the JV negotiations and the drafting of the JV agreement (the Lawyer).  He said that if he had understood that the JV agreement did not include the debt transfer, he would have negotiated to have it added, and if that was not possible, that he would have arranged for the bank loan to be extended so that he could negotiate a similar arrangement with other interested parties.

His bank had earlier issued a default notice of its own, and so the likely response of the bank to a hypothetical extension request was a key, contested, question before the Court.

The Banking Expert Witness

The Owner arranged a report from a Banking Expert Witness to provide an opinion about how the bank would have responded if it had been asked for an extension.

The Lawyer objected to the banking expert’s report.  It said that a prediction about a response to a hypothetical question was outside the scope of matters that an expert was able to express an opinion upon.

The Court agreed.  It said that the evidence of the banking expert witness was:

…inadmissible on the question of what [the Bank] would have done in 2010. His report does not satisfy the requirements of s 79 of the Evidence Act 1995. [The Expert] purports to express opinions about what [the Bank] might have done, about what [the Bank’s] state of mind was, and even about what an alternative joint venture partner might have done. These opinions are not evidence of banking practice or any other fields of expertise based on specialised knowledge.

Outcome

The rejection of the banking expert’s report wasn’t fatal to the Owner’s case.  Having determined that the question of the bank’s response was a question for the Court, not an expert, the Court concluded that the bank would have granted an extension if it had been asked i.e., in fact agreeing with the inadmissible view of the banking expert.

The Court held that the Owner was entitled to damages, to be assessed separately.

Comment – In my experience it would be more usual to be asked about the response of a “reasonable lender” in the circumstances, rather than to be asked to predict what a nominated party might do – but depending on the circumstances and the question, even a question framed that way might be regarded as too speculative. 

The opinion of a banking expert might still assist the parties, however, without speculating.  A banking expert could be asked to identify the matters that reasonable lenders take into account when making such discretionary decisions, and to identify whether or not those matters were in evidence in the particular case – while still leaving the ultimate question to the Court.

“Deeply unattractive and dishonest” – but no conspiracy

On By Geoff GreenIn Banking, Concurrent evidence, Expert Witness, Loan workoutsLeave a comment

Background

Following borrower default a Russian Bank took possession of real estate in the Port of St Petersburg, which was eventually sold via a Court-supervised public auction.

The borrower and its CEO and shareholders (the Borrower) took action against the Bank and its chairman (the Bank) in the High Court of England and Wales, claiming relief under Russian law for “unlawful harm.”  The Borrower said that it was the victim of a so-called ‘raid,’ designed to misappropriate the real estate for the benefit of the Bank, and carried out with the assistance of corrupt public officials.

The Borrower was unsuccessful at first instance, but secured orders for a re-trial on appeal.  However, in granting those orders the Court of Appeal was careful to recognise that very few of the original findings of fact had been challenged, and so, to avoid “another massive trial” it restricted the tender of fresh evidence, ultimately limited to evidence about the valuation of assets.

Expert witness evidence

Each side brought a new expert, rather than rely on those whose work had been severely criticised at first instance.

The Borrower’s expert had limited experience with Russian assets – a single assignment conducted “sometime in the last 20 years,” and under cross-examination he created “the clear impression that he knew that his personal experience of valuing Russian assets was extremely limited, a lack of experience…that he was distinctly unwilling to admit until pressed.”

The Court found that his evidence demonstrated “a marked lack of familiarity with the detail of the [first instance] report even though…his report was based on it,” as well as “a marked failure to recognise that his role was to assist the court by an independent and dispassionate statement of his views without descending into the arena to argue the [Borrower’s] case.”

Rather than value the assets as income producing real estate in their existing form he valued them as development projects, producing a valuation figure that the Court concluded was “wholly unrealistic.”

The Bank’s expert had professional qualifications, and significant experience valuing port assets and infrastructure in the St. Petersburg region, and the Court preferred her evidence justifying a much lower figure consistent with the actual auction outcome, which it described as “well thought-out, carefully expressed and justified firmly without descent into advocacy.”

Outcome

In Bank St Petersburg OJSC & Anor v Arkhangelsky & Anor [2022] EWHC 2499 the High Court of England and Wales held that:

  • The CEO had an “ego-centric view of the world,” regarding criticism as “either lamentably misinformed or inferentially dishonest” and he was “deluded” about the value of the assets and the viability of his development plans.
  • It was possible that the Bank might have thought that it could benefit from a raid, but such a suggestion was “trespassing into the realms of speculative fiction” and was completely inconsistent with the Bank’s actions in taking a significant write off before it had finished its enforcement.  The calling of a default was a simple case of the Bank protecting its own commercial interests in, and it occurred after a “readily understandable” loss of trust in the CEO.
  • Much of what followed the loss of trust was driven by the Bank’s desire to defend itself against the conduct of an untrustworthy borrower who seemed prepared to take whatever steps were open to him to challenge the Bank’s security.
  • Previous litigation demonstrated that “both parties lost all sense of commercial reasonableness in the battles they fought” with conduct on both sides that “was both deeply unattractive and dishonest.”
  • The “missing piece” in the Borrower’s argument was the absence of any evidence that there were any other parties interested in bidding, let alone bidding at a higher price.
  • The Borrower had failed to prove its conspiracy case, and it had failed to prove that it had suffered any harm had there been a conspiracy.