Banking Litigation Summary

Banking Litigation Summary

MJM continues to be active in banking litigation matters for several well know banking institutions in Bermuda. As 2023 comes to an end, we look back at some of the most interesting and noteworthy cases decided by the Bermuda courts over the course of the past year in which MJM acted.

HSBC Bank of Bermuda Ltd v Ambiance Holdings Ltd and others

In this case, the Bank granted Mr Simmons a mortgage for a property on Angle Street in 2004. However, by 2017, Mr Simmons and the Bank were in negotiations about the level of mortgage debt and on 15 June that year, the Bank withdrew its counterproposal indicating that they would begin legal proceedings. The following day, Mr Simmons purported to grant two leases to Ambiance Holdings Ltd, a company of which he was the sole shareholder: one for a barbershop for a 15-year period and the other for a nightclub for a 30 year period.

In 2019, the Bank obtained a receivership order for the property, but Ambiance Holdings Ltd. refused to vacate the premises and stopped paying rent in April 2021. The Bank applied to the Court to have the two leases declared void, an order seeking possession of the property and an order for the payment of accrued rental arrears.

MJM’s Jennifer Haworth for the Bank argued that the mortgage prohibited Mr Simmons from leasing out the property without its consent. Mr Simmons argued that he was unaware of that clause within the mortgage and claimed that the Bank had not raised any issues about previous leases and had therefore waived its right to require consent through its own “actions and practices”.

In his written judgment, Mussenden J held that he believed Mr Simmons was aware of the need to get the Bank’s permission before leasing the property and dismissed the suggestion that the Bank had waived its right. He further held that the leases were void and he ordered the defendants to pay the Bank $37,966.00 for accrued rental arrears.

HSBC Bank of Bermuda Ltd v Sanz Pearman

The Bank made a loan to the trustees of the Hideaway Trust (the “Trust”) to provide financing to assist with the construction of a commercial building. The loan was guaranteed by Mr Pearman, a well-known local developer and both the Settlor and one of the beneficiaries of the Trust. When the Trust failed to meet its obligations under a loan from the Bank, and arrears of over $16 million had accrued, the Bank sought to enforce the guarantee against Mr Pearman in the sum of $3.185 million, the upper limit of the guarantee. 

Mr Pearman put the Bank to strict proof that the monies were owed by the Trust to the Bank, and alleged that the guarantee was procured by the undue influence of one of the trustees of the Trust, his aunt. 

The Court had little difficulty in accepting that the Trust owed monies to the Bank under the facility and turned to the undue influence defence.  Quoting from Lord Nicholls’s judgment in Royal Bank of Scotland v Etridge (No 2) [2001] UKHL 44, the now former Chief Justice Narinder Hargun was satisfied based on what he described as the “uncontroversial facts of this case”, that Mr. Pearman could not properly rely upon the doctrine of undue influence.  Essentially, the Court held that this was a commercial transaction entered into by Mr Pearman for his own benefit with the background of the long history of similar commercial transactions.

MJM’s Jennifer Haworth argued the case for the Bank and established that this was a case where (i) the Trust established by Mr Pearman, was used by him to facilitate the carrying on of his residential and commercial construction business (ii) it was Mr Pearman himself and not the trustees of the Trust, who negotiated the facility with the Bank and who agreed to provide a personal guarantee, (iii) the Trust had previously guaranteed a bridging loan obtained by Mr. Pearman from the Bank, (iv) Mr Pearman was an astute businessman who had been involved in multiple loan facilities provided by the Bank and had borrowed and repaid loans in excess of $30 million during the period 2005 and 2008, (v) the only beneficiaries of the Trust were Mr Pearman, his mother and his children and (vi) the guarantee given was in the same category as “a company…guaranteeing the debts of another company in the same group”.

Mr. Pearman also alleged that the Bank had engaged in “sharp lending practices” by amongst other things pressuring him to give the guarantee and encouraging him not to take independent legal advice. However, Mr. Pearman produced no evidence to support these allegations, and he did not appear at the trial.

The case was also reported in the Royal Gazette.

HSBC Bank of Bermuda Ltd v John Percival White

This matter concerned an application by the Defendant, Mr White, to set aside a default judgment in relation to a money judgment obtained against him. He also sought disclosure of the sale price of three mortgaged properties.

The Supreme Court had made a prior determination in 2017 leaving the issue of the value of the judgment sum to be dealt with once the mortgage properties had been sold. The Bank applied for judgment for the value of the remaining sums and served Mr White by substituted service. When he failed to appear, the Court made a judgment award in the Bank’s favour, which Mr White then sought to appeal.

MJM’s Dan Griffin appeared for the Bank and it was the Court’s view that if the judgment were to be set aside and Mr White’s alleged ‘defence’ were permitted to develop, the said defence would fail on the strong evidence provided by the Bank. Mussenden J in his ruling emphasized that “whilst the defence carries some enthusiasm, it fails to carry some degree of conviction”. As a result, Mr White’s application to set aside the judgment in default was denied.