Holyoake and another v Candy and others

Tort – Unlawful deceit – Abuse of process – Penalty – Claimants complaining defendants unlawfully deceived them into entering loan agreement – Claimants seeking to set aside loan agreement for alleged fraud – Whether net asset statement being sought as formality – Whether defendants making unlawful threats – Whether defendants using litigation as improper means to force disadvantageous agreements – Whether claimants entitled to damages – Claim dismissed In July 2011, the first claimant contracted, in the name of the second claimant, a company ultimately owned by him, to buy Grosvenor Gardens House (the property), a substantial Victorian mansion block on the edge of Belgravia for £42 million, to convert it back from low-grade offices to high-class residential use. He lacked the necessary funds to complete and asked the first defendant for a loan of £12 million. The first defendant discussed it with his brother, the second defendant, and the loan was made to the first claimant personally by the sixth defendant, a company owned ostensibly by the second defendant. In November 2011, the sixth defendant asserted that the first claimant had failed to comply with the terms of the loan, failing to provide an acceptable statement showing net assets of £120 million. Following an alleged further breach, the sixth defendant claimed to be entitled to immediate repayment of the £12 million and a further £5.74 million in interest, and required the first claimant to enter into a supplemental loan agreement acknowledging his breaches. The first claimant did so and made further agreements rescheduling the loan on terms. The first claimant obtained planning permission but was obliged under one of the agreements to sell the property before it could be developed. That enabled him to repay sums due to the sixth defendant totalling some £37 million. Overall he made a substantial loss. The first claimant subsequently complained that the defendants had unlawfully deceived him into entering the loan by, amongst other things: (i) stating that his net asset statement was being sought as a formality and would not be used against him; (ii) making unlawful threats to persuade him to enter into the agreements; and (iii) using litigation as an improper means to force him to enter into disadvantageous agreements. He applied to set aside the original loan agreement for fraud and the later agreements for duress and undue influence and claimed damages. Held: The claim was dismissed. (1) Despite the fact that none of the protagonists had emerged with great credit, each shown to be willing to lie when they considered their commercial interests justified them doing so, on the evidence, none of the claims had been made out. The sixth defendant had not said that the net asset statement was a formality that would never be used. The first claimant did not have £120 million and his net asset statement was deficient in some respects. The sixth defendant was entitled to treat the loan as in default. Although the second defendant had lied to the first claimant, the first claimant did not believe him. He was not deceived and no legal consequences followed. The second defendant had threatened to sue the first claimant in potentially ruinous litigation but the sixth defendant was entitled to sue him and that threat was not unlawful. (2) An unlawful means conspiracy required a combination between two or more people to use unlawful means, with the intention of injuring the claimant by the use of those unlawful means and the use of unlawful means had to cause a claimant to suffer loss or damage as a result: see Digicel (St Lucia) Ltd v Cable & Wireless plc [2010] EWHC 774 (Ch). On the evidence, there was no conspiracy to acquire the property by unlawful means. The sixth defendant’s aim in entering into the successive agreements with the first claimant was not to take over the property for its own benefit but to recover the loan and all other sums due to it. There was nothing in the agreements to suggest that the defendants’ agenda was to take the benefit of the property for themselves. The defendants had negotiated the terms of the loan with the aim of getting generous returns but they had not used unlawful means. (3) Economic pressure might be sufficient to amount to duress for the purpose of entitling a party to avoid a contract on the ground of duress, provided at least that the economic pressure might be characterised as illegitimate and constituted a significant cause inducing the plaintiff to enter into the relevant contract: see Dimskal Shipping Co SA v ITWF [1992] AC 152. None of the agreements entered into by the first claimant were voidable for economic duress. Once the first claimant had signed the loan agreement, he was always at risk of the sixth defendant calling an event of default. He was always vulnerable to being sued. There had been no duress, undue influence, intimidation or unlawful interference with economic interests. (4) The essence of abuse of the process of law was to effect an object not within the scope of the process, or a purpose not within the scope of the action (an improper purpose). The paradigm case was the use of the processes of the court as a tool of extortion, by putting pressure on the defendant to do something wholly unconnected with the relief, which he had no obligation to do. Although the sixth defendant had issued four sets of proceedings against the first claimant, there had been no abuse of process: Goldsmith v Sperrings Ltd [1977] 1 WLR 478, Land Securities plc v Fladgate Fielder [2010] 1 EGLR 111 and Crawford Adjusters (Cayman) Ltd v Sagicor General Insurance Ltd [2014] UKPC 17 considered. (5) The correct test for determining whether a contractual provision was a penalty was whether the sum or remedy stipulated as a consequence of breach of contract was exorbitant or unconscionable having regard to the innocent party’s interest in the performance of the contract. In the present case, the terms of the agreements were not unenforceable as penalties since none of the impugned provisions amounted to penalties: Cavendish Square Holding BV v Makdessi [2015] UKSC 67 applied. Roger Stewart QC, Richard Fowler and John Beresford (instructed by Gunnercooke LLP) appeared for the claimants; Tim Lord QC, Thomas Plewman QC, Geoffrey Kuehne and Ben Woolgar (instructed by Gowling WLG (UK) LLP) appeared for the defendants. Eileen O’Grady, barrister Click here to read transcript: Holyoake and another v Candy and others