NATIONAL WESTMINSTER BANK PLC v RABOBANK NEDERLAND

[2007] EWHC 1056 (Comm), Queen’s Bench Division, Commercial Court, Mr Justice Colman, 11 May 2007

Banking – Banks both entering into overdraft facility with debtor company – Deed of transfer under which debts transferred from claimant bank to respondent bank – Respondent bank agreeing not to bring action against claimant bank – Whether respondent bank in breach of its obligations by bringing proceedings in California – Whether claimant bank guilty of misrepresentation or bad faith

In March 1996 the parties agreed to extend to YFG an unsecured credit facility of US$50 million to add to an existing facility of US$50 million. NWB also agreed to advance a further £4 million. At the end of July 199 YFG gave notice to NWB that its trading position had deteriorated and that it might have failed to comply with various obligations in the facility. NWB and Rabobank agreed that YFG should be put into “workout”, with appropriate measures taken, normally after an investigation by appointed accountants, to reduce their risk. PW was duly appointed in September 1996 and instructed to investigate and report on YFG. Over the next year each of the banks loaned further substantial sums to YFG in the hope that it might return to profitability pending a sale of the business. In September 1997 NWB and Rabobank entered into a Deed of Transfer under which NWB assigned to a subsidiary of Rabobank NWB’s US dollar indebtedness of YFG (US$ 48,946,110.07) and the sterling indebtedness (£5,466,734.51) for a total price of US$ 39,525,386.30. Rabobank agreed to release NWB as agent in respect of the Credit Facility from any obligations, liabilities or responsibilities in respect of any action taken or not taken in its capacity as Agent under the credit agreement or under the security documents. Further, Rabobank agreed not to bring any claims against NWB in its capacity as Agent and that it would procure its subsidiaries not to do so. At the same time the parties entered into a Good Faith Agreement under which “Documentation arranging this transfer shall be acceptable to both Rabobank New York and NatWest, which will be negotiated in good faith.” The effect was that NWB suffered a loss of £11.3 million (the discount on the transfer) whereas Rabobank remained exposed to a loss of about US$127 million. Rabobank subsequently brought proceedings against NWB in California, although they were dismissed. NWB brought the present action seeking to recover as damages the costs incurred by it in defending the Californian proceedings, which were asserted to have been brought in breach of the Deed of Transfer. Rabobank counterclaimed that by reason of misrepresentation it was entitled to rescind the Deed of Transfer. Rabobank also claimed that NWB was in breach of the Good Faith Agreement. Colman J held that NWB was entitled to recover and that the counterclaims would be dismissed. Insofar as there were representations were made by NWB, they were true. The Good Faith Agreement did not operate to impose a duty of disclosure, and even if it were sufficiently wide it would in principle be void for uncertainty under the principle in Walford v. Miles [1992] AC 128. Colman J also rejected suggestions of dishonest concealment on the part of NWB and that NWB had induced PW to act in breach of its professional duties.