Banque Financière de la Cité v. Parc (Battersea) Ltd 1

Parc (Battersea) Ltd (“Parc”) and Omnicorp Overseas Ltd (“Ool”) were members of a group of companies called the Omni Group. To finance the purchase of property in London, Parc borrowed money from Royal Trust Bank (Switzerland) (“RTB”) and from Ool, which were respectively given first and second charges over the property to secure their advances. Subsequently, the controller and the general manager of the Swiss holding company of the group, Mr Rey and Mr Herzig, approached Banque Financière de la Cité (“the Bank”) to borrow £10 million with which to reduce Parc’s debt to RTB, which then stood at £20 million. Because the Bank had already lent money to another company in the group, Swiss banking regulations required that the regulatory authorities approve any loan to Parc, something which the parties wished to avoid. It was therefore agreed that the Bank would instead lend the money to Mr Herzig, who in turn would lend it to Parc on the security of a deep discount promissory note which Mr Herzig would assign to the Bank. Unknown to Parc and Ool at the time, Mr Herzig also gave the Bank a letter (“the Postponement Letter”), which was written on the holding company’s writing paper, and which stated: “This is to confirm that we and all companies of our group will not demand any repayment of loans granted to Parc (Battersea) Ltd, London, until the full repayment of your loan [to Mr Herzig].”