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Note: In February 2000, Olympic Resources & Services (Borrower) sought a GBP 500,000.00 loan from National Westminster Bank PLC (Lender), which conditioned approval of the loan on adequate security for repayment. Angeli Luki Kotonou (Majority Shareholder), Applicant’s director and majority shareholder, arranged through a third party for Barclays Bank PLC (Issuer) to open a standby letter of credit in the maximum amount of GBP 500,000.00 in favor of Lender. Lender then made the requested loan. When issued, the letter of credit was to expire on 30 December 2000, but Borrower requested several extensions, which extended the expiry date to 16 March 2001. Lender did not draw on the letter of credit prior to 16 March 2001, at which point it lapsed, and Borrower’s liability became unsecured.

Lender recovered GBP 75,000.00 of the GBP 500,000.00 owed by Borrower. On 12 July 2001, Majority Shareholder gave a personal guarantee, which was later found to be induced by misrepresentations by Lender, to Lender to pay the remaining GBP 425,000.00 of Borrower’s liability. On 5 March 2004, Borrower executed a deed of assignment (the Assignment) in favor of Majority Shareholder that included a provision providing that “the relevant assignment was only to take effect in the event that [Borrower] should be ‘unable to continue as a going concern by entering into a voluntary liquidation or be the subject of a successful winding up petition.’” Borrower went into insolvent liquidation on 2 February 2005, without repayment of any part of the outstanding GBP 425,000.

On 2 April 2004, Lender sued Majority Shareholder under the personal guarantee. The deputy judge voided Majority Shareholder’s guarantee because of Lender’s misrepresentation. On 15 March 2007, Majority Shareholder sued Lender on the basis of that Lender had a duty of care to prevent the lapse of the letter of credit. On 8 October 2007, Lender sought summary judgment to dismiss Majority Shareholder’s claim and, in the alternative, an order to strike down Majority Shareholder’s claim. On 5 July 2010, the High Court of Justice Chancery Division granted summary judgment in favor of Lender and dismissed Majority Shareholder’s claim in its entirety. The Court of Appeal (Civil Division), Gloster, J., affirmed the ruling of the High Court of Justice (Chancery Division).

Majority Shareholder’s appealed on grounds of abuse of process based on factual findings of the deputy judge surrounding Lender’s knowledge of the letter of credit renewals, rather than determination of Lender’s alleged duty of care. Majority Shareholder’s appeal stated that an inadequate finding of facts was an abuse of process by the lower court. Majority Shareholder’s allegations that Lender was the party responsible for the extensions of the letter of credit; however, these facts were examined by the deputy judge, who found that all extensions were initiated by Borrower through Majority Shareholder. After determining that the deputy judge’s decision was based upon an investigation of considerable detail and length and finding no abuse of process, the Court of Appeal affirmed summary judgement in favor of Lender.

Parties: Appellant/Defendant/Majority Shareholder: Angeli Luki Kotonou

(Counsel: David Sears QC, pro bono)

Respondent/Plaintiff/Lender: National Westminster Bank PLC

(Counsel: Alan Gourgey QC and Laura Newton of Berwin Leighton Paisner LLP)

Issuer: Barclays Bank PLC

Text of LC:

“On 24th February 2000 the standby letter of credit referred to in Mr Frampton's letter was issued by Barclays. That was the Barclays SLOC. It was for a maximum sum of £500,000 and was valid until 30th December 2000.

It was:—

AVAILABLE BY PAYMENT AT SIGHT UPON RECEIPT OF YOUR TESTED TELEX OR AUTHENTICATED SWIFT CONFIRMING TO US THAT THE AMOUNT CLAIMED UNDER THIS IRREVOCABLE STANDBY LETTER OF CREDIT NO: ST LC HAS BECOME DUE TO YOU BY OLYMPIC RESOURCES AND SERVICES PLC, 8 LLOYDS AVENUE, LONDON AND REMAINS UNPAID.”

[AWL/GMC]

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