Note: Ali Dawood, the Director of Abbeypearl Limited, a textile importer, who managed and guaranteed its finances, maintained on its behalf a LC facility with Habib Bank Ltd., the lender, at its Manchester branch, often providing advance funds to the bank to meet the LCs. Due to seasonal factors, the importer was often cash-rich in the summer months, and made fixed-term investment deposits with ABN Bank and also made direct loans to customers. The lender's branch manager became aware of these investments, and occasionally induced the Director to place deposits with his branch instead, at a higher interest rate than it could obtain with ABN Bank or through making loans. The lender's branch manager subsequently persuaded the Director to place greater deposits with him to cover an increase in LCs outstanding. As an incentive to increase deposits at the branch, the manager offered Abbeypearl one percent above the base rate and a 7% commission for each deposit from a third party brought by the defendant. During parts of the year when Abbeypearl itself had outstanding LCs to purchase textiles, it debt-financed them through its ABN Bank overdraft protection. The lender's branch manager was subsequently charged with criminal activity stemming from illegal banking practices, including "parallel banking" schemes, whereby he used clients' funds, without their knowledge, to make unauthorized high risk/high return loans. Although the lender was unable to rely on testimony or documents obtained from the manager, it believed the Director was substantially involved in the process and at least partially responsible for liabilities incurred by the nefarious transactions. The lender sued the Director to recover more than £ 4 million that he had guaranteed on behalf of Abbeypearl and sought summary judgment which was denied. The trial court found triable issues as to whether the Director had given a guarantee and whether Abbeypearl was entitled to set off the losses. The trial process was delayed for nearly ten years because of lender's delay in its prosecution. The Director then moved to strike the claim. The Mercantile Court at Manchester, Kershaw, J., dismissed the lender's claim, noting that "there had been failures to comply with rules of court and court orders and that a fair trial was no longer possible" due to the passage of time. It also observed that because the branch manager "had been so dishonest, the bank could not be sure when it could safely rely on 'its own documents'". On appeal, the Court of Appeal (Civil Division), Brooke, L.J., affirmed, citing the questionable nature of any surviving documents and individual recollections of events. The court noted that "it would be difficult for [the Director] or for any witness he intended to call, to recollect events so long after they had occurred. The bank's continued delay in disclosing its documents had delayed his identification of the witnesses he might wish to call, and he feared that many of them would have destroyed documents they once had ... . A court would be entitled to feel that it was not in a position to do justice between the parties on such limited and stale material."


The views expressed in this Case Summary are those of the Institute of International Banking Law and Practice and not necessarily those of ICC or the other partners in DC-PRO.