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Breach of an Undertaking

Global Marine Drillships Ltd v William La Bella & Others [2014] EWHC 2242 (Ch)

In this case the High Court considered a claim brought against a solicitor and her firm for breach of an undertaking and for breach of trust.  The High Court found that the solicitor and firm were in breach of the undertaking and intense pressure placed on the solicitor by her client did not amount to a defence to the claim.

Facts

  • The Claimant, Global Marine Drillships Ltd (“Global Marine”), sought to acquire a special purpose vehicle (“SPV”), Dalian Deepwater Developer Limited, which owned the Dalian Developer, a deep sea drillship. 

  • In order to raise finance, Global Marine ascertained that Coolmead Investments Limited (“Coolmead”), would be able to obtain standby letters of credit (“SBLCs”) which would in turn be acceptable for JP Morgan to provide a line of finance to Global Marine. 

  • In order to obtain the SBLCs, Coolmead agreed to obtain an insurance policy to insure against the risk of claims being brought under the SBLCs in the event of a default.

  • Coolmead instructed Miss Yildiz of Landmark Solicitors LLP (“Landmark”) in respect of the transaction.  Global Marine instructed Bridgehouse Partners LLP (“BPL”) and specifically Mr McNally, a Partner at BPL and Director of Global Marine.

  • In order to obtain the insurance policy, Coolmead required funds up-front from Global Marine, of £7,000,000 (the “Funds”).  Prior to sending the Funds to Landmark, BPL and Landmark agreed undertakings (“the Undertakings”) which, in summary, were that the Funds would be held in trust for Global Marine and, in the event that the insurance policy was not issued, the Funds would be returned forthwith to BPL.

  • Despite the Undertakings having been given, Mr McNally had some concerns prior to sending the Funds and obtained details from Miss Yildiz of Landmark’s indemnity insurance.  Moreover, as the Judge remarked, rather presciently, Mr McNally sent an email to a Director of Global Marine in which he stated: “there is something that makes me generally nervous and suspicious as to this”. In any event, (and relying on the Undertakings), BPL transferred the Funds to Landmark’s client account. 

  • Mr La Bella of Coolmead then sent Miss Yildiz numerous emails instructing her to send the Funds to a number of destinations,.  At Miss Yildiz’s request, Mr La Bella undertook to her that the transfer of £5,000,000 of the Funds were for the “sole release of the insurance that provides for the contract default insurance…in providing the SBLC”.   Miss Yildiz then transferred £3,000,000 and then £1,500,000 of the Funds to the account suggested by Mr La Bella. 

  • It then became apparent that the SBLCs were not forthcoming.  Global Marine demanded that the Funds were returned to BPL in accordance with the Undertakings .  Miss Yildiz returned £2,000,000 to Global Marine/BPL and the sum of £315,000 after issue of the proceedings.  Global Marine sued Miss Yildiz and Landmark, along with others, for the return of the balance of the Funds.

Landmark’s Defence

In summary, Landmark defended the claim by Global Marine on two main grounds:

  1. that the two payments made by Miss Yildiz to the account suggested by Mr La Bella were in fact  authorised by Global Marine; and

  2. that Global Marine agreed that if £2,000,000 was returned to Global Marine, it would not sue Landmark, amongst others, for the balance of the Funds.  As Landmark had paid Global Marine £2,000,000 Landmark argued that it was released from any liability.

Findings

The findings of Mr Justice Newey can be summarised broadly as follows:

  • He commented that Miss Yildiz’s evidence lacked detail and was “in some respects confused”.  He referred to the calculation undertaken by Global Marine’s solicitors that during her evidence Miss Yildiz apparently said that she did not know 165 times, that she could not remember 103 times and that she was not sure 80 times.

  • He accepted Global Marine’s evidence that it did not authorise the payments to the third party.  The fact that Miss Yildiz gave evidence to the effect that she would not have made these payments if she had thought they were not proper did not sway Mr Justice Newey.   Mr La Bella did give evidence in support of Miss Yildiz following the service of a witness summons and the Judge commented that “it is also relevant to note that the evidence available…suggests that the events with which I am concerned involved a fraud in which Mr La Bella was complicit”.

  • Global Marine’s evidence that it did not agree to release Landmark, amongst others, from further liability was also accepted. 

  • He commented that “This is a sad case.  It is a tragedy that Miss Yildiz did not continue to hold out against Mr La Bella’s demands.  The fact that she was subjected to intense pressure does not...provide her with a defence”.

  • He found in favour of Global Marine and found that Landmark and Miss Yildiz were liable for breach of the Undertakings and breach of trust.

Comment

The decision of Mr Justice Newey does not look too unsurprising on the facts as presented in the judgment.  However, this case highlights the Court’s right to require its officers, i.e. solicitors, to observe a high standard of conduct when giving and adhering to undertakings even in circumstances where a client is placing immense pressure on the solicitor to effectively breach an undertaking.  

Contact

For further information please contact Helen Smith, Senior Solicitor, DWF Fishburns on 020 7220 5235 or John Bennett, Partner, DWF Fishburns on 020 7280 8807.

By John Bennett and Helen Smith

This information is intended as a general discussion surrounding the topics covered and is for guidance purposes only. It does not constitute legal advice and should not be regarded as a substitute for taking legal advice. DWF is not responsible for any activity undertaken based on this information.

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