The recent High Court case of Credit Suisse v Ramot Plana1 illustrates the key principles the court will apply when considering a summary judgment application based on disputed issues of fact. It also demonstrates the court’s approach to “no set off” clauses in commercial agreements.

Facts

Credit Suisse entered into an agreement to loan €20m to Ramot Plana, a Bulgarian property developer, to fund a development project near Sofia. The funds were to be drawn in two tranches. The first tranche (Loan A) was for €12m. The second tranche (Loan B) was for €8m. The drawdown of each tranche was subject to certain conditions precedent.

The parties entered into a number of other agreements related to the loan, including a revenue sharing agreement (which gave Credit Suisse a share in the revenues from the project) and a fee letter (which set out the sums payable by Ramot Plana in the event that the loan was repaid early).

Loan A was advanced in April 2007. However, Ramot Plana failed to satisfy the conditions precedent for Loan B. The loan agreement provided that in these circumstances, Credit Suisse’s obligation to provide Loan B fell away and various sums became payable by Ramot Plana, including full repayment of Loan A and a sum to compensate Credit Suisse for loss of revenue under the revenue sharing agreement (the “Make Whole Amount”).

Credit Suisse refrained from making an immediate demand for repayment of Loan A, whilst it discussed matters with Ramot Plana and decided whether to proceed with financing in any event. It eventually decided against doing so, but continued to engage in discussions with Ramot Plana about a possible refinancing. Credit Suisse made a formal demand for repayment of Loan A in the sum of €12m, plus payment of the Make Whole Amount in the sum of €11.9m.

Ramot Plana admitted that the conditions precedent for Loan B were not satisfied, but refused to pay the sum demanded. Credit Suisse issued legal proceedings against Ramot Plana.

The arguments

Ramot Plana’s sole defence to the claim for repayment of Loan A (the Repayment Claim) was that it had a counterclaim which exceeded the value of the Repayment Claim. The counterclaim was based on an allegation of breach of duty by Credit Suisse in refusing to agree a refinancing of the loan unless that refinancing made provision for repayment of the Make Whole Amount. Ramot Plana contended that this counterclaim should be set off against the Repayment Claim.

Credit Suisse applied for summary judgment on this issue, arguing that the basis of the counterclaim was plainly inconsistent with contemporaneous documents, and that in any event, the loan agreement contained a “no set off” clause by which Ramot Plana was precluded from seeking to set off any sums counterclaimed against payments to be made by it under the loan agreement. This clause stated:

“All payments to be made by the Borrower under the Finance Documents shall be calculated and made without (and free and clear of any deduction for) set-off or counterclaim”.

Judgment on the principles

Mr Justice Hamblen noted that under CPR 24.2 the court may give summary judgment on the whole of a claim or a particular issue: (i) if it considers that a party has no real prospect of succeeding with its claim / defending the claim; and (ii) there is no other compelling reason why the case or issue should be disposed of at trial.

The judge held that where summary judgment is sought on disputed issues of fact, as here, the following principles are particularly relevant:

  • A real prospect of success means a prospect which is more than fanciful or merely arguable - see for example ED&F Man v Patel2
  • A summary judgment application is not an opportunity to conduct a mini-trial. However, that does not mean that the court has to accept the defendant’s evidence without question - see for example ED&F Man v Patel3
  • The less complex an issue, the easier it is likely to be for the court to determine it on a summary basis - see Three Rivers v Bank of England (No 3)4  
  • The court should be wary of trying issues of fact on evidence where the facts are apparently credible and are to be set against facts advanced by the other side. Choosing between them is the function of the trial judge, not the judge on interim application, unless there is some inherent improbability in what is being asserted, or some extraneous evidence which would contradict it5  
  • The court’s jurisdiction to grant summary judgment should be exercised so as to give effect to the overriding objective. In appropriate cases, summary judgment saves time and expense, and avoids wasting the court’s resources - see for example Swain v Hillman6.

The judge held on the basis of these authorities that for the court to summarily reject factual evidence it must be “clear” that it has “no substance”. This will generally only be the case where the factual assertions are inherently improbable or incredible and/or are contradicted by documents or other evidence.

Judgment on the facts

Applying these principles to the witness and documentary evidence, the judge held that it was not clear in this case that Ramot Plana’s evidence had no substance. As such, Credit Suisse would not be entitled to summary judgment on Ramot Plana’s counterclaim.

However, the judge found the “no set off” clause to be effective. Although the court has a discretion to grant a stay in the face of such a clause, there must be a strong reason for doing so and this is likely to require proof of exceptional circumstances. The judge did not consider that Ramot Plana came close to establishing the strong reason or exceptional circumstances necessary for the court to grant a stay which would defeat the commercial purpose of the agreed clause. Accordingly the existence of the purported counterclaim was irrelevant to the determination of the Repayment Claim, and summary judgment was ordered in favour of Credit Suisse on the Repayment Claim.

Comment

The case serves as useful guidance on the principles a court will apply when determining a summary judgment application on disputed issues of fact. The courts view summary judgment as a tool to save time and costs where a case clearly has no substance. However it is inevitable that parties will continue to take their chances in making applications for summary judgment even where those standards are not quite met.

The court’s refusal to interfere with the “no set off” clause illustrates the traditional reluctance of the courts to re-write a freely agreed bargain between two commercial parties. It also illustrates the implications of a party signing up to such clauses. In the case of Ramot Plana - a special purpose vehicle with no assets other than the redevelopment project - the clause and the consequent judgment against it are likely to place the company’s fate squarely in the hands of its bankers.