[2025] EWHC 2107 (Comm)

The First and Second Defendants’ release of their signatures to the Facility Agreement was expressly conditional upon “the satisfaction of all other conditions precedent to the utilisation of the loan in full (each a “CP”) or if a CP is not satisfied, such CP has been either (a) waived unconditionally or (b) waived on conditions that allow for such conditions to be satisfied in a time frame that is reasonable for such CP and conditions”. As stated in the Claimant’s letter to the Borrower dated 1st October 2021, the Borrower did not meet nor satisfy the conditions precedent to the Facility Agreement and the Claimant did not waive any condition precedent. Further, these conditions precedent were not waived unconditionally or waived on condition that they would be satisfied in a reasonable time frame (see the letters dated 14th June 2021 and 5th July 2021). Therefore, the First and Second Defendants did not agree to nor execute the Facility Agreement and are therefore not liable under any purported personal guarantees.

That part of the Facility Agreement relied on by the Claimant against the First and Second Defendants should be set aside on the grounds of misrepresentation and/or economic duress in that the Borrower and the First and Second Defendants were misled about the Claimant’s true intentions, namely that the parties (including the Claimant and the Borrower) would act in each other’s mutual interests to enable the repayment of the principal loan sums advanced through the orderly sale and realisation of the Borrower’s assets and by jointly developing a business generating substantial profit for their mutual benefit, and to this end would be part of a partnership-like joint venture and the vulnerable position of the Borrower was manipulated by the Claimant to extract the guarantees on false pretences. The representations are set out at para. 29.1-29.4 of the draft amended Defence and Counterclaim and are alleged to have induced the First and Second Defendants (para. 34).

Amendments effected to the Facility Agreement, without the knowledge and consent of the First and Second Defendants, operated completely to discharge the First and Second Defendants from their obligations as guarantors, namely (a) the extension of the time frame for delivery of the conditions subsequent on 5th July 2021, which extension was prejudicial to the First and Second Defendants because it heightened the risk of default by the Borrower and reliance on the personal guarantees given by the First and Second Defendants, and (b) the amendment made by Farrer & Co’s email dated 18th June 2021 by which the Claimant unilaterally inserted or sought to impose a new term which reduced the value limit on acquisitions not requiring a pledge from US$1,000,000 to US$100,000, which restricted the Borrower’s ability to acquire and dispose of artwork and other assets and made it more likely that the Borrower would be unable to perform his payment obligations under the Facility Agreement.

The Claimant was not entitled to make any demand under the guarantees before 14th December 2023 on a true construction of clause 19.7.2 of the Facility Agreement, because it was required to complete, but had not completed, an enforcement of assets, or at least not on an arms-length basis, and any guarantee liability is now released.

The First Defendant’s personal guarantee was limited to the lesser of US$2.5 million and “the sum of (i) the initial utilisation ($32,960,000) less (ii) the sum of the amount of each payment made in respect of the Loan and the amount of each realisation made in respect of any Blue Chip Artwork, any Secured Vehicle and any Property (other than one belonging to Mr Cohen)”. It remains unclear as to the proper value of each realisation made by the Claimant in respect of the Blue Chip Artwork, Secured Vehicle, and Property sold.

The Second Defendant’s personal guarantee was conditional upon the realisation of a deposit for a property known as Clarendon Lodge. This was stipulated on 9th June 2021 as a result of the Claimant’s expressed discomfort over the equity deposit made by the Borrower in Clarendon Lodge, pledged to the Claimant as security for the loan. That sum was realised in April 2022, with further security taken over a Hermes Trunk given by the Second Defendant to the Borrower, and so the Second Defendant’s personal guarantee should have been extinguished or at least reduced as at the date of that property sale.

The Claimant breached its warranties or duties to the First and Second Defendants as guarantors, including in particular in realising the secured assets to themselves or affiliated entities at an undervalue.

The Claimant has in any event failed to provide sufficient explanation or evidence in relation to the debts purportedly owed by the Borrower, and consequently, the First and Second Defendants. Therefore, the First and Second Defendants claim an account.

The First and Second Defendants shall contend that there was an unfair relationship between the Claimant and the Borrower under section 140A of the Consumer Credit Act 1974 and seek orders under section 140B of the 1974 Act.

The Facility Agreement, and the personal guarantees therein, are unenforceable pursuant to section 105(7) of the Consumer Credit Act 1974 in that they did not comply with the form and content prescribed by the Consumer Credit (Guarantees and Indemnities) Regulations 1983 (“the Guarantee Regulations”), article 60H of the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 (SI 2001/544) (“the 2001 Order”), and the Consumer Credit Sourcebook, Appendix 1 (“CONC App”), para. 1.4.6 and 1.4.7.