In the recent Commercial Court decision in Njord Partners SMA-Seal LP & ors v Astir Maritime & ors [2024] EWHC 1682 (Comm), the founder of a shipbreaking company and his shareholder son have been found liable in deceit and conspiracy for false representations made to lenders in order to secure a US$45M loan facility. The judgment highlights the availability of alternative routes to recovery beyond the given security for a loan.

Background

The First to Third Claimants were successors in title to lenders (the Lenders) under a facility agreement dated 28 March 2017 (the Facility Agreement), pursuant to which a revolving credit facility of US$45M was extended to the First Defendant (Astir). 

Astir was a wholly owned subsidiary of North Star Maritime Holdings Limited (North Star), of which the Second Defendant (D2) was the founder.  His two sons, one being the Third Defendant (D3), each owned 50% of the shares in North Star and D3 was also a director. 

The loan to Astir was secured by, amongst other things, guarantees from North Star and D2 in favour of the Fourth Claimant as security agent for the Lenders.

The relevant representations on which the Claimants based their claim arose as follows:

  • In the course of negotiating the Facility Agreement, D2 provided the Lenders with a statement of net worth purporting to show that his personal assets were worth more than US$46M (the Asset Representations);

  • Between March 2019 and February 2020, D2 gave the Lenders a variety of excuses as to why there had been delays in the completion of various transactions, and therefore why certain amounts had not been repaid as required by the terms of the Facility Agreement (the Delay Representations); and

  • Between November 2018 and July 2019 Astir delivered Approved Borrower Statements (as defined in the Facility Agreement) to the Lenders to support drawdown requests in respect of transactions involving 16 vessels (the ABS Representations).

The Claimants alleged that each of the representations were false and made fraudulently with the intention to deceive the Lenders.  In relation to the Asset Representations in particular, while they were made by D2, they were made with D3’s knowledge and it was argued he had assumed responsibility for them, such that he was liable as an accessory. 

The Lenders further alleged that D2 and D3 conspired to cause harm to the Lenders by the unlawful means of each of the false representations.

The Court’s decision

Asset Representations
  • D2 had authorised the sending of the Asset Representations, thereby expressly and/or impliedly representing that he personally owned each of the assets listed in the statement of net worth and that he honestly believed that each asset was worth the net value ascribed to it.

  • The Asset Representations were false in that 9 of the listed assets did not belong personally to D2, and the evidence showed that the values given had been arbitrarily inflated from earlier, much lower valuations.

  • D2 could not have had an honest belief in the truth of the representations made. As to the question of value, as an experienced businessman, he would have had a reasonable (if approximate) estimate of the value of his own assets, and probably would have known that the values given in the statement of net worth were significantly higher.

  • D2 intended the Lenders to rely on the Asset Representations and knew the Lenders required the statement of net worth as reassurance as to the assets available to back his guarantee.

  • The Lenders relied on the Asset Representations, believing that the assets listed would give “decent coverage if things subsequently went wrong”.

  • It followed that the Claimants were entitled to recover the entire shortfall from D2.

  • D3 had played a more than minimal part in the preparation of the statement of net worth, and he knew it contained false information insofar as he knew that D2 did not own some of the assets listed. It followed that D3 was liable as an accessory to D2's deceit and was also liable for the entire shortfall suffered.

Delay Representations
  • D2 and D3 had admitted these representations were false. The Court concluded that, had the first few of the Delay Representations not been made, the Lenders would have given a grace period of around 3 months until 1 June 2019, before suspending the facility. While a detailed assessment of loss under this head of the claim was not necessary because of the Court’s findings on other representations, as a matter of causation, any losses flowing from the Delay Representations were to be assessed by reference to that date.

ABS Representations

The Defence effectively admitted the ABS Representations were false, however D3 denied knowing the detail of them.  The Court was satisfied that D3 was aware that his electronic signature was applied to the Approved Borrower Statements (as CFO of Astir) and, therefore, that he made the ABS Representations.  D3 knew they were important documents which would be relied on by the Lenders and if it were true that he did not read them then he was (in fact and in law) entirely reckless as to, and did not have an honest belief in, their contents. 

Conspiracy

The Court had little hesitation in concluding that the six elements of the tort of conspiracy[1] were made out. As regards intention to injure (the second and third elements), the Court did not consider that the Defendants specifically wished to injure the Lenders, but they could not obtain their desired ends (i.e. the borrowing) without bringing about loss to the Lenders, and that was sufficient to satisfy the element of intention. 

Key Takeaways

The Lenders had already obtained judgment against D2 under his guarantee and, as the Court noted, there was no or little downside to him taking responsibility for the false representations and seeking to exonerate his son, D3.  This came through in evidence the judge described as “at times, disarmingly frank” but which ultimately could not deflect the allegations against D3. 

While claims alleging deceit and conspiracy should not be brought lightly, where the evidence and cost/benefit analysis supports it, they can provide lenders with additional routes of recovery against promoters from whom no guarantees, or limited guarantees, were taken as part of the transaction. The judgment also underscores the importance for borrowers, promoters and guarantors to provide accurate asset statements.  

This publication is intended for general guidance and represents our understanding of the relevant law and practice as at July 2024. Specific advice should be sought for specific cases. For more information see our terms & conditions.


[1] As summarised in FM Capital Partners v Marino [2018] EWHC 1768 (Comm), quoted at [152]

Date published

30 July 2024

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