Bank of NT Butterfield & Son Ltd v F & E Holdings Ltd

• Jurisdiction: Bermuda
• Judgment Date: 04 December 2024
• Neutral Citation: [2024] SC Bda 70 civ
• Court: Supreme Court (Bermuda)
• Docket Number: 2024: Nos. 137 and 88

Bank of NT Butterfield & Son Limited

and

F & E Holdings Limited

F & E Holdings Limited

and

Bank of NT Butterfield & Son Limited

[2024] SC (Bda) 70 civ. (3 December 2024)

2024: Nos. 137 and 88

In The Supreme Court of Bermuda

Appearances:

Keith Robinson of Carey Olsen Bermuda Limited for the Plaintiff

Jerome Lynch KC of Trott & Duncan Ltd for the Defendant

JUDGMENT

(In Chambers)

Introduction

1. This is the Court's decision on an application for summary judgment made by the Plaintiff in proceedings 2024 No 137 (hereafter “the Bank”) against the Defendant (hereafter “F & E”) for the repayment of a loan facility granted to F & E under a Credit Facility Letter dated 19 July 2018 (the “Credit Facility Letter”1). The claim in the Writ is for BD$14,722,570.95 for repayment of both the principal and interest owing under the Credit Facility Letter, but the present application for summary judgment is for BD$14,493,731.33 which represents the present outstanding unpaid principal of the loan. The remainder of the Bank's claims for interest and contractual recovery costs will be determined at the trial of the action.

2. F & E claims that it is entitled to set off against the loan principal an amount of BD$1,402,965.67 which represents payment of interest under the Credit Facility Letter that F & E claims it has “overpaid”. F & E says that the Court should enter judgment for the sum of BD$13,090,765.66 instead of the amount claimed on the basis of a legal or an equitable set-off2. F & E issued an Originating Summons 2024 No 883 seeking declaratory relief to the effect that the Bank had breached the terms of the Credit Facility Letter by issuing a notice of intention to close certain of F & E's accounts (the “Closure Notice”) on 15 November 20224. One of the declarations sought5 is that F & E is entitled to set off the post-facility agreement payments against the outstanding principal due under the Credit Facility Letter. By Order dated 25 July 2024 the 2024 No 88 proceedings were consolidated with the present action.

3. One of the accounts in respect of which the Closure Notice was given was the account through which the debt service payments were required to be paid (account #20-006-060-586603-100). F & E claims that this had the effect of terminating the Credit Facility Letter and says that it was thereby discharged from the obligation to pay the contractual rate of interest from the date of the Closure Notice onwards. The details of this claim are explained in more detail below. But as a result of the alleged wrongful termination of the Credit Facility Letter, F & E says it has the right to set-off the amount of the interest payments it made after the date of the Closure Notice.

4. The Bank's right to recover the principal amount outstanding on the loan is undisputed. The issue in dispute on this application is simply whether F & E is entitled to assert a set-off in respect of the payments it made after the date of the Closure Notice. F & E says that the Bank has to establish its right to claim the remainder of the principal at the trial.

Summary and disposition

5. The Court has concluded (i) that the Bank is entitled to enter judgment for the full amount of the unpaid principal in the amount of BD$14,493,731.33 and (ii) that F & E is not entitled to set off the sum of BD$1,402,965.67 against that sum in the summary judgment application. The Court's reasons for reaching this conclusion are that:

• a. The total amount of the principal owed by F & E is undisputed and is presently due and owing.

• b. Even if F & E can establish that the Closure Notice (the details of which are explained below) had the effect of wrongly terminating the Credit Facility Letter, F & E's acceptance of the alleged repudiation by the Bank would have triggered F & E's liability to repay the outstanding principal sum immediately (irrespective of the position on interest).

• c. The effect of Schedule Cl (a) of the terms and conditions of the Credit Facility Letter is to prevent F & E from withholding repayment of the principal on the grounds of a cross claim or set-off.

• d. F & E continued to service the debt after the Closure Notice had been given and thereby affirmed the contract after the date of the alleged fundamental breach of contract now relied upon by F & E as a repudiation. As a matter of law, F & E cannot approbate and reprobate (i.e. “suck and blow”) and its rights are limited to a claim in damages for breach of contract which will have to be established at a trial.

Brief background facts

6. By the terms of the Credit Facility Letter dated 19 July 2019 F & E borrowed BD$15,800,000 from the Bank over a 15-year term in two tranches of BD$7,900,000 on the grant of security over certain real property interests and on the terms and conditions set out in the Schedules to the Credit Facility Letter.

7. One of the terms of the loan contained in Schedule C 1 (a) provides:

“So long as any amount is or may be due and owing to the Bank under this Facility Letter…the Borrower [F & E]…agree[s]…(a) to repay all principal amounts, all interest accrued thereon and all other amounts which may become owing under this Facility Letter in full to the Bank, without withholdings of tax or other monies, in accordance with the terms of this Facility Letter.” 6

8. The meaning of this term and its legal effect will be briefly analyzed below.

9. The 2019 loan replaced an earlier loan made by the Bank to F & E in 2013, the details of which are not relevant to the present application. The two tranches were given separate loan account numbers (#200-B-425-2309-60028 and #200-B-425-2309-60058).

10. F & E serviced the debt according to the monthly amortization schedule of blended payments of principal and interest and complied with the terms of the Credit Facility Letter.

11. On 15 November 2022 the Bank notified F & E that following a routine account “review” it had decided to close certain of F & E's accounts with the Bank, including the account through which F & E was required to make its monthly debt service payments under the Credit Facility Agreement (#20-006-060-586603-100). The Closure Notice7 stated:

“…we are writing to tell you, with notice, we will be closing your account(s) referenced above. The effective date of the account closure will be 15 May 2023.

If you have other products associated with the account(s), such as loans, credit facilities or credit cards, a representative will be in touch with you shortly to discuss these …

We recognize that this may have some administrative impact on you and we are committed to helping you during the notice period to transfer your account(s) to another institution.”

12. The effective date of the closure of these accounts was to be 15 May 2023 to give F & E a period of six months to make other arrangements. This was referred to as a “transition period”. It was not alleged that F & E was in breach of the terms of the Credit Facility Letter, nor had any “event of default” (as defined in the Credit Facility Letter) occurred at the time the Closure Notice was given. It should be noted that the two loan accounts referred to in paragraph 9 above were not referenced in the Closure Notice, but the account from which the debt service payments for the loans were to be made was included in the list of accounts to be closed.

13. Mr. DeSilva is the President and a director of F & E. Naturally Mr. DeSilva queried the basis of the Closure Notice, at first thinking this was potentially a “spam” email8. Mr. Feldman (the Head of Corporate Banking at the Bank) responded that the Closure Notice was genuine:

“This is an official notice from Butterfield relating to the account closure of F & E Holdings Limited and all related products including loans. There is a six-month period granted to transition the business to another banking institution.”

14. During the next several months F & E attempted to make alternative arrangements to replace the financing so as to repay the debt under the Credit Facility Letter to the Bank, and correspondence passed between the parties with that end in mind, the details of which are not necessary to set out in any detail in this judgment.

15. In or about August 2023 Mr. DeSilva made a transfer on behalf of F & E of US$12 million to the Bank as a partial repayment of the principal and made proposals for the repayment of the balance. The Bank declined to accept the payment of US$12 million on the grounds that it had concerns over the source of funds and refunded the monies that had been tendered in partial repayment of the loan.

16. Throughout the period these efforts were being made to make a transition to another bank, F & E continued to service the debt as usual “in good faith”9, notwithstanding F & E's position that the Credit Facility Letter had been wrongly terminated by the Bank. Mr. Lynch KC submitted that this was the sensible thing for F & E to do on a commercial basis, especially when F & E was seeking to find another lender to replace the Bank. The implication was that a new bank would be unlikely to agree to advance funding to enable F & E to repay the debt if F & E was in default under the terms of the Credit Facility Letter, although no express evidence was given in relation to that point.

17. Ultimately F & E's efforts to find alternative financing from a source that the Bank would accept proved unsuccessful. The debt remains unpaid. Negotiations broke down, and no further payments were made to service the debt, and events of default were...