Bird v Magzone (Bda) Ltd and Bank of NT Butterfield & Son Ltd

CourtSupreme Court (Bermuda)
Judgment Date30 November 2005
Date30 November 2005
Docket NumberCivil Jurisdiction 2003 No. 175

In The Supreme Court of Bermuda

Kawaley, J

Civil Jurisdiction 2003 No. 175

Geoffrey Bird
Magzone (Bda) Ltgd
1st Defendant


The Bank of N. T. Butterfield & Son Ltd
2nd Defendant

Mr. T Marshall for the Plaintiff

Mr. A Martin for the 2nd Defendant

The following cases were referred to in the judgment:

English v Dedham Vale Properties LtdWLR [1978] 1 WLR 93

BP Refinery (Westernport) Pty Ltd v Shire of HastingsUNK (1994) 180 CLR 266

National Commercial Bank of Jamaica v Guyana Refrigerators LtdUNK (1998) 53 WIR 229

Tai Hing Cotton Mill Ltd v Liu Chong Bank LtdELR [1986] 1 AC 80

Kelly v CooperELR [1993] AC 205

Tournier v National Provincial and Union Bank of EnglandELR [1924] 1 KB 461

Lloyds Bank v BundyELR [1975] QB 326

National Westminster Bank Plc v MorganELR [1985] AC 686

Murphy v HSBC Bank plc [2004] EWHC 467 30

Agnew v Inspector of TaxesELR [2001] 2 AC 710

Greig v InsoleWLR [1978] 1 WLR 302

South Wales Miners' Federation v Glamorgan Coal CompanyELR [1905] AC 239

Smith v MorrisonWLR [1974] 1 WLR 659

Gainers Inc v Pocklington Holdings Inc (2001) 194 DLR (4th) 104

Swiss Bank v Lloyds BankELR [1979] 1 Ch 548

Uren v First National Home Finance [2005] Times Law Reports 17 November

Royal Brunei Airlines v TanUNK [1995] 3 All ER 97

Thomas v RoseUNK [1968] 3 All ER 765

Georgiades v Edward Wolfe & Co LtdELR [1965] 1 Ch 487 40

Cavendish v CavendishELR (1885) 30 ChD 227

In re Monolithic Building CoELR [1915] 1 Ch 643

Swindle v HarrisonUNK [2997] 4 All ER 705

Ratman v Arearose LtdELR [2001] QB 351

Personal loan — Bridging finance for real estate development — Security for loan — Whether fiduciary relationship exists between bank and plaintiff — Implied terms of contract — Constructive trust — Legal effect of letter of intent — 5 point test for implied term of contract of loan — Procurement of breach of contract — Equitable charges over property — Damages — Meaning of ‘land’— Priority of debenture

JUDGMENT of Kawaley, J

Mr. Bird was born in February 1922. He became a customer of the Bank, the Second Defendant, over 50 years ago. He became a partner in a prominent firm of chartered surveyors, and established his own real estate firm. Over the years, the Plaintiff had extensive personal and commercial dealings with the Bank, most notably in relation to real estate developments. He became a trusted customer of the Bank, and personally supervised the renovations to its current Head Office.

In 2001, some 5 years after the Plaintiff had last borrowed monies from the Bank and when 79 years of age, the First Defendant (‘Magzone’) offered to pay him $100,000 for a personal loan of $500,000 to be repaid within a mere three months. This proposal was too tempting for the retired entrepreneur to resist. He approached the Bank for an overdraft facility in the amount of $500,000, to be lent on by himself by way of bridging financing to Magzone, which was developing a St. George's property known as “Tabernius House”.

The facility was made available on or about June 5, 2001 when the Plaintiff signed the Bank's offer letter dated June 4, 2001. But not before, on June 1, 2001, the Plaintiff had faxed to the loan officer then involved a copy of a “Letter of Intent” between himself and the First Defendant. The Plaintiff hoped that he would be repaid his loan in full together with the agreed fee when Magzone obtained its principal financing from the Bank. Even when it became clear that this would not happen within the initial three month term of the facility, no alarm bells were set off. It appeared to both the Plaintiff and the Bank, that the Tabernius House project would be sufficiently profitable to enable Magzone to fully repay the Bank and the Plaintiff. The Bank provided financing to Magzone in November 2001.

The best laid plans of men and mice, it is said, will go astray. But the plans for converting Tabernius House were not, it turned out, well laid at all. Completion dates and costs estimates proved to be as shifting as the sands. The Plaintiff reassured himself, and sought to reassure the Bank, that his Letter of Intent gave him security over Apartment #4, and this would eventually enable him to repay his own debt to the Bank. Unknown the Plaintiff, however, the Bank had obtained legal advice that his purported security was unenforceable, and as Magzone's project went from bad to worse, the Bank itself took security over Apartment # 4. The Plaintiff only discovered that the Bank had obtained its own security for its debt from Magzone over the same asset the Plaintiff believed was securing Magzone's separate obligations to himself in February 2003 when the Bank appointed a Receiver. The Plaintiff eventually, after several extensions of the initial facility period, fully repaid his loan to the Bank, but was not repaid by Magzone1. These essentially agreed facts gave rise to the present litigation, by which the Plaintiff seeks to recover the monies he claims to have lost when the Bank received the sale proceeds of the apartment he contends secured his own loan to Magzone.

The Legal and Factual issues for determination

The factual issues in dispute essentially turn on whether or not the agreed facts can be construed in such a manner as to support the four main causes of action asserted by the Plaintiff.

Firstly, Mr. Bird asserts that a fiduciary relationship existed between himself and the Bank, which the Bank breached by taking steps to eliminate or reduce the security he enjoyed over Apartment #4 at Tabernius House. Knowing that the Plaintiff was relying on the Letter of Intent executed by Magzone as a fall-back basis to repay his own overdraft facility with the Second Defendant, the Bank should not have covertly taken steps to gain a first priority over the same asset the Plaintiff had secured to protect their own conflicting financial interests in relation to another customer without either (a) making appropriate disclosure to Mr. Bird

and/or (b) advising him to obtain independent legal advice. It is common ground that fiduciary obligations may only be imposed on banks in favour of their customers. It is controversial whether or not the historical relationship Mr. Bird enjoyed with the Bank combined with the alleged conflict of interest which arose between the Bank and the Plaintiff in respect their competition for the same asset as security for their respective debts owed by Magzone gave rise to such fiduciary obligations in all the circumstances of the present case.

Secondly, Mr. Bird asserts that it was an implied term of the contract between him and the Bank in respect of the overdraft facility he obtained in June 2001, that the Bank would do nothing to impair his ability to repay the loan from monies obtained in reliance on the security the Plaintiff obtained to protect his own ability to recover his bridging loan from Magzone. The legal test applicable to the implication of contractual terms was agreed; how that test applies to the largely agreed facts was not.

The third front on which Mr. Bird launches his attack on what he characterised as the Bank's ‘disgraceful’ conduct towards him is as follows. It is alleged that the Bank procured Magzone to breach its contract with Mr. Bird by giving the Bank security over Apartment #4. The central obligation Magzone assumed under the Letter of Intent was not to transfer or secure Apartment #4 to anyone until Mr. Bird's liability to the Bank had been discharged. Here again, the legal test for the tort of procuring the breach of a contract was uncontroversial; whether the facts supported this cause of action was not.

The fourth cause of action relied upon by Mr. Bird was wholly equitable. It was contended that the Letter of Intent gave rise to a constructive trust in favour of the Plaintiff in respect of Apartment #4, and that the Bank acquired its rights under the debenture in respect of the same asset with actual or constructive notice of the said constructive trust. Accordingly, the relevant asset or its sale proceeds were held by the Bank as constructive trustee for the Plaintiff. This claim gives rise to the following primarily legal issues: (a) whether the Letter of Intent conferred any valid security interest over Apartment #4 in favour of the Plaintiff; (b) assuming issue (a) is answered in the affirmative, whether the debenture registered under section 55 of the Companies Act 1981 failed to confer any priority to the Bank in respect Apartment #4 because such registration was inoperative as regards ‘land’; (c) whether, in any event, no valid security was obtained by the Bank because it had actual or constructive notice of the Plaintiff's prior equitable claim.

The agreed facts

Counsel saved substantial time and costs by agreeing most of the factual background to the present dispute.

The Plaintiff's evidence

Mr. Geoffrey Bird gave his evidence in a straightforward and frank manner and I found him to be an entirely credible witness. He painted a vivid picture of his relationship with the Bank and its lending officers from the 1950's, when Sir Harry Butterfield himself approved one of his first loans. He regarded the Bank's officers as fellow professionals, who would exchange property development and financial advice, and casually described how, when obtaining financing for a company he established some years ago, two bank employees ended up as shareholders of the company. The Bank had financed most of the roughly ten condominium developments he had been involved in, and he considered that a relationship of trust existed between him and the Bank.

He met Mr. Graham Hoyle, the principal of Magzone, through a friend at the Dinghy Club, and was asked about the possibility of providing bridging financing for the renovation of Tabernius House. This was around March 2001. As he was reliably informed that other creditors had lent money to Hoyle and been repaid...

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2 cases
  • Robinson v Bank of Bermuda Ltd
    • Bermuda
    • Supreme Court (Bermuda)
    • 11 July 2007
    ...Dill & PearmanBDLR [1993] Bda LR 49 Tai Hing Cotton Mills Ltd v Liu Hung BankELR [1985] 1 AC 80 Bird v Bank of NT Butterfield & SonBDLR [2005] Bda LR 55 Tournier v National Provincial and Union Bank of EnglandELR [1924] 1 KB 416 Bristol and West Building Society v MowtherUNK [1996] 4 All ER......
  • HSBC Bank Bermuda Ltd v Wales
    • Bermuda
    • Supreme Court (Bermuda)
    • 18 December 2018
    ...and equitable to imply such a duty: see the dictum of Kawaley CJ in Bird v Magzone (Bda) Ltd and The Bank of NT Butterfield & Son Limited[2005] Bda LR 55 at p. ...

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