Rajiv Shukla v St James Bank & Trust Company Ltd & Anor

This judgment concerns the Claimant’s application for summary judgment and consequential relief against the Defendants in relation to a dispute under a non-recourse and securities pledge agreement dated 05 October 2023 (“the Loan Agreement”) pursuant to which the First Defendant (“SJB”) loaned the Claimant US$ 2,047,396.50 (“the Loan”) secured by 1,800,000 shares in a company known as Humacyte Inc (the “Pledged Securities”).

In July 2024, SJB claimed that as a result of an event of default the Loan had become immediately due and payable. But, the Claimant says, when he tendered loan repayment, SJB refused repayment, refused to provide a redemption figure and claimed that it could seize the Pledged Securities.

SJB and the Second Defendant (“Omega”) (the assignee of SJB’s rights under the Loan Agreement) contend that the Claimant is not entitled under the terms of that Loan Agreement or in equity to redeem the Loan and that the Defendants are not obliged to cooperate in enabling repayment of the Loan.

The Claimant seeks (i) summary judgment for a declaration that SJB was in breach of contract in refusing to accept repayment of the Loan on around 12 July 2024 with damages to be assessed; (ii) an interim payment on account of damages; and (iii) an account of any profit the Defendants have made in respect of any dealings with the Pledged Securities (and unpledged shares which were returned in January 2025). The application also seeks measures to protect the position pending final quantification of the Claimant’s damages.

The Defendants say that the Claimant’s claims for relief are not suitable for disposal by way of summary judgment. They further say that the Loan Agreement gives the Claimant no right to require SJB to provide details of the sum required to settle the Loan (“the Settlement Sum”) and upon payment of that sum to require SJB to transfer back to the Claimant the Pledged Securities. The Defendants say that the terms of the Loan Agreement gave the Claimant no rights of redemption and expressly provided that on an event of default, SJB were entitled to take the Pledged Securities as their own and deal with them as absolute owner. In support of this case, the Defendants say the Loan Agreement was not for a loan backed by security but was in the nature of a sale of the Pledged Securities by the Claimant to SJB combined with an option to the Claimant to repurchase equivalent securities from SJB in the events and on the terms set out in the Loan Agreement.

The Claimant is an individual resident in Florida, USA. He is the Executive Chairman of a NASDAQ listed biotech company (“Carmell”). The Defendants say that the Claimant is a highly experienced businessman and a financially adept individual. They describe him as having held positions as a company CEO, board director, a portfolio manager of a healthcare hedge fund, a private equity investor and a consultant. I did not understand this description to be disputed by the Claimant.

SJB is a company incorporated under the laws of The Commonwealth of The Bahamas in 1999 and carries on business as a provider of (inter alia) financial services. It is said to operate under an unrestricted banking licence issued by the Central Bank of The Bahamas.

Omega is a company incorporated under the laws of The Commonwealth of The Bahamas in mid-2023. It has purchased 100% participation in the Loan from SJB.

On 14 September 2023, a Nathan MacDonald from a business networking and introductions agency, Keiretsu Forum, approached Carmell with an introduction to Ms. Audra Plageman from Consulting Global International. Ms. Plageman was promoting a new financial product described as a ‘unique securities lending platform’ offered by SJB.

The Claimant was interested in this potential line of credit to make personal investments.

A telephone call between the Claimant and Ms. Plageman was arranged for 16 September 2023. Ms. Plageman in turn introduced the Claimant to a Mr. Marc Wade, who could underwrite such loans through his Bahamian family office, Omega. Following some introductory discussions between the Claimant and Mr. Wade, the Claimant decided to move forward with procuring a loan from SJB.

On 25 September 2023, the Claimant and SJB entered into a Custody Agreement which would facilitate SJB holding securities on behalf of the Claimant and on 05 October 2023, the parties entered into the Loan Agreement.

The main terms of the Loan Agreement are as follows:

Pursuant to Article 7.11(b) of the Loan Agreement, SJB and Omega executed a Participation Agreement with Omega on 05 October 2023 which was subsequently replaced by an Amended and Restated Participation Agreement (“the Participation Agreement”) executed on 14 December 2023 but with an effective date of 05 October 2023. The Claimant says that he was first given notice of this agreement on 09 August 2024 and first saw a copy of it when it was provided by way of Initial Disclosure on 27 February 2025. However, nothing turns on these timings. The Defendants say that the effect of the Participation Agreement is that, if the Claimant is entitled to enforce the Loan Agreement, he is only entitled to do so against Omega. The Claimant says, in contrast, that any judgment should be against both Defendants.

On around 17 October 2023, at SJB’s request, the Claimant transferred 1,814,789 Listco Securities to SJB’s agent pursuant to Article 2.1(c) of the Loan Agreement.

On 01 November 2023, SJB issued a Funding Notification pursuant to Article 2.2(b) proposing a Tranche of US$2,214,000 pursuant to Article 2.2(e) with an Intended Closing Date of 03 November 2023 and requested 1,800,000 shares of Listco Securities at a Collateral Share Price of US$2.05 (a total value of US$3,690,000) to become Pledged Securities.

On 03 November 2023, SJB issued a Closing Statement recording that the principal amount of US$2,214,000 (gross) less a structure fee of US$33,210 (pursuant to Article 2.1(i)) was to be transferred to the Claimant, and that 1,800,000 shares of Listco Securities were to become Pledged Securities with a Collateral Share Price of US$2.05. A surplus of 14,789 shares was therefore held by SJB on an unpledged basis (“the Unpledged Securities”). The Claimant requested the return of the Unpledged Securities in July 2024, but they were only returned in January 2025.

On 08 November 2023, the Claimant received a wire transfer of US$2,047,396.50 from SJB. The Claimant says that SJB deducted US$166,603.50 for fees and, save that US$33,210 was to be deducted as a structure fee, this was done without any explanation or breakdown of how this sum is calculated.

It is common ground that between 16 November 2023 and 30 January 2024, the 5-day average trading volume for the Listco Securities for each of the 50 consecutive Trading Days was more than 20 percent below the average daily trading volume for the Listco Securities on the Exchange for the 70-day Trading Day period preceding the Closing Date. Accordingly, there was an Event of Default pursuant to Article 6.1(f) on each of those days. Neither side was aware of the default and no correspondence was exchanged between the parties regarding the default. From February 2024 onwards, the 5-day trading volume was above the contractually prescribed threshold, so there was no further Event of Default.

On 28 June 2024, the Claimant wrote to SJB indicating his desire to repay the Loan. SJB responded on 01 July 2024 relying on Article 2.1(e) of the Loan Agreement (requiring a minimum period of eighteen months for any loan amount) stating that the right of prepayment could not be exercised until 03 May 2025 subject to compliance with Article 3.2 (which included the requirement that there had not been an Event of Default).

On 01 July 2024, the Claimant wrote to SJB stating his intention to invoke Article 2.3(e) of the Loan Agreement to replace the Pledged Securities with other freely tradable securities. The Claimant sought instructions for making the substitution of the securities. However, on 11 July 2024, SJB sent the Claimant two letters both dated 10 July 2024:

Although the Claimant paid the requested fee no agreement on amendment of the Loan Agreement was reached.

On 12 July 2024, Blank Rome, the Claimant’s US attorneys, wrote to SJB stating that the effect of an Event of Default under Article 6.1 was to make the Obligations due and payable immediately and that the Claimant was ready, willing and able to make the Repayment. Blank Rome requested instructions for Repayment.

On not receiving any response from SJB, Blank Rome again wrote to SJB on 16th July 2024 requesting instructions for Repayment. Blank Rome made it clear that the Claimant was not going to sign the amendment to the Loan Agreement pursuant to SJB’s without prejudice proposal.

On 17 July 2024, SJB wrote to Blank Rome asserting that it had available to it all of the rights and remedies set forth in Article 6.2 of the Loan Agreement. It also asserted that the interest rate was increased by 10% per annum following the occurrence of an Event of Default. Notwithstanding the foregoing, SJB repeated its offer for the Claimant to sign the consent and waiver proposal. SJB did not give any instructions for repayment of the amounts outstanding under the Loan Agreement.

On 18July 2024, Blank Rome wrote to SJB rejecting its interpretation of the Loan Agreement and reiterating the Claimant’s tender of Repayment as of 12 July 2024. Blank Rome, on behalf of the Claimant, requested instructions so that the Claimant could meet his repayment obligation which had been accelerated pursuant to Article 6.1. They also reiterated that the Claimant would not execute the proposed consent and waiver, and requested return of the USD 22,140 which had been sent.

On 24 July 2024, following no response from SJB, Preston Turnbull, the Claimant’s solicitors, wrote to SJB giving it a final opportunity to accept Repayment and return the Listco Securities, failing which legal proceedings would be commenced in the English High Court. On behalf of the Claimant, Preston Turnbull again requested instructions for Repayment, including the amount of the “Obligations”.

On 26 July 2024, Bird & Bird LLP (“Bird & Bird”), instructed on behalf of SJB, responded to say that Preston Turnbull’s letter did not comply with the Pre-Action Protocol, and that they required time to consider the allegations, but were not instructed to accept service of proceedings.

On 29 July 2024, Preston Turnbull responded stating that time was of the essence because the Pledged Securities were publicly listed and liable to fluctuate in price. They again indicated that the effect of an Event of Default under Article 6.1 was to make the Obligations immediately due and repayable, and requested a redemption statement with repayment details so that the Claimant could repay the Loan and requested confirmation that SJB would return the Pledged Securities upon receipt. They indicated that the Claimant had transferred USD 2,047,396.50 to Preston Turnbull’s client account to make immediate payment of the outstanding amounts.

On 31July 2024, Bird & Bird responded to Preston Turnbull in terms which indicated that they did not consider the matter urgent and that damages would be an adequate remedy if SJB were found to have wrongly failed to redeliver the shares to the Claimant. It is in this letter that Bird & Bird also indicated that that they had been told that their clients no longer had possession of the Listco Securities.

On 01 August 2024, Preston Turnbull wrote to Bird & Bird requesting information about who held the Pledged Securities and whether they had been sold. Bird & Bird responded on 09 August 2024 stating that:

On 06 August 2024, the Claimant filed the Claim Form in this action, initially against SJB only. On 20 December 2024, the Claimant amended the Claim Form and Particulars of Claim by consent to add Omega as a defendant to the claim. In the action, the Claimant seeks declarations requiring the Defendants to redeliver the Listco Securities against repayment of the sums due under the Loan Agreement and damages for loss suffered as a result of the Defendants’ breach in failing to redeliver those securities promptly in accordance with the Loan Agreement.

On 13 January 2025, SJB returned the 14,789 Unpledged Securities which the Claimant sold for an average price of US$4.08 on 14 January 2025.

The following issues arise for determination:

The principles for determining whether a case is suitable for summary judgment are well-known. Pursuant to CPR 24.3, the Court can grant summary judgment against a claimant or defendant on the whole of the claim or an issue if (i) the party has no real prospect of succeeding on the claim, defence or issue; and (ii) there is no other compelling reason why the case or issue should be disposed of at a trial. In relation to the present application, there is no separate compelling reason why this case should be disposed of at trial. As to the question of whether I can decide now if SJB has no real prospect of success in its defence of the claim, the relevant principles are the well-known ones set out in Easyair Ltd v Opal Telecom Ltd [2009] EWHC 339 (Ch) at [15] as approved by the Court of Appeal in AC Ward & Sons Ltd v Catlin (Five) Ltd [2009] EWCA Civ 1098; [2010] Lloyd’s Rep. I.R. 301 at [24] and more recently updated in Amersi v Leslie [2023] EWHC 1368 (KB) at [142]. In the latter case, Nicklin J. summarised the relevant principles in the following terms taking into account recent authority:

In addition, the Defendants referred me to the judgment of Mummery LJ in Doncaster Pharmaceuticals Group Ltd & Ors v The Bolton Pharmaceutical Company 100 Ltd [2006] EWCA Civ 661, [2007] FSR 63 at [5] and [6] where his lordship said as follows:

I also keep in mind the further guidance at [10] to [12] of Mummery LJ’s judgment.

In support of their argument that this case is not suitable for disposal by way of summary judgment, the Defendants rely on the following matters:

The Defendants were not able, however, to identify any particular areas of factual evidence which were missing from the evidence which was before me other than in relation to the possible assessment of any damages payable to the Claimant if the Defendants are otherwise liable under the Loan Agreement. In essence, Mr. Salter KC submitted that the available evidence on this application was likely to be shorter than that which would be available at trial and that there might be disclosure from the Claimant which would go to how the transaction was seen by him and whether it was seen by both parties as being “a bet on the shares”.

I have considered carefully the submissions made by the Defendants as to why this case is not suitable for summary judgment and why I should not be persuaded to resolve the issues of liability arising under the Loan Agreement now. However, taking into account the warnings in the authorities cited above about avoiding a mini-trial and about the greater unpredictability of a summary judgment application, I do not consider this a case where further evidence will become available at trial which is both admissible and relevant to the issues of liability which I have to decide. I do consider the case one where, keeping the considerations of procedural justice in proper perspective, I can deal with the issues I am now asked to decide justly and fairly. I reach these conclusions for the following reasons:

It follows that, for all the above, reasons, I conclude that the issues which I have to decide are suitable for determination on an application for summary judgment and that I should grasp the nettle.

Over the course of the two days of hearing, I was referred to a significant number of authorities, not all of which I refer to below. This does not mean that I have not considered carefully the points made by reference to those authorities; I have. I refer below to those authorities which I regard as being the ones most directly germane to the points I have to decide.

The Defendants identify the hallmark of a security interest as being that it transfers a limited proprietary interest; the right is given by security only and therefore cannot amount to an outright transfer; Goode & Gullifer on Legal Problems of Credit and Security (7th ed) at §§1-05 and 1-017. In this regard, the Defendants say there are four forms of consensual security known to English law, namely mortgages, charges, liens and pledges. In contrast, there are other transactions which have the economic effect of securing a loan or collaterising an obligation which are described as “quasi-security” or “title finance” and involve lending with the security provided by way of a sell and buy-back arrangement. A distinguishing feature of many of these quasi-security transactions is that they involve the outright transfer of absolute ownership, as opposed to the grant of a limited security interest in the asset, and therefore avoid the strictures of mortgage law; see Comparative Law of Security Interests and Title Finance (3rd ed) at §§48-018 and 48-038. Unsurprisingly the Defendants submit that the Loan Agreement falls into this category of quasi-security transactions involving an outright transfer of absolute ownership in the Pledged Securities to the Claimant.

The Defendants submit that in characterising any transaction, the court must perform two tasks (i) ascertain the intention of the parties from the terms of their agreement and (ii) determine the legal effect of what they have agreed. Whether what the parties have agreed produces a given legal effect is a matter of law and does not depend on intention. Thus in deciding whether or not an agreement has created a secured loan or is in substance a transfer of absolute title to assets, the court looks not to whether that was the intention of the parties but whether the nature of the rights they intended their agreement to confer is such as to constitute an agreement for a secured loan or an outright transfer of the shares.

The Defendants further submit that in determining the legal effect of what the parties have agreed, the court can look beyond the words formally used by the parties to examine the substance or true legal effect of the agreement. Viscount Haldane LC put the position in the following terms in Kreglinger v New Patagonia Meat and Cold Storage Company Ltd [1914] AC 25 at 36:

The two propositions outlined in paragraphs 44 and 45 above were not in dispute. The issues between the parties were as to when it was appropriate to look outside the terms of an agreement and as to what effect the terms in the agreement which made it a non-recourse loan and excluded the equity of redemption had on the characterisation of the Loan Agreement.

In Welsh Development Agency v Export Finance Co. Ltd [1992] BCC 270, the Court of Appeal had to determine whether a master agreement between two companies relating to the export of goods created a registrable charge. In other words, whether the agreement was for a secured loan despite being cast in the form of a contract of sale. For the purposes of making that determination, Staughton LJ identified at p.301 two routes for the court to determine whether a transaction is a sale or a mortgage. The ‘internal route’ considers only the written terms of the contract to ascertain from its terms whether the contract amounts to a transaction of the legal nature which the parties ascribe to it. The external route looks at evidence outside the contract to determine whether the contract represents the agreement of the parties (if not, then the contract may be described as a “sham, a cloak or a device”). He went on to say at p.302:

Helpfully, he also clarified on the same page the task of the court where there are inconsistent terms in an agreement:

Staughton LJ then went on to consider the four aspects of the master agreement which were said to show that there was in reality only a loan of money secured by a charge on goods rather than a loan; namely price, discount, a right of redemption and a right of retention. Staughton LJ acknowledged that all four aspects were more commonly found in contracts of loan than contracts of sale but found that they were not inconsistent with a contract of sale. Overall, he concluded that the agreement was a contract of sale. The other members of the court reached the same conclusion.

I was also referred to the test for determining whether a transaction involved a loan or a form of sale as set out by Romer LJ in Re. George Inglefield [1933] Ch. 1 at 27 – 28.

More recently, the proper approach to the assessment of whether agreements were loan agreements or agreements for the sale of assets was discussed in Brighton & Hove City Council v Audus [2009] EWHC 340 (Ch), [2010] 1 All ER (Comm) 344. The case concerned the proper characterisation of arrangements by which the defendant funded the purchase by his uncle and aunt of the flat they leased from the claimant on terms which allowed the defendant to acquire the flat after their deaths. The principal issue to be determined was whether the arrangements constituted a genuine mortgage and was therefore subject to the principles governing the equity of redemption.

Morgan J. having considered the overall character of the arrangements concluded that, while an element in the arrangements was a genuine mortgage, taken overall the arrangements went beyond a security transaction. He stated at [51]:

Morgan J. went on to say at [54] that the analysis of Staughton LJ had been influential and applied by the Court of Appeal in a number of subsequent cases and while the majority of those cases concerned arrangements where the documents did not take the form of a security interest and the allegation was that the substance of the arrangements did involve a security interest, the same principles relating to the search for the substance of the transaction applied in reverse. The Judge also referred to the decision of the Court of Appeal in Warnborough Ltd v Garmite Ltd [2003] EWCA Civ 1544 in support of his approach to the analysis of the arrangements. That case was an example of a composite transaction in which it was accepted that one element of the transaction was a genuine mortgage, but the Court of Appeal held that one had to look at the true nature of the bargain by examining all the circumstances. Morgan J. held, and I agree, that the Warnborough case is authority for the proposition that where there is a composite transaction, which includes as one element a genuine mortgage, it is open to the court to assess the overall character of the composite transaction and identify the character as being other than that of a mortgage. More importantly for the present case, Morgan J. also rejected an argument that when it comes to analysing the true nature of a transaction one should disregard the allegedly repugnant provisions. He said at [57]:

I have considered the authorities at some length. In summary, I accept that when it comes to determining the proper character of the Loan Agreement:

In the context of non-recourse lending, I was referred to a number of authorities by the Claimant to establish that non-recourse lending is still a form of loan even if the obligation to repay the loan is only to be met from a particular asset or identified fund. So, in Gullifer & Goode at §3-06, the authors describe non-recourse lending in the following terms:

The question of the nature of a non-recourse loan also came to the fore in Levett v Barclays Bank Plc [1995] 1. WLR 1260. At p. 1271H, Mr. Michael Burton QC (as he then was) put the position in the following terms:

As will be seen from the discussion of the terms of the Loan Agreement below, there are terms of the Loan Agreement, which are more consistent with a transaction which is a sale with an option to repurchase pledged securities or equivalent shares and terms which are more consistent with a secured loan. The fact that the Loan Agreement contains non-recourse provisions does not however prevent the agreement being categorised as a secured loan to which the equity of redemption applies if I am otherwise satisfied that the Loan Agreement is a secured loan.

The Claimant submits that the Loan Agreement is to be properly categorised as a loan agreement under which he is entitled to repay any sums loaned to him albeit the Claimant accepts that the agreement is on terms which mean that any loan is on non-recourse terms. In other words, in the event that the Claimant does not repay any sums loaned to him, the Defendants’ recourse or right of enforcement is only against the Pledged Securities (or any other securities which may have been substituted for the Pledged Securities) rather than there being any residual claim in debt or for damages.

The Defendants submit that the Loan Agreement is in substance an agreement for the sale of the Pledged Securities to the Defendants (originally SJB) with an option for the Claimant to be able to buy back the Pledged Securities provided certain conditions were met. Alternatively, the Defendants submitted that, if the Loan Agreement was in fact a loan agreement then the fact that it was a non-recourse loan has the effect that the principles governing a clog on the equity of redemption do not apply to it because the Loan Agreement does not provide for a loan against security. As the Defendants put it at paragraph 5 of their skeleton argument:

In support of their case as to the proper construction of the Loan Agreement, the Defendants rely on the following matters of background:

None of the matters referred to in sub-paragraphs 60(i) to (iv) and (vi) above were disputed by the Claimant save that the Claimant did not accept that he should have accepted SJB’s offer to waive the default.

To the extent that SJB relies on the matters in paragraph 60 to establish that the Claimant was a sophisticated investor and there was nothing in the circumstances surrounding the making of the Loan Agreement to suggest that the Agreement or its terms are unconscionable, I accept those propositions. However, it is equally pertinent to the construction of the Loan Agreement and its effect, that the parties chose English law and jurisdiction to govern their agreement. In other words, they contracted on the basis that English law principles of equity including the principles relating to a clog on the equity of redemption would, or at least could, apply to the Loan Agreement if it were properly categorised as a secured loan rather than as an agreement for the absolute transfer of the Pledged Securities with an option to repurchase them.

So far as the proper characterisation of the Loan Agreement is concerned, I consider that the following matters are relevant.

First, it is clear from the witness statements of both the Claimant and Mr. Wade that the common intention of the parties was that SJB would provide loan finance to the Claimant albeit on non-recourse terms. Both the Claimant and Mr. Wade are clear in their evidence that their discussions were about loan finance.

Second, the language and structure of the Loan Agreement taken overall is the language of a loan combined with the transfer of a security interest, namely the Pledged Securities, which was to be returned with interest in that the event that the loan was repaid. The language and structure of the Loan Agreement do not read overall as a contract for the absolute transfer of the Pledged Securities with an option to buy them back. There is no term of the Loan Agreement which clearly transfers the ultimate beneficial interest in the Pledged Securities to the Defendants.

Third, my overall impression of the Loan Agreement is reinforced by consideration of individual Articles. Subject to the exceptions discussed in paragraph 69 and following below, the terms of the Loan Agreement are again consistent with a secured loan transaction. Thus:

All of the above terms are consistent with the Loan Agreement being a secured loan rather than an outright sale of the Pledged Securities with a right to the Claimant to re-purchase those shares or their equivalent.

At paragraph 29 of their skeleton argument, SJB submitted that while the language of the agreement is that of a secured loan, the substance of a transaction was that of a sale with the Claimant having no personal obligation to make repayment. For the reasons set out above and below I do not agree. In particular, while the Defendants’ remedies against the Claimant may be limited to taking the Pledged Securities, the Loan Agreement does impose an express obligation on the Claimant to repay the Loan on the Maturity Date and on the occurrence of an Event of Default. In other words, the Loan Agreement does create a debt owed by the Claimant to the Defendants in respect of the Loan even if the remedy for non-payment of that debt is limited to enforcement against the Pledged Securities.

This brings me to the non-recourse elements of the Loan Agreement, namely Articles 4(4)(f), 5.1 and 6.2, which not only limit the Defendants’ remedies for breaches of the Loan Agreement to taking the Pledged Securities but also expressly provide for the Claimant to forfeit the equity of redemption. Article 5.1, in particular, makes clear that the Defendants’ remedies for payment and performance of the Obligations are limited to the Pledged Securities and that the Defendants shall not have, under any circumstances, any right to any other assets of the Claimant.

While these provisions are consistent with an absolute transfer of the Pledged Securities to the Defendants, they are not in my view sufficient to justify disregarding the other provisions of the Loan Agreement which clearly identify the agreement as a loan coupled with a security interest rather than as an agreement for the outright transfer of the Pledged Securities. Indeed, on one view, the non-recourse provisions (including the exclusion of the equity of redemption) are provisions which would not be necessary if the Loan Agreement did provide for the absolute transfer of the Pledged Securities rather than give the Defendants a security interest in them.

The Defendants also point to a number of other clauses which they say point to the substance of the transaction being a sale. In particular, they refer to:

So far as the above Articles are concerned, I accept that each deals with the Pledged Securities in a way which suggests that the Defendants have rights over the securities which are consistent with rights of ownership. But none of the provisions can be read, either on their own or in conjunction with other provisions of the Loan Agreement as transferring absolute ownership of the Pledged Securities to SJB. On the contrary, I accept the force of the submissions made by Mr. Downes KC that the fact that the Loan Agreement provides for the Defendants to have specific rights such as those identified in Article 2.3(b) and Article 2.3(d) is in fact an indicator that the Loan Agreement is a loan combined with a security interest because if the agreement were a sale transaction, there would be no need to provide for the Defendants to have the specific rights granted to them because they would be a natural corollary of the Defendants having absolute title to the Pledged Securities. Likewise in relation to Article 2.3(a), while the Article does provide for the Claimant to acknowledge that value has been given for the Pledged Securities, this provision has to be read in context:

Further, Articles 3.2(a) and (b) have to be read in conjunction with Article 4.4(a) where the parties agree that the Pledged Securities are fungible (interchangeable). The right for SJB to return an equivalent number of Listed Securities instead of the Pledged Securities reflects the agreed fungibility of the Pledged Securities.

Finally, Article 5.1 is a non-recourse provision but, as discussed above, English law recognises that a loan agreement can be on non-recourse terms. In any event, clause 5.1 limits the liability of the Claimant for payment and performance of the Obligations to the Pledged Securities and prevents the Defendants from enforcing their rights against any other assets of the Claimant. However, the language of Article 5.1 does not go so far as to extinguish the Obligations or to remove the Claimant’s right to repay the loan amount.

Looking now at the Loan Agreement against the various authorities relied on by the Defendants:

It follows from the above that I am satisfied that the Loan Agreement is properly characterised as an agreement for a secured loan not a contract for the transfer of absolute ownership of the Pledged Securities to the Defendants.

In the Brighton & Hove Albion case, Morgan J. summarised the relevant principles as follows (at [45] to [47]:

The Defendants also referred me to Santley v Wilde [1899] 2 Ch 474 at 474 – 475 in which Lord Lindley explained the doctrine of clogs and fetters in the following terms:

The Defendants accept that the principle applies not only to mortgages properly so called, but to security interests as well but emphasise by reference to authorities such as JA Pye (Oxford) Estates Ltd v Ambrose [1994] NPC 53, Lloyds & Scottish Finance Ltd v Cyril Lord Carpet Sales Ltd [1992] BCLC 609 (HL) and Brighton and Hove City Council that the doctrine only applies where a mortgage or security interest is given a security for the payment of a debt. What these authorities also emphasise is the need for close analysis of the relevant contractual arrangements. None of the authorities deal, however, with an arrangement similar to the one in the present case.

As I have already found above, I am satisfied that the Loan Agreement is an agreement for a loan with an obligation on the Claimant to repay that loan on the Maturity Date secured by the Pledged Securities. In other words, the agreement creates a debt with a security interest, such that the doctrine restricting clogs or fetters on the equity of redemption applies to the agreement.

The Defendants submit, nevertheless, that to apply the doctrine to the Loan Agreement would be to expand the effect of the doctrine whereas it should in fact be confined and not extended. This is principally on the basis that the doctrine should not, the Defendants submit, be applied to non-recourse lending as well as taking into account judicial and academic criticisms of the doctrine.

The criticisms of the doctrine are usefully summarised in Michael Bridge, Louise Gullifer, Eva Lomnicka, The Law of Security and Title-Based Financing (4th ed, OUP 2024) at paras [6-45] and [6-46]. The criticism most relevant to the present case is that it is a doctrine which renders void fair and reasonable bargains entered by parties of equal bargaining power. The basis of the doctrine was to protect parties in a vulnerable position because they were borrowing money and its application to modern corporate financing could be said to be entirely inappropriate. However, despite these criticisms and judicial comments in Jones v Morgan [2001] EWCA Civ 995 at [86] per Phillips MR that “the doctrine of a clog on the equity of redemption is, so it seems to me, an appendix to our law which no longer serves a useful purpose and would be better excised”, the doctrine remains a principle of English law (indeed, one applied by the Court of Appeal in Jones v Morgan despite the concerns expressed by Phillips MR).

In the present case, it is accepted that the question I have to decide is whether the relevant provisions of the Loan Agreement are repugnant to the contractual right to redeem and therefore void. Accordingly, I do not have to consider as a matter of English law the question of whether those provisions are to be regarded as unconscionable.

The Defendants referred me to a number of authorities from New South Wales, Southern Australia and India which establish that in those jurisdictions the doctrine requires a term to be unconscionable before it will be void as a clog or fetter; see for example Re Modular Design Group Pty Ltd (1994) 35 NSWLR 96, Epic Feast Ltd v Mason KLN Holdings Pty Ltd (1998) 71 SASR 161 and Seth Ganga Dhar v Shankar Lal [1958] INSC 44. However, the Defendants rightly accept that I am bound by the decision in the Kreglinger case and other English law authorities discussed above such that the unconscionability or otherwise of Articles 2.3(b), 4.4(f) and 6.2(a) is not a matter I have to consider. Mr. Salter KC reserves the Defendants’ right to argue that English law should be different on appeal.

Looking then at Articles 2.3(b), 4.4(f) and 6.2(a) individually:

I admit to some concerns, largely for the reasons identified by the Defendants, as to whether the doctrine of clogs and fetters is still appropriate to be applied to the terms of a commercial contract such as the present in circumstances where the trend of the authorities under English law is to respect the parties’ bargain even if on the application of the ordinary principles of contractual construction that bargain may leave one party with only very limited remedies in the event of a breach of contract by the other. But the position is different in so far as equity grants the Claimant rights which cannot be overridden under English law once it has been determined that the Loan Agreement is a secured loan rather than a contract of sale with a right to repurchase the Pledged Securities and given the weight of authority which establishes that the doctrine is a still a principle of English law, which does apply to a loan agreement secured on pledged shares.

It is common ground between the parties that there were Events of Default under Article 6.1(f) between November 2023 and January 2024. The immediate consequence of those events of default is laid down in the introduction to Article 6.1, namely that all Obligations shall immediately become due and payable. That duty on the Claimant applies notwithstanding any other term of the Loan Agreement. The Obligations include all accrued and unpaid interest and other amounts payable (such as custody fees and the Defendants’ reasonable costs and expenses). In other words, the final sum payable by Mr. Shukla cannot be determined without the cooperation of the Defendants. In this regard, Article 2.1(f) explicitly requires the Defendants to maintain a record of all amounts owing by the Claimant, which is to be prima facie evidence of his indebtedness to the Defendants.

I pause to note that Article 2.1(f) is another provision which by its language reinforces the conclusion that, notwithstanding the non-recourse provisions in the Loan Agreement, there was a debt due from the Claimant to the Defendants once SJB transferred the Loan Amount to the Claimant.

The effect of an Event of Default is therefore to make the Obligations due and payable immediately. In other words, it requires the Claimant to repay the Obligations immediately.

The Defendants submit that this cannot be the proper construction of Articles 6.1 and 6.2 because it is inconsistent with the condition on the right of repayment in Article 3.2(a) that there has been no Event of Default. However, this argument does not work in face of the express statement in Article 6.1 that the Obligations become due and payable immediately upon an Event of Default notwithstanding any provision to the contrary in the Loan Agreement. Further, the construction which the Defendants seek to put on Article 3.2(a) namely that it excludes an obligation on the Claimant to pay the Obligations on the occurrence of an Event of Default goes beyond what I consider the language of Article 3.2(a) can bear. Article 3.2(a) provides a right to prepay in circumstances where there has been no Event of Default. It does not prevent the express duty to pay the Obligations arising under Article 6.1 upon an Event of Default. In any event, Article 6.1 expressly prevails over Article 3.2.

The law as to the implication of terms generally is set out in Marks & Spencer plc v BNP Paribas Securities Services Trust Company (Jersey) Ltd [2015] UKSC 72 at [18]:

The above general principle was not in dispute. The Defendants submitted, however that, in circumstances where the Claimant was relying on the equity of redemption and the doctrine against clogs and fetters, the ordinary remedy is a redemption action to enforce the equity of redemption, which is an equitable estate or interest in the property mortgaged; see Snell’s Equity, 35th ed at §38-001 and Cousins on the Law of Mortgages, 4th ed. at p.856. There is, they say, no separate claim available for damages for breach of contract. Further, they say that the authorities do not support the implication of the terms for which the Claimant contends.

Dealing first with whether the Claimant’s only remedy is a redemption action. The Defendants’ position is supported by the decision of the Privy Council in Bank of New South Wales v O’Connor (1889) 14 App Cas 273 especially at ps.282, 283 and 284. The decision is, however, one where the claim was brought in detinue (that is to say as a tortious claim) rather than as a claim for breach of contract based on the terms of the mortgage agreement. It is also an authority of uncertain effect in circumstances where despite holding at p. 284 that there is no authority for saying that a refusal to accept a valid tender is a breach of contract, for which an action at law will lie, their lordships also said at p.283:

More recently in Çukurova Finance Ltd v Alfa Telecom Ltd (No. 4) (PC) [2016] AC at p. 986 ([42]), the Privy Council expressed doubt as to whether the approach adopted in Bank of New South Wales v O’Connor was correct in modern conditions:

This case, of course, does necessarily raise the question of a wrongful rejection of repayment should be viewed as constituting a positive breach of a loan agreement.

In her submissions, Ms. Eborall took me to the judgment of Mr. Daniel Alexander QC sitting as a Deputy High Court Judge in Shearer & Ors v Spring Capital Ltd [2013] EWHC 3148 (Ch); a redemption action brought in circumstances where the Claimants sought to prevent high interest rates under a loan continuing to run by tendering repayment but the lenders refused to accept repayment and claimed that interest continued to accrue at the contractual rate. The applications before Mr. Alexander QC were for summary judgment and injunctive relief pending trial. The judge refused summary judgment but granted interim injunctive relief. It does not appear that any claim was made for breach of contract and damages. At [124] and [125] of the judgment, the judge said this:

At [28] in Houssein v London Credit Ltd, [2025] EWHC 2749 (Ch), Mr. Richard Farnhill sitting as a Deputy High Court Judge said this:

It is right that in the context of discussing the principles of tender in St. Vincent European General Partner Ltd v. Bruce Robinson & Ors [2018] EWHC 1230 (Comm), Males J. (as he then was), said as follows at [57] to [59]:

While the above authorities point to a redemption action being the ordinary route by which a borrower can enforce a right to redeem the mortgaged property, none of them suggest that in principle there cannot be a claim for breach of contract if a borrower is able to establish separate breaches of express or implied terms of a contract. Nor do they satisfactorily explain, why in the context of a commercial lending agreement based on assets such as shares rather than land, a borrower should not be entitled to pursue a claim in damages if it is able to establish that there was a breach of contract on the part of the lender in connection with repayment which has caused the borrower loss.

Particularly, in the context of a loan secured against shares which can increase or decrease in value significantly over a very short periods of time, it seems to me to go too far to say that the only remedy available to a borrower if the lender refuses to accept repayment of the loan is a redemption action even if the borrower is otherwise able to establish that the lender is in breach of contract. It is also a conclusion, which in the context of a secured loan of the type at issue in this action, would have the consequences that if, despite the terms of the contract, a lender refused to cooperate to enable a borrower to repay the loan, not only is it likely that default interest would run but the lender would be entitled to sell the stock and take any resulting profit while leaving the borrower with only a redemption action as remedy. With the possible exception of St. Vincent, none of the above authorities cited to me go so far as to require this court to reach that conclusion. So far as St. Vincent is concerned, the shares were in a property development company, the underlying asset of which was land. Further, it does not appear from the judgment that there was any issue in that case as to whether the loan amount had become due and payable so as to require repayment rather than the claimant wishing to redeem the mortgage.

Looking at the authorities overall, I do not consider that they establish that in every circumstance and for every form of security the only remedy for a borrower who wishes to redeem their security is a redemption action. While it may be that in relation to mortgages, the ordinary remedy is a redemption action, it must be the case that what is required in each case is consideration of the terms of the secured loan to determine whether a redemption action is the only remedy where the lender refuses to cooperate in redeeming the security or whether the nature of the agreements, the circumstances surrounding it and the express and implied terms of the agreement are such that there is a claim for damages for breach of contract open to the borrower.

In the present case, the following factors lead me to conclude that a redemption action is not the only remedy open to the Claimant.

The points made in the previous paragraph as to why a redemption action is not the only remedy available to the Claimant apply even though the Loan Agreement is on non-recourse terms.

I do not, therefore, accept the Defendants’ submission that the only remedy available to Mr. Shukla is a redemption action and that there can be no claim for damages for breach of contract.

I turn therefore to the question of whether the authorities support the implication of the terms for which the Claimant contends. I accept that there was an implied duty on the Defendants to cooperate with the Claimant to enable him to repay the Loan Amount and redeem the Pledged Securities. This is a consequence of the Obligations becoming due and payable.

Support for the implication of a duty to cooperate with repayment in a loan agreement is found in Swallowfalls Limited v Monaco Yachting & Technologies S.A.M. & Anor [2014] 2 Lloyd’s Rep. 50 at [32] and [33] (see also Mackay v Dick (1881) 6 App Cas 251 at 263). As the Court of Appeal described the term at [32], such an implied duty is an ordinary implication in any contract for which cooperation is required. It is right that in Swallowfalls the Court began its analysis by referring to need for cooperation in performance of the underlying ship construction contract. But that is not a basis for distinguishing that case from the present case. In any event, the existence of a duty of cooperation in a loan agreement, which includes a duty to provide a redemption statement and to provide relevant account details and the release of security on full repayment of the loan has been recognised in cases already discussed above. I refer to St. Vincent European General Partner Ltd v Robinson [2018] EWHC 1230 (Comm) at [58] and to Houssein v London Credit Ltd where the judge said at [58]:

Finally, the Defendants rely on the entire agreement provisions at Article 7.18 as excluding the implied terms. However, in the absence of an express exclusion, an entire agreement clause does not ordinarily operate to exclude implied terms; see Chitty on Contracts, 35th ed at §17-020. This is on the straightforward basis that, despite being implied, such terms are terms of the agreement. The terms of Article 7.18 are not sufficient to exclude the operation of the implied duty to cooperate in the Loan Agreement.

I am satisfied that the Loan Agreement does include an implied duty of co-operation on the Defendants to enable the Claimant to pay the Obligations when they became due and payable. That duty included (i) a duty to provide a redemption statement, (ii) a duty to provide relevant account details and (iii) a duty to release the security on full repayment of the Loan Amount.

This leads on to the following question, namely whether the Defendants were in breach of the express and implied terms of the Loan Agreement.

The Defendants say that they were not in breach because the Claimant did not make a valid tender for repayment of the sum required to redeem the Pledged Securities. It is right that in Shearer, factual issues arose as to whether there had been a contractually compliant tender, which was one of the reasons the judge refused summary judgment. In the present case, there is no dispute over what was done by the Claimant to tender repayment. In other words, there are no factual issues to be determined before it can be decided whether the Defendants are in breach of contract.

The question is whether a valid tender is required before the Defendants can be in breach of the terms of the Loan Agreement and, if so, whether the steps taken by Mr. Shukla constitute a valid tender.

Ms. Eborall identified three points for the Court to keep in mind based on the judgment of Mr. Daniel Alexander QC in Shearer at [130] and following:

In response, Mr. Downes KC submitted that:

As to the facts and as already set out above:

It is notable that at no point did the Defendants provide the Claimant with a redemption figure. Nor did they at the time challenge the Claimant’s ability to repay the Loan Amount. They do rightly point out that the sum paid by the Claimant into Preston Turnbull’s client account was not sufficient to repay the principal outstanding on the Loan Amount let alone interest or costs.

I accept Mr. Downes KC’s submission that a valid tender was not a prerequisite to the Defendants being in breach of the terms of the Loan Agreement. Once the Obligations became due and payable, there was a corresponding contractual obligation on the Defendants to provide reasonable cooperation in enabling the Claimant to pay the Obligations. The Defendants were in breach of that obligation by failing to provide the Claimant with a redemption figure and details of the account to which payment should be made. It would be incongruous if the Defendants could avoid a finding that they were in breach of contract because they did not provide the Claimant with the information he required in order to tender the sum required to repay the Obligations.

However, I am satisfied, that the Claimant was willing and able to redeem the security. Although this has been called into question by Mr. Wade in his evidence, he provides no basis for asserting that the Claimant could not have provided the balance of the funds and the assertion sits uneasily with the view of the Claimant that the Defendants submit I should take for the purposes of construing the Loan Agreement, namely that he is a wealthy and successful businessman. The fact that just over USD2 million had been paid into Preston Turnbull’s client account is good evidence that Mr. Shukla would have been able to pay the balance of any sum for the Obligations if the Defendants had provided a redemption figure. No conditions were attached to the offer of repayment found in letters from Blank Rome or Preston Turnbull.

It follows that I am satisfied that the Defendants were in breach of their contractual obligation to cooperate in repayment of the loan by (i) refusing the Claimant’s offer to repay the Loan Amount and (ii) failing to provide a settlement figure and instructions for repayment.

There is no doubt that the Court has power to order an interim payment on account of damages pursuant to CPR 25.1(1)(1) and 25:20 to 25:23. The amount ordered must be no more than a reasonable proportion of the likely amount of the final judgment.

For the purposes of this application, the Claimant values his loss at about USD 15 million considering:

The above figures do not take into account the existing value of the Listed Securities which presently remain under the control of the Defendants.

The Claimant accordingly asks for an interim payment of USD10 million.

The Defendants challenge the making of an order for an interim payment on the following bases:

The first of the Defendants’ points is a technical one. The draft order attached to the Application Notice included provision for an interim payment by SJB and Mr. Shukla’s witness statement deals with the quantum of his loss and the fact that he is seeking an interim payment. Accordingly, I do not regard the technical deficiency in the Application Notice as a reason to refuse an interim payment.

As for the Defendant against which the application is made, for the reasons set out below, I regard the application as having been made against both Defendants.

For the reasons set out above I am satisfied that the Claimant is entitled to summary judgment and that on an assessment of damages he will obtain a judgment for a substantial sum of money.

I am not, however, persuaded on the available evidence that a sum of USD 10 million represents a reasonable proportion of the sum which the Claimant is likely to be awarded at trial. At paragraph 56 of their Skeleton Argument, the Defendants outline some of their challenges to the basis of the Claimant’s calculation of his loss. It is right to note that one of those challenges is that the exact figure for the Obligations is not known but that is a matter for which responsibility lies with the Defendants.

The Defendants suggest that on one view of the relevant counterfactual circumstances, the Claimant’s loss would be approximately half of which he presently calculates it to be, namely USD 7.5 million less about USD 2.25 million by way of deduction in respect of the Obligations. In this regard, I accept that there are issues as to what the Claimant would have done if he had been able to recover the Pledged Securities in June or July 2024 raises issues which will have to be investigated at the hearing to assess the quantum of damages.

Doing the best I can on the available evidence, my provisional view is that an appropriate interim payment which is no more than a reasonable proportion of the amount likely to be found on an assessment of damages is USD 5 million. However, I am conscious that this figure was not canvassed at the oral hearing and that more generally submissions on the appropriate level of payment on account were brief. It may be that in light of this judgment, there are further submissions the parties wish to make. Accordingly I will hear further submissions as to the appropriate level of interim payment at any consequentials hearing if the figure cannot be agreed.

The Claimant seeks an order for disclosure by the Defendants of any profits they have made whether directly or indirectly from being in possession of the Pledged and Unpledged Securities from 01 October 2023 to date. He also seeks an order requiring the Defendants to pay to him any profits found to have been earned pursuant to their dealings with the Pledged and Unpledged Securities from 16 July 2024.

The Claimant submits that the duty on the Defendants to account to him for their dealings in the Pledged and Unpledged Securities flows from their status as a security taker and their wrongful retention of the shares in repudiation of the equity of redemption.

In support of this submission, Mr. Downes KC referred me to:

Cousins on the Law of Mortgages, 4th ed at 28-15, which provides:

Further, Article 2.3(d) of the Loan Agreement entitles the Defendants to receive and deal with any and all dividends, interest, income, revenue, return of capital or other distributions made in respect of the Pledged Securities provided that on the Re-Delivery Date, the Defendants will pay to the Claimant an amount equal to all such dividends, interest, income, revenue, return of capital or other distributions paid on the Pledged Securities prior to the Re-Delivery Date. At least in relation to the Pledged Securities, there is a specific obligation on the Defendants to account to the Claimant on re-delivery.

The Defendants did not in their written or oral submissions address in any detail the duty to account.

I am satisfied on the basis of the matters set out in paragraphs 131 to 135 above, that it is appropriate to make the order for disclosure of profits sought by Mr. Shukla. It is consistent both with the obligations of the Defendants as the holders of the Pledged Securities and with their obligations under Article 2.3(d). As to the time by which such disclosure should be made, this is a matter to be dealt with at a consequentials hearing if it cannot be agreed.

I am not, however, satisfied that it is appropriate to make an order at this stage for payment of any profit or income made as sought in paragraph 7 of the draft Order. I consider that the question of whether an order for payment is appropriate should be held over to be determined at a later date after the disclosure required in the previous paragraph has been made possibly together with the assessment of damages.

The Claimant sought an order that the Court should make now an order either for the release of the Pledged Securities against payment of the outstanding loan amount alternatively for the sale of the Pledged Securities and payment of the sum realised into court.

In his skeleton argument, the Claimant submitted that whether either order is appropriate can be dealt with at any subsequent consequentials hearing. At the hearing, Mr. Downes KC went further and invited the Court to make an order for the sale of the Pledged Securities. I am not, however, satisfied that I have the evidence before me to determine now whether it is appropriate to make an order for sale or to make an order for release of the Pledged Securities. Further, it may well be that the situation in relation to the Pledged Securities has changed since the date of the oral hearing. I therefore consider that the question of whether to make an order for the release of the Pledged Securities or to order their sale is one best addressed at any consequentials hearing assuming that the parties are unable to agree an appropriate order in the meantime.

Understanding the process by which SJB sold participation in the Loan Agreement to Omega is not straightforward and the Defendants say that commercially it does not matter whether one or both of them against whom any order is made.

However, I find that the correct position is that both SJB and Omega are correctly the subject of the order I propose to make. Article 7.11 provides for two routes by which SJB could sell a participation in the Loan Agreement to a buyer. Under Article 7.11(b), the sale would be way of a Participation Agreement made after an Event of Default. Upon the making of a Participation Agreement, a buyer would assume the right to enforce its allocation of the Loan Agreement directly against the Claimant and the Claimant would obtain the right to enforce the Loan Agreement against the buyer. Article 7.11(b) does not, however, operate as a novation so as to release SJB from its obligations under the Loan Agreement.

Under Article 7.11(c), SJB could novate its obligations under the Loan Agreement by assigning all or part of its interest under the Loan Agreement to another person and executing an Instrument of Assumption. Following the assignment and execution of the instrument of assumption, the assignee would become a party to the Loan Agreement as if they had been an original party thereto and SJB and Mr. Shukla would be released from their obligations to each other.

SJB sold the right to participate in the Loan Agreement to Omega, defined as the “Participation Buyer”, by a Participation Agreement initially dated 05 October 2023 but amended and re-executed it on 14 December 2023. The Amended Participation Agreement was accordingly executed after the first Event of Default on 16 November 2023.

The Participation Agreement does contain a provision that “[Omega] hereby confirms its assumption from and after the date hereof of all the obligations and liabilities of the Bank under each of the Loan Documents in accordance with the terms of such agreements.”. But otherwise, the language of the Participation Agreement is consistent with clause 7.11(b) of the Loan Agreement. There is no instrument of assumption between SJB and Omega for the purposes of clause 7.11(c).

It follows that pursuant to the terms of Article 7.11(b) and the Participation Agreement, the Claimant is entitled to enforce the terms of the Loan Agreement against Omega. He is also entitled to enforce the terms of the Loan Agreement against SJB because the Participation Agreement did not release SJB from its obligations under the terms of the Loan Agreement.

For all the reasons set out above, I conclude that:

I would be grateful if the parties could liaise as to an appropriate form of final order to reflect my judgment and arrange a suitable date for a consequentials hearing with the Commercial Court listing office if a final order cannot be agreed and a hearing is necessary.

I would like to express my thanks to counsel, their instructing solicitors and the parties for their care and skill in preparation for the hearing and at the hearing.