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In the recent case of Barclays Bank PLC v L. Londell McMillan, the High Court has ruled against a former senior partner of United States law firm Dewey & LeBoeuf. The case featured in The Lawyer’s Top 20 Cases of 2015 which also saw action being taken against two other partners (these claims settled outside of court).
McMillan had signed up to a partner capital subscription loan (PCSL) to fund his contributions to the Firm at a value of $540,000. Two years after taking out the facility, Dewey & LeBoeuf filed for bankruptcy leaving Barclays with $56 million of outstanding loans to 220 partners.
The Bank claimed that McMillan was the borrower under the terms of the agreement and was personally liable for repayment. In response, the Defendant submitted seven defences including that his liability as guarantor had been discharged, he did not want or need the loan to fund his capital account and that the purpose of the loan was to see the Firm through financial difficulties as opposed to funding his personal contributions.
Furthermore, the Defendant tried to argue that the agreement between himself and the Bank gave rise to an unfair debtor creditor relationship and should not have been enforced pursuant to section 140B of the Consumer Credit Act 1974. However, the Judge dismissed this contention and held that the relationship was not unfair as the terms of the loan had been fairly negotiated between the partners and McMillan was a senior figure who “…the bank could reasonably expect to understand the clear terms of the agreement which he signed, and to be able to assess the financial implications of doing so. Mr McMillan was not a naïve or vulnerable consumer.”
The Court further considered whether the loan had been made to the partner as an individual or to the Firm. However, on interpretation of the agreement, the Defendant was clearly the borrower despite Barclays having assessed the credit risk by reference to the Firm as opposed to McMillan himself.
The Defendant entered a counter-claim that the Bank had acted negligently in failing to advise on the financial health of Dewey & LeBoeuf. However, the Judge also dismissed this argument on the basis that the Bank was under no such duty and they did not know nor did they have reason to suspect that the Firm was in financial difficulties.
The case is a reminder to the partners of professional firms that the terms of a capital subscription loan programme negotiated between a firm and a bank do not overrule the loan agreement in which they are essentially the borrower and they will thus retain personal liability for repayments.
Read the full case report here
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