The long-awaited judgment in the case of BHL v Leumi ABL Limited has been delivered in the Mercantile Court. The case concerned a challenge to collection fees amounting to £1.216m plus VAT charged by Leumi under a receivables finance agreement entered into with its client, Cobra Beer. BHL, which had provided an indemnity to Leumi for sums due and payable under the Cobra agreement, had paid £950,000 in part-satisfaction of the amounts Leumi demanded for what it said was the shortfall on the collect-out of the Cobra ledger.
After Leumi had made demand for yet another £490,000, BHL decided that it had had enough and commenced proceedings against Leumi for repayment of the £950,000. BHL argued that the monies were not properly due and payable because, although Leumi had a contractual discretion to determine the amount of the collection fee, it had not exercised that discretion or it had done so improperly. By the first day of the trial, Leumi had corrected other errors in the current account so that the amount claimed had reduced to £271,382, but it maintained that it was still entitled to its full collection fee that amounted to 15% of the amounts collected.
The judge disagreed with Leumi: he held that its actual costs and expenses incurred during the collect-out amounted to £33,260, and he determined that Leumi should have charged a collection fee of no more than 4% of the amounts collected. After the relevant adjustments to Cobra’s current account had been made, the judge held that BHL had overpaid by £735,000. That sum had to be repaid together with interest and the sum of £780,000 on account of costs.
The case is an important example of the extent to which courts appear to be increasingly willing to scrutinise the exercise of discretionary powers in a commercial context. It will be of interest to all those involved in making decisions in the banking and finance sector.
Simon was instructed by James Southworth of Eversheds Sutherland (International) LLP and was led by Clive Freedman QC.
Please click here for a copy of the judgment.