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Developer loses case against bank over $3m loan guarantee

A developer who alleged he had agreed to guarantee a loan because of undue influence was found to be on the hook for more than $3 million by the Supreme Court.

According to a Supreme Court judgment, HSBC Bank Bermuda Ltd sought a $3,185,000 judgment against Sanz Pearman, who had served as a guarantor in a 2008 loan to the Hideaway Trust.

However, Mr Pearman said in defence documents that the bank needed to prove the amount due and alleged that his involvement in the loan was the result of undue influence by his aunt, who was a trustee.

In the judgment, dated November 22, Chief Justice Narinder Hargun dismissed his claims, noting that he had not provided any evidence to support his case, and found that he owed the bank $3,144,636 plus interest.

The court heard Mr Pearman had founded the trust in 2000, which had sought $16.5 million in credit from the bank to refinance previous borrowing and fund the construction of a commercial property on Par-la-Ville Road.

However, the trust defaulted on the loan in 2018.

The bank subsequently demanded payment from Mr Pearman under the guarantee but he failed to pay, sparking legal action.

Mr Pearman initially argued that the bank had to prove the trust’s indebtedness before any money was due under the guarantee but later added that it was secured through undue influence.

He said the bank was aware of the familial connection, that the guarantee was not provided on a commercial basis and that Mr Pearman did not receive any compensation for it.

Despite this, Mr Pearman argued that the bank did not urge him to receive independent legal advice or provide the relevant financial information for him to properly receive such advice.

He added that an officer of the bank “pressured” him to provide the guarantee and “actively discouraged” him from seeking legal advice, alleging that the officer received bonuses based on what he was able to lend on behalf of the bank.

However, the loan officer for the bank said Mr Pearman was a sophisticated, astute and successful businessman with a record of past loans.

He said Mr Pearman was the driving force behind the trust and that he had both negotiated the loans with the bank and served as the point of contact for the trust when issues arose.

The officer added that he believed the Par-la-Ville development failed because of the economic downturn, which made it difficult to secure the rental income needed to repay the loan.

Mr Pearman did not appear at the trial or provide evidence in the case.

In his judgment, Mr Justice Hargun said he was satisfied that the bank had proven the debt and dismissed the allegation of undue influence, describing the defence as “entirely at odds” with the uncontested evidence in the case.

“This is a case where the trust established by the defendant, was used by the defendant to facilitate the carrying on of the defendant’s residential and commercial construction business,” Mr Justice Hargun wrote.

“It was the defendant himself and not the trustees of the trust, who negotiated the trust loan with the bank and who agreed to provide a personal guarantee.

“The defendant was an astute businessman who had been involved in multiple loan facilities provided by the bank and had borrowed and repaid loans in excess of $30 million during the period 2005 and 2008.”

The judge noted that the beneficiaries of the trust were Mr Pearman and his family members and said the guarantee fell into the same category as a company guaranteeing the debts of another company in the same group.

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For the full judgment, see Related Media