Summary

There was no evidence that a bank which had made loans and given overdraft facilities to a farmer had agreed not to enforce legal charges securing his indebtedness unless he had had a reasonable period within which to sell the assets. There was no unfair relationship between the bank and farmer, or between the bank and the farmer's wife who had guaranteed some of his indebtedness, so as to require the court to exercise its powers under the Consumer Credit Act 1974 s.140B to adjust the transaction, or to otherwise exercise its equitable jurisdiction.

Facts

A bank claimed possession of two properties and sought orders that the first defendant borrower repay sums advanced to him and that the second defendant, his wife, pay sums that she had guaranteed.

The borrower ran a large farming business which suffered considerable losses caused by flooding. He was unhappy with his banking arrangements and moved his account to the claimant bank. He received loans and obtained an overdraft facility secured by charges over the properties. His wife guaranteed his indebtedness up to a fixed amount. The overdraft was increased several times. Eventually the bank demanded repayment of the sums outstanding and appointed receivers under the charges. The borrower claimed that the appointment of receivers was inconsistent with an agreement that he would have the opportunity to reduce his indebtedness by selling assets if the bank was not prepared to continue supporting the business.

The issues were whether (1) there had been a clear and unequivocal promise that the bank would not insist on its strict legal rights; (2) the borrower had relied on any representation, agreement or common understanding; (3) any reliance had led to detriment; (4) the bank had resiled from its promise; (5) it was unconscionable for the bank to so resile; (6) the relationship between the borrower's wife and the bank was subject to the Consumer Credit Act 1974 and in some manner unfair, such that the court should exercise its powers under s.140B to adjust the transaction; (7) to adjourn the proceedings in order to inquire whether there were grounds for the court to exercise its s.140B powers and/or its inherent power to do justice by exercising its equitable jurisdiction.

Held

(1) There was nothing in the contemporaneous documents to support the borrower's claim that there was a common understanding that if the business was not sustainable within two or three years he would have to sell assets to reduce indebtedness and that it was implicit within that common understanding that the bank would not enforce its charges unless he had had a reasonable period within which to sell the assets. Nor did the documents post-dating the grant of the facilities support an ongoing understanding. The first mention of the alleged understanding was in an email from the defendants, which was effectively an attempt to stall the bank and come up with a reason why it should not be selling their assets. There was no clear and unequivocal promise by the bank that its strict legal rights would not be insisted upon (see paras 79-80, 84-85 of judgment).

(2) Even if there had been some representation or common understanding, the borrower had not relied on that as a reason for moving to the bank, and he had provided no evidence of the alleged effort and expenditure incurred in reliance on the alleged representation (paras 89-90).

(3) Even if there had been reliance, he had not established any detriment (para.95).

(4) The borrower's own evidence demonstrated that he had had the opportunity to conduct a sale of assets to reduce his indebtedness to the bank, but had chosen not to do so. There was therefore no impediment, even on the assumed representation or common understanding, to the bank enforcing its rights under the charges. It was not resiling from any such alleged representation or common understanding in appointing receivers (para.102).

(5) The fact that the court had found that the borrower had not altered his position to his detriment was most material to whether it would be inequitable for the bank to be permitted to act inconsistently with its promise, Emery v UCB Corporate Services Ltd (formerly UCB Bank Plc) (No.2) [2001] EWCA Civ 675applied. In circumstances where the borrower had not suffered any detriment, the bank had continued to extend the overdraft, more than had been envisaged at the time of the alleged representations. The bank's position was very different to that which pertained at the beginning of the relationship, and it would not be right to hold it to the alleged representation or misunderstanding (paras 105-106).

(6) The guarantee fell within Consumer Credit Act 1974 s.140C(4)(c) as an agreement related to the credit agreement between the bank and the borrower. In order for the court to have power to adjust the transaction under s.140B, it would have to determine that the relationship between the bank and the borrower was unfair, but the wife had not pleaded such a case; she claimed that it was her relationship with the bank that was unfair. In any event, her relationship with the bank was not unfair (paras 109, 113-114, 117).

(7) There was no evidence of any impropriety by the bank in deciding to make a demand and appoint receivers. Despite the appointment of receivers, the borrower had continued his business and not made any payments to the bank. There was nothing unfair in the way that the bank had exercised its rights to enforce. There was no question of making a determination that the relationship between the bank and the borrower was unfair so as to trigger the powers under s.140B. If he could not succeed on his claim for estoppel, or under the Act, there was no basis for equity to interfere (paras 125-128).

Judgment for claimant