Summary

A bank's claim in debt under a facility agreement succeeded and it was entitled to possession of properties charged to secure the defendants' indebtedness under the facility. A no set-off clause in the facility excluded any counterclaims that the defendants might have had.

Facts

The claimant bank (D) brought proceedings against the individual and corporate defendants in debt and for possession of properties charged to the bank to secure the defendants' indebtedness.

The individual defendants were members of a family. The corporate defendants were beneficially owned and controlled by the family. D had lent more than £50 million to the corporate defendants on a five-year facility secured by mortgages on residential properties in London, consisting of six flats and two other properties. The corporate defendants were the registered owners of the properties. After property prices in London declined substantially the defendants failed to service or repay the borrowing or to provide satisfactory collateral to D. In their defence to D's proceedings the defendants relied upon misrepresentations allegedly made before the facility agreement and alleged breach of that agreement. They said that D wrongfully refused to allow drawdown of £10 million of the loan, and having required the defendants to agree to new conditions upon which those funds would be released, then refused to honour those conditions, having misled the defendants into signing a supplemental agreement which varied those conditions. The defendants counterclaimed on the basis that, if they had not been misled or the facility agreement had not been breached, they could and would have used those funds to develop the two houses which they would have sold for very substantial profits. It was also said that D misrepresented the returns available on investment products sold to the defendants as part of the facility and was liable in damages. Claims were also made to set aside the supplemental agreement on grounds of unilateral mistake and misrepresentation. There were also issues between the parties concerning liability for default interest, whether various clauses relied upon by D fell foul of the consumer credit or unfair contract terms legislation and whether D acted in breach of a duty of confidence.

Held

(1) By cl.12 of the facility agreement D's obligation to make the facility available was subject to the condition precedent that it had received a satisfactory valuation report in respect of each property. It had made a decision that it was not satisfied with the valuation report in respect of one of the properties, and it did not matter that cl.12 was not expressly referred to. The speculative and uncertain nature of the hope value element of the market valuation provided was a reasoned ground for D's decision and a ground which it was entitled to rely upon. It was not capricious, perverse, irrational or arbitrary. Since the cl.12 condition precedent was not fulfilled, D was not obliged to advance the £10 million, or indeed any amounts under the facility. D was entitled to refuse to allow any drawdown, and equally was entitled to allow a partial drawdown on terms, as it had done (see paras 184-216 of judgment). (2) D did not make the alleged pre-agreement representations (paras 217-229). (3) In the light of the decision on the facility agreement the claims in respect of the supplemental agreement did not assist the defendants. Even if it was set aside they would return to the situation where D was entitled to refuse to allow the drawdown because of cl.12 of the facility agreement. In any event the first supplemental agreement had not been induced by misrepresentations. Nor was it liable to be set aside for unilateral mistake. D did not know nor should it have known of any mistake on the defendants' part. It was not necessary to decide whether there was some wider principle of mistake if D had contributed to or was partially responsible for the mistake (paras 239-270). (4) There was no warranty by D that the investment product would generate a particular return. D did not fail properly to advise of the adverse consequences of the sale of the products prior to maturity and was not in breach of duty (paras 276-286). (5) Default rate interest was payable under the facility agreement at 3 per cent over the interest rate paid by D as its cost of funding not only on the amount which had not been paid on the due date but also, to the extent claimed, on the whole principal and interest outstanding (paras 287-298). (6) There was a security shortfall pursuant to cl.15 of the facility agreement, established by valuations obtained by D in compliance with that clause (paras 299-306). (7) The set-off of any counterclaims was excluded by cl.9(c)(ii) of the facility agreement. In any event an unliquidated damages claim giving rise to a right of equitable set-off was no defence to a claim for possession (paras 307-312). (8) The first defendant remained liable for the debts of all the defendants on the terms of his personal guarantee which had not been discharged (paras 313-318). (9) The defendants challenged cl.9(c)(ii), which was a conventional no-set off clause, cl.9(d), which provided for default interest, cl.12 and cl.15. The no-set off clause fulfilled a legitimate commercial function and contained important limitations, Skipskredittforeningen v Emperor Navigation [1998] 1 Lloyd's Rep. 66 applied (para.329). The other terms were commonplace. The defendants had legal advice and other sources of finance. The relationship between the defendants and D was not unfair within the meaning of the Consumer Credit Act 1974 s.140 (paras 340-355). The Unfair Contract Terms Act 1977 did not apply by virtue of s.27 since the facility agreement contained an English choice of law clause, but for which the applicable law would have been Swiss law under the Rome Convention 1980 art.4. In any event the impugned terms were reasonable within s.11 (paras 356-370). There was no departure from the requirements of good faith in the dealings between the parties and the terms were not unfairly imposed and did not create a significant imbalance to the detriment of the defendants within the Unfair Terms in Consumer Contracts Regulations 1999 (paras 372-381). (10) D owed a duty of confidence but was not in breach (paras 383-392).

Judgment for claimant