Duties Of A Bank In Loan Restructuring And Enforcement ' Intimidation & Duty Of Care

• Published date: 15 September 2021
• Subject Matter: Finance and Banking, Debt Capital Markets, Charges, Mortgages, Indemnities, Financial Services
• Law Firm: Shook Lin & Bok
• Author: Mr Liew Kai Zee and Ivan Ting

Morley (t/a Morley Estates) v The Royal Bank of Scotland Plc [2021] EWCA Civ 338

The English Court of Appeal ("Court of Appeal") recently decided on an appeal brought by a borrower against a bank in relation to the validity of a loan restructuring on the grounds of intimidation, economic duress and breach of duty by the bank. The Court of Appeal discussed the principles to be applied in such cases, eventually upholding the decision of the lower court which decided in favour of the bank.

FACTS

Oliver Morley ("Morley"), a commercial property developer, entered into a '75 million loan ("Loan Agreement") with The Royal Bank of Scotland Plc ("Bank"). The loan was secured by legal charges over all 21 properties in Morley's portfolio but was made without recourse to Morley. Following a loan default and robust negotiations, an agreement was reached ("Agreement") whereby Morley paid the Bank '20.5 million and retained five of the properties, with the remaining properties being transferred voluntarily to the Bank's subsidiary vehicle for acquiring secured assets, without the appointment of receivers.

Morley argued that he was coerced into concluding the Agreement by unlawful pressure placed upon him by the Bank, that this amounted to the tort of intimidation and consequently the Agreement was voidable for economic duress. He also argued that in concluding the Agreement, the Bank acted in breach of a duty to provide banking services with reasonable care and skill (implied pursuant to section 13 of the Supply of Goods and Services Act 1982) and in breach of a duty of good faith.

The lower court rejected Morley's claims, holding that the Bank had not coerced Morley into concluding the Agreement, nor had it breached any duties to provide banking services with reasonable skill and care, and to act in good faith.

ISSUES

The Court of Appeal was faced with two issues:

1. Whether there was intimidation and economic duress in concluding the Agreement; and
2. Whether the Bank breached any duties in concluding the Agreement.

Whether there was intimidation and economic duress?

The Court of Appeal recited the essential ingredients of the tort of intimidation as laid out in Berezovsky v Abramovich [2011] EWCA Civ 153:

1. A threat by the defendant to do something unlawful or illegitimate;
2. The threat must be intended to coerce the claimant to take or refrain from taking some course of action;
3. The threat must in fact coerce the claimant to take such action; and
4. Loss or damage must be...