Finance Litigation: The Latest Cases And Issues In October 2017

Gowling WLG's finance litigation experts bring you the latest on the cases and issues affecting the lending industry.

No clear and unequivocal promise by bank not to rely upon its strict legal rights

There needs to be clear and unequivocal evidence of a promise that a lender would not insist on its strict legal rights before a court will make a finding of promissory estoppel to that effect.

In Clydesdale Bank Plc v Gough (trading as JC Gough & Sons) and another, Clydesdale Bank PLC (the Bank) advanced substantial sums to the defendants under financing agreements which were secured by way of legal charges over two properties and a guarantee. Additional finance was required without any repayment being made and eventually the Bank demanded repayment. The defendants failed to repay the sums due. Receivers were appointed and possession of the two properties was sought.

The first defendant defended the claim on the basis that it had been agreed with the Bank at the outset that if the position arose where the Bank was not prepared to continue to support his business, he would be given the opportunity (and time) to sell assets to reduce his indebtedness to a sustainable level acceptable to the Bank. He alleged that this agreement amounted to a promissory estoppel, making it unconscionable for the Bank to appoint receivers and seek possession of the two properties, defeating his legitimate expectations.

The High Court, having considered the contemporaneous documentation and witnesses' evidence in detail, found that the first defendant's defence failed at the first hurdle. It held there was no evidence of a clear and unequivocal promise by the Bank not to rely upon its strict legal rights. Nor was there a common understanding in which it was implicit that the Bank would not enforce its charges unless the defendant had a reasonable period within which to sell assets.

The defendants had received legal advice on the Bank's documents which clearly showed that the Bank would appoint receivers in the event of a demand for payment not being met. There was no mention in the documents that the Bank would not enforce its charges until the defendants had received a reasonable period of time to sell assets.

Things to consider

This is a common argument that lenders face and it is clear from this, and similar judgments, that the courts require very clear evidence that a commercial lender has agreed to forego its strict legal rights to enforce its security where a...