Michael Watkins (instructed by Quinn Emanuel Urquhart & Sullivan LLP) acted as sole Counsel for the successful guarantee Claimant in one of the first cases to have considered whether a bank owed an advisory duty to its customer in relation to the sale of fixed rate loans, including the extent to which a bank may be obliged to give a warning to its customer about the nature of a break clause. The judgment also considers LTV calculations in the context of guarantees and the type of evidence that would reasonably be acceptable to a bank in order to trigger an alleged obligation to release security.
On 8 June 2016, HHJ Pelling QC (sitting as a Judge of the Manchester Mercantile Court) handed down judgment following the trial of two separate claims, dismissing a fixed rate loan mis-selling claim against Lloyds TSB Bank plc (“Lloyds”) and entering judgment against five Guarantors in relation to amounts which they owed Lloyds’ assignee under two separate guarantees.
The first claim arose between the assignees of a company called Bredbury Hall Limited (“BHL”) and Lloyds. HHJ Pelling QC held that Lloyds did not owe BHL a contractual or tortious duty to advise on the implications of the break clause; that Lloyds had not misrepresented the suitability of the product they were offering; that Lloyds had not entered into a collateral contract; and that the Claimants could not show that Bredbury Hall would have entered into an alternative (more favourable) product in any event.
The second claim arose between Lloyds’ assignee (“Promontoria”, a company which had purchased the debt and associated security in December 2013) and BHL’s management and investors (the “Guarantors”), who had guaranteed a portion of BHL’s liabilities under two separate guarantees (the “Guarantees”). BHL went into administration and Promontoria sought to recover some of the outstanding debt under the Guarantees. The Guarantors argued that the Guarantees were unenforceable because of the alleged wrongdoing that was the subject of the mis-selling claim and because of a separate undertaking to cancel the Guarantees upon the LTV falling below 70%.
In light of the Judge’s rejection of the first claim, the first limb of the Guarantors’ defence fell away. This left the LTV argument, which the Judge rejected for numerous reasons, holding: that the LTV had never fallen below 70%; that the valuation evidence was not sufficient to trigger an alleged obligation to cancel the Guarantees; that the Guarantees had been affirmed and in any event not terminated before demands were presented; and that an alleged collateral contract, implied term or estoppel was precluded by the terms of the Guarantees. Promontoria’s claim therefore succeeded in full. At a subsequent hearing, the Guarantors were ordered to pay indemnity costs (on the basis that such costs were payable under the relevant contracts) and to make an 80% payment on account.
You can view the full judgment here.