In this case, the Court considered the circumstances in which a variation of the terms of a loan facility agreement will be inferred from correspondence between a lender and borrower.

The Facts
The claimants had loans with the first defendant bank; the loans were secured by way of charges over a number of properties and also by guarantees made by the claimants. Following the claimants’ default, arrears accrued on the loans and the first defendant bank commenced a claim pursuant to the guarantees. The claimants counterclaimed, submitting that the bank had sold two of the properties at an undervalue via LPA Receivers. The bank was granted summary judgment and the counterclaim was dismissed on the basis that it had no realistic prospect of success. The claimants’ subsequent appeal was also dismissed.

The claimants brought a further claim and submitted, on the basis of correspondence they had received from the defendant bank, that the claimants and the bank had entered into a contract which had been breached by the bank when they appointed LPA Receivers to act in relation to properties over which the bank had a charge. The claimants referred to correspondence between them and the bank in which the bank agreed to extensions of the loan term and submitted that, by virtue of these agreements, the bank had waived its rights and varied the contractual arrangements that it had with the claimants. The LPA Receivers were also joined as defendants to the proceedings and the claimants alleged that they had acted negligently and in breach of duty by failing to sell one of the properties for the best price reasonably obtainable.

The Decision
The Court concluded that the claimants’ claim against the bank for breach of contract and against the receivers for breach of duty would be dismissed as there was no realistic prospect of success.

The Court reviewed the correspondence between the bank and the claimants and found that, whilst there was an agreement to extend the loan term, this was not a waiver or variation of the bank’s rights under the loan facility agreement. In fact, the correspondence reinforced that the loans were repayable on demand and the bank’s rights pursuant to any default, including the right to appoint LPA Receivers.

The Court found that “an agreement affecting the bank’s rights might, of course, amount to a variation of the original mortgage, but such a variation is not readily to be inferred. It is inherently improbable that a bank would agree to lose its right to appoint a Receiver in the case of a loan remaining payable on demand.”

The Court found that the right to appoint an LPA Receiver on an unsatisfied demand, duly made, would be good enough to justify the appointment. On the facts of this case, there was nothing wrongful with the various demands and the validity of the LPA Receivers’ appointment followed from the terms of the security documents. Accordingly, the appointment of LPA Receivers was not a breach of contract. It followed also that the LPA Receivers were not in breach of contract.

Additionally, the Court found that the claim for breach of duty against the LPA Receivers was doomed to fail, and had already been determined by the judge in the initial proceedings.

This case demonstrates the Court’s reluctance to infer from a course of correspondence that rights and remedies pursuant to a loan facility agreement would be varied. It establishes that a variation would need to be clear and unequivocal before the Court would infer this into the loan facility agreement. The decision is useful to both lending institutions and borrowers, as it emphasises that the terms of the loan facility take prominence and establishes the burden of proof required before the Court will consider that such terms have been varied.

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