- The Supreme Court decided that a bank that made statements about its willingness to fund both the acquisition and development of a property could not recover the acquisition loan without taking into account its later failure to fund the development costs; and
- The decision rested on specific findings of facts by the judge at first instance and the Supreme Court could only go against such findings if they were "plainly wrong" which it decided was not the case.
RBS lent C £1.4 million to purchase a plot of land. The bank later sued C for repayment of that money. C defended the action and counterclaimed for damages against the bank on the basis it had failed to fund the development of the plot with a further £700,000 loan when it had an obligation to do so and was therefore liable to C for loss of profit on the development. C alleged that because, as the bank knew, the vendor of the plots of land would insist upon a right to buy back the plots if they were not promptly developed, he had sought and obtained an unequivocal commitment from the bank to fund not only the purchase of the plots but also their development. If C was right RBS would be liable to him for a sum which was potentially greater than the loan the bank had made.
The Supreme Court decided there was a promise or unilateral undertaking by the bank to fund the development costs. The bank could not sue to recover the acquisition loan without taking into account its failure to fund the development costs. The case was remitted back to a commercial judge to decide what the implications for the bank would be.
The Supreme Court was somewhat reluctant to find the bank liable for statements it had made to Mr C in numerous telephone conversations in which the need to fund both the acquisition and development costs had been discussed. Mr C had made it clear he wanted full commitment from the bank before he would pay for the plots. Nevertheless the Supreme Court did not think the first instance judge's finding that there was an intention on the part of RBS to be bound to fund the development costs was plainly wrong and so capable of being reversed. As Lord Hodge stated:
"Were I deciding the matter at first instance and if the findings of fact record all the material evidence, I think that I might have shared the [view]….. (a) that the statement by Ms Hutchison on 14 June 2007 did no more than communicate to Mr Carlyle that the bank had reached a decision in principle to provide funding for the development of the two plots and (b) that the parties were required to take further steps to create a legally binding obligation on the bank to advance that funding."
So, in a sense the case is of limited value to borrowers in a similar position to that of Mr C.
However, lenders should take note that where a borrower has made it clear that there are two phases to a project and that he is unwilling to commit to phase 1 without a similar commitment from the lender to fund phase 2 there is a danger they can be held liable to make that funding available even though phase 2 loan agreements have not been agreed or signed. It would be prudent for such a lender to make it clear in the documentation relating to phase 1 that there will be no obligation on it to fund phase 2 until a full suite of loan agreements are signed and any relevant conditions satisfied to exclude the possibility of any statements made in the heat of the business capture process coming back to bite the lender.