Mr and Mrs D (the “Second and Third Defendants”) owned and controlled Stoke Place Hotel Ltd (the First Defendant) and were also major shareholders of DHL (a hotel company) which went into administration in September 2012 (the “Administration”). The Claimant, Clydesdale Bank (the “Bank”), decided to call in loans that were not authorised and made to Stoke Place Hotel Ltd, by issuing a written demand (the “Demand”), which stated that nothing contained in the Demand should be deemed to waive any default or any other event not contained in it and reserved all other rights and remedies to the Bank.

The Bank subsequently issued proceedings against the First, Second and Third Defendants for damages, caused by the unauthorised loans made to the First Defendant. The Bank also brought a claim against the Fourth Defendant, Mr S, who was Mr and Mrs D’s relationship manager at the Bank, for breaches of equitable and contractual duties to the Bank, by granting the unauthorised loans and banking facilities, which allowed for £18.29 million to be borrowed, with the majority not likely to be recovered. These facilities were granted by way of several letters, including a letter in May 2012 (the “Facility Letter”).

The Bank made an application for summary judgment against Mr S for £17 million, being the amount drawn down and also if necessary, that an interim payment should be made. Mr S argued that the Demand issued by the Bank authorised the Facility Letter and Mr S’s authority to write it, therefore relinquishing the Bank’s rights of redress against him. Mr S also argued that his actions had not caused the loss to the Bank as the Administration event had broken the chain of causation.

The Decision

The Court found that the Demand had simply recognised the Facility Letter and the First Defendant’s debt owed under it. The Demand did not condone anything and the Bank was entitled to recover its money, with the Demand being the most suitable way of doing this. The Court noted that the Demand’s wording and the conduct of the Bank did not release Mr S in any way from his liability to the Bank. Secondly, the Court found that Mr S’s argument that the Administration broke the chain of causation had no merit, due to having no evidential basis and therefore dismissed this argument.

In light the Court’s findings above, there was no real prospect of Mr S’s defences succeeding at trial and there was no reason for the claim to go to trial in relation to liability, however, damages and judgment for these are to be dealt with separately.

Conclusion

The above case is a good example of when the Court will not regard the acts of a bank as ratifying a breach of duty by one of its employees. However, banks should still be mindful of how they act when recalling their loans, to ensure that the forms of redress are not compromised, in the event their loans cannot be repaid.