The High Court has found that a Bank which had exercised a right of forced sale over an asset was not under a duty by way of an implied term to take reasonable steps to obtain the best price reasonably obtainable.
In (1) Rosserlane Consultants Ltd, (2) Swinbrook Developments Ltd v Credit Suisse International  EWHC 384 (Ch), the Claimants had sought to establish that there was a general duty imposed by law on a party selling property belonging to another to obtain the best price. Their case was that the Bank had a duty of care akin to that which a mortgagee would have when exercising power of sale over its security. However, the Judge found that the Bank was exercising its right to effect a sale in the owners’ name granted to it under a self-standing commercial agreement freely negotiated between the parties and therefore no term should be implied into that contract to impose such a duty on the Bank.
Summary of decision
The Defendant Bank provided a $127m loan to the Claimants, which were ultimately owned by Dr Zaur Leshkasheli. The purposes of the loan were to re-finance existing debt and for future expenditure for Caspian Energy Group (“CEG”), a partnership between the Claimants, whose main asset was an interest in an oil field in Azerbaijan. The loan was to be repaid by the Claimants upon a sale of CEG following an M&A sale process to be conducted by Credit Suisse Securities (Europe) Limited (“CSS”), an affiliate of the Defendant. As part of that transaction, the parties entered into a suite of contractual documentation including a Security Agreement and a Participation Agreement. Under the latter agreement, the Bank was entitled to a share in the proceeds of any sale and, in order to protect that right, had the right to force a sale of CEG if a sale had not been achieved by a certain date.
Following two sales processes over a period lasting more than 12 months, a consensual sale of CEG had not been achieved. On the date that the loan was due to expire, the Bank forced a sale of CEG. The Claimants argued that the price obtained was considerably less than the value of CEG and brought a claim for the loss of a chance of procuring a sale at a greater price.
In relation to whether the Bank had a duty of care in relation to the price, the Claimants argued that, had the Bank been exercising its powers of sale under the Security Agreement, it would have been subject to the well-established duty imposed on mortgagees to take reasonable steps to obtain the best price reasonably obtainable. However, because the Bank was exercising its right of forced sale under a separate agreement, the Claimants needed to establish an implied term to the effect of the mortgagees’ duty.
The Claimants put their case in two ways: firstly, they argued that the Bank was selling CEG as the Claimants’ agent (and agents are subject to such a duty of care); and secondly, that there is a general principle that where a party has the power to sell property belonging to another, the law imposes a duty to take reasonable care to obtain the best price.
In a lengthy passage of the judgment regarding the case law in this area, the Judge rejected the Claimants’ arguments. The Judge found that the Participation Agreement was carefully designed to avoid the Bank being under a mortagee’s duty if it forced a sale under this agreement. This was a commercial agreement between a sophisticated party and the Bank. The fact that the agreement was silent as to a duty on the Bank in relation to the price of a forced sale has to be the starting point for any consideration of an implied term. By contrast, the Claimants were under an express duty under the Participation Agreement to use all of their reasonable endeavours to procure a sale at the best price obtainable. The lack of a reciprocal duty was an important consideration in the Judge rejecting the implied term sought. Instead, the Court held that the Bank was only subject to an implied duty of good faith, which it discharged.
On the facts, the Judge also held that the claim would have failed on causation in any event.
This decision reiterates the difficulty Claimants have in implying terms into sophisticated agreements where they are properly advised. It also demonstrates the approach of the English Courts to reject arguments that terms should be implied to redress the balance between parties after the event.