In this case, a funder bank (Lloyds) sued its project monitor (McBains) for breach of its retainer. The case arose from the redevelopment of a former bingo hall in Willesden which was home to an Evangelical church and which was to be redeveloped to provide function rooms, a bookshop, a nursery, internet café and accommodation units. The church was run by a trust, which borrowed GBP 2.625 million from Lloyds to fund the development. Unfortunately this sum did not include any allowance for contingencies, and understated the professional fees. Further, a sum of approx. GBP 100,000 in interest fell to be deducted from it, meaning that there was a shortfall of at least GBP 200,000, more probably GBP 250,000 once proper allowance was made for professional fees.
Very late in the project, McBains advised that there were insufficient funds in the facility to complete the development, leading Lloyds to call in the loan. The borrower was unable to repay the money, and the property was sold, leading to losses of GBP 1.4 million for Lloyds which it sought to claim from McBains. The court held that McBains was in breach of its duty to the bank by failing to advise that there was not enough money in the facility to complete the works, and that some of the money was being used to carry out works on the third floor of the building, which did not form part of the agreed development. Although it held that McBains bore 'the lion's share of responsibility' for the losses suffered by the bank, the judge found that the insufficiency of the facility to cover the development was known by the relevant individual at Lloyds. Further, the bank had failed to share information with its project monitor or respond appropriately to reports. Accordingly, the bank's own failings meant it should bear a third of the losses itself.
The case provides a good example of the problems that can arise if a bank fails properly to manage its relationship with its project monitor, effectively removing the safety net the latter is supposed to provide.
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