On March 11 2015 the Supreme Court delivered its judgment in Carlyle v Royal Bank of Scotland .(1) This was the first appeal decision to acknowledge as binding a commitment to lend which a bank had given but not formally documented in writing. However, commentators are divided as to the lasting impact of the case.


The appellant in this case was Mr Carlyle, a property developer. In 2007 he sought funding from the Royal Bank of Scotland (RBS) for the purchase of land at Gleneagles, Scotland. The contract for sale of the land contained a buy-back clause which entitled the vendor to repurchase the land if a planned development by Carlyle had not been completed by March 31 2011, in time for the Ryder Cup golf tournament. Carlyle conveyed to RBS on a number of occasions that any loan for the purchase would have to be provided alongside a loan for the development, and on June 14 2007 the bank's representative confirmed via telephone that the details of the loan had been "all agreed" by the bank. As a result, Carlyle proceeded to put down a deposit for the land.

Having drawn down the initial loan for the purchase, it was not until August 2008 – in the middle of the financial crisis – that RBS informed Carlyle that it would not provide the funding for the development of the land, and proceeded to bring a claim against Carlyle for £1,499,660 plus interest, representing the amount provided for the initial purchase. Carlyle defended the claim and submitted a counterclaim for loss of profit on the development, with the lord ordinary ruling in favour of Carlyle at first instance. That decision was reversed by the Inner House on appeal, and reversed once more by the Supreme Court in favour of Carlyle.

Supreme Court decision

The Supreme Court decision was largely based on what the court considered to be the legal effect of a promise. RBS argued that as no consideration had passed between promisor and promissee, in the absence of a collateral warranty there could be no enforceable obligation on RBS to provide the development loan. The court rejected RBS's argument, on the basis that under Scots law (under which the case was heard) there is no such requirement. However, the logic of the Supreme Court's judgment extends to cases under English law. Ultimately, the court's two-part decision hinged on a question, best summed up in Lord Hodge's judgment: "Did the bank intend to enter into a binding contract?" If the answer to that question was yes (ie, that the bank had intended to enter into a binding contract), the law had to "do its best to give effect to that intention". In this case the court found that such intention did exist and held that the June 14 2007 telephone call in which the bank confirmed that the loan was "all agreed" gave effect to that intention.

Potential impact

The potential impact of this case has divided commentators. On the one hand, there is a suggestion that the facts of the case are so specific – particularly when considering the existence of the buy-back clause – that it is unlikely that Carlyle v RBS will set any kind of general precedent.

However, arguments like this ignore the underlying significance of the decision: this is the first occasion, on appeal, wherein a court has acknowledged the actions of banks before the financial crisis – in particular, their apparent reluctance to record anything in writing. Hodge made his view on these practices before the financial crisis clear in his judgment, stating:

"the prudence which has historically been attributed to Scottish bankers was not always in evidence in commercial and mortgage lending in the years leading up to the financial crisis in 2008".(2)

In Carlyle v RBS the Supreme Court acknowledged the commercial reality that banks were reluctant to formally document any agreements before 2008 and as such property developers were often forced to rely entirely on verbal agreements. It follows that the decision could have larger ramifications than some anticipate, by providing encouragement and incentive to other disgruntled property developers dealing with the aftermath of the financial crisis – although attention will need to be paid to the time remaining to bring a claim under the Limitation Act.(3)

"Destroyer of bargains"

The lasting implications of this case will be difficult to ascertain for some time. However, what is clear at this stage is where Carlyle v RBS sits in its wider context. Arguably, the decision follows a trend that has been ongoing since at least 1932, when Lord Tomlin stated in Hillas v Arcos Ltd that "the dealings of men may, as far as possible, be treated as effective and that the law may not incur the reproach of being the destroyer of bargains".(4)

This point follows the same logic as the abovementioned statements by Hodge that the law must "try its best to give effect to the intention of the parties". The Supreme Court has followed in Tomlin's footsteps by passing a judgment to protect the bargain made between RBS and Carlyle.

Other recent examples of the court taking this approach can be found in relation to the enforceability of guarantees. Under Section 4 of the Statute of Frauds, a guarantee will be binding and enforceable only if:

  • it is in writing; or
  • there is a sufficient, written, memorandum of its terms.(5)

In J Pereira Fernandes SA v Mehta(6) and Golden Ocean Group Ltd v Salgaocar Mining Industries PVT Ltd(7) the courts were asked to consider whether an email would suffice to satisfy the requirements of Section 4. In each of these cases, the court found that the emails were sufficient, written memoranda of the terms of each of the personal guarantees to be provided between the parties. The ruling was considerably more controversial in Golden Ocean as the 'email' in question was actually a lengthy chain of emails setting out and negotiating the terms of the proposed guarantee.


The common denominator in each of the above cases, from Hillas v Arcos to Carlyle v RBS, is uncertainty as to the parties' intentions. Such uncertainty means that the question of what the parties' intentions had been at the time of 'contract' is often deferred to the courts. Therefore, it stands to reason that the more formal the documentation of a party's intentions, the more likely the courts will take this point of view into consideration. While future court decisions are never certain, it is always prudent to record agreements made between parties in writing and, where no consideration is deemed to pass between promisor and promisee, to execute and deliver such written agreements in the form of a deed.

For further information on this topic please contact Gary Bellingham or Emma Menzies at Greenberg Traurig Maher LLP by telephone (+44 203 349 8700) or email (bellinghamg@gtmlaw.com or menziese@gtmlaw.com). The Greenberg Traurig Maher LLP website can be accessed at www.gtlaw.com.


(1) Carlyle v Royal Bank of Scotland [2015] UKSC 13.

(2) Lord Hodge, Carlyle v Royal Bank of Scotland [2015] UKSC 13 at paragraph 26.

(3) Limitation Act 1980.

(4) WN Hillas & Co Ltd v Arcos Ltd [1932] Int Com L R 07/05.

(5) Statute of Frauds 1677.

(6) J Pereira Fernandes SA v Mehta [2006] EWHC 813 (Ch).

(7) Golden Ocean Group Ltd v Salgaocar Mining Industries PVT Ltd [2012] EWCA Civ 265.

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