Lloyds Bank has secured partial success in a claim against consultants after a development loan turned sour.
Lloyds had sued McBains Cooper Consulting seeking to recover around £1.4m, its total loss in respect of the £2.6m loan made in 2007 for the development of a church building in Willesden.
However, after Edwards-Stuart J found the bank’s actions caused half of that loss, and that it was contributorily negligent in respect of the other half, its overall recovery is expected to be less than £500,000, more than half of which it has already received.
The judge said that the loan was made to the “exotically named Miracles Signs & Wonders Ltd”, a special-purpose vehicle formed by the Miracle Signs & Wonders Ministry Trust, whose pastor was James Chukwu.
The bank agreed to lend the borrower £2.625m on the terms of a facility letter dated 30 May 2007, but over a year earlier retained McBains Cooper to act as the project monitor in respect of the development, or, as the judge put it, “the bank’s eyes and ears in relation to the project”.
He continued: “Unfortunately it all went wrong. After about 21 months the bank’s facility was virtually exhausted and the development was far from complete. It appeared that neither Mr and Mrs Chukwu nor the congregation had sufficient funds to meet the balance of the costs of completing the development, which were thought to be in excess of £700,000. In those circumstances the bank decided to cut its losses and realise its security in the form of a charge over the development property and two properties owned by Mr and Mrs Chukwu.”
He added that the bank claimed about £1.4 million, the total amount of the sums advanced under the facility less the recoveries made from the sale of the various properties over which it had a charge.
However, commenting that the litigation had a “chequered history”, he said: “It is now quite clear that this loan should never have been made by the bank in the first place (a decision for which it cannot blame McBains Cooper) and that during the course of the work McBains Cooper gave advice that was unquestionably negligent.”
He found that no breaches of duty by McBains Cooper caused any loss to the bank prior to advice given in its 10th progress report issued in August 2008. However, he said that in respect of that report, if McBains Cooper had properly performed its obligations the bank would have become aware of the true financial position in November 2008, and would have taken the decision to terminate the facility and call on the security.
The judge said that it was agreed by the valuers that the market value of the Church Road site in March 2009, when the bank should have taken action and put the property on the market, was £800,000, meaning the bank suffered a loss of about £700,000, before expenses, as a result of its own decision to enter into the loan.
He found that “nothing done by McBains Cooper caused or contributed to this loss”
He added: “The total loss suffered by the Bank is approximately £1,400,000, so about one half of this loss is attributable to the breach of duty by McBains Cooper and the Bank’s own contributory negligence. Of this, I consider that McBains Cooper is liable for two thirds.”
However, he said that in an adjudicator’s award in July 2013, McBains Cooper was ordered to pay £288,323, which it did in August 2013. The bank must give credit for this sum as the parties seek to agree the final figure.
Lloyds Bank plc v McBains Cooper Consulting Ltd Technology and Construction (Edwards-Stuart J) 2 October 2015
Lord Marks QC and Luke Wygas (instructed by Clarke Willmott LLP) for the claimant
Sean Brannigan QC and Jennie Gillies (instructed by Robin Simon LLP) for the defendant
