Contract – Implied term – Loan facility – Respondents taking out loan facility with appellant bank to finance purchase and development of land – Loan intended to be repaid by sale of developed properties – Appellant empowered by terms of loan facility to assign rights under loan facility and provide information to any potential buyer – Liquidators of appellant marketing loans for sale – Whether arguably breaching implied term not to hinder marketing of properties by respondents – Appeal allowed
The respondents were members of a group of companies which held a loan facility of £195m with the appellant, a bank incorporated in the Republic of Ireland, for the purpose of financing the acquisition and development of parts of Camden Market, London. The loan facility, which was secured on the Camden Market Estate, was set out in a facilities agreement which was restated and amended by deed in 2008.
The respondents intended to repay the loan by selling the properties. In 2012, their advisers valued the properties at £370m without planning permission and £395m with permission. However, it took longer than anticipated to obtain planning permission and the respondents considered that they would not have time to market and sell the properties before the final maturity date of the restated facilities agreement in 2013. In November 2012, they obtained a 12-month extension of the facility to February 2014 pursuant to a supplemental deed which stated that “save as amended by this deed, the Restated Facilities Agreement shall remain in full force and effect”. The supplemental deed also set out a detailed “exit strategy” which provided for the respondents to market the properties for sale.
In February 2013, the appellant was placed in special statutory liquidation by an order of the Irish finance minister, who ordered the liquidators to sell off the appellant’s loan book. The liquidators began to market the loans, including those of the respondents.
The respondents claimed that the appellant was in breach of an implied contractual term that it would not hinder the respondents’ marketing of the properties to achieve the best price by marketing the “sale” of the loans under the facilities agreement in competition with the respondents.
The appellant applied to have the claim struck out on the ground that the pleaded implied term was inconsistent with the express terms of the contract. It relied on clause 26 of the restated facilities agreement, which expressly permitted the appellant to “assign any of its rights… under any Finance Document to another bank or financial institution” with the prior consent of the first respondent and to disclose “any information about” the group and the finance documents to a potential assignee, provided that the assignee entered into a confidentiality undertaking.
Dismissing the application, the judge held that the respondents’ case was arguable and should go to a trial. The appellant appealed.
Held: The appeal was allowed.
The respondents’ case was bound to fail as a matter of law. It was not possible to imply a term to the effect alleged by the respondents because it would be inconsistent with the express terms of the agreement.
It was necessary to construe the express terms of the restated facilities agreement before considering whether it was appropriate to imply a term into it. An implied term could not contradict any express term of the contract: Marks & Spencer plc v BNP Paribas Securities Services Trust Co (Jersey) Ltd [2015] UKSC 72; [2016] AC 742; [2016] EGLR 8 applied. There were two possible kinds of inconsistency: linguistic inconsistency or substantive inconsistency. The implied term pleaded by the respondents was not linguistically inconsistent with clause 26, because it was possible for there to be situations in which the marketing of the loans by the appellant was not in competition with the marketing of the properties by the respondents, and in which the disclosure of information under clause 26 could be made in a manner which did not in fact hinder the respondents from achieving the best price in accordance with the exit strategy. However, the second type of inconsistency arose since the pleaded implied term was in substance inconsistent with the appellant’s rights under clause 26.
Conduct by the appellant which explored the possibility of an assignment, transfer or sub-participation with a potential counterparty would fall within the term “marketing” in relation to the loans. While clause 26 did not give to the appellant an unrestricted power to market the respondents’ loan, it did confer an express power to disclose information to potential counterparties without a requirement to obtain the respondents’ consent or even to inform the respondents. That power was substantively inconsistent with the pleaded implied term. The implied term would place a significant restriction on the appellant’s power under the restated facilities agreement to deal with its assets, since it would cut across the appellant’s entitlement to provide information, and would do so in a way that gave rise to uncertainty. It was not apparent from the pleaded term whether the conduct said to be prohibited was any conduct that might in fact have an adverse impact on the respondents’ marketing, or only conduct that the appellant knew, or ought to know, would have such an effect. On either view, market perception which was outside the liquidators’ control could trigger the operation of the implied term.
The fact that the 2012 supplemental deed was entered into for the purpose of giving the respondents more time to get planning permission, in order to sell at a better price, did not impliedly affect the appellant’s ability to deal with its asset in the way expressly provided for in clause 26 of the restated facilities agreement. The supplemental deed was made by commercial entities against a background of a detailed restated facilities agreement which gave the appellant a power to disclose information. The appellant’s express and unrestricted power to market the sale of loans by disclosing information to potential counterparties could not, as a matter of law, be circumscribed by an implied qualification: Reda v Flag Ltd [2002] UKPC 38; [2002] IRLR 747 applied.
Antony Zacaroli QC and Stephen Robins (instructed by Linklaters LLP) appeared for the appellant; Alan Gourgey QC and Thomas Robinson (instructed by Herbert Smith Freehills LLP) appeared for the respondents.
Sally Dobson, barrister
