Mortgage – Registration – Priority – Land Registration Act 2002 – Two lenders holding first and second legal charges respectively over properties owned by companies – Holder of first charge substituting new facility letters for original ones and adding unpaid interest and fees to loan account – Priority between registered charges – Section 49(3) of Land Registration Act 2002 — Whether second charge taking priority on ground that first charge securing “further advances” not made or obliged to be made at date of charge
The second defendant held a registered first legal charge over various properties to secure lending to certain companies that later went into administration, with the first defendants appointed as joint administrators. The claimant held a second legal charge, also registered, over the same properties to secure its own lending to those companies.
A dispute arose over the priority to be accorded to the two charges; the claimant applied for declarations and consequential relief in its favour. It contended that its charge took priority over that of the second defendant, notwithstanding that it was later in date, by virtue of the “anti-tacking” provisions in sections 49 and 50 of the Land Registration Act 2002. It argued that the second defendant’s charge had lost its priority since it now secured “further advances”, within the meaning of section 49(3), which had not been made by the date of the charge and which the second defendant was not obliged under its terms to make.
The second defendant had originally lent under a loan facility in the sum of £2.47m and “all monies from time to time due… in connection with the Facility”. The loan was originally repayable by 2007 but was extended several times. In 2009, the companies had been asked to sign new facility letters, containing the second defendant’s current standard terms, although no new sums had been lent, nor were there any accounting entries showing any notional repayment of the original advances or the making of new advances. The claimant nonetheless submitted that the new facility letters should be interpreted as deeming the original advances to be repaid and “further advances” made. It contended that further advances had also been made by the addition of fees and interest to the loan account after sums due under the facility letters in respect of those items had gone unpaid.
Held: The claim was dismissed. In order to secure protection for a charge’s priority under section 49(3), any “further advance” must have been made under an actual obligation to make it. There was no such obligation on the second defendant in the instant case. Its charge none the less retained priority since, on the proper interpretation of the new facility letter, no “further advances” had been made and the charge continued to secure the original advances. A “further advance” means an advance of further and additional funds. The purpose of the statutory provisions is to ensure that priority is not obtained for an advance which a second mortgagee, in receipt of truthful replies to normal enquiries, would be unaware that the first chargee has made or was under an obligation to make. The second defendant had advanced no new money but had simply required the borrower companies to sign up-to-date versions of its standard terms and added unpaid interest and fees. That did not amount to the making of a new contract but merely to a variation of the original contract; alternatively, even if there was a new contract, it related to the existing advance and not to any further advance. The facility letters could not be interpreted as intended to give rise to a deemed repayment and new advance in circumstances where they did not state that that was the intention, there were no accounting entries to that effect and such a result would serve no commercial purpose, having the sole effect of destroying the second defendant’s priority. As to the unpaid fees and interest, these were sums due in respect of the original advance, which the companies should have paid but had failed to pay. Those amounts were secured by the terms of the charge, as amounts contractually due in respect of the original advance by the express terms of the facility letter, so far as the indebtedness was defined to include “all monies from time to time due… in connection with the Facility”. To roll up the unpaid fees and interest and include them in the amount payable under the new facility letters could not sensibly be regarded as the making of “further advances”.
This was the hearing of a claim by the claimant, Urban Ventures Ltd, against the defendants, Simon Thomas and Nicholas O’Reilly, and the second defendantDunbar Assets plc, for declaratory relief as to the priority accorded under the Land Registration Act 2002 between legal charges held over certain properties to secure lending to companies in administration.
Gary Cowen (instructed by Moon Beever) appeared for the claimant; Marcia Shekerdemian (instructed by DLA Piper UK LLP) appeared for the first defendants; Ben Valentin (instructed by Freshfields Bruckhaus Deringer LLP) represented the second defendant.
Giving judgment, Mr Nicholas Strauss QC said:
Introduction
1. This is a dispute between the applicant (“Urban”) and the second respondent (“Dunbar”), the holders of, respectively, a second and a first legal charge over various properties owned by the companies in administration (“TBAC” and “Billsop”), of which the first respondents are the joint administrators.
2. The issue is one of priorities, that is which of Urban and Dunbar has first claim to the proceeds of sale of the properties charged to them. Urban applies for declarations that its second charges have priority and other consequential relief.
3. Section 48 of the Land Registration Act 2002 provides that charges rank in accordance with the order in which they are registered. However, that is subject to sections 49 and 50, which contain what can broadly be described as anti-tacking provisions, the effect of which is to limit the priority afforded to the earlier registered charge to advances made by the time of the charge and “further advances” which the holder of the charge was obliged by its terms to make. This case raises two issues as to what is a “further advance” within section 49(3).
4. The first issue arises because Dunbar decided, after Urban’s second charge had been registered, to ask TBAC and Billsop to sign new facility letters, replacing the original facility letters which had been extended several times. No new money was lent, TBAC and Billsop did not actually repay the loans, and there were no accounting entries of any kind showing a notional repayment of the original advances and the making of further advances. Mr Gary Cowen on behalf of Urban nevertheless contends that the effect of the facility letters, on their proper interpretation, was to deem the original advances repaid and further advances made; therefore the effect of Dunbar substituting new facility letters for the old ones (largely but not entirely on the same terms) was to deprive it of its priority. For the reasons set out below, I think that this interpretation of the new facility letters is wrong, and I therefore hold that Dunbar’s original advances remain secured by the charges in its favour, which take priority over Urban’s second charges.
5. The second issue arises because, notwithstanding that the terms of the facility letters (in all their versions) require TBAC and Billsop to pay interest and certain fees, they failed to do so, and the unpaid interest and fees were added to the accounts. Urban contends that the debiting of the unpaid interest and fees to the accounts represented “further advances” in respect of which, since Dunbar had no obligation under the facility letters or the terms of charge to allow them to remain unpaid, Dunbar could not claim priority. I think that Mr Ben Valentin’s argument on behalf of Dunbar, that the unpaid interest and fees are just sums due in respect of the original advance which the borrowers ought to have paid but have failed to pay, is correct. I do not think that to debit these amounts to the accounts, and then to include them in the amount payable under the new facility letters, can sensibly be regarded as the making of “further advances”.
6. Essentially all that has happened in this case is that Dunbar required TBAC and Billsop to sign up to date versions of their standard terms, and added unpaid interest and fees due in respect of the original advances to the account. No new advances were made. For these reasons, more fully explained below, this application is dismissed.
The facts
7. Both Dunbar and Urban advanced money to TBAC and Billsop on various different properties, but it is common ground that there is no material difference between the transactions and that the issue can be resolved by reference to the loans made to TBAC on the No.13 account in respect of the Balham Bowling Club.
8. The original facility letter is dated 28 September 2006 and is headed “Loan Facility – No.13 Account”. It starts:
“Following discussions, we (the ‘Bank’) confirm that we are pleased to offer you (the ‘Borrower’) a loan facility (the ‘Facility’) on the following terms:
1. Borrower: The Black Ant Company Limited
2. Amount: £2,470,000 (Two Million Four Hundred and Seventy Thousand Pounds)
All monies from time to time due or contingently due to the Bank from the Borrower or any third party in connection with the Facility are hereinafter referred to as the ‘Indebtedness’.
3. Purpose:
The Facility shall be available and utilised by the Borrower as follows:
(i) £2,300,000 to refinance current borrowings with Heritable Bank.
(ii) £170,000 to roll-up interest until 30th June 2007.
4. Term:
(i) The Indebtedness shall be repayable upon demand.
(ii) In the absence of demand being made in accordance with paragraph 4(i) above and without prejudice to our rights thereunder the Facility will remain available to you until 30th June 2007 after which date we shall be pleased to consider renewing the Facility for a further period, on terms to be negotiated.
5. Security:
The security for the indebtedness will consist of:
(i) A First Legal Charge over the freehold property known as The Former Balham Bowling Club, Ramsden Road, London, SW12 (‘the Property’) The Property comprises a vacant former Bowling Club, land and associated buildings, part of which benefit from A3 use and residential accommodation above.
(ii) A Guarantee from Anthony Thomas (the “Guarantor”) in the principal sum of £500,000 plus interest, charges, costs and expenses.
This figure has been reached by taking 20% of the total amount to be made available to be Borrower. However, it is clearly understood and agreed between the parties that the Guarantee will remain at the fixed sum of £500,000 regardless of how much may be outstanding from time to time from the Borrower to the Bank and can only be varied by a further formal written instrument expressly varying the Guarantee.
(iii) A First Floating Charge over all of the Borrower’s assets and undertakings. All security documentation shall be in the Bank’s standard form.
All supporting documentation will be to the Bank’s entire satisfaction.
6. Drawdown
(i) The Facility will be available in one drawing to be made not later than two months from the date of this letter.
7. Fees
(i) A facility fee of 1% is payable upon acceptance of the terms of this letter.
(ii) A redemption fee of £24,700 is payable upon repayment of the facility. Upon repayment of any part or part of the facility a pro-rata fee is payable.
(iii) All legal charges incurred by us in connection with this Facility, the costs of valuations and the fees of our Quantity Surveyor and any sundry charges incurred by ourselves, whether before or after draw down, will be payable by the Borrower whether this offer proceeds to completion or not on a full indemnity basis.
….
8. Interest
(i) Interest shall accrue due on the Indebtedness on the daily balance outstanding until repayment is made in full.
(ii) The rate of interest applicable to the Facility (as well after as before judgment) which will be charged to the account is the rate per annum which is 3% over our Base Rate from time to time (subject to a minimum Base Rate of 4% per annum). The Bank’s Base rate is displayed at all branches of the Bank and is available upon request from the Bank.
(iii) Interest will be charged and payable at the ends of March, June, September, December and on the date of repayment of the Indebtedness.”
9. There follows, para 9, setting out a number of conditions precedent and paras 10-13 containing terms relating to VAT, insurance, notices, change of control, and then:
“14. Miscellaneous
- (i) The Bank reserves the right to vary or withdraw this offer (at its absolute discretion) at any time prior to draw down hereunder.
- (ii) This offer will lapse if we do not receive your acceptance on or before 10th October 2006.”
10. The facility letter then ends with provisions relating to what happens if sterling is replaced by the euro, assignment and governing law, and the borrower is then asked to sign and return a copy of the letter, whereupon Dunbar will “instruct our professionals”.
11. There is then a legal charge dated 26 October 2006. It is necessary only to set out the covenant to pay in clause 1:
“1. COVENANT TO PAY
The Mortgagor hereby covenants with the Bank that it will on demand in writing made to the Mortgagor pay or discharge to the Bank all moneys and liabilities which shall for the time being (and whether on or at any time after such demand) be due owing or incurred to the Bank by the Mortgagor whether actually or contingently and whether solely or jointly with any other person and whether as principal or surety including interest discount commission or other lawful charges and expenses which the Bank may in the course of its business charge or incur for keeping the Mortgagor’s account or otherwise and so that interest shall be computed and compounded according to the usual mode of the Bank as well after as before any demand made or judgment obtained hereunder (the ‘Indebtedness’).”
12. The legal charge is entered on the charges register at the Land Registry, with Dunbar shown as the proprietor, together with a statement that Dunbar is under an obligation to make further advances, which will have priority to the extent afforded by section 49(3) of the Land Registration Act 2002.
13. On 28 June 2007, Dunbar wrote to TBAC as follows:
“We refer to our facility letter dated 28th September 2006 under the terms of which the principal amount of £2,470,000 together with interest thereon, is outstanding.
Words and Expressions used in this letter shall bear the meaning assigned to them in the facility letter.
We are pleased to confirm that subject to the Indebtedness remaining payable upon demand, the facility shall remain available to you until 31st December 2007.
In consideration of our agreeing upon and subject to the terms and conditions of this letter to amend the terms of the facility you shall pay to us a fee of £1,544, which we shall debit to your account upon acceptance.
The terms of this letter will lapse if we do not receive your acceptance on or before 11th July 2007, whereupon the terms and conditions of the facility letter shall remain in place unchanged.
All other terms and conditions as specified in our facility letter dated 28th September 2006 continue to apply.
We would be grateful if you would sign and return to us the enclosed copy of this letter as evidence of your agreement to the foregoing.
We are pleased to be able to assist you in this way.”
TBAC and the guarantor duly signed a copy of the letter by way of acceptance.
14. This was repeated on 1 February 2008, extending the terms of the facility to 30 June 2008, and again on 29 December 2008, extending it until 30 June 2009.
15. On 26 March 2009 (that is some three months before the expiry of the extended period), Dunbar wrote to TBAC in terms that were in most respects identical to the facility letter of 28 September 2006. The letter was headed “Loan Facility – No. 13 Account”, and began:
“Following discussions, we (the ‘Bank’) confirm that we are pleased to offer you (the ‘Borrower’) a loan facility (the ‘Facility’) on the following terms:
1. Borrower: The Black Ant Company Limited
2. Amount: £2,593,000 (Two Million Five Hundred and Ninety Three Thousand Four Hundred Pounds)
or up to 65% of the valuation of the security specified in clause 5(i) below, whichever is the smaller sum.
All monies from time to time due or contingently due to the Bank from the Borrower or any third party in connection with the Facility are hereinafter referred to as the ‘Indebtedness’.
3. Purpose:
The Facility shall be available and utilised by the Borrower as follows:
(i) £2,593,400 to continue to fund your existing borrowings.”
16. This facility letter repeated the original one, but there were the following differences, using the same paragraph numbers:
Para 2. The amount was £2,593,400, which represented the current balance after taking into account interest and fees, which were due but largely unpaid.
Para 3. The purpose was stated to be:
“(i) £2,593,400 to continue to fund your existing borrowings.”
Para 5. There is a new (iv):
“a First Legal Charge over all other freehold and leasehold properties that we hold from time to time”.
Para 6. There is slightly changed wording:
“(i) The first drawing under the Facility must be made not later than two months from the date of this letter.”
Para 7. The facility in the original facility letter is omitted, and there is a different redemption fee. 1½% is payable upon payment of the facility. Upon repayment of any part or parts of the facility a pro-rata fee is payable.
Para 8. The conditions precedent to the borrower making any drawings under the Facility include two additional ones, namely audited reports and accounts for the last two years and a letter from Chartered Accountants stating the Guarantors’ current assets and liabilities.
Para 14. This now reads as follows:-
“…
(ii) This offer is in substitution of and not in addition to all our previous Facility letters to you which shall be deemed cancelled.
(iii) This offer will lapse if we do not receive your acceptance on or before 31st March 2009.
(iv) The Bank, as part of the Zurich Group, is able to make use of the capital base of its parent, Zurich Bank, in providing loan facilities.”
17. Finally, there are three further facility letters, dated 30 June 2009, 30 September 2009 and 22 December 2009. The only differences between these and the March 2009 letter are that the amount of the facility is increased to the current balance, including further interest, and that the statement of the purpose in para 3 omits the words “continue to”. The facility letter of 30 June 2009 provides for a renewal fee of £2,500, and extends the facility to 30 September 2009. Similarly, there are renewal fees in the facility letter of 30 September 2009, extending the facility to 6 January 2010, and in the facility letter of 22 December 2009, extending the facility to 6 April 2010.
18. At the times these loans were made, Dunbar was called Dunbar Bank plc and was still operating as a bank. The evidence given on its behalf on this application is the evidence of Mr Neil Leitch, now Head of Restructuring UK (Regional), who was a member of the Credit Committee responsible for approving extensions to loan facilities at the time, but who has no recollection of the discussions relating to the extensions in this case, at which he may not have been present. He is therefore unable to give any direct evidence as to the purpose of the new facility letters introduced in March 2009, but states that on the basis of his experience of Dunbar’s processes, it is likely to have been the result of a review of its loan documentation.
The relevant statutory provisions
19. Section 48 of the Land Registration Act 2002 provides that, subject to any entry to the contrary on the register, registered charges on the same land as between themselves rank according to the order in which they are entered on the register, and not according to the order in which they are created.
20. Section 49 codifies the previous law, as laid down by the House of Lords in Hopkinson v Rolt (1861) 9 HLC 514, and provides for four cases in which a further advance takes priority over a subsequent charge:
(a) If the first mortgagee does not have notice of the second mortgagee’s charge.
(b) If the further advance is made pursuant to an obligation which was entered in the register in accordance with the rules at the time of the creation of the subsequent charge.
(c) If the parties agree a maximum amount to be secured by the charge and that agreement is noted on the register.
(d) By agreement.
21. Rule 108 of the Land Registration Rules 2003 provides that a person applying to be registered, who is under an obligation to make further advances, may apply to the registrar for such obligation to be entered in the register, and this was done by Dunbar in the present case.
22. Where a charge is entered on the register, all that is registered is the fact of the charge; the amount that is secured is not entered on the register. Similarly, where an obligation to make further advances is noted on the register, the extent of the obligation and the circumstances in which it arises are not specified. Therefore, in practice a person who is considering making an advance secured by a second charge usually needs to ascertain, from the holder of the first charge or from the borrower, what advances have been made and what obligations exist as regards further advances. Otherwise, he will not know what, if any, equity is left in the property.
23. In the present case, although there was a suggestion in correspondence that Dunbar might be protected by its registration of an obligation to make further advances, it is now common ground that, in order to secure protection under section 49(3) the further advance must have been made under an actual obligation to make it, and there is no relevant obligation in the present case. The only issues between the parties are those identified earlier namely, first, whether the effect of the facility letters of 26 March, 30 June, 30 September and 22 December 2009 was, in each case, to effect a “further advance” and, secondly, whether the debiting of unpaid interest and fees to the accounts constituted the making of such advances.
Discussion
24. In the absence of any directly relevant authority on the meaning of “further advances”, one must start with the language of the statutory provisions, and with their purpose. As regards the language, the ordinary meaning of a “further advance” is obviously an advance of further or additional funds. As regards the purpose, it is in my view to ensure that priority is not obtained for an advance which a second mortgagee who had received truthful replies to normal enquiries would not know that the first chargee had made or was under an obligation to make.
25. On behalf of Dunbar, Mr Valentin makes the simple and powerful submission that, since no new money was advanced at any time after 28 September 2006, there was no “further advance”; there is nothing more to be said. He recognises that there may be some circumstances, for example a revolving credit, in which there may be a repayment and a further advance without any actual new money, and he accepts that this may give rise to a “further advance” within the meaning of these provisions; if so, the first mortgagee’s right of priority would depend on there being a duly registered obligation in the terms of the revolving credit to make the “further advance”. But, he submits, there is nothing of the kind in the present case, as can clearly be seen from the actual account, which does not show a credit for a notional repayment, followed by a debit for a notional further advance. He also relies on the principle that, once a debt is proved to have existed, it is presumed to continue to exist until proved to have been repaid or discharged: see Chitty on Contracts, Vol.2 at 38-264. Mr Cowen on behalf, of Urban, however, submits that, on the proper interpretation of the facility letter of 26 March 2009 (and equally of the subsequent three facility letters), there is deemed to be a repayment and a new advance, even though there was no actual repayment or actual further advance.
26. The facility letters are to be interpreted on the usual principles, that is by reference to the ordinary meaning of the words used taking into account their purpose and the relevant background, and there are obvious objections to the interpretation contended for by Urban:
(a) the facility letters do not state they are to give rise to a deemed repayment and further advance, as might have been expected if that had been the intention;
(b) such a deemed repayment and further advance would serve no useful commercial purpose whatsoever; their sole effect would be to destroy Dunbar’s priority and this can hardly have been intended;
(c) the obvious purpose of the new form of facility letter is, as Mr Leitch says albeit without direct knowledge, to subject the existing advance to Dunbar’s up to date terms; and
(d) again, the fact that the account shows no credit and debit entries, reflecting a repayment and a new advance, militates strongly against such an interpretation.
27. Mr Cowen’s principal argument is based on the new para 14(ii) reading:
“This offer is in substitution of and not in addition to all our previous Facility letters to you which shall be deemed cancelled.”
On this, he bases two propositions:
(a) that the original contract has been rescinded in favour of a new contract on the terms of the new facility letter; and
(b) that, if there was a new contract, it necessarily follows that the original advance is deemed to be repaid, and a new advance made.
28. In support of the first proposition, Mr Cowen relied on the decision on the House of Lords in Morris v Baron & Company [1918] AC 1. At that time any contract for the sale of goods of more than £10 in value had to be evidenced in writing: see section 4 of the Sale of Goods Act 1893. The parties had entered into a contract, properly evidenced, which gave rise to litigation in which the plaintiff claimed the value of goods supplied and the defendants counterclaimed for the non-delivery of goods in breach of the terms of the contract. The action was compromised by an arrangement subsequently held by the Court of Appeal to be unenforceable; the Court of Appeal further held that, because the later contract was inoperative, the parties must be relegated to their rights under the original contract, which could not be rescinded except by a written agreement. The decision was overruled by the House or Lords, which held that the original contract had been impliedly rescinded by the later, unenforceable, contract and that the rescission was effective as there was a clear intention to rescind the original agreement as opposed to varying it.
29. Mr Cowen relies in particular on the passage in the speech of Lord Dunedin, at p25-26, commenting on a passage from the judgment of Sankey J in Williams v Moss’ Empires Ltd [1915] 3 KB 242, 248, in which he said:
“The difference between variation and rescission is a real one, and is tested, to my thinking, by this: In the first case there are no such executory clauses in the second arrangement as would enable you to sue upon that alone if the first did not exist; in the second you could see on the second arrangement alone, and the first contract is got rid of either by express words to that effect, or because, the second dealing with the same subject matter as the first but in a different way, it is impossible that the two should be both performed. When I say you could sue on the second alone, that does not exclude cases when the first is used for mere reference, in the same way as you may fix a price by a price list, but where the contractual force is to be found in the second by itself.”
30. Mr Cowen submits that the effect of para 14(ii) is that this is indeed a case in which “the first contract is got rid of … by express words to that effect”, and that each of the new facility letters sent in 2009 is therefore a new contract.
31. I do not accept this argument. Morris was a very different case, in which there was a new arrangement regarding the goods, and in which the issue was whether the parties intended the old contract to survive, so that it could be relied on if the new one failed, as the Court of Appeal had held. In this case, even without Mr Leitch’s evidence, it is obvious that what the parties are doing is slightly altering the terms of the contract so that they comply with Dunbar’s up to date standard terms, a common enough situation in which the intention of the parties is simply to vary the terms of an existing transaction. Thus:
(a) The March 2009 facility letter is headed “Loan Facility” – No. 13 Account”: it is the same facility.
(b) The amount of the facility is the amount of the original loan plus accrued interest and fees, and the purpose is stated to be “to continue to fund your existing borrowings.”
(c) Para 4(ii) anticipates the renewal of “the Facility” in June 2009 on terms to be negotiated, if there has been no demand in the meantime.
(d) Para 6(i) repeats the words in the 2006 facility letter that “the first drawing under the Facility must be made not later than two months from the date of this letter”. This must refer to the drawing that, as both parties knew, had already taken place, and shows that these terms are new terms which are intended to relate back to the original advance and to apply ab initio.
(e) Significantly, as already emphasised, the new facility letter does not provide that there is to be a deemed repayment and a new advance; if that had been the intention it is to be expected that the letter would have said so.
32. As indicated, Mr Cowen places considerable reliance on para 14(ii), but I do not think that it shows that the parties intended to rescind the earlier contract and not merely vary it. As Mr Valentin submits, its purpose is to make it clear that TBAC is not being offered an additional advance, but that these are updated terms applicable to the advance already made. Mr Cowen also drew attention to the omission of the words “continue to” from para 3 of the June, September and December 2009 facility letters, but this cannot make any difference, as these letters both clearly and in terms offered renewals which had been anticipated by the terms of the immediately preceding facility letter; the important point about this part of all the 2009 facility letters is that they set out the terms for the funding of existing borrowings. Finally, Mr Cowen relied on the new conditions precedent in para 9, submitting that these must be treated as conditions precedent to a deemed new advance. I reject this; there is no evidence that fulfilment of these conditions precedent was actually required and anyhow Dunbar was in a position, irrespective of the conditions precedent, to ask for any accounting information it required and to demand repayment if it was not provided. The new conditions precedent do not support the argument that the parties must have intended a new contract.
33. For these reasons, I do not accept the argument that the intention of the parties in this case was to enter into a new contract but, even if that had been intended, it does not follow that such a new contract would mean that there was a new advance. On the contrary, it would simply mean that there was a new contract relating to the existing advance. Whether or not there was a new contract, neither the parties, nor any reasonable reader of the facility letters with knowledge of the facts, would have said that a new advance had been made. In my view, Urban’s main argument in this case is artificial and wrong.
34. Turning to Urban’s subsidiary argument, relating to interest and fees, the amount of the original facility was £2,470,000, but the indebtedness was defined to include “all monies from time to time due … in connection with the Facility” (see para 2 of the 2006 facility letter, above). From the outset, interest and renewal fees were either debited to the account or, on two occasions in April and July 2009, shown as “paid” followed by a debit for “increase monies” (sic) on the same day.
35. Mr Cowen argues that the original facility letter required TBAC to pay the interest and fees and that, by allowing a substantial part of both to remain unpaid, and by debiting them to the account, Dunbar made further advances. One objection to this is that it is not established that Dunbar did allow interest and fees to remain unpaid; Dunbar may have had no choice because TBAC had no other funds available. There is no evidence one way or the other about this. However it can be said that the inclusion of the unpaid interest and fees in the amount advanced under the March 2009 and subsequent facility letters changed their status. They were not, as before, due and payable but unpaid: a demand would now be necessary to make them payable.
36. Nevertheless I do not consider that to roll up the unpaid interest and fees in this way can sensibly be regarded as the making of a further advance. The unpaid interest and fees are just amounts secured by the terms of the charge, which are contractually due in respect of the original advance and by the express terms of the facility letter they form part of the indebtedness. Again, neither the parties nor any outside party with knowledge of the facts would have regarded Dunbar as having made further advances.
37. Mr Cowen has relied on this issue on authorities relating to the rule in Clayton’s case, but it does not seem to me that they are relevant. The only two credits on the account were expressly for “interest paid”, and the immediately following debits for the same amounts for “increase monies” obviously show that there was no actual payment of interest. The authorities on which he relies, Hopkinson, above and Deeley v Lloyd’s Bank Ltd [1912] AC 756, are cases in which there were actual repayments followed by actual new advances.
Conclusion
38. For these reasons, the application is dismissed.
Claim dismissed.
