Starling v Lloyds Bank plc

Mortgage containing clause modifying mortgagor’s statutory power to grant leases of mortgaged property – Whether duty owed by mortgagee to mortgagor to consider properly any request by mortgagor to let property – Claimant issuing proceedings claiming breach of duty – Application to strike out allowed On 22 October 1980 the claimant and his wife granted the defendant bank a legal charge of a residential property known as Mole End, West Challow, Wantage, Oxfordshire, to secure their borrowings from the bank. Clause 6 of the legal charge modified the mortgagors’ statutory power to grant a lease of the property, requiring the prior consent of the bank. A second legal charge was entered into by the claimant and his wife on 10 June 1987 in favour of the bank, which also modified the mortgagors’ statutory power to grant a lease. Subsequently, the claimant’s wife became ill and he gave up work to care for her. She died in 1991. The claimant put the property on the market, but it was a difficult time in which to sell residential property. In February 1992 the claimant met the bank manager to discuss his financial position. The claimant alleged that he had informed the manager of his wish to move and to let the property to enhance his chances of gaining full-time employment and that the manager had failed to give any fair or reasonable and proper consideration to his request, merely informing him that letting the property was not an option. The claimant issued proceedings, claiming damages for breach of a duty by the bank to consider properly his request. The bank applied for the claimant’s action to be struck out and this application was allowed by a master. The High Court allowed the claimant’s appeal, whereupon the bank appealed. The claimant contended that the bank’s duty arose out of the duty of good faith, which was owed by a mortgagee to a mortgagor when doing any “positive act”, and, in particular, when exercising the right to withhold consent to a letting by a mortgagor. It was submitted that the duty of faith was an equitable duty arising out of the relationship of mortgagor and mortgagee, and that the duty involved an obligation on the mortgagee to consider any request made to it by the mortgagor to give consent to the letting of the mortgaged property. It was argued that a blanket refusal was in breach of that duty. Held: The appeal was allowed. The breach of duty of good faith required dishonesty or an improper motive to be established: see Medforth v Blake [1999] 2 EGLR 75. However, the claimant had made no allegation of dishonesty or improper motive in the alleged failure to consider properly his request for consent to let the property, and the facts revealed nothing suggesting this. It was impossible to infer any bad faith into the bank manager’s rejection of the claimant’s request. He could have had any variety of honest reasons for the rejection, and it was not irrelevant to note that the property was on the market at that time, that the debt owed to the bank was substantial and that the property, if encumbered by a tenancy, would almost certainly be worth less than with vacant possession. It would be an unworkable principle if a bank, when faced with a request to let a mortgaged property, had to consider its customer’s interests and to go as far as it could to further those interests while reserving its own interests: Citibank International plc v Kessler [1999] 1 Lloyd’s Rep (Banking) 123; [1999] PLSCS 64 considered. Mark Phillips QC and Jonathan Crystal (instructed by Charles Russell, of Cheltenham) appeared for the claimant; Mark Hapgood QC and Derrick Dale (instructed by CMS Cameron McKenna, of Bristol) appeared for the defendant. Thomas Elliott, barrister