Alliance & Leicester today succeeded in blocking a breach of contract claim brought against it after it agreed to lend money by way of a mortgage to develop a Bedford restaurant.
The Court of Appeal ruled that the action by borrowers Kumarth and Lorraine Khalagy had real prospect of success, overturning a decision of Deputy High Court Judge Rivlin in January this year allowing the couple to go on with their claim.
The Khalagys decided in 1990 to convert Leilas Restaurant & Cocktail Bar in St Peters Street, Bedford, into a combination of restaurants, a night club and 13-bedroom, four-star hotel. The couple owned the premises but they were subject to a £350,000 mortgage from Alliance & Leicester.
They arranged a further mortgage with A&L to pay for the development on the basis of a projected “bricks and mortar” valuation of the completed venue at £1.2m. The bank agreed to advance 70% of that value, or £840,000, including the existing loan.
The loan was to be released in stages, but, following a downturn in the property market and a subsequent downward valuation of the project, A&L informed the Khalagys that it was only prepared to advance £735,000.
The project was not completed and in 1997 receivers were appointed by A&L, resulting in the eventual sale of the premises for £400,000.
The Khalagys took the case to court, arguing that A&L was under a fixed contractual obligation to advance the whole figure of £840,000 and that its refusal to do so had been the cause of the projects failure.
However, Bernard Livesey QC, counsel for A&L, contended that the advance was to be made in stages, subject to valuers certificates, and that the lenders were not obliged to advance the full amount unless these were satisfactory.
Ruling in favour of the bank, Mummery LJ said that the loan agreement was subject to conditions making payment contingent upon reinspection and satisfactory valuation as and when works were completed.
Khalagy and another v Alliance & Leicester plc Court of Appeal (Mummery LJ and Maurice Kay J) 23 October 2000
Bernard Livesey QC and Christopher Russell (instructed by Berwin Leighton) appeared for the appellant; the respondents appeared in person.
- PLS News 24/10/00
