Carlyle –v- RBS – Fact-specific or a shining light for those challenging the actions of the Banks?

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Posted in:Banking and Finance|March 24, 2015 | Join the mailing list

Consider the following scenario – you have been banking with your current bank for a number of years and enjoy a good working relationship with your manager who is aware of and supports your plans to develop a plot of land with great development potential.
A supportive funding package is promised. In the belief that your trusted manager would not let you down, you go ahead and incur the costs of applying for planning permission, buy the land, and demolish the existing site. You then find the promised support
and lending does not materialise and the Bank becomes very difficult forcing you into their “support” unit. Do the promises count legally? A recent case opens the door for businesses in situations of this nature to challenge the legality of the Banks’ actions.

The Judgment in the case of Carlyle –v- RBS has been eagerly awaited and welcomed, particularly in light of a number of “pro-bank” judgments in recent years, including the decision in the case of Crestsign –v- RBS (2014). Crestsign, despite some very negative
comments in relation to the Bank’s conduct, affirmed the efficacy of contractual terms that prevented customers from seeking legal remedy as a result of negligent advice and/or misrepresentations made in the context of a banking relationship. We are pleased
to report that the Crestsign decision is being appealed and is expected to be heard by the end of June 2015.

In the Carlyle case Mr Carlyle was successful in his assertion that pre-contractual discussions constituted a binding agreement with RBS.  To what extent does this represent a Judgment based on its own specific facts or a case of wider implications for the
development of the common law duties owed by a Bank to their customers?

The facts of the case resonate strongly with the experiences of many businesses as described in the report by Lawrence Tomlinson on the Bank’s treatment of businesses, namely the promise of funding, the incurring of substantial expenditure in reliance upon
the same and the subsequent withdrawal of those funding promises.

Facts of the Case

Mr Carlyle sought funding from RBS to purchase and develop a property at Gleneagles to build accommodation for the 2014 Ryder Cup.  It was made clear to the Bank at the outset that the project would only work with both purchase and development costs in place. 
The Bank verbally agreed to provide the requisite lending in its totality.  In reliance upon this promise, Mr Carlyle signed loan agreements to cover the acquisition costs but the Bank then declined to provide the development funding.  

Mr Carlyle sued for the losses he claimed arose out of the broken promise to provide development funding.  He succeeded with his claim at first instance.  The Bank appealed and won on the basis that Mr Carlyle as an experienced businessman must have been aware
that the Bank’s discussions were only exploratory and the verbal promises would require inclusion into a formal written agreement before they could ever be of contractual effect.

Upon appeal to the Supreme Court it was held that the very specific discussions with the Bank did amount to a legally binding contractual obligation.  

The Implications of the Judgment

The Carlyle Judgment is of particular interest to banking customers because it reveals, along with the substantive Judgment on the facts in Crestsign, a much greater judicial willingness to accept the factual account of customers even where this is appears
at odds with the formal banking facility documents. It also shows that the Courts will not just view conversations between customers and the Banks in isolation and will place into context what was said and done by the parties.  This is particularly relevant
when arguing that the contract for banking services went significantly beyond a simple arms-length transaction requiring the Bank to act at all times in good faith in their dealings with their customer. The key facts of the case can present a customer with
a potential remedy for wrongful conduct on the Bank’s part that ordinarily would be unsustainable looking purely at the strict letter of the facilities documentation.

What Next?

Our experience to-date has shown that certain business sectors have featured prominently in showing examples of oppressive and wrongful conduct by the Banks. These include:-

–    Property developers;
–    Care homes and private nursing care;
–    Hotels and the hospitality industry;

Whatever the nature of your business if it has suffered from the withdrawal of funding or onerous terms have been imposed that were never contemplated at the outset of your dealings with the Bank, please contact our specialist Banking team to discuss how we
can assist you.  

If there are any issues in this update or more generally that you would like to discuss, please contact
John Colvin
or one of our Banking and Financial Regulatory team on 0161 833 9211.

(The information and opinions contained in this article are not intended to be comprehensive, nor to provide legal advice. No responsibility for its accuracy or correctness is assumed by Berg or any of its partners or employees. Professional legal advice
should be obtained before taking, or refraining from taking, any action as a result of this article.)

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