The Court of Appeal has dismissed the appeal brought by Morley Estates against Mr Justice Kerr’s first instance judgment in favour of RBS.
In a significant judgment the Court of Appeal emphasised the limited duties owed by a bank after expiry of a loan agreement and the difficulties of economic duress claims. The case concerned a substantial claim brought by Morley Estates (a property developer and former customer of RBS) against RBS. Morley Estates claimed that RBS had forced it to transfer certain of its properties, which stood as security for the £75 million loan which RBS had advanced, to West Register (a subsidiary of RBS), when the loan expired and it became apparent that Morley Estates could not repay. Morley Estates alleged that RBS had applied economic duress and intimidation and had acted in breach of (i) its duty to exercise reasonable skill and care and (ii) its duty to act in good faith.
After a three-week trial, Mr Justice Kerr had dismissed all of Morley Estates’ claims, finding that there had been no economic duress or intimidation and RBS had not been in breach of any duties it owed to Morley Estates. Morley Estates’ appeal challenged all three findings.
The Court of Appeal upheld the decision of Mr Justice Kerr. In a unanimous judgment (which can be found here), the Court of Appeal held that the transfer agreement Morley Estates concluded with RBS and West Register was “the result of a robust negotiation between commercial parties, each of which had legal advice and each of which was well able to look after itself in that negotiation”. The Court of Appeal concluded that Morley estates had entered into the agreement “of his own free will” and was not “coerced”. The Court of Appeal re-emphasised that coercion was a necessary ingredient of economic duress and intimidation claims. The fact that Morley Estates had not taken any steps to set aside the agreement until five years later was held to be significant “not only because it demonstrate[d] his affirmation of the agreement, but also because it negates any finding of coersion.” Mr Justice Kerr’s dismissal of Morley Estates’ economic duress and intimidation claims was accordingly upheld.
As to Morley Estates’ breach of duty claims, the Court of Appeal agreed with Mr Justice Kerr that there had been no breach of duty. It rejected Morley Estates’ argument that the “aspirational language” of RBS’s purely internal policy guidance could provide a secure foundation for any case of a breach of the duty to provide banking services with reasonable skill and care. Furthermore, the Court held that where a customer has entered into a secured loan agreement with a bank, the bank’s obligation to provide banking services with reasonable skill and care comes to an end once the loan term has expired. Thereafter, the only obligations owed by the bank are those governed by the express terms of the mortgage and the equitable principles applicable to that relationship. In any event, the Court of Appeal rejected, on the facts, Morley Estates’ submission that RBS had failed to act as a lender in its dealings with Morley Estates and was instead acting as a potential buyer of the property portfolio, and accordingly breached any duty to act with reasonable skill and care. As to the alleged breach of the duty to act in good faith, the Court of Appeal distinguished the situation from that in Property Alliance Group Ltd v Royal Bank of Scotland  EWCA Civ 355, where the Court of Appeal found that RBS was under a duty not to act vexatiously or contrary to its “legitimate commercial interests” pursuant to an implied term of the loan agreement. The Court of Appeal said that it did not necessarily accept that RBS was under any such duty in its negotiations with Morley Estates, but in any event Morley Estate’s argument as to breach would fail on the facts since “all the bank’s actions were rationally connected to its commercial interests.”