Yorkshire Bank Plc v Hall (Hall v Yorkshire Bank Plc)

A mortgagee holding security over shares is not under a general duty in negligence, contract or equity to intervene in the company’s affairs merely to preserve the value of its security. Its equitable duties depend on the transaction and on the exercise of its powers. The general duty is to act in good faith and for proper purposes; further duties arise when particular powers are exercised.

A bank which operates a company’s account owes its relevant duty to the company, not to shareholders or borrowers who have charged shares as security. A mandate authorising debits to a company account does not, without more, make the company contractually liable for another’s borrowing. The Henderson v Henderson principle bars an omitted point only where the omission amounts to an abuse of process.

The Bank made secured loans to four members of the Hall family to enable them to subscribe for shares in Bradford Investments plc. The security included charges over houses and a deposit of share certificates. The company initially paid interest from its account, but later entered liquidation and recovered those payments from the Bank.

Judge Maddocks gave the Bank money judgments and possession orders. The Vice-Chancellor dismissed an application to set aside that order and upheld the striking out of a later action by the Halls alleging that the Bank had failed to protect the value of their charged shares and had improperly operated the company’s account.

The Court of Appeal considered the scope of leave to appeal, the jurisdictional effect of the possession proceedings, whether the company had assumed liability for interest, and whether the struck-out action disclosed an arguable duty owed by the Bank.

1. Disposition. Robert Walker LJ, with whom Kay J and Mantell LJ agreed, allowed the appeal from Judge Maddocks only to the conceded extent concerning interest actually paid by the company. The wider appeal was dismissed. The appeals from the Vice-Chancellor were dismissed.

2. The court held that the company had never entered a tripartite agreement making it liable for interest on the Halls’ loans. A mandate allowing interest to be debited to its account was not, without more, contractual assumption of liability. The conclusion was also consistent with the lawful-performance principle in Brady v Brady [1989] AC 755. The defence under section 151 of the Companies Act 1985 therefore failed.

3. On the mortgagee claim, the Bank’s duties were equitable and depended on the terms of the security and the powers it exercised. The general duty was to use its powers in good faith and for proper purposes. It had no duty, absent bad faith, to intervene in the company’s confused affairs in an attempt to preserve the value of shares held as security. The authorities did not warrant a novel and undefined duty merely because there was no present conflict between mortgagee and mortgagor.

4. The Bank’s duty in operating the company’s account was owed to the company as customer. It owed no corresponding duty to the Halls as shareholders or as borrowers who had charged shares. Their action therefore had no realistic prospect of success and was properly struck out.

5. The court would not have struck out the action under Henderson v Henderson (1843) 3 Hare 100. Although the claims arose from the same events as the Bank’s claims, they were cross-claims rather than defences. The omitted claims had not been withheld in circumstances amounting to an abuse of process.

6. For the procedural appeal, the court held that an error concerning possession proceedings and jurisdiction could not deprive the appellants of their right to appeal the money judgments. It was therefore unnecessary to grant wider leave, and in any event the court would not have enlarged leave that had twice been expressly refused.

• Court of Appeal. Appeal No 96/0346 was allowed in part to the extent conceded by the Bank. Appeals Nos 97/0922 and 97/0923 were dismissed.
• Chancery Division, Vice-Chancellor of the County Palatine of Lancaster. On 16 January 1997, dismissed the application to set aside or discharge Judge Maddocks’s order and upheld the District Judge’s strike-out order.
• Chancery Division. Judge Maddocks, sitting as a High Court judge, gave money judgments and possession orders for the Bank on 9 November 1995.
• District Judge, Leeds. On 5 July 1996, struck out the Halls’ action against the Bank for disclosing no reasonable cause of action and, alternatively, as an abuse of process.