Triodos Bank v Dobbs & Anor

A secured lender does not become a shadow or de facto director merely because it monitors a borrower’s project, controls drawdowns, negotiates rescue financing or protects its own security. The relevant question is whether it has become part of the company’s corporate governing structure or exercised the powers and functions of a director.

A lender is not ordinarily obliged to provide open-ended funding until a troubled development is completed. A receiver or mortgagee may sell property in its existing state and need not improve it. Contractual step-in rights must be construed according to their terms and do not necessarily require the lender to fund works outside the underlying building contract.

Triodos Bank sought judgment against Ashley Dobbs under a personal guarantee given for borrowing by Acorn Televillages Ltd. Mr Dobbs and Acorn alleged that the Bank had misrepresented its character, mishandled and improperly terminated the lending relationship, procured unfair refinancing arrangements, become a shadow or de facto director, overstated its demand and acted improperly in appointing administrative receivers.

They also claimed damages against the Bank and the receivers for the handling and sale of the Crickhowell development and for the management of Acorn USA. The receivers counterclaimed in respect of an undertaking given in connection with Acorn USA shares. The court determined whether the allegations were established and whether the Bank had breached its undertaking to exercise contractual step-in rights.

1. Disposition. Judgment was entered for the Bank on the guarantee in the sum of £50,369.71 plus interest. Mr Dobbs’s counterclaim and claim against the receivers, and Acorn’s claims, were dismissed except for the claim concerning step-in rights. Acorn was given permission to proceed to an inquiry into damages, although the judge indicated that only nominal damages would be appropriate. The receivers were also given permission to proceed to an inquiry in respect of Mr Dobbs’s cross-undertaking in damages.
2. The Bank’s involvement in arranging and monitoring the September 1999 rescue package did not make it a shadow or de facto director. It acted to protect its own interests as lender and guarantor, while Acorn remained free to accept or reject the financing terms and retained responsibility for marketing and management. The statutory concept in section 741(2) of the Companies Act 1985 was not directly determinative of equitable fiduciary duties.
3. No term could be implied requiring the Bank to continue funding the development until completion and sale. Such a term was neither necessary for business efficacy nor so obvious as to go without saying. It would conflict with the express provisions making the facility repayable on demand and providing for its expiry.
4. The Bank was entitled to retain disputed liquidated damages in a separate account. After the adjudication, the Bank had credited Acorn economically by allowing the sums to reduce interest and by taking them into account in considering further facilities. There was no continuing facility requiring release of the money.
5. The Bank’s undertaking to exercise step-in rights extended only to matters within the construction contract. It did not require the Bank to complete the fibre-optic network, Telecentre or drainage works outside that contract, or to advance further money. The Bank was in breach for failing to exercise the rights between 20 October and 22 December 2000, but the breach caused no more than nominal damage. The subsequent compromise released Countryside and made continued enforcement of the rights unconscionable.
6. A receiver was entitled to sell the development en bloc without building it out. The receivers were entitled to rely on professional valuation and marketing advice and were not negligent in the price or extent of marketing. The Bank was not vicariously liable for their acts because they remained Acorn’s agents and exercised their own decisions.
7. The appointment of receivers was not an unlawful conspiracy. A lawful-means conspiracy required a predominant purpose of injuring Acorn, whereas the Bank acted to protect its legitimate interests. The banking principles relied upon did not require an independent business review or advance consultation, and breach of them would not itself have created legal liability.