National Westminster Bank Plc v Rabobank Nederland

In a multi-bank workout, ordinary banking practice did not create a legal duty to disclose every material fact, nor did silence ordinarily represent that no further material facts existed. A co-workout bank could generally assume only that information known to the personnel handling the workout, and honestly regarded by them as probably significant, would probably be disclosed.

Representations were assessed objectively by reference to what a reasonable recipient would understand and be entitled to rely upon. An agreement to negotiate documentation in good faith concerned the negotiation process and did not impose a general duty of disclosure. Such an agreement was in any event unenforceable where it lacked sufficient certainty.

Rabobank Nederland and National Westminster Bank jointly financed Yorkshire Food Group plc and later co-operated in a workout after the company’s financial position deteriorated. Rabobank alleged that NWB had fraudulently or negligently misrepresented, or concealed, information about directors’ personal borrowings, an almond-farming venture and the conduct of the workout. It also relied on Niru Battery Manufacturing Co v Milestone Trading Ltd and alleged breach of a good-faith agreement made during negotiations for the transfer of NWB’s lending.

NWB counterclaimed damages for breach of clause 21.3(b) of the transfer deed, by which Rabobank had agreed not to bring claims relating to NWB’s conduct as agent. The issues included whether representations had been made, whether they were false, the scope and enforceability of the good-faith agreement, and whether NWB could recover litigation costs as damages.

1. Rabobank’s counterclaim. The counterclaim for fraudulent misrepresentation, statutory misrepresentation and breach of the alleged good-faith agreement was dismissed. The only representations established were narrowly confined representations concerning NWB’s intention not to obstruct Price Waterhouse in carrying out its agreed professional mandate, and the information material to the immediate proposed special-purpose-company solution. Those representations were not shown to be untrue.
2. Workout practice and implied representations. The evidence established good practice, rather than a legal duty, for co-workout banks to disclose information known to the personnel handling the workout which they honestly considered probably significant to the decisions required. The receiving bank was not entitled to treat silence as a representation that no other material information existed. Individual meetings with the debtor or investigating accountants were not inherently improper or misleading.
3. Objective construction. Whether words or conduct constituted a representation depended on their objective impact on a reasonable recipient in the relevant circumstances. The court rejected the alleged broad representations of full disclosure and found no dishonest concealment. The answer given at the meeting with Mr van der Schrieck was confined to information material to the immediate SPC proposal.
4. Good-faith agreement. The phrase requiring documentation to be negotiated in good faith required a genuine effort to agree the wording necessary to document the already agreed transfer. It did not impose a general obligation to disclose all information material to the decision to enter the transfer. A wider agreement to negotiate in good faith would in any event have been unenforceable for uncertainty, following Walford v Miles.
5. Inducing breach of professional duty. The claim failed because NWB did not intend to procure a breach, Price Waterhouse would not have regarded investigation of the directors’ personal finances as required by its terms of reference, and no breach or causal procurement was established.
6. NWB’s claim. Clause 21.3(b) imposed a substantive obligation not to bring claims or make allegations concerning NWB’s acts or omissions in its capacity as agent. It was not merely an exclusion clause. Rabobank’s claims in the Californian proceedings were within the prohibition, whether or not the pleaded characterisation was legally correct. NWB was entitled to judgment on liability and to recover loss caused by the breach, including reasonably incurred legal costs as damages. Damages were to be assessed later, including an issue concerning fees paid to Allen & Overy.