Rahman & Ors v HSBC Bank Plc & Ors

Commercial lending terms are not unfair merely because they permit repayment on demand, provide for repayment after a fixed term, include cross-default provisions, or permit the appointment of receivers following default. The court must assess the relationship arising from the credit agreement in the light of all relevant circumstances, including the parties’ bargaining positions and the creditor’s enforcement conduct. Where experienced commercial borrowers negotiated substantial facilities, understood the terms and had opportunities to address alleged breaches or propose repayment, enforcement after expiry of the facilities was not unfair.

The claimants were members of a property investment group financed by HSBC through secured overdrafts and term loans. HSBC demanded repayment of five commercial investment property facilities said to have expired after five years and appointed receivers over secured properties. The claimants alleged that HSBC had agreed or represented that the facilities would be interest-only for 15 years, had failed to provide various development and acquisition facilities, and had applied sale proceeds contrary to agreement.

They also sought relief under sections 140A and 140B of the Consumer Credit Act 1974, alleging that the relationship with HSBC was unfair. HSBC denied the alleged agreements and representations and counterclaimed for sums due.

1. Contractual term and enforcement. The five commercial investment property facilities entered into in 2006 were five-year interest-only facilities. There was no agreement or representation that they would run for 15 years. The facilities had expired by August 2011, and the cross-default clauses entitled HSBC to demand repayment of the other relevant facilities and appoint receivers.
2. Evidence and contemporaneous documents. The court preferred HSBC’s witnesses. The claimants’ case was inconsistent with the facility letters, internal credit reports and contemporaneous correspondence. The later 2007 facilities and 2008 correspondence did not establish the alleged 2006 agreement.
3. Subsidiary claims. The claims concerning St Anne’s School, Clarendon Road, Park Square, the CAL properties, 2 Blenheim Terrace and the application of sale proceeds failed. In particular, indicative terms subject to credit approval did not amount to concluded funding agreements. An unaccepted facility offer did not create a contract, and the beneficiaries of a trust holding shares in a company were not entitled to sue on the company’s proposed facility agreement.
4. Unfair relationship. Under sections 140A and 140B of the Consumer Credit Act 1974, the court had to consider all relevant matters. The relationship concerned substantial commercial lending to experienced borrowers who were able to negotiate and threaten to move their business. Repayment on demand for overdrafts, fixed five-year repayment terms, receiver provisions and cross-default clauses were not unfair in the circumstances. The enforcement process was also not unfair because HSBC had allowed substantial time for proposals and supporting documents before making demands.
5. The application for relief under section 140A was refused. The action was dismissed, and HSBC succeeded on its counterclaim, with the precise sums due to be provided on handing down judgment.