Bryan Court Ltd & Anor v National Westminster Bank Plc

A lender may waive contractual preconditions to drawdown by making an advance when those preconditions have not been satisfied. The effect depends on the proper construction of the facility agreement. Where the agreement provides that the lender is not obliged to advance a tranche unless stated conditions are met, but the lender nevertheless makes the first advance, it may lose the right to refuse later advances on the basis of those conditions, subject to any separately applicable default condition. A contractual administration fee may remain payable where consideration for the facility has not wholly failed. Damages for breach are assessed by comparing the claimant’s actual position with the position it would have occupied had the facility been fully advanced.

The claim arose from proposed funding by National Westminster Bank Plc for building works at Bryan Court. The Company alleged that an earlier funding agreement had been concluded through discussions and correspondence, or alternatively that later communications created contractual, representational or tortious liability. The Bank denied that any earlier agreement existed and relied on a formal loan agreement containing preconditions to drawdown.

The Bank advanced £85,000 but declined to make further advances because collateral warranties and other preconditions had not been supplied. The Company claimed losses arising from the interruption of the works. The Bank counterclaimed the sums due under the loan and current account. The central issues were whether an earlier agreement or liability arose, whether the formal agreement permitted refusal of further advances, and the recoverable damages.

1. No earlier agreement or negligent misstatement. The correspondence before 21 December 2007 showed continuing negotiations. The amount of the proposed loan and the required security remained unsettled, and the parties understood that formal documents had to be signed. The debiting of an arrangement fee did not conclude a contract. The February 2008 correspondence did not create a contract, warranty or actionable representation. The relevant assurance concerned the perceived risk of signing the building contract before finance was formalised, not confirmation that funding was available.
2. Construction of the Loan Agreement. Clause 2.1 made satisfaction of the specified preconditions a condition of the Bank’s obligation to provide the loan or any tranche. However, the opening words preserved an election: the Bank was not obliged to advance, but could choose to do so. Having advanced £85,000 despite unsatisfied preconditions, the Bank could thereafter refuse a particular tranche only if clause 2.1(k) applied. No event of default under that provision was relied upon. Clause 13.1 did not resolve the issue, since its reference to preserving the Bank’s rights begged the question as to what those rights were.
3. Damages and set-off. The Company was entitled to damages representing the profit it would have made if the works had continued, assessed at £252,650. The personal claim by Dr AlBaho failed because the relevant obligations were owed to the Company. The administration fee remained payable because the consideration for the facility had not wholly failed. The Bank was entitled to set off £194,646.31.
4. Judgment was entered for the Company for £58,003.69. Dr AlBaho’s personal claims and the Bank’s counterclaims were dismissed.