Royal Bank Of Scotland Plc v Hicks & Ors

Contractual terms are implied only where the established requirements are met, including necessity for business efficacy, obviousness, clear expression and consistency with the express agreement. A detailed contractual scheme directed to a sale does not ordinarily imply obligations requiring a lender to assist or refrain from obstructing a third-party refinancing. A mortgagor retains an absolute right to redeem, but refinancing involves a consensual transfer of the lender’s debt and security, which the lender is not generally obliged to accept. Summary judgment is inappropriate where disclosure and oral evidence reveal a genuine factual dispute, particularly in closely connected proceedings.

The proceedings arose from the financing and subsequent sale of Liverpool Football Club. The former owners alleged that agreements extending repayment of RBS facilities contained implied terms requiring RBS to co-operate with, and not obstruct, refinancing, and requiring the parties to seek the maximum sale value. They also sought permission to add allegations concerning RBS’s alleged control of the sale process, duties as mortgagee, de facto or shadow directorship, misuse of confidential information and conspiracy.

RBS sought summary judgment or strike-out of the pleaded case. Related proceedings concerned alleged breaches of fiduciary duty by the English directors and Sir Martin Broughton. The central issues were whether the proposed implied refinancing terms were legally arguable and whether the remaining allegations should proceed to a joint trial.

1. Implied terms. The court applied the requirements stated in BP Refinery (Westernport) Pty Ltd The Shire of Hastings [1978] 52 ALJR 20: the term must be reasonable and equitable, necessary to give business efficacy, obvious, capable of clear expression and consistent with the express terms. The April 2010 documents were directed to transferring control of the sale process to the reconstituted board and achieving a sale by 15 October 2010. They contained no obligation requiring RBS to assist or refrain from obstructing refinancing. The proposed terms were neither necessary nor obvious and permission to amend on that basis was refused.

2. Redemption and refinancing. The debtor companies retained an absolute right to redeem their security. RBS could not prevent redemption if the debt was paid. That right was distinct from refinancing, which would require a third party to acquire RBS’s debt and security and could only occur consensually. RBS was under no duty to accept such an arrangement, negotiate a rescheduling, abate its debt or assist a third party to step into its shoes.

3. Summary disposal. RBS’s application for summary judgment and its abuse-of-process application failed. The evidence, including disclosed emails, raised issues requiring oral testimony and cross-examination. A negative declaratory claim should not be used to secure a mini-trial or to require the opposing party to prove its case prematurely.

4. Trial and conditional permission. The related English directors’ proceedings provided a compelling reason for the issues to be tried together. Permission was granted to amend the Defence and Counterclaim in relation to the post-disclosure allegations, conditional on the former owners providing further security for RBS’s costs of the trial.