National Westminster Bank v Frankham

A bank which lends money for a project does not ordinarily assume responsibility for the project. Clear evidence is required before obligations outside the ordinary banking relationship arise. Such responsibility may arise from an agreement or from conduct taking the bank beyond its banking role. An amendment to a statement of case requires at least a verified pleading and must have a real prospect of success. Equitable set-off may be raised despite limitation where the cross-claim is closely connected with the claim. A claimant seeking loss for delay must identify the delay caused by the bank’s surviving breaches and explain the calculation of loss. A general fall in market value is not necessarily irrecoverable where it forms part of loss caused by actionable delay.

National Westminster Bank sued June Frankham to recover approximately £1.6 million lent to finance a residential development. The Master struck out her existing defence and counterclaim and refused permission to rely on an amended pleading. The proposed case alleged that bank employees had assumed responsibility for the financial and project management of the development, made unauthorised payments, mishandled the works and later promised to resolve the situation while continuing to provide finance.

The appeal concerned whether the proposed amended defence and counterclaim had a real prospect of success, whether the alleged duties and contractual constructions were legally sustainable, and whether limitation prevented the counterclaim or an equitable set-off.

1. Appeal and amendment. The original pleading was confused and was rightly struck out. However, the Master should have granted limited permission to amend because some allegations had a real prospect of success. The absence of a verified amended pleading was disregarded in the circumstances, although a signed statement of truth was the minimum evidential requirement.
2. Bank’s assumed responsibility. A lending bank ordinarily owes no obligations concerning the funded project. Clear evidence is required before obligations outside its ordinary role arise. If the bank agrees to act as project manager, takes over management in fact, or performs particular project-related acts, it may owe duties of reasonable skill and care in relation to that conduct. The allegations that the bank’s employee instructed the contractor, directed aspects of the construction and acted as owner or developer were not so inherently unlikely that they could be rejected summarily. The allegations concerning Gleeds and payments to the contractor could therefore remain for investigation.
3. Vague promises of support did not establish an agreement that the bank would manage the project. The statement that the bank would sort matters out did not postpone repayment until sale of the houses or resolution of the dispute. Claims concerning advice on the contractor’s payment schedule and responsibility after the contractor left were unsustainable. Unparticularised allegations concerning debits and dishonoured cheques could remain only if proper particulars were promptly supplied.
4. Set-off and loss. The cross-claim was sufficiently connected with the bank’s claim to support equitable set-off. Limitation did not prevent that use of the cross-claim. Loss claims had to distinguish delay caused by surviving breaches from delay attributable to the contractor or other causes, and had to explain the resulting financial loss. South Australia Asset Management Corporation v York Montagu Ltd did not bar a claim for market-related loss where the loss formed part of loss caused by actionable delay.
5. The matter was to proceed on the basis of limited permission to amend, subject to further directions.

• High Court (Queen’s Bench Division): on appeal from the order of Master Leslie dated 3 October 2012, the court held that limited permission to amend should have been granted.
• Master Leslie: struck out the existing defence and counterclaim and refused permission to rely on the proposed amended pleading.