Nationwide Building Society v Christie & Anor

A guarantor’s liability is not discharged merely because the principal debtor’s interest rate changes pursuant to a contractual option. A guarantee covering all present and future liabilities may extend to later facilities. A creditor holding security is not generally obliged to use it at the request of a debtor or surety, and owes no general duty to safeguard a surety’s economic interests. A receiver appointed under the Law of Property Act 1925 is ordinarily the mortgagor’s agent, so the receiver’s acts do not establish a defence to the creditor’s claim unless the creditor directed or interfered with the receiver’s exercise of power. A commercial guarantor could not rely on the consumer protection regime or on alleged failures to communicate, negotiate or refrain from enforcement.

Nationwide sought summary judgment against Robert Lester Snell under a guarantee and indemnity securing facilities granted to Martin William Christie. Christie had defaulted, receivers had sold two commercial properties, and a substantial shortfall remained. Snell alleged that he lacked independent legal advice, had been subjected to undue influence, had guaranteed only the first facility, and had been discharged by later changes to the lending arrangements. He also counterclaimed for losses arising from Nationwide’s handling of the deposit security, appointment of receivers, property management and sale, and relied on alleged representations concerning release of funds and receivership. The central issue was whether any defence or counterclaim had a real prospect of success at trial.

1. Summary judgment test. The question was whether the defences and counterclaim had any real prospect of success at trial. Disputed facts were assumed in Snell’s favour unless his version had no realistic prospect of being established.
2. Guarantee. There was no general duty on a bank to ensure that a guarantor obtained independent legal advice. The principles in Royal Bank of Scotland v Etridge (No 2) [2001] UKHL 44 did not assist an experienced businessman guaranteeing commercial investment finance. The solicitor’s certificate was sufficient to protect Nationwide, absent actual notice of defective advice. Nationwide’s size did not constitute undue influence: Lloyds Bank Ltd v Bundy [1975] QB 326. The all-monies wording covered the second and third facilities.
3. Variation. Exercising the contractual option to fix interest was performance of the original agreement, not a variation. In any event, clause 4.1 of the guarantee prevented variation of the facilities from discharging the guarantee. A possible separate hedging arrangement would not alter the borrower’s contractual liability or defeat the guarantee.
4. Security and receivers. Nationwide was entitled, but not obliged, to use the deposit security. The holder of security may decide when to apply it in its own interests. The mortgagee’s power is not held on trust for the mortgagor: Cuckmere Brick Co Ltd v Mutual Finance Ltd [1971] 2 All ER 633. Under section 109(2) of the Law of Property Act 1925, the receivers were the mortgagor’s agents. Any breach in the sale or management therefore gave a possible claim against the receivers, not Nationwide, absent direction or interference by Nationwide. Approval of the receivers’ proposals did not amount to direction or interference: American Express International Banking Corp v Hurley [1985] 3 All ER 564.
5. Other claims. Snell was not a consumer under regulations 3 and 8 of the Unfair Terms in Consumer Contracts Regulations 1999. Nationwide owed no general duty to protect his economic interests or consult him about enforcement. The alleged assurances about releasing funds and receivership were conditional or statements of present intention, not binding commitments. The claim and counterclaim therefore had no real prospect of success.
6. Order. Summary judgment was entered for Nationwide on the claim and counterclaim.