Prima Equity Ltd v West Bromwich Commercial Ltd

A lender cannot accelerate a loan on the basis of sums already held in its account where contractual deductions were unauthorised and sufficient to meet the alleged arrears. A payment obligation expressed only as payable on a quarterly basis does not identify the specific due date required by an event-of-default clause. Nevertheless, non-payment may constitute a breach of a separate clause prohibiting breach of any facility-document term, even where the obligation is a relatively small arrangement fee. Default interest is payable on the overdue amount identified by the contractual provision, but only a valid acceleration notice can make the accelerated loan balance overdue.

Prima obtained a £16.7 million property investment facility from West Bromwich Commercial Ltd. A later side facility letter altered the repayment date and provided for an arrangement fee payable in instalments. After two instalments remained unpaid, the lender declared an event of default, accelerated the loan, charged default interest and enforced rental assignments.

Prima sought summary judgment for declarations and an account. The issues were whether the lender had made unauthorised capital deductions, whether the instalments had a sufficiently certain due date, whether their non-payment constituted an event of default, and whether default interest could be charged on the whole accelerated balance.

1. Summary judgment and deductions. The lender’s capital deductions were not authorised by the facility agreement or side facility letter. The side letter dealt with arrangement fees and did not alter the capital-repayment obligation. The evidence did not establish any variation or estoppel by convention. The alleged possibility of further documents was speculative; material relied upon for resisting summary judgment had to be likely to exist and available at trial, applying ICI Chemicals v TT Training [2007] EWCA Civ 725. The lender therefore held sufficient funds to meet the instalments and was not entitled to make the formal demand.
2. Due date. The phrase “on a quarterly basis” did not specify a due date. Since clause 12(1)(i) contemplated non-payment on a due date, it could not support an event of default for the instalments.
3. Separate breach. The arrangement fee was a loan obligation within the broadly drafted definition covering present and future obligations and liabilities. Non-payment therefore breached clause 12(1)(ii), irrespective of the absence of a specified due date. The small size of the instalments did not prevent the contractual consequences of default.
4. Demand and default interest. If necessary, the formal demand sufficiently declared the loan immediately due under clause 12(2)(ii). Had it been valid, default interest under clause 2(4) would have accrued on the accelerated overdue amount. In the event, only interest on the unpaid instalments could arise, from their proper due dates to payment.

The principal issue was determined in Prima’s favour, with consequential directions to follow.

First-instance decision. No appellate history was stated in the judgment.