Lloyds Bank Plc v McBains Cooper Consulting Ltd

A project monitor must exercise reasonable skill and care in checking drawdown applications, reporting material cost increases, and ensuring that lending is confined to expenditure within the facility. A contractual requirement for monthly inspections is qualified where there is good reason not to attend, but failure to inspect remains a breach where no such reason exists.

Liability depends on causation. A lender’s own failure to assess an obviously inadequate facility, investigate cost overruns, and enforce funding conditions may constitute contributory negligence. An allegation of recklessness requires proof of a false representation; proof of an inadequate process or breach alone is insufficient.

The claimant bank lent £2.625 million for the redevelopment of a church and retained the defendant as project monitor. The facility was insufficient to meet the development costs, and the borrower later undertook additional third-floor works.

The bank alleged that the defendant negligently monitored the project, failed to make required site visits, issued misleading progress reports, and recommended drawdowns including expenditure outside the facility. It claimed approximately £1.4 million in losses. The defendant accepted negligence in some respects but disputed causation and quantum. The central issues were the scope of the monitoring obligations, whether the breaches caused loss, the bank’s contributory negligence, and the effect of sums paid following an adjudication.

1. Disposition. The defendant was liable for loss caused by its failure, from Progress Report No 10 onwards, to advise that drawdown applications included expenditure on the third-floor works. The claim was otherwise substantially rejected on causation grounds. The precise sum was left for agreement or further submissions, with credit to be given for the adjudication payment of £288,323.84.
2. Project-monitoring obligations. The defendant breached its retainer by failing to inspect the site at least monthly without good reason and by issuing five progress reports without a prior site inspection. It also had to identify material variations, report circumstances likely to increase development costs, obtain the facility letter and updated cost-to-complete information, and prevent drawdowns for work outside the facility.
3. Misleading reports and recklessness. The confirmations in Progress Reports Nos 1–8 that sufficient funds remained were negligent and plainly contradictory. However, the bank was not misled into entering the facility, which had already been granted. Applying the test in Derry v Peek (1889) 14 App Cas 337, the recklessness allegation failed because the bank did not prove a false representation concerning the quality, value or progress of the works. The defendant’s failure to report variations was not, without more, reckless.
4. Evidence and causation. The late and grave allegation that the project monitor had made very few site visits required suitably cogent evidence, applying Secretary of State for the Home Department v Rehman [2001] UKHL 47. The court assessed the contemporaneous documents as a whole. The bank’s loss before the end of November 2008 resulted from its decision to make an inadequate loan, not from the defendant’s breaches.
5. Contributory negligence. The bank knew that the third-floor works were proposed and should have investigated their funding. It also knew, or ought to have known, that the facility was inadequate and failed to implement instructions requiring investigation of cost overruns and confirmation of the borrower’s resources. The bank bore one third of the loss caused after 1 December 2008; the defendant was liable for the remaining two thirds.

First-instance decision. No prior appellate decision is stated in the judgment.