UBS AG v Rose Capital Ventures Ltd & Ors

On an application under CPR 3.4(2)(a), a statement of case should be struck out only where the claim or defence, or the relevant part, is bound to fail. The court must focus on the pleaded case and should ordinarily permit factual issues or developing questions of law to proceed to trial.

A mortgagee’s duty of good faith is limited. A lender may act in its own interests and need not balance them against the mortgagor’s interests. A clear contractual right to demand repayment in the lender’s absolute discretion will not ordinarily attract a wider Braganza term. Pleadings must identify the facts and legal consequences relied upon; general assertions and requests for disclosure cannot substitute for a viable case.

UBS lent Rose Capital Ventures Ltd £20.4 million secured by a legal mortgage over 18 and 19 Cornwall Terrace. The facility was described as an uncommitted, on-demand loan for five years, with a contractual right for UBS to require repayment on three months’ notice in its absolute discretion.

After the loan was called in and receivers were appointed, UBS brought possession and debt proceedings. The defendants pleaded, among other matters, that the loan terms were subject to duties of good faith and rationality, that UBS had delayed refinancing, that the defendants had overriding interests based on actual occupation, and that UBS was not entitled to subrogation. UBS applied to strike out parts of the amended defence and the defendants applied to adjourn the hearing.

1. Adjournment. The defendants’ application was dismissed. Applying the Mitchell/Denton approach by analogy, the breach in failing to serve evidence was serious, no sufficient good reason for the adjournment had been shown, and an adjournment risked disrupting the trial timetable. The change of solicitors and the tragic death of a solicitor’s husband did not justify the application in the circumstances.
2. Strike-out test. Under CPR 3.4(2)(a), the court must be certain that the pleaded claim or defence is bound to fail. This differs from the real-prospect-of-success test under CPR 24.2. Material factual disputes and genuinely developing legal issues should generally be left for trial.
3. Good faith and contractual discretion. A mortgagee’s duty of good faith arises from the mortgage relationship. It does not require purity of purpose or prevent the mortgagee from preferring its own interests, provided enforcement is connected with repayment of the debt and realisation of the security. The pleaded case disclosed no facts suggesting that UBS acted for an improper purpose.
4. The loan documents were unequivocal. They created an uncommitted, on-demand facility and conferred an absolute discretion to demand repayment. The contractual power was not the type of continuing assessment or fact-finding function ordinarily attracting a Braganza term. No such term arose by construction or implication. If one had been implied, its scope would have been no wider than the mortgagee’s duty of good faith.
5. FCA Handbook. The loan was expressly unregulated and the relevant Principle did not create a private right of action. It was neither necessary nor obvious to imply a contractual term requiring compliance with the FCA Handbook. In any event, such a term could only benefit Rose Capital, and the pleading was impermissibly broad.
6. Pleading and other defences. A bare assertion that UBS had no legitimate reason for calling in the loan was insufficient. The defendants had to plead facts establishing bad faith or irrationality; they could not rely on disclosure to discover a case they had not pleaded. The allegations that UBS relied on its own wrong failed to identify principled consequences, and the doctrine of election did not apply because an ineffective notice had no legal effect. UBS was entitled to pursue mortgage remedies successively or simultaneously.
7. Occupation rights. The defendants’ case that their interests overrode UBS’ charge could not wholly be struck out at the pleading stage because actual occupation was fact-sensitive and the Brocklesby principle might be relevant. However, the pleaded case on the statutory exception in Schedule 3 to the Land Registration Act 2002 was bound to fail. The defendants had not pleaded a viable basis for showing that the relevant interests would not have been obvious or that UBS lacked actual knowledge.
8. Subrogation. The alleged early call-in, receivership and refinancing delay did not affect UBS’ subrogation claim, which was based on the expiry of the five-year term. The defendants’ guarantees did not constitute value defeating subrogation. Issues 1 to 8, 10 and 11 were struck out. Issue 9 could be cured by amendment, and permission to amend was granted.