McDonagh v Bank Of Scotland Plc & Ors

A loan agreement must be construed as a whole. A repayment figure expressed in sterling may require payment of the corresponding amount in euros at the exchange rate used when the loan was drawn down, where the agreement otherwise establishes a euro loan and repayment in euros. A party may obtain rectification for common mistake where the parties shared a continuing intention, expressed that intention outwardly, maintained it at execution, and the document failed to reflect it.

A fixed-charge receiver considering a portfolio sale must ask whether including the mortgaged property is likely to produce a better result for its mortgagor than a separate sale. An error of judgment alone is not a breach of duty. The receiver must act reasonably and take care to obtain the best price reasonably obtainable.

The claimant borrowed from the first defendant to acquire Sony House. He disputed whether the first loan was a sterling or euro loan and challenged the enforceability of a later refinancing agreement on consideration, economic duress and intimidation grounds. The bank counterclaimed the debt.

The claimant also sued the receivers appointed over Sony House, alleging that its inclusion in a portfolio sale caused an undervalue. The principal issues were the construction and possible rectification of the first loan agreement, the enforceability of the second agreement, and the scope and performance of the receivers’ equitable duties.

1. First loan agreement. The agreement, read as a whole, created a euro loan. Clauses 1.1, 1.2 and 1.3, the euro servicing account, the interest provisions and the currency-risk arrangements all pointed to that conclusion. Clause 1.5 was not to be read in isolation. The reference to £7.5 million meant the amount of euros represented by that sum at drawdown, namely €11,071,500, and repayment had to be made in euros.
2. The alternative construction was supported by the admissible background and commercial consequences. Pre-contract negotiations were generally inadmissible as an aid to construction, but could establish background facts known to the parties. If the bank had failed on construction, it would have been entitled to rectification for common mistake. The parties had a common continuing intention that the loan be repaid in euros, had outwardly expressed that intention, and the document would otherwise have failed to reflect it.
3. Second loan agreement. The suspension of covenant testing in paragraph 2 of schedule 5 was consideration. It gave the claimant a binding commitment that the bank would not treat him as in default for breach of the loan-to-value covenant. The unpleaded arguments concerning conditions precedent and implementation therefore failed, in any event.
4. The economic-duress and intimidation claims failed. The bank had relied on actual defaults and contractual rights, gave the claimant opportunities to obtain advice, and offered a restructuring which included a benefit. Its conduct was neither illegitimate nor unconscionable. The alleged wrongdoing caused no actionable loss.
5. Receivers. A fixed-charge receiver owes an equitable duty to take care to obtain the best price reasonably obtainable. A portfolio sale is permissible where the receiver reasonably considers that inclusion is likely to produce a better result for the relevant mortgagor than a separate sale. The receiver must specifically address that comparison. An error of judgment alone does not establish breach.
6. The receivers had performed the required comparison, acted reasonably, and had not used Sony House merely as bait for other properties. No breach or loss was established. The claimant’s claims against the bank and receivers were dismissed, and judgment was entered for the bank on its counterclaim.