Morley (t/a Morley Estates) v The Royal Bank of Scotland Plc

A claim in intimidation or economic duress requires proof that the alleged threat actually coerced the claimant into the impugned transaction. Robust commercial pressure does not establish coercion where a legally advised party resists the demand, continues to negotiate, and concludes a materially different agreement of its own choosing.

After default under a secured loan, the parties’ relationship is governed by the mortgage’s terms and equitable mortgagee duties. It is not governed by an implied contractual duty under Supply of Goods and Services Act 1982 to exercise reasonable care and skill in post-default negotiations. A mortgagee may pursue its commercial interests in recovering the secured debt. It need not advise the mortgagor how to improve its negotiating position.

The appellant was a commercial property developer who borrowed £75 million from the respondent bank on the security of a property portfolio. Following defaults and the expiry of the loan, the parties negotiated a restructuring. The bank threatened to appoint receivers if a consensual transfer of the whole portfolio to its subsidiary was not agreed.

The parties instead reached a split arrangement. The appellant paid £20.5 million, retained five properties, and voluntarily transferred the others to the subsidiary. He later alleged intimidation, economic duress, breach of an implied statutory duty of reasonable care and skill, and breach of a duty of good faith.

Kerr J dismissed the claim in the Chancery Division: [2020] EWHC 88 (Ch). The central questions on appeal were whether the bank’s threat coerced the appellant into the agreement and whether the bank owed or breached the alleged post-default duties.

1. Appeal dismissed unanimously. Males LJ, with whom Birss and Lewison LJJ agreed, held that the appellant had not been coerced into the August 2010 agreement. Actual coercion is an essential ingredient of both intimidation and economic duress. It was therefore unnecessary to decide whether a threat to do a lawful but illegitimate act can found intimidation, whether economic duress is itself a tort, or the issues concerning affirmation and remedies.

2. The appellant did not submit to the bank’s demand that the whole portfolio be transferred. He rejected the prepared agreement, continued negotiations with legal and commercial advisers, threatened litigation and public pressure, and eventually secured the split deal which he had proposed. The bank never appointed receivers. The appellant’s later account to a prospective funder described the transaction as consensual and driven by him. Those facts decisively negated coercion.

3. After the loan had expired and the borrower had defaulted, the bank’s provision of lending services was complete. Section 13 of the Supply of Goods and Services Act 1982 had no role in the subsequent relationship. That relationship was governed by the mortgage terms and equitable duties of a mortgagee, as explained in [1999] 1 WLR 1713 and [2008] EWCA Civ 116.

4. A receiver appointed under the security would have been the mortgagor’s agent. It would have been for the receivers, acting in good faith and subject to their own duties, to decide whether and how to sell the properties. A possible sale to the bank’s subsidiary would not therefore have been a sale by the bank to itself.

5. In any event, the bank had committed no breach. Its internal guidance created no secure basis for liability. Its conduct was rationally connected to recovery of the secured debt. A mortgagee need not act with purity of purpose, and, even assuming an implied restriction requiring pursuit of legitimate commercial interests, the bank had not acted vexatiously or outside those interests.

• Court of Appeal (Civil Division): dismissed the borrower’s appeal and refused permission to appeal on the additional affirmation ground: [2021] EWCA Civ 338.
• High Court, Chancery Division: Kerr J dismissed the borrower’s claims by order dated 27 February 2020: [2020] EWHC 88 (Ch).