Macdonald Hotels Limited & Anor v Bank of Scotland PLC

A contractual consent power is not necessarily absolute merely because the underlying prohibition is expressed in unqualified terms. Where a professionally negotiated facility agreement permits a secured lender to approve disposals of secured assets, the lender may act in its own commercial interests and need not balance those interests against the borrower’s. However, consent cannot be refused for a purpose unrelated to the lender’s legitimate commercial interests or where no reasonable lender in its position could refuse it. A Braganza-type term may therefore be implied where the consent mechanism would otherwise have no meaningful effect. The claim failed because the lender had rational commercial reasons for rejecting the proposed refinancing, and the pleaded alternative was not shown to have caused the alleged loss.

The claimants alleged that Bank of Scotland PLC forced the disposal of three hotels. The Randolph Hotel claim concerned an alleged breach of express good-faith obligations in a shareholders agreement and was also challenged by reference to a deed of waiver. The Old England and Marine Hotel claims concerned alleged implied controls on the bank’s consent to disposals under a 2014 facility agreement.

The Marine claim was brought by assignment after the original claimant was found unable to recover the subsidiary’s loss. The bank disputed the assignment and limitation. The court determined construction, implication, misrepresentation, causation, assignment and limitation issues. It dismissed the claim without deciding quantum.

1. Randolph Hotel. The shareholders agreement required honesty and absence of bad faith in administering agreed transactions, but did not require the bank to subordinate its commercial interests, accept new facilities on the borrower’s terms, or agree to forgive debt. The pleaded Starwood proposal was neither sufficiently definite nor capable of acceptance, and the bank had not rejected it in breach of duty. The claim also fell within the deed of waiver and was released.
2. Consent to disposals. The prohibition on disposals in the 2014 facility agreement was absolute unless the bank gave prior written approval. The express approval mechanism nevertheless meant that the borrower could seek consent and that the bank had to consider the request. A term was implied that consent could not be refused for a purpose unrelated to the bank’s legitimate commercial interests or where no reasonable lender in its position could refuse. The bank was not required to balance its interests against those of the claimants.
3. Old England and Marine Hotels. The bank rationally rejected the proposed Barclays refinancing because it would not achieve the required deleveraging, would worsen the effective debt-to-EBITDA position, and would materially weaken the bank’s security and control over the Manchester Hotel. The claimants accepted that the Old England and Marine disposals were required to repay Facility B, so the alleged breach could not have caused the pleaded loss.
4. Marine assignment and limitation. The assignment restriction covered accrued causes of action and continued after the facility agreement ended. The subsidiary had not used the contractual resignation machinery, so the assignment was ineffective. Alternatively, the facility agreement was not a deed within section 1(2) of the Law of Property (Miscellaneous Provisions) Act 1989, and the six-year limitation period applied.
5. The claim was dismissed. Quantum issues were not determined.