Macdonald Hotels Limited & Anor v Bank of Scotland PLC

The court dismissed the claim. The judge held that the express SHA clauses (notably clause 6.2 and 6.5.1) did not impose on the Bank of Scotland an onerous duty to subordinate its commercial judgment to the claimants: clause 6.5.1 required honesty and avoidance of bad faith but, read with clause 12.2 and clause 17, did not prevent the bank from negotiating or enforcing lending terms in its own commercial interests. The judge applied established contractual construction principles (including Wood v Capita) and the Braganza analysis to refuse to imply broad supervisory obligations into the facility agreements. The Deed of Waiver (DoW) was construed to cover historic complaints arising from the finance documents and was not procured by actionable misrepresentation; the alleged LIBOR-related inference failed. A limited Braganza-style implied qualification was, however, implied into the 2014 Facility where disposals required the bank’s prior written approval: the bank must not act dishonestly or for some purpose unconnected with its legitimate commercial interests when considering consent to disposals. On the facts the bank’s refusal to accept the Barclays refinancing of the Manchester Hotel and its insistence on deleveraging by the agreed disposals (Old England and Marine) was rational and lawful. The Marine Hotel claim (as presented by assignment) was statute‑barred in any event.

Background and parties: This was a first-instance commercial trial. The claimants (Macdonald Hotels Ltd and Macdonald Botley Park Ltd) sued Bank of Scotland Plc (BOS) alleging that BOS forced disposals of hotel assets in breach of (a) express SHA obligations and (b) implied terms in facility agreements (principally the 2014 Facility). Large-value damages were sought arising from alleged forced sale and sale-and-manage-back transactions affecting the Randolph, the Old England and the Marine hotels. The Marine claim was later pursued by assignment.

Relief sought: damages for breach of contract and associated declarations in relation to alleged bad-faith conduct and improper exercise of lender discretions; avoidance/rectification arguments to the Deed of Waiver were also advanced.

Issues for decision:

• Construction of the SHA (clauses 6.2, 6.3, 6.5 and 12) and whether it imposed an express, enforceable duty obliging BOS to subordinate its commercial judgement;
• Whether terms should be implied into the 2010 or 2014 facility agreements (Braganza approach) to constrain BOS’s consent/discretion over disposals (the "Disposal Implied Term");
• Whether the Deed of Waiver barred the Randolph claim and whether it was procured by misrepresentation;
• Whether BOS acted irrationally or in bad faith in refusing the Barclays refinancing of the Manchester Hotel and in requiring the Old England and Marine sales; and
• Limitation and assignability issues in relation to the Marine Hotel claim.

Court’s reasoning (concise):

• Contract construction: the court applied objective construction (Wood v Capita) and read SHA clauses in context. Clause 6.5.1 required good faith but, read with clause 12.2 and clause 17, did not oblige BOS to provide financing or to subordinate its commercial interests. The phrase "in good faith on arm’s length terms" was held to be modest: honesty and avoidance of bad faith but not an obligation to prioritise the counterparty’s interests over the bank’s.
• Implied terms: the judge applied the Marks & Spencer/Braganza principles. The restraint on disposals in the 2014 Facility was not within the equitable "mortgage exception" and, because the facility expressly required prior written approval for disposals, a limited Braganza-type qualification was necessary to give business efficacy: the bank must not refuse consent dishonestly, for an irrelevant purpose or in a way no reasonable lender could. That qualification was modest and did not require the bank to subordinate its commercial judgment.
• DoW and misrepresentation: the Deed of Waiver covered historic complaints related to the finance documents and was properly interpreted to bar the Randolph claim. The reliance and falsity elements of the misrepresentation/avoidance case failed: the relied-on email was read in context and did not falsely assure the claimants in the way alleged; contemporaneous conduct and admissions showed the claimants entered the DoW for economic reasons and not in reliance on a misleading assurance.
• Application of implied term to facts: BOS’s refusal of the Barclays proposal was rational: the Barclays structure would have worsened group leverage and degraded BOS’s security (priority, effective control over asset income), whereas the sale-and-leaseback route achieved deleveraging and preserved covenant aims. Officials’ internal remarks did not establish capricious or improper purpose.
• Limitation/assignment: the 2014 Facility document did not present as a deed by all parties; the Marine claim, as assigned to MHL, was therefore brought outside the six-year limitation period and was statute‑barred. Also clause 28 prevented assignment of accrued rights absent the contractually required procedure.

Result: the claim was dismissed in full. The judge declined to reach the quantum issues because of the disposition on liability and procedural/limitation grounds.

First instance: The claim is dismissed. The court held that (1) clause 6 of the shareholders agreement did not impose an express obligation on the bank to subordinate its commercial judgment; (2) no broad Braganza-style implied constraints could be read into the facility agreements beyond a modest qualification that the bank must not act dishonestly, irrationally or for an improper purpose when exercising a consent power; (3) the Deed of Waiver covered historic complaints arising from the finance documents and was not procured by actionable misrepresentation; (4) on the facts BOS acted rationally in rejecting the Barclays refinancing and insisting on deleveraging by the agreed disposals; and (5) the Marine Hotel claim (as assignee) was in any event time-barred.