John Glare Against Clydesdale Bank Plc
| Jurisdiction | Scotland |
| Judge | Lord Doherty |
| Neutral Citation | [2015] CSOH 184 |
| Court | Court of Session |
| Docket Number | CA21/13 |
| Published date | 31 December 2015 |
| Date | 31 December 2015 |
| Year | 2015 |
OUTER HOUSE, COURT OF SESSION
[2015] CSOH 184
CA21/13
OPINION OF LORD DOHERTY
In the cause
JOHN GLARE
Pursuer;
against
CLYDESDALE BANK PLC
Defender:
Pursuer: Mitchell QC, Lindhorst; Balfour + Manson LLP
Defender: Clark QC, J N M MacGregor; CMS Cameron McKenna LLP
31 December 2015
[1] In this commercial action the pursuer seeks damages from the defender on the ground that in February 2008 it provided him with a Tailored Business Loan of £3.95 million on terms which it ought not to have asked him to agree to (“the TBL”). The TBL was a fixed interest rate loan with a 25 year duration. Bank variable interest rates fell below the contractual loan rate in late 2008. They fell further during 2009. The pursuer’s business failed. On 21 September 2009 the defender terminated the loan facility as a result of the pursuer’s breach of covenants. Receivers were appointed by the defender on 26 April 2010 and on 4 February 2011 a bankruptcy order was made against the pursuer on the application of a third party. The pursuer blames the TBL for the failure of his business and for his bankruptcy. He maintains that had he not entered into the TBL (i) he would have sought and obtained a variable rate loan; and (ii) his business would not have failed and he would not have been made bankrupt.
[2] The defender accepts that the TBL was not a suitable product for the pursuer. It accepts that it was wrong to conclude a contract of loan with the pursuer which had a fixed rate of interest for 25 years. It also accepts liability to make reparation to the pursuer in respect of such loss and damage (if any) as was caused to the pursuer as a result of him entering into the TBL. However the defender maintains that the pursuer has failed to prove (i) that he would have sought and obtained a variable rate loan; (ii) that his business would have succeeded and that he would not have become bankrupt if he had obtained a variable rate loan. In the event that the pursuer does prove (i) and (ii) the defender maintains that the pursuer’s debts to it exceed any damages which would otherwise have been due by it to the pursuer.
[3] The action came before me for proof. It was set down for eight days. Witness statements and expert reports were treated as evidence‑in‑chief. In some cases this was supplemented by oral evidence. Notwithstanding the time thereby saved in evidence‑in‑chief, the evidence took eleven days to complete. Thereafter parties prepared written closing submissions and I heard oral submissions over the course of a further day.
The evidence
[4] The witnesses led on behalf of the pursuer were the pursuer; Mrs Fiona Glare (the pursuer’s former wife); Mr David Glare (the pursuer’s brother); Mrs Diane Hastie (the chairman and a director of Country House Wedding‑Venues (“CHWV”); Ms Sally Longworth (a chartered accountant); Mr Keith Hagon (the executive director of Christian Camping International UK Ltd (“CCI”)); Mr Graham Coulter (a chartered surveyor); Mr Craig Ritchie (a chartered surveyor); and Mr Malcolm Latchman (a mortgage broker).
[5] The witnesses led by the defender were Mr David Milne (currently a Credit Director in the defender’s Specialist and Acquisition Credit Team, and who in 2009 was a manager in the defender’s Strategic Business Team); Mr Douglas Campbell (currently the defender’s Head of Corporate Support, and who in 2008 and 2009 was a special adviser to the defender’s chief operating officer); Mr Jason Smith (currently a manager in the Commercial Real Estate Group at National Australia Bank, and who from 2009 to 2012 was a manager in the defender’s Specialised Business Services Exit team); Mr Michael Rothwell (an independent expert on the hotel and wedding sectors); Ms Elizabeth Gutteridge (a chartered accountant); and Mr Stephen Richardson (a chartered surveyor). In addition, in terms of a joint minute of admissions (no. 53 of process) it was agreed that the witness statement of Mr Tim Perkin (senior director in the Capital Advisers, Loan and Corporate Recovery Team at CBRE, a firm of commercial property consultants) should be treated as his evidence. A number of other matters were also agreed. A large number of documents were produced and many of them were referred to during the proof.
The relevant facts
[6] I set out below the relevant facts. The evidence in relation to most of them was not the subject of much contention. I will make findings on more contentious matters later.
[7] Chantmarle Manor is situated in a remote rural location in West Dorset, in the upper Frome valley near Frome St Quintin and to the north of the village of Cattistock. Access to it from the A37 is along country lanes. The manor house is a historic building and is Grade 1 listed, with Grade 2 listed gardens. Between 1950 and 1995 it was in institutional use as a police training centre. During that period a large number of rather unattractive and incongruous modern buildings were built within the estate grounds in close proximity to the house and gardens.
[8] After the police training centre closed the property was purchased by a developer with a view to residential development, but planning consent was refused. It was sold on and was used as a business training centre for a time. In 2001 it was sold again. The purchaser renovated the manor house and it became a private dwelling.
[9] The pursuer worked for Amex between 1984 and 1996. Initially he did bank reconciliations for the travel division. He was promoted and became a quality control clerk. In that post he checked the work of other staff. Latterly he worked in the establishment services division, which processed card transactions for shops, hotels and other establishments.
[10] In 1987 the pursuer began to buy terraced houses in Brighton. He built up a buy‑to‑let portfolio of 42 residential properties. He borrowed money to buy the properties. Some of the loans were fixed rate loans and some were variable rate loans.
[11] In December 2002 the pursuer purchased Chantmarle for £4,500,000. He financed £1,350,000 of the purchase price by remortgaging his property portfolio with his existing lenders and he borrowed the remaining £3,150,000 from The Mortgage Business. After the purchase he carried out some renovation work. In order to finance the work he remortgaged his property portfolio for a second time. He paid off some of the loan to The Mortgage Business. In about 2004 he obtained loans from Lloyds TSB (a business loan of £1,500,000 and a small overdraft facility) and he paid off The Mortgage Business loan.
[12] In August 2005 the pursuer instructed agents to sell his Brighton property portfolio. The sale was completed by February 2006. £300,000 released from the sale was injected into the Chantmarle business. As a result of the disposal of the portfolio the pursuer incurred a capital gains tax liability of £1,148,000.
[13] Prior to 2006 the pursuer’s loans from Lloyds TSB had been variable rate loans. In June 2006 he fixed the interest rate on his £1,500,000 business loan for a period of two years at 6.96% per annum. The whole of the principal fell to be repaid at the end of the two year period. Between 2004 and 2008 the pursuer’s overdraft borrowing from Lloyds TSB increased significantly. As at March 2005 his overdraft limit was £8,000. In August 2005 the limit was increased to £300,000. In March 2006 it was increased to £500,000. In May 2006 it was increased to £760,000. In February 2007 it was increased to £900,000. In November 2007 it was increased to £1,150,000. Interest was due on overdraft borrowing at 2% per annum over the bank’s base rate. If the overdraft account was not in credit at some point during a charging period the lowest cleared debit balance of the account was to be treated as hard‑core borrowing with interest at an additional 1.5% above the overdraft rate. If the overdraft limit was exceeded the interest rate paid on the excess was 7% over the bank’s base rate.
[14] By early 2008 the pursuer’s total indebtedness to Lloyds TSB had risen to about £2.76 million. He had exceeded his overdraft limit. Payment of the CGT liability in respect of the 2006 disposal was overdue. In order to raise funds to discharge that liability he decided to increase his borrowing.
[15] On 14 February 2008 the pursuer borrowed £3,950,000 from the defender. The TBL was a fixed rate (7.8% per annum) loan repayable over a period of 25 years. During the first year the repayments were interest only. The terms of the TBL obliged the pursuer to fulfil a number of financial covenants. In the event of his failing to do so the defender had the option to break the TBL. If the loan was broken before the loan expiry date (whether by the defender exercising an option to break or by the pursuer bringing it to an end prematurely) “mark to market” break payments could arise. If at the time of the break bank lending rates had fallen since the TBL was entered into, a payment might be due by the defender to the pursuer (a break gain). On the other hand, if at the time of the break bank lending rates were lower than the contractual rate the pursuer would require to make a payment to the defender to compensate it (a break cost). In either case the size of the break payment would depend upon the differential between lending rates at the time of the TBL and at the time of the break, and the period which the loan had left to run.
[16] The pursuer used £2,764,868 of the TBL advance to pay off his indebtedness to Lloyds TSB. Most of the remainder of the advance went towards paying off his outstanding capital gains tax liability. The defender also agreed to provide the pursuer with an overdraft facility. The overdraft limit was £50,000.
[17] The pursuer’s initial plan had focussed on running a Christian conference centre at Chantmarle. In about the autumn of 2005 he decided to host wedding receptions as well in order to generate additional cash flow. Obtaining planning permission for that...
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John Glare Against Clydesdale Bank Plc
...2015. The only issues for decision were causation and quantum. Lord Doherty found in favour of the bank and granted decree of absolvitor: 2015 CSOH 184. Specifically, he held: first, that he was not satisfied that the pursuer would have sought and obtained a variable rate loan, described by......