MacDonald Hotels Ltd v Bank of Scotland Plc

Hearing dates: 9–10, 14–17, 21–24, 28–29 and 31 October, 4–7 and 19–21 November 2024.

Approved Judgment

This judgment was handed down remotely at 08.30am on 24 January 2025 by circulation to the parties or their representatives by e-mail and by release to the National Archives.

HIS HONOUR JUDGE Pelling KC SITTING AS A JUDGE OF THE HIGH COURT

HH Judge Pelling KC:

Introduction

This is the trial of a claim by the claimants against the defendant (“BOS”), which the claimants quantified at the start of the trial at up to about £118m. Part of the claim and perhaps the largest element by value concerned what the second claimant alleged to be the “ forced disposal” of a parcel of development land at Botley Park, Hampshire, in July 2015. However, that claim was discontinued following the completion of Mr Donald Macdonald's oral evidence.

Thereafter the claim continued in relation to what the first claimant (“MHL”) alleges to have been the forced disposal of three hotels, being (a) the Randolph Hotel in Oxford, which the first claimant owned and which it maintains it was forced to sell and lease back in March 2014; (b) the Old England Hotel on Lake Windermere, which MHL owned and maintains it was forced to sell and enter into a management agreement with the new owners in August 2015; and (c) the Marine Hotel in North Berwick. The Marine was owned at all material times by a subsidiary of MHL's called Macdonald Marine Limited (“MML”). MHL maintains MML was forced to sell the Marine on the basis that MHL would enter into a management agreement with the new owners. The sale took place and MHL entered into a management agreement in respect of the Marine in October 2015.

MHL alleges that the disposal of the Randolph was forced upon it by BOS in breach of the express terms of a shareholders agreement dated 30 July 2003 between MHL and Uberior Investments Limited, (“Uberior”), a wholly owned subsidiary of BOS, to which BOS was also a party (“SHA”). MHL alleges that the disposal of the Old England Hotel was forced upon it (and on MML in relation to the Marine) by BOS in breach of what are alleged to be the implied terms of a Facility Agreement between MHL and BOS known in these proceedings as the 2014 Facility Agreement.

The claim in respect of the Marine is brought by MHL as assignee of BWUK Operator Ltd (formerly known and referred to hereafter for convenience as MML), which had been sold by MHL to Glencairn Finance Limited on 20 October 2015. BOS maintains that the assignment was invalid or, in any event, the claim by MHL could only be brought by it following the assignment, and that since it is agreed between the parties that MHL's claim as assignee is to be deemed issued on 18 July 2024 and that the relation back doctrine is not to apply, it follows that the Marine Hotel element of the claim is statute barred.

The core allegation made by MHL is that by forcing the sale of the hotels, BOS acted in bad faith, contrary to the express term relied on and/or the alleged implied terms. MHL alleges that it should have been permitted by BOS (if it had been acting in good faith) to repay BOS in other ways and/or over a longer period so as to enable them to avoid or delay selling the hotels at what it maintains were undervalues, in the sense that the hotels were sold at a time in the economic cycle when hotel values were historically low.

BOS denies that (i) the express term relied on has the effect for which the claimants contend; (ii) the implied terms asserted are to be implied into the 2010 or 2014 Facility Agreements; (iii) there has been a breach of either the express terms relied on or the implied terms, if such are to be implied, and (iv) any alleged breach as may be proved has caused the alleged or any loss to the claimant. In addition, and aside from the limitation defence it relies on in relation to the Marine Hotel claim, BOS also maintains that any claim that MHL might otherwise have had in relation to the sale of the Randolph Hotel was discharged by a Deed of Waiver (“DoW”) dated 19 March 2014. MHL disputes that such is the effect of the DoW as a matter of construction or because MHL is entitled to avoid the DoW on the ground that it was procured by misrepresentation. In addition, it pleaded and maintained until its closing submissions an allegation that BOS had procured MHL's agreement to the DoW by economic duress. That allegation was abandoned by its omission from its closing submissions. It was not resurrected in the course of Mr Lord KC's closing oral submissions.

The value of the remaining hotel sale claims depended on various issues of principle and detail that were in dispute at the start of the trial. However, those were largely resolved by agreement between the parties during the course of the trial with the result that the sums recoverable by way of damages depend upon the resolution of six remaining issues of principle. It was agreed I would reach conclusions on those issues (to the extent that it is necessary to do so once conclusions have been reached on the liability issues) and the parties would carry out the necessary calculations. In the result, although the parties had relied on extensive expert evidence from no less than 7 witnesses, it was not necessary for any of those witnesses to be called to give evidence and it is not necessary that I refer to it further at this stage.

The trial took place between 9–10, 14–17, 21–24, 28–29 and 31 October, and 4–7 and 19–21 November 2024. I heard oral evidence adduced by MHL from:

i) Mr Donald Macdonald, who was during the relevant period the Chairman of MHL;

ii) Mr Gordon Fraser, who was at the relevant time the Finance Director of MHL;

iii) Mr James Davidson, who was at the relevant time the Corporate Finance Manager of MHL;

and oral evidence adduced by BOS from:

iv) Mr Richard Dakin, who was the Head of Corporate Real Estate within a division of BOS known as the Business Support Unit (“BSU”) between 2009–2014;

v) Mr Duncan Smith, who was BOS's relationship manager responsible for the relationship between MHL and BOS between 2009 and the last quarter of 2014;

vi) Mr Ian Guthrie, one of BOS's officials responsible for hotel exposure

via customers managed from within the BSU and who was involved in BOS's relationship with MHL between 2012 and 2014;

vii) Mr Bruce Anderson, who was a director of Uberior from 2002 to February 2015. Uberior was at all material times a wholly owned subsidiary of BOS that held shares in the entities with which BOS entered into joint venture relationships (including with MHL) and was a director of MHL between 2005 and July 2014 as Uberior's nominee;

viii) Mr Alasdair Gardner, an official employed by BOS who was head of a division within the organisation of BOS referred to variously as the Mainstream or frontline lending team and who became involved in the relationship of BOS with MHL in 2014; and

ix) Mr Matt Bentley, an official employed by BOS who became involved in the relationship between MHL and BOS from 2015.

This is a very heavily documented commercial claim relating to events that occurred between 10–15 years ago. In those circumstances, the oral evidence of each of the witnesses of fact must be tested, wherever possible, against the contemporary documentation, admitted and inconvertible facts and inherent probabilities – see Onassis and Calogeropoulos v. Vergottis [1968] 2 Lloyds Rep 403 at 407 and 413 – and their subsequent conduct – see Bailey v. Graham [2012] EWCA Civ 1469 per Sir Andrew Morritt CHC at [57]. Whilst it is necessary to consider all of the relevant evidence and not simply such documentation as may be available – see Kogan v. Martin [2019] EWCA Civ 164 per Floyd LJ at [88]–[89] — there is nothing either in this authority or the requirement to consider all of the evidence that prevents the evaluation of oral evidence using the techniques referred to above. Given the passage of time that has elapsed since the occurrence of the events relevant to this claim, use of these techniques is all the more appropriate – see Gestmin SGPS SA v. Credit Suisse (UK) Limited [2013] EWHC 3560 (Comm) per Leggatt J (as he then was) at [15]–[22]. This is the approach I have adopted.

The Randolph Hotel Claim

Factual and Contractual Background Down to 19 March 2014

At all material times MHL (and its publicly owned predecessor) owned and operated a portfolio of hotels that included the Randolph, the Old England and the Marine Hotels. BOS was at all material times its commercial banking services provider. Relatively unusually for a commercial, as opposed to an investment, bank or private equity house, BOS was willing to enter into relationships with its customers that involved both an equity and a debt element. In this case that involved BOS (via Uberior) acquiring a 50% shareholding in what became MHL. That relationship was governed by the SHA. The SHA was terminated by agreement on 19 March 2014, when Uberior sold back its shares in MHL and MHL and BOS entered into what is known in these proceedings as the 2014 Facility Agreement. It is for that reason that the express terms of that agreement are of no application to the Old England and Marine claims.

The SHA

The parties to the SHA (who were “ Parties” as defined by...