This is a Sheriff court case considering the enforcement of standard securities (in security for loans of over £1.8m) held over 6 properties in Edinburgh.

Background
The facilities lasted for 5 years and, when they expired, Promontoria[1] demanded payment, the debtors defaulted and Promontoria called up the securities. The debtors did not challenge the calling up procedure. However, they argued that, when the loans were being negotiated, a representative of the Bank had promised that their loan facility would be extended beyond 5 years and that the securities would not be enforced at the end of the 5 year term.

The debtors referred to a meeting during the negotiations at which they had indicated to the Bank’s representative that they were not happy with the proposed 5 year term and that the term of the facility should instead be 20 years. They said that they had been told that the 5 year term was a standard clause in the contract, but that the clause would not be enforced at the end of the term and that the facility would be renewed. The debtors also said that the Bank’s representative had said:

 “Imagine the public outcry if Clydesdale Bank ever pulled in its business loans, it will never happen”.

As such the debtors argued that the Bank had made a binding promise to extend the facility at the end of the 5 year term.

Decision
The Sheriff rejected the debtors’ arguments. After considering previous authorities[2] and noting that a binding promise can only be created by clear and unambiguous words, he found that the debtors had failed to demonstrate the bank’s unambiguous intention to be legally bound or that a reasonable observer in the context would have understood that the Bank had made a binding promise.

In the first place, although the debtors had asserted that they had been told that the facility would be extended beyond 5 years and that the securities would not be enforced at the end of the 5 year term, they had been unable to provide evidence of the precise words used: those words were critical as the court had to consider the words used in the context and determine objectively whether a binding promise had been made.

In the second place, although the debtors had provided evidence of the words used in relation to the representative’s comments on the public outcry that would arise if the Bank pulled in its business loans the sheriff said the following:

“I considered it inherently unlikely that the Bank’s representative would make a promise which destroyed the legal efficacy of the Bank’s securities. Notwithstanding that observation however, in my opinion, the words pled do not indicate a clear and unambiguous intention on the part of the Bank to extend the specific loan facilities beyond 5 years and not to enforce its 6 securities, nor do I consider a reasonable recipient considering the meaning conveyed by the words, who was in the process of executing formal legally binding standard securities over property, in a commercial context, would reasonably believe so. At most, I would characterise the language used and the sentiments conveyed in the words to be no more than an invitation to speculate about public opinion allied to a strong feeling of confidence and optimism, on the part of the maker in June 2007, that the Bank’s then practice in relation to business loans would not alter.”

The full judgement is available from Scottish Courts here.

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[1] The securities were originally granted in favour the Clydesdale Bank and subsequently assigned to Promontoria.

^[2] In particular, Regus (Maxim) Ltd v. Bank of Scotland plc [2013] CSIH 12, 2013 SC 331.