Professional Documents
Culture Documents
2(d)
of the Settlement provided that if “with the prior
4 July 2018 approval of the bank (such approval not to be
unreasonably withheld or delayed) the property
is sold, [the claimants] shall immediately repay to
DIFFERENT the bank the net proceeds of sale” (emphasis
added). The Settlement also provided that if such
BANK’S EXERCISE €5.9 million under the Loan. They took steps to sell
the Property in order to reduce their indebtedness,
OF
and eventually received an offer of some €4.5
million. However, the bank refused to approve the
sale unless the claimants provided further security
CONTRACTUAL in respect of the balance owed to the bank after
the proceeds of sale were applied to repay the
DISCRETION Loan. Since no further security was provided by
the claimants, the bank refused to approve the
Crowther v Arbuthnot Latham & Co Ltd sale. The sale opportunity was lost.
[2018] EWHC 504
The claimants brought an action for a declaration
SUMMARY that the bank’s refusal to consent to the sale of the
Property was unreasonable. They also argued that
In Crowther v Arbuthnot Latham & Co Ltd [2018] the bank’s condition of further security was
EWHC 504, the English High Court (“HC”) unreasonable.
interpreted a clause in a settlement agreement,
which provided that the defendant-bank would not
THE HC’S DECISION
unreasonably withhold its consent to the sale of a
property over which it held security. The HC held The HC held that the bank had unreasonably
that this clause required the bank to act in withheld its consent to the sale of the Property, in
accordance with an objective standard of breach of the Settlement. In construing the scope
reasonableness, as opposed to a lower standard of the bank’s rights and obligations under Clause
of Wednesbury reasonableness or rationality in 8.2(d), the HC found that:
arriving at its decision.
(a) the key issue was the proper purpose of the
This case illustrates that depending on the proper clause, and this had to be gleaned from the
construction of the relevant clause, the Courts may particular contractual, factual and commercial
apply different standards to a bank’s exercise of its context of the clause;
contractual discretion.
(b) the scope of the clause was to permit the
BACKGROUND disposal of the Property at a proper price.
This was clear in light of the following
The claimants took various loans from the contractual, factual and commercial context
defendant-bank which were secured by their of the clause;
property in France (“Property”). In 2011, the
claimants brought claims against the bank under (i) at the time of the Settlement, the
the Consumer Credit Act 1974, in respect of the estimated value of the Property was
loans. The parties eventually entered into a considerably less than the claimants’
settlement in respect of the claims (“Settlement”). outstanding indebtedness under the
Loan, with no prospect of it
Pursuant to the Settlement, all but one loan was increasing. In other words, the bank
discharged, and the bank agreed to extend that agreed to enter into the Settlement
with the Property as the sole property to pay off the Loan in its entirety.
security, notwithstanding the fact Accordingly, the HC found that the bank’s refusal
that it would be unsecured for the to consent to the sale, without the provision of
outstanding portion of the Loan further security by the claimants, was
which exceeded the value of the unreasonable and in breach of Clause 8.2. The HC
Property; and deferred questions of relief (eg damages) arising
from the bank’s breach to be dealt with at a later
(ii) creditors do not usually object to the stage.
sale of security provided they are
not undervalued and the proceeds COMMENT
go directly to discharging the
indebtedness of the borrower; The objective standard of reasonableness applied
in Crowther differs from the test applied by the
(c) in the premises, the reasonableness of any Singapore and English Courts to clauses which
refusal of consent must be determined by confer on a bank:
reference to whether the proposed sale was
at fair market value and at arm’s length. (a) “sole” or “absolute” discretion; or
2
reasonableness of the bank’s exercise of If you have any questions or comments on this
contractual discretion. If in doubt, the bank should article, please contact:
obtain legal advice on the appropriate language to
be employed in respect of their contractual
discretion under their standard terms.
________________________________________
The content of this article does not constitute legal advice and should not be
relied on as such. Specific advice should be sought about your specific
circumstances. Copyright in this publication is owned by Drew & Napier
LLC. This publication may not be reproduced or transmitted in any form or Benedict Teo
by any means, in whole or in part, without prior written approval.
Director, Dispute Resolution
T : +65 6531 2499
E: benedict.teo@drewnapier.com
Pauline Chong
Head, Banking & Finance
T : +65 6531 2796
E: pauline.chong@drewnapier.com
Elaine Lim
Senior Associate, Dispute Resolution
T : +65 6531 2233
E: elaine.lim@drewnapier.com
www.drewnapier.com