In 2007 Derek Carlyle sought funding from RBS to both buy and develop plots at Gleneagles. Due to a buy back clause imposed by Gleneagles, Mr Carlyle would make a loss on the land unless he developed it. He advised RBS that it was essential if lending him the money to buy the land that the bank also lent him the money to develop it.
RBS confirmed that they understood this during telephone discussions and verbally advised him that funding was “all agreed”. However, no development funding was ever provided by RBS, who subsequently raised proceedings against Carlyle seeking recovery of the sums loaned by them for the land acquisition.
On Wednesday 11 March 2015 the UK Supreme Court announced its decision in favour of Mr Carlyle. All of the five UK Supreme Court Justices found in Mr Carlyle’s favour making this an overwhelming victory for the property developer who has had to defend his case against RBS since 2008 . The UK Supreme Court’s decision marks the successful end to the long running legal battle between Mr Carlyle and RBS on the question of whether RBS had promised to provide Mr Carlyle with the development funding for the project in Gleneagles.
Mr Carlyle and his solicitors, MBM Commercial LLP, are delighted that after years of standing up to the large Bank, the UK’s highest court has finally confirmed that the Court of first instance was right in holding that RBS had indeed given an undertaking or contractual promise to Mr Carlyle at the time the purchase funding was provided that development funding would also be forthcoming.
This case is only one in hundreds of cases where property developers have fallen victims to the consequences of the economic downturn in 2008. During the lead up to the crash, banks, including RBS, were providing vast amounts of lending in the property development industry. It was not uncommon for banks to bid against each other to win business.
Mr Carlyle’s case was no different. In 2007 he sought and was promised by RBS both purchase and development funding. Mr Carlyle drew down the purchase funding in 2007 and thereafter sought to draw down the development funding in early 2008. By that point the market crash had hit the UK and RBS had closed its doors for lending. Regardless of what had been previously promised, if the funds had not yet gone out, they were not going out.
When RBS raised an action against Mr Carlyle during the second half of 2008 for repayment of the purchase funding, Mr Carlyle defended the action and sought damages from RBS for breaching the collateral warranty or contractual promise it had given in respect of the development funding.
The Lord Ordinary in the Outer House of the Court of Session found in Mr Carlyle’s favour, agreeing that the Bank had given and breached a collateral warranty. RBS thereafter appealed and the Inner House of the Court of Session (the Scottish Appeal Court) sided with the Bank. The Inner House concluded that the telephone discussions relating to the assurance of funding was a statement of future intention and not a collateral warranty or promise. In other words, it was just the bank informing Mr Carlyle of an internal decisionto approve the funding in principle.
Mr Carlyle then appealed to the UK Supreme Court and following the Hearing in November 2014, the Supreme Court issued its decision on 11 March 2015 upholding the Lord Ordinary’s original decision in Mr Carlyle’s favour.
While this is a great victory for Mr Carlyle, the UK Supreme Court’s decision is also likely to have wider implications on the Scottish and English legal landscapes. To date, victories by SMEs and individuals against banks have been few and far between save some recent exceptions such as RBS v O'Donnell & McDonald.
It has been an uphill battle for property developers and SMEs for the last several years against banks that not only have significantly larger pockets for funding litigation but also the somewhat conservative approach of the courts: judges seem to have been of the view until now that banks surely would not have made oral promises about funding intending those promises to be binding.
However the UKSC decision appears to be the long awaited change in the direction of the wind. The highest court in the UK has recognised that a bank can be held to the promises it made to its customers. This may open the floodgates for other similar actions and may make banks think twice about the strengths of any defence they may have on the grounds that the promise was simply oral and nothing had been put down in writing. MBM will keep a watchful eye on the court cases in this area to monitor the aftermath of the Carlyle decision.
Should you be interested in seeking our assistance with a legal matter, please contact the Financial Services & Banking Disputesteam on 0131 226 8200.