CONTACT US 01312268200

David is taking Goliath to the UK Supreme Court

Posted on Nov 04, 2014 by Liina Tulk  | Tags: carlyle, RBS, collateral warranty, breach of contractual promise, UK Supreme Court, Appeal, Inner House, Gleneagles, property crash,  | 0 Comments

By Liina Tulk, Solicitor, Dispute Resolution

In less than three weeks time the UK Supreme Court will hear the case of RBS v Carlyle. This will be the long awaited end to a dispute that began over six years ago involving development funding for two properties at Gleneagles.

Facts

Often cases that make their way to the Supreme Court can involve complicated legal issues. This case, on the other hand, is in its essence fairly simply and straight forward. The case involves a property developer, Mr Carlyle, asking RBS for funding in order to purchase and develop two plots of land at Gleneagles, Scotland. The usual practice for banks is to provide lending is two separate parts – firstly the purchase funding and thereafter the development funding. Mr Carlyle explained to the bank that the reason he was looking for development funding, rather than “land-banking” the site, was because of a buy-back provision imposed by Gleneagles whereby it retained the right to buy back the plot for the sum paid if the plot had not been built out to wind and water proof stage by 2012.  He made it abundantly clear to RBS that he did not want the purchase funding unless the bank is also agreeing to provide him with the development funding. RBS advised Mr Carlyle that “it’s all approved” and Mr Carlyle accordingly proceeded to draw down the purchase funding and concluded missives for the land. All of this happened during summer 2007.

In March 2008 Mr Carlyle sought to draw down the development funding. At that point, despite the bank calling Mr Carlyle up on December 2007 to ask him when he wanted his development funding, the financial crisis had now reached the UK and the banks attitude towards further lending was that if the funds had not gone out, then they would not be going regardless of what had previously been told to customers. Mr Carlyle was told that no development funding would be forthcoming and he was asked to repay the purchase funding. As Mr Carlyle was unable to do so, RBS raised Court proceedings against Mr Carlyle for repayment of the purchase funding.

Collateral Warranty Defence

Mr Carlyle defended the action on the basis that an assurance had been given by RBS for the development funding in the knowledge and with the intent that Mr Carlyle would rely on it by entering into the loan agreement for purchase funding and by concluding missives for the purchase of the land.  Contrary to that assurance, the bank did not provide the funding for the development costs when called upon to do so.  Mr Carlyle’s case was that the assurance given by the bank amounted to a collateral warranty of which RBS was in breach. 

Court decisions so far

 The Judge at first instance (Court of Session Outer House) found in Mr Carlyle’s favour. RBS appealed the decision to the Court of Session Inner House and the appeal court sided with the bank. Essentially the appeal court found that no such thing as collateral warranty exists in Scots law. The court refused to acknowledge that promises and assurances made by one party (RBS) to another (Mr Carlyle) could be binding unless they were also put down in writing, in this case in the signed loan agreement for purchase funding. That effectively creates a situation where one party can tempt another into entering a contract based on an assurance or promise that they do not later on have to follow through on. At the same time, but for the promise the other party would never have entered the contract in the first place.

UK Supreme Court Hearing

Mr Carlyle has appealed to the UK Supreme Court. On 20th November the Supreme Court will hear arguments for both Mr Carlyle and RBS on whether or not collateral warranties should be accepted as part of Scots law.

The Hearing can be watched live at the UK Supreme Court website.

Conclusion

If Mr Carlyle is successful, that could open floodgates for many others who entered a contract on an assurance which was later on never followed through on. If you find yourself in a similar situation to Mr Carlyle, then please do not hesitate to contact us to see what remedies are available for you.

Should you be interested in seeking our assistance with a legal matter, please contact the Dispute Resolution team on 0131 226 8200

Becoming A Leader Others Want To Follow
Herald Scotland News Article: MPs Challenge Govern...

Contact us

Invalid Input
Invalid Input
Invalid Input
Invalid Input
Invalid Input
Invalid Input

Contact us

Invalid Input
Invalid Input
Invalid Input
Invalid Input
Invalid Input
You must confirm you have read and accept our Website Privacy Policy.
Invalid Input