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“Fair wind” blows for banks in recent case

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07/05/2015

A recent case has raised two interesting legal issues for banks in a commercial  context: how does a claimant sue for loss of a chance, and will a court imply a duty to obtain the best price reasonably obtainable in a forced sale?

The claim
In Rosserlane Consultants & Anor v Credit Suisse [1] the defendant bank provided a commercial loan to the claimants. The loan was to be repaid by the claimants following a sale of the claimant’s partnership business (Caspian Energy Group, CEG), whose main asset was an oilfield in Azerbaijan. The parties entered into a suite of loan and other contractual documentation, including a security agreement (which included the well-established duty of a mortgagee to take reasonable steps to obtain the best price reasonably obtainable in a forced sale situation) and a participation agreement (which did not). Under the participation agreement the bank was entitled to a share in the proceeds of any sale and had the right to force a sale of CEG if a sale had not been achieved by a longstop date. When two potential sales fell through and the loan was due to expire, the bank forced a sale and the claimants argued that the price was less than the value of CEG. The claimants sued for (a) loss of a chance to sell to a particular bidder at a greater price; and (b) breach of an implied duty on the bank to obtain the best price reasonably obtainable.

The decision
The claim failed on both counts.

So far as any loss of chance claim is concerned, there is always significant difficulty in proving what might have been. In some cases, such as where the wrongdoing of a defendant has deprived a claimant of property of value, claimants may be given the benefit of the doubt in any assessment of that value. There is “an evidential (i.e. rebuttable) presumption in favour of the claimant which gives him the benefit of any relevant doubt. The practical effect of that is to give the claimant a fair wind in establishing the value of what he has lost.” [2]. However that did not assist in this case. Here, there was no suggestion of wrongdoing on the part of the bank and access to the oilfield would have been required before the potential bidder on which the claimant’s argument was founded would have been prepared to value and purchase CEG. Unfortunately for the claimants’ case, evidence was adduced that access would not be granted to allow such valuation. The judge stated that “[T]he presumption of giving the Claimants in a case like this the benefit of the doubt does not to my mind extend to undermining the evidence that has actually been led” [3].

In relation to whether the bank owed any duty to obtain the best price reasonably obtainable, the court noted that this was a commercial arrangement between sophisticated parties and the bank. The bank had exercised its right of sale under the participation agreement, not any right under the security agreement, and the participation agreement was silent as to any duty on the bank in relation to the price on a forced sale. That silence had to be the starting point. Furthermore, on the particular facts, the claimants were under a specific duty in the participation agreement to use reasonable endeavours to procure a sale at the best price, and the lack of a reciprocal duty on the bank was seen, by the court, as highly significant.

WM Comment
As well as highlighting the evidential difficulties that claimants will face in any loss of chance claim, this case demonstrates how reluctant the courts will be to imply terms into contracts that have been freely negotiated between sophisticated parties. So far as lender clients are concerned, this may apply to any form of commercial lending and indeed to any non-standard or negotiated arrangements with any party.

In any commercial or non-standard context, parties must take care to get their contractual terms right. The courts can rarely be relied upon as a fall-back to correct a bad business deal.

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[1] Rosserlane Consultants Ltd (1) and Swinbrook Developments Ltd (2) v Credit Suisse International [2015] EWHC 384 (Ch)
[2] para. 230 (and Browning v Brachers [2005] EWCA Civ 753 at 205)
[3] para 234 (judgment emphasis)