No “automatic renewal” of lending facilities in first GRG-related claim brought to trial

In Broomhead v NatWest and RBS, David Quest QC and Charlotte Eborall acted on behalf of National Westminster Bank plc and Royal Bank of Scotland plc (instructed by Addleshaw Goddard LLP).

On 21 June 2018, HHJ Klein, sitting as a Judge of the High Court in Leeds, handed down an 89-page judgment in Broomhead v National Westminster Bank plc and Royal Bank of Scotland plc [2018] EWHC 1574 (Ch).

This was the Bank’s first trial concerning the actions of its former Global Restructuring Group (“GRG”) division. However, at trial the focus was on Mr Broomhead’s claim that he and his NatWest relationship manager had orally agreed a collateral contract that his borrowing would be “automatically renewed” and RBS was removed as a defendant at the start of trial.

Mr Broomhead alleged that, from January 2009, NatWest wrongfully withdrew support for his business by refusing to extend or renew his facilities. In June 2009, the management of his accounts came under the control of GRG.  In late 2009, Mr Broomhead’s business collapsed and, in January 2012, he was made bankrupt. In 2015, Mr Broomhead’s claims against the Bank were assigned to him by the Official Receiver, served on the Bank in January 2016.

Mr Broomhead’s legal claim pleaded breach of the alleged oral collateral contract, breach of the loan agreements and breach of implied terms of the general “banking relationship”. He also brought a section 140A Consumer Credit Act 1974 claim asserting that he ought to be awarded “financial compensation” for an alleged “unfair” banking relationship (the “CCA claim”).

NatWest’s defence was multi-pronged:

1. NatWest said that there was no oral collateral contract on the facts and because there was no intention on either side to create legal relations.

2. In any event, the contractual breach occurred before April 2009 and the claims were statute-barred by the Limitation Act 1980.

3. Moreover, Mr Broomhead’s case failed on causation – his business was already insolvent (two of his companies became insolvent in March 2009) and sold plant to fund hire-purchase repayments and because he had no customers.

4. Mr Broomhead had not suffered any loss either – his claims were speculative and without evidential basis.

5. For the same factual reasons, the CCA claim must fail. NatWest further submitted that the Court had no power to award “financial compensation” under s.140B CCA.

The Judge determined each of these issues in NatWest’s favour:

1. Mr Broomhead’s evidence was founded on reconstruction, not recollection, was not reliable and was instead based on “his unshakeable conviction that the failure of his business can only have been attributed to NatWest’s conduct”: Gestmin SGPS SA v Credit Suisse (UK) Ltd [2013] EWHC 3560 (Comm) (Leggatt J); Khakshouri v Jimenez [2017] EWHC 3392 (QB) (Green J) referred to.

2. In any event, any statements could not have had contractual effect, which Mr Broomhead appreciated.

3. The contractual claims were time-barred. In answer to the Claimant’s Counsel’s attempts to circumvent limitation: (a) there was no continuing breach of contract by failing to renew the facilities; (b) a 12-year limitation period did not apply merely because the loan was secured; and (c) the limitation period did not begin to run again from the date of bankruptcy because of NatWest’s pleaded insolvency set-off.

4. In any event, NatWest did not cause Mr Broomhead’s business collapse. Mr Broomhead’s case was thwarted by his own accountants’ cash flow forecasts and his testimony at the time his companies became insolvent that attributed the failure to other matters.

5. The evidence was too weak for the Judge to be satisfied that the threshold criterion for Mr Broomhead’s “loss of a chance” claim had been met – i.e. there was no “real or substantial” chance of Mr Broomhead acquiring the contracts he said he would have done.

6. Obiter, the Judge was inclined to think that it was right that financial compensation was not permissible under s.140B CCA, but he agreed that the CCA claim failed on its facts in any event.

The detailed judgment contains helpful guidance and reinforcement of the legal principles concerning: witness reliability (paragraphs 225 to 228); intention to create legal relations (paragraphs 280 to 281); contractual limitation periods (paragraphs 286 to 295); continuing breaches of contract (paragraphs 313 to 314); anticipatory breach (paragraph 335); and relief available under s.140B CCA (paragraph 373). It also serves as a robust first judgment in the sphere of GRG claims.

At the consequential hearing on 23 July 2018, NatWest was awarded its costs, including a significant proportion on the indemnity basis, because of Mr Broomhead’s failure to engage pre-action; his unreasonable behaviour during proceedings in relation to his ever-changing case on quantum (which at one stage appeared to exceed £17 million); and for failing to accept the Bank’s settlement offer. Charlotte Eborall was instructed for that hearing.

Mr Broomhead is currently seeking permission to appeal to the Court of Appeal.