Trevor Horn, Carlo Dinardo & Rowanmoor Trustees Ltd v Commercial Acceptance Ltd (2011)


In the circumstances and on the proper interpretation of the loan agreement between the parties the claimant investors were entitled to recover their contribution in full.


The claimants (T) sought relief in respect of a loan agreement under which the borrowers failed to make repayment and the security when realised was insufficient to cover the amount of the loan. T were the trustees of a pension scheme. The defendant (C) was a provider of short-term bridging finance. C had lent £2,186,000 to the borrowers secured on four flats in London. That was a 90 day loan. C's lending criteria did not permit it to make loans in excess of 75 per cent of the loan to value ratio. T's involvement was to contribute "top up" finance. In the instant case C was to contribute £1,671,800 and T £514,200. Under the loan agreement C's contribution was to be repaid before T's contribution. The agreement was supported by a trust deed under which C held the security for the loan and the redemption moneys in trust for itself and T in the same proportions as their contributions. Instead of C lending the entirety of the first-tier debt it only paid half, and the balance came from an individual (G) pursuant to a trust deed between G and C. T did not know of G's involvement. The borrowers failed to make repayment within 90 days and the flats were sold. The total realisations from the sales were less than the amount of the loan. C and G were repaid in full but T received only £101,708. T claimed that they were entitled to be repaid after the actual contribution made by C of £835,900 and before G was repaid; alternatively they were entitled to rescind because C had breached its duty to act in good faith; alternatively they were entitled to damages for breach of the agreement or breach of fiduciary duty.


(1) As a matter of interpretation of the loan agreement in context, references to C's "contribution" had to be taken to refer to a contribution actually made by C. C acknowledged that it could not lay off 100 per cent of the liability. All of the discussions between T and C were about collaborating in providing funding on loans. It was clear from the wording of the various provisions that the parties contemplated at all times that only T and C would be participating in the transactions. Further, G's contribution could only be seen as a contribution by him and not by C. On that basis C was in breach of the agreement because it had failed to apply the realisation proceeds in the priorities there set out (see paras 54-56 of judgment). (2) It was unnecessary to determine whether C was a fiduciary since clause 18 of the agreement imposed on the parties an express obligation of good faith. That imported an obligation to disclose material facts. In context G's investment was a material fact which should have been disclosed. T were entitled to know whether or not C was funding the major part at least of the first tier lending. Thus C was in breach of its duty of good faith. Dishonesty did not have to be established for there to be a breach of good faith, Medforth v Blake (2000) Ch 86 CA (Civ Div) and Niru Battery Manufacturing Co v Milestone Trading Ltd (No1) (2003) EWCA Civ 1446, (2004) QB 985 considered. Accordingly, if necessary, C would be entitled to rescind (paras 66-68, 74-76, 79). (3) The claim for damages for breach of the agreement or breach of fiduciary duty by failing to put up all the first-tier finance failed because if C had complied with the terms of the agreement and put up all the money itself the result would have been the same. T would have suffered the same loss which arose not from that breach but from the decline in the value of the security. Thus T were entitled to damages for breach of the agreement but only to nominal damages (paras 83-84).

Judgment for claimants