Trevor Horn & Ors v Commercial Acceptances Ltd (2012)
On the proper interpretation of a loan agreement and accompanying trust deed between a commercial lender and pension scheme trustees who had participated in the lending, the trustees were entitled to recover their contribution in full where a borrower had defaulted and there was a shortfall in the security.
The appellant commercial lender (C) appealed against a decision ( EWHC 1757 (Ch)) that it was obliged to repay to the respondent pension scheme trustees (T) the whole of their contribution to a loan.
C's business was making short-term loans on the security of land. T entered into an agreement with C under which they would contribute to loans being made by C. Clause 6.2 provided that, in the event that sums repaid by the borrower and recovered under any security were insufficient to repay the principal, interest and expenses, the repayments and sums recovered would be applied to repay C's contribution before repaying T's contribution. By the agreement C undertook not to enter into any agency agreement with any third party in respect of any loan. The agreement was accompanied by a trust deed under which C held the benefit of the legal charges and debentures securing each loan and the redemption moneys when received in trust for C and T in the proportions that they had contributed to the loan. C made a loan on property to which T contributed. The borrower defaulted and the property was sold. C repaid itself first and T suffered a capital loss on its contribution. In fact half of the money advanced by C had been paid by an individual (G) pursuant to a trust deed between C and G. T's case was that C's contribution, under cl.6.2, did not include G's contribution and that therefore T's contribution could and should have been repaid in full. The judge agreed and entered judgment for T for the sum claimed and interest.
The judge's conclusion was correct. G had not lent his money to C so as to enable C to make the advance to the borrower. In making its advance to the borrower, C was acting not just as an agent for T but also for G as to his contribution. However, the agreement between C and T was clear that the contribution that each was respectively making was on its own account. There was no scope for C to be a trustee of any part of the loan for any third party. The arrangement between C and G was one by which C acted as G's agent in advancing his share of the loan. That was what the agreement prohibited C from doing and what its scheme contemplated it would not do. The natural sense of the agreement and trust deed was that the parties were respectively contributing their own money to any loan. They could borrow from a third party in order to make their loans, but in that event they would still be lending their own money. However, C could not syndicate its lending with others so as to share any risk with them. Therefore when C received the redemption moneys, its obligations under the agreement and trust deed were to apply them in the order of priority specified by cl.6 of the agreement so that the only payments that could be made in priority to repaying T were C's own capital contribution and its reasonable fees and expenses and not that of G (see paras 11, 13-17 of judgment).