The Appellant, Mr Morley, was an experienced commercial property developer and long-term customer of RBS, who borrowed £75 million in December 2006, secured against his commercial property portfolio. The global financial crisis brought about a sharp decline in property prices and Mr Morley was unable to repay his loan when the term expired in December 2009.
The bank and Mr Morley held acrimonious negotiations resulting in a deal being agreed in August 2010 whereby Mr Morley paid £20.5 million for 5 properties and agreed to transfer the remaining properties to West Register, the bank’s subsidiary vehicle for acquiring assets by way of enforcing the security.
Mr Morley subsequently brought claims in contract and tort claiming that he was coerced into concluding the agreements with RBS in 2010 by unlawful pressure placed on him by the bank and in doing so the bank had committed the tort of intimidation such that the agreement was voidable for economic duress. He further alleged that RBS had acted in breach of duty to provide banking services with reasonable care and skill and in breach of a duty of good faith.
At first instance, Kerr J dismissed Mr Morley’s claims. The Court of Appeal upheld that decision.
The Court found that there was no evidence that Mr Morley had been coerced into the agreement reached with RBS, rather that he had entered into the agreement “of his own free will”, finding it persuasive that Mr Morley had waited until a number of years after the agreement was reached to bring his claims. The Court noted that the agreement was “the result of a robust (and even aggressive) negotiation between commercial parties, each of which had legal advice and each of which was well able to look after itself”. Regard was also had to a document that Mr Morley had prepared in August 2010 for HSBC (from whom he was seeking finance), extolling the virtues of the deal agreed with RBS.
The Court further agreed with Kerr J’s decision that the bank had no legal duty to comply with its own internal standards and procedures, only those set by legislation and external regulators. It also found that RBS had not acted as a potential buyer rather than a lender in their dealings with Mr Morley. The Court concluded that RBS’ actions were “rationally connected to its commercial interests” and whilst it did not accept that RBS was under a duty to act in good faith, even had it done so, it did not consider that breach of that duty was made out on the facts.
Economic duress is an evolving legal area, with the Supreme Court’s judgment in Times Travel v Pakistan International Airlines awaited. What is clear is that it continues to feature in complaints brought by customers against their banks and decisions like the one in Mr Morley’s case show how difficult it can be for customers to unwind settlements they felt themselves pressured to accept.