Commercial First Business Ltd v Atkins

This claim raises, apparently for the first time, the questions: (1) in what circumstances is a mortgagee of commercial investment property entitled to withhold its consent to a letting of that property, where it is a term of the mortgage that “the Mortgagor will not let or grant a licence or tenancy in respect of the Property, or any part of it (nor agree to do so) without the prior written consent of the Lender”; and (2) what consequences follow if such a mortgagee withholds its consent in circumstances where it is not entitled to do so. Whilst these questions arise in the specific context of a mortgage of commercial investment property, the answers may have a potentially wider application for mortgagors of “buy-to-let” residential properties.

This judgment is divided into five chapters, as follows: (1) The Background; (2) The Evidence and The Hearing; (3) My Conclusions on the Facts; (4) My Conclusions on the Law; and (5) The Result. But I should make it clear at the outset that although this judgment is structured in this way for clarity of exposition, the contents of each separate chapter have informed the contents of the judgment as a whole.

This is the trial of a mortgage possession claim issued in the Oxford County Court on 21^st December 2009. Having been allocated to the multi-track, the claim was subsequently transferred to the Chancery Division of the High Court by an order dated 9^th February 2011. The defendant, Dr. Atkins (who is now 68 years of age and undertook his Doctorate in Agricultural Economics at the University of Oxford), is the freehold owner of two intended office investment properties, known as Units 8 and 9 Brookside, at Long Hanborough, near Witney in the County of Oxford. On 4^th April 2007, Dr. Atkins charged the properties to the claimant by way of registered first legal charge to secure loans of (1) £745,784 in respect of Unit 8 and (2) £628,032 in respect of Unit 9. The mortgage was subject to pre-printed General Lending Terms and Conditions which included (as Condition 11.4) a term stating that:

“The Mortgagor will not let or grant a licence or tenancy in respect of the Property, or any part of it (nor agree to do so) without the prior written consent of the Lender.”

Dr. Atkins fell into arrears with the payments of interest due under the two loans. It is the claimant’s case that the amount now due to it under the mortgage in respect of these loans exceeds £2 million, and that it is entitled to an order for possession of both properties, together with a money judgment for the sums now due.

Dr. Atkins’s case is that the claimant is not entitled to possession of the properties, nor is it entitled to payment of the sums alleged to be outstanding under the mortgage. In summary, he maintains:

These allegations are all disputed by the claimant. In short, its case is that:

By an order dated 12^th April 2011, Chief Master Winegarten ordered the trial both of the claim and of the issue whether the claimant was liable to the defendant by reason of the matters alleged in the counterclaim. My understanding is that issues of quantum on the counterclaim are thereby excluded from the scope of this trial.

The claimant is represented by Miss Amanda Tipples QC, instructed by Moore Blatch. Until 19^th June 2012, Dr. Atkins was represented by solicitors (J. R. Champkin Limited) but since then he has represented himself as a litigant in person. As his academic qualifications would suggest, I have found Dr. Atkins to be an intelligent, articulate and self-confident individual.

The trial bundles extended to some 15 lever-arch files. The chronological bundles of documents comprised over 2,000 pages.

The trial began at about 10.45 on the morning of Tuesday, 26^th June, and it concluded at about ten past four on the afternoon of Monday, July 9^th. Both parties had produced written skeleton arguments which I had pre-read. Because of Dr. Atkins’s status as a litigant in person, Miss Tipples opened the case at length: her opening lasted for about 8 hours, concluding at about 2.45 on the afternoon of Wednesday, 27^th June. I then heard argument on the admissibility of the statements of Dr. Atkins’s witnesses; and I delivered a short extemporary interim ruling, permitting Dr Atkins to rely upon the evidence of Mr. Sherbrooke and Mr. Irvine, but not upon the evidence of Mr. Rushholme. I ruled his witness statement to be an attempt to introduce expert opinion evidence for which there had been no permission (despite two case management hearings before the Chief Master). I was also of the view that such evidence was “not reasonably required to resolve the proceedings” (within CPR 35.1). Dr. Atkins then proceeded to open the case on the facts, from about 3.30 on the afternoon of the second day until about 3 o’clock on the afternoon of the following day (Thursday, 28^th June), a total of some 4 and a quarter hours.

The court then heard from the claimant’s seven witnesses, starting with Mr. Barbour and concluding (at about 12.25 on Monday, 2^nd July, the fifth day of the trial) with Mr. Parrott. In addition, the statements of two further witnesses for the claimant (Mark Jones and Vicki Goodier, previously Vicky Godfrey) were admitted in evidence without the need for them to attend court and be cross-examined. The claimant also relied, by way of hearsay evidence, upon various documents annexed to a Hearsay Notice dated 24^th May 2012.

On the afternoon of the third day of the trial, I heard from John Barbour (who from 2006 to 2009 was the claimant’s Head of Credit Management) for about 45 minutes, and then from Ben Jackson (who was the claimant’s Head of Customer Operations). Mr. Jackson’s evidence continued the following morning and lasted for about an hour and 40 minutes in total. On the morning of the fourth day of the trial, I also heard from Barbara Champion (a case manager in the Customer Operations Department) for about 25 minutes; from Laura Mortlock (Miss Champion’s team leader) for about 40 minutes; and from James Roberts (who was an assistant arrears manager). At the express request of Dr. Atkins, and without opposition from Miss Tipples, Mr. Jackson, Miss Champion and Miss Mortlock each gave evidence without hearing the evidence of the other two of those witnesses. On the afternoon of the fourth day of the trial, I heard evidence from Daniel Rushbrook (the claimant’s Legal and Corporate Director) for about 2 and a quarter hours. On the morning of day 5, I heard from Mark Parrott (who is now retired but was formerly the claimant’s Risk Director) for about 1 and three quarter hours. There was no evidence from any of the solicitors who had dealt with either of the applications for consent to let Units 8 and 9. Nor was there any evidence from Steve Pleydell, who was Miss Champion’s main point of contact in the claimant’s Risk Department (reporting, indirectly, through his line manager, to Mr. Parrott) for approving Dr. Atkins’s application for consent to let Unit 8 during August to October 2007. (Mr. Parrott was not himself involved in considering that request.)

Dr. Atkins treated the claimant’s witnesses with due courtesy; and with the exception of Mr. Rushbrook, there was no real challenge to the evidence of any of the claimant’s witnesses. I find all six of them to be honest, straightforward, articulate and intelligent individuals, who were doing their best to assist the court; and I accept them as witnesses of truth.

Mr. Rushbrook was subjected to a vigorous cross-examination by Dr. Atkins, directed principally to;

On the issue of the investment criteria which were applied to the renting of Dr. Atkins’s properties, I accept the evidence of Mr. Parrott where this differs from that of Mr. Rushbrook since (as Mr. Rushbrook himself very fairly acknowledged) as Director of Risk, Mr. Parrott was the person who had the better recollection and understanding of such matters: at all times it was the original 115% debt service coverage (on an interest-only basis) which was the criterion applied (with an element of discretionary leeway) to any proposed letting.

On the second issue, for the reasons that will appear in the next Chapter, I find that no criticism can properly be attached to Mr. Rushbrook (or the claimant) for failing to instruct its valuer to agree current market rental values in August 2009.

On the third issue, despite Mr. Rushbrook’s valiant but, in my view, misguided attempts to contend to the contrary, I find the terms of Dr. Atkins’s loans did not conform to the description in the securitisation documentation.

After the conclusion of the claimant’s witness evidence, Dr. Atkins addressed me on the law for about an hour and 45 minutes.

Dr. Atkins entered the witness box at about 3.30 on the afternoon of day five (Monday, 2^nd July); and his evidence continued over the next two days, until just before noon on Wednesday, 4^th July, a total of some 7 hours and 20 minutes. In its amended form as of 18^th June 2012, Dr. Atkins’s witness statement extends to 181 pages and 767 paragraphs. It refers to some 233 exhibits. On the morning of day 6, Dr. Atkins handed in a two page handwritten sheet of typographical corrections. Dr. Atkins’s witness statement combines evidence with comment, assertion, argument and speculation. Before Mr. Parrott was called to give evidence on the morning of day 5, Miss Tipples had handed in a printed document containing the claimant’s observations on Dr. Atkins’s witness statement. These had been foreshadowed by an exchange of correspondence between the claimant’s solicitors (Moore Blatch) and Dr. Atkins on the 14^th and 20^th June 2012 (at File 15, pages 1 to 3 and 8 to 14). A flavour of this witness statement can be gained from reading the introduction (at paragraphs 1 to 19) and the conclusion (at paragraphs 753 to 767). At times, I found Dr. Atkins to be argumentative, opinionated and truculent. He was not unlikeable; but he is a man of definite views, who can be difficult to deal with. I find Dr. Atkins to be an honest witness; but his evidence is affected by the benefit of hindsight, and is coloured by his deep feelings of suspicion about the claimant’s motives and actions, and his profound sense of grievance against the claimant. I accept Miss Tipples’s submission that this has tended to cloud Dr. Atkins’s ability to accept points put to him in cross-examination, and to cause him to argue his case in the course of his evidence, as well as in his submissions.

After his evidence had concluded just before noon on day 7, Dr. Atkins started to call his five witnesses. The first was Hugh Sherbrooke, a Chartered Surveyor, who had provided professional advice to Dr. Atkins between July and November 2009. He gave evidence for about 35 minutes. Ian Fraser, another Chartered Surveyor, formerly of Douglas Duff, gave evidence for a total of 35 minutes, before and after the short adjournment. He had valued Units 8 and 9 in December 2006 for the purposes of the original mortgage advance; and in October 2007 he had advised the claimant on the effect upon its security of the proposed letting of Unit 8 to Axis. David Watling, another Chartered Surveyor, had been Mr. Fraser’s superior at Douglas Duff, and he had acted for the claimant in relation to Unit 8 in 2009. He gave evidence for about 20 minutes. David Kinane was the mortgage broker employed by Capital Mortgage Corporation Limited who had obtained the mortgage advance from the claimant for Dr. Atkins and provided him with advice and assistance in seeking further funding and attempting to secure the claimant’s consent to the letting of Unit 8 to Axis during August to October 2007. He was the last witness to give evidence (for about an hour and 20 minutes) on the afternoon of day 7.

Dr. Atkins’s final witness was Terence Irvine who gave evidence for just over 20 minutes on the morning of Thursday, 5^th July. He was the Managing Director of Aberdeen Enterprise Finance Limited (Aberdeen), which had originally advanced monies to Dr. Atkins on the security of Units 8 and 9. Dr. Atkins also relies upon the unchallenged witness statement of Michael Watson, of Cluttons, who had acted as the managing and letting agents for the neighbouring Blenheim Office Park, and who reached agreement with Axis for it to take a lease of 15 Fenlock Court at a headline rent of £15.50 per square foot on 29^th October 2007.

As with the claimant’s witnesses, there was no real challenge to the evidence of Dr. Atkins’s witnesses. Rather Miss Tipples’s cross-examination was directed to exposing the limits of their direct knowledge, and involvement, in matters relevant to this litigation, and to bringing out matters favourable to the claimant’s case. I find all five of the defendant’s witnesses to be honest, straightforward, articulate and intelligent individuals, who were doing their best to assist the court; and I accept them as witnesses of truth.

At the conclusion of the evidence, the court adjourned until 10.30 on the morning of Monday, 9^th July, in order to enable the parties to prepare their closing submissions. Miss Tipples submitted her written closing submissions by e-mail late in the morning of Sunday, 8^th July. Her oral submissions lasted from about 10.30 the next morning until about 12.45 pm. Dr. Atkins explained that in the time available he had been unable to produce a written response. He addressed me for just over 2 hours, interrupted by the short adjournment, until about 3.50 p.m. Miss Tipples then briefly replied; and the court retired to consider its judgment at about 4.10 p.m. I indicated that, in order to conclude the case this week (and before the end of my London sittings) I would deliver an oral judgment at 10.30 this Friday, 13^th July. This is that judgment. As promised during the course of closing submissions, shortly before 5 o’clock on Tuesday, 10^th July, I was provided (through Miss Tipples’s clerk) with Dr. Atkins’s closing written submissions. On the afternoon of Wednesday, 11^th July, I received (by e-mail) Miss Tipples’s response to Dr. Atkins’s closing written submissions.

This chapter is divided into 13 sections as follows:

In so structuring this chapter, I have followed the sequence of the various findings of fact which Miss Tipples invites the court to make. Once again, the contents of each section have informed the contents of this chapter (and the judgment) as a whole.

In analysing the facts, I have borne in mind that one of the great problems about litigation is that it involves retrospectively looking at events through the wrong end of the forensic telescope. I have sought to avoid the depressing temptation to assume that merely because, with the comforting assurance of hindsight, it is possible to trace the chain of causation which led to the relevant train of events, everything that actually happened was always going to happen; and of taking the short step of thinking that the parties must have foreseen what was to happen, or ought to have done so. I have tried to be sensitive to the role of circumstances, and of the accidental, in human affairs; and to remember that things are not always preordained, even if they look as though they might have been. I remind myself that the pattern which becomes apparent later was not always so obvious at the time that events were playing themselves out. I also bear in mind that the crucial aspects of this case relate to events which occurred some 5 years ago; and that where recollection and evidence conflict with the contemporaneous documents, then generally the latter may be a more reliable guide to what actually happened at the time. However, I am satisfied that the letter from Axis to Dr. Atkins of 20^th April 2010 (at file 14, page 2037) has to be treated with reserve because it was written with the benefit of “information” supplied, with the benefit of hindsight, by Dr. Atkins. I also treat the e-mail from Mr. Harris to DSA’s solicitors, Marsden Rawsthorn, apparently dictated by Dr. Atkins and sent on 14^th August (at file 13, page1898), with reserve because of its reference to (non-existent) significant litigation again the claimant. (I do not think that Dr. Atkins was questioned about this document.)

The claimant, Commercial First Business Limited, was set up in 2005 to provide loans to non-regulated commercial borrowers. Borrowers were referred to the claimant by one of the mortgage brokers with whom it had a relationship. The claimant was a sister company to Commercial First Mortgage Limited (CFML), which had been established in late 2002 and was the main operational company of Commercial First Group Limited. CFML concentrated on regulated lending to individuals, but it also provided administrative support to the claimant; and it was CFML that employed the staff to work for the Commercial First Group. CFML therefore acted as agent for the claimant. In this judgment, I refer simply to “the claimant” without distinguishing between the different corporate entities within the Commercial First Group.

The Director responsible for risk within the claimant was Mr. Parrott. He dealt with the two applications which Dr. Atkins made for loans, which were to be secured against Units 8 and 9. Mr. Parrott was ultimately responsible for the Risk Team, which included Steve Pleydell.

The Operations Team was headed by Mr. Jackson, and included Laura Mortlock and Barbara Champion. Miss Champion reported to Miss Mortlock who, in turn, reported to Mr. Jackson. If an application was made by a mortgagor for consent to a letting, then it was this team which was responsible for collating all the information and making sure it was in order. They did so in accordance with the standard procedure set out in the Customer Operations Procedure Manual. It was Section 14 (at File 5, Divider 20, pages 230-231) which dealt with the procedure for consent to lease inquiries. Any application for consent that was received was passed to “Risk” for their decision and approval. It was Risk, and not the Operations Team, that had the “mandate” to approve or decline consent. Therefore, if Risk did not approve the application, then consent would not be granted. This in turn meant that Mr. Jackson, as the Head of the Operations Team, was not able to sign off at the end of the process until a decision had been made by risk assessment.

The Credit Management Team was headed by Mr. Barbour, and included Vicki Godfrey (now Mrs. Goodier). They were responsible for debt collection. This brought Miss Godfrey into direct face-to-face contact with Dr. Atkins when she was chasing for payment of the arrears on his account.

The claimant employed in-house solicitors. At the time of Dr. Atkins’s application for consent to the letting of Unit 8 in August through to October 2007, these were SLP Solicitors. The relevant individuals were principally Yasmin Rehman and Sharelle Harris. At the time of the later applications for consent to the lettings of Units 8 and 9 in 2009 the solicitors were Pure Law, acting principally by Joanna Gent.

Dr. Atkins is a very experienced developer of commercial property. He has been involved in developing, building and letting commercial offices since 1988. He also has considerable experience of obtaining finance and dealing with mortgage brokers. This was clear from Dr. Atkins’s own evidence, and also from the evidence of Mr. Kinane and Mr. Irvine of Aberdeen.

In relation to the development at Bankside, Long Hanborough, Dr. Atkins also used two companies, which he owned and controlled, to act as landlord and as developer. Evenlode Properties Limited was the landlord of Unit 4, Bankside, whereas Evenlode Estates Limited was the company that Dr. Atkins used for the development of the properties at Bankside. Dr. Atkins and his companies were all VAT registered.

In relation to the professionals that Dr. Atkins used to deal with the claimant, there were

At first, on the whole, Dr. Atkins did not deal directly with the claimant in relation to any of these matters. It was not until 2009 that Dr. Atkins took up dealing with the various staff, such as Mr. Roberts, Miss Mortlock, Miss Champion and Mr. Rushbrook at the claimant, direct. In relation to Mr. Harris and Mr. Kinane, they each reported back to Dr. Atkins, whether by e-mail or by telephone, when they had been in touch with the claimant, or received a message or e-mail from it. Dr. Atkins was therefore always very well aware as to what was going on in relation to their dealings with the claimant on his behalf.

Dr. Atkins had purchased Bankside, Long Hanborough in 1989 for £50,000. In 2006, he started developing this land for the purposes of offices with the benefit of finance from Aberdeen. In total, there were to be 9 different office units. In January 2006, Unit 4 was already let to DSA. However, DSA were looking for larger premises and, for that reason, entered into a Pre-let Agreement for the surrender of the Lease of Unit 4 and a new lease of Unit 9 on 13^th January 2006 (at File 4, Divider 9, pages 104-167). The Pre-let Agreement contained a detailed schedule of works to be carried out by Dr. Atkins (at File 4, Divider 9, pages 160-165) and, once practical completion had been reached in relation to the works, DSA were obliged to enter into a lease on the terms set out in the draft lease annexed to the Pre-let Agreement. The agreed rent of £64,000 was payable from the date of practical completion, defined as the “rent commencement date”.

In December 2006, Douglas Duff (acting by Mr. Fraser) provided the follow valuations of Units 8 and 9:

These valuations were produced on the instructions of Capital Mortgage Corporation, Dr. Atkins’s brokers. Dr. Atkins accepted that he had received a copy of each valuation from the brokers, and this was confirmed by Mr. Kinane.

In December 2006, Dr. Atkins hoped to achieve a yearly rent of £75,000 to £80,000 for Unit 8. This is clear from the summary of his mortgage applications (at File 7, pages 102-3) that Mr. Carlton, his broker, provided to the claimant on or about 8^th December 2006. Dr. Atkins accepted in cross-examination that this had been produced from the information he had provided to Mr. Carlton.

In October 2007, Mr. Fraser’s perception was that the open market rental value of Unit 8 was still £75,000. In cross-examination, Mr. Fraser accepted that there had been no softening in the rental market at that time, and that he had no reason to think that there had been any change in the estimated rental value for Unit 8 since the date of his first valuation on 21^st November 2006. This perception is consistent with the terms of:

On 28^th May 2009, Douglas Duff (in the person of Mr. Watling) was still of that view, and he advised the claimants that the current market rental value for Unit 8 was £75,000 (File 13, page 1729, responding to Miss Mortlock’s e-mail of 18^th May 2009 at File 13, page 1720). In cross-examination, Mr. Watling explained that he assumed that his valuation had been prepared on the basis of the rental of £75,000 agreed for the SPV lease of Unit 8, which had been referred to in Mr. Watling’s letter of 10^th February 2009 (File 12, page 1549), which was of course an artificial device contrived by Dr. Atkins to meet the claimant’s perceived requirement of a yearly rent for Unit 8 of £75,000. Nevertheless, the fact remains that, irrespective of the personal views of others operating in the commercial property market outside Oxford (such as Mr. Watson and Mr. Sherbrooke), the professional advice that the claimant was receiving in the period November 2006 to May 2009 was that market rent for Unit 8 was £75,000 per annum.

Dr. Atkins’s dealings with the claimant in this period were principally through his brokers, Capital Mortgage Corporation, and, in particular, Mr. Kinane. With reference to Mr. Kinane:

In this period, Dr. Atkins was first offered finance by the claimant in letters dated 20^th December 2006. However, given the incomplete state of each of Units 8 and 9, these offers were

In relation to the two loans made to Dr. Atkins on 4^th April 2007:

In November 2006, Dr. Atkins told Douglas Duff (Mr. Fraser) and Capital Mortgage Corporation (Mr. Carlton and Mr. Kinane) that there was £150,000 of work outstanding for both Units 8 and 9, and that these works were “minor finishing off”, and that each property would be ready for occupation within 4 to 6 weeks. This is set out in Mr. Fraser’s valuation reports and the critique of Dr. Atkins’s applications provided by Capital Mortgage Corporation to the claimant on or about 8^th December 2007 (See File 7, pages 102-3). By the end of January 2007, the budget for the completion of the building works at Units 8 and 9 was £141,850 excluding VAT (See File 7, page 140). By the end of March 2007, in broad terms, £10,000 to £20,000 worth of works had been done to Unit 9. Therefore:

Dr. Atkins’s evidence in cross-examination was that at the beginning of August 2007 the cost of completing the works to Unit 8, which are set out in Schedule 1 to the Agreement for Lease with Axis (see File 4, Divider 5, page 60), was in the order of £122,000, excluding VAT. This figure of £122,000 included:

According to paragraph 16 of Mrs. Goodier’s witness statement (which was not challenged), on 13^th August 2007 Dr. Atkins told her that the works that were yet to be carried out to Unit 8 were the air-conditioning, flooring and ceilings.

The Agreement for Lease provided that Dr. Atkins had to practically complete the works to Unit 8 by 31^st August 2007. He failed to do so. In cross-examination, Dr. Atkins said that he would have preferred to have had until 21st September 2007 to complete the works (as evidenced by the e-mail to Mr. Harris of 25^th July 2007 at File 8, page 511A). Axis requested a proposed new completion date on 30^th August 2007 (See File 9, page 775) and again on 24^th September 2007 (See File 9, page 836), but Dr. Atkins did not respond to these requests. In cross-examination, Dr. Atkins said that at about that time, only about £25,000 would have been required to complete the works to Unit 8, and that he could have borrowed this from a friend if he had known that the lease would be approved. However, he also said that he knew that Axis were already looking for offices elsewhere, and were discussing an alternative building. However, he never told the claimant of this.

On 24^th October 2007

According to paragraph 30 of Mrs. Goodier’s witness statement, by 20^th November 2008 the road to Units 8 and 9 had been laid out, and all the fencing securing the properties had been removed. She thought that there was quite a lot of work before Unit 8 would be ready to be let, but Unit 9 appeared ready for occupation and looked to be at a finished stage. In fact, in order to get Unit 9 to a state of practical completion, Dr. Atkins estimated that there was some £20,000 of works still outstanding. This work was specific to DSA’s requirements, but needed to be done in order to get Unit 9 to the stage of practical completion. This work was never finished.

According to a letter written by Dr. Atkins on 24^th April 2009 (See File 12, pages 1663-1664) the works required to finish Unit 8 were the tiling of the toilets, fitting ceiling tiles, and the computer floor. He estimated that these works would only take a week or two; but Dr. Atkins had purposefully not finished those works to make it easier to avoid paying business rates. The building works to Unit 8 remain incomplete to this day.

In January 2007 the claimant lent £999,130 to Dr. Atkins secured on his residential property, Orchard House, Islip, Kidlington. In the spring of 2007 the monthly interest payment due on the last business day of each month (starting from 28^th February 2007) was £6,745. It was on 30^th January 2007 that Dr. Atkins agreed to the terms of the retentions with the claimant for the loans on Units 8 and 9. He accepted in cross-examination that the retentions would not be released unless the Unit in question had been finished and signed off as such by a surveyor. Any idea that the retentions might be released before that date was not derived from the claimant. Rather, as he stated in cross-examination, it was something that Dr. Atkins thought might be possible, based on his experience with other lenders.

On 28^th March 2007 Gladstar agreed to lend Dr. Atkins, £165,000 to pay for the cost of completing the building works at Units 8 and 9. However, of this sum, Dr. Atkins would have only received about £140,000, as Gladstar would have deducted interest payments before drawdown. Gladstar was a company which provided “private finance”. The director of Gladstar, Mr. Joseph Plitnick, had a close business relationship with Mr. Carlton, of Capital Mortgage Corporation.

On 4^th April 2007:

On 1^st July 2007 Dr. Atkins had failed to pay the interest due on 30^th June 2007 in respect of each of his three accounts with the claimant. As a result, he owed it £24,214. On or about 11^th July 2007, Dr. Atkins was informed by the claimant that if his accounts fell two monthly payments or more into arrears, solicitors or LPA receivers might be instructed: see File 8, pages 481-2. After this date, Dr. Atkins was well aware that this was action the claimant might take.

By about mid-July 2007 it was clear that Dr. Atkins was indeed looking to raise further funds from elsewhere. This accords with the advice that Dr. Atkins received from Mr. Harris on 19^th July 2007 that he needed to be able to finance the works at Unit 8 before he signed the agreement with Axis (see File 8, page 501), which was something Dr. Atkins accepted that he was well aware of. In order to raise further finance to do the works, Dr. Atkins was looking to use the following properties:

On 3^rd August 2007 Dr. Atkins was “juggling” cash between 3 or 4 projects and there was money “coming in and going out”. The consequence of this was that

Dr. Atkins had failed to pay the interest due on 31^st July 2007 in respect of each of his 3 accounts with the claimant. He was therefore two months in arrears on each account which, in total, amounted to £34,905. At the same time he was well aware that the claimant might appoint receivers over Units 8 and 9. Dr. Atkins had been advised by Mr. Harris on 3^rd August 2007, before he signed the Agreement for Lease with Axis, that timing was tight: see File 9, page 645. This was a reference to the fact that, as the building works at Unit 8 had to be completed by 31^st August 2007, Dr. Atkins had very little time to raise the money to pay for the works and get them done. If Dr. Atkins failed to do so, then Axis was entitled to walk away from the Agreement for Lease.

On 6^th August 2007 the cheque for £13,700 which Dr. Atkins had given to the claimant in respect of the Orchard House account was dishonoured: see File 9, page 708. The arrears on the Orchard House account then rose to £27,589: see File 4, Divider 16, page 187.

On 13^th August 2007 Miss Godfrey met Dr. Atkins and told him that he had to pay “reducers” (by which she meant the amount needed to reduce the arrears outstanding on an account to arrears of less than 1 month) of £31,000 by 17^th August 2007, otherwise receivers would be appointed. In response to this:

On 16^th August 2007 final demands were issued by Commercial First (see File 9, pages 751 and 752) and, on the next day, Dr. Atkins failed to pay the reducers of £31,300 required by Miss Godfrey. Mr. Kinane telephoned Mr. Barbour on 17^th August 2007 in order to get the claimant to delay appointing a receiver. Mr. Kinane was told that Dr. Atkins had to pay a minimum of £31,300 to stop this from happening: see File 9, page 758. At this point, Mr. Kinane thought appointing receivers would have been “crazy”. Dr. Atkins eventually paid the reducers of £31,316 for which the claimant had been pressing on 23^rd August 2007. It is plain that Dr. Atkins did so because he knew that if he did not, receivers would be appointed.

By September 2007 Dr. Atkins was in serious financial difficulties, which Mr. Kinane was working “quite aggressively” to sort out: see File 9, page 868. Dr. Atkins failed to pay the interest due on 31^st August 2007 in respect of each of his three accounts with the claimant. He was therefore yet again two months in arrears on each account which, in total, amounted to £35,035, and he was well aware that the claimant might appoint receivers over Units 8 and 9.

With financial pressure mounting on Dr. Atkins, on 27^th September Mr. Kinane contacted Mr. Parrott to persuade him to give Dr. Atkins a “breathing space” of 10 working days (i.e. until 11^th October 2007) so that funds could be raised by a private finance facility which would then be used to:

By the beginning of October 2007 Dr. Atkins was “desperate” for the income to serve the interest payments under the loan agreements: see the telephone call between Mr. Kinane and Mr. Jackson at File 9, page 869. Dr. Atkins had failed to pay the interest due on 30^th September 2007 in respect of each of his three accounts with the claimant; and he was again two months in arrears on each account which, in total, amounted to £36,022.

On or about 24^th October 2007 there was a meeting between Dr. Atkins and Mr. Montague, the Chairman of Axis: see File 10, page 907A. Dr. Atkins told Mr. Montague that the reason for the delay in the completion of the building works was his financial difficulties and it was for that reason that he was unable to complete the construction works. This is the obvious, and only, inference to be drawn from the last sentence of Mr. Nicholas Smith’s letter to Dr. Atkins dated 31^st October 2007 (at File 10, page 914). Dr. Atkins said in evidence that he had not told Axis of any problems in obtaining the claimant’s consent to the grant of the lease because that was not a matter within his control and, had Axis known about it, they would have been even more inclined to walk away from the proposed letting.

The offer of funding in respect of this private finance facility was not received until 26^th October 2007 as appears from Mr. Kinane’s report by e-mail to Ben Jackson of the same date at File 10, page 905. In the meantime, Dr. Atkins had told Miss Godfrey on 25^th October 2007 that he had a “£400,000 re-finance deal that it due to complete any day now”. The “legal process” in relation to the private finance facility did not begin until about 30^th October 2007, although Mr. Kinane continued to promise on behalf of Dr. Atkins that funds would be available “within days”: see File 9, page 909. The funds were not in fact received by the claimant until about a month later, on 30^th November 2007.

On 31^st October 2007:

On 30^th November 2007 the funding pursuant to the private finance facility with Gladstar was completed, and Dr. Atkins made a bank transfer of £35,600, which amount was then credited to his accounts.

By 29^th February 2008, Dr. Atkins had made enough progress with the building works at Units 8 and 9 for the claimant (on the advice of its surveyors, Douglas Duff) to release a large part of the retentions. £99,000 was released against the Unit 8 account and £50,000 against the Unit 9 account. This money was mostly used to clear the arrears on Dr. Atkins’s three accounts with the claimant and, having cleared the arrears, the remaining balance of £41,790 was transferred to Dr. Atkins’s company, Evenlode Properties Limited: see File 11, pages 1201 to 1202. Thereafter, and until October 2008, Dr. Atkins managed to keep the interest arrears on each account under one month most of the time. However, cheques for payments on each account were dishonoured on 8^th October 2008; and from that date the interest arrears on each account have increased on a month by month basis.

On 14^th November 2008 the claimant appointed receivers over the properties, although these appointments were subsequently terminated. However, receivers were appointed again on 3^rd November 2009.

Dr. Atkins agreed Heads of Terms with Axis on or about 25^th April 2007: see File 8, page 312. They were given effect to by:

Dr. Atkins submitted in his written closing that the fitting out allowance of £41,250, was not a moving in allowance, but rather a specific sum for the purchase of a specific input to enhance the value of the building. It was not a cashback or a nebulous amount. It was very specific. He likened it to air-conditioning or upgraded toilet areas. Nevertheless, it did result in a significant reduction in the rent actually receivable during the first year of the term of the proposed lease to Axis. As such, in my judgment, it was a factor which should have been disclosed to the claimant since it was of potential relevance to its decision whether to consent to the letting. It was for Dr. Atkins to justify the allowance if he could. Instead, by concealing it, he effectively denied the claimant any opportunity to consider its potential relevance.

Axis wanted possession promptly. When the Heads of Terms were signed in April 2007, they wanted possession in 3 months: see File 8, page 312. However, by the time the Agreement for Lease was signed, they were prepared to give Dr. Atkins until 31^st August 2007 - a date which Dr. Atkins had agreed with Mr. Montague of Axis on 5^th July 2007 would be “at the latest”: see File 8, page 520 - to finish the work at Unit 8. Further, by agreeing the date of 31^st August 2007, Axis had rejected Dr. Atkins’s suggestion that he should have until 21^st September 2007 to do the work: see File 8, page 511A.

It was plain to Axis by the end of August 2007 that the building works at Unit 8 would not be completed on 31st August 2007. They wrote to Dr. Atkins on 30^th August 2007 and 24^th September 2007 requesting a new completion date under the Agreement for Lease: see File 9, pages 775 and 836. Dr. Atkins was well aware that if he did not agree a revised completion date, then Axis could treat the Agreement for Lease as null and void. He did not at any stage provide Axis with a new completion date; and, having failed to do so, on 24^th October 2007 Axis gave notice that the agreement was at an end. Five days later, on 29^th October 2007, Axis entered into an agreement to take a lease of 15 Blenheim Office Park: see paragraph 7 of Mr. Watson’s witness statement. Dr. Atkins said that he had known that Axis had been looking for alternative offices elsewhere; but he had not seen fit to alert the claimant to that fact, nor to his perception of the disastrous effect that Axis’s withdrawal from the proposed letting would have upon the value of the office development.

As Dr. Atkins points out, the Agreement for Lease contains (in Clause 6.2 at File 4, Divider 5, page 56) a provision which required Dr. Atkins to get consent to the lease from the claimant. That Clause reads as follows:

“Mortgagee’s consent.

Prior to the Completion Date, the Landlord shall obtain the consent of Commercial First Limited and the proprietor of any further registered charge on the Charges Register to the freehold title of the Premises, and if a restriction favour of Aberdeen Enterprise Finance Limited is still registered against the said title, obtain its consent, such consent in each case to be in a form to be agreed between the parties acting reasonably to the grant and registration of the Lease also.”

Dr. Atkins had been advised in advance by Mr. Harris on 3^rd August 2007 that, by entering into the Agreement for Lease, he was taking a risk as he did not have the mortgagee’s consent: see File 9, page 645. However, at no time did Dr. Atkins inform Axis that he was experiencing any difficulty with this process with the claimant, or that it was dragging its heels. Indeed, if Dr. Atkins had really thought that the claimant were the problem (and that consent would not be forthcoming), then it is impossible to understand why Dr. Atkins wrote to Axis in the terms that he did on 30^th October 2007, in order to try and re-kindle the relationship between them: see File 10, page 907A. Rather, the reason that Dr. Atkins was able to write the letter of 30^th October 2007 was because he knew:

The first time that Dr. Atkins suggested that Axis had pulled out of the lease in respect of Unit 8 because the claimant had delayed in dealing with his application for consent was in a letter of claim dated 13^th November 2008 (at File 11, pages 1336-7); and see paragraph 28 of Miss Mortlock’s witness statement.

This application was first made by Mr. Harris on behalf of Dr. Atkins on 1^st August 2007: see the e-mail at File 8, page 571. I find that there was no delay on the part of the claimant in dealing with this application. Rather, any delays were the result of Dr. Atkins failing to answer, or address, satisfactorily the points raised by the claimant in relation to his application on a timely basis. This is simply not a case where an application was made and the mortgagee failed to respond within, say, a period of 28 days (which Mr. Watling thought would not be an unreasonable period for a mortgagee to respond to such an application). This is for the following reasons, viewed from the perspective of what Dr. Atkins (through his advisors) was being told by the claimant:

The terms of the letting of Unit 9 to DSA had been agreed by Dr. Atkins in January 2006. Indeed, he had needed this Pre-let Agreement in place in order to obtain the initial development funding for the project at Bankside from Aberdeen. The claimant was aware of the Pre-let Agreement, and of the terms summarised in the valuation dated 14^th December 2006, which were also provided in Capital Mortgage’s critique of about 8^th December 2006: see File 7, pages 102-3. However, it was not until 26^th January 2009 that the claimant was provided with an actual copy of the terms of the proposed lease between Dr. Atkins and DSA.

By the end of January 2008 it is clear that DSA, who were in occupation of another Unit at Bankside let by one of Dr. Atkins’s companies, were frustrated that he had not yet completed Unit 9. They wrote to Dr. Atkins saying that since February 2007 they had received numerous unfulfilled promises that Unit 9 was almost ready and would be handed over within a few weeks; they could no longer tolerate the delays; they were suffering considerable loss; and, if the building were not finished by 28^th February 2008, they would consider the Pre-let Agreement terminated and look for alternative premises: see the e-mail from Mr. Sparrow dated 30^th January 2008 at File 10, page 1155. In response to this, Dr. Atkins managed to appease DSA, and kept them on side in relation to the letting throughout 2008.

However, Unit 9 had not been completed by the end of 2008 and, in order to get the project to practical completion, DSA proposed that they should finish off the works. DSA estimated the works would cost no more than £20,000, and proposed that its cost of doing the works should be set off against the rent under the proposed lease: see File 11, pages 1356, 1400 and 1408-1412. Dr. Atkins did not agree to this proposal.

The building was still unfinished in January 2009. On 15^th January 2009, DSA, through their solicitors, gave notice that if practical completion of Unit 9 were not achieved by 28^th February 2009, then they would regard Dr. Atkins as being in fundamental breach of the Pre-let Agreement, and in those circumstances they would no longer regard themselves as bound by the Pre-let Agreement: see File 12, page 1494. Dr. Atkins was well aware that unless the building was finished, then DSA would not enter into the lease, and would walk away and take premises elsewhere.

Unit 9 did not reach practical completion in time. On 2^nd March 2009 DSA’s solicitors gave notice that DSA regarded themselves as discharged from the Pre-let Agreement by reason of Dr. Atkins’s fundamental breach of contract: see File 12, page 1576. However, it was not until some six months later, namely on 14^th September 2009, that Dr. Atkins first informed the claimant that DSA were no longer interested in Unit 9: see Dr. Atkins’s letter and e-mail to Miss Mortlock at File 14, pages 1959 and 1962. Dr. Atkins points to the fact that, at this time, it took the claimant less than 24 hours to approve his “new proposals for target rent levels and for length of lease term”: see the e-mails at File 14, pages 1962-1965.

Dr. Atkins sent the claimant the draft lease on 26^th January 2009: see File 12, page 1506. I find that there was no delay on the part of the claimant in dealing with this application. Rather, any delays were the result of Doctor Atkins’s failure to answer, or deal with, the points raise by the claimant in relation to his application on a timely basis. This is because:

No pleaded case was ever advanced by Dr. Atkins in relation to this matter. Nevertheless I shall deal with it. Dr. Atkins sent the claimant the draft lease on 30^th January 2009: see File 12, page 1520. Dr. Atkins proposed that the tenant would be a new company, owned by Mr. Barrie Barcock, a business colleague of Dr. Atkins (see his letter of 24^th April 2009 at File 12, page 1663), and that the rent payable would be £75,000. Dr. Atkins never suggested to the claimant that the rent in the lease should in fact be less than £75,000 although it was of course open to him to do so if the market rent in January 2009 (or thereafter) was in fact less than this amount. Dr. Atkins explained that this SPV lease was intended as a device to enable him to circumvent what he perceived as the claimant’s immutable resistance to any letting of Unit 8 at a rent of less than £75,000 per annum.

There was no delay on the part of the claimant in dealing with this application. Rather, any delays were the result of Dr. Atkins failure to answer, or deal with, the points raised by the claimant in relation to his application on a timely basis. This is because:

Again, no pleaded case was ever advanced by Dr. Atkins in relation to this matter. Nevertheless I shall deal with it.

Mr. Sherbrooke was appointed by Dr. Atkins to act as his surveyor in July 2009 and, by a letter dated 11^th July 2009, Dr. Atkins suggested to the claimant that “in order to bring some objectivity to the various issues”, Mr. Sherbrooke should meet with the claimant’s surveyor “to review the various points and hopefully agree some yardsticks about the current market situation”: see File 13, page 1786.

Dr. Atkins’s complaint that the claimant was responsible for “blocking” such a meeting is not supported by the evidence. Rather, the position was as follows:

It is common ground that Dr. Atkins’s two loan agreements and mortgage were securitised by the claimant on 18^th May 2007. There is, and was, no connection (and no evidence of any such connection) between:

This Chapter is divided into four sections as follows:

On this aspect of the case, the starting point is the decision of the Court of Appeal in City Bank International plc v. Kessler [1999] Lloyds’s Law Reports Banking 123 and Starling v. Lloyds TSB Bank plc [2000] 1 EGLR 101. Miss Tipples took me to the headnote to Kessler and to Chadwick LJ’s discussion of an implied term at pages 127 (column 1) to 129 (column 2). She quoted extensively from all three judgments in Starling. Miss Tipples also took me to the judgment of Eve J in Ideal Film Renting Company Ltd v. Neilson [1921] 1 Ch 575, at 581 to 2. Dr. Atkins cited extensively from the judgments of Arden and Pill LJJ, in Lymington Marina Ltd v. Macnamara [2007] EWCA Civ 151. He also took me to the decisions of the Court of Appeal in International Drilling Fluids Ltd v Louisville Investments (Uxbridge) Ltd [1986] Ch 513, and Sir Richard Scott, Vice Chancellor, in Norwich Union Life Insurance Society v Shopmoor Ltd [1999] 1 WLR 531.

Kessler is binding authority for the proposition that, at least in the context of a mortgage of residential property created by an owner-occupier, the court cannot imply a positive obligation into a clause in the terms of Condition 11.4 in the present case that the mortgagee, in the exercise of its right to withhold consent to a letting of the mortgaged property, must act reasonably. It was so treated in Starling: see page 102J-K, per Peter Gibson, LJ; page 103F-G, per Mance LJ; and page 104B-C, per Moore-Bick J.

Dr. Atkins contends that Kessler and Starling have no application to a commercial investment property mortgage rather than a residential mortgage by an owner-occupier. He points to the facts that in his mortgage application form (at File 4, Divider 2, page 31) the intended use of the property was stated to be “to be let”, the mortgaged property was describe as “investment” rather than “owner/occupied” or “part investment/ part owner occupied”, and an estimated rental value of £70,000 was indicated. He can also point to the fact that the claimant’s servicing/affordability criteria for a CIM 2 mortgage product (at File 5, Divider 18, page 194) required “the market rent as per the valuation to provide 115% cover on our mortgage payment” during the interest-only period; although this was not known to Dr. Atkins at the time, Mr. Parrott in fact applied slightly lower debt service cover ratios of 111% for Unit 8 (see File 7, page 148) and 113% for Unit 9 (see File 7, page 151).

Against this factual background, Miss Tipples recognised that she would be in some difficulty in resisting the implication of some term into Condition 11.4. However, she submitted, by reference to the reasoning of Chadwick LJ in Kessler, that there was no basis for implying an independent covenant into the loan agreements and mortgage conditions, and that the court should do no more than read into the end of Condition 11.4 the words “provided that such consent is not to be unreasonably withheld”, thereby mirroring the provision contained within Section 19(1) of the Landlord and Tenant Act 1927.

I accept Miss Tipples’s submission, which I find to be supported both by the reasoning of Chadwick LJ (speaking with the agreement of Kennedy and Laws LJJ) in Kessler (at page 129), but also by the judgments of Peter Gibson LJ and Moore-Bick J in Starling (at pages 182J-K and page 104B respectively).

In Kessler at page 129 Chadwick LJ said this:

“It was not clear (or, at the least, not clear to me) whether the term to be implied was to take the form of an independent covenant by the mortgagee that it would not withhold its consent unreasonably (if to withhold consent would hinder the mortgagor’s freedom of movement); or whether it was to take the more usual form of a proviso qualifying the power to withhold consent. It is, I think, pertinent to note that, when the legislature addressed the comparable restriction - commonly found in leases - against assigning or subletting without consent, it adopted the latter course. (See Section 19(1) of the Landlord and Tenant Act 1927). That statutory provision does not imply an independent covenant by a lessor that he will not withhold consent unreasonably; rather it makes his contractual power to withhold consent subject to the limitation that the power may not be exercised unreasonably. The effect is that an unreasonable withholding of consent is of no effect.

That point was clarified by Mr. Duffy QC in the course of argument. Faced with the difficulty that an implied term which did no more than qualify the mortgagor’s power to withhold consent by way of proviso would give rise to no claim in damages if consent were withheld unreasonably (see Ideal Film Renting Company Ltd v. Neilson [1921] 1 Ch 676, at pages 581-582) he asserted that the term to be implied was to take the form of an independent covenant. This assertion was, of course, necessary if the claim to damages - and the associated claim to set off the damages claimed against the mortgage debt - were to be preserved. But, as it seems to me, the assertion that the implied term must take the form of an independent covenant destroys any basis for implying the term. If (which for the reasons I shall give shortly, I do not accept) there were any requirement, founded on Article 48 of the EC Treaty, to restrict the circumstances in which the mortgagee is entitled to refuse consent to a lease of the mortgaged property, I can see no reason why that requirement should be satisfied by implying a term in the form of an independent covenant when the objective could be more easily achieved by an implied qualification - thus following the precedent set by Section 19(1) of the Landlord and Tenant Act 1927.”

In Starling, Peter Gibson LJ said this (at page 102J-K):

“Mr. Phillips did not attempt to justify the suggested duty on any other basis. He accepted that it was not open to him (at least in this court) to argue that there was some positive obligation to be implied into clause 6 that the bank in the exercise of its right to refuse consent must act reasonably. That concession was inevitable in the light of the recent decision of this court in City Bank International PLC v. Kessler. Nor would it have profited him to argue that the right to withhold consent was merely qualified by the implied limitation that consent should not be unreasonably withheld: there is no basis for such an implication and, in any event, the breach of such a limitation merely leaves the mortgagor free to let and gives rise to no claim in damages. (Ideal Film Renting Company Ltd v. Neilson) Hence Mr. Phillips’ recourse to equity.”

Also in Starling, at page 104B, Moore-Bick J said this:

“Mr. Starling’s case, in substance, is that the bank owed him a duty properly to consider his request to consent to the letting of his property, by which he means that it should have considered how far it could accommodate his wishes while protecting its own interests. Such a duty, if it exists at all, must arise out of the contract between the parties or under the general law. An argument that such an obligation could be implied from the terms of the contract in the present case was doomed to failure in the light of the decision of this court in City Bank International PLC v. Kessler. As Chadwick LJ pointed out in that case, if it is necessary to imply any term into a clause such as clause 6 (which in the present case I think very doubtful) there is no basis for implying anything beyond a term that the bank’s consent would not be unreasonably withheld. That would operate as a restriction on the bank’s absolute right to withhold its consent to a letting of the property and, in accordance with established principle, a refusal to consent would leave Mr. Starling free to let without obtaining such consent. It would not, however, give him a right of action against the bank for damages.”

In my judgment, in the case of a mortgage of a commercial investment property, the court should read into any mortgage condition preventing the mortgagor from letting the mortgaged property without the mortgagee’s consent a qualified implied limitation that consent should not be unreasonably withheld. A similar qualification would, in my judgment, also apply in the case of a mortgage of residential property expressly granted on a “buy-to-let” basis. Thus, even if the claimant in the present case were to have acted unreasonably in withholding its consent to any letting of Units 8 or 9, this would merely have left Dr. Atkins free to let without obtaining the claimant’s consent. It would not operate to give him a right against the claimant in damages.

Lest I am wrong, however, I go on to consider the scope, and the content, of the claimant’s duty to act reasonably.

Dr. Atkins recognises that, as mortgagee, the claimant needs to have reasonable powers to protect its security; but, as mortgagor, he too has a legitimate interest in securing his own financial interests. A recurrent theme of his oral and, written, submissions was that, unlike the mortgagor, the mortgagee was protected by its 30% loan to value “cushion”. With a loan at 70% loan to value, the value of the mortgaged property had to decline by more than 30% before there was any risk to the claimant’s security. By contrast, any decline in asset value whatsoever would have an immediate and direct impact on the mortgagor’s equity in the property. In relation to the impact of any loss of rental income on the parties, the difference was said to be even more stark. Any loss of rental income was of immediate and direct consequence to the mortgagor, whereas any loss of rental income was said to have no effect on the claimant. The claimant was said to be immune from the consequences of not deriving any rental income by the terms of the mortgage agreement, which made the mortgagor still liable to meet the terms and conditions of the mortgage, irrespective of whether or not the mortgagor was able to service any rental income from the mortgaged property.

Founding himself upon the propositions formulated by Balcombe LJ in International Drilling at pages 519H-512E, at paragraph 105 of his skeleton argument for the trial Dr. Atkins formulated the following suggested criteria:

“1.

The mortgagee must use its power of consent in a diligent and reasonable way, having regard to the interests of the mortgagor as well as its own.

2.

A mortgagee is not entitled to refuse its consent to a tenancy on grounds which have nothing whatever to do with the relationship of mortgagee and mortgagor in regard to the subject matter of the lease.”

Miss Tipples suggested that that should be a reference to “the subject matter of the mortgage”.

“3.

The mortgagee will not impose such conditions as would make it impossible for the mortgagor to derive an income from, or cause it to suffer a diminution in the value of, his investment property.

4.

The mortgagee can withhold its consent if the proposed market rent in the lease is not in line with current market rents.

5.

The mortgagee is entitled to withhold consent if the proposed use is not appropriate to the property.

6.

The mortgagee can withhold consent if the standing of the tenant is not appropriate for the property.

7.

A mortgagee owes a duty to the mortgagor to give a written decision on an application for consent within a reasonable time and, if consent is withheld, to explain those reasons to the mortgagor.

8.

If consent is withheld, it is for the mortgagee to prove that there were valid and logical reasons for withholding consent that no reasonably qualified and experienced mortgagee, acting reasonably, would disagree with.

9.

The mortgagee should act honestly and in good faith, and shall not withhold its consent arbitrarily, capriciously, for an improper purpose, or in a limited sense unreasonably.

10.

Subject to the propositions set out above, it is in each case a question of fact, depending upon all the circumstances, whether the mortgagee’s consent to a letting is being unreasonably withheld.”

At paragraph 83 of her written closing submissions, Miss Tipples submitted as follows:

“In relation to dealing with an application by a mortgagor for consent to a letting of the mortgaged property, a mortgagee is entitled to have regard to all matters which are relevant to determination of the application. These will include the rent payable under the lease, the terms of the lease, the interest payable under the mortgage, and any arrears on the mortgage account. In doing so, the mortgagee is entitled to have regard to its own interests, and must be entitled to refuse the application if the lease proposed would have an adverse effect on its own security. Further, the mortgagee’s discretion as the decision maker in determining the application for consent will of course be limited, as a matter of necessary implication, by concepts of honesty, good faith and genuineness, and the need for absence of arbitrariness, capriciousness, perversity and irrationality.”

In support of the latter submission, Miss Tipples relied upon observations of Rix LJ at paragraph 66 of his judgment in the case of Socimer International Bank Limited v. Standard Bank London Limited [2008] EWCA Civ 16, reported at [2008] Bus. L.R. 1304, at page 1333 between letters B and C.

In her oral closing, Miss Tipples expressly addressed Dr. Atkins’s ten suggested criteria. She could not accept number 1, namely:

“1.

The mortgagee must use its power of consent in a diligent and reasonable way, having regard to the interests of the mortgagor as well as its own.”

She submitted that that was a gloss on the sixth and seventh of Balcombe LJ’s propositions in International Drilling, which applied. She accepted Dr. Atkins’s proposition number 2, with the qualification that it should read:

Miss Tipples proceeded to reformulate the seven propositions identified in International Drilling so as to render them applicable in the context of mortgagor and mortgagee, rather than that of landlord and tenant. I accept Miss Tipples’s submissions. In my judgment, the following propositions of law should be applied, by way of reformulation and adaption of Balcombe LJ’s propositions, in judging whether a mortgagee has acted reasonably in withholding its consent to a proposed letting of the mortgaged property:

Dr. Atkins emphasised that the plea in paragraph 2 of his Re-Re-Amended Defence and Counterclaim was one of a duty “to act fairly and equitably toward the defendant as mortgagor”. He submitted that this extended beyond a mere duty to act in good faith. He relies upon the judgment of Sir Richard Scott, Vice Chancellor (speaking for the Court of Appeal) in Medforth v. Blake [2000] Ch 86 and, in particular, his statement at page 102F that the duties imposed by equity on a mortgagee or receiver managing mortgaged property “include, but are not necessarily confined to, a duty of good faith”, and may extend to a duty to act with “due diligence”. The specific issue raised in that case (which received a positive answer) was whether a receiver managing mortgaged property owed an equitable duty of care in negotiating discounts from suppliers of pig feed.

Founding herself upon observations of Rix LJ in Socimer International Bank Limited v. Standard Bank London Ltd (previously cited) at paragraphs 60 and 66 Miss Tipples submits that, in the present context, involving the exercise of the mortgagee’s power to withhold its consent to a letting of the mortgaged property, the only equitable restraints upon the mortgagee are to be found in the concepts of honesty, good faith and genuineness, and the need for the absence of arbitrariness, capriciousness, perversity and irrationality.

Miss Tipples took me to passages in the judgments of Lord Templeman in Downsview Nominees Limited v. First City Corporation Limited [1993] AC 295 at 312F-G and 315 A-E, and Robert Walker LJ in Yorkshire Bank plc v. Hall [1999] 1 WLR 1713 at 1728D-E (both authorities cited in Medforth v. Blake). She also took me to the passage in the judgment of Sir Richard Scott, the Vice Chancellor, in Medforth v. Blake at 103 B-D counselling against any dilution of the concept of “good faith”, treating it as the antithesis of dishonesty or bad faith, and equating want of good faith with “dishonesty or improper motive”. Finally, Miss Tipples relied in her reply upon passages in the judgment of Mance LJ in Starling at page 103L-M, to which I would add references also to the judgments of Peter Gibson LJ at pages 102K-103F and Moore-Bick J at page 104E-H.

I accept Miss Tipples’s submissions as well-founded. In my judgment, the authorities lead to the conclusion that the discretion enjoyed by a mortgagee of commercial investment property, when considering an application to let that property, is limited by concepts of honesty, good faith and genuineness, and the need for the absence of arbitrariness, capriciousness, perversity and irrationality. Given that a mortgagee need usually only consider its own relevant security interests when considering an application by the mortgagor for consent to let the mortgaged property, in my judgment there is no sound foundation for imposing any more extensive equitable duties upon the mortgagee. In Medforth v. Blake, Sir Richard Scott, the Vice Chancellor, expressly recognised (at page 102F-G) that “the extent and scope of any duty additional to that of good faith will depend on the facts and circumstances of the particular case”. Earlier (at page 102D-E) Sir Richard Scott did not accept that there was any difference between the scope of the duties owed at common law or in equity. All that Medforth v. Blake decided was that a receiver managing mortgaged property owed a duty to manage the property with due diligence; and that whilst due diligence did not oblige the receiver to carry on a business on the mortgaged premises previously carried on by the mortgagor, if he did elect to do so, due diligence required reasonable steps to be taken to do so profitably. The position here is much more complex and problematic.

At the end of his evidence, I asked Mr. Rushbrook about the fairness of applying to a proposed letting of the mortgaged property a level of debt service cover which could not be achieved because market rentals had fallen to a level below that required to service the mortgage. Mr. Rushbrook acknowledged that if the customer could not let out the property at a rent sufficient to service the mortgage, and there was no outside income to cover the shortfall, both parties to the mortgage had a problem; but that to consent to a letting in such circumstances would just be creating a problem for everyone. In my judgment, equity should not seek to limit a mortgagee’s freedom of decision whether or not to withhold its consent to a proposed letting of the mortgaged property to any extent greater than the common law, as indicated by Rix LJ in Socimer. In my judgment, there is no warrant whatsoever for the pleaded equitable duty on the part of the claimant “to try to bring about a situation in which the properties could be let on market terms to any reasonable tenant on reasonable market terms proposed by the defendant”.

In the light of my decisions on the existence of an implied qualification upon the power of a mortgagee of commercial investment property to withhold its consent to a proposed letting, and the limitations on such a mortgagee’s freedom of decision, it does not seem to me that there is any scope for the application of the restraint of trade doctrine to Condition 11.4.

On the scope of the restraint of trade doctrine, I was taken to extracts from the speeches of Lord Reid (at pages 295C-E and 298B-F) and Lord Pearce (at pages 327E-F and 328D-E) in Esso Petroleum Co. Ltd v. Harper’s Garage (Stourport) Limited [1968] AC 269; to paragraphs 143 to 150 of the concurring judgment of Gross LJ in Proactive Sports Management Limited v. Rooney [2011] EWCA Civ 1444; to paragraph 11-104 of Treitel: The Law of Contract (13^th edition); and to paragraphs 16-075 and 16-092 of Chitty on Contracts (13^th edition), Volume 2.

I accept Miss Tipples’s submission that Condition 11.4 does not attract the restraint of trade doctrine because it merely regulates the normal contractual relationship between mortgagee and mortgagor in relation to the mortgaged security. In any event, if a clause in a contract is an unlawful restraint of trade, it is unenforceable. The fact that it is unenforceable does not give rise to any claim for damages. Neither the standard text books nor the authorities provide any support for the proposition that damages are recoverable in such circumstances. The case of Crehan v Inntrepreneur Pub Company CPC [2004] EWCA Civ 637, relied upon by Dr. Atkins, was a claim for damages for breach of Article 81 of the EC Treaty, effectively a statutory tort, and is therefore of no assistance in the present context.

There is no dispute that the two loan agreements in the present case are each “credit agreements” within the meaning, and for the purposes, of the 1974 Act, and that the mortgage is security provided in relation to thereto. It is also common ground that since the two loan agreements were not completed before 6^th April 2008 (because, as at that date, the claimant continued to hold retentions from each loan) then, notwithstanding the date of the loan agreements, Dr. Atkins is entitled to apply to re-open them.

Section 140A (1) and (2) provide as follows:

“(1)

The court may make an order under section 140B in connection with a credit agreement if it determines that the relationship between the creditor and the debtor arising out of the agreement (or the agreement taken with any related agreement) is unfair to the debtor because of one or more of the following—

(a)

any of the terms of the agreement or of any related agreement;

(b)

the way in which the creditor has exercised or enforced any of his rights under the agreement or any related agreement;

(c)

any other thing done (or not done) by, or on behalf of, the creditor (either before or after the making of the agreement or any related agreement).

(2)

In deciding whether to make a determination under this section the court shall have regard to all matters it thinks relevant (including matters relating to the creditor and matters relating to the debtor).”

Section 140B sets out the powers of the court in relation to unfair relationships, and provides a wide range of options if the court decides to re-open a credit agreement. Section 140B (9) governs the burden of proof and provides that:

“(9)

If, in any such proceedings, the debtor or a surety alleges that the relationship between the creditor and the debtor is unfair to the debtor, it is for the creditor to prove to the contrary.”

Miss Tipples accepts that it is for the claimant to prove that the relationship was not in fact unfair to Dr. Atkins as the debtor. In opening, I was taken to paragraph 37 of the judgment of Tomlinson LJ in Harrison v. Black Horse Limited [2011] EWCA Civ 1128, reported at [2012] ECC 85, and to various paragraphs in Goode: Consumer Credit Law and Practice, starting at paragraph 47.141. I was also referred to the OFT Guidance on Unfair Relationships (May 2008, and updated August 2012).

Miss Tipples submits that the relationship between the claimant and Dr. Atkins was not unfair by reference to:

In his written closing, Dr. Atkins submitted that the relationship between the parties was unfair because the claimant:

Dr. Atkins emphasised that the claimant had never asked itself the question: “What will Unit 8 be worth if the proposed letting of Unit 8 to Axis were not to go ahead?” He pointed out that it would not be the letting to Axis that would devalue the claimant’s security; rather the value of the claimant’s security had already been adversely affected by the change in market conditions which had produced a decline in market rental values. Dr. Atkins also relied, generally and throughout his submissions, upon the drastic, (or, as he termed it, “seismic”) change in market conditions which was precipitated by the run on Northern Rock which began on or about 12^th September 2007. However, this occurred some way during the course of the application process in relation to the Axis lease; and its full implications may have taken some time to be appreciated.

I would accept that unilaterally imposing different, and more onerous, criteria to the serviceability of a loan during the course of an existing relationship of debtor and creditor may be capable of giving rise to an “unfair relationship” within the meaning, and for the purposes, of Sections 140A and 140B. Mr. Rushbrook accepted as much in answer to questions from the Bench at the end of his evidence. But I do not consider that it is unfair to a debtor for the creditor to deal with a request from the debtor made during the subsistence of the credit relationship in accordance with the creditor’s own internal procedures and guidelines as these existed at the time of the creation of the relationship, even if these were not disclosed or made clear to the debtor at the outset. There can be no unfairness to a debtor in applying the criteria that were applied to him to initiate the credit relationship, even if he does not know what these are. Nor can it be unfair to a debtor for a creditor to have regard to whether a debtor will be able to continue to service a mortgage loan if the creditor gives its consent to a proposed letting. That is the case whether or not the loan agreement or mortgage contained any “financial covenants” such as a debt coverage requirement.

In the present case, Dr. Atkins’s loan documents contained no such “financial covenants”. But, as Miss Tipples submitted, all that means is that the claimant could not rely upon the loan to value or the debt service coverage falling below a certain level as a “triggering event”, entitling the claimant to terminate the loan agreements and call in the loans. Likewise, I accept Miss Tipples’s submission that the arrears on a mortgage account are a very material consideration in relation to any application for consent to let the property over which the mortgagee’s security is held. This is because in these circumstances, the mortgagee will wish to consider whether to commence proceedings to recover the arrears (and no doubt the loan itself). Such proceedings are very likely to be possession proceedings; and, in these circumstances, the mortgagee will wish to consider whether it wishes to recover a vacant property which can then be let or sold, rather than a property which is already subject to a tenancy. What is the most appropriate course will depend on the facts of any particular case; but there can be no unfairness to the debtor in having regard to any arrears on the mortgage account. I do not consider that any of Dr. Atkins’s other points amount to “unfairness” for the purposes of Sections 140A and 140B.

Miss Tipples submitted that the facts, as I have found them to be, lead to very clear conclusions, which she summarised at paragraph 90 of her written closing. I accept her submissions. I find that:

In relation to the claim for breach of the term to be implied in Condition 11.4 of the mortgage terms and conditions:

The claim for breach of equitable duty fails. When considering the applications to let Units 8 and 9, there was no want of good faith, dishonesty or improper motive on the part of the claimant; nor did it act arbitrarily, capriciously, perversely or irrationally.

In view of my finding that Condition 11.4 of the claimant’s mortgage terms and conditions was subject to an implied qualification (appropriate and necessary to the circumstances of this case) that the mortgagee’s consent to any letting of the mortgaged property would not be unreasonably withheld, there is no basis on which Condition 11.4 can be said to be an unlawful restraint of trade. Even if it were, this would not give rise to any claim for damages. It would merely render Condition 11.4 unenforceable.

I have scrutinised in considerable detail the relationship and dealings between the claimant and Dr. Atkins since December 2006. I find that there is no basis whatsoever on which it can be said that the relationship between them was “unfair” to Dr. Atkins. Rather, the position is the opposite. This is because it was Dr. Atkins who was being unfair, by deliberately not telling the claimant what the actual rent receivable was to be in the first year of the Axis lease. He was quite content to let the claimant proceed on the erroneous basis that the rental income would be £66,000 per annum; and he got the claimant (through Mr. Kinane) to agree in October 2007 that this was an acceptable level of rent when in fact the rental receivable was going to be the much lower sum of £24,750 per annum during the first year of the term, a figure wholly insufficient to service the mortgage interest during that period. The burden imposed upon the claimant under Section 140B(9) of the 1974 Act is therefore discharged.

For these reasons, the counterclaim fails; and the claimant is entitled to possession of Unit 8 and 9 and a money judgment for the sums due under the two loan agreements.

I recognise that this result represents a personal tragedy for Dr. Atkins. That tragedy is made all the more galling because had Dr. Atkins approached his application for consent to the Axis letting rather differently, I consider that it might well have been successful. Dr. Atkins knew, at the time of the application that both the “headline” rent of £72,000 and the initial rent of £66,000 proposed for Unit 8 were less than the estimated rental value provided in Mr. Fraser’s initial mortgage valuation report, which Dr. Atkins must have appreciated had formed the basis for the claimant’s mortgage lending decision. Dr. Atkins should have included within his application for consent to the letting a reasoned explanation for this difference, justified by any demonstrable, and objectively verifiable, change in market conditions. Dr. Atkins could, and should, have sought to address the arrears position by pointing (with objective supporting evidence, in the form of invoices and receipts) to the expenditure he had incurred on Unit 8; and invited the claimant to release the retention it held for Unit 8 on completion of the letting to Axis, which would have been more than sufficient to discharge the arrears. When I asked Dr. Atkins in closing whether he had asked the claimant to release the retention, he limply answered that he had not done so because he had assumed it was not available; and he accepted that he should have done. Dr. Atkins acknowledged in closing that perhaps he had not done everything he could have done, or should have done. I suspect that it was arrogance on the part of Dr. Atkins that caused him to adopt an insufficiently proactive attitude towards the obtaining of the mortgagee’s consent to the Axis letting, combined with embarrassment about his financially straitened circumstances, in terms of the cash flow shortage which he was temporarily suffering. If this tragic case serves any good at all, such may lie in the guidance it affords mortgagors in future cases when they approach their mortgagees for consent to let an investment or buy-to-let property.