Is regulation for commercial lending on the horizon?

Morley v The Royal Bank of Scotland Plc

Currently commercial lending is unregulated and banks, such as The Royal Bank of Scotland (RBS), generally do not owe borrowers a duty of care. One man, Mr Morley, is determined to change that and has recently submitted an application for permission to appeal to the Supreme Court after suffering defeats in the High Court and Court of Appeal, as reported by The Times here.

The case

High Court

The Claimant, Mr Morley, brought proceedings against the Bank alleging that it had acted in breach of the following duties:

1. A duty (in tort and in contract) to exercise reasonable skill and care in providing lending services
2. A duty owed in contract to act in good faith and not for an ulterior purpose unrelated to the Bank’s commercial interests
3. A duty as a mortgagee to sell mortgaged assets in good faith and to take reasonable steps to obtain the best price reasonably obtainable

The Claimant also asserted that the 2010 Agreements were procured by threats amounting to the tort of intimidation or were entered into under economic duress.

The Claimant sought rescission of the 2010 Agreements (on the ground of economic duress); or damages in lieu of rescission; or alternatively damages for the tort of intimidation or for breach of the various duties, to compensate him for the loss of the properties he surrendered to GRG.

The court dismissed the claim in full.

Court of Appeal

On appeal Mr Morley claimed that he did not freely enter into the 2010 Agreement, which he said was the result of RBS’s breaches of duty, intimidation and threats of economic duress.

It was alleged that RBS breached:

• A duty to provide banking services with reasonable care and skill under S13 of the Supply of Goods and Services Act 1982; and
• A broader duty to act in good faith.

The Court of Appeal held that RBS owed no such duty and its only duty was the limited duty owed as mortgagee, which had not been breached. Moreover, the Court of Appeal rejected Morley’s claim that he could set aside the agreement which had been reached with RBS on grounds of intimidation and duress as Morley could not prove coercion.

Supreme Court

Mr Morley’s application for permission to appeal will be considered by the a Supreme Court Appeal Panel, consisting of three Justices, without a hearing. Such applications usually fail on the ground that it does not raise an arguable point of law of general public importance – however, as discussed, this case may pass the necessary threshold.

The FCA

Commercial banks will be watching this case with interest and will most likely not welcome any further regulation.

That being said as commercial lending is unregulated any previous action by the Financial Conduct Authority (FCA) against RBS in relation to GRG has been extremely limited despite a highly critical report. The interest in Mr Morley’s case has consistently put RBS under an intense spotlight for several years and MPs have made it clear that they want the FCA to take action, but they have not provided them with the legal framework to do so.

If the Supreme Court accepts the application and Mr Morley wins the subsequent appeal, establishing a duty of care between the bank and borrower, this could potentially give the FCA remit to act against RBS. In addition it would almost certainly lead to an avalanche of litigation cases from former GRG customers claiming damages.

If you need any legal advice concerning potential regulation for commercial lending, contact to our banking and finance experts.

Citations / references
Claim: Morley v The Royal Bank of Scotland PLC [2020] EWHC 88 (Ch) (27 January 2020)
Appeal: Morley (t/a Morley Estates) v The Royal Bank of Scotland Plc [2021] EWCA Civ 338 (11 March 2021)