Natwest are currently licking their wounds at present after losing heavily in Court last week. It seemed that the bank felt the contract it entered into with a company wasnt binding on the bank but was binding on the company and the guarantor too.
However, the Court corrected Natwest and made it clear that they werent above the law.
So what happened? well around 3 years ago, our client entered into a rolling overdraft agreement with the bank, the agreement was for 12 months at a time and the only way the bank could end the contract was if any of the conditions in condition 3 were met.
The bank decided that around 6 months into the contract it didnt want the limited company as its client, so the bank terminated the overdraft account. The consequence of this was to cause the limited company immediate liquidity issues which led to the closure of the company with immediate effect.
The bank decided that it would call in the directors guarantee and duly demanded that the client pays the sums outstanding to the bank under the overdraft contract. The client decided that it was proper to try and agree a deal with the bank to settle the matter, however the bank decided that rather than be reasonable, instead, it would be unreasonable and start the bankruptcy process against the client and duly issued a statutory demand.
We were instructed to defend the clients position, so we made it clear to the bank that
A) the debt was disputed
B) the liability on our client under the guarantee only arose to the extent that the limited company was liable, and since the bank had acted in repudiatory breach of contract, there was no liability
C) the insolvency process wasn’t the right way to deal with a disputed debt
D) no formal demand had been made thus the banks claim failed notwithstanding the above
We duly asked the bank to withdraw the demand and pay our clients costs. The bank refused.
Accordingly the matter came before DDJ Ashley-Smith, who duly agreed with our position and set aside the demand, the judge noted there was no term in the contract which allowed the bank to change its mind and therefore there was a breach of contract by the bank. In addition the bank had written to our client advising that the limited company and our client had not breached the contract or acted in any way inconsistent with the contract, it was simply the fact that the bank didnt want the client as a customer any more.
As a result, not only did the bank not recover its money, the bank was ordered to pay our clients costs, and also the bank should it bring a claim against the client under the guarantee will be faced with a counterclaim which will no doubt be much bigger than the debt.