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Macdonald Hotels Ltd & Anor v Bank of Scotland PLC (Rev1)
Factual and Procedural Background
This case concerns a commercial claim brought by the Plaintiff against the Defendant ("BOS") involving alleged forced disposals of hotel assets and associated breaches of contract and implied duties. Initially, the claim included a forced disposal of development land, which was discontinued during trial. The remaining claims concern the alleged forced disposal of three hotels owned or controlled by the Plaintiff or its subsidiary: the Randolph Hotel, the Old England Hotel, and the Marine Hotel.
The Plaintiff alleges that the Defendant forced these disposals in breach of contractual and implied terms contained in a shareholders agreement ("SHA") and subsequent facility agreements. The Randolph Hotel claim is founded on an alleged express duty of good faith under the SHA, while the Old England and Marine Hotels claims rely on implied terms in the 2014 Facility Agreement.
The Defendant denies these allegations, contending the express and implied terms do not impose the duties claimed, that the disposals were not forced in breach of contract, and that any losses were not caused by the Defendant's conduct. The Defendant also pleads limitation defenses and claims that a Deed of Waiver ("DoW") discharged the Plaintiff's claims relating to the Randolph Hotel.
The trial involved extensive documentary and oral evidence from representatives of both parties, including senior executives and officials involved in the management of the Plaintiff's hotel portfolio and its banking relationship with the Defendant. The trial spanned several weeks in October and November 2024.
The case is heavily documented, involving complex commercial negotiations, refinancing arrangements, and strategic decisions made in the aftermath of the 2008 financial crisis and subsequent changes in banking relationships.
Legal Issues Presented
- Whether the Defendant breached an express duty of good faith under the SHA by forcing the sale and leaseback of the Randolph Hotel.
- Whether terms should be implied into the 2010 and 2014 Facility Agreements requiring the Defendant to exercise its discretion in good faith, not arbitrarily or capriciously, in relation to approvals for disposals of assets (the "Disposal Implied Term").
- Whether the Plaintiff's claims in respect of the Marine Hotel are statute barred due to limitation periods and issues concerning the validity of assignment of claims.
- Whether the Deed of Waiver entered into in 2014 precludes the Plaintiff’s claims concerning the Randolph Hotel and whether the Plaintiff is entitled to rescind the DoW on grounds of misrepresentation or duress.
- Whether the Defendant acted irrationally or in bad faith by refusing consent to a proposed Barclays refinance of the Manchester Hotel and insisting on the sale and manage back of the Old England and Marine Hotels.
Arguments of the Parties
Plaintiff's Arguments
- The Defendant breached an express duty of good faith under the SHA by imposing the sale and leaseback of the Randolph Hotel rather than accepting a proposed alternative refinancing plan involving Starwood Capital Group.
- The Defendant breached implied terms in the 2010 and 2014 Facility Agreements requiring good faith exercise of discretion in approving disposals, by refusing consent to the Barclays refinance and forcing disposals of the Old England and Marine Hotels.
- The Deed of Waiver does not cover the Randolph Hotel claims as they arise under the SHA and not the facility agreements, and the Plaintiff is entitled to avoid the DoW on grounds of misrepresentation.
- The assignment of the Marine Hotel claim to the Plaintiff was valid and the limitation period applicable is 12 years, as the 2014 Facility Agreement was executed as a deed.
- The Defendant acted irrationally and in bad faith in rejecting the Barclays refinancing proposal and insisting on disposals that damaged the Plaintiff's interests.
Defendant's Arguments
- The express duty of good faith in the SHA is limited in scope and does not require the Defendant to subordinate its commercial interests or accept alternative refinancing proposals.
- No terms should be implied into the facility agreements qualifying the Defendant's absolute discretion to approve disposals; even if implied, no breach has been proved and no loss caused.
- The Randolph Hotel claims fall within the scope of the Deed of Waiver and have been waived; the Plaintiff's claim to avoid the DoW on grounds of misrepresentation or duress fails.
- The assignment of the Marine Hotel claim was invalid as it breached contractual prohibitions on assignment; alternatively, the claim is statute barred under the 6-year limitation period applicable to simple contracts because the 2014 Facility Agreement was not a deed as to all parties.
- The Defendant acted rationally and in its commercial interests in rejecting the Barclays refinance, which would have increased leverage and weakened security, and in insisting on disposals consistent with the facility agreements.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Onassis and Calogeropoulos v. Vergottis [1968] 2 Lloyds Rep 403 | Evaluation of oral evidence against documentation and probabilities in long-running commercial disputes. | Used to support the approach to assessing witness evidence in a heavily documented commercial trial. |
| Bailey v. Graham [2012] EWCA Civ 1469 | Testing oral evidence against contemporaneous documents and subsequent conduct. | Supported the court's approach to evaluating witness evidence. |
| Kogan v. Martin [2019] EWCA Civ 164 | Consideration of all evidence, including oral and documentary, in contract disputes. | Reinforced the approach to evidence evaluation. |
| Gestmin SGPS SA v. Credit Suisse (UK) Limited [2013] EWHC 3560 (Comm) | Appropriateness of evaluating oral evidence in light of delay and documentary evidence. | Supported the court's method of evidence assessment. |
| Wood v Capita Insurance Services Ltd [2017] AC 1173 | Principles of contractual interpretation including consideration of commercial context and purpose. | Applied extensively in construing the SHA and facility agreements. |
| FCA v. Arch Insurance (UK) Limited [2020] EWHC 2448 (Comm); [2021] UKSC 1 | Limits on invoking commercial common sense and caution in arguments based on omissions in contract drafting. | Used to caution against overreliance on absent terms in contract construction. |
| Braganza v BP Shipping Limited [2015] UKSC 17; [2015] 1 WLR 1661 | Implied terms governing the exercise of contractual discretion requiring good faith and rationality. | Basis for Plaintiff’s claim to imply good faith terms into facility agreements. |
| BP Gas Marketing Ltd v La Société Sonatrach [2016] EWHC 2461 (Comm) | Pleading requirements for breach of duty of good faith. | Applied to hold Plaintiff to its pleaded case regarding breach allegations. |
| BCCI v Ali [2001] UKHL 8; [2002] 1 AC 251 | Interpretation of settlement agreements and deeds under English law. | Applied in construing the Deed of Waiver. |
| Raiffeisen Zentralbank Osterreich AG v Royal Bank of Scotland PLC [2010] EWHC 1392 (Comm); [2011] 1 Lloyds Rep 123 | Elements of misrepresentation including objective test of representation and reliance. | Guided analysis of Plaintiff’s misrepresentation claim concerning the DoW. |
| Farol Holdings and others v. Clydesdale Bank Plc [2024] EWHC 593 (Ch) | Misrepresentation elements and reliance; objective approach. | Followed for analysis of misrepresentation and reliance issues. |
| Wood v Capita Insurance Services Ltd [2017] AC 1173 | Contractual interpretation principles. | Reiterated for construction analysis of facility agreements. |
| Marks and Spencer Plc v. BNP Paribas Securities Services Trust Co (Jersey) Limited [2015] UKSC 72; [2016] AC 742 | Principles for implying terms into contracts, emphasizing necessity and consistency with express terms. | Applied to assess whether the Disposal Implied Term should be implied. |
| Ali v. Petroleum Company of Trinidad and Tobago [2017] UKPC 2; [2017] ICR 531 | Reaffirmation of principles for implying terms into commercial contracts. | Applied in conjunction with Marks and Spencer. |
| Nelson v British Broadcasting Corporation [1977] IRLR 148 | Limits on implying terms to qualify express and unqualified contractual powers. | Applied to reject implication of terms that would contradict express absolute rights. |
| Reda v. Flag Limited [2002] UKPC 38 | Limits on qualifying express contractual powers by implied terms. | Supported the court’s approach to express and implied terms. |
| IBRC v. Camden Market Holdings Corp [2017] 2 All ER (Comm) 781 | Express and absolute contractual rights cannot be qualified by implied terms. | Applied to the interpretation of facility agreement rights. |
| Lomas v. IFB Firth Rixon [2012] EWCA Civ 419 | Express termination rights not subject to implied good faith terms. | Applied in distinguishing absolute rights from qualified discretions. |
| TSG Building Services Plc v. South Anglia Housing Limited [2013] EWHC 1151 (TCC) | Limits on implying terms to qualify express contractual rights. | Supported principles applied here. |
| Taqa Bratani Limited and others v. Rockrose UKCS8 LLC [2020] EWHC 58 (Comm); [2020] 2 Lloyds Rep 64 | Similar principles regarding express rights and implied terms. | Applied in analysis of facility agreement rights. |
| Yorkshire Bank Plc v Hall [1999] 1 WLR 1713 | Mortgagee duties and distinction from contractual implication of terms. | Considered in relation to the Mortgage Exception. |
| Socimer International Bank Ltd (in liquidation) v Standard Bank London Ltd [2008] EWCA Civ 116; [2008] 1 Lloyd's Rep 558 | Mortgagee’s duties and contractual rights distinction. | Considered in relation to Mortgage Exception and implications for implied terms. |
| Paragon Finance plc v Nash [2002] 1 WLR 685 | Contractual rights to alter interest rates and implied terms. | Applied by analogy to contractual rights in facility agreements. |
| Property Alliance Group v Royal Bank of Scotland [2018] EWCA Civ 355; [2018] 1 WLR 3529 | Implied good faith term qualifying lender’s discretion in loan agreements. | Applied in deciding necessity and scope of implied terms. |
| Linden Gardens Trust Ltd v. Lenesta Sludge Disposals Ltd [1994] 1 AC 85 | Construction of anti-assignment clauses and effect on accrued causes of action. | Applied in assessing validity of assignment of Marine Hotel claim. |
Court's Reasoning and Analysis
The court first examined the contractual context and the alleged express and implied duties of good faith owed by the Defendant to the Plaintiff under the SHA and facility agreements. The court emphasized established principles of contract construction, requiring an objective approach considering the contract as a whole and its commercial context, while cautioning against rewriting contracts or importing terms not clearly intended.
Regarding the Randolph Hotel claim, the court found that the express good faith obligation in the SHA was limited and did not require the Defendant to subordinate its commercial interests or accept alternative refinancing proposals. The alleged "proposal" from Starwood was not a formal offer and was not capable of acceptance. The Defendant’s insistence on the sale and leaseback was consistent with its contractual rights and commercial interests. The court also held that the Randolph claim was covered by the Deed of Waiver, which the Plaintiff had entered into voluntarily and without reliance on any false representation. The claim to avoid the DoW on grounds of misrepresentation or duress failed.
In relation to the Old England and Marine Hotels, the court accepted that the facility agreements gave the Defendant a discretion to approve disposals, but this discretion was subject to an implied term (the Disposal Implied Term) requiring the Defendant to act in good faith, rationally, and not arbitrarily or for improper purposes. The court held that this term was necessary to give business efficacy to the contract and was consistent with the express terms. However, the court found no breach of this term. The Defendant’s refusal to consent to the Barclays refinance of the Manchester Hotel was rational and based on legitimate commercial concerns, including the effect on leverage ratios and the security package. The disposals of the Old England and Marine Hotels were accepted as necessary and agreed by the Plaintiff as part of the repayment strategy.
The court rejected the Plaintiff's contention that the Defendant acted irrationally or in bad faith by insisting on disposals rather than accepting the Barclays refinancing proposal. The Defendant’s position was supported by credible financial analysis and consistent with the contractual framework and commercial realities.
Regarding the Marine Hotel claim, the court addressed the assignment issue, concluding that the facility agreement prohibited assignment of rights, including accrued causes of action, without the Defendant’s consent. Since no valid resignation or consent was given, the assignment was ineffective. The claim therefore remained vested in the subsidiary and not the Plaintiff. Even assuming the assignment was effective, the court held that the 2014 Facility Agreement was not a deed as to all parties because it was executed as a deed only by the Plaintiff and its subsidiaries, not the Defendant. Consequently, the 6-year limitation period for simple contracts applied, and the Marine Hotel claim was statute barred.
Overall, the court found the Plaintiff’s claims failed on the facts and law. The Defendant acted within its contractual rights and commercial interests, and the Plaintiff failed to prove breach of any express or implied duty of good faith or causation of loss. The Deed of Waiver precluded the Randolph claim. The Marine claim was barred by limitation and invalid assignment.
Holding and Implications
The Plaintiff’s claims are dismissed in their entirety.
The court held that the Defendant did not breach any express or implied contractual duties in relation to the forced disposals of the Plaintiff’s hotel assets. The Deed of Waiver entered into by the Plaintiff precludes claims concerning the Randolph Hotel. The Marine Hotel claim is barred by limitation and invalid assignment. The Defendant’s refusal to consent to the Barclays refinancing was rational and in good faith.
The direct effect is that the Plaintiff’s claim against the Defendant fails and is dismissed. No new legal precedent is established beyond the application of well-established principles of contract construction, implied terms, limitation, and assignment in the context of complex commercial lending and joint venture relationships.
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