Funders and their advisors

Lloyds Bank plc v McBains Cooper Consulting Ltd [2018] EWCA Civ 452

In a warning to construction funders, the Court of Appeal exceptionally reversed a trial judge’s apportionment of blameworthiness in a dispute between a bank and its project monitor. The case raises questions about the scope of a progress monitor’s duty and the assessment of damages in the event that the duty is breached. The case also shows that lenders may struggle to recover losses from their advisors when it appears that those losses would have occurred in any event due to their own careless behaviour.

The bank had agreed to lend ‘Miracle Signs & Wonders Ltd’ (an SPV) £2,625,000 in 2007. The bank retained McBains Cooper Consulting as its progress monitor who would report on the progress of the building contract as well as making recommendations about interim payments to be made by the bank pursuant to the facility. The TCC awarded the bank £127,115.95 at first instance, finding McBains had committed two breaches of duty by not informing the bank that the cost of the build was greater than the facility; and breach of duty not to recommend payment of sums due in respect of works not covered by the contract (the building of a third floor). The judge held that McBains was liable for the losses sustained by the bank from November 2008.

One curious aspect of the case was the judge’s finding in the TCC that the bank knew at the time that the facility was agreed that there would be a shortfall of £200,000 yet nevertheless found McBains should have informed the bank of the prospective shortfall of £325,000 in October 2008.

McBains appealed on a number of grounds, the main ones being that they were obliged to provide information rather than advice and that the bank would always have suffered a loss because the project was loss-making and the bank was aware of this at the time of entering into the contract.

While the Court of Appeal agreed that McBains had been negligent in recommending payment for work that fell outside the facility (for the third floor) it was found “that the continued payments after Progress Reports 14-17 were nothing to do with McBains’ negligence but due to the bank’s continuance of its funding despite knowing that the project was uneconomic.” Longmore LJ found that the judge had “very considerably” downplayed the bank’s responsibility. The failure to adhere to ordinary banking principles and business good sense led the Court to award damages only in respect of the sums spent on the third floor resulting in the bank being found liable for two thirds of the damages.


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