Court of Appeal dismisses distressed borrower's appeal in decision regarding lenders' duties: Morley v Royal Bank of Scotland

The Court of Appeal (Lewison, Males and Birss LJJ) recently handed down judgment in Morley (t/a Morley Estates) v The Royal Bank of Scotland plc [2021] EWCA Civ 338. The Court of Appeal upheld the decision of Kerr J dismissing Mr Morley's claims for intimidation and economic duress, breach of an implied duty of reasonable care and breach of a duty of good faith, arising from events following the transfer of his property portfolio to RBS's Global Restructuring Group ("GRG") during the global financial crisis.

Factual Summary

Mr Morley was a commercial property developer who entered into a three-year £75 million loan facility with RBS in December 2006. The loan was secured against Mr Morley's property portfolio (at that time valued at £98.45 million), with no recourse to Mr Morley personally.

During 2008 the downward trajectory of interest rates led to difficulties in Mr Morley meeting payments under a £49 million interest rate collar he had taken out as a condition of the loan. Further, the declining market led to a depreciation in value of the portfolio; in January 2009 the bank valued the portfolio at just £59.4 million. In June 2009, the bank transferred Mr Morley's account to GRG, its internal division for dealing with distressed borrowers. At the end of December 2009, Mr Morley defaulted on repayment of the loan.

Between 2008 and July 2010, Mr Morley and the bank negotiated in relation to the way forward. The negotiations culminated in an agreement ("the Agreement"), pursuant to which £10 million of the loan was written off, certain of the properties were transferred to the bank's subsidiary, West Register (Property Investments) Ltd ("West Register") and the remainder were retained by Mr Morley on payment of £20.5 million to RBS. During the course of negotiations, a meeting took place in July 2010 at which the trial Judge found that the bank had threatened that, unless Mr Morley signed up to a consensual deal, the bank would appoint receivers to sell the portfolio on a pre-pack basis to West Register.

The Claims

Mr Morley contended that: (1) in concluding the Agreement the bank acted in breach of a duty owed to him pursuant to section 13 of the Supply of Goods and Services Act 1982 ("the 1982 Act") to provide banking services with reasonable care and skill; (2) in concluding the Agreement the bank acted in breach of a duty of good faith; and (3) that he had been coerced into concluding the Agreement by unlawful pressure placed on him by the bank at the July 2010 meeting. Mr Morley contended that this gave rise to a claim in intimidation and that the Agreement was voidable for economic duress.

Issue 1: Breach of duty to take reasonable care

Mr Morley alleged that the bank was in breach of a duty to provide banking services with reasonable care and skill, such duty being implied into the loan facility agreement pursuant to section 13 of the 1982 Act. The Court of Appeal rejected the suggestion that an implied term in the loan facility agreement (which had expired in December 2009) could impact upon the relationship between the parties during their negotiations in 2010. Rather, their relationship was governed by the express terms of the mortgage and by the equitable principles applicable to the relationship between mortgagee and mortgagor.

As to the terms of the mortgage, the Court of Appeal held that there was no implied duty to take reasonable care because it is not appropriate to imply a contractual term into a mortgage (which in any event is not a contract for the supply of services). As to the equitable principles applicable to the relationship between mortgagee and mortgagor, any receiver appointed by the bank would have been the agent of the mortgagor and not the bank and would have owed duties to Mr Morley accordingly. A receiver owes the mortgagee's duty to take reasonable care to obtain a proper price but does not owe a general duty to use reasonable care in dealing with the assets of the borrower: Downsview Nominees Ltd v First City Corporation Ltd [1993] 1 AC 295. It followed that a decision to sell the properties by way of a pre-pack sale to West Register would have been a decision for the receivers, not the bank, and the receivers would not have been entitled to accept instructions from the bank to sell in this way unless they were satisfied that to do so was in accordance with the duties which they owed as receivers.

The Court of Appeal held that, even if the bank had been under such a duty, there had been no breach. Mr Morley alleged that the bank had failed to follow internal policy guidance, which emphasised that the bank's objective would in general be to support a viable business, and that this guidance was relevant in any assessment of what reasonable care and skill required. The Court of Appeal rejected this submission, finding that "The aspirational language of a purely internal document provides no secure foundation for any case of breach of duty by the bank". Mr Morley further alleged that the bank was in breach of duty because it acted as a potential buyer for the portfolio in its dealings with Mr Morley, rather than as a lender. The Court of Appeal also dismissed this suggestion, on that basis that acquisition of the portfolio through West Register was simply a means of achieving the bank's objective of recovering its loan. Even if the bank had mixed motives, that would have made no difference since it is unnecessary that a mortgagee should have "purity of purpose" in the sense of its only motive being to recover the debt secured by the mortgage.

Issue 2: Breach of duty of good faith

Mr Morley alleged that the bank was under a duty to act in good faith, or not to act vexatiously or contrary to its "legitimate commercial interests", pursuant to an implied term of the loan agreement. He relied in this regard on Property Alliance Group Ltd v RBS [2018] 1 WLR 3529, in which the Court of Appeal had held that the power to require a valuation of secured property at the borrower's expense was "not wholly unfettered" and that it was to be inferred that the parties intended the power to be exercised in pursuit of legitimate commercial aims. Applying that reasoning, Kerr J had held that the only restriction on RBS's contractual discretion was that it must be exercised so as not to "vex the claimant maliciously, nor for purposes unconnected to the bank's commercial interests".  The Court of Appeal stated that it "would not necessarily accept" that the bank was under such a duty in its negotiations with Mr Morley. However, on the facts the Court did not need to decide the point, because such a claim was ruled out by Kerr J's factual finding that all of the bank's actions "were rationally connected to its commercial interests".

Issue 3: Intimidation / economic duress

The tort of intimidation requires: (i) a threat by the defendant to do something unlawful or illegitimate; (ii) the threat must be intended to coerce the claimant (C) to take or refrain from taking some course of action; (iii) the threat must in fact coerce C to take such action; and (iv) loss or damage must be incurred by C as a result: Berezovsky v Abramovich [2011] EWCA Civ 153. Coercion is similarly a necessary ingredient of economic duress. The Court of Appeal did not grapple with the difficult question of whether it is sufficient that the threat is to do something "illegitimate" but not unlawful (an issue which was left open in Berezovsky), focusing instead on the lack of coercion. The Court held that the Judge was "plainly right" in deciding that Mr Morley was not coerced by the bank's threat into concluding the Agreement and that the Agreement "was the result of a robust (and even aggressive) negotiation between commercial parties, each of which had legal advice and each of which was well able to look after itself in that negotiation." The Court considered it relevant that Mr Morley had himself made threats during the course of the negotiations, including threats to walk away from the properties (thereby putting the value of the bank's security in jeopardy) and to issue an emergency application for an injunction, as well as being prepared to exert political and public relations pressure on the bank. Further, the Court noted that Mr Morley did not in fact submit to the bank's demand. Instead, the parties had continued to negotiate for several weeks and the Agreement eventually concluded was similar to the agreement that Mr Morley wanted and had originally proposed, not the one that the bank had demanded at the time of making the threat to appoint receivers. Finally, the fact that Mr Morley had not taken steps to set aside the Agreement until five years later was significant, not only because it demonstrated his affirmation of the Agreement, but also because it negated any finding of coercion.


This decision provides clarity as to the scope of lenders' duties of care in relation to distressed borrowers. The Court of Appeal's confirmation of the limited scope of duties owed by a bank to a distressed borrower once the lending agreement has come to an end will be of particular interest to borrowers who have been transferred to the restructuring or business support departments of high street banks.

The Court of Appeal's decision in relation to the intimidation and economic duress claims was heavily dependent upon the specific facts of the case and the lack of a causal link between the bank's threat and Mr Morley's decision to enter into the Agreement. It does however highlight the difficulties of establishing claims of intimidation and economic duress in the commercial context, particularly where parties are represented by lawyers.


Anna Lintner has advised and appeared in a large number of claims involving distressed borrowers. She has particular expertise in claims arising from the sale of complex financial products and claims involving LIBOR manipulation. Anna is recommended in Legal 500 as a leading junior in Banking and Finance.