Case No: HC11C00500
Neutral citation number: [2012] EWHC 4388 (Ch)

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION

Royal Courts of Justice
Strand, London, WC2A 2LL

Date: 13th July 2012

Before:

HIS HONOUR JUDGE HODGE Q.C.
sitting as a Judge of the High Court

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Between :

	COMMERCIAL FIRST BUSINESS LIMITED	Claimant	
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	ANTHONY HENRY ATKINS	Defendant	

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MISS AMANDA TIPPLES QC (instructed by MOORE BLATCH) appeared for the Claimant
THE DEFENDANT appeared in person

Hearing dates: 26-29 June, 2-5, 9 & 13 July 2012

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JUDGMENT
Friday, 13th July 2012
JUDGE HODGE QC: 
1.	This claim raises, apparently for the first time, the questions: (1) in what circumstances is a mortgagee of commercial investment property entitled to withhold its consent to a letting of that property, where it is a term of the mortgage that “the Mortgagor will not let or grant a licence or tenancy in respect of the Property, or any part of it (nor agree to do so) without the prior written consent of the Lender”; and (2) what consequences follow if such a mortgagee withholds its consent in circumstances where it is not entitled to do so.  Whilst these questions arise in the specific context of a mortgage of commercial investment property, the answers may have a potentially wider application for mortgagors of “buy-to-let” residential properties.  

2.	This judgment is divided into five chapters, as follows:  (1) The Background; (2) The Evidence and The Hearing; (3) My Conclusions on the Facts; (4) My Conclusions on the Law; and (5) The Result.  But I should make it clear at the outset that although this judgment is structured in this way for clarity of exposition, the contents of each separate chapter have informed the contents of the judgment as a whole.  

Chapter 1:  The Background

3.	This is the trial of a mortgage possession claim issued in the Oxford County Court on 21st December 2009.  Having been allocated to the multi-track, the claim was subsequently transferred to the Chancery Division of the High Court by an order dated 9th February 2011.  The defendant, Dr. Atkins (who is now 68 years of age and undertook his Doctorate in Agricultural Economics at the University of Oxford), is the freehold owner of two intended office investment properties, known as Units 8 and 9 Brookside, at Long Hanborough, near Witney in the County of Oxford.  On 4th April 2007, Dr. Atkins charged the properties to the claimant by way of registered first legal charge to secure loans of (1) £745,784 in respect of Unit 8 and (2) £628,032 in respect of Unit 9.  The mortgage was subject to pre-printed General Lending Terms and Conditions which included (as Condition 11.4) a term stating that:

“The Mortgagor will not let or grant a licence or tenancy in respect of the Property, or any part of it (nor agree to do so) without the prior written consent of the Lender.” 
 
4.	Dr. Atkins fell into arrears with the payments of interest due under the two loans.  It is the claimant’s case that the amount now due to it under the mortgage in respect of these loans exceeds £2 million, and that it is entitled to an order for possession of both properties, together with a money judgment for the sums now due.    

5.	Dr. Atkins’s case is that the claimant is not entitled to possession of the properties, nor is it entitled to payment of the sums alleged to be outstanding under the mortgage.  In summary, he maintains: 

(1) That he has a counterclaim against the claimant for a sum in excess of £3.2 million (and thus exceeding all sums due under the mortgage).  This is founded upon the allegation that the claimant failed, unreasonably and on a timely basis, to consider, and to consent to, applications by Dr. Atkins for permission:

(a) on 1st August 2007 to let Unit 8 to Axis Intermodal PLC (Axis) in accordance with an agreement for lease dated 3rd August 2007, and 

(b) on 26th January 2009, to let Unit 9 to Direct Sales Agency Limited (DSA) in accordance with an agreement for lease dated 13th January 2006 (and thus pre-dating 
the claimant’s legal charge).
  
It is said that had consent to these lettings been given (as it should have been) they would have gone ahead, generating an income from each letting; and Dr. Atkins would not now be in debt to the claimant.  He asserts that it was an implied term of the mortgage, taking the form of an independent covenant or undertaking, that:

(i) any request for consent to let the properties made pursuant to Condition 11.4 would be considered and dealt with by the claimant, as mortgagee, promptly and expeditiously; 

(ii) the claimant would consent to any reasonable letting proposal put forward by the defendant or any reasonable proposed lease to a suitable tenant at a market rental, or 

(iii) that the claimant would not unreasonably withhold its consent to a proposed lease of the properties at market rental.  

(2) That, as mortgagee, the claimant owed an equitable duty to act fairly and equitably towards the defendant, as mortgagor, and that, in the circumstance of the case, the claimant was in breach of this equitable duty when it failed to consent to the proposed lettings to Axis and DSA.  

(3) That since Condition 11.4 was capable of preventing Dr. Atkins from deriving any income from his business of developing and renting out office space, the restraint of trade doctrine was engaged; and the claimant’s unreasonable withholding of its consent to the two proposed lettings thereby constituted an unlawful restraint of trade which rendered the loan agreements unenforceable.  

(4) That the relationship between the claimant (as creditor) and Dr. Atkins (as debtor) arising out of the loan agreement and legal charge, was “unfair to the debtor” (within the meaning of Section 140A of the Consumer Credit Act 1974, as introduced by the Consumer Credit Act 2006 which, as is common ground, applies to this mortgage transaction) because of:

(a) the terms of Condition 11.4;

(b) the way in which the claimant has exercised or enforced its rights in relation to thereto; and

(c) the way in which the claimant has failed to consent promptly to the proposed lettings of Units 8 and 9 and has introduced new, and changing, lending criteria or policies without notice and in secret so that the debtor could not know what policy or criteria he had to meet in seeking to find suitable tenants and terms for the properties.

Dr. Atkins seeks appropriate orders under Section 140B to prevent the claimant from recovering possession of the properties.

6.	These allegations are all disputed by the claimant.  In short, its case is that:

(1) There is no legal basis to imply an independent covenant into the loan agreements and legal charge, giving rise to a potential claim in damages.  To the extent that it is necessary to imply any term into Condition 11.4, this should not involve anything more than the addition of the words “provided that such consent is not to be unreasonably withheld” at the end of the condition (thereby mirroring the provision contained in Section 19(1) of the Landlord and Tenant Act 1927).  In any event, there is no basis whatsoever to criticise the way in which the claimant dealt with Dr. Atkins’s applications for permission to let the properties.  In relation to both Units 8 and 9, the relevant tenant had withdrawn from the proposed letting before the claimant had made any final decision on the application for consent.  

(2) Any equitable constraint upon the claimant’s discretion, as mortgagee, to determine an application for consent to let the mortgaged property should be limited by concepts of honesty, good faith and genuineness, and the need to avoid any elements of arbitrariness, capriciousness, perversity or irrationality.  No such considerations entered into the claimant’s decision making in the present case. 

(3) The reason Dr. Atkins fell into arrears with interest payments under the loan agreements was because of his own financial difficulties.  He did not have enough money to complete the contracted building works to the properties to enable them to be let, and he did not then have the resources to pay the monthly sums due in respect of interest under the loan agreements as and when they fell due.  These financial difficulties had nothing whatsoever to do with the claimant’s consideration of Dr. Atkins’s applications for permission to let Unit 8 to Axis in August 2007 and to let Unit 9 to DSA in January 2009.  There is therefore no basis in fact for the defendant’s counterclaim.

(4) The doctrine of restraint of trade is not engaged in the present case because Condition 11.4 merely regulates the normal commercial relationship of mortgagor and mortgagee in relation to the mortgage advance and the terms on which the monies were lent.  In any event, Condition 11.4 goes no further than is reasonably necessary to protect the interests of the claimant as mortgagor, and it is not contrary to the public interest.  Further, even if it were applicable, the application of the restraint of trade doctrine would not operate to render the mortgage and the loan agreements unenforceable, but would merely prevent the claimant from enforcing the terms of Condition 11.4.  It would not give rise to any claim for damages against the claimant.  

(5) The relationship between Dr. Atkins and the claimant arising out of the mortgage, or the way in which it has been operated, was not “unfair” to Dr. Atkins within the meaning of the 1974 Act; and he is not entitled to any relief under Section 140B.  

Chapter 2: The Evidence and the Hearing

7.	By an order dated 12th April 2011, Chief Master Winegarten ordered the trial both of the claim and of the issue whether the claimant was liable to the defendant by reason of the matters alleged in the counterclaim.  My understanding is that issues of quantum on the counterclaim are thereby excluded from the scope of this trial.

8.	The claimant is represented by Miss Amanda Tipples QC, instructed by Moore Blatch.  Until 19th June 2012, Dr. Atkins was represented by solicitors (J. R. Champkin Limited) but since then he has represented himself as a litigant in person.  As his academic qualifications would suggest, I have found Dr. Atkins to be an intelligent, articulate and self-confident individual.  

9.	The trial bundles extended to some 15 lever-arch files.  The chronological bundles of documents comprised over 2,000 pages.

10.	The trial began at about 10.45 on the morning of Tuesday, 26th June, and it concluded at about ten past four on the afternoon of Monday, July 9th.  Both parties had produced written skeleton arguments which I had pre-read.  Because of Dr. Atkins’s status as a litigant in person, Miss Tipples opened the case at length: her opening lasted for about 8 hours, concluding at about 2.45 on the afternoon of Wednesday, 27th June.  I then heard argument on the admissibility of the statements of Dr. Atkins’s witnesses; and I delivered a short extemporary interim ruling, permitting Dr Atkins to rely upon the evidence of Mr. Sherbrooke and Mr. Irvine, but not upon the evidence of Mr. Rushholme. I ruled his witness statement to be an attempt to introduce expert opinion evidence for which there had been no permission (despite two case management hearings before the Chief Master).  I was also of the view that such evidence was “not reasonably required to resolve the proceedings” (within CPR 35.1).  Dr. Atkins then proceeded to open the case on the facts, from about 3.30 on the afternoon of the second day until about 3 o’clock on the afternoon of the following day (Thursday, 28th June), a total of some 4 and a quarter hours.  

11.	The court then heard from the claimant’s seven witnesses, starting with Mr. Barbour and concluding (at about 12.25 on Monday, 2nd July, the fifth day of the trial) with Mr. Parrott.  In addition, the statements of two further witnesses for the claimant (Mark Jones and Vicki Goodier, previously Vicky Godfrey) were admitted in evidence without the need for them to attend court and be cross-examined.  The claimant also relied, by way of hearsay evidence, upon various documents annexed to a Hearsay Notice dated 24th May 2012.  

12.	On the afternoon of the third day of the trial, I heard from John Barbour (who from 2006 to 2009 was the claimant’s Head of Credit Management) for about 45 minutes, and then from Ben Jackson (who was the claimant’s Head of Customer Operations).  Mr. Jackson’s evidence continued the following morning and lasted for about an hour and 40 minutes in total.  On the morning of the fourth day of the trial, I also heard from Barbara Champion (a case manager in the Customer Operations Department) for about 25 minutes; from Laura Mortlock (Miss Champion’s team leader) for about 40 minutes; and from James Roberts (who was an assistant arrears manager).  At the express request of Dr. Atkins, and without opposition from Miss Tipples, Mr. Jackson, Miss Champion and Miss Mortlock each gave evidence without hearing the evidence of the other two of those witnesses.  On the afternoon of the fourth day of the trial, I heard evidence from Daniel Rushbrook (the claimant’s Legal and Corporate Director) for about 2 and a quarter hours.   On the morning of day 5, I heard from Mark Parrott (who is now retired but was formerly the claimant’s Risk Director) for about 1 and three quarter hours.  There was no evidence from any of the solicitors who had dealt with either of the applications for consent to let Units 8 and 9.  Nor was there any evidence from Steve Pleydell, who was Miss Champion’s main point of contact in the claimant’s Risk Department (reporting, indirectly, through his line manager, to Mr. Parrott) for approving Dr. Atkins’s application for consent to let Unit 8 during August to October 2007.  (Mr. Parrott was not himself involved in considering that request.)    

13.	Dr. Atkins treated the claimant’s witnesses with due courtesy; and with the exception of Mr. Rushbrook, there was no real challenge to the evidence of any of the claimant’s witnesses.  I find all six of them to be honest, straightforward, articulate and intelligent individuals, who were doing their best to assist the court; and I accept them as witnesses of truth.   

14.	Mr. Rushbrook was subjected to a vigorous cross-examination by Dr. Atkins, directed principally to;

(1) a letter Mr. Rushbrook had written to Dr. Atkins on 1st July 2009, as clarified in a later letter of 8th July (at file 13, pages 1767-8 and 1784-5), on the “investment criteria” applied by the claimant to the renting of commercial properties in 2009; 

(2) the assertion by Dr. Atkins that Mr. Rushbrook had declined to instruct the claimant’s surveyor to agree the level of current market rental values for Units 8 and 9 in August 2009; and

(3) the inaccuracy (as regards Dr. Atkins’s loan agreements) of a statement in the literature produced in connection with the securitisation of the claimant’s lending in May 2007 (at file 8, page 396) that “the loan conditions include debt servicing and loan to value maintenance covenants as financial triggers”.   

15.	On the issue of the investment criteria which were applied to the renting of Dr. Atkins’s properties, I accept the evidence of Mr. Parrott where this differs from that of Mr. Rushbrook since (as Mr. Rushbrook himself very fairly acknowledged) as Director of Risk, Mr. Parrott was the person who had the better recollection and understanding of such matters: at all times it was the original 115% debt service coverage (on an interest-only basis) which was the criterion applied (with an element of discretionary leeway) to any proposed letting.

16.	On the second issue, for the reasons that will appear in the next Chapter, I find that no criticism can properly be attached to Mr. Rushbrook (or the claimant) for failing to instruct its valuer to agree current market rental values in August 2009.

17.	On the third issue, despite Mr. Rushbrook’s valiant but, in my view, misguided attempts to contend to the contrary, I find the terms of Dr. Atkins’s loans did not conform to the description in the securitisation documentation.  

18.	After the conclusion of the claimant’s witness evidence, Dr. Atkins addressed me on the law for about an hour and 45 minutes.  

19.	Dr. Atkins entered the witness box at about 3.30 on the afternoon of day five (Monday, 2nd July); and his evidence continued over the next two days, until just before noon on Wednesday, 4th July, a total of some 7 hours and 20 minutes.  In its amended form as of 18th June 2012, Dr. Atkins’s witness statement extends to 181 pages and 767 paragraphs.  It refers to some 233 exhibits.  On the morning of day 6, Dr. Atkins handed in a two page handwritten sheet of typographical corrections.  Dr. Atkins’s witness statement combines evidence with comment, assertion, argument and speculation.  Before Mr. Parrott was called to give evidence on the morning of day 5, Miss Tipples had handed in a printed document containing the claimant’s observations on Dr. Atkins’s witness statement.  These had been foreshadowed by an exchange of correspondence between the claimant’s solicitors (Moore Blatch) and Dr. Atkins on the 14th and 20th June 2012 (at File 15, pages 1 to 3 and 8 to 14).  A flavour of this witness statement can be gained from reading the introduction (at paragraphs 1 to 19) and the conclusion (at paragraphs 753 to 767).  At times, I found Dr. Atkins to be argumentative, opinionated and truculent.  He was not unlikeable; but he is a man of definite views, who can be difficult to deal with.  I find Dr. Atkins to be an honest witness; but his evidence is affected by the benefit of hindsight, and is coloured by his deep feelings of suspicion about the claimant’s motives and actions, and his profound sense of grievance against the claimant.  I accept Miss Tipples’s submission that this has tended to cloud Dr. Atkins’s ability to accept points put to him in cross-examination, and to cause him to argue his case in the course of his evidence, as well as in his submissions.  

20.	After his evidence had concluded just before noon on day 7, Dr. Atkins started to call his five witnesses.  The first was Hugh Sherbrooke, a Chartered Surveyor, who had provided professional advice to Dr. Atkins between July and November 2009.  He gave evidence for about 35 minutes.  Ian Fraser, another Chartered Surveyor, formerly of Douglas Duff, gave evidence for a total of 35 minutes, before and after the short adjournment.  He had valued Units 8 and 9 in December 2006 for the purposes of the original mortgage advance; and in October 2007 he had advised the claimant on the effect upon its security of the proposed letting of Unit 8 to Axis. David Watling, another Chartered Surveyor, had been Mr. Fraser’s superior at Douglas Duff, and he had acted for the claimant in relation to Unit 8 in 2009.  He gave evidence for about 20 minutes.  David Kinane was the mortgage broker employed by Capital Mortgage Corporation Limited who had obtained the mortgage advance from the claimant for Dr. Atkins and provided him with advice and assistance in seeking further funding and attempting to secure the claimant’s consent to the letting of Unit 8 to Axis during August to October 2007.  He was the last witness to give evidence (for about an hour and 20 minutes) on the afternoon of day 7.  

21.	Dr. Atkins’s final witness was Terence Irvine who gave evidence for just over 20 minutes on the morning of Thursday, 5th July.  He was the Managing Director of Aberdeen Enterprise Finance Limited (Aberdeen), which had originally advanced monies to Dr. Atkins on the security of Units 8 and 9.  Dr. Atkins also relies upon the unchallenged witness statement of Michael Watson, of Cluttons, who had acted as the managing and letting agents for the neighbouring Blenheim Office Park, and who reached agreement with Axis for it to take a lease of 15 Fenlock Court at a headline rent of £15.50 per square foot on 29th October 2007.  

22.	As with the claimant’s witnesses, there was no real challenge to the evidence of Dr. Atkins’s witnesses.  Rather Miss Tipples’s cross-examination was directed to exposing the limits of their direct knowledge, and involvement, in matters relevant to this litigation, and to bringing out matters favourable to the claimant’s case.  I find all five of the defendant’s witnesses to be honest, straightforward, articulate and intelligent individuals, who were doing their best to assist the court; and I accept them as witnesses of truth.   

23.	At the conclusion of the evidence, the court adjourned until 10.30 on the morning of Monday, 9th July, in order to enable the parties to prepare their closing submissions.  Miss Tipples submitted her written closing submissions by e-mail late in the morning of Sunday, 8th July.  Her oral submissions lasted from about 10.30 the next morning until about 12.45 pm.  Dr. Atkins explained that in the time available he had been unable to produce a written response.  He addressed me for just over 2 hours, interrupted by the short adjournment, until about 3.50 p.m.  Miss Tipples then briefly replied; and the court retired to consider its judgment at about 4.10 p.m.  I indicated that, in order to conclude the case this week (and before the end of my London sittings) I would deliver an oral judgment at 10.30 this Friday, 13th July.  This is that judgment.  As promised during the course of closing submissions, shortly before 5 o’clock on Tuesday, 10th July, I was provided (through Miss Tipples’s clerk) with Dr. Atkins’s closing written submissions.  On the afternoon of Wednesday, 11th July, I received (by e-mail) Miss Tipples’s response to Dr. Atkins’s closing written submissions.  

Chapter 3:  My Conclusions on the Facts

24.	This chapter is divided into 13 sections as follows:

(1)	The claimant.

(2)	Dr. Atkins.

(3)	Units 8 and 9.

(4)	Dr. Atkins’s dealings with the claimant from November 2006 to April 2007.  

(5)	Building works at Units 8 and 9 after November 2006.

(6)	Dr. Atkins’s financial position.

(7)	The proposed letting of Unit 8 to Axis.

(8)	Dr. Atkins’s application for consent to let Unit 8 to Axis.

(9)	The proposed letting of Unit 9 to DSA.

(10) Dr. Atkins’s application for consent to let Unit 9 to DSA.

(11) Dr. Atkins’s application for consent to let Unit 8 to a special purpose vehicle.

(12) The discussions between the surveyors in August 2009.

(13) Securitisation.    

25.	In so structuring this chapter, I have followed the sequence of the various findings of fact which Miss Tipples invites the court to make.  Once again, the contents of each section have informed the contents of this chapter (and the judgment) as a whole.  

26.	In analysing the facts, I have borne in mind that one of the great problems about litigation is that it involves retrospectively looking at events through the wrong end of the forensic telescope.  I have sought to avoid the depressing temptation to assume that merely because, with the comforting assurance of hindsight, it is possible to trace the chain of causation which led to the relevant train of events, everything that actually happened was always going to happen; and of taking the short step of thinking that the parties must have foreseen what was to happen, or ought to have done so.  I have tried to be sensitive to the role of circumstances, and of the accidental, in human affairs; and to remember that things are not always preordained, even if they look as though they might have been.  I remind myself that the pattern which becomes apparent later was not always so obvious at the time that events were playing themselves out.  I also bear in mind that the crucial aspects of this case relate to events which occurred some 5 years ago; and that where recollection and evidence conflict with the contemporaneous documents, then generally the latter may be a more reliable guide to what actually happened at the time.  However, I am satisfied that the letter from Axis to Dr. Atkins of 20th April 2010 (at file 14, page 2037) has to be treated with reserve because it was written with the benefit of “information” supplied, with the benefit of hindsight, by Dr. Atkins.  I also treat the e-mail from Mr. Harris to DSA’s solicitors, Marsden Rawsthorn, apparently dictated by Dr. Atkins and sent on 14th August (at file 13, page1898), with reserve because of its reference to (non-existent) significant litigation again the claimant.  (I do not think that Dr. Atkins was questioned about this document.)  

Section 1: The Claimant

27.	The claimant, Commercial First Business Limited, was set up in 2005 to provide loans to non-regulated commercial borrowers.  Borrowers were referred to the claimant by one of the mortgage brokers with whom it had a relationship.  The claimant was a sister company to Commercial First Mortgage Limited (CFML), which had been established in late 2002 and was the main operational company of Commercial First Group Limited.  CFML concentrated on regulated lending to individuals, but it also provided administrative support to the claimant; and it was CFML that employed the staff to work for the Commercial First Group.  CFML therefore acted as agent for the claimant.  In this judgment, I refer simply to “the claimant” without distinguishing between the different corporate entities within the Commercial First Group.  

28.	The Director responsible for risk within the claimant was Mr. Parrott.  He dealt with the two applications which Dr. Atkins made for loans, which were to be secured against Units 8 and 9.  Mr. Parrott was ultimately responsible for the Risk Team, which included Steve Pleydell.  

29.	The Operations Team was headed by Mr. Jackson, and included Laura Mortlock and Barbara Champion.  Miss Champion reported to Miss Mortlock who, in turn, reported to Mr. Jackson.  If an application was made by a mortgagor for consent to a letting, then it was this team which was responsible for collating all the information and making sure it was in order.  They did so in accordance with the standard procedure set out in the Customer Operations Procedure Manual.  It was Section 14 (at File 5, Divider 20, pages 230-231) which dealt with the procedure for consent to lease inquiries.  Any application for consent that was received was passed to “Risk” for their decision and approval.  It was Risk, and not the Operations Team, that had the “mandate” to approve or decline consent.  Therefore, if Risk did not approve the application, then consent would not be granted.  This in turn meant that Mr. Jackson, as the Head of the Operations Team, was not able to sign off at the end of the process until a decision had been made by risk assessment.  

30.	The Credit Management Team was headed by Mr. Barbour, and included Vicki Godfrey (now Mrs. Goodier).  They were responsible for debt collection.  This brought Miss Godfrey into direct face-to-face contact with Dr. Atkins when she was chasing for payment of the arrears on his account.  

31.	The claimant employed in-house solicitors.  At the time of Dr. Atkins’s application for consent to the letting of Unit 8 in August through to October 2007, these were SLP Solicitors.  The relevant individuals were principally Yasmin Rehman and Sharelle Harris.  At the time of the later applications for consent to the lettings of Units 8 and 9 in 2009 the solicitors were Pure Law, acting principally by Joanna Gent.  

Section 2: Dr. Atkins

32.	Dr. Atkins is a very experienced developer of commercial property.  He has been involved in developing, building and letting commercial offices since 1988.  He also has considerable experience of obtaining finance and dealing with mortgage brokers.  This was clear from Dr. Atkins’s own evidence, and also from the evidence of Mr. Kinane and Mr. Irvine of Aberdeen.  

33.	In relation to the development at Bankside, Long Hanborough, Dr. Atkins also used two companies, which he owned and controlled, to act as landlord and as developer.  Evenlode Properties Limited was the landlord of Unit 4, Bankside, whereas Evenlode Estates Limited was the company that Dr. Atkins used for the development of the properties at Bankside.  Dr. Atkins and his companies were all VAT registered.  

34.	In relation to the professionals that Dr. Atkins used to deal with the claimant, there were 

(1) Mr. Harris, of Bower Cotton Khaitan, who was his conveyancing solicitor. Mr. Harris dealt with the legal aspects of letting Unit 8 and, subsequently, Unit 9.  In relation to Unit 8, Mr. Harris was principally liaising with Miss Rehman at SLP.  In relation to Unit 9, he dealt with Miss Gent of Pure Law; and  

(2) Mr. Kinane, of Capital Mortgage Corporation, who was Dr. Atkins’s broker and his interface with the claimant in relation to Dr. Atkins’s applications for loans, persuading the claimant not to appoint a receiver in the period August and November 2007, and (early in October 2007) resolving the issue which had arisen in relation to the “under-renting” of Unit 8 in the proposed terms of the Axis lease.  Mr. Kinane had a very detailed understanding of Dr. Atkins’s financial position throughout 2007.  Mr. Simon Carlton, the director of Capital Mortgage Corporation and Mr. Kinane’s superior, was also involved at the outset of Dr. Atkins’s relationship with the claimant; and it was Mr. Carlton who handled Dr. Atkins’s dealings with Gladstar Limited, which took a second charge over Units 8 and 9 in order to provide further development finance.   

35.	At first, on the whole, Dr. Atkins did not deal directly with the claimant in relation to any of these matters.  It was not until 2009 that Dr. Atkins took up dealing with the various staff, such as Mr. Roberts, Miss Mortlock, Miss Champion and Mr. Rushbrook at the claimant, direct.  In relation to Mr. Harris and Mr. Kinane, they each reported back to Dr. Atkins, whether by e-mail or by telephone, when they had been in touch with the claimant, or received a message or e-mail from it.  Dr. Atkins was therefore always very well aware as to what was going on in relation to their dealings with the claimant on his behalf.  

Section 3: Units 8 and 9

36.	Dr. Atkins had purchased Bankside, Long Hanborough in 1989 for £50,000.  In 2006, he started developing this land for the purposes of offices with the benefit of finance from Aberdeen.  In total, there were to be 9 different office units.  In January 2006, Unit 4 was already let to DSA.  However, DSA were looking for larger premises and, for that reason, entered into a Pre-let Agreement for the surrender of the Lease of Unit 4 and a new lease of Unit 9 on 13th January 2006 (at File 4, Divider 9, pages 104-167).  The Pre-let Agreement contained a detailed schedule of works to be carried out by Dr. Atkins (at File 4, Divider 9, pages 160-165) and, once practical completion had been reached in relation to the works, DSA were obliged to enter into a lease on the terms set out in the draft lease annexed to the Pre-let Agreement.  The agreed rent of £64,000 was payable from the date of practical completion, defined as the “rent commencement date”.

37.	In December 2006, Douglas Duff (acting by Mr. Fraser) provided the follow valuations of Units 8 and 9: 

(1)	Unit 8: Valuation Date 7th December 2006; Date of Report 7th December 2006; Market Value (when finished): £1.045 million; 180 days value £1 million; Market Rent: £75,000 per annum (see File 4, Divider 1, pages 1-27).

(2)	Unit 9: Valuation date 21st November 2006; Date of Report 14th December 2006; Market Value (when finished): £880,000; 180 days value, £840,000; Market Rent: £64,000 per annum (see File 4, Divider 6, pages 64-90)

38.	These valuations were produced on the instructions of Capital Mortgage Corporation, Dr. Atkins’s brokers.  Dr. Atkins accepted that he had received a copy of each valuation from the brokers, and this was confirmed by Mr. Kinane.  

39.	In December 2006, Dr. Atkins hoped to achieve a yearly rent of £75,000 to £80,000 for Unit 8.  This is clear from the summary of his mortgage applications (at File 7, pages 102-3) that Mr. Carlton, his broker, provided to the claimant on or about 8th December 2006.  Dr. Atkins accepted in cross-examination that this had been produced from the information he had provided to Mr. Carlton.  

40.	In October 2007, Mr. Fraser’s perception was that the open market rental value of Unit 8 was still £75,000.  In cross-examination, Mr. Fraser accepted that there had been no softening in the rental market at that time, and that he had no reason to think that there had been any change in the estimated rental value for Unit 8 since the date of his first valuation on 21st November 2006.  This perception is consistent with the terms of:  

(1)	Mr. Kinane’s e-mail to Mr. Jones of 3rd August 2007 (at File 9, page 803), which referred to the agreed rent of £72,000, discounted to £66,000 for the first four years, as being “less than the ERV as quoted in the valuer’s report”, without any suggestion that these lower rents reflected current market rental values, and

(2)	Mr. Fraser’s letter to Laura Mortlock of 12th October 2007, but mis-dated 2nd October 2007 (at File 10, page 889A), which referred to Mr. Fraser’s discussions with Dr. Atkins that the letting had been “agreed at below market rent”. 

I find that in August, September and October 2007 the claimant’s perception, based upon the information which it had (and after taking the advice of a qualified and apparently competent valuer) was that the estimated rental value for Unit 8 was £75,000 per annum.  

41.	On 28th May 2009, Douglas Duff (in the person of Mr. Watling) was still of that view, and he advised the claimants that the current market rental value for Unit 8 was £75,000 (File 13, page 1729, responding to Miss Mortlock’s e-mail of 18th May 2009 at File 13, page 1720).  In cross-examination, Mr. Watling explained that he assumed that his valuation had been prepared on the basis of the rental of £75,000 agreed for the SPV lease of Unit 8, which had been referred to in Mr. Watling’s letter of 10th February 2009 (File 12, page 1549), which was of course an artificial device contrived by Dr. Atkins to meet the claimant’s perceived requirement of a yearly rent for Unit 8 of £75,000.  Nevertheless, the fact remains that, irrespective of the personal views of others operating in the commercial property market outside Oxford (such as Mr. Watson and Mr. Sherbrooke), the professional advice that the claimant was receiving in the period November 2006 to May 2009 was that market rent for Unit 8 was £75,000 per annum. 

Section 4:  Dr. Atkins’s dealings with the claimant from November 2006 to April 2007

42.	Dr. Atkins’s dealings with the claimant in this period were principally through his brokers, Capital Mortgage Corporation, and, in particular, Mr. Kinane.  With reference to Mr. Kinane:

(1)	He was a very experienced mortgage broker dealing with commercial investment property.  This was something that he had dealt with for some years. 

(2)	He was introduced to Dr. Atkins by Mr. Irvine in 2006, and was present at the meetings that Dr. Atkins had with Mr. Carlton in October and November of 2006 in relation to re-financing the loan that he had from Aberdeen. 

(3)	In December 2006 he was dealing exclusively with the claimant and was familiar with the lender and its mortgage products.  Mr. Kinane had a copy of the claimant’s product brochure (File 5, Divider 18, pages 190-197), although he added that he would never have referred to it but would have spoken to the claimant over the telephone, adding that the claimant was ready to do deals outside its stated criteria.  Mr. Kinane was sure that the brokers would have found an appropriate product for Dr. Atkins, and he (Mr. Kinane) understood what was meant by the “servicing/affordability” criteria in relation to that product.

(4)	Mr. Kinane had dealt with the claimant in relation to other clients and, as a result of previous dealings, he already had a business relationship with Mr. Parrott and Mr. Jackson.

(5)	He filled out Dr. Atkins’s two loan applications to the claimant which were signed by Dr. Atkins on 11th December 2006 (File 4, Divider 2, pages 28-33 and File 4, Divider 7, pages 91-97).

(6)	It was Mr. Kinane’s responsibility, as the mortgage broker, to explain to Dr. Atkins the nature of the claimant’s products and the servicing/affordability criteria which it applied in relation to an application for a product, such as CIM 2.  

43.	In this period, Dr. Atkins was first offered finance by the claimant in letters dated 20th December 2006.  However, given the incomplete state of each of Units 8 and 9, these offers were 

(a) revised to take account of retentions agreed at the end of January 2007, and 

(b) re-issued on 1st February 2007.  

It is these offers of 1st February  2007 (which incorporated the claimant’s general lending terms and conditions at File 4, Divider 4, pages 40-51) that were accepted by Dr. Atkins on 6th February 2007 (File 4, Divider 3, pages 34-39 and File 4, Divider 8, pages 98-103).  It was pursuant to these that the claimant made two advances to Dr. Atkins on 4th April 2007, secured by an all monies charge of the same date against Units 8 and 9 (at File 4, Divider 10, pages 168-170).

44.	In relation to the two loans made to Dr. Atkins on 4th April 2007:  

(1)	These were in accordance with Commercial First’s CIM 2 product. 

(2)	They were for a term of 20 years.  

(3)	There was a 3 year interest only period, and the period after that was capital and interest repayment.  However, according to Mr. Parrott, the claimant did not anticipate that the loan would be on its books after 3 years.  

(4)	In these circumstances, the servicing affordability/criteria that the claimant required in relation to the CIM 2 product was that the market rent as per the valuation should provide 115% cover on the mortgage payment.  Further, any tenancy had to be a fully repairing commercial lease.  These criteria are set out in the claimant’s product brochure, which was provided to all its brokers (and Capital Mortgage Corporation had a copy).  These criteria were not “hidden” or kept “secret” from Dr. Atkins.  Rather, this information was all available to Mr. Kinane, who was well able to advise Dr. Atkins about these criteria.  

(5)	If a tenancy was not in place when the money was advanced pursuant to a CIM 2 product then, if an application was made by the mortgagor to let the property providing the security, the claimant would, in considering that application, apply the same criteria in relation to servicing/affordability that were in place when the advance was originally made.  I accept Mr. Parrott’s evidence that the percentage cover did not change over time.  Thus, if the cover were 115% when the loan was made, the claimant would look for servicing/affordability cover of 115% when considering an application to let the property six months, or one year, later.  

(6)	In relation to Dr. Atkins’s applications for loans, the servicing/affordability or “DSCR” [debt security coverage requirement] in relation to Unit 8 was 111% (see File 7, page 148) and the DSCR in relation to Unit 9 was 113% (See File 7, page 151).  Mr. Parrott explained that, although this was below the servicing/affordability criterion of 115 per cent, the difference was regarded as “de minimis”, and it was a risk that the claimant was prepared to take in approving the loans.  

Section 5:  Building Works at Units 8 and 9 after November 2006

45.	In November 2006, Dr. Atkins told Douglas Duff (Mr. Fraser) and Capital Mortgage Corporation (Mr. Carlton and Mr. Kinane) that there was £150,000 of work outstanding for both Units 8 and 9, and that these works were “minor finishing off”, and that each property would be ready for occupation within 4 to 6 weeks.  This is set out in Mr. Fraser’s valuation reports and the critique of Dr. Atkins’s applications provided by Capital Mortgage Corporation to the claimant on or about 8th December 2007 (See File 7, pages 102-3).  By the end of January 2007, the budget for the completion of the building works at Units 8 and 9 was £141,850 excluding VAT (See File 7, page 140).  By the end of March 2007, in broad terms, £10,000 to £20,000 worth of works had been done to Unit 9.  Therefore:

(1)	at the end of March 2007, and 

(2)	prior to agreeing Heads of Terms with Axis (which took place on 25th April 2007: see File 8, page 312)

the total cost of the works (excluding VAT) to complete Units 8 and 9 stood at £120,000 to £130,000.  The funds to pay for this were, at that stage, to be provided by Gladstar: see the e-mail of 26th March 2007 at File 7, page 237.  

46.	Dr. Atkins’s evidence in cross-examination was that at the beginning of August 2007 the cost of completing the works to Unit 8, which are set out in Schedule 1 to the Agreement for Lease with Axis (see File 4, Divider 5, page 60), was in the order of £122,000, excluding VAT.  This figure of £122,000 included:

(1)	Moving a roof support column, in accordance with the specific request of Axis: £2,638.20.

(2)	Installing air conditioning and heat exchanger, in accordance with the specific request of Axis: £42,553.

(3)	Ducting: £1,700-£2,500.

(4)	Other internal works: £800-£1,500, in respect of the construction of first floor kitchen and external planting.

(5)	The other works included in the budget in January 2007: £41,500.  These works were still outstanding on 3rd August 2007.
(6)	External works of £24,000, being two thirds of the “externals/combined” budget of January 2007.

(7)	Labour of £10,000.  

However, the total cost for the works required by Axis could well have come to more than this, given Dr. Atkins’s desire to up-grade the finishes for Axis’s purposes.  

47.	According to paragraph 16 of Mrs. Goodier’s witness statement (which was not challenged), on 13th August 2007 Dr. Atkins told her that the works that were yet to be carried out to Unit 8 were the air-conditioning, flooring and ceilings.  

48.	The Agreement for Lease provided that Dr. Atkins had to practically complete the works to Unit 8 by 31st August 2007.  He failed to do so.  In cross-examination, Dr. Atkins said that he would have preferred to have had until 21st September 2007 to complete the works (as evidenced by the e-mail to Mr. Harris of 25th July 2007 at File 8, page 511A).  Axis requested a proposed new completion date on 30th August 2007 (See File 9, page 775) and again on 24th September 2007 (See File 9, page 836), but Dr. Atkins did not respond to these requests.  In cross-examination, Dr. Atkins said that at about that time, only about £25,000 would have been required to complete the works to Unit 8, and that he could have borrowed this from a friend if he had known that the lease would be approved.  However, he also said that he knew that Axis were already looking for offices elsewhere, and were discussing an alternative building.  However, he never told the claimant of this.  

49.	On 24th October 2007 

(1)	Works at Unit 8 were still incomplete.  In cross-examination, Dr. Atkins said that he still required some 3 or 4 work weeks before he could complete the works.

(2)	Dr. Atkins had failed to agree a new completion date with Axis.

(3)	The delay by Dr. Atkins in completing the offices at Unit 8 was causing Axis problems.  This was expressly recognised by Dr. Atkins in a letter he wrote to Mr. Montague, the Chairman of Axis, on 30th October 2007 (See File 10, page 907A).  That letter reads:

“Dear Dr. Montague,
 
Re Lease of 8 Bankside.
  
Further to our meeting last week, I proposed the following revised terms:

(1)	To speed up your occupancy of the property, I will contribute, as part of the agreed fit out allowance, the cost of your partitioning contractor starting work before we have fully finished our work on the building.

(2)	I will pay for 3 months rent of your existing offices, up to £10,000.  

I trust you will consider this offer as a gesture of my desire to overcome the problems caused by the delay in completion of your offices.” 

(4)	Through its solicitors (Manches), Axis gave notice that the Agreement for Lease was null and void (See File 10, page 900).  This was served on Dr. Atkins’s solicitor, Mr. Harris; and a further copy was given to Dr. Atkins by hand at a meeting with Axis.
  
In a letter to Dr. Atkins dated 31st October 2007 (See File 10, page 914) Nicolas Smith, the Legal Director of Axis, wrote:

“Dear Tony, 

Robert Montague has asked me to reply to your letter to him of 30th October 2007.  Whilst we appreciate your proposal, we note that you have not given any indication of an estimated time for completion.  In any event, the company needs certainty in its planning, and in view of our experience with you, even if a completion timetable were to be given to us, we have no confidence that it would be met.  Accordingly, the notice which was sent to your solicitors and which I handed to you at our meeting last week, stands, and the Agreement for Lease is null and void.
  
On a personal note we do hope that you will be able to resolve your financial difficulties and complete the construction in due course.”

50.	According to paragraph 30 of Mrs. Goodier’s witness statement, by 20th November 2008 the road to Units 8 and 9 had been laid out, and all the fencing securing the properties had been removed.  She thought that there was quite a lot of work before Unit 8 would be ready to be let, but Unit 9 appeared ready for occupation and looked to be at a finished stage.  In fact, in order to get Unit 9 to a state of practical completion, Dr. Atkins estimated that there was some £20,000 of works still outstanding.  This work was specific to DSA’s requirements, but needed to be done in order to get Unit 9 to the stage of practical completion.  This work was never finished.  

51.	According to a letter written by Dr. Atkins on 24th April 2009 (See File 12, pages 1663-1664) the works required to finish Unit 8 were the tiling of the toilets, fitting ceiling tiles, and the computer floor.  He estimated that these works would only take a week or two; but Dr. Atkins had purposefully not finished those works to make it easier to avoid paying business rates.  The building works to Unit 8 remain incomplete to this day.  

Section 6: Dr. Atkins’s financial position

52.	In January 2007 the claimant lent £999,130 to Dr. Atkins secured on his residential property, Orchard House, Islip, Kidlington.  In the spring of 2007 the monthly interest payment due on the last business day of each month (starting from 28th February 2007) was £6,745.  It was on 30th January 2007 that Dr. Atkins agreed to the terms of the retentions with the claimant for the loans on Units 8 and 9.  He accepted in cross-examination that the retentions would not be released unless the Unit in question had been finished and signed off as such by a surveyor.  Any idea that the retentions might be released before that date was not derived from the claimant.  Rather, as he stated in cross-examination, it was something that Dr. Atkins thought might be possible, based on his experience with other lenders.  

53.	On 28th March 2007 Gladstar agreed to lend Dr. Atkins, £165,000 to pay for the cost of completing the building works at Units 8 and 9.  However, of this sum, Dr. Atkins would have only received about £140,000, as Gladstar would have deducted interest payments before drawdown.  Gladstar was a company which provided “private finance”.  The director of Gladstar, Mr. Joseph Plitnick, had a close business relationship with Mr. Carlton, of Capital Mortgage Corporation.  

54.	On 4th April 2007:

(1)	The claimant advanced the net sum of £582,338.76 to Dr. Atkins, secured on Unit 8.  The monthly interest payment due on the last business day of each month (starting from 31st May 2007) was £5,718: see File 4, page 14. 
 
(2)	The claimant advanced the net sum of £529,275.69 to Dr. Atkins, secured on Unit 9.  The monthly interest payment due on the last business day of each month (starting from 31st May 2007) was £4,815: see File 4, page 15.  

(3)	The sums advanced under (1) and (2) above were used by Dr. Atkins to redeem the loan he had from Aberdeen.

(4)	Dr. Atkins did not have available a further sum of £65,421 to pay the first six months’ interest under the loan agreement, and thereby cover the shortfall in this period arising as a result of rental voids: contrast the memorandum at File 7, page 103.  This additional sum was never in fact available to Dr. Atkins.

55.	On 1st July 2007 Dr. Atkins had failed to pay the interest due on 30th June 2007 in respect of each of his three accounts with the claimant.  As a result, he owed it £24,214.  On or about 11th July 2007, Dr. Atkins was informed by the claimant that if his accounts fell two monthly payments or more into arrears, solicitors or LPA receivers might be instructed: see File 8, pages 481-2.  After this date, Dr. Atkins was well aware that this was action the claimant might take.  

56.	By about mid-July 2007 it was clear that Dr. Atkins was indeed looking to raise further funds from elsewhere.  This accords with the advice that Dr. Atkins received from Mr. Harris on 19th July 2007 that he needed to be able to finance the works at Unit 8 before he signed the agreement with Axis (see File 8, page 501), which was something Dr. Atkins accepted that he was well aware of.  In order to raise further finance to do the works, Dr. Atkins was looking to use the following properties:

(1)	His parents’ home at Northbanks, Islip.  This property was unmortgaged, but occupied by his parents. 

(2)	His wife’s home at 88 Stenhills Crescent, Runcorn.  This property was unmortgaged (but occupied by his wife). 

(3)	His own home at Orchard House.  However, this was already mortgaged to the claimant. 

(4)	Units 4 to 7 Bankside, Long Hanborough.  Dr. Atkins’s evidence was that these Units were worth £1.75 million, and had a mortgage of about £850,000 against them.  As a result, Dr. Atkins said there was plenty of equity to raise further finance.
(5)	Units 1 and 2 Bankside.  

In the end it was Units 4 to 7 that were used to obtain a facility for £400,000 from Gladstar, although these funds did not come through until four months later, in November 2007.  

57.	On 3rd August 2007 Dr. Atkins was “juggling” cash between 3 or 4 projects and there was money “coming in and going out”.  The consequence of this was that 

(a) the funds received from Gladstar in March 2007 which the claimant had been told were to pay for the works at Units 8 and 9, had been spent; and

(b) Dr. Atkins had to find the money to pay for these works from other sources.  

58.	Dr. Atkins had failed to pay the interest due on 31st July 2007 in respect of each of his 3 accounts with the claimant.  He was therefore two months in arrears on each account which, in total, amounted to £34,905.  At the same time he was well aware that the claimant might appoint receivers over Units 8 and 9.  Dr. Atkins had been advised by Mr. Harris on 3rd August 2007, before he signed the Agreement for Lease with Axis, that timing was tight: see File 9, page 645.  This was a reference to the fact that, as the building works at Unit 8 had to be completed by 31st August 2007, Dr. Atkins had very little time to raise the money to pay for the works and get them done.  If Dr. Atkins failed to do so, then Axis was entitled to walk away from the Agreement for Lease.  

59.	On 6th August 2007 the cheque for £13,700 which Dr. Atkins had given to the claimant in respect of the Orchard House account was dishonoured: see File 9, page 708.  The arrears on the Orchard House account then rose to £27,589: see File 4, Divider 16, page 187.  

60.	On 13th August 2007 Miss Godfrey met Dr. Atkins and told him that he had to pay “reducers” (by which she meant the amount needed to reduce the arrears outstanding on an account to arrears of less than 1 month) of £31,000 by 17th August 2007, otherwise receivers would be appointed.  In response to this:

(1)	Dr. Atkins said that if he had to pay the claimant that amount, then he would not have sufficient funds to finish the project and he could lose the prospective tenant.  Miss Godfrey’s answer to that was that, if Dr. Atkins did not pay the reducers, then he would not have the properties to let out at all as a receiver would be appointed.

(2)	Dr. Atkins accepted in cross-examination that he was “tight” on cash at this time and he knew the situation was serious. 

(3)	Dr. Atkins contacted Mr. Kinane and got him to telephone the claimant to stop a receiver being appointed, which Mr. Kinane said in cross-examination would have been “disastrous for everybody”.  Mr. Kinane spoke to Mr. Johnson, the claimant’s Sales and Marketing Director, and told him that Dr. Atkins was “re-financing other property assets to clear the arrears”: see File 9, page 724.  That telephone conversation was not about Dr. Atkins’s application for consent to the Axis lease; rather it was to buy time for Dr. Atkins as he needed to get more capital for the project at Units 8 and 9, and other projects.  

(4)	Dr. Atkins conceded in cross-examination that it would have been “tight” to complete the works without the re-financing in place.  He also said that without the tenancy to Axis, “the whole game was up”.  

61.	On 16th August 2007 final demands were issued by Commercial First (see File 9, pages 751 and 752) and, on the next day, Dr. Atkins failed to pay the reducers of £31,300 required by Miss Godfrey.  Mr. Kinane telephoned Mr. Barbour on 17th August 2007 in order to get the claimant to delay appointing a receiver.  Mr. Kinane was told that Dr. Atkins had to pay a minimum of £31,300 to stop this from happening: see File 9, page 758.  At this point, Mr. Kinane thought appointing receivers would have been “crazy”.  Dr. Atkins eventually paid the reducers of £31,316 for which the claimant had been pressing on 23rd August 2007.  It is plain that Dr. Atkins did so because he knew that if he did not, receivers would be appointed.  

62.	By September 2007 Dr. Atkins was in serious financial difficulties, which Mr. Kinane was working “quite aggressively” to sort out: see File 9, page 868.  Dr. Atkins failed to pay the interest due on 31st August 2007 in respect of each of his three accounts with the claimant.  He was therefore yet again two months in arrears on each account which, in total, amounted to £35,035, and he was well aware that the claimant might appoint receivers over Units 8 and 9.  

63.	With financial pressure mounting on Dr. Atkins, on 27th September Mr. Kinane contacted Mr. Parrott to persuade him to give Dr. Atkins a “breathing space” of 10 working days (i.e. until 11th October 2007) so that funds could be raised by a private finance facility which would then be used to: 

(1)	clear the arrears on Dr. Atkins’s three accounts with the claimant;

(2)	finish the building works at Units 8 and 9;

(3)	secure the tenancies; and

(4)	hold the claimant back from appointing a receiver.  

The claimant agreed to this proposal as the best way forward in the circumstances: see the e-mails at File 9, pages 844 and 843.  The crucial importance of the private finance facility was explained by Mr. Kinane in cross-examination, when he said that, “if we could arrange that, everything would work and we would have a tenancy”.  

64.	By the beginning of October 2007 Dr. Atkins was “desperate” for the income to serve the interest payments under the loan agreements: see the telephone call between Mr. Kinane and Mr. Jackson at File 9, page 869.  Dr. Atkins had failed to pay the interest due on 30th September 2007 in respect of each of his three accounts with the claimant; and he was again two months in arrears on each account which, in total, amounted to £36,022.  

65.	On or about 24th October 2007 there was a meeting between Dr. Atkins and Mr. Montague, the Chairman of Axis: see File 10, page 907A.  Dr. Atkins told Mr. Montague that the reason for the delay in the completion of the building works was his financial difficulties and it was for that reason that he was unable to complete the construction works.  This is the obvious, and only, inference to be drawn from the last sentence of Mr. Nicholas Smith’s letter to Dr. Atkins dated 31st October 2007 (at File 10, page 914).  Dr. Atkins said in evidence that he had not told Axis of any problems in obtaining the claimant’s consent to the grant of the lease because that was not a matter within his control and, had Axis known about it, they would have been even more inclined to walk away from the proposed letting.  

66.	The offer of funding in respect of this private finance facility was not received until 26th October 2007 as appears from Mr. Kinane’s report by e-mail to Ben Jackson of the same date at File 10, page 905.  In the meantime, Dr. Atkins had told Miss Godfrey on 25th October 2007 that he had a “£400,000 re-finance deal that it due to complete any day now”.  The “legal process” in relation to the private finance facility did not begin until about 30th October 2007, although Mr. Kinane continued to promise on behalf of Dr. Atkins that funds would be available “within days”: see File 9, page 909.  The funds were not in fact received by the claimant until about a month later, on 30th November 2007.  

67.	On 31st October 2007:

(1)	Dr. Atkins gave the claimant three cheques totalling £17,800, which amount was then credited to Dr. Atkins’s accounts: see File 10, page 908.  However, these cheques, which were not paid in immediately by the claimant, were dishonoured in December 2007, and the relevant amounts were then debited from Dr. Atkins’s accounts.

(2)	The claimant issued final demand letters against Dr. Atkins seeking repayment of the whole of the outstanding balance on each of the Unit 8 and 9 accounts: see File 10, pages 910 and 911.  

(3)	Dr. Atkins failed to pay the interest due on 31st October 2007 in respect of each of his three accounts with the claimant.  This meant he was yet again more than two months in arrears on each account which, in total amounted to £36,795, and under the continual threat that the claimant might appoint receivers over Units 8 and 9 at any time.

68.	On 30th November 2007 the funding pursuant to the private finance facility with Gladstar was completed, and Dr. Atkins made a bank transfer of £35,600, which amount was then credited to his accounts.  

69.	By 29th February 2008, Dr. Atkins had made enough progress with the building works at Units 8 and 9 for the claimant (on the advice of its surveyors, Douglas Duff) to release a large part of the retentions.  £99,000 was released against the Unit 8 account and £50,000 against the Unit 9 account.  This money was mostly used to clear the arrears on Dr. Atkins’s three accounts with the claimant and, having cleared the arrears, the remaining balance of £41,790 was transferred to Dr. Atkins’s company, Evenlode Properties Limited: see File 11, pages 1201 to 1202.  Thereafter, and until October 2008, Dr. Atkins managed to keep the interest arrears on each account under one month most of the time.  However, cheques for payments on each account were dishonoured on 8th October 2008; and from that date the interest arrears on each account have increased on a month by month basis.   

70.	On 14th November 2008 the claimant appointed receivers over the properties, although these appointments were subsequently terminated.  However, receivers were appointed again on 3rd November 2009.  

Section 7:  The Proposed Letting of Unit 8 to Axis

71.	Dr. Atkins agreed Heads of Terms with Axis on or about 25th April 2007: see File 8, page 312.  They were given effect to by:

(1)	the Agreement for Lease dated 3rd  August 2007; and

(2)	a side letter which was agreed by the parties on or about 29th May 2007: see File 8, pages 466 and 471.  The purpose of this side letter was to record the arrangements in relation to the rent payable in the first year of the lease, namely that a net sum of £24,750 would be payable for rent (and not the sum of £66,000 shown on the face of the draft lease).  This was because Dr. Atkins had agreed to allow Axis to set off a fitting out allowance of £41,250 against the first year’s rent of £66,000. 

In relation to the side letter, Miss Tipples fairly points out that: 

(a)  There is no mention at all of the side letter in Dr. Atkins’s 181 page witness statement.  Further, the explanation provided in Dr. Atkins’s witness statement of the rent actually payable to Dr. Atkins in the first year of the proposed lease is not true.  In addition to that, Dr. Atkins is, and was, well aware of the serious consequences of not telling the mortgagee of the true rental income of a property: see (i) what is said at paragraph 373(c) of his witness statement, where he himself refers to “deception”; and (ii) paragraphs 437 to 439 under the heading “Concessions, Incentives and Devious Practices during Recession”. 
 
(b) This, of course, is the very information that a mortgagee such as the claimant would expect to be informed of in order to understand the true amount of rent payable under the lease.

(c) Significantly, Dr. Atkins never informed the claimant of this agreement, or indeed his solicitors or brokers about it.

(d) The reason Dr. Atkins did not tell the claimant of the side letter is obvious.  Dr. Atkins was well aware that if he had told the claimant that the rental income he was due to receive in the first year of the lease was £24,750 (or £2,062.50 per month), there was no chance whatsoever that the claimant would agree to let Unit 8 to Axis.  Rather, given:

(i) the arrears on the account, and

(ii) that the sum of £2,062 each month was less than half the monthly interest payment due on the Unit 8 account, 

Dr. Atkins knew that the claimant would have immediately appointed a receiver, and thereafter taken steps to obtain possession of the properties.

72.	Dr. Atkins submitted in his written closing that the fitting out allowance of £41,250, was not a moving in allowance, but rather a specific sum for the purchase of a specific input to enhance the value of the building.  It was not a cashback or a nebulous amount.  It was very specific.  He likened it to air-conditioning or upgraded toilet areas.  Nevertheless, it did result in a significant reduction in the rent actually receivable during the first year of the term of the proposed lease to Axis. As such, in my judgment, it was a factor which should have been disclosed to the claimant since it was of potential relevance to its decision whether to consent to the letting.  It was for Dr. Atkins to justify the allowance if he could. Instead, by concealing it, he effectively denied the claimant any opportunity to consider its potential relevance.  

73.	Axis wanted possession promptly.  When the Heads of Terms were signed in April 2007, they wanted possession in 3 months: see File 8, page 312.  However, by the time the Agreement for Lease was signed, they were prepared to give Dr. Atkins until 31st August 2007 - a date which Dr. Atkins had agreed with Mr. Montague of Axis on 5th July 2007 would be “at the latest”: see File 8, page 520 - to finish the work at Unit 8.  Further, by agreeing the date of 31st August 2007, Axis had rejected Dr. Atkins’s suggestion that he should have until 21st September 2007 to do the work: see File 8, page 511A.  

74.	It was plain to Axis by the end of August 2007 that the building works at Unit 8 would not be completed on 31st August 2007.  They wrote to Dr. Atkins on 30th August 2007 and 24th September 2007 requesting a new completion date under the Agreement for Lease: see File 9, pages 775 and 836.  Dr. Atkins was well aware that if he did not agree a revised completion date, then Axis could treat the Agreement for Lease as null and void.  He did not at any stage provide Axis with a new completion date; and, having failed to do so, on 24th October 2007 Axis gave notice that the agreement was at an end.  Five days later, on 29th October 2007, Axis entered into an agreement to take a lease of 15 Blenheim Office Park: see paragraph 7 of Mr. Watson’s witness statement.  Dr. Atkins said that he had known that Axis had been looking for alternative offices elsewhere; but he had not seen fit to alert the claimant to that fact, nor to his perception of the disastrous effect that Axis’s withdrawal from the proposed letting would have upon the value of the office development.  

75.	As Dr. Atkins points out, the Agreement for Lease contains (in Clause 6.2 at File 4, Divider 5, page 56) a provision which required Dr. Atkins to get consent to the lease from the claimant.  That Clause reads as follows:   

“Mortgagee’s consent.
  
Prior to the Completion Date, the Landlord shall obtain the consent of Commercial First Limited and the proprietor of any further registered charge on the Charges Register to the freehold title of the Premises, and if a restriction favour of Aberdeen Enterprise Finance Limited is still registered against the said title, obtain its consent, such consent in each case to be in a form to be agreed between the parties acting reasonably to the grant and registration of the Lease also.”

76.	Dr. Atkins had been advised in advance by Mr. Harris on 3rd August 2007 that, by entering into the Agreement for Lease, he was taking a risk as he did not have the mortgagee’s consent: see File 9, page 645.  However, at no time did Dr. Atkins inform Axis that he was experiencing any difficulty with this process with the claimant, or that it was dragging its heels.  Indeed, if Dr. Atkins had really thought that the claimant were the problem (and that consent would not be forthcoming), then it is impossible to understand why Dr. Atkins wrote to Axis in the terms that he did on 30th October 2007, in order to try and re-kindle the relationship between them: see File 10, page 907A.  Rather, the reason that Dr. Atkins was able to write the letter of 30th October 2007 was because he knew:

(1)	That the claimant had not refused consent to let Unit 8 to Axis;

(2)	That the point which was outstanding on his Application for Consent to Let Unit 8 to Axis was the need to clear the arrears on his accounts; and

(3)	That, in turn, depended on the funds coming through on the private finance facility with Gladstar, of which £400,000 was anticipated.  

77.	The first time that Dr. Atkins suggested that Axis had pulled out of the lease in respect of Unit 8 because the claimant had delayed in dealing with his application for consent was in a letter of claim dated 13th November 2008 (at File 11, pages 1336-7); and see paragraph 28 of Miss Mortlock’s witness statement.  

Section 8:  Dr. Atkins’s Application for Consent to Let Unit 8 to Axis

78.	This application was first made by Mr. Harris on behalf of Dr. Atkins on 1st August 2007: see the e-mail at File 8, page 571.  I find that there was no delay on the part of the claimant in dealing with this application.  Rather, any delays were the result of Dr. Atkins failing to answer, or address, satisfactorily the points raised by the claimant in relation to his application on a timely basis.  This is simply not a case where an application was made and the mortgagee failed to respond within, say, a period of 28 days (which Mr. Watling thought would not be an unreasonable period for a mortgagee to respond to such an application).  This is for the following reasons, viewed from the perspective of what Dr. Atkins (through his advisors) was being told by the claimant:

(1)	On 2nd August 2007, Miss Rehman informed Mr. Harris (copied to Dr. Atkins) that:

a.	The lease needs to be in line with the market rental of £75,000.

b.	Our clients also require an explanation for the arrears on this account.

c.	Our clients also need to contact their surveyors for their comments on the lease.

d.	We are yet to hear from the borrower’s solicitors regarding the previous lender’s discharge.

On a close reading, Miss Rehman’s e-mail was not saying that the claimant would be contacting its surveyors to address the issue of the current market rent, but only for their comments on the lease.  Mr. Harris asked Dr. Atkins to deal with the claimant direct about these points: see File 9, page 630.  Dr. Atkins did so by instructing Mr. Kinane to respond; and Mr. Kinane sent Mr. Jones at the claimant an e-mail on 3rd August 2007 (at File 9, page 642).  

(2)	Mr. Kinane’s e-mail of 3rd August 2007 explained to the claimant why the rent quoted under the Axis lease was less than the estimated rental value, as quoted in the valuer’s original report, and said that “arrears will be fully cleared from rents receivable now and other funds that the client will have available shortly”.  It was not suggested that market rents had fallen since the ERV quoted in the valuer’s original report, or that the rents agreed with Axis represented the then current rental market value for Unit 8.  Nor did the e-mail explain the arrears on the account.  This e-mail did not get as far as the Operations Team (Miss Mortlock and Miss Champion) until it was forwarded by Mr. Jones on 12th September 2007: see File 12, page 802.  However, when it was belatedly received by Miss Champion, it is clear from her e-mail in response (at File 9, page 802) that she did not regard Mr. Kinane’s e-mail as constituting an adequate explanation.  

(3)	The proposed lease was reviewed by Sharelle Harris and, with the exception of the fact that “the current rent is below the stated market rent, which at present is around £75,000 per annum”, it was pronounced satisfactory in a report sent to Miss Mortlock and dated 16th August 2007: see File 9, pages 731-2.  Miss Rehman e-mailed Mr. Harris to inform him that the lease had been reviewed, but the rental income had not been amended to show the increased figure of at least £75,000: see File 9, page 754.  Her e-mail continued by stating that she believed the claimants were yet to receive an explanation for the arrears from Dr. Atkins, and that “as soon as this information is received we can then revert back to our client for their response and then to the surveyor for their comments”.   Mr. Harris forwarded this e-mail to Dr. Atkins; and, in cross-examination, Dr. Atkins accepted that it was clear from this e-mail that it was not until he provided the arrears explanation that the claimant’s surveyor would be instructed.  Therefore, even if Dr. Atkins were under the impression from Miss Rehman’s e-mail of 2nd August 2007 that the claimant was referring the matter to its surveyor, he was disabused of this by the e-mail of 16th August 2007, which made it clear that a surveyor had not yet been instructed, and would not be instructed by the claimant until an explanation for the arrears on Dr. Atkins’s account had been provided.  In any event, Dr. Atkins acknowledged in evidence that he had become aware that Mr. Fraser had not yet been instructed by the claimant in relation to the proposed letting of Unit 8 when he spoke to him on 7th September 2007.  Moreover, Dr. Atkins knew that he had not been approached by the claimant to meet the cost of a revaluation of the property.  Dr. Atkins accepted that he had never informed the claimant of his own perception of the then current market rental value of Units 8 and 9. 
 
(4)	On 23rd August 2007 Miss Rehman chased Mr. Harris for a response to her e-mail of 16th August: see File 12, page 768.  Mr. Harris responded by e-mail that he would press his client; and that e-mail was immediately forwarded to Dr. Atkins for a response: see File 12, page 768.  

(5)	On 30th August 2007, Miss Rehman, on reporting to Mr. Harris that the original DS1 had been received from Aberdeen and submitted to the Land Registry, also asked, “Let me know how you get on with the lease!!’: see File 9, page 776.  That e-mail was forwarded by Mr. Harris to Dr. Atkins on 31st August 2007 with the message “Any news on the current mortgagee’s consent to letting front?”: see File 9, page 776.  Mr. Harris’s e-mail was not answered by Dr. Atkins, and Miss Rehman chased Mr. Harris again on 6th September 2007: see File 9, page 792.  Mr. Harris responded to that e-mail saying that “my clients are dealing with the issue on the lease consent”: see File 9, page 793. 

(6)	On 4th September 2007 the claimant’s charge was registered against the properties at HM Land Registry: see file 9, pages 778 and 792.  This was a problem which had arisen because the original DS1 had got lost in transit between Dr. Atkins’s solicitors (Crust Lane Davis) and the claimant’s solicitors (SLP) in May 2007: see File 8, page 456.  In these circumstances, a new DS1 had to be obtained from Aberdeen, which did not arrive until 30th August 2007: see File 9, pages 769-770.  The best that SLP were able to do was to chase this up (which they did), although it was out of their power actually to solve it.  This was down to Aberdeen and their solicitors (Dickinson Dees) and Dr. Atkins and his original solicitors (Crust Lane Davis).  In view of the terms of Clause 6.2 of the Agreement for Lease with Axis, it is clear that until this matter was resolved (which did not happen until 4th September), the proposed lease to Axis could not be completed in any event.  

(7)	On 12th September 2007 Mr. Kinane re-sent his e-mail of 3rd August 2007 to Mr. Jones: see File 9, page 802.  It would appear that he did so in order to answer the questions to which Miss Rehman had been chasing Mr. Harris for a response.  This was the first occasion Mr. Kinane had chased up Dr. Atkins’s application for consent to let Unit 8 to Axis.  

(8)	On 12th September 2007 Mr. Jones then forwarded Mr. Kinane’s e-mail to Miss Mortlock and Miss Champion.  On the  next day, Miss Champion responded to Mr. Kinane and said that 

a.	We are currently waiting to hear from our solicitors;

b.	Our risk assessor requires an arrears explanation from the borrower; and

c.	The rental income to be in line with the market rent, which is £75,000: see File 9, page 802.

I find the reference to Miss Champion waiting to hear from the claimant’s solicitors a little puzzling since, as far as I can see, the solicitors had already approved the terms of the lease, with the exception of the rent.  But it was nevertheless clear to Mr. Kinane on 13th September 2007 that the explanation he had provided in his e-mail of 3rd August had not been accepted by the claimant, and these were points that he and Dr. Atkins needed to resolve before the application for consent to let could be progressed any further.  Mr. Kinane did not take issue with any of those points at the time; and his evidence was that it was not for him “to agree or disagree” with them. He said it was the claimant’s underwriting decision, and he would have told Dr. Atkins to “get on with preparing an arrears explanation”.  Mr. Kinane also knew that the conditions Miss Champion had identified were points that had to be met in order for the claimant to grant consent of the lease to Axis.  It is perhaps significant that even when the claimant (through Miss Champion) did respond to the points made by Mr. Kinane in his e-mail of 3rd August, there were no immediate steps taken by Mr. Kinane (or Dr. Atkins) to progress the matter.

(9)	On 27th September 2007, in an e-mail to Mr. Parrott, Mr. Kinane put forward Dr. Atkins’s proposals in relation to the arrears on his accounts; and these were accepted by the claimant: see File 9, pages 844-845.  These proposals were all dependent on Dr. Atkins securing the private finance facility with Gladstar within 10 working days (or by 11th October 2007).  

(10)	On 2nd October 2007 Mr. Kinane telephoned Mr. Jackson in order to find a solution to the claimant’s issue with the rent payable under the Axis lease: see File 9, pages 868-870.  This was because Mr. Kinane knew that the property was “slightly under let”, and therefore less than the estimated rental value; and, in relation to Dr. Atkins’s application for consent, that this would be a problem for the claimant. Having listened to the explanation provided of Dr. Atkins’s position, Mr. Jackson explained to Mr. Kinane a way forward, namely, to obtain a valuation of Unit 8 in order to find out whether the rent payable under the lease would affect the value of the claimant’s security.  Mr. Jackson explained that if it did not, then there would be no problem; but if it did, then the claimant would “cross that bridge” when it came to it.  Mr. Kinane was happy with that approach, and agreed to send Mr. Jackson plans for the works to Unit 8.  

(11)	On 3rd October 2007 Mr. Kinane sent Mr. Jackson the promised plans: see File 9, page 874.  About 30 minutes later, these plans were sent to Mr. Fraser at Douglas Duff, together with instructions from the claimant to Mr. Fraser, to “advise of any impact this lease might have on the value of the property and on the saleability of the property”: see File 9, page 873.  These instructions accorded with what Mr. Jackson had discussed and agreed with Mr. Kinane over the telephone the day before.  Mr. Fraser’s comments the same day were “pretty positive”: see File 10, page 880; and this was reported back to Mr. Kinane on the afternoon of 3rd October 2007.  Mr. Kinane relayed that information to Dr. Atkins at the time.  In addition to this, an e-mail from Miss Mortlock on 12th October 2007 recorded that the claimant had telephoned its customer, namely Dr. Atkins, “to confirm that there would be no impact on value”: see File 10, page 890A.  

(12)	Mr. Kinane and Dr. Atkins did not chase up any written record of the surveyor’s advice.  This was however provided to the claimant on 12th October 2007 (see File 10, pages 889A & B) and 24th October 2007 (see File 10, page 891).  The upshot of this advice was that the proposed letting to Axis did not affect the claimant’s security in respect of Unit 8.  It should be noted that there was a postal strike at about this time: see the e-mail of 8th October at File 10, page 884.  This may explain some of the delay in Mr. Fraser’s reports reaching the claimant.  Certainly, the claimant acted with all due diligence in chasing Mr. Fraser up for his views in writing: see Miss Mortlock’s e-mails of 8th, 12th and 16th October (at File 10, pages 884, 887 and 890A). 

(13)	However, on 25th October 2007 the arrears on Dr. Atkins’s accounts were still outstanding and, unless and until these were dealt with, the consent application could not be referred back to the risk assessor for his approval: see Miss Champion’s e-mail to Sharelle Harris dated 25th October 2007 (at File 10, page 903).  Mr. Jackson’s understanding, as at 25th and 26th October, was that Dr. Atkins “should be in funds soon to clear all arrears”: see File 10, pages 904-5.

(14)	The conversations that: 

a.	 Mr. Kinane had with Mr. Johnson at the claimant on 13th August 2007 (File 9, page 724), with Mr. Band on 17th August 2007 (File 9, page 758) and with Mr. Parrott on 27th September 2007 (File 9, pages 844-5) were principally directed towards stopping the claimant appointing receivers, and therefore securing time for Dr. Atkins to raise the further finance that he so desperately needed.  These conversations were not, as Dr. Atkins contends, seeking to chase up the application for consent to let Unit 8 to Axis.  Rather, Mr. Kinane assumed that the consent application was taking its own course, and only sent one chasing e-mail on 12th September.  Indeed, the consent application was very much low priority as the crucial thing in August and September 2007 was to stop receivers being appointed over the properties.

b.	The conversations that Dr. Atkins had with Miss Godfrey in August and September 2007 were to do with Miss Godfrey chasing Dr. Atkins for payment of the arrears.  Given her role, her main priority was to get Dr. Atkins to pay the money he owed to the claimant, rather than whether the property was going to be let or not.  

(15)	It is worth noting that Dr. Atkins never told Axis that there were any problems (as he now maintains) in relation to his application to the claimant for consent to the Axis letting, as Dr. Atkins accepted during his cross-examination.  Nor did Dr. Atkins ever tell the claimant that Axis was threatening to withdraw from the proposed lease because of delays on the claimant’s part in dealing with his application for consent to the letting.  

Therefore on 24th October 2007 the only remaining “problem” in relation to Dr. Atkins’s application for consent to let Unit 8 to Axis was the arrears on his account.  That was a problem of Dr. Atkins’s own making, and one that he could not solve until the private finance facility from Gladstar was secured, which was not achieved until the end of November 2007.  In any event, there was no possibility of Axis taking a lease of Unit 8 until all outstanding works had been completed, as Mr. Kinane had recognised in his e-mail to Mr. Parrott of 27th September 2007: see File 9, page 847.  Dr. Atkins had not been deterred by the lack of consent from carrying out a substantial part of those works, as he made clear at paragraph 98 of his witness statement.  The problem was that he had simply run out of the funds required to complete them until further finance should be made available.  It was in those circumstances that Dr. Atkins’s application for consent to the letting of Unit 8 to Axis was never: 

a.	referred back to Risk after 25th October 2007, or

b.	finally determined by the claimant.  

In particular, the claimant never actually refused its consent to Dr. Atkins’s application.  That was the unchallenged evidence of Miss Mortlock, who was a member of the Operations Team responsible for dealing with the application, and is consistent with paragraphs 12 and 13 of Miss Champion’s witness statement.  It was Dr. Atkins’s evidence that once he had lost the letting of Unit 8 to Axis, “the whole game was up”.  

Section 9:  The Proposed Letting of Unit 9 to DSA

79.	The terms of the letting of Unit 9 to DSA had been agreed by Dr. Atkins in January 2006.  Indeed, he had needed this Pre-let Agreement in place in order to obtain the initial development funding for the project at Bankside from Aberdeen.  The claimant was aware of the Pre-let Agreement, and of the terms summarised in the valuation dated 14th December 2006, which were also provided in Capital Mortgage’s critique of about 8th December 2006: see File 7, pages 102-3.  However, it was not until 26th January 2009 that the claimant was provided with an actual copy of the terms of the proposed lease between Dr. Atkins and DSA.  

80.	By the end of January 2008 it is clear that DSA, who were in occupation of another Unit at Bankside let by one of Dr. Atkins’s companies, were frustrated that he had not yet completed Unit 9.  They wrote to Dr. Atkins saying that since February 2007 they had received numerous unfulfilled promises that Unit 9 was almost ready and would be handed over within a few weeks; they could no longer tolerate the delays; they were suffering considerable loss; and, if the building were not finished by 28th February 2008, they would consider the Pre-let Agreement terminated and look for alternative premises: see the e-mail from Mr. Sparrow dated 30th January 2008 at File 10, page 1155.  In response to this, Dr. Atkins managed to appease DSA, and kept them on side in relation to the letting throughout 2008.  

81.	However, Unit 9 had not been completed by the end of 2008 and, in order to get the project to practical completion, DSA proposed that they should finish off the works.  DSA estimated the works would cost no more than £20,000, and proposed that its cost of doing the works should be set off against the rent under the proposed lease: see File 11, pages 1356, 1400 and 1408-1412.  Dr. Atkins did not agree to this proposal.  

82.	The building was still unfinished in January 2009.  On 15th January 2009, DSA, through their solicitors, gave notice that if practical completion of Unit 9 were not achieved by 28th February 2009, then they would regard Dr. Atkins as being in fundamental breach of the Pre-let Agreement, and in those circumstances they would no longer regard themselves as bound by the Pre-let Agreement: see File 12, page 1494.  Dr. Atkins was well aware that unless the building was finished, then DSA would not enter into the lease, and would walk away and take premises elsewhere.  

83.	Unit 9 did not reach practical completion in time.  On 2nd March 2009 DSA’s solicitors gave notice that DSA regarded themselves as discharged from the Pre-let Agreement by reason of Dr. Atkins’s fundamental breach of contract: see File 12, page 1576.  However, it was not until some six months later, namely on 14th September 2009, that Dr. Atkins first informed the claimant that DSA were no longer interested in Unit 9: see Dr. Atkins’s letter and e-mail to Miss Mortlock at File 14, pages 1959 and 1962.  Dr. Atkins points to the fact that, at this time, it took the claimant less than 24 hours to approve his “new proposals for target rent levels and for length of lease term”: see the e-mails at File 14, pages 1962-1965.

Section 10:  Dr. Atkins’s Application for Consent to Let Unit 9 to DSA

84.	Dr. Atkins sent the claimant the draft lease on 26th January 2009: see File 12, page 1506.  I find that there was no delay on the part of the claimant in dealing with this application.  Rather, any delays were the result of Doctor Atkins’s failure to answer, or deal with, the points raise by the claimant in relation to his application on a timely basis.  This is because:

(1)	On 6th February 2009 Miss Champion told Dr. Atkins over the telephone that she had ordered the original files and new business files in relation to the lease for Unit 9.  Dr. Atkins had no objection to this: see File 12, pages 1545 and 1547.

(2)	On 16th February 2009 Miss Champion told Dr. Atkins over the telephone that she was reviewing the position in relation to Unit 9, but that she had to go through the original file to see whether or not the claimant was aware of it prior to completion.  Dr. Atkins had no objection to this: see File 12, page 1550.

(3)	On 17th February 2009 Miss Champion told Dr. Atkins that she had reviewed the file, but she was going to get Miss Mortlock to check the position: see File 12, page 1556 and 1554.  Dr. Atkins had no objection to this.  

(4)	By a letter dated 24th February 2009 the claimant informed Dr. Atkins that, in principle, it agreed to the letting to DSA: see File 12, pages 1560-61 and 1562.  However, Dr. Atkins was also informed that the claimant’s solicitors had to approve the lease (and the fee for that, which needed to be paid, was £350 plus VAT).  Also a payment arrangement had to be put in place with a view to clearing the arrears; and the claimant wanted confirmation that other funds were available in relation to a property sale and the pension fund. 

(5)	Dr. Atkins did not pay the solicitors’ fees until 17th March 2009: see File 12, page 1587.  

(6)	On 19th March 2009 the claimant’s solicitors (Pure Law) wrote to Mr. Harris at Bower Cotton Khaitan with a list of 11 points on the draft lease: see File 12, pages 1589-90.  Mr. Harris did not respond to this letter until 11th May 2009: see File 13, page 1713.  This followed a reminder from Miss Mortlock that the claimant’s solicitors were still to hear from Dr. Atkins’s solicitors during the course of a telephone conversation that she had with Dr. Atkins on 8th May: see File 13, page 1710.

(7)	Some of the points raised by the claimant’s solicitors were resolved, but many were still outstanding on 7th August 2009.  The outstanding points were set out in Pure Law’s letter to Dr. Atkins of that date, which was sent after the meeting between Dr. Atkins, Mr. Rushbrook, Miss Mortlock and Miss Gent, on 6th August 2009: see File 13, page 1889. 

(8)	Likewise, no proposals were ever made to clear the arrears on Dr. Atkins’s account in respect of Unit 9.  

I find that the lack of any urgency on the on the part of Dr. Atkins in relation to this matter was due to his perception that the proposed lease was not going got go ahead because of the withdrawal of DSA.  This application for consent was therefore never finally determined by the claimant.  In particular, consent to this particular application was never refused by the claimant.  This was the unchallenged evidence of Miss Mortlock in paragraph 50 of her witness statement.

Section 11:  Dr. Atkins’s Application for Consent to Let Unit 8 to a Special Purpose Vehicle

85.	No pleaded case was ever advanced by Dr. Atkins in relation to this matter.  Nevertheless I shall deal with it.  Dr. Atkins sent the claimant the draft lease on 30th January 2009: see File 12, page 1520.  Dr. Atkins proposed that the tenant would be a new company, owned by Mr. Barrie Barcock, a business colleague of Dr. Atkins (see his letter of 24th April 2009 at File 12, page 1663), and that the rent payable would be £75,000.  Dr. Atkins never suggested to the claimant that the rent in the lease should in fact be less than £75,000 although it was of course open to him to do so if the market rent in January 2009 (or thereafter) was in fact less than this amount.  Dr. Atkins explained that this SPV lease was intended as a device to enable him to circumvent what he perceived as the claimant’s immutable resistance to any letting of Unit 8 at a rent of less than £75,000 per annum.  

86.	There was no delay on the part of the claimant in dealing with this application.  Rather, any delays were the result of Dr. Atkins failure to answer, or deal with, the points raised by the claimant in relation to his application on a timely basis.  This is because:

(1)	On 6th February 2009 Miss Champion told Dr. Atkins over the telephone that she was sending the lease to the valuer.  Dr. Atkins had no objection to this: see File 12, pages 1545 and 1548.  Mr. Watling’s advice was received on 10th February 2009: see File 12, page 1549.  

(2)	On 17th February 2009 Miss Champion told Dr. Atkins over the telephone that she had reviewed the file, but she was going to get Miss Mortlock to check the position: see File 12, pages 1556 and 1555.  Dr. Atkins had no objection to this.  

(3)	By a letter dated 24th February 2009 the claimant informed Dr. Atkins that, in principle, the lease was not something they would necessarily object to: see File 12, page 1560, and see also the letter of 25th February 2009 at File 12, page 1570.  (Reading the letter at File 12, page 1560 in context, it is clear that the word “not” is missing, and that it should read, “In principle this lease does appear to be something we would not necessary object to.”)  The claimant did not have any issue as to the level of rent.  Rather, its concerns were directed at whether the proposed tenant could actually pay the rent.  Dr. Atkins was also asked to pay the solicitors’ fee of £350 plus VAT, and told that an arrangement would need to be made in relation to the arrears on his account.  

(4)	Dr. Atkins provided some more information in relation to his proposals by a letter of 24th April 2009: see File 12, pages 1663 to 4; but he did not pay the solicitors’ fees until 8th May 2009:  see File 12, page 1712.

(5)	By 13th May 2009 the claimant had instructed their solicitors (Pure Law) and, at the same time, they reminded Dr. Atkins that he needed to provide them with proposals to clear the arrears of £58,210.32: see File 13, page 1717.

(6)	On 20th May 2009 Pure Law wrote to Mr. Harris at Bower Cotton Khaitan with a list of 14 points on the draft lease: see File 13, pages 1721-2.

(7)	Some of these points were resolved, but many were still outstanding on 7th August 2009.  The outstanding points were set out in Pure Law’s letter to Dr. Atkins of 7th August 2009, which was sent after the meeting between Dr. Atkins, Mr. Rushbrook, Miss Mortlock and Miss Gent on 6th August: see File 13, page 1889.  

(8)	Likewise, no proposals were ever made to clear the arrears on Dr. Atkins’s account in respect of Unit 8.  

I find that the lack of any urgency on the part of Dr. Atkins in relation to this matter was due to his disinclination to press ahead with the proposed lease at a time when he had no occupiers lined up for Unit 8.  This application for consent was therefore never finally determined by the claimant.  In particular, it never refused its consent to this particular application.  

Section 12:  The Discussions between the Surveyors in August 2009

87.	Again, no pleaded case was ever advanced by Dr. Atkins in relation to this matter.  Nevertheless I shall deal with it.  

88.	Mr. Sherbrooke was appointed by Dr. Atkins to act as his surveyor in July 2009 and, by a letter dated 11th July 2009, Dr. Atkins suggested to the claimant that “in order to bring some objectivity to the various issues”, Mr. Sherbrooke should meet with the claimant’s surveyor “to review the various points and hopefully agree some yardsticks about the current market situation”: see File 13, page 1786.  

89.	Dr. Atkins’s complaint that the claimant was responsible for “blocking” such a meeting is not supported by the evidence.  Rather, the position was as follows:

(1)	On 21st July 2009 Miss Mortlock wrote to Dr. Atkins (by letter and e-mail) and told him that if he thought it was important for the surveyors to make contact to resolve any “commercial/market” issues, then Mr. Watling was happy to speak to Dr. Atkins’s surveyor direct.  She asked Dr. Atkins to provide her with the name and telephone number of his surveyor, so that she could pass the details on to Mr. Watling: see File 13, pages 1808 and 1810.

(2)	It was not until 19th August 2009 that Dr. Atkins told Mr. Sherbrooke that the person to speak to at Douglas Duff was Simon Brittin: see File 13, page 1908.  

(3)	On 12th August 2009 Dr. Atkins instructed Mr. Sherbrooke that what he wanted to do was to prepare “a summary of letting terms and conditions in the current market”: see file 13, page 1896.  He then sent Mr. Sherbrooke a first draft of a “detailed model heads of terms” to be used as a “checklist as I think we probably only need about 6 or 7 headings to define the present market”: see File 13, page 1897.  Given the outline nature of the heads of terms, this must have been a new proposal that Dr. Atkins wanted to develop with Mr. Sherbrooke in August 2009.  Indeed, this accords with Dr. Atkins’s letter to Miss Mortlock of 10th September 2009 (at File 14, page 1959) in which he quotes the rental values of £12 to £13 per square foot set out in his own draft letter of 17th August (see File 13, page 1911), which were then repeated in Mr. Brittin’s letter of 20th August 2009: see File 14, page 1934.  

(4)	On 17th August 2009 Dr. Atkins produced a draft letter that he wanted Douglas Duff to send to Mr. Sherbrooke: see File 13, page 1911.  He sent this letter to both Mr. Sherbrooke and Mr. Brittin: see File 13, pages 1908 and 1909-1910.  

(5)	Mr. Sherbrooke spoke to Mr. Brittin on the afternoon of 19th August 2009, and Mr. Sherbrooke had no difficulty at all in his dealings with Mr. Brittin.  

(6)	Having spoken to Mr. Brittin, Mr. Sherbrooke then sent him an e-mail (timed at 17.22 on the same day) in which he said “… I would hope that you could now feel free to write a letter to myself along the lines which have already been drafted by Tony Atkins, notwithstanding that it is titled ‘8 & 9 Bankside’.”: see File 13, page 1918.

(7)	Mr. Brittin responded 20 minutes later stating that he thought he should be responding to an instruction from the claimant (see File 13, page 1923).  In answer to this, Mr. Sherbrooke directed Mr. Brittin’s attention to Miss Mortlock’s e-mail of 21st July 2009 (at File 13, page 1917).

(8)	Mr. Brittin was satisfied with this and, the very next day, on 20th August 2009, he sent Mr. Sherbrooke the letter requested on Douglas Duff’s notepaper: see File 14, page 1934.  The text of this letter is identical to Dr. Atkins’s draft text.  The only change to the letter was in the heading, which said “Bankside, Hanborough Business Park - Current Market Rental Values”, rather than “Re 8 & 9 Bankside, Hanborough Business Park - Current Market Rental Values”.  This change is of no real significance as it means that the letter applies to all the Units at Bankside (including Units 8 and 9), rather than just Units 8 and 9.  

(9)	There is no evidence whatsoever as to what else Mr. Brittin should have done, or what the claimant is said to have prevented him from doing.  Rather, Mr. Brittin approved and sent the letter in the terms requested by Mr. Sherbrooke, on behalf of Dr. Atkins, and that is all (and precisely all) he was actually asked to do.
 
(10)	Further, the purpose of Mr. Brittin’s letter of 20th August 2009 was only to deal with the question of rent in Dr. Atkins’s draft “detailed model heads of terms”.  He was not asked to address any of the other terms, which were in fact never resolved: see File 13, page 1897.  In any event, the letter expressly acknowledged that it might prove necessary to adjust the stated figures in view of the current background of “macro-economic uncertainty and volatile property values”. 
 
(11)	Dr. Atkins relies heavily upon a telephone conversation which he had with Gemma Smith of the claimant on 20th August 2009 in which she declined to instruct Mr. Brittin to advise on current market rental values until she had taken legal advice from Mr. Rushbrook: see File 13, page 1932.  However, that was followed by an exchange of e-mails on 21st August (at File 14, pages 1937-1938) in which Mr. Rushbrook made it clear that he was “very happy for our respective surveyors to discuss anything they want”, and was “certainly not putting obstacles in the way of them talking”.  The reality is that by then, Dr. Atkins was becoming unduly suspicious of everything the claimant did or omitted to do.  

(12)	Dr. Atkins never sent a copy of Mr. Brittin’s signed letter of 20th August 2009 to the claimant.  In answer to a question from the Bench, Mr. Rushbrook said that had the claimant received it, it would not have paid for it; but it could not have ignored it, because it existed.  

In my judgment, it was not unreasonable or unfair for Mr. Rushbrook to refuse to agree the then current level of market rents for Unit 8 at a time when Dr. Atkins had no specific person or entity actually interested in entering into occupation of any part of the Unit.  

Section 13: Securitisation

90.	It is common ground that Dr. Atkins’s two loan agreements and mortgage were securitised by the claimant on 18th May 2007.  There is, and was, no connection (and no evidence of any such connection) between: 

(1)	On the  one hand, the process of the securitisation; and 

(2)	On the other, the steps taken by any of the members of the claimant’s Operations Team (or indeed Risk) in relation to Dr. Atkins’s application for consent to let Unit 8 to Axis.  

Nor was any such connection suggested in cross-examination of any of the claimant’s witnesses.   

Chapter 4:  My Conclusions on the Law.

91.	This Chapter is divided into four sections as follows:

(1)	Implied term or covenant;

(2)	Equitable duty;

(3)	Restraint of trade;

(4)	Sections 140A and 140B of the Consumer Credit Act 1974, as inserted by the Consumer Credit Act 2006.  

Section 1:  Implied Term or Covenant

92.	On this aspect of the case, the starting point is the decision of the Court of Appeal in City Bank International plc v. Kessler [1999] Lloyds’s Law Reports Banking 123 and Starling v. Lloyds TSB Bank plc [2000] 1 EGLR 101.  Miss Tipples took me to the headnote to Kessler and to Chadwick LJ’s discussion of an implied term at pages 127 (column 1) to 129 (column 2).  She quoted extensively from all three judgments in Starling.  Miss Tipples also took me to the judgment of Eve J in Ideal Film Renting Company Ltd v. Neilson [1921] 1 Ch 575, at 581 to 2.  Dr. Atkins cited extensively from the judgments of Arden and Pill LJJ, in Lymington Marina Ltd v. Macnamara [2007] EWCA Civ 151.  He also took me to the decisions of the Court of Appeal in International Drilling Fluids Ltd v Louisville Investments (Uxbridge) Ltd [1986] Ch 513, and Sir Richard Scott, Vice Chancellor, in Norwich Union Life Insurance Society v Shopmoor Ltd [1999] 1 WLR 531.  

93.	Kessler is binding authority for the proposition that, at least in the context of a mortgage of residential property created by an owner-occupier, the court cannot imply a positive obligation into a clause in the terms of Condition 11.4 in the present case that the mortgagee, in the exercise of its right to withhold consent to a letting of the mortgaged property, must act reasonably.  It was so treated in Starling: see page 102J-K, per Peter Gibson, LJ; page 103F-G, per Mance LJ; and page 104B-C, per Moore-Bick J.  

94.	Dr. Atkins contends that Kessler and Starling have no application to a commercial investment property mortgage rather than a residential mortgage by an owner-occupier.  He points to the facts that in his mortgage application form (at File 4, Divider 2, page 31) the intended use of the property was stated to be “to be let”, the mortgaged property was describe as “investment” rather than “owner/occupied” or “part investment/ part owner occupied”, and an estimated rental value of £70,000 was indicated.  He can also point to the fact that the claimant’s servicing/affordability criteria for a CIM 2 mortgage product (at File 5, Divider 18, page 194) required “the market rent as per the valuation to provide 115% cover on our mortgage payment” during the interest-only period; although this was not known to Dr. Atkins at the time, Mr. Parrott in fact applied slightly lower  debt service cover ratios of 111% for Unit 8 (see File 7, page 148) and 113% for Unit 9 (see File 7, page 151).  

95.	Against this factual background, Miss Tipples recognised that she would be in some difficulty in resisting the implication of some term into Condition 11.4.  However, she submitted, by reference to the reasoning of Chadwick LJ in Kessler, that there was no basis for implying an independent covenant into the loan agreements and mortgage conditions, and that the court should do no more than read into the end of Condition 11.4 the words “provided that such consent is not to be unreasonably withheld”, thereby mirroring the provision contained within Section 19(1) of the Landlord and Tenant Act 1927.  

96.	I accept Miss Tipples’s submission, which I find to be supported both by the reasoning of Chadwick LJ (speaking with the agreement of Kennedy and Laws LJJ) in Kessler (at page 129), but also by the judgments of Peter Gibson LJ and Moore-Bick J in Starling (at pages 182J-K and page 104B respectively).  

97.	In Kessler at page 129 Chadwick LJ said this:

“It was not clear (or, at the least, not clear to me) whether the term to be implied was to take the form of an independent covenant by the mortgagee that it would not withhold its consent unreasonably (if to withhold consent would hinder the mortgagor’s freedom of movement); or whether it was to take the more usual form of a proviso qualifying the power to withhold consent.  It is, I think, pertinent to note that, when the legislature addressed the comparable restriction - commonly found in leases - against assigning or subletting without consent, it adopted the latter course.  (See Section 19(1) of the Landlord and Tenant Act 1927).  That statutory provision does not imply an independent covenant by a lessor that he will not withhold consent unreasonably; rather it makes his contractual power to withhold consent subject to the limitation that the power may not be exercised unreasonably. The effect is that an unreasonable withholding of consent is of no effect.

That point was clarified by Mr. Duffy QC in the course of argument.  Faced with the difficulty that an implied term which did no more than qualify the mortgagor’s power to withhold consent by way of proviso would give rise to no claim in damages if consent were withheld unreasonably (see Ideal Film Renting Company Ltd v. Neilson [1921] 1 Ch 676, at pages 581-582) he asserted that the term to be implied was to take the form of an independent covenant.  This assertion was, of course, necessary if the claim to damages - and the associated claim to set off the damages claimed against the mortgage debt - were to be preserved.  But, as it seems to me, the assertion that the implied term must take the form of an independent covenant destroys any basis for implying the term.  If (which for the reasons I shall give shortly, I do not accept) there were any requirement, founded on Article 48 of the EC Treaty, to restrict the circumstances in which the mortgagee is entitled to refuse consent to a lease of the mortgaged property, I can see no reason why that requirement should be satisfied by implying a term in the form of an independent covenant when the objective could be more easily achieved by an implied qualification - thus following the precedent set by Section 19(1) of the Landlord and Tenant Act 1927.”

98.	In Starling, Peter Gibson LJ said this (at page 102J-K):

“Mr. Phillips did not attempt to justify the suggested duty on any other basis.  He accepted that it was not open to him (at least in this court) to argue that there was some positive obligation to be implied into clause 6 that the bank in the exercise of its right to refuse consent must act reasonably.  That concession was inevitable in the light of the recent decision of this court in City Bank International PLC v. Kessler.  Nor would it have profited him to argue that the right to withhold consent was merely qualified by the implied limitation that consent should not be unreasonably withheld: there is no basis for such an implication and, in any event, the breach of such a limitation merely leaves the mortgagor free to let and gives rise to no claim in damages.  (Ideal Film Renting Company Ltd v. Neilson)  Hence Mr. Phillips’ recourse to equity.”

99.	Also in Starling, at page 104B, Moore-Bick J said this:

“Mr. Starling’s case, in substance, is that the bank owed him a duty properly to consider his request to consent to the letting of his property, by which he means that it should have considered how far it could accommodate his wishes while protecting its own interests.  Such a duty, if it exists at all, must arise out of the contract between the parties or under the general law.  An argument that such an obligation could be implied from the terms of the contract in the present case was doomed to failure in the light of the decision of this court in City Bank International PLC v. Kessler.  As Chadwick LJ pointed out in that case, if it is necessary to imply any term into a clause such as clause 6 (which in the present case I think very doubtful) there is no basis for implying anything beyond a term that the bank’s consent would not be unreasonably withheld.  That would operate as a restriction on the bank’s absolute right to withhold its consent to a letting of the property and, in accordance with established principle, a refusal to consent would leave Mr. Starling free to let without obtaining such consent.  It would not, however, give him a right of action against the bank for damages.”

100.	In my judgment, in the case of a mortgage of a commercial investment property, the court should read into any mortgage condition preventing the mortgagor from letting the mortgaged property without the mortgagee’s consent a qualified implied limitation that consent should not be unreasonably withheld.  A similar qualification would, in my judgment, also apply in the case of a mortgage of residential property expressly granted on a “buy-to-let” basis.  Thus, even if the claimant in the present case were to have acted unreasonably in withholding its consent to any letting of Units 8 or 9, this would merely have left Dr. Atkins free to let without obtaining the claimant’s consent.  It would not operate to give him a right against the claimant in damages.  

101.	Lest I am wrong, however, I go on to consider the scope, and the content, of the claimant’s duty to act reasonably.

102.	Dr. Atkins recognises that, as mortgagee, the claimant needs to have reasonable powers to protect its security; but, as mortgagor, he too has a legitimate interest in securing his own financial interests.  A recurrent theme of his oral and, written, submissions was that, unlike the mortgagor, the mortgagee was protected by its 30% loan to value “cushion”.  With a loan at 70% loan to value, the value of the mortgaged property had to decline by more than 30% before there was any risk to the claimant’s security.  By contrast, any decline in asset value whatsoever would have an immediate and direct impact on the mortgagor’s equity in the property.  In relation to the impact of any loss of rental income on the parties, the difference was said to be even more stark.  Any loss of rental income was of immediate and direct consequence to the mortgagor, whereas any loss of rental income was said to have no effect on the claimant.  The claimant was said to be immune from the consequences of not deriving any rental income by the terms of the mortgage agreement, which made the mortgagor still liable to meet the terms and conditions of the mortgage, irrespective of whether or not the mortgagor was able to service any rental income from the mortgaged property.

103.	Founding himself upon the propositions formulated by Balcombe LJ in International Drilling at pages 519H-512E, at paragraph 105 of his skeleton argument for the trial Dr. Atkins formulated the following suggested criteria:

“1. The mortgagee must use its power of consent in a diligent and reasonable way, having regard to the interests of the mortgagor as well as its own.  

2.	A mortgagee is not entitled to refuse its consent to a tenancy on grounds which have nothing whatever to do with the relationship of mortgagee and mortgagor in regard to the subject matter of the lease.”

Miss Tipples suggested that that should be a reference to “the subject matter of the mortgage”.  

“3. The mortgagee will not impose such conditions as would make it impossible for the mortgagor to derive an income from, or cause it to suffer a diminution in the value of, his investment property.

4.	The mortgagee can withhold its consent if the proposed market rent in the lease is not in line with current market rents. 

5.	The mortgagee is entitled to withhold consent if the proposed use is not appropriate to the property.

6.	The mortgagee can withhold consent if the standing of the tenant is not appropriate for the property.

7.	A mortgagee owes a duty to the mortgagor to give a written decision on an application for consent within a reasonable time and, if consent is withheld, to explain those reasons to the mortgagor. 

8.	If consent is withheld, it is for the mortgagee to prove that there were valid and logical reasons for withholding consent that no reasonably qualified and experienced mortgagee, acting reasonably, would disagree with.  

9.	The mortgagee should act honestly and in good faith, and shall not withhold its consent arbitrarily, capriciously, for an improper purpose, or in a limited sense unreasonably.

10.	Subject to the propositions set out above, it is in each case a question of fact, depending upon all the circumstances, whether the mortgagee’s consent to a letting is being unreasonably withheld.”  

104.	At paragraph 83 of her written closing submissions, Miss Tipples submitted as follows: 
 
“In relation to dealing with an application by a mortgagor for consent to a letting of the mortgaged property, a mortgagee is entitled to have regard to all matters which are relevant to determination of the application.  These will include the rent payable under the lease, the terms of the lease, the interest payable under the mortgage, and any arrears on the mortgage account.  In doing so, the mortgagee is entitled to have regard to its own interests, and must be entitled to refuse the application if the lease proposed would have an adverse effect on its own security.  Further, the mortgagee’s discretion as the decision maker in determining the application for consent will of course be limited, as a matter of necessary implication, by concepts of honesty, good faith and genuineness, and the need for absence of arbitrariness, capriciousness, perversity and irrationality.”

105.	In support of the latter submission, Miss Tipples relied upon observations of Rix LJ at paragraph 66 of his judgment in the case of Socimer International Bank Limited v. Standard Bank London Limited [2008] EWCA Civ 16, reported at [2008] Bus. L.R. 1304, at page 1333 between letters B and C.  

106.	In her oral closing, Miss Tipples expressly addressed Dr. Atkins’s ten suggested criteria.  She could not accept number 1, namely:

“1. The mortgagee must use its power of consent in a diligent and reasonable way, having regard to the interests of the mortgagor as well as its own.”  

She submitted that that was a gloss on the sixth and seventh of Balcombe LJ’s propositions in International Drilling, which applied.  She accepted Dr. Atkins’s proposition number 2, with the qualification that it should read: 
 
2.	A mortgagee is not entitled to refuse its consent to a tenancy on grounds which have nothing whatever to do with the relationship of mortgagee and mortgagor in regard to the subject matter of the mortgage.

She could not accept the third of Dr. Atkins’s propositions.  She was content to accept propositions 4, 5 and 6.  She would not accept Dr. Atkins’s proposition number 7.  She accepted that a mortgagee must deal with an application for consent to a letting within a reasonable time, but she would not accept that a mortgagee owed a duty to give a decision in writing and, if consent was withheld, to explain the reasons to the mortgagor.  Miss Tipples disputed Dr. Atkins’s proposition number 8, which she submitted reversed the appropriate burden of proof.  Dr. Atkins’s proposition 8 held good in the context of landlord and tenant, but that was only because of the express statutory reversal of the burden of proof introduced by the Landlord and Tenant Act 1988.  Miss Tipples accepted Dr. Atkins’s proposition number 9, which she submitted was consistent with Socimer and earlier authority.  She also was content to accept Dr. Atkins’s proposition number 10.  

107.	Miss Tipples proceeded to reformulate the seven propositions identified in International Drilling so as to render them applicable in the context of mortgagor and mortgagee, rather than that of landlord and tenant.  I accept Miss Tipples’s submissions.  In my judgment, the following propositions of law should be applied, by way of reformulation and adaption of Balcombe LJ’s propositions, in judging whether a mortgagee has acted reasonably in withholding its consent to a proposed letting of the mortgaged property: 

(1)	The purpose of a condition against letting without the consent of the mortgagee, such consent not to be unreasonably held, is to protect the mortgagee’s security, and to ensure that it is not burdened with an unsatisfactory lease.  

(2)	As a corollary to that first proposition, a mortgagee is not entitled to refuse his consent to a proposed letting on grounds which have nothing whatever to do with the relationship of mortgagor and mortgagee in regard to the subject matter of the mortgaged security and the proposed letting. 
 
(3)	The onus of proving that consent has been unreasonably withheld is on the mortgagor.  

(4)	It is not necessary for the mortgagee to prove that the conclusions which led him to refuse consent were justified, if they were conclusions which might be reached by a reasonable mortgagee in the circumstances.  

(5)	It may be reasonable for the mortgagee to refuse his consent to a proposed letting on the grounds of the purpose for which the proposed tenant intends to use the premises, even though that purpose is not forbidden by the mortgage.  A mortgagee may also reasonably withhold his consent on the grounds of the level of rent payable under the proposed tenancy.  It may be so reasonable where the rent is below current market rental values, or where the proposed rent would be insufficient to enable the mortgagor to service the mortgage, unless the mortgagor can point to some other reliable source of income, which it may, in addition, be necessary for the mortgagor to secure to the mortgagee.  By analogy with Balcombe LJ’s fifth proposition, it seems to me that a mortgagee may refuse his consent to a proposed letting by reference to, and by reason and application of, some objectively justifiable criteria, even though those criteria are not contained in the mortgage terms and conditions or other mortgage documentation, and even though such criteria had not been disclosed to the mortgagor at the time the mortgage was granted. 

(6)	Whilst a mortgagee need usually only consider his own interests, there may be exceptional cases where there is such a disproportion between the benefit to the mortgagee and the detriment to the mortgagor if the mortgagee were to withhold his consent to a proposed letting, that it would be unreasonable for the mortgagee to refuse such consent. 

(7)	 Subject to the foregoing propositions, it is in each case a question of fact, depending upon all the circumstances, whether the mortgagee’s consent to a proposed letting is being unreasonably withheld.  

Section 2: Equitable Duty 

108.	Dr. Atkins emphasised that the plea in paragraph 2 of his Re-Re-Amended Defence and Counterclaim was one of a duty “to act fairly and equitably toward the defendant as mortgagor”.  He submitted that this extended beyond a mere duty to act in good faith.  He relies upon the judgment of Sir Richard Scott, Vice Chancellor (speaking for the Court of Appeal) in Medforth v. Blake [2000] Ch 86 and, in particular, his statement at page 102F that the duties imposed by equity on a mortgagee or receiver managing mortgaged property “include, but are not necessarily confined to, a duty of good faith”, and may extend to a duty to act with “due diligence”.  The specific issue raised in that case (which received a positive answer) was whether a receiver managing mortgaged property owed an equitable duty of care in negotiating discounts from suppliers of pig feed.  

109.	Founding herself upon observations of Rix LJ in Socimer International Bank Limited v. Standard Bank London Ltd (previously cited) at paragraphs 60 and 66 Miss Tipples submits that, in the present context, involving the exercise of the mortgagee’s power to withhold its consent to a letting of the mortgaged property, the only equitable restraints upon the mortgagee are to be found in the concepts of honesty, good faith and genuineness, and the need for the absence of arbitrariness, capriciousness, perversity and irrationality.  

110.	Miss Tipples took me to passages in the judgments of Lord Templeman in Downsview Nominees Limited v. First City Corporation Limited [1993] AC 295 at 312F-G and 315 A-E, and Robert Walker LJ in Yorkshire Bank plc v. Hall [1999] 1 WLR 1713 at 1728D-E (both authorities cited in Medforth v. Blake).  She also took me to the passage in the judgment of Sir Richard Scott, the Vice Chancellor, in Medforth v. Blake at 103 B-D counselling against any dilution of the concept of “good faith”, treating it as the antithesis of dishonesty or bad faith, and equating want of good faith with “dishonesty or improper motive”.  Finally, Miss Tipples relied in her reply upon passages in the judgment of Mance LJ in Starling at page 103L-M, to which I would add references also to the judgments of Peter Gibson LJ at pages 102K-103F and Moore-Bick J at page 104E-H.

111.	I accept Miss Tipples’s submissions as well-founded.  In my judgment, the authorities lead to the conclusion that the discretion enjoyed by a mortgagee of commercial investment property, when considering an application to let that property, is limited by concepts of honesty, good faith and genuineness, and the need for the absence of arbitrariness, capriciousness, perversity and irrationality.  Given that a mortgagee need usually only consider its own relevant security interests when considering an application by the mortgagor for consent to let the mortgaged property, in  my judgment there is no sound foundation for imposing any more extensive equitable duties upon the mortgagee.  In Medforth v. Blake, Sir Richard Scott, the Vice Chancellor, expressly recognised (at page 102F-G) that “the extent and scope of any duty additional to that of good faith will depend on the facts and circumstances of the particular case”.  Earlier (at page 102D-E) Sir Richard Scott did not accept that there was any difference between the scope of the duties owed at common law or in equity.  All that Medforth v. Blake decided was that a receiver managing mortgaged property owed a duty to manage the property with due diligence; and that whilst due diligence did not oblige the receiver to carry on a business on the mortgaged premises previously carried on by the mortgagor, if he did elect to do so, due diligence required reasonable steps to be taken to do so profitably.  The position here is much more complex and problematic.  

112.	At the end of his evidence, I asked Mr. Rushbrook about the fairness of applying to a proposed letting of the mortgaged property a level of debt service cover which could not be achieved because market rentals had fallen to a level below that required to service the mortgage.  Mr. Rushbrook acknowledged that if the customer could not let out the property at a rent sufficient to service the mortgage, and there was no outside income to cover the shortfall, both parties to the mortgage had a problem; but that to consent to a letting in such circumstances would just be creating a problem for everyone.  In my judgment, equity should not seek to limit a mortgagee’s freedom of decision whether or not to withhold its consent to a proposed letting of the mortgaged property to any extent greater than the common law, as indicated by Rix LJ in Socimer.  In my judgment, there is no warrant whatsoever for the pleaded equitable duty on the part of the claimant “to try to bring about a situation in which the properties could be let on market terms to any reasonable tenant on reasonable market terms proposed by the defendant”.  

Section 3: Restraint of Trade

113.	In the light of my decisions on the existence of an implied qualification upon the power of a mortgagee of commercial investment property to withhold its consent to a proposed letting, and the limitations on such a mortgagee’s freedom of decision, it does not seem to me that there is any scope for the application of the restraint of trade doctrine to Condition 11.4.  

114.	On the scope of the restraint of trade doctrine, I was taken to extracts from the speeches of Lord Reid (at pages 295C-E and 298B-F) and Lord Pearce (at pages 327E-F and 328D-E) in Esso Petroleum Co. Ltd v. Harper’s Garage (Stourport) Limited [1968] AC 269; to paragraphs 143 to 150 of the concurring judgment of Gross LJ in Proactive Sports Management Limited v. Rooney [2011] EWCA Civ 1444; to paragraph 11-104 of Treitel: The Law of Contract (13th edition); and to paragraphs 16-075 and 16-092 of Chitty on Contracts (13th edition), Volume 2.  

115.	I accept Miss Tipples’s submission that Condition 11.4 does not attract the restraint of trade doctrine because it merely regulates the normal contractual relationship between mortgagee and mortgagor in relation to the mortgaged security.  In any event, if a clause in a contract is an unlawful restraint of trade, it is unenforceable.  The fact that it is unenforceable does not give rise to any claim for damages.  Neither the standard text books nor the authorities provide any support for the proposition that damages are recoverable in such circumstances.  The case of Crehan v Inntrepreneur Pub Company CPC [2004] EWCA Civ 637, relied upon by Dr. Atkins, was a claim for damages for breach of Article 81 of the EC Treaty, effectively a statutory tort, and is therefore of no assistance in the present context. 

Section 4:  Sections 140A and 140B of the Consumer Credit Act 1974

116.	There is no dispute that the two loan agreements in the present case are each “credit agreements” within the meaning, and for the purposes, of the 1974 Act, and that the mortgage is security provided in relation to thereto.  It is also common ground that since the two loan agreements were not completed before 6th April 2008 (because, as at that date, the claimant continued to hold retentions from each loan) then, notwithstanding the date of the loan agreements, Dr. Atkins is entitled to apply to re-open them.   

117.	Section 140A (1) and (2) provide as follows:

“(1) The court may make an order under section 140B in connection with a credit agreement if it determines that the relationship between the creditor and the debtor arising out of the agreement (or the agreement taken with any related agreement) is unfair to the debtor because of one or more of the following—

(a) any of the terms of the agreement or of any related agreement;

(b) the way in which the creditor has exercised or enforced any of his rights under the agreement or any related agreement;

(c) any other thing done (or not done) by, or on behalf of, the creditor (either before or after the making of the agreement or any related agreement).

(2) In deciding whether to make a determination under this section the court shall have regard to all matters it thinks relevant (including matters relating to the creditor and matters relating to the debtor).”

118.	Section 140B sets out the powers of the court in relation to unfair relationships, and provides a wide range of options if the court decides to re-open a credit agreement.  Section 140B (9) governs the burden of proof and provides that:

“(9) If, in any such proceedings, the debtor or a surety alleges that the relationship between the creditor and the debtor is unfair to the debtor, it is for the creditor to prove to the contrary.”

119.	Miss Tipples accepts that it is for the claimant to prove that the relationship was not in fact unfair to Dr. Atkins as the debtor.  In opening, I was taken to paragraph 37 of the judgment of Tomlinson LJ in Harrison v. Black Horse Limited [2011] EWCA Civ 1128, reported at [2012] ECC 85, and to various paragraphs in Goode: Consumer Credit Law and Practice, starting at paragraph 47.141.  I was also referred to the OFT Guidance on Unfair Relationships (May 2008, and updated August 2012).  

120.	Miss Tipples submits that the relationship between the claimant and Dr. Atkins was not unfair by reference to: 

(a) the terms of the loan agreement or the mortgage, 

(b) the way in which the claimant has exercised or enforced any of its rights under the loan agreement or mortgage, and 

(c) the claimant’s dealings with regard to Dr. Atkins’s requests for consent to the lettings of Units 8 and 9.  

121.	In his written closing, Dr. Atkins submitted that the relationship between the parties was unfair because the claimant: 

(1) failed to establish the current market rental value for Unit 8 in August to October 2007, 

(2) failed to establish the vacant possession value of Unit 8, 

(3) failed to appreciate that failure to consent to the lease to Axis would result in a diminution of £300,000 in the value of the mortgage security, 

(4) took nearly 12 weeks to established that the proposed lease to Axis would not materially affect the value of the claimant’s security, 

(5) never informed the debtor of that conclusion. 

(6) secretly applied “affordability” as a requirement of the giving of its consent to the proposed letting to Axis and dishonestly used “market rent” as a euphemism for serviceability, and 

(7) never considered the covenant strength of Axis as a proposed tenant (although Dr. Atkins had not proffered any actual evidence in this regard).  

122.	Dr. Atkins emphasised that the claimant had never asked itself the question: “What will Unit 8 be worth if the proposed letting of Unit 8 to Axis were not to go ahead?”  He pointed out that it would not be the letting to Axis that would devalue the claimant’s security; rather the value of the claimant’s security had already been adversely affected by the change in market conditions which had produced a decline in market rental values.  Dr. Atkins also relied, generally and throughout his submissions, upon the drastic, (or, as he termed it, “seismic”) change in market conditions which was precipitated by the run on Northern Rock which began on or about 12th September 2007.  However, this occurred some way during the course of the application process in relation to the Axis lease; and its full implications may have taken some time to be appreciated.  

123.	I would accept that unilaterally imposing different, and more onerous, criteria to the serviceability of a loan during the course of an existing relationship of debtor and creditor may be capable of giving rise to an “unfair relationship” within the meaning, and for the purposes, of Sections 140A and 140B.  Mr. Rushbrook accepted as much in answer to questions from the Bench at the end of his evidence.  But I do not consider that it is unfair to a debtor for the creditor to deal with a request from the debtor made during the subsistence of the credit relationship in accordance with the creditor’s own internal procedures and guidelines as these existed at the time of the creation of the relationship, even if these were not disclosed or made clear to the debtor at the outset.  There can be no unfairness to a debtor in applying the criteria that were applied to him to initiate the credit relationship, even if he does not know what these are.  Nor can it be unfair to a debtor for a creditor to have regard to whether a debtor will be able to continue to service a mortgage loan if the creditor gives its consent to a proposed letting.  That is the case whether or not the loan agreement or mortgage contained any “financial covenants” such as a debt coverage requirement.  

124.	In the present case, Dr. Atkins’s loan documents contained no such “financial covenants”.  But, as Miss Tipples submitted, all that means is that the claimant could not rely upon the loan to value or the debt service coverage falling below a certain level as a “triggering event”, entitling the claimant to terminate the loan agreements and call in the loans.  Likewise, I accept Miss Tipples’s submission that the arrears on a mortgage account are a very material consideration in relation to any application for consent to let the property over which the mortgagee’s security is held.  This is because in these circumstances, the mortgagee will wish to consider whether to commence proceedings to recover the arrears (and no doubt the loan itself).  Such proceedings are very likely to be possession proceedings; and, in these circumstances, the mortgagee will wish to consider whether it wishes to recover a vacant property which can then be let or sold, rather than a property which is already subject to a tenancy.  What is the most appropriate course will depend on the facts of any particular case; but there can be no unfairness to the debtor in having regard to any arrears on the mortgage account.  I do not consider that any of Dr. Atkins’s other points amount to “unfairness” for the purposes of Sections 140A and 140B.  

Chapter 5: The Result

125.	Miss Tipples submitted that the facts, as I have found them to be, lead to very clear conclusions, which she summarised at paragraph 90 of her written closing.  I accept her submissions.  I find that:

(1)	By the start of August 2007 Dr. Atkins was financially very over-stretched.  He needed additional finance.
(2)	Without that finance, Dr. Atkins was unable to complete the building works at Unit 8, and he was unable to clear the arrears on his accounts with the claimant. 
 
(3)	In the end, the offer of finance was not received until towards the end of October 2007, and the funds did not arrive until the end of November 2007.

(4)	Axis pulled out of the agreement for lease on 24th October 2007 because the building works to Unit 8 had not been completed.  The cause of this was that Dr. Atkins did not have the money to finish them.   Indeed, the offer of finance was not received until after Axis had already withdrawn.  Dr. Atkins’s attempt to revive Axis’s interest in Unit 8 fell on deaf ears because it had already found cheaper alternative office accommodation nearby.

(5)	Dr. Atkins’s application for consent to let Unit 8 to Axis was never finally determined.  This was because Dr. Atkins had been unable to address satisfactorily the arrears on his account; and this was still the position at the time of Axis’s withdrawal.

(6)	Without the letting of Unit 8 to Axis, the “game” was effectively up for Dr. Atkins.  

126.	In relation to the claim for breach of the term to be implied in Condition 11.4 of the mortgage terms and conditions:

(1)	On my findings of fact, there was no breach of such implied term.

(2)	Even if (contrary to my findings) there was such a breach, that does not give rise to any claim for damages.  Rather, in those circumstances what Dr. Atkins could have done would have been to proceed with the letting to Axis (and, later, DSA).

(3)	Even if (contrary to my view) there were a breach of an implied term of the mortgage giving rise to a claim in damages, that breach was not causative of the damage which Dr. Atkins alleges.  He did not lose the letting to Axis because of that assumed breach.  He was unable to complete the letting to Axis because he did not complete the building works at Unit 8 in accordance with the terms of the Agreement for Lease; and Axis were therefore never under any obligation to take a lease of that Unit.  The position was the same in respect of the proposed letting of Unit 9 to DSA.  

127.	The claim for breach of equitable duty fails. When considering the applications to let Units 8 and 9, there was no want of good faith, dishonesty or improper motive on the part of the claimant; nor did it act arbitrarily, capriciously, perversely or irrationally.  

128.	In view of my finding that Condition 11.4 of the claimant’s mortgage terms and conditions was subject to an implied qualification (appropriate and necessary to the circumstances of this case) that the mortgagee’s consent to any letting of the mortgaged property would not be unreasonably withheld, there is no basis on which Condition 11.4 can be said to be an unlawful restraint of trade.  Even if it were, this would not give rise to any claim for damages.   It would merely render Condition 11.4 unenforceable.  

129.	I have scrutinised in considerable detail the relationship and dealings between the claimant and Dr. Atkins since December 2006.  I find that there is no basis whatsoever on which it can be said that the relationship between them was “unfair” to Dr. Atkins.  Rather, the position is the opposite.  This is because it was Dr. Atkins who was being unfair, by deliberately not telling the claimant what the actual rent receivable was to be in the first year of the Axis lease.  He was quite content to let the claimant proceed on the erroneous basis that the rental income would be £66,000 per annum; and he got the claimant (through Mr. Kinane) to agree in October 2007 that this was an acceptable level of rent when in fact the rental receivable was going to be the much lower sum of £24,750 per annum during the first year of the term, a figure wholly insufficient to service the mortgage interest during that period.  The burden imposed upon the claimant under Section 140B(9) of the 1974 Act is therefore discharged.  

130.	For these reasons, the counterclaim fails; and the claimant is entitled to possession of Unit 8 and 9 and a money judgment for the sums due under the two loan agreements.  

131.	I recognise that this result represents a personal tragedy for Dr. Atkins.  That tragedy is made all the more galling because had Dr. Atkins approached his application for consent to the Axis letting rather differently, I consider that it might well have been successful.  Dr. Atkins knew, at the time of the application that both the “headline” rent of £72,000 and the initial rent of £66,000 proposed for Unit 8 were less than the estimated rental value provided in Mr. Fraser’s initial mortgage valuation report, which Dr. Atkins must have appreciated had formed the basis for the claimant’s mortgage lending decision.  Dr. Atkins should have included within his application for consent to the letting a reasoned explanation for this difference, justified by any demonstrable, and objectively verifiable, change in market conditions.  Dr. Atkins could, and should, have sought to address the arrears position by pointing (with objective supporting evidence, in the form of invoices and receipts) to the expenditure he had incurred on Unit 8; and invited the claimant to release the retention it held for Unit 8 on completion of the letting to Axis, which would have been more than sufficient to discharge the arrears.  When I asked Dr. Atkins in closing whether he had asked the claimant to release the retention, he limply answered that he had not done so because he had assumed it was not available; and he accepted that he should have done.  Dr. Atkins acknowledged in closing that perhaps he had not done everything he could have done, or should have done.  I suspect that it was arrogance on the part of Dr. Atkins that caused him to adopt an insufficiently proactive attitude towards the obtaining of the mortgagee’s consent to the Axis letting, combined with embarrassment about his financially straitened circumstances, in terms of the cash flow shortage which he was temporarily suffering.  If this tragic case serves any good at all, such may lie in the guidance it affords mortgagors in future cases when they approach their mortgagees for consent to let an investment or buy-to-let property.