Crowther v Arbuthnot Latham & Co Ltd

A case which doesn’t, despite appearances, row back on the excellent principles uncovered in Barclays v Unicredit, but rather validates them.

Crowther v Arbuthnot turned on whether private bankers Arbuthnot, who had (rather cluelessly) lent Crowther €5.9m secured on a £4m property, could withhold its consent to the sale of that property.

The relevant clause provided:

“If with the prior approval of the bank (such approval not to be unreasonably withheld or delayed) the property is sold, you shall immediately repay to the bank the net proceeds of sale.”

Crowther received a fair market offer for the property of €4.1m — one which Arbuthnot even said was “agreeable” — but Arbuthnot still refused to approve the sale unless Crowther provided further security. To support this proposition they cited Barclays v Unicredit’s excellent musings as to whose interests a merchant was obliged to consider when behaving in a “commercially reasonable manner” (in short, its own).

Crowther argued that “reasonableness” in this case could only be determined by reference to the proposed sale price: if it was a fair market value, and nothing else was likely to happen to materially affect the property’s value between the sale and maturity of the loan, Arbuthnot could not reasonably withhold consent.

Arbuthnot said (per Barclays v Unicredit) it was seeking to protect its own commercial interests: if they had thought their loan would be unsecured to the tune of 1.7m, they would have asked for a bigger spread on the interest. The problem with this argument was that this is exactly what Arbuthnot had done: By common agreement the property was never worth more than £4m, even when Arbuthnot advanced the loan. Schoolboy error from the private bankers here. Nor did Arbuthnot have any evidence that the property value had slumped, nor that there was much sign it was likely to rally.

Waksman QC decided that Arbuthnot had unreasonably withheld consent: why, he asked, should Arbuthnot be entitled to insist on anything more than the sale of a property at a fair price? Arbuthnot’s stated reason for withholding consent seemed to be to secure more collateral, thereby correcting the bad bargain they had made in the first place.

Whether withholding consent is is reasonable will depend on the clause, the facts and the reasons given for withholding consent.

See also

• Barclays v Unicredit
• Commercially reasonable manner
• such consent not to be unreasonably withheld