In a recent case (Crowther and another v Arbuthnot Latham & Co [2018]), the High Court dealt a blow to lenders’ discretion to act in their own interests.

The Facts

The borrowers originally brought proceedings against the lender based on mis-selling allegations in relation to a number of loans, which were settled with a “Tomlin Order” under which the lender would continue a remaining loan facility of around €5.9m for five years, secured against a French property valued at around €4m with the following provision inserted:

“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.”

The claimants later sought consent to sell the property having received an offer, in line with valuation, of which the bank would receive €4.1m. The bank acknowledged that the offer was a fair market value, but declined to consent to the sale in the absence of additional security for the unsecured shortfall. The sale was lost and the claimants again brought proceedings, arguing that the only relevant basis to deny consent was whether the sale was for fair market value.

The Decision

The test applied was one of objective reasonableness (Mount Eden Land Ltd [1997]). The High Court noted that the Bank had known of the shortfall in the value of the security when it agreed to the Tomlin order and that creditors do not normally object to the sale of a secured property so long as the sale is not for an undervalue and where the proceeds are used to discharge the debt. The bank’s desire for additional security was commercially understandable but was secondary to the wording and purpose of the provision in dispute. In seeking to impose additional conditions at the time of granting consent rather than when negotiating the term, the lender had sought to improve its own position unreasonably.

Therefore, the lender was in breach of the requirement not to withhold consent unreasonably.


Although this was an unusual case where the lender was not fully secured (and the lender’s knowledge of this was a key fact of the case), it still indicates that the common wording that a qualified clause relating to consents “not to be unreasonably withheld or delayed” or variations thereof may not always provide lenders with the decision-making discretion they have normally expected. Banks can expect to have their decisions not to consent contested unless they can clearly show that a denial is based on a very good reason within the meaning of the clauses as drafted.

Careful drafting and consideration of future circumstances can avoid this problem, as if the lender in the case had specified additional security to cover the shortfall at time of negotiation of the Tomlin order, such a provision would not have been unreasonable.

Please note that this information is provided for general knowledge only and therefore specific advice should be sought for individual cases.

For further information, please contact John Mills