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Lloyds Bank v McBains Cooper Consulting.

Posted on 04/02/2017 · Posted in Expert Witness, Financial Litigation

Held in the Technology and Construction Court, this case serves to illustrate the depth of analysis and careful consideration that is needed before proceedings are commenced.

In 2007 Lloyds Bank agreed to lend over £2.5m to an SPV set up by a trust (the ‘Borrower‘) in order to develop a property, used as a church, in Willesden North London. The defendants, McBains, were appointed by the Bank to carry out due diligence tests, to supervise the works in the role of surveyor by checking their progress and quality, to approve the Borrower’s requests for drawdown of funds from the loan and to make recommendations to the Bank as to the amount that should be paid against those applications.

21 months later construction was still far from complete and the loan facility was almost exhausted. The Borrower could not afford to complete the works and Lloyds had suffered significant losses. The Bank decided to cut its losses, realise its security and commence proceedings against McBains to recover those losses (some £1.4m) on the basis of their negligence.

To know that we know what we know, and to know that we do not know what we do not know, that is true knowledge. “
Nicolaus Copernicus

The court found that McBains had been negligent on a number of occasions in relation to its retainer, but that the principal breach happened in August 2008 when they failed to alert Lloyds that a particular drawdown request was for works outside the ambit of the terms of the loan. Had their actions not fallen below the reasonable standard to be expected of them at this time, the Bank would have suffered considerably lower losses. They would have been alerted to the reality of the Borrower’s financial position and been more cautious, mitigating their losses by refusing further drawdown requests and calling in the security earlier.

However Lloyds standards of care and diligence also came under the Court’s scrutiny, and Mr Justice Edwards-Stuart held them to be contributorily negligent. The Bank had failed to share information with McBains and failed to respond satisfactorily to their reports. Further, there was a failure to address internal concerns about possible cost overruns, and McBains should have been asked to report on this and to establish how such shortfalls would be funded. Further, a relatively straightforward analysis would have shown that there were insufficient funds in the loan facility….it was “quite clear that this loan should never have been made by the Bank in the first place (a decision for which it cannot blame McBains Cooper)“. The Bank’s award was reduced by one third.

Expert Evidence Limited prides itself on assisting throughout the legal process where required and is a professional firm concentrating on the four main areas of dispute resolution; acting as expert witnesses in financial litigation, mediation, arbitration and adjudication. The firm has a civil, criminal and international practice and has advised in many recent cases. Areas of specialisation include banking, lending, regulation, investment, and tax.

Link: Lloyds Bank v McBains Cooper Consulting EWHC TCC [2015] 2372

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