PAG v RBS: Calling for Valuations – A final outcome

Property Alliance Group is an ex-customer of the Royal Bank of Scotland so unhappy about its treatment by GRG – RBS’ workout unit – that it took legal action against the bank.

Some of the issues raised by PAG concerned an interest rate hedging program entered into before the transfer to GRG, and are not relevant to restructuring and turnaround practitioners.  However, PAG also complained about management by GRG, including decisions to seek updated valuations, which resulted in breach of a loan to valuation ratio, and led to a subsequent renegotiation of terms.

As discussed here, PAG was unsuccessful in its first attempt before the UK High Court, but it kept on fighting, with an appeal.  PAG argued that the judge at first hearing was wrong to decide that RBS’ contractual power to call for a valuation was completely unrestricted – PAG said that there were implied terms which meant that for example RBS could not call for a valuation capriciously or vexatiously.

In a judgement (available here) handed down last week, the Court of Appeal agreed with PAG that the power was ‘not wholly unfettered’ – but it found that RBS was free to seek an updated valuation if it was for a purpose related ‘to its legitimate commercial interests.’

On that point, on the facts the Court held that it was

 ‘very far from apparent, however, that the Judge would have held the valuation at issue to have been pointless, lacked good or rational reason or been commissioned for a purpose unrelated to RBS’s legitimate commercial interests or when doing so could not rationally be thought to advance them…’

After providing some rare behind-the-scenes glimpses of a loan workout, it appears that we have now reached a final resolution, leaving the law probably as most impartial observers expected the position to be.

Other posts about the RBS/GRG saga:

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