Legal victory for Clydesdale in SME loans case

Former Clydesdale business customer John Glare went to the Court of Session in 2013 claiming £4 million in damages for the loss of his business and his bankruptcy having borrowed £3.95m from the bank in February 2008.

The bank’s TBLs have come under scrutiny for their “break fees” – a penalty for early surrender – with the bank claiming a break fee of £783,383 from Mr Glare, some 20 per cent of the loan.

The Clydesdale levied such fees on its widely-sold TBLs on the basis the loans were linked to market “swaps” or derivatives intended to hedge against a rise in interest rates, but incurring a penalty to the bank if rates fell, as they did.

Prior to the judgement, Mr Glare, who has lobbied MPs, founded the NAB Customer Support Group to protest against mis-sold loans as well as stage protests outside the bank’s Glasgow headquarters, had claimed the Clydesdale’s fixed-rate TBLs were legally unenforceable and unfair under the Consumer Credit Act and said that his action could free hundreds of businesses from their debts to the bank.

However, Lord Doherty has ruled unequivocally in the bank’s favour.

The judge said the bank accepted the TBL was “not a suitable product” for Mr Glare and it was “wrong to conclude a contract of loan with the pursuer which had a fixed rate of interest for 25 years”. The bank also accepted liability for any loss or damage caused as a result of the sale.

However, Lord Doherty said Mr Glare had failed to prove he would have sought and obtained a variable rate loan instead of a TBL, and that his business would have succeeded as a result.

Mr Glare borrowed £3.95m from the bank in February 2008, partly to repay a debt of £2.76m to Lloyds, and he promised to be able to grow a conference centre business in a former manor house in rural Dorset, which he had bought in 2002 for £4.5m. But the business struggled, and the loan was terminated in September 2009.

Mr Glare was made bankrupt in February 2011 and discharged a year later. The bank received £2m from the sale of the manor later that year.

Lord Doherty said Mr Glare’s evidence had lacked credibility and “been influenced greatly by hindsight … he suggests that a concatenation of favourable circumstances would have occurred and the upshot would have been that the business would have survived and prospered”. But in fact, “the history of the management and performance of the business up to 2009 does not inspire any confidence that a successful future was likely” as it had consistently failed to meet targets and projections.

Despite the break cost legality being refered to as “not a live issue” any appeal from Mr Glare is still likely to centre around exactly that.

Reacting to the news, Mr Glare said the judgment had not addressed the legality of the contract or issues of unfairness and that he does plan to appeal.

He said: “The court did not deal with the central issues, the legality of the contract and the break cost. I do not apportion blame to either the court or my legal team, but it is clear to me that the bank was successful in avoiding these important issues that have adversely affected so many Scottish businesses.

“I plan to appeal to the Supreme Court and am discussing this with my lawyers.”

Clydesdale Bank said: “We have received and accept the judgment of the Court of Session, which has found in favour of the bank.”