Freedom of movement?

When will the law impose a fetter on a bank’s express right to assign a loan? That was the question the Court of Appeal had to address in IBRC v Camden Market Holdings Corp.

The relevant facts were straightforward. Camden had borrowed money from IBRC secured on real property. Under the loan agreement IBRC was expressly permitted to assign its rights and to disclose to potential assignees any information about Camden that it considered appropriate. The right to assign was subject to the consent of Camden; the right to disclose information contained no such restriction.

IBRC marketed the Camden loans for sale as part of a portfolio of debt. Some of the loans in the portfolio were distressed; the Camden loan was not. Camden objected that by grouping its loan with distressed loans IBRC gave the inaccurate impression that the Camden loan was in default and that this impeded Camden’s own efforts to market the property for sale. Camden commenced proceedings relying on an implied term that IBRC would not do anything to hinder the marketing of the properties by Camden. IBRC sought to strike out that claim. As such it faced a high hurdle – it could only succeed if Camden’s claim was “bound to fail as a matter of law”. In a characteristically cogent judgment, Beatson LJ found that it was.

It was accepted by all parties that a term cannot be implied if it is inconsistent with the express terms of the contract: Marks & Spencer v BNP Paribas at [28]. However, Camden argued that its proposed implied term was consistent with the express rights of IBRC because they retained the right to market the Camden loan, simply not in a certain way. The Court of Appeal disagreed:

1. Where the contract is lengthy and carefully drafted, the courts will be reluctant to imply further terms, even if they do not conflict with the express terms.
2. If the contract works without the proposed term that will be “a significant impediment” to implying a term dealing with the subject matter of the contract.
3. A proposed implied term can be inconsistent with the express terms either because it is linguistically inconsistent or because it is substantively inconsistent. The proposed term here was linguistically consistent with the express terms of the loan, but it was difficult to construe the express and implied terms in a coherent way. The express terms granted unfettered rights; the implied term sought to restrict them. As a general rule, an express and unrestricted power cannot be circumscribed by an implied qualification.