Bank of Scotland v Euclidian (No. 1) Ltd & Ors

Bank of Scotland v Euclidian (No. 1) Ltd & Ors

Condition 2(c) of the Master Certificate constitutes a collateral contract enforceable by the Bank. The clause is triggered by the underwriters' avoidance, repudiation, or denial of payment under any issued certificate, regardless of whether the underlying loan is enforceable, the claimant exists, or the certificate is strictly valid as defined. The clause is not a 'security' under section 113 of the Consumer Credit Act 1974, as it is not provided by or at the request of the borrower to secure his obligations. The cancellation notices in the loan agreements did not render the loans unenforceable, as the prescribed forms were substantially complied with and any indirect effects on linked...

Parties
Claimant: The Governor and Company of the Bank of Scotland; Defendants: Euclidian (No. 1) Limited and Others
Jurisdiction
England and Wales
Judgment Date
20 July 2007
Procedural Posture
Commercial Court Claim / Trial of Preliminary Issues
Outcome
Preliminary issues determined in favour of the Claimant (Bank of Scotland).
Legal Topics
Construction of Indemnity Clauses, Enforceability Under Consumer Credit Act, Collateral Contracts, Cancellation Notices Compliance
Contract Law Insurance Law Consumer Credit Law Construction of Indemnity Clauses Enforceability Under Consumer Credit Act Collateral Contracts Cancellation Notices Compliance

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Parties

The Governor and Company of the Bank of Scotland

Claimant

Euclidian (No. 1) Limited and Others

Defendants

Procedural Posture

Commercial Court Claim / Trial of Preliminary Issues

Legal Issues

  1. 1 Proper construction of condition 2(c) of the Master Certificate and its enforceability as a collateral contract
  2. 2 Whether underwriters can refuse indemnity under various factual scenarios (e.g. non-existent claimant, forged loan, unenforceable loan, unauthorised certificate)
  3. 3 Whether the clause is a 'security' under section 113 of the Consumer Credit Act 1974

Ratio Decidendi

Condition 2(c) of the Master Certificate constitutes a collateral contract enforceable by the Bank. The clause is triggered by the underwriters' avoidance, repudiation, or denial of payment under any issued certificate, regardless of whether the underlying loan is enforceable, the claimant exists, or the certificate is strictly valid as defined. The clause is not a 'security' under section 113 of the Consumer Credit Act 1974, as it is not provided by or at the request of the borrower to secure his obligations. The cancellation notices in the loan agreements did not render the loans unenforceable, as the prescribed forms were substantially complied with and any indirect effects on linked...

Court Disposition

Preliminary issues determined in favour of the Claimant (Bank of Scotland).

Orders

  • Declaration that condition 2(c) is a collateral contract enforceable by the Bank.
  • Declaration that underwriters are not entitled to refuse indemnity under the clause on the grounds raised (non-existent claimant, forged loan, unenforceable loan, unauthorised certificate, etc.).