In this case the borrower’s accountant disappeared, having destroyed the company’s business records and having defrauded it of large sums of money. Some of the borrower’s facilities with the bank were due for roll-over but the borrower was not in a position to provide its 2007 financials. The bank, therefore, required repayment of the expired facilities. However, as the remaining facilities were cross-securitised over all properties, the only way the borrower could proceed was to refinance all of its facilities with the bank.
The borrower sued seeking a declaration: that its loan agreement with the bank contained an implied term that if the bank required expired facilities to be refinanced then it would release enough mortgages over its real property to the extent necessary to allow the refinance; and that the structure of the facilities constituted a clog on the equity of redemption. The Court of Appeal held:
In my opinion, it is clear that such an implied term is not necessary to give business efficacy to the contract or so obvious that it would go without saying. It certainly does not go without saying that the only source for repayment of facilities that fall due in advance of other facilities will be loans obtained on the security of properties already mortgaged to the Bank.
The argument that, in the absence of an implied term, the agreement would effectively extinguish the essential right of a mortgagor to redeem mortgaged property cannot succeed as the Bank’s requirements were not unconscionable or unconscientious; thus there was no clog on the equity of redemption.