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Disastrous Evangelical Church Project Reveals Catalogue of Lender Blunders

A project to convert a bingo hall into an evangelical church descended into a costly disaster and, in a case of interest to property and banking professionals, it fell to the Court of Appeal to apportion blame for the debacle between the bank who funded the development and the consultancy firm that it employed to oversee it.

The bank underwrote the development by extending a £2,625,000 loan facility to the church and appointed the firm to monitor progress. In the event, the project went far over budget and was never completed. The bank suffered a substantial loss and launched a breach of contract claim against the firm.

In ruling on the matter, a judge found, amongst other things, that the firm had failed in its duty to advise the bank that the cost of completing the project would be greater than the amount of the facility. However, the bank had also been negligent and, after apportioning responsibility for the debacle one-third to the bank, and two-thirds to the firm, the latter was ordered to pay £127,117 in damages.

In ruling on the firm’s challenge to that decision, the Court noted that it was an oddity of the case that the bank had been aware from the outset that the facility would be insufficient to cover the whole cost of the project and that there would be a shortfall of at least £200,000. The firm had nevertheless failed in its duty to inform the bank that the prospective shortfall would be greater than that. Had the bank been aware of the true financial position, it would have terminated the facility earlier and sold the site, over which it had a charge, thus reducing its losses.

In upholding the firm’s appeal, the Court found that the loan should never have been made and that the case revealed a formidable catalogue of irresponsibility on the bank’s part. The Court reversed the judge’s findings on liability, ruling that the bank bore two-thirds of the responsibility for the loss, and the firm one-third. The firm’s liability in damages was consequently reduced to £86,597. That sum was less than the firm had previously been required to pay following an adjudication.

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