The scope of a creditor’s equitable duty (General Mediterranean Holding SA spf v Qucomhaps Holdings Ltd and others)

The scope of a creditor’s equitable duty (General Mediterranean Holding SA spf v Qucomhaps Holdings Ltd and others)

Discussing the judgment in General Mediterranean Holding, Richard Spearman QC, barrister at 39 Essex Chambers, advises that the Court of Appeal has clarified the extent of a creditor’s obligations to a surety and a debtor under English law.

What was the background?

The case concerned a claim by a commercial lender (GMH) to recover multi-million dollar loans that GMH made to a company (QHL)—the repayment of which was guaranteed by a director of QHL, Mr Harkin, and secured by a charge over the assets of a subsidiary of QHL (Moravan). GMH obtained summary judgment before the Master, and that decision was upheld by Sir David Eady on appeal by the High Court.

QHL and Mr Harkin obtained permission for a second appeal to the Court of Appeal on the ground that the case raised an important point of principle concerning the extent of a secured creditor’s equitable duty to a surety. They argued that the decided cases establish no more than:

  • that the creditor has a duty to perfect the security
  • that the creditor has no duty to enforce the security, and that the authorities left open the question of whether the creditor is under a duty to preserve the security—thus the surety’s right of recourse to the security

They formulated the equitable duty for which they contended as a duty for the creditor:

‘to take such reasonable steps as are required to maintain the surety’s right of recourse to [the] security in the event that the creditor requires payment from the surety without first enforcing its rights to [the] security.’

They contended that GMH had failed to take reasonable steps to protect the security it had been granted and that, as a result, neither of them had any liability to GMH.

GMH contended that the authorities were at one in placing emphasis on the limited scope of the creditor’s equitable duty, which could be summarised as comprising a duty to perfect the security and a duty—when exercising a power of sale—to take

Subscription Form

Related Articles:
Latest Articles:

Already a subscriber? Login
RELX (UK) Limited, trading as LexisNexis, and our LexisNexis Legal & Professional group companies will contact you to confirm your email address. You can manage your communication preferences via our Preference Centre. You can learn more about how we handle your personal data and your rights by reviewing our  Privacy Policy.

Access this article and thousands of others like it free by subscribing to our blog.

Read full article

Already a subscriber? Login

About the author:

Miranda is a solicitor specialising in leveraged and acquisition finance. She trained at Hogan Lovells International LLP and qualified into the international banking and finance team. During her time at Hogan Lovells she worked on a variety of domestic and cross-border transactions, acting for both borrowers and lenders. She also experienced secondments to Barclays Bank PLC and Kaupthing Bank hf.