Destiny 1 Ltd v Lloyds TSB Bank plc

English Contract Law

Destiny 1 v Lloyd's Bank plc
Image: ‘Flower Shop Doorway’ by Tom Nachreiner

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As previously discussed in Crest Nicholson, it is imperative for disputing parties to recognise that the wording of documents, and the terms implied behind them, are not to be misconstrued to the detriment of those seeking justice (as is demonstrated in this brief matter).

When a small business owner found himself in a position to expand upon his success as a retail outlet, he began negotiations with a new bank that had shown an interest in helping him secure an additional property with a view to opening a second store. As there were complex requirements within the proposed arrangement, there needed to be a number of component contracts that would collectively form a single binding contract.

These came in a number of different forms, including several small charges against the properties held under title by the appellant, a guarantee of indemnity for a supplier the appellant had chosen for his new store, and  a re-financing of an existing loan with his current bank, which due to its significant size formed the footing of the agreement, because without it the bank had no means by which to achieve a workable profit.

As part of the pre-contract process, the bank sent a letter that conveyed its agreement to proceed with the package contract, on the proviso that the appellant also agreed to submit to the terms contained within the letter and the actions he was required to undertake prior to their commencement. The appellant duly signed and returned the letter to display his compliance with those terms, but unfortunately for reasons not outlined within the appeal hearing, the bank was unable to proceed with the loan refinancing, and therefore the proposed arrangement could not be realised.

It was this unexpected withdrawal that promoted the appellant to cite that his business had subsequently suffered pecuniary losses through the inability to expand, and that the banks unwillingness to endorse his guarantee to the potential supplier constituted a clear breach of contract.

When given broad and considered thought in the Court of Appeal, it was reiterated that while the bank and the appellant had drawn up a multi-layered agreement to contract, no breach could be found without the complete participation of all the arrangements, for without them functioning as a whole, no such contract could be seen to exist; while the bank’s letter merely outlined that they needed the appellant’s agreement to the terms contained within, and that his acceptance did not by extension, form a binding arrangement. Furthermore, while the bank’s cessation to undertake business with the appellant had left him dissatisfied, there could be no causal link between a failure of the contract to become manifest, and any obstruction of commercial expansion under his own efforts.

Key Citations

“[E]ven if the bank was in breach of contract, it had not caused the loss in respect of which Destiny sought to recover.”

“[T]he law decides whether a contract has come into existence by looking objectively at what each party said to the other, not at their subjective intentions or understandings.”

“There was never any attempt to reach an agreement with Destiny separate from that which was being negotiated with Mr Khalid; the two were inextricably linked.”

Author: Neil Egan-Ronayne

Author, publisher, scholar, researcher, humanist and humble foodie...

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