Shukla v St James Bank & Trust Company Ltd - When Banks Refuse Repayment Of A Loan - Paul Downes KC & Max Davidson

OVERVIEW

Yesterday (14th April 2026) the Commercial Court handed down judgment in the case of Shukla v St James Bank & Trust Company Ltd [2026] EWHC 851 (Comm) on the Claimant’s claim for summary judgment and an interim payment in respect of damages. The case concerned a claim by a borrower against a bank for wrongly refusing to accept repayment of a loan, which was secured by certain listed shares. The Claimant claimed that he was entitled to repay the loan and redeem the security following an event of default. The Claimant claimed damages of US$15m caused by a fall in the value of the security after the Bank had refused to allow him to repay the loan and redeem his security following an event of default.

The Bank argued that the terms of the loan, in particular its provisions relating to events of default, excluded the equity of redemption upon the occurrence of an event of default, such that the loan agreement was terminated and it was entitled to retain the security notwithstanding that its value exceeded the amount of the loan. The Bank’s case was based on the assertion that the loan documentation amounted to a sale and repurchase agreement as opposed to a loan supported by security, and therefore the terms of the loan did not violate the rule prohibiting clogs on the equity of redemption. The Bank also contended that, even if it was wrong, there was no duty on a lender to cooperate in the repayment of a loan in any event, such that it could not be liable in damages in respect of the fall in the value of the security.

The Bank’s stance, if correct, would mean that it would have been entitled to retain full ownership of shares worth around $15m, rather than receive repayment of a loan of about US$2m, without having to account for the surplus. This is the first of a number of cases before the Courts at the moment which raise the efficacy of loan structures that seek to limit or exclude the equity of redemption.

The Judge, Mr Nigel Cooper KC (sitting as a Deputy High Court Judge), considered a line of authorities dealing with the proper approach to the construction of an agreement to determine whether it is a secured loan agreement (to which the doctrine of clogs on the equity of redemption would apply) or a sale and repurchase agreement (to which the doctrine would not apply). Having considered those authorities, the Judge concluded that the agreement was, on its true construction, a loan supported by security as opposed to a ‘Repo’. Thus, the Bank’s terms which purported to exclude the Claimant’s equity of redemption were void.

The Judge further held that there was an implied duty on the bank to cooperate in the repayment of the loan explaining the apparent tension in the authorities concerning this point and its interrelationship between the doctrine of tender and a redemption action (Bank of New South Wales v O’Connor (1889) 14 App Cas 273; Shearer & Ors v Spring Capital Ltd [2013] EWHC 3148 (Ch); Swallowfalls Limited v Monaco Yachting & Technologies S.A.M. & Anor [2014] 2 Lloyd’s Rep. 50; Çukurova Finance Ltd v Alfa Telecom Ltd (No. 4) (PC) [2016] AC 923; St. Vincent European General Partner Ltd v. Bruce Robinson & Ors [2018] EWHC 1230 (Comm); and Houssein v London Credit Ltd [2025] EWHC 2749 (Ch)). Accordingly, the Judge found that the Bank was in breach of contract in failing to cooperate in the repayment of the loan, and the Bank was liable in damages.

Therefore, the Judge granted summary judgment to the Claimant and made an order for an interim payment on account of damages (provisionally assessed at US$5 million), with the amount of damages to be assessed.

Paul and Max acted for the successful Claimant and were instructed by Preston Turnbull LLP.

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