A bank has no "fiduciary responsibilities" towards its customer and acts in "a purely contractual relationship", Royal Bank of Scotland is set to tell an Edinburgh court hearing.
In another fall-out case from the property crash, state-owned RBS is suing Edinburgh-based developer Leonard Wilcox, 69, for two personal guarantees totalling £467,000 tied to an aborted land sale in Edinburgh's upmarket Barnton area.
In court pleadings, Mr Wilcox alleges the bank took instructions from a "shadow director", processed £2.4 million of loans via unsigned CHAPS forms against the company's instructions, took an unauthorised security from a third party, deducted the company's last £65,000 from its account without justification or authorisation, and coerced his company to borrow an additional £315,000, all in order to complete ownership of the site by his company Bayfield as property values were collapsing.
RBS had promised continued support for Bayfield, but once the company owned the whole site the bank placed it in administration. The bank's property arm West Register then bought the site from the administrators at a knockdown price.
Solicitor Cat McLean at MBM Commercial said: "We say RBS acted in bad faith towards the company, and also breached its duty to take reasonable care for the company, as a result of which the personal guarantee should not be enforceable."
RBS, however, says in pleadings that "no such fiduciary responsibilities arise as a generality in the banker-customer relationship", the specific circumstances of the Bayfield relationship did not infer their creation, and their contract did not imply any terms relating to skill or competence.
A second day of legal argument is now due in Edinburgh Sheriff Court next week on whether care or good faith forms part of the banking relationship.
Bayfield stood to make a £2m profit from selling the site at Barnton, which had five houses on it but an outline consent for redevelopment.
After a deal to sell the site to a bigger developer for £5.3m fell through in early 2008, RBS initially encouraged Bayfield to accept a £1.6m "development loan" to proceed with the purchase of two of the five houses, even though Bayfield wished only to sell the site on to a new buyer.
Mr Wilcox then told the bank not to proceed with any further purchases.
However RBS took instructions from a finance company, and used undated CHAPS forms to draw down money from the bank into Bayfield's account to buy two more properties.
It obtained £100,000 of new security from the finance company, then deducted Bayfield's last remaining £65,000 from its bank account as further security, all without instructions from Bayfield's directors.
In July 2009 Bayfield was transferred to RBS's global restructuring group (GRG), with its £3.6m of loans backed by the value of the site.
"By late 2009 the value of the site was re-assessed by Shepherds at £3.6m," according to the pleadings. But at the same time Graham & Sibbald, the surveyors used by GRG, produced a valuation of £1.2m.
The fifth house on the site was owned personally by Mr Wilcox. In October 2009, the bank "made it very clear" that Mr Wilcox "would have to sell his property to Bayfield for the sum of £315,000", the bank having originally agreed to pay him £580,000 for the property a year earlier.
In January 2010, a bank e-mail warned Mr Wilcox that " if the proposal was not agreed by the following day the pursuers would take appropriate action", showing that he was "threatened and coerced" into the deal, the pleadings say.
Ms McLean said: "We are arguing there is an implied term in the contractual relationship, that the bank would exercise the level of skill and care to be expected of an ordinarily competent banking organisation, and that in this case the bank failed to do so." The guarantee also implied that the bank as creditor "must act fairly and in good faith towards the principal debtor".
A spokeswoman for the bank said: "RBS is committed to fair treatment of its customers as a matter of principle. We believe RBS has acted fairly towards Mr Wilcox in all its dealings with him. RBS's pleadings merely reflect the laws of Scotland and do not impact the above-mentioned commitment."
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