Appeal dismissed as bank entitled to alter method of loan interest calculation in response to changed market conditions

The Court of Appeal dismissed an appeal from the High Court, affirming the decision that a bank was entitled to change the method for calculating the interest rate on a commercial loan agreement from a rate linked to the Euro Interbank Offered Rate (EURIBOR) to a rate based on the bank’s own cost of funds. The appeal arose after the borrowers challenged the bank's unilateral change in 2011, arguing that such a change was not permitted under the original loan contract agreed in 2009. The key issue was the interpretation of a clause giving the bank 'absolute discretion' to change the method of interest calculation. The Court of Appeal concluded that while the bank's discretion was not unlimited, it could make such changes in response to changes affecting it, such as rising funding costs, and the relevant clause did not restrict changes solely to those following alterations in 'market conventions'. As there had been a genuine change in market conditions, and the contractual terms were sufficiently clear, the court found in favour of the bank and upheld the original High Court order.