Our finance litigation experts bring you the latest on the cases and issues affecting the lending industry.
No requirement to identify name of account for CHAPS
Financial institutions will breathe a sigh of relief following the Court of Appeal's decision in Tidal Energy Ltd V Bank of Scotland Plc. The court has upheld the bank's view that the standard banking practice governing Clearing House Automated Payment Systems (CHAPS) transactions does not require the beneficiary's receiving bank, sort code and account number to correspond with the beneficiary's name.
The facts of the case are set out in our first report on the case in October 2013. In brief, the claimant had instructed the bank to make a CHAPS payment to a named recipient, naming the correct receiving bank but giving an incorrect account number and sort code. In accordance with usual banking practice, the receiving bank did not check the account name against the account number. The money was paid into an account bearing the account number given which was that of an unconnected third party. The claimant sought to recover the sum paid from the bank.
Upholding the first instance decision, the Court of Appeal held that, since 2007, electronic payments, including CHAPS payments, have been processed on the basis of sort code and account number, but not the account/beneficiary's name. Customers who used CHAPS were taken to contract on that basis, subject to contrary express terms.
There was clear and settled practice that receiving banks did not check the beneficiary's name to make sure it corresponded with the other identifiers. There were sound commercial reasons for this, in particular it would slow the system down so that transactions took longer than the standard 1.5 hours.
A remitting bank did not assume responsibility for the accuracy of the name of the beneficiary entered by its customer on the form or the way in which the receiving bank processed its incoming CHAPS payments. It made no business sense to construe the form in any other way.
Things to consider
To have held otherwise would have resulted in the whole process slowing down to enable a name check to be undertaken. This would in effect mean that the remitting bank was guaranteeing that the beneficiary's name and the account number corresponded even though it had no control over the care with which its customer completed that information.
Right to receive written notice of right to cancel contract
The Supreme Court has ruled on the consumer's right to receive written notice of the right to cancel a contract under the Cancellation of Contracts made in a Consumer's Home or Place of Work etc. Regulations 2008 (the Regulations), and found in the consumer's favour.
In Robertson v Swift, Swift had visited Robertson at his home where they had agreed a price for removal services to be provided by Swift. Swift then emailed Robertson an acceptance document and again visited him at his home later that day where the contract was signed and a deposit paid.
Robertson changed his mind two days later and sought to cancel the contract. He refused to pay a cancellation charge and Swift commenced proceedings. Robertson counterclaimed the return of his deposit arguing he was entitled to cancel the contract under the Regulations.
Although initially the lower courts held the Regulations did not apply because the contract had not been concluded during a single visit to Robertson's home, the Court of Appeal held that the Regulations applied if the contract was concluded in the consumer's home, whether or not there had been earlier negotiations between the parties. Swift could not therefore enforce the contract.
However, the Court of Appeal held that the deposit was not refundable because Robertson was not entitled to cancel the contract. As no written notice had been given, the seven-day period in which the contract could be cancelled (as per the Regulations) did not start to run and so the entitlement to cancel had not arisen.
The Supreme Court disagreed, upholding Robertson's appeal. It held that the purpose of the Regulations is to enhance consumer protection and the right to cancel is a central feature of that protection. If the consumer could not cancel because he had not been told of his right to do so, that would run counter to the purpose of the Regulations. If no notice to cancel is given, the consumer can cancel at any time and the trader must bear the consequences of its failure to notify. Here, Robertson could recover his deposit.
Things to consider
A consumer has the right to cancel at any time prior to the expiry of the cancellation period. If notified of the cancellation period, that will be seven days after notification: if not notified, the cancellation period does not expire but the right to cancel has arisen.
Losses recoverable following negligent bank reference
In Playboy Club London Ltd and others v Banca Nazionale Del Lavoro Spa, the claimant sought to recover losses it had sustained following a reference given by the bank for one of its customers.
The reference provided that the customer was "trustworthy up to the extent of £1.6 million in any one week". The customer's cheques were accepted by the claimant (a casino) in reliance upon the reference. The customer ran up gambling debts of £1.25 million in a short period of time and his cheques subsequently bounced. Neither the customer nor his assets could be traced.
The bank argued that the reference had been given by a junior employee, not someone with the authority to giving such references. It also alleged that the reference had not been given to the claimant but an associated company of the claimant and that it therefore owed no duty of care to the claimant. It further alleged that the claimant had been contributorily negligent, or had broken the chain of causation, by accepting self-evidently forged cheques.
The High Court held that when a reference is received from a bank employee, it is taken as a given that the employee has usual or apparent authority to send the letter by reason of their position within the bank unless the circumstances ought reasonably to indicate otherwise. There was nothing unorthodox or informal about the reference given and the claimant had been entitled to assume the employee had the authority to provide it.
The court also held there was no reason to restrict the duty of care to the company making the enquiry. It was a routine request for a reference which was provided without any attempt to restrict liability to just the enquirer. It made no difference to the bank who was to rely upon the reference, it simply knew it was being requested for the purpose of entering into a financial commitment with the customer.
When the reference was provided the customer's account balance stood at nil and so the bank had not exercised sufficient skill and care in preparing the reference and therefore was in breach of its duty to do so.
The bank had taken responsibility for the solvency of the customer up to £1.6 million and had said he was "trustworthy". But for that reference, the claimant would not have taken cheques from the customer and granted the facility it did and the loss would not have been suffered. There was no break in the chain of causation of the claimant's loss and the bank was responsible for it.
The claimant was however contributorily negligent to the extent of 15% as it should have examined the customer's cheques a little more closely which may have revealed the flaws in the cheques and led to them being refused and the loss avoided.
Things to consider
This is another example of the court having to determine which of two innocent parties should be responsible for the consequences of a disreputable third party. This time it was the bank. There had been nothing to put the claimant on notice that the reference was not bona fides, or the person giving it lacked the necessary authority to do so, or that it should have undertaken further credit checks of the customer following receipt of the reference.
Failure to give notice of new CFA arrangements was neither serious nor significant
In an unsurprising judgment, applying the Court of Appeal decision in Denton v TH White Ltd, on relief from sanctions for failure to comply with an order, rule of practice direction, the court has held that failure to notify a defendant of new conditional fee agreement (CFA) arrangements containing a higher success fee was neither serious nor significant.
This was the finding of the High Court following an appeal by the losing party from a master's decision that relief should be granted. In Ultimate Products Ltd and another v Woolley and another, the defendants had entered into CFAs with their solicitors and counsel and the appropriate notice had been given to Ultimate of those funding arrangements. Those CFAs were superseded in the run up to the trial and new CFAs (which included a higher success fee) were entered into but notice of them was not given to Ultimate.
The defendants succeeded in their claim and sought recovery of their costs including the success fee under the CFAs. Ultimate argued they were not entitled to them as they had failed to give notice of them and an automatic sanction applied, to the effect that the defendants were not entitled to the success fee for the period that notice had not been given, unless the court ordered otherwise.
The High Court held, applying the guidance given by the Court of Appeal in Denton v TH White Ltd, that the failure to comply was neither serious nor significant, did not imperil future hearing dates or disrupt the conduct of this or any other litigation.
Ultimate had been aware from the earlier notice that the case was funded by way of CFA. They did not know, and had no right to know, the level of the original success fee and they would have been in no better position had notice of the subsequent CFAs been given. Compliance would have made no substantial difference to Ultimate. There was no reason why the court should deem significant or serious a failure that was not significant or serious. It was in reality a slip, mistake or oversight and should be treated as such.
Relief should be granted and the success fee was in principle recoverable.
Things to consider
Given the fact that notice had been given of the earlier CFAs and that the information that must be provided in the notice is very limited, the paying party here had suffered no prejudice by the error in failing to give the further notice.
Pre-action protocol for debt claims
This month, the Ministry of Justice is consulting on a proposed pre-action debt protocol which will apply to all debt claims brought by businesses against individuals (including sole traders). The early indication is that it may come into force in early 2015.
The protocol sets out the conduct the court expects parties to engage in prior to the commencement of proceedings. The proposed protocol aims to ensure that debtors are provided with sufficient information to enable them to obtain advice on their position prior to the issue of a claim. The protocol requires the parties to:
- provide all necessary information up front
- consider alternative dispute resolution (ADR)
- act in a reasonable and proportionate manner (especially in relation to incurring costs)
- settle claims without issuing proceedings where possible
- efficiently manage those claims that cannot be settled.
It provides that a creditor should send a pre-action letter of claim to the debtor setting out the amount of the debt (including interest and charges) and any payments made. Copies of any written contract, or details of an oral contract, notices of assignment and the protocol itself should be provided as should details of how payment can be made. The creditor should provide its contact details so payment options can be discussed. The letter should also include a specifically worded notice explaining to the debtor the consequences of failing to respond and what actions the parties are required to take.
A pro-forma letter of response for the debtor to complete should also be included. This gives the debtor the option to admit all or part of the debt (and make proposals for payment), deny it, or put forward a defence. The creditor should allow the debtor 28 days to respond - or longer if notified that specialist debt advice is being sought.
If the debt is disputed, both parties should exchange sufficient information and documentation to enable them to understand each other's position. Some form of ADR (discussions, mediation, complaint to the Financial Ombudsman Service) should also be considered and costs penalties may be imposed by the court subsequently for failure to do so.
Failure to comply with the protocol - other than in a minor or non-technical manner - may result in the court staying (suspending) the proceedings until compliance occurs and/or ordering costs against the non-compliant party or depriving it of costs it would otherwise have recovered.
If, having complied with the protocol, settlement is not achieved the creditor should give the debtor 14 days' notice of its intention to commence proceedings.
Things to consider
The letter from the Ministry of Justice sending the draft protocol to consultees - for consultation on the content, not the principle - confirms that concerns have already been raised by creditors on the proposed protocol.
Concerns include the expense that will be incurred in complying with the requirement to provide details of the contract and statements of account in every case when many are not defended; the delay caused by allowing the debtor 28 days in which to respond; and the requirement to consider ADR, although this is a general requirement of all pre-action protocols.