Our finance litigation experts bring you the latest on the cases and issues affecting the lending industry.
Treating unregulated agreements as regulated proves costly
Failure to differentiate between regulated and unregulated consumer credit agreements and treating them in the same way led to incorporation of the rights and remedies available under the Consumer Credit Act 1974 (CCA) into the otherwise unregulated agreement.
So held the High Court in NRAM plc v McAdam and others. The claimant's predecessor, Northern Rock Building Society had, prior to April 2008, entered into a substantial number of unsecured credit agreements over the then CCA threshold sum of £25,000, which made them unregulated agreements under the CCA.
Despite the agreements being unregulated, the claimant used the same documentation for both regulated and unregulated agreements and treated the unregulated agreements as if they were regulated. This included, from October 2008, sending borrowers periodic statements as required by s77A CCA for regulated agreements for fixed sum credit.
However, the statements it sent in relation to both regulated and unregulated agreements were deficient and failed to comply with the prescribed requirements of s77A CCA. Failure to meet the requirements meant a borrower would not be liable to pay any interest or default sum in respect of the period of non-compliance.
The claimant sought a declaration as to whether the rights and remedies under the CCA including s77A CCA, or protections equivalent to such rights and remedies, were imported into the unregulated agreements, notwithstanding that they fell outside the statutory scheme.
The court found, on a proper construction of the loan agreements, that they were to be treated as regulated agreements and the defendants had been given the rights under and benefits of the CCA, despite the agreements being unregulated. The court found that this had been the shared assumption between the parties. The rights and remedies in relation to s77A CCA had been imported into the agreement. The claimant was in breach for issuing statements that did not comply and in failing to repay or re-credit interest or default sums paid during the periods of non-compliance.
Things to consider
This was a test case for the claimant. As contractual interpretation and arguments of estoppel all went against the claimant it can expect to make payment to a substantial number of other borrowers (the judgment suggests some 41,000) where the documentation was in the same format. We understand, however, that the claimant is seeking leave to appeal.
The court expects explicit wording if a bank intends to give up its security rights
This was the finding of the High Court in Ahmad and Ors v Bank of Scotland PLC and Ors. The claimants' companies had entered into a loan agreement with the Bank under which various properties were charged. Difficulties arose and the total borrowing subsequently exceeded the value of the properties. Discussions about refinancing took place.
The claimants alleged that, in the discussions with the Bank's manager, it had been agreed that the claimants would sell one property to reduce the debt, in exchange for which the Bank would suspend its power of sale over the properties. The document that was sent to the claimants, and signed by them, following those discussions did not reflect this alleged agreement.
It provided that the debt in respect of a specified property was to be repaid fully by a specified date, failing which the claimants were to market the property, use the proceeds to reduce the debt and receivers would be appointed in default. Receivers were subsequently appointed over all the properties.
The claimants argued the Bank was in breach of agreement as it had not yet sold the identified property and the written agreement had to be considered in light of the discussions and agreements with the manager.
The court held that the written agreement dealt only with one property and the Bank had other rights regarding the other properties. The written agreement was silent about those other assets. If the Bank had intended to give up its security rights for as long as the debt was due, it would have said so explicitly in the written agreement. The claimants had not raised an issue with the fact that it didn't.
Suspending a right to intervene until a specified date did not prevent intervention thereafter. It was not seriously arguable that the written agreement related to the other properties. It was inherently implausible that a bank would agree to forfeit the ability to appoint a receiver on demand and there was no evidence to suggest it had done so. The court considered the claimants' claims to be hopeless.
Things to consider
This is not an unusual scenario for a lender to find itself in with desperate borrowers. Clear documentation is always the best defence to such allegations but the court will also bear in mind the inherent implausibility of the lender forfeiting security when it is not in its commercial interest to do so.
Valid retainer? It might be worth asking the question
If the party to whom legal costs are to be paid following settlement or trial does not have a valid conditional fee agreements (CFA) retainer with its solicitor, no costs will be payable.
In Scott v Hull & East Yorkshire Hospitals NHS Trust, the claimant's solicitors lodged a bill of costs for detailed assessment totalling £112,000 based on a CFA providing for payment at £400per hour and including a100% uplift.
Shortly before the assessment hearing, an amended bill was filed, reducing the hourly rate to £146, the uplift to 54% and the total to £36,000. At the assessment hearing it came to light for the first time that two CFAs had been entered into. This had not been disclosed when the question was raised in the points of dispute.
The hearing was adjourned and the court asked the claimant's solicitors to disclose either the two CFAs or produce other evidence to confirm there was an entitlement to a success fee. The solicitors chose to rely on a witness statement from a solicitor who had not been involved with the file at the time the CFAs were entered into, and did not disclose the CFAs.
The county court considered the failure to refer to the second CFA to be misleading and inappropriate. The court was not satisfied that the signature of compliance on the bill of costs could be relied on. The original bill had been mis-certified in a number of ways including not referring to the discounted hourly rate which had only been rectified after objection. Any doubt about the validity of the CFAs had to be resolved in the paying party's favour.
If the court was not satisfied that there was a valid retainer, there was no right to recover costs, save for disbursements. The court wasn't so satisfied in this case and the costs were assessed at £0 or whatever disbursements had been paid.
Things to consider
Many claims issued prior to April 2013 against finance companies will have been funded on a CFA basis and will still be working their way through the system. In the appropriate case, it is worth challenging a receiving party's retainer if there is evidence to suggest that it is not valid. Discrepancies in the bill, inadequate replies to points of dispute and a refusal to disclose the CFA may all indicate there is an issue.
Although a privileged document, most CFAs will include a clause to the effect that the funded party will waive its privilege in the document if disclosure of the CFA is required in subsequent assessment proceedings. Here, privilege was maintained, there were a number of flaws in the bill and the lack of evidence being given by someone involved in the case at the time the CFAs were entered into all combined to create sufficient doubt in the court's mind as to the validity of the retainers.
Post judgment freezing order
Where there is solid evidence of a real risk of dissipation of assets the court will continue, or grant, an interim worldwide post judgment freezing order.
In SPL Private Finance (PF2) IC Ltd and others v Farrell, the claimant had obtained a post-judgment worldwide freezing order without notice. At trial, the claimant had successfully established that the defendant had dishonestly assisted a Guernsey company's breach of fiduciary duty, breach of contract and negligence in relation to various investment management agreements it had entered into with the claimant.
The defendant was the chief executive of the Guernsey company. The defendant sought leave to appeal the judgment and execution of the judgment was stayed pending the determination of that application.
The claimant applied for the freezing injunction to continue as there was a real risk of dissipation of the defendant's assets. It relied on the very strong findings of dishonesty in relation to the dishonest assistance; adverse credibility findings in relation to the defendant's evidence at trial; the placing of assets into trusts; and the transfer of shares for no consideration.
The defendant argued that as there was a stay of enforcement and pending the hearing of the leave to appeal application, it was not just to continue the injunction and there was no need for it. He also argued that the transfer of shares had been for proper tax efficiency reasons and as he only had few assets, he was not likely to dissipate them.
The High Court held that there should be a real risk of dissipation in order to continue the freezing order. Mere suspicion was not enough. A finding of dishonesty, without that dishonesty justifying an inference of dissipation, was insufficient.
The court did not accept that the grant of a stay of execution provided an overarching reason why the freezing order should be set aside. The purpose of the freezing order was to preserve assets pending the execution process. Although the stay held up that process, the underlying need to preserve the assets remained.
There was sufficiently strong evidence in this case, based on the findings against the defendant in the underlying proceedings, to enable the court to draw an inference of intention to dissipate such that the freezing order should continue.
Things to consider
When considering whether there is evidence of a real risk of dissipation of assets the court will take into account, among other things:
- the ease with which the assets can be moved out of the applicant's reach;
- the ease of enforcement if the assets are overseas;
- whether the respondent has the skills and experience to move assets;
- whether any adverse inference is to be drawn from the respondent's incorporation in a tax or finance haven;
- as well as evidence of dishonesty.
Getting the right defendant
In Kommalage v Sayanthakumar, S brought proceedings against a firm of solicitors in relation to bills of costs dated 2006 and 2007, and their detailed assessment. He obtained a costs order against the firm in relation to those proceedings in 2012. He then issued a statutory demand against K in respect of the costs order.
K was a partner in the firm in 2012 when the costs order was made but was not a partner in the firm in 2006/2007 when the original bills were rendered. K's application to set the statutory demand aside failed, as did his appeal from that decision. Those decisions turned on whether K had admitted in his statement of case to being a partner at the relevant time (Civil Procedure Rules practice direction 70.6A.2(3) or (4) (CPR PD 70.6A)).
The Court of Appeal overturned the earlier decisions and set aside the statutory demand. The real issue was whether K was a partner at the time the cause of action accrued, not when the costs order was made. He was not and the costs order was not therefore made against him and could not be enforced against him.
Costs orders could only bind, and be enforced against, those parties to the action against whom it was made. The procedural provisions under CPR PD 70.6A were not relevant and could not affect K's liability. K was not liable and the statutory demand was set aside.
Things to consider
Legal standing at the time the cause of action accrued is the issue and this is not determined by the way in which a party incorrectly acknowledges service of proceedings or refers to him or herself in a defence - although a claimant could not be criticised for pursuing a defendant on that admitted basis.
Substantial increase in court fees for claims over £10,000
The Ministry of Justice published its response to part two of the consultation "Court Fees: proposals for reform" on 16 January.
It has confirmed that it intends to introduce enhanced fees for money claims of £10,000 and over. The fee will be 5% of the value of the claim for claims over £10,000, with a maximum fee of £10,000 (the fee payable on claims of £200,000 and over).
It is worth noting that:
- This will apply to both specified and unspecified money claims.
- Where the claimant does not identify the value of the claim when starting proceedings to recover a sum of money, the fee payable is the one applicable to a claim where the sum is not limited i.e. £10,000.
- Where the claimant is making a claim for interest on a specified sum of money, the amount on which the fee is calculated is the total amount of the claim and the interest.
- This fee structure is to apply equally to counterclaims.
- There will continue to be a 10% discount on these enhanced issue fees where the claim is initiated electronically using the Secure Data Transfer facility or Money Claims OnLine.
- Fees for claims of less than £10,000 (which apparently represent over 90% of money claims) will remain at their current levels.
- It is proposed that these enhanced fees will come into force on 1 March 2015.
Anyone on the brink of issuing proceedings may want to issue sooner rather than later to avoid the increased costs.
New thresholds for bankruptcy and debt relief orders
The government has also proposed new economic thresholds for individuals entering bankruptcy or applying for a debt relief order (DRO).
The threshold for creditors petitioning for an individual's bankruptcy will be £5,000, rather than £750 as at present.
In addition, individuals will be eligible for a DRO if:
- they owe up to £20,000, rather than £15,000 as at present,
- they have assets worth up to £1000, rather than up to £300 as at present, and
- they have a maximum monthly surplus income of £50, the same figure as at present.
The draft statutory instrument indicates that the £5,000 threshold will apply only to petitions presented on or after 1 October 2015.