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Insufficient relationship to create unfair relationship
In Axton and another v GE Money Mortgages Ltd and Money Group (Cornwall) Ltd, another payment protection insurance (PPI) claim, the court had to determine whether an unfair relationship had arisen between the Axtons and GE Money Mortgages Ltd (GE) pursuant to s140A of the Consumer Credit Act 1974 (CCA).
The Axtons had entered into four credit agreements with GE over a four-year period and had acquired PPI for three of the loans. Each subsequent loan had replaced the previous one. The transactions were all conducted through insurance brokers, Money Group (Cornwall) Ltd (MG), with GE having no contact or direct communications with the Axtons. The loans did not include PPI insurance and nor did they require its purchase. MG provided information to GE about the PPI which was supplied by a third party unconnected to GE. The premiums for it were deducted from the loans.
The Axtons claimed the PPI had been mis-sold to them, the commission payable being too high and they claimed an unfair relationship against GE and MG under s140A and 140B CCA.
GE successfully applied to strike out the claim against it on the basis that the Axtons had no real prospect of succeeding on the claim. The Axtons appealed.
The High Court held the facts of this case were very different to those in Plevin v Paragon Personal Finance Ltd. The PPI was not provided by GE or one of its designated providers, the premiums were not added to the amount of the loans but paid out of them and no commission was paid by or to GE in respect of the policies. GE had taken no part in the provision of the PPI as the Axtons had negotiated directly with MG. GE's limited involvement in the PPI transaction - being the payment of the premiums from the loans - was not sufficient to found a "relationship" between GE and the Axtons for the purposes of s140 CCA.
As no commission was paid to or by GE, they had nothing to disclose in relation to commission. The duty to disclose the commission paid to MG by the third party PPI provider lay with MG.
The court found that there was no unfair relationship and the claim against GE remained struck out.
Things to consider
Summary judgment or strike out applications under Civil Procedure Rule 24.2 are not intended to be mini-trials, so are not suitable for many claims. In this case, however, the court found the facts to be uncontroversial and supported by a number of contemporaneous documents so that it had all it required to reach its decision on a summary basis. The Axtons had no real prospects of succeeding on the claim and there was no other compelling reason for a trial. This decision confirms that, in the right case, summary disposal can be considered even in an unfair relationship claim.
Bank discharges burden of proving relationship not unfair
In a further case involving s140A CCA, the court set out a number of factors which indicated that the relationship between the lender and borrower was not unfair.
In Barclays Bank Plc v McMillan, Barclays had lent some $540,000 to the defendant, a US lawyer and partner in a law firm to enable him to provide a capital contribution to the firm. Barclays paid the sum direct to the firm which later became insolvent. Barclays sought to recover the loan from the defendant.
The defendant put forward a number of points in his defence, including that the loan agreement gave rise to an unfair relationship and should not be enforced.
The High Court, in dismissing the defence, set out a number of relevant factors that pointed to the relationship not having been unfair. These factors included:
- The terms of the loan were negotiated on behalf of all (some 220) partners in the firm by the firm's financial officers whom Barclays were entitled to assume were acting in the best interests of the defendant and the other partners.
- The defendant was an experienced and senior partner in a major international law firm whom Barclays could reasonably expect to understand the clear terms of the agreement he signed and the financial implications of doing so. He was not a naïve or vulnerable consumer.
- The loan agreement was a standard agreement for partner capital loan programmes used by many professional firms. There was nothing in its terms that was unusual or unfair.
- The interest rate and tenor of the loan was not unusual or unfair or disadvantageous to the defendant.
- The defendant was under no obligation to enter into the loan agreement with Barclays but was free to enter into other partner capital loan schemes which the firm had negotiated with other lenders, or provide the capital by other means. There was no evidence of duress.
- As the defendant's annual income from the firm was $1.5 million, Barclays was entitled to assume that he could repay the loan.
Barclays was entitled to judgment against the defendant.
Things to consider
When faced with claims of unfair relationship by borrowers, the very nature of the borrower can be highly relevant. The nature of the defendant in this case could not have been more different from the type of borrower that the protection under the CCA is aimed at.
Charge wide enough to cover subsequent loan
In NRAM Plc v Evans and Evans, the defendants obtained a loan from the claimant's predecessor in 2004 (the 2004 loan) which was secured by a mortgage over their property. The terms of the mortgage included that it secured the mortgage debt and any further advances; that the "mortgage debt" meant all the money the borrowers owed the lender from time to time under any offer; and that the mortgage was a continuing security which would not be released until the mortgage debt was paid in full.
In 2005, the defendants entered into a further secured loan with the claimant to be secured by a first legal mortgage (the 2005 loan). The 2004 loan was redeemed out of the 2005 loan.
The borrowers got into financial difficulty and entered into Individual Voluntary Arrangements in which the 2005 loan was referred to as a secured debt. Both defendants were subsequently made bankrupt on their own petitions and their trustees in bankruptcy treated the claimant as a secured creditor.
In 2014, solicitors then acting for the defendants asked the claimant to complete a form DS1 to remove the charge in relation to the redeemed 2004 loan, which was still registered against the defendants' property. Only the 2004 loan and its account number were referred to in that letter with no mention of the 2005 loan, of which the solicitors were unaware.
The claimant's then internal system did not link the 2005 loan to the details of the 2004 loan and as the account number for the 2004 loan showed it had been redeemed, an e-DS1 was sent to the Land Registry and the charge was removed. The error subsequently came to light.
The issues for the court were: whether the charge relating to the 2004 loan was, on its terms, effective to secure the 2005 loan; whether the charge was cancelled by mistake; and whether the register should be rectified to correct that mistake. The defendants contended that the charge only applied to the 2004 loan and the 2005 loan was unsecured.
The High Court held that the wording of the charge did secure the 2005 loan. The charge secured all the money the defendants owed to the claimant under any offers. The wording was sufficiently wide and clear to include the offer under which the 2005 loan was made.
The claimant had made a distinct mistake in issuing the e-DS1 - a mistake which was induced by the terms of the solicitors' 2014 letter and a lack of any reference in it to the 2005 loan. Had the claimant realised the 2005 loan was still secured on the property it would not have issued the e-DS1. The consequences of doing so were serious as the claimant would lose the security for the 2005 loan and the defendants would have an unencumbered property, despite knowing that the 2005 loan was intended to be secured.
The court held it would be unconscionable to leave the mistake uncorrected and the claimant was entitled to be re-registered as proprietor of the charge which secured the 2005 loan.
Things to consider
To invoke the equitable jurisdiction to set aside a voluntary disposition for mistake, there must be a mistake of sufficient gravity either as to the legal effect of the disposition or as to an existing fact which is basic to the transaction. Those factors were all present in this case.
Evidence of ability to pay and timescale required in application to adjourn bankruptcy petition hearing
So held the Court of Appeal in Edginton v Sekhon and another, in which Edginton, a solicitor, appealed a refusal to adjourn the hearing of a bankruptcy petition issued against him by former clients.
At the hearing of the petition, the judge found there was no good reason not to make a bankruptcy order despite various arguments put forward by Edginton. Edginton then offered to pay the debt within a reasonable time and applied for an adjournment of the petition. The judge held that the application was too late and that Edginton could have made such an offer much earlier.
Edginton appealed on the basis that the lateness of his application was irrelevant and the practice that a debtor had to provide evidence to support his contention that he could pay the debt should not be applied in the case of a solicitor owing a small debt; being £1,570 in this instance.
The Court of Appeal held that insolvency actions were class actions, not just debt collection proceedings, and delaying a petition could prejudice other creditors. An adjournment could be permitted, however, if there was a reasonable prospect that the debt would be paid in full within a reasonable time.
There had to be credible evidence to support such an application and delay in making an application was relevant. The debt was three years old in this case. There was a long-standing rule requiring evidence to show the debt could be paid and this applied equally to solicitor debtors. Edginton had produced no evidence to prove he could pay and had provided no timescale for payment.
The Court of Appeal held the judge had been correct in exercising his discretion not to adjourn the hearing.
Things to consider
Creditors are often faced with such last minute applications and promises of payment - many of which are broken. If there is a history of delay and no credible evidence of ability to pay has been put forward, this case should prove helpful in persuading the court not to exercise its discretion to adjourn the hearing of a petition.