Our finance litigation experts bring you the latest on the cases and issues affecting the lending industry.
Robust risk assessment meant investment advice was correct
Losses from the sale of an investment portfolio were not recoverable from a bank where the investors' risk profile had been properly assessed, had not changed, and the portfolio invested in had properly reflected the risk they were prepared to take.
In Worthing v Lloyds Bank Plc, the claimants invested £700,000 in an investment portfolio provided by the bank. The bank undertook a robust risk assessment to determine the claimants' attitude to risk, following which they invested in a medium-risk balanced portfolio. By the first annual review in March 2008, the investment had reduced in value a little. The claimants sold the portfolio in July 2008 to pay off a mortgage and suffered a loss on the investment which they sought to recover from the bank.
The claimants alleged that the bank had been in breach of contract and/or negligent in:
- advising them to invest in the portfolio initially when they only wanted a low-risk portfolio and had not understood the nature of the risk they took;
- subsequently failing to comply with their ongoing contractual obligation to correct that initial incorrect advice;
- failing to undertake a further risk assessment at the review meeting; and
- failing to advise the claimants to dis-invest in the portfolio following the review meeting.
The claim in relation to the original advice was time barred but the claims in relation to failure to correct the advice and not to dis-invest were pursued.
The High Court dismissed the claim. It held that the claimants had wanted to invest in a balanced profile portfolio and that is what they had obtained. The bank had used standardised documentation to determine and explain the risk, which had been properly applied and which the claimants had understood. The initial advice was not incorrect and so there was nothing for the bank to correct. There was no continuing duty with regards to the initial advice.
There was no contractual obligation to carry out a further risk assessment at the first year review and the court found the bank had conducted the review with reasonable skill and care and in accordance with Conduct of Business Sourcebook Rules. The bank had not failed to advise that the portfolio was no longer suitable as the claimants' investment objectives had not changed. The bank had acted reasonably in giving the advice not to make an immediate decision to sell. It had been the claimants' decision to do so because they needed to repay a debt which had not existed at the time the investment had been made.
Things to consider
Although the claimants had not previously invested in financial products, they understood the implications of exposure to financial markets. The bank's risk assessment had entailed a robust method of probing and assessing the claimants' attitude to risk which was reflected in the particular portfolio.
After acquired property - what does a trustee need to know?
Property acquired by a bankrupt after the commencement of his/her bankruptcy (after acquired property) can be claimed by the trustee in bankruptcy pursuant to s307 Insolvency Act 1986 (IA) for the benefit of the estate. Notice of intention to claim such property must be served within 42 days of the trustee knowing the property has been acquired. The court has recently confirmed the level of knowledge of acquisition that is required to start time running.
In Right Honourable Rhodri Viscount St Davids v Barry Lewis (trustee in bankruptcy), St Davids was made bankrupt in June 2002. A notice pursuant to s307 IA was served on 19 May 2009. St Davids did not immediately object to the notice and the property was transferred to the trustee. However, over five years later St Davids claimed the notice was out of time. Pursuant to s309 IA, such a notice cannot be served more than 42 days after the trustee first has knowledge that the property has been acquired by, or has devolved upon, the bankrupt. St Davids alleged the trustee had the relevant knowledge between November 2006 and December 2008.
Upholding the first instance decision, the Chancery Division held that St Davids had conspicuously failed to comply with his statutory duty under s333(2) IA to notify the trustee of after acquired property and indeed had expressly denied the existence of such property in two bankruptcy questionnaires. A trustee in cases such as this, with an uncooperative, non-disclosing bankrupt, should be held to have first acquired knowledge of an acquisition only when it became clear to him on cogent evidence verified to his reasonable satisfaction that the property in question had been acquired by the bankrupt and was so acquired after the commencement of his bankruptcy. Actual knowledge of facts and not mere claims or allegations is required. The onus is on the bankrupt to prove, on a balance of probabilities, that that knowledge was acquired more than 42 days before service of the notice.
The trustee had only obtained the required knowledge in April 2009 following production of documents pursuant to a court order establishing that there was after acquired property being held by a third party as nominee for St Davids. The notice had therefore been served in time.
Things to consider
The court will be slow to accede to a self-serving claim by a bankrupt that the trustee's date of knowledge was significantly earlier which would have the convenient result, if successful, that the s307 IA notice was served out of time and the property would be excluded from the bankrupt's estate.
Court considers when ownership is transferred by gift
The court has recently had to determine whether certain assets belonged to a bankrupt at the commencement of his bankruptcy (so forming part of his estate for the purposes of s283(1) of the Insolvency Act 1986) or whether they had been previously gifted to his family.
In Wood v Lowe and others, the bankrupt had debts exceeding £2.6 million but claimed he had no material assets. A dispute arose as to ownership of certain items that the bankrupt had owned, including some Beatles memorabilia which had not been declared in the bankruptcy and which the bankrupt's wife and daughter claimed ownership of. That memorabilia had been offered for sale for some $160,000 sometime after the bankruptcy.
It was the bankrupt who had been the Beatles fan and had had the wherewithal to acquire the items and build a collection. It was alleged that the items in question had been gifted to the bankrupt's daughter. For ownership to have transferred, there had to be an intention on behalf of the donor to make a gift and for there to be delivery of the gift to the donee. The bankrupt alleged that the items had been gifted through words and the recipient had touched the items. Was that enough to transfer ownership?
The High Court said no. It did not accept that there had been an active decision taken to give the items to the bankrupt's daughter. They had remained in the same location and had never gone into the daughter's possession. Simply touching the items to show transference of ownership was not enough to do so. Even if words expressing a gift had been used, which the court did not accept, it held that there had been no transfer of control which was required. The items remained part of the bankrupt's estate.
Things to consider
To transfer ownership by gift, there must be an unequivocal act of delivery. Where the donee is in actual possession a declaration that the item is gifted is sufficient but where they are not, more is required.
No triable issue to justify setting aside statutory demand
In Dunbar Assets Plc v Butler, Butler entered into personal guarantees in favour of Dunbar in relation to loans between Dunbar and two companies in which he was involved. In 2013, Dunbar made written demands upon the companies and then sought to enforce the guarantees against Butler for the shortfall. Dunbar issued a statutory demand which Butler successfully applied to set aside.
Butler argued that the guarantees were not enforceable and/or there was a promissory estoppel in that Dunbar had represented that if Butler continued to work for the companies in an unpaid management capacity any enforcement action under the personal guarantees would be postponed indefinitely. Dunbar denied such representations had been made but the registrar held that the evidence needed testing at trial and so the statutory demand should be set aside.
Dunbar appealed on the basis there was no triable issue as required under the Insolvency Rules 1986. An indefinite postponement as alleged by Butler could not amount to a promissory estoppel as the very words indicated a temporary and uncertain duration.
The High Court held that even if there had been a representation as to indefinitely postponing enforcement action, it was only intended to apply while Butler continued to work on behalf of the companies. It was no more than a temporary indulgence or concession, was equivocal and did not affect existing legal relations. It could not mean that Butler could unilaterally prevent the taking of enforcement action by continuing to work for the companies, even if Dunbar made it clear that such work was not required. Once Butler had ceased work, which he had, or a reasonable period of notice of termination of the concession had expired, any continuing reliance on any representation ceased and any period of suspension came to an end. There was no estoppel that precluded the lender from enforcing thereafter.
The court found that the alleged representation was not capable of giving rise to an estoppel. There was no genuine triable issue and the decision to set aside the statutory demand was reversed.
Things to consider
Any postponement of rights to enforce the guarantee applied only for so long as the duration of the arrangement and when that ended, whether by notice or otherwise, the rights were available to Dunbar. There had been nothing unconscionable in Dunbar seeking to enforce its security.
Court takes dim view of exaggerated claim
The court has severely punished a claimant in costs for wholly exaggerating his claim.
In Worthington v 03918424 Ltd, the claimant claimed approximately £500,000 for injuries sustained. The defendant accepted liability but had concerns with regards to causation and so arranged for some surveillance of the claimant. Following that, in May 2014, the defendant made an offer of £40,000 under Part 36 of the Civil Procedure Rules (CPR). Following a review of the surveillance evidence, the experts found they could no longer support the claimant's claim. The surveillance evidence and the revised experts' reports were served on the claimant who then accepted the Part 36 offer out of time i.e. after the end of the relevant period.
Under the terms of Part 36 (10)(5) in force at the time of acceptance, where an offer is accepted after the end of the relevant period, if the parties cannot agree the liability for costs, the court will make an order as to costs. The usual order in such a case is that the claimant will receive its costs on a standard basis until the end of the relevant period and the offeree (the claimant in this case) is responsible for the offeror's costs (the defendant here) from that date until the date of acceptance, unless the court orders otherwise.
Here, the court did order otherwise. The court had to have regard to all the relevant factors, including under the general costs provisions of CPR 44, which included the issue of exaggeration.
By accepting the sum of £40,000 in relation to a claim of £500,000, the court drew the inference that the claimant accepted his claim was extremely exaggerated and this was enough for the court to make a different costs order. The court considered that if the claim had not been exaggerated, it would probably have been resolved by the end of June 2012.
The court ordered that the claimant was entitled to his costs on the standard basis up until that time but should pay the defendant's costs thereafter which should be assessed on the indemnity basis due to the clear exaggeration of the claim. All of the surveillance costs were to be paid by the claimant.
Things to consider
Not having accepted the offer within the relevant period, the claimant had put himself at risk of an argument on costs. The court made it clear that the award of costs against the claimant was to show that exaggeration of claims would not be tolerated by the courts.
Although this was a personal injury case, the underlying principle also applies to commercial claims the value of which have been wholly exaggerated throughout, and not merely overstated at an early stage of the proceedings, and which, as a result, prove impossible to settle at an early stage.