Gowling WLG's finance litigation experts bring you the latest on the cases and issues affecting the lending industry
The Court of Appeal considers 'reasonable adjustment' in the context of possession proceedings
The first case in which the Equalities legislation has been raised as a defence to a mortgagee's claim for possession has recently been before the Court of Appeal.
In Southern Pacific Mortgage Ltd v Green, Green appealed against a possession order on the basis that the claimant lender had discriminated against her under s19(1)(b) and s21(1) of the Disability Discrimination Act 1995 (DDA). She asserted that by failing to make reasonable adjustments to its practice or policy in providing its services, the claimant had made it impossible or unreasonably difficult for her as a disabled person (a person suffering from depression) to use the claimant's financial services which it provided to other members of the public.
Green had entered into a fixed term repayment mortgage with the claimant but having got into repayment difficulties requested it be converted to an interest-only mortgage which the claimant refused to agree to. Green's insurance policy and then DWP payments had been sufficient to cover the monthly interest. However, it was the claimant's policy not to allow any borrowers to convert repayment mortgages to interest-only accounts whether on a temporary or permanent basis (the no-conversion policy).
It was the lender's refusal to accede to her request that Green alleged was in breach of the DDA. She argued that the request to change to an interest-only mortgage was a reasonable adjustment to the claimant's policy which the claimant should have made. Its refusal to do so made it impossible or unreasonably difficult for disabled persons to make use of the (mortgage) service.
The Court of Appeal, upholding the decision at first instance, disagreed. It held that the service to which the provisions of the DDA applied should not be broadly defined as 'the provision of all possible kinds of mortgage' but should be defined more narrowly as 'the provision of a particular type of mortgage, namely a repayment mortgage'. Green had been able to access that service. The provision of an interest-only mortgage would have been a different service, with a different loan and a different and uncertain security. The two types of lending had different commercial and regulatory considerations.
The court also found that, in any event, the claimant's no-conversion policy applied to existing repayment mortgagors, whoever they were, whether disabled or not, and so it was no more impossible or unreasonably difficult for disabled people to access it when compared to the access offered to other members of the public. There was therefore no need to make any adjustment to bring about an equality of result as the policy applied to all.
Further, the court held that it would not have been reasonable to require the claimant to adjust the no-conversion policy to offer disabled persons an interest-only mortgage. This would impose a riskier, more unsatisfactory repayment vehicle and a lesser form of security in circumstances where that was not the way in which the claimant conducted its business. It would have fundamentally altered the nature of the service provided.
Things to consider
Although this case was argued by reference to the provisions of the DDA, there is no meaningful difference between the relevant provisions of the DDA and those of the Equality Act 2010. It is a useful case for lenders as it provides some clarification as to the extent of the steps that need to be taken to make a 'reasonable adjustment'.
Basis clauses and unfair relationship claims
The High Court has recently considered whether basis clauses, i.e. those defining the scope of the contractual relationship between the parties, were exclusion clauses or gave rise to an unfair relationship.
In Carney and others v N M Rothschild & Sons Ltd, the defendant bank entered into loan agreements with the claimants to enable them to invest in a fund designed to avoid the Spanish equivalent of inheritance tax. The claimants engaged an independent financial adviser (IFA) who advised on the fund. The loan agreements were headed with an 'important notice' advising the claimants to seek independent legal and tax advice. The agreements also provided that the offer was being made on the basis that the bank made no recommendations as to the suitability, quality or future performance of the investments, that the lender acted as provider of finance only, had not provided any advice as to legal, investment or tax matters and that no reliance had been placed on any representations made by either party (the basis clauses).
The investments underperformed and the claimants issued proceedings under ss140 A and 140 B of the Consumer Credit Act 1974 (CCA) claiming an unfair relationship had arisen out of the loan agreements. They alleged that the bank had given negligent advice as to the suitability and risks of the investment and made serious misrepresentations about the investments and their tax implications. They also argued that the basis clauses also gave rise to an unfair relationship and so could not be relied on by the bank. They sought to be released from the loans and for the security they had given to be discharged.
The High Court found there had been no unfair relationship or actionable representations. The court found that the bank had given no material advice, had not assumed the role of adviser and had not been paid any commission for any advice. The claimants had had an IFA whose role it had been to advise on the scheme and who had received commission. The basis clauses delineated the scope, or basis, of the parties' relationship and gave rise to contractual estoppels as the parties had agreed that no advice had been given or representations made.
The language of the basis clauses in this case made them distinguishable from exclusion clauses as they were not seeking to exclude liability that may exist but were providing that no advice was being given that could give rise to any liability. They were not, therefore, subject to the test of reasonableness under the Unfair Contract Terms Act 1977 (UCTA) (now replaced by the Consumer Rights Act 2015 (CRA) as far as consumers are concerned). The court considered that, even had the clauses been exclusion clauses, they would have been manifestly reasonable. Even though the clauses were outside UCTA, they could still be considered under s140 CCA and give rise to an unfair relationship but there was no reason to conclude that they were unfair in this instance.
Things to consider
It is understood that this is the first time the issue of basis clauses has been considered in the context of an unfair relationship claim. The ability to distinguish between a basis clause and an exclusion clause (and so whether it is caught by UCTA or the CRA) may not always be easy and will depend on the wording used and other evidence available to show the true contractual relationship.
Judgment creditor's right to enforce held to be paramount
The Court of Appeal has upheld a High Court decision to set aside an order to pay a judgment creditor's costs by instalments. The debtor had not provided a realistic repayment schedule and the creditor could not expect to recover the principal and any interest within a reasonable period of time.
In Loson v Stack and another, following a dispute over a parking ticket, the claimant was ordered to pay legal costs. The defendant sought to enforce that order by issuing a statutory demand and then a bankruptcy petition which the claimant unsuccessfully applied to set aside. The claimant applied for an order under Rule 40.9A of the Civil Procedure Rules (CPR 40.9A), that she pay the costs ordered against her (by this stage £8,000) by instalments of £50 per month. The district judge, in granting the order, erroneously considered that that order would not prevent the defendant from continuing bankruptcy proceedings.
The defendant applied to set aside the instalment order as payments at the level ordered would not discharge the statutory interest accruing on the costs, let alone the costs themselves, and the order had effectively rendered the bankruptcy petition debt no longer due and payable. The High Court considered that the district judge had failed to properly balance the interests of the judgment creditor against those of the judgment debtor. The instalment order was set aside. The claimant appealed.
The Court of Appeal dismissed the appeal. It held that the effect of the instalment order (if kept to) was that the petition debt was no longer due and payable which meant a bankruptcy order on the existing petition would not be made. The district judge had exercised his discretion incorrectly under CPR 40.9A. The creditor's rights had to be respected where the debtor could not really pay anything and the creditor could not therefore expect to receive repayment of the principal and interest within a reasonable time. The creditor's right to seek enforcement by whatever means available to it should not be interfered with in such circumstances.
Things to consider
Judgment sums are generally payable within 14 days. For a debtor to obtain the benefit of an instalment order the court must be presented with a realistic repayment schedule backed up by evidence that the creditor can be expected to receive the principal amount and interest within a reasonable time. To that extent, the interests of the creditor are paramount. What is a reasonable time will depend on the circumstances of the particular case. In a commercial context that time may be shorter, particularly if the creditor has its own cash-flow requirements to consider.
Risk of extradition takes second place to need to give practical effect to a freezing order
The Court of Appeal has found that a debtor's fears of extradition did not obviate the need for him to be cross-examined in person as to his assets under a worldwide freezing injunction.
In Khrapunov v JSC BTA Bank, Khrapunov (K) was subject to a worldwide freezing order obliging him to provide full information about his assets and assets controlled by him in accordance with his father-in-law's instruction. His father-in-law, Ablayzov, had been the bank's former manager and the bank had obtained judgments against him exceeding US$4 billion in respect of his fraud. The freezing injunction had been obtained against K as part of that litigation.
K had been ordered to attend the High Court to be cross-examined as to his assets. K resided in Switzerland and unsuccessfully applied to either adjourn the cross-examination or to be cross-examined via video link on the basis there was a real risk he would be arrested and/or extradited to face criminal proceedings in Kazakhstan and elsewhere if he travelled to England.
At first instance, the court refused the application. K had unreasonably and unjustifiably failed to comply with his obligations under the asset disclosure order and had delayed, without good reason, in making the current application which was issued only three days before the date of the originally scheduled cross-examination. The court considered that the bank would not be able to question K effectively through video link. It also considered the likelihood of arrest was non-existent. K unsuccessfully appealed.
Fresh evidence then came to light that K had been placed on the Ukraine's and Interpol's 'wanted' list and that the Ukraine could now make a request to the UK to arrest and extradite him. On the basis of this fresh evidence, K sought to re-open the appeal and vary the order to permit him to give evidence from Switzerland.
The Court of Appeal refused. The earlier decision was a case management decision that the court had properly made and was neither irregular, wrong nor unjust. The fresh evidence showed there was an increased risk of extradition proceedings but that did not undermine the judge's primary reasoning for refusing the application being the unwarranted and unexplained delay. It was of paramount importance for the court to give practical effect to the freezing order which had been made. The just result was to continue to require K to attend for cross-examination at the High Court. The alternative proposed in Switzerland, conducted under Swiss law, would differ radically from cross-examination in front of a High Court judge, and was unlikely to be an effective means of obtaining useful information to assist with the enforcement of the freezing order.
Things to consider
The bank had made out a strong case against K that he had been involved in a massive international fraud and was concealing evidence about relevant assets. The public interest in the court giving maximum practical effect to the freezing order it had granted was strong.
In case you missed them:
Supreme Court rules that a contractual term that requires modifications to be in writing is binding
This judgment has significant ramifications for all contracts which are governed by English law.
In this article, we report on this pivotal decision and its commercial consequences.
Insolvency Litigation: recent cases and issues in May 2018
In our update this month we take a look at some of the recent cases that will be of interest to those involved in insolvency litigation. These include:
- A decision of the Chancery Court which confirms the rule against contractual penalties will not apply to the terms of a company's own voluntary arrangement;
- Some guidance on the priority of payments in insolvency, in a case where administrators' remuneration was paid out of the company's accounts; or
- Consideration by the Court of Appeal as to the correct approach to determining liability for breach of trust involving avoided transactions.
Our insolvency experts have reviewed the decisions and tell you what you need to know.
The Basics: What to consider when negotiating governing law and jurisdiction clauses
Where parties find themselves litigating a dispute arising under a contract, failure to have considered and agreed a governing law and jurisdiction clause when negotiating the contract can mean that the dispute is litigated in a jurisdiction a party may not have chosen and under a law that restricts its rights and remedies.
Here we look at some basic considerations for contracting parties when negotiating and drafting such clauses so as to avoid the cost and delay of litigating over where and under what law a dispute is to be determined.
The Basics: Limiting and excluding liability for breach of contract
It is not unusual for parties to include clauses in a contract that attempt to limit or exclude damages that may be claimed if a breach of contract occurs. However, successfully excluding or limiting liability is not without its challenges.
Here we look at the basics of limitation and exclusion of liability clauses, the different types of clauses that could be used and how best to try to ensure they do what they say they will, which will result in fewer opportunities for challenge.