Clearing and settlement guidelines

The three main trade associations for the clearing and settlement industry earlier this month published the Access and Interoperability Guidelines  (3 July).  They contain detailed definitions and principles that trading platforms, central counterparties and settlement systems have agreed use in relation to each other. The Guidelines also provide for a mediation mechanism to resolve potential disputes between organisations. 

The trade associations are the Federation of European Securities Exchange, the European Association of Central Counterparty Clearing Houses and the European Central Securities Depositories Association.  The guidelines are partly driven by the Markets in Financial Instruments Directive and provide the basis for the development of new links between these associations which would offer market participants the freedom to choose their preferred settlement provider.

Bank charges: test case to go to High Court

A test case relating to unauthorised overdraft charges will be taken to the High Court.  The FSA has announced a “waiver” from its complaints handling rules that apply to unauthorised overdraft charges complaints today: this means that, until the test case is resolved, any bank or building society that applies for the waiver will not be required to handle complaints relating to unauthorised overdraft charges within the time limits set out in the FSA rules.

The Office of Fair Trading and the Financial Ombudsman  have also announced the agreement with a number of banks to take a test case to the High Court.  This means that the Financial Ombudsman, banks and other current-account providers will put cases on hold, pending the “test case” decision.

Once the law has been clarified, it should then be possible for these cases to be settled in line with what the High Court decides. 

Royal Assent for Corporate Manslaughter and Corporate Homicide Bill

Royal Assent was granted to the Corporate Manslaughter and Corporate Homicide Bill on 26 July 2007.  Organisations will need to review their procedures and systems to ensure they do not fall foul of the new offence created by the Act once it comes into force.  

An organisation will be guilty of an offence if the way in which its activities are managed or organised causes a person’s death, and amounts to a gross breach of a relevant duty of care owed by the organisation to the deceased.

After what must be one of the longest ever ping-pong matches between the Lords and the Commons (“Patricians” v “Plebs”), the Lords got both their way and an amendment to include deaths in custody.   (Why the Commons held onto their position for so long that the Bill should be later amended by Statutory Instrument to include deaths in custody is a mystery.)

The Bill was first introduced in last year’s Parliamentary Session and having run out of time, had to be re-introduced at the start of this session.  There is a rule that Bills must either receive Royal Assent or be dropped within 12 months of their original introduction; unusually, a one-week extension was granted to this Bill.

New Acts – Tribunals, Courts and Enforcement Bill gets Royal Assent

Parliament has been busy while Banklawblogger has been on sunny holiday.  Nine bills were granted Royal Assent on 19 July, the most interesting being:

• Consumers, Estate Agents and Redress Bill
• Tribunals, Courts and Enforcement Bill
• Mental Health Bill
• Finance Bill
• Rating (Empty Properties) Bill (see this)

The others being:

• Parliament (Joint Departments) Bill
• Vehicle Registration Marks Bill
• Concessionary Bus Travel Bill
• Consolidated Fund (Appropriation) (No.2) Bill

Administration expense – empty rates?

Trident cast a chill by suggesting that business rates incurred on empty properties should be an administration expense.  Given that the Department of Communities of Local Government (DCLG – is Banklawblogger alone in having trouble remembering the names and acronyms of all these shiny new Departments?) is to review the business rates structure including the potential abolition of empty rate exemption, except for liquidation, this may become a real problem for administrators – and floating charge holders. 

The Rating (Empty Properties) Bill  can be seen here.  If the government manage to push this through, the changes to the business-rate relief for empty properties would come into effect in April 2008.

Corruption Bill

The Corruption Bill has lain quiet on the books of the House of Lords since it was re-introduced in November 2006, but there have been signs of activity in the past few weeks.  It received its first reading in the Commons on 15 June 2007.  It may still remain dormant and not make it through to the end of the session on 27 July but it may get passed.  It’s a short Bill, surprisingly short at 24 sections - though Banklawblogger knows little about corruption.  It will repeal the early 20th century Prevention of Corruption Acts, and updates the offence of corruption. Under the Bill, “a person will commit an offence if he gives an advantage to or procures an advantage for any person or offers or agrees to give an advantage to or to procure an advantage for any person with the intention of influencing that person, or another person, to exercise a function improperly or as a reward for so exercising a function”.  It extends the offence to agents and does not go into any practical details on enforcement for offences committed outside the jurisdiction.

Undue influence in bank lending

If you remember, as Banklawblogger does, the heady days of Barclays Bank v O’Brien and, later, RBS v Etridge (no.2) and the nice warm feeling that so long as your branch manager (remember them?) followed the practical advice given in the O’Brien judgment about making sure that Mrs (it usually was “Mrs” – the identity has become more elaborate with time) properly understood with the benefit of independent legal advice that she stood to lose the matrimonial home if Mr’s latest business enterprise went the way of all flesh, then the bank’s security would hold. 

An article published in this month’s Journal of International Banking Law & Regulation by N I Yaakub and A McGee [([2007] JIBLR Issue 7 page 394 ff] suggests that we should not be feeling quite so comfortable.  They quote not so much a string of recent cases as a ship’s plaited coil of rope’s worth of cases to underline their point that the doctrine of undue influence is not easy to define and the principles in the cases are not always clear.

The article is detailed and carefully reasoned and concludes rather bleakly that “the nature of undue influence in bank-lending transactions remains obscure”. 

 At a practical level, surely, banks should continue to operate their careful, O’Brien-inspired policy of ensuring the dependant in question is given independent legal advice and uses particular caution where there is an obvious imbalance of power between the borrower and the dependent giving security.

Tax: direct attachment of accounts

Her Majesty’s Revenue and Custom have plans to lobby for a change in the law to give them the power (without the strain of getting a court order) to freeze an amount in a defaulting taxpayer’s bank account equal to the debt owed by the taxpayer.  Here is the 40-page consultation document.  The idea, at 5.12 on page 21,  is that this sum would be paid over to the Revenue by the Bank on demand if other attempts to collect the debt failed.   As well as being able to freeze sums in bank accounts, the Revenue propose to have the power to place a charge on land and buildings enabling them to be paid if the asset were sold.  Given at the very least the potential for error in HMRC’s calculation of the tax bill, the suggestion is fraught with difficulty for both bank and customer.

First Pensions Act “Financial Support Direction”

The parent company of a subsidiary whose pension was falling short has been ordered by the Pensions Regulator to pay into the pension to reduce the liabilities.  The Reasons of the Determination Panel can be seen here.  The Reasons provide useful insight into the Regulator’s interpretation of its “moral hazard” powers. 

Banklawblogger’s pensions law colleagues were inspired to write a little on this case. 

Retention of title

Mixing goods which are subject to a “retention of title” clause with other goods does not lead to loss of title.  This was re-affirmed in re Music Zone Services Ltd, an unreported case that this month’s issue of Sweet & Maxwell’s Insolvency Bulletin has flagged up. 

Mark Phillips QC says in a useful article in Insolvency Intelligence  that arrived by the same post (vol 20 no 6 July 2007 page 81-4),  it is an “urban myth” that a seller who cannot identify his own goods has lost his title to those goods.  The position is more complex.  You would need to look at whether the seller had agreed the goods could be stored together with other goods to decide how much the seller is entitled to in claiming the value of the goods.  If the goods had wrongfully been mixed with other goods, then the seller should be entitled to recover the value of the goods.  If the seller had agreed to the mixing, he shares the proceeds as tenant in common with the merchant.  If the goods had been consumed, or incorporated into other goods, then the seller would lose his title. 

In passing, I would mention that at some stage during the proposed reforms of English security law last year, it was suggested that “ROT” claims be awarded a more formal status and a registration process as “Quasi-security”.  That proposal was an early casualty of the doomed proposals, which this time have come to nothing.  Would the reforms have led to a simpler, clearer status for ROT goods – or just more paperwork?