2-4-6: cheque clearing

APACS have announced that from 30 November 2007, changes to the cheque clearing process will come into effect.  The changes, known as 2-4-6 are designed to benefit any person who accepts a cheque, banker’s draft or building society cheque.  The Cheque & Credit Clearing Company have issued a set of FAQ’s.  The changes will apply to all cheques paid in to major banks and building societies in the UK with effect from 30 November 2007. The changes provide certainty that the cheque (etc.) has cleared after the elapse of six days and that the funds cannot be clawed back out of the recipient’s account if the cheque should subsequently bounce. Customers can expect to earn interest on funds in their account no later than two working days after paying in a cheque (or if the account is overdrawn, the balance is reduced no later than two working days after paying in a cheque for the purpose of charging overdraft interest).   Banklawblogger mentioned before that this was in the offing, here.

BVI case on FCA Regs

Harneys BVI office have reported on the first case on the application of the English Financial Collateral Arrangements Regulations (no 2) 2003.  The case was heard in the courts of the British Virgin Islands but it is possible there might be a leapfrog appeal to the Privy Council.  The case looks at how the English remedy of “appropriation”, a concept unknown to the BVI, can be applied to shares in a BVI-registered company subject to an English mortgage.  I am looking forward to seeing the published judgment to understand what was going on.

Caution – freezing orders

When a conscientious bank manager tried to ensure the Bank did not inadvertently breach the terms of a freezing order on the bank accounts of his customer, he landed in hot water.   There was a very large sum of money sitting in the frozen account and the manager of the account-holding branch was concerned that the Bank would not be able effectively to police the account in accordance with the order, for payment of living expenses only.  The money was therefore moved into a term deposit and a tracker account that would enable the Bank to ensure the terms of the court order were adhered to.  No loss resulted but when the file was transferred at HMRC to a new manager, he was concerned to find the designated account empty; the Bank quite properly refused on grounds of customer confidentiality to give information regarding the accounts on his enquiry.  As the Judge said, this “engendered some degree of adverse reaction from the prosecution authority” and a contempt of court application eventually ensued. 

The court held that the Bank ought to have applied to the court or HMRC before moving the funds into other accounts even though the Bank was acting with the best intentions.  The defence tried to argue that there was no disposal of the assets of the defendant as the nature of the “asset” was a debt owed by the Bank to him.  This was crisply cut through by the Judge – he said a bank account in credit is an asset of a customer. 

In the event, the Bank was found to have been technically in contempt of court, but it is telling that no costs were awarded against the Bank, due to their having proved they offered a drop-hands settlement to the claimant which was rejected.  The moral of this tale?  Don’t interfere with bank accounts that are subject to a freezing order, even with the noblest of intentions.  If you think a change of arrangements is in the interests of justice, make sure you apply to the court for permission.

Some more guarantee cases

The perennially interesting issue of how to wriggle out of liability under a bank guarantee has been under discussion in the courts again.  In Van der Merwe v IIG Capital, the terms of the “all monies” guarantee were put under scrutiny together with the terms of the underlying loan agreement; the guarantors lost their appeal that they were not liable to pay.  The effect of the certification clause in the guarantee was considered and the impact of the Marubeni case (“where in international transactions a guarantee is expressed to be payable upon demand, in the absence of clear contrary words it should be construed as an independent guarantee entitling the beneficiary to payment simply against an appropriately worded demand”).

In Quest 4 Finance v Maxfield, company directors had been induced by misrepresentations to enter into warranty agreements which were actually guarantees.  They were allowed to claim reliance on the misrepresentations despite having declared non-reliance in the documentation.

Deceit and term as to payment

This week, the Court of Appeal has given judgment against a director who was held to have made a fraudulent representation as to the ability of his (insolvent) company to pay for goods being supplied under a contract. 

The claim was based on the picturesquely named Lord Tenterden’s Act, which is the Statute of Frauds (Amendment) Act 1828.  The company entered into an agreement with the company, signed by the director, to supply garments on a regular basis over a two-year period.  The agreement included the term: “6. PAYMENTS: BANK TRANSFER MADE TO THE ACCOUNT OF THE PERFORMER (ie the claimants) MADE NOT LATER THAN 30/THIRTY/DAYS AFTER THE SHIPMENT.”

Section 6 says that “no action shall be brought whereby to charge any person upon or by reason of any representation or assurance made or given concerning or relating to the character, conduct, credit, ability, trade or dealings of any other person to the intent or purpose that such other person may obtain credit, money or goods upon, unless such representation or assurance be made in writing, signed bythe Party to be charged therewith.”

The director signed a document containing a promise by the company to pay for goods ordered in the future.  The Court of Appeal upheld the first instance decision that the director made an implied representation in writing that the company was able to pay for the goods, and that as the director knew the company was insolvent, he was liable in damages for deceit. 

An action for fraudulent trading was not brought by the creditor, because any recovery under s 213-4 Insolvency Act 1986 from the director would be shared pari passu between all the creditors.

It has to be said that there aren’t a huge number of cases against directors based on deceit and Lord Tenterden’s Act.  This one looks like the product of some very clever legal footwork on the part of the company’s advisers.  If you want to make a director liable, it is much better to take a personal guarantee of the company’s debts.  And the judgment hasn’t considered whether the capacity in which the director signed might be relevant for the Act.

Bank charges: OFT publishes reply

The OFT has submitted its reply to the banks’ defences and counterclaim in the bank charges test case in the High Court.    You can see it here .

The case is likely to be heard during 14 January 2008 – 28 February 2008.

In the Unfair Terms in Consumer Contract Regulations investigation, the OFT is continuing to request and analyse information supplied by the banks. Further information on this investigation will be published after the judgment has been delivered.

Acting for lender and borrower

If you haven’t spotted the change already, you might want to update your instructions to solicitors to show that Rule 3 of the Solicitors’ Code of Conduct 2007 has replaces Rule 6 (3) of the Solicitors’ Practice Rules 1990.    These Rules deal with the circumstances in which a solicitor may act for both lender and borrower on the grant of a mortgage and they prescribe the form of Certificate of Title. The limitations placed upon solicitors remain largely the same.

Instructions to solicitors should certify that the instructions are subject to the limitations contained in Rule 3.19 and Rule 3.21 of the Solicitors’ Code of Conduct 2007.

On mortgages over property to be used as the borrower’s private residence only, the Certificate of Title issued by lenders is prescribed in the annex to Rule 3.  A shorter version is permitted (Guidance Note 83 to the Code) and reads “We, the conveyancers named above, give the Certificate of Title set out in the annex to Rule 3 of the Solicitors’ Code of Conduct 2007 as if the same were set out in full, subject to the limitations set out in it.”

Market Disruption Event

All the hard work that ISDA puts in to drafting provisions in the master agreements to deal with the unthinkable has come in handy. On 7 November, the LSE suffered a “technical problem” and as a result, we have a real, live Market Disruption Event. ISDA has confirmed that for share and index variance swaps documented under the ISDA 2007 European Variance Swap Master Confirmation Agreement, a Market Disruption Event occurred. Closing price data from the LSE’s Tuesday 6 November fixing will be used in calculations for all affected FTSE indices and shares.

Companies Act 2006 change to implementation

The majority of the implementation of the Companies Act 2007 that had been planned for October 2008 will now be put back until October 2009.  The BERR have announced this and say that Companies House need the extra time to be ready for the changes being introduced by the Companies Act 2006. All October 2008 changes relating to incorporation, share capital, etc, which require Companies House to update their procedures, will be postponed until October 2009.

Provisions relating to directors’ duties and the abolition of the prohibition on financial assistance and anything else that does not require Companies House to be ready, will be subject to a short consultation to establish whether they should also be delayed until October 2009 or introduced, as originally planned, in October 2008. There will be a further announcement in December 2007. The planned changes for April 2008 will still be implemented in April 2008. 

Dormant Bank and Building Society Accounts Bill

The Dormant Bank and Building Society Accounts Bill received its first reading in the House of Lords on 7 November 2007, at the start of the new session of Parliament.  The context of the Bill is the Treasury’s investigation into unclaimed assets in the banking system.  A dormant bank account is defined as one where there has been no customer-initiated activity for 15 years.  The banking industry is being encouraged to launch a drive to reunite account holders with their lost accounts. If the account holder cannot be found, the bank transfers the money to an FSA-regulated central reclaim fund.  If the rightful owner claims the money at a later stage, it will be paid from that account.  The idea of the Bill is that the rest of the money will be reinvested in the community via the lottery fund.  Dormant account assets will be separate and distinguishable from lottery resources and managed as a distinct funding stream.  If they haven’t already, banks are going to have to think about the processes they need to put in place to deal with this, if the Bill becomes law.