Supreme Court allows banks’ appeal in test case

So, the lesson is, don’t pay any attention to those words on the street (viz, yesterday’s post).  Of course, no lawyer will now admit their surprise but the banks have been successful in the OFT’s test case.  The Supreme Court unanimously upheld the appeal by the banks against the decision of the two inferior courts that Regulation  6 (2) (b) of of the Unfair Contract Terms in Consumer Contracts Regulations 1999 does in fact stop the OFT from investigating for fairness terms relating to charges for unauthorised overdrafts in the banks’ contracts with customers.  See the 3 page press release by the Court here.  46 page judgment here.

Bank charges Judgment expected

Judgment in the bank charges case will be handed down tomorrow, Wednesday 25 November.   It’s a dangerous game, predicting the outcome of cases that you haven’t been involved in and whose judgments are kept under securely fastened wraps, but I will play it anyway: the word on the street is that the Supreme Court is likely to find that the OFT do have the right to challenge the fairness of banks’ terms that impose a charge for unauthorised overdrafts.  Then the hard work will start: assessment of the fairness of each bank’s terms in specific cases.  The BBA have issued a “Test Case Fact Sheet” for customers.  Six month’s have passed since the House of Lords allowed the appeal (last post) and in that short time, the House of Lords legal function has passed to the Supreme Court. 

The Supreme Court.

New – Money Attachment Order

A new form of debt recovery called a money attachment order will come into force in Scotland on 23 November 2009.   This  guest article, by our Scottish correspondent, looks at how the Orders will work in practice.

When a court awards a decree (judgment) for the payment of a debt, Sheriff Officers (Bailiffs) can use a money attachment order to enter the business premises of the debtor and seize cash and cheques payable to the debtor in satisfaction of the debt. 

If Sheriff Officers are successful in seizing any cheques under a money attachment order, they will then need to pay those cheques into their own  bank account to collect the proceeds. The cheques will be payable to the debtor and are likely to be crossed “account payee” or “account payee only” so how will banks in Scotland be protected against a claim from the true owner of the cheques?

Luckily the snappily named Bankruptcy and Diligence etc (Scotland) Act 2007 provides the collecting bank with protection, provided they get a copy of the payment order issued to the Sheriff Officers by the court which must contain details of the actual cheques being presented for collection.

So while bank tellers will need to be alert, Sheriff Officers who wish to pursue this form of debt recovery will first be required to serve a charge for payment on the debtor, wait 14 days and if payment has not been made, descend on the debtor armed with a money attachment order.  By that time the Sheriff Officers are likely to find themselves in the same position as Old Mother Hubbard!

Living Wills

… or as the Bank of England prefers them to be known, “recovery and resolution plans”.  The FT has an article on these, reporting that Andrew Bailey, head of banking services at the Bank of England (whose signature is printed on bank notes) has listed the elements that would be required in , ooh - dare me! … ”living wills”:

• Recovery
  Board responsibility for detailed plans for recovery in a crisis (“a lender’s internal blueprint”)
  proposals for an orderly death (actually, you can’t blame the BoE for objecting to the morbid metaphors this subject engenders)
  lenders to hold more capital
  contingency funding plans
  use of contingent capital instruments
  sale of assets and/or business lines
• Resolution
  a detailed balance sheet
  a clear mapping of relationships with affiliates
  wind-down plans for all parts of the business
  a contact plan for stake-holders

Financial Services Bill

The Queen delivered the legislative programme for Parliament for the next session this morning in Westminster.  There has been huge media interest in the Queen’s speech as the Labour government throws down the gauntlet to its rival parties in the run up to the General Election next year.

The Financial Services Bill is one of 14 and applies to the whole of the UK.  If implemented as the Government intend, it would:

• Establish a Council for Financial Stability. 
• Strengthen the FSA’s powers to curb bankers’ pay. 
• Force banks to set up a “living will” to make them easier to wind down if necessary.
• Ban unsolicited credit card cheques.
• Allow groups to bring court actions against financial institutions.

Another bill you might be interested in, is the (re-incarnation of the) Bribery Bill that makes it illegal to bribe a foreign official to obtain or retain business.  A business that fails to prevent a bribe being paid by their employees will incur a penalty, if the Bill is passed as proposed.   The Bribery Bill extends to England, Wales and Northern Ireland.

The BBC have a summary of all the Bills as do the FT.  General coverage of the Queen’s Speech at BBC and FT.

New Acts

It has been interesting to watch the progress of bills going through Parliament this month.  Both Houses of Parliament officially prorogued on 12 November, marking the formal end to the parliamentary year and will meet again for the State Opening of Parliament on 18 November.  During the past month, nearly 40 bills have lapsed or been dropped.  The Government appears to be clearing the table to concentrate on the bills that are important to them.  During the prorogation announcement on 12 November, 13 Bills became Acts:

• Apprenticeships, Skills, Children and Learning Bill
• Autism Bill
• Coroners and Justice Bill
• Driving Instruction (Suspension and Exemption Powers) Bill
• Green Energy (Definition and Promotion) Bill
• Health Bill
• Holocaust (Return of  Cultural Objects) Bill
• Law Commission Bill
• Local Democracy, Economic Development and Construction Bill
• Marine and Coastal Access Bill
• Perpetuities and Accumulations Bill
• Policing and Crime Bill
• Welfare Reform Bill

A couple of bills, the Equality Bill and the Constitutional Reform and Governance Bill have the benefit of carry-over provisions so that, not having completed by the end of this Parliamentary session, they can continue their progress in the next session.  Other bills will have to be re-presented in the next session.  There is a bit more detail in my “Tracker“.

Rescue financing abandoned

The Government have dropped the idea of introducing rescue finance, with super-priority for new lenders to troubled companies, for the time being.

The Insolvency Service announced this today in response to the consultation, “Encouraging Company Rescue”.  You can see the range of replies to the consultation here; (name-check my firm, CMS Cameron McKenna ).

It seems there was a more positive reaction to the suggestion of a moratorium for companies that need a breathing space in order to agree restructuring proposals with their creditors.  We can expect more detailed proposals to be published in due course.

An article with more detail will shortly be published on www.law-now.com .

AML guidance

The Wolfsberg Group have published a revised paper (the first was in 2003) suggesting how financial institutions can develop suitable anti-money laundering screening, monitoring and searching processes and procedures.   The Group have revised the paper to reflect developments since that time, such as the use of automated transaction monitoring systems and the introduction of the risk-based approach.

The revised paper provides more guidance on the design, implementation and ongoing maintenance of transaction monitoring frameworks. 

If you were wondering what the Wolfsberg Group is, it’s an association of eleven global banks, “which aims to develop financial services industry standards for Know Your Customer, Anti-Money Laundering and Counter Terrorist Financing policies”.  It used to be 12 banks – my 2007 post.   I gather from the website, Basel Institute on Governance (acronym, BIG) the Group came together in 2000, at the Château Wolfsberg in north-eastern Switzerland with two board members of the Basel Institute on Governance, to work on drafting anti-money laundering guidelines for private banking.  A very pretty place to get together; this is the view from the romantically named Chateau Wolfsberg, courtesy of “Richard Nicholson of Chester“:

 

Emissions trading schemes

Emissions (or carbon) trading is the buying and selling of  the right to emit carbon dioxide.  It is a growing market, which worries both the Financial Markets Law Committee and Friends of the Earth although they make their arguments from, naturally, very different positions. 

The FMLC are concerned about legal uncertainties in the carbon emission allowances which underlie this market and have published a paper on this (October 2009).  The FMLC point out that in the European Union Emissions Trading Scheme (EU-ETS), the largest carbon markets scheme, nothing provides any indication of the legal nature of emission allowances. Emission allowances, they say, have aspects of administrative grants  or licences and of private property, and different conclusions as to their legal classification may already have been, or are in the course of being, reached in a number of Member States.

This matters because the legal nature of an emission allowance is relevant to decide which law govers the creation, transfer and cancellation of the allowance.  Are they capable of being stolen?  How do you treat them for tax and accounting purposes?  If the holder becomes insolvent, how should the allowance be dealt with?  If, as is happening, derivative interests in emissions are traded (allowances being recognised as a valuable financial commodity) should they be subject to regulation as an investment?

The FMLC believes that unless these issues are sorted out, they could slow down development of the market in carbon emission allowances.

Friends of the Earth, natuarally, have a different point of view in their report, “A dangerous obsession“.   They don’t want banks to risk a collapse in confidence in the market by trading in derivatives of carbon credits.  Taking a step back, in fact, they question whether carbon trading can reduce emissions levels effectively.  They want governments to use more direct tools, e.g, they say, investment and regulation.  The conclusion of their report demands the expansion of emission trading schemes to be halted globally, that the schemes be not linked, that offsets be removed from existing schemes and that schemes be reformed to avoid “abuse and profiteering by industry and finance”.  They draw a parallel with the uncertainty surrounding the trading of derivatives in emissions against the collapse of the sub-prime mortgage market.

The FSA has responsibility for regulation of the emissions derivatives markets.  It published a paper, “The emissions trading market: risks and challenges“ in March 2008.   The paper sets out some technical considerations for risk managment of the emissions market.  Personally, I think it is time they had another look at the topic, given this paper pre-dates the financial crisis.

The United Nations Climate Change conference is being held next month in Copenhagen. Iit is likely this issue will get more of an airing in the next few weeks.

Home Repossession (Protection) Bill

The bill has been dropped.  I commented on the introduction of this bill in February of this year and the implications for lenders.  The bill would have amended the Law of Property Act 1925 to require a mortgagee to obtain the court’s permission before exercising the power of sale on residential property.  It was dropped from the Parliamentary process on 5 November 2009.