Keep clear notes

Some cases have shown the importance of keeping clear notes when you change the terms of an existing agreement.  We have always known that without clear evidence, it is much harder to persuade the court that your version of events is right.  But being human, good practice sometimes gets forgotten.  In one of these cases (Barclays v Gatpaham [2008] EWHC 721 Ch D), a bank was successful in calling default on a property loan because the court believed the bank, not the borrower, when an argument arose over what had been agreed between them in post-default discussions.  The bank had kept clear notes at the time of the discussions with the borrower and sent him a written record shortly afterwards.  By contrast, the court found the borrower’s recollection to be poor. In another case, (RBS v Luwum [2008] EWCA Civ 648) the borrower succesfully argued the bank was estopped from commencing procedings for recovery against him, because of the absence of bank records of the facts as to what had been agreed.  Finally, though this isn’t a bank case: Matthews v Smith ([2008] EWHC 1128 (Admin) QBD (Swift J) 23/5/2008 a case was lost because evidence about what was said in a meeting about a sale and leaseback agreement was uncertain.  So: if you want to be able to prove what was agreed at a later date, write down the facts as you go and send your understanding of what you agreed to the other party as soon as possible afterwards.

Bank charges - OFT to review terms

The judgment on the test case hearing of January 2008 has been published this morning.  On a quick look through, the OFT will be able to review the fairness of the charges under the Unfair Terms in Consumer Contracts Regulations.  Contrary to the implication of some national headlines appearing already that the banks have “lost the case”, no judgment on the fairness of the charges has been given (nor was sought) in this trial of preliminary issues.  The terms do not amount to a penalty under common law.   If the banks wish to appeal the judgment, they have until 22 May 2008 to do so. 

24 April 2008

Loan: was it residential? commercial?

The court has decided that a borrower who took out a loan on a property that was partly residential and partly commercial was a consumer.  This meant that in that particular case, the Unfair Terms in Consumer Contracts Regulations 1999 applied. The lender was unable to impose an early redemption penalty as it was held to be unfair. 

Evans v Cherry Tree Finance Ltd CA (Civ Div) 7 Feb 2008

Duty of bank in customer relationship

In a case involving the operation of a bank account, consideration of the complex facts of the particular case led the court to hold that the director of the claimant company account holder had given authority for the transfers (which happened to ease his personal financial difficulties).  The bank’s procedures for operating the account were correctly followed although the judgment does have some adverse comments about the bank’s training of its staff at the time.  The claimant’s claim was dismissed.

Can you lie to a machine?

A judgment of staggering dullness, unless you ever wanted to understand how car dealership agreements work, has shown that a fraudulent misrepresentation could be made to a machine acting on behalf of a person, rather than to an individual.  This is if the machine were set up to process certain information in a particular way and would not process information about the material transaction if the correct information were given.

The case hasn’t hit BAILII yet, but it is Renault UK Ltd v (1) Fleetpro Technical Services Ltd (2) Russell Thoms [2007] EWHC 2541 (QB) if you need to try to find it.

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.

Credit card purchases abroad

So the House of Lords has agreed with the Court of Appeal that 75(1) of the Consumer Credit Act 1974 applies to overseas, as well as domestic, transactions. It’s good news for credit card holders who remain protected for purchases made abroad, that cost between £100 and £30,000 and I would guess it probably doesn’t come as much of a surprise to banks.

Under Section 75, credit card issuers are liable, individually and jointly with suppliers if a consumer has a valid claim against the supplier for misrepresentation or breach of contract relating to goods or services bought with a credit card. The consumer can make a claim against the credit card issuer as well as, or instead of, the supplier.

The decision was announced by the Office of Fair Trading on 31 October 2007 (when Bank Law Blogger was happily on holiday, but not abroad).