Constructive trusteeship in complex restructurings

An Australian restructuring case, despite minor differences of law, has relevance for banks taking security under English law for borrowing from complex corporate structures.  The case shows how much care banks should exercise to avoid liability as constructive trustees.  The judgment runs to 2,643 pages and I don’t pretend to have read it.  But you might like to be aware of some commentary by Australian law firms, Dibbs Barker and Allens Arthur Robinson, that show banks should stick to their existing routines in bank lending practices, get proper minutes from companies, scrutinise benefit and security arrangements and be aware of directors’ responsibilities when their company is on the brink of insolvency.  One gem to emerge from this is an attempted description of insolvency: “insurmountable endemic liquidity”.

Bank charges case – to the House of Lords

The House of Lords have allowed the banks to appeal to them against the Court of Appeal’s decision that the issue of fairness of bank charges falls within the Unfair Terms in Consumer Contract Regulations.  See the most recent post by Bank Law Blogger on this.  Permission has been granted to appeal although we don’t have any dates for the actual hearing yet.

Bank charges – latest judgment

The test case in the High Court as to whether the Unfair Terms in Consumer Contracts Regulations apply to questions of fairness as to the level and application of unarranged overdraft charges continues.   The judgment in the hearing on 9 December 2008 has been published (21 January 2009) and looks at whether some historical terms allowing the banks to charge are capable of amounting to penalties at common law. There was a judgment on 8 October 2008 that decided most of the banks’ terms did not amount to penalties. A further hearing was then ordered of outstanding issues in relation to some terms of three particular banks. All of the terms except one were held not to amount to penalties at common law. As to the remaining term, the court remained “unpersuaded that the relevant term … was not capable of being penal”.  The next step is to wait for the outcome of the banks’ appeal against the court’s decision that the terms are capable of being assessed under the Unfair Terms in Consumer Contracts Regulations.

OFT v Abbey & ors [2009] EWHC 36

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.