Finance Litigation: The Latest Cases And Issues – May 2018

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Gowling WLG’s finance litigation experts bring you the
latest on the cases and issues affecting the lending industry

THE COURT OF APPEAL CONSIDERS ‘REASONABLE ADJUSTMENT’
IN THE CONTEXT OF POSSESSION PROCEEDINGS

The first case in which the Equalities legislation has been
raised as a defence to a mortgagee’s claim for possession has
recently been before the Court of Appeal.

In Southern
Pacific Mortgage Ltd v Green
, Green appealed against a
possession order on the basis that the claimant lender had
discriminated against her under s19(1)(b) and s21(1) of the
Disability Discrimination Act 1995 (DDA). She asserted that by
failing to make reasonable adjustments to its practice or policy in
providing its services, the claimant had made it impossible or
unreasonably difficult for her as a disabled person (a person
suffering from depression) to use the claimant’s financial
services which it provided to other members of the public.

Green had entered into a fixed term repayment mortgage with the
claimant but having got into repayment difficulties requested it be
converted to an interest-only mortgage which the claimant refused
to agree to. Green’s insurance policy and then DWP payments had
been sufficient to cover the monthly interest. However, it was the
claimant’s policy not to allow any borrowers to convert
repayment mortgages to interest-only accounts whether on a
temporary or permanent basis (the no-conversion policy).

It was the lender’s refusal to accede to her request that
Green alleged was in breach of the DDA. She argued that the request
to change to an interest-only mortgage was a reasonable adjustment
to the claimant’s policy which the claimant should have made.
Its refusal to do so made it impossible or unreasonably difficult
for disabled persons to make use of the (mortgage) service.

The Court of Appeal, upholding the decision at first instance,
disagreed. It held that the service to which the provisions of the
DDA applied should not be broadly defined as ‘the provision of
all possible kinds of mortgage’ but should be defined more
narrowly as ‘the provision of a particular type of mortgage,
namely a repayment mortgage’. Green had been able to access
that service. The provision of an interest-only mortgage would have
been a different service, with a different loan and a different and
uncertain security. The two types of lending had different
commercial and regulatory considerations.

The court also found that, in any event, the claimant’s
no-conversion policy applied to existing repayment mortgagors,
whoever they were, whether disabled or not, and so it was no more
impossible or unreasonably difficult for disabled people to access
it when compared to the access offered to other members of the
public. There was therefore no need to make any adjustment to bring
about an equality of result as the policy applied to all.

Further, the court held that it would not have been reasonable
to require the claimant to adjust the no-conversion policy to offer
disabled persons an interest-only mortgage. This would impose a
riskier, more unsatisfactory repayment vehicle and a lesser form of
security in circumstances where that was not the way in which the
claimant conducted its business. It would have fundamentally
altered the nature of the service provided.

Things to consider

Although this case was argued by reference to the provisions of
the DDA, there is no meaningful difference between the relevant
provisions of the DDA and those of the Equality Act 2010. It is a
useful case for lenders as it provides some clarification as to the
extent of the steps that need to be taken to make a ‘reasonable
adjustment’.

BASIS CLAUSES AND UNFAIR RELATIONSHIP CLAIMS

The High Court has recently considered whether basis clauses,
i.e. those defining the scope of the contractual relationship
between the parties, were exclusion clauses or gave rise to an
unfair relationship.

In Carney and others v N M Rothschild & Sons
Ltd
, the defendant bank entered into loan agreements with
the claimants to enable them to invest in a fund designed to avoid
the Spanish equivalent of inheritance tax. The claimants engaged an
independent financial adviser (IFA) who advised on the fund. The
loan agreements were headed with an ‘important notice’
advising the claimants to seek independent legal and tax advice.
The agreements also provided that the offer was being made on the
basis that the bank made no recommendations as to the suitability,
quality or future performance of the investments, that the lender
acted as provider of finance only, had not provided any advice as
to legal, investment or tax matters and that no reliance had been
placed on any representations made by either party (the basis
clauses).

The investments underperformed and the claimants issued
proceedings under ss140 A and 140 B of the Consumer Credit Act 1974
(CCA) claiming an unfair relationship had arisen out of the loan
agreements. They alleged that the bank had given negligent advice
as to the suitability and risks of the investment and made serious
misrepresentations about the investments and their tax
implications. They also argued that the basis clauses also gave
rise to an unfair relationship and so could not be relied on by the
bank. They sought to be released from the loans and for the
security they had given to be discharged.

The High Court found there had been no unfair relationship or
actionable representations. The court found that the bank had given
no material advice, had not assumed the role of adviser and had not
been paid any commission for any advice. The claimants had had an
IFA whose role it had been to advise on the scheme and who had
received commission. The basis clauses delineated the scope, or
basis, of the parties’ relationship and gave rise to
contractual estoppels as the parties had agreed that no advice had
been given or representations made.

The language of the basis clauses in this case made them
distinguishable from exclusion clauses as they were not seeking to
exclude liability that may exist but were providing that no advice
was being given that could give rise to any liability. They were
not, therefore, subject to the test of reasonableness under the
Unfair Contract Terms Act 1977 (UCTA) (now replaced by the Consumer
Rights Act 2015 (CRA) as far as consumers are concerned). The court
considered that, even had the clauses been exclusion clauses,
they would have been manifestly reasonable. Even though the clauses
were outside UCTA, they could still be considered under s140 CCA
and give rise to an unfair relationship but there was no reason to
conclude that they were unfair in this instance.

Things to consider

It is understood that this is the first time the issue of basis
clauses has been considered in the context of an unfair
relationship claim. The ability to distinguish between a basis
clause and an exclusion clause (and so whether it is caught by UCTA
or the CRA) may not always be easy and will depend on the wording
used and other evidence available to show the true contractual
relationship.

JUDGMENT CREDITOR’S RIGHT TO ENFORCE HELD TO BE
PARAMOUNT

The Court of Appeal has upheld a High Court decision to set
aside an order to pay a judgment creditor’s costs by
instalments. The debtor had not provided a realistic repayment
schedule and the creditor could not expect to recover the principal
and any interest within a reasonable period of time.

In Loson v Stack and another,
following a dispute over a parking ticket, the claimant was ordered
to pay legal costs. The defendant sought to enforce that order by
issuing a statutory demand and then a bankruptcy petition which the
claimant unsuccessfully applied to set aside. The claimant applied
for an order under Rule 40.9A of the Civil Procedure Rules (CPR
40.9A), that she pay the costs ordered against her (by this stage
£8,000) by instalments of £50 per month. The district
judge, in granting the order, erroneously considered that that
order would not prevent the defendant from continuing bankruptcy
proceedings.

The defendant applied to set aside the instalment order as
payments at the level ordered would not discharge the statutory
interest accruing on the costs, let alone the costs themselves, and
the order had effectively rendered the bankruptcy petition debt no
longer due and payable. The High Court considered that the district
judge had failed to properly balance the interests of the judgment
creditor against those of the judgment debtor. The instalment order
was set aside. The claimant appealed.

The Court of Appeal dismissed the appeal. It held that the
effect of the instalment order (if kept to) was that the petition
debt was no longer due and payable which meant a bankruptcy order
on the existing petition would not be made. The district judge had
exercised his discretion incorrectly under CPR 40.9A. The
creditor’s rights had to be respected where the debtor could
not really pay anything and the creditor could not therefore expect
to receive repayment of the principal and interest within a
reasonable time. The creditor’s right to seek enforcement by
whatever means available to it should not be interfered with in
such circumstances.

Things to consider

Judgment sums are generally payable within 14 days. For a debtor
to obtain the benefit of an instalment order the court must be
presented with a realistic repayment schedule backed up by evidence
that the creditor can be expected to receive the principal amount
and interest within a reasonable time. To that extent, the
interests of the creditor are paramount. What is a reasonable time
will depend on the circumstances of the particular case. In a
commercial context that time may be shorter, particularly if the
creditor has its own cash-flow requirements to consider.

RISK OF EXTRADITION TAKES SECOND PLACE TO NEED TO GIVE
PRACTICAL EFFECT TO A FREEZING ORDER

The Court of Appeal has found that a debtor’s fears of
extradition did not obviate the need for him to be cross-examined
in person as to his assets under a worldwide freezing
injunction.

In Khrapunov v JSC BTA Bank, Khrapunov
(K) was subject to a worldwide freezing order obliging him to
provide full information about his assets and assets controlled by
him in accordance with his father-in-law’s instruction. His
father-in-law, Ablayzov, had been the bank’s former manager and
the bank had obtained judgments against him exceeding US$4 billion
in respect of his fraud. The freezing injunction had been obtained
against K as part of that litigation.

K had been ordered to attend the High Court to be cross-examined
as to his assets. K resided in Switzerland and unsuccessfully
applied to either adjourn the cross-examination or to be
cross-examined via video link on the basis there was a real risk he
would be arrested and/or extradited to face criminal proceedings in
Kazakhstan and elsewhere if he travelled to England.

At first instance, the court refused the application. K had
unreasonably and unjustifiably failed to comply with his
obligations under the asset disclosure order and had delayed,
without good reason, in making the current application which was
issued only three days before the date of the originally scheduled
cross-examination. The court considered that the bank would not be
able to question K effectively through video link. It also
considered the likelihood of arrest was non-existent. K
unsuccessfully appealed.

Fresh evidence then came to light that K had been placed on the
Ukraine’s and Interpol’s ‘wanted’ list and that the
Ukraine could now make a request to the UK to arrest and extradite
him. On the basis of this fresh evidence, K sought to re-open the
appeal and vary the order to permit him to give evidence from
Switzerland.

The Court of Appeal refused. The earlier decision was a case
management decision that the court had properly made and was
neither irregular, wrong nor unjust. The fresh evidence showed
there was an increased risk of extradition proceedings but that did
not undermine the judge’s primary reasoning for refusing the
application being the unwarranted and unexplained delay. It was of
paramount importance for the court to give practical effect to the
freezing order which had been made. The just result was to continue
to require K to attend for cross-examination at the High Court. The
alternative proposed in Switzerland, conducted under Swiss law,
would differ radically from cross-examination in front of a High
Court judge, and was unlikely to be an effective means of obtaining
useful information to assist with the enforcement of the freezing
order.

Things to consider

The bank had made out a strong case against K that he had been
involved in a massive international fraud and was concealing
evidence about relevant assets. The public interest in the court
giving maximum practical effect to the freezing order it had
granted was strong.

IN CASE YOU MISSED THEM:

Supreme Court rules that a contractual term that requires
modifications to be in writing is binding

This judgment has significant ramifications for all contracts
which are governed by English law.


In this article, we report on this pivotal decision and its
commercial consequences
.

Insolvency Litigation: recent cases and issues in May 2018

In our update this month we take a look at some of the recent
cases that will be of interest to those involved in insolvency
litigation. These include:

  • A decision of the Chancery Court
    which confirms the rule against contractual penalties will not
    apply to the terms of a company’s own voluntary
    arrangement;

  • Some guidance on the priority of
    payments in insolvency, in a case where administrators’
    remuneration was paid out of the company’s accounts; or

  • Consideration by the Court of Appeal
    as to the correct approach to determining liability for breach of
    trust involving avoided transactions.


Our insolvency experts have reviewed the decisions and tell you
what you need to know.

The Basics: What to consider when negotiating governing law and
jurisdiction clauses

Where parties find themselves litigating a dispute arising under
a contract, failure to have considered and agreed a governing law
and jurisdiction clause when negotiating the contract can mean that
the dispute is litigated in a jurisdiction a party may not have
chosen and under a law that restricts its rights and remedies.

Here we look at some
basic considerations for contracting parties
when negotiating
and drafting such clauses so as to avoid the cost and delay of
litigating over where and under what law a dispute is to be
determined.

The Basics: Limiting and excluding liability for breach of
contract

It is not unusual for parties to include clauses in a contract
that attempt to limit or exclude damages that may be claimed if a
breach of contract occurs.  However, successfully excluding or
limiting liability is not without its challenges.

Here we look at
the basics of limitation and exclusion of liability clauses, the
different types of clauses that could be used and how best to try
to ensure they do what they say they will
, which will result in
fewer opportunities for challenge.


Read the original article on GowlingWLG.com

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.



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