Banking update: report and review on recent cases and issues

A stay of enforcement does not preclude obtaining information

A stay of enforcement or execution of a judgment does not preclude a judgment creditor from applying to have a judgment debtor attend court to provide information about his means.

The above clarification was provided by the court in Sucden Financial Ltd v Fluxo-Cane Overseas Ltd and Garcia. The claimant obtained summary judgment against Garcia with enforcement to be stayed until a given date to enable him to seek leave to appeal. The claimant obtained, within the stay period, an order to have Garcia attend court to provide information about his means to enable it, as judgment creditor, to enforce the judgment against him pursuant to Part 71 of the Civil Procedure Rules (Part 71). Garcia applied to have that order set aside as being contrary to the order made on judgment staying enforcement.

The court dismissed the application holding that the express purpose of Part 71 is to enable a judgment creditor to enforce a judgment. That means that it is an order that puts the judgment creditor into a position where he might thereafter be able to enforce the judgment but it is not part and parcel of the process of enforcement as, for example, a garnishee order is. The fact that there is a penal notice on the order which itself can be enforced does not mean the order itself is part of the enforcement process. It is anterior to it.

Additionally, the court held, contrary to Garcia's argument, that the claimant was a judgment creditor despite the order giving judgment being subject to a stay pending leave to appeal. A judgment creditor can mean a person who has obtained a judgment or a person who is entitled to enforce a judgment. The claimant here fell into the former category.

Things to consider

If a judgment has been awarded and information needs to be obtained regarding the judgment debtor's assets, an application for an order under Part 71 should be made, and as soon as possible where there is fear of dissipation of assets, regardless of whether a stay of enforcement may have been imposed for a period of time.

Lenders must act in good faith

Simply paying what a lender wants to by way of settlement will not achieve the desired goal if a customer has not offered to settle at that sum and does not agree to it.

This was the position in Cooper v National Westminster Bank PLC. In October 2002, the claimant gave instructions to his bank, the defendant, to send him a draft payable to a third party in the euro equivalent of £135,000 to his address in Ireland. The defendant did so. The draft was for €213,327 and the exchange rate was £1 = €1.5802. The claimant then wanted that draft replaced with one in the same sum but payable to him. The original draft was to be returned to the defendant but went astray in the post. The replacement draft was issued on 9 December 2002 but the defendant failed to send it to the claimant. The claimant's solicitors wrote to the defendant in July 2003 asking for confirmation that the full amount of the draft had been credited to the claimant's account together with interest from October when the first draft had been issued. The sterling equivalent of the draft at this date was just under £149,000 with an exchange rate at £1 = €1.4318. The defendant replied stating that the account had been credited with £135,040 plus interest of £2,000 plus a goodwill payment of £5,000. The claimant sued for the balance of just over £11,000.

The defendant alleged an offer had been made by the claimant in the July 2003 letter to settle on the basis of a simple reimbursement of the original sum paid for the original draft, plus interest, because the date of October had been referred to in it.

The court held the July letter had not been an offer of settlement. It was insufficiently certain as it did not refer to specific amounts of either the sum required to be repaid or the rate of interest. The defendant had acted unreasonably. It should have sought clarification of what the claimant wanted, whether that might be the then current value of the replacement draft or only the original cost plus some interest. Instead the bank had made a disadvantageous offer to the claimant and had pressed it upon him by crediting his account with that amount. No agreement had been sought from the claimant and the defendant must have known the claimant would not have accepted the payments made.

Accordingly, judgment should be given to the claimant for the balance of the value of the draft plus interest.

Things to consider

Where incidents such as this occur, it is always best to try and reach some agreement with a customer, preferably evidenced in writing, rather than attempt to force what may be seen as a disadvantageous offer upon an innocent consumer.

Costs in the small claims track

Generally, only limited costs are recoverable in claims allocated to the small claims track, being claims such as debt claims below £5,000. If there is a contractual provision relating to such costs though, they may still be recoverable.

In Shaw v Nine Regions Ltd, the Recorder hearing a claim based upon a loan agreement regulated by the Consumer Credit Act 1974 for £3,000 refused to allow the successful defendant its legal costs. This was despite there being a contractual provision in the loan agreement between the parties that the defendant could claim its legal costs incurred in enforcing the agreement or taking/defending court action. The defendant appealed. The claimant argued that the small claim rule should apply which provides for recovery of only very limited costs. Alternatively, he argued that the contractual term as to costs was void and unenforceable under the Unfair Terms in Consumer Contract Regulations 1999 (the Regulations).

The judge held that although regulation 5 of the Regulations did appear to apply to the term in question as it was not individually negotiated, the term was entirely reasonable and caused no imbalance in the parties' rights and obligations to the detriment of the consumer. It did not exclude or hinder the claimant's right to take legal action or exercise any other legal remedy. The judge awarded the defendant its costs of the appeal and below.

Things to consider

Where a case is proceeding in the small claims track and is based upon a contract, consideration should be given as to whether there is a term in the contract that might provide for costs to be recovered by the successful party. If it doesn't the usual costs provisions will apply.

Costly destruction of documents

Lenders will be penalised for failing to keep or prevent destruction of documents.

In American Express Services Europe Ltd v Armstrong, the defendant had had a credit card account with the claimant from 1990 to 2008. The agreement between them set out the usual provisions such as credit limit, relevant interest rates etc. The agreement provided for interest at a daily rate but the parties agreed that it did not expressly provide for compound interest to be charged. The credit card agreement came to an end and the claimant commenced proceedings for the outstanding balance of just over £12,500 in 2006. A default notice had first been issued as early as 1998. The defendant defended on the basis that the entire sum was irrecoverable under the Consumer Credit Act 1974 as compound interest had been unlawfully included in the total. The claimant responded by waiving all claims to interest and additional charges beyond the annual fee. The sum claimed was reduced to £6,809. The claimants had, as a routine measure, destroyed or failed to exclude from destruction the statements of account for the card from 1990 to 2001. As a result, it could not prove categorically whether that reduced figure contained interest or not, and if so, how much.

The court had to decide whether the debt was enforceable and also whether the sum should be reduced to reflect the court's response to the claimant's destruction of evidence. At first instance the judge held it was enforceable and reduced the sum by £2,000. Both parties appealed.

On appeal, the judge held that on the evidence there was never any agreement to pay compound interest, it was charged in error. The defendant never realised compound interest was being charged, did not therefore alter his position as a result and could not rely on estoppel arguments. As to whether the deduction of £2,000 was too much, adverse inferences should be drawn against a party who destroys relevant evidence even though the destruction is not malicious but merely inappropriate or cavalier. The judge at first instance had taken a robust view and if any mistakes were made, they were made in favour of the defendant. The judge on appeal took the same view. Both appeals were dismissed.

Things to consider

This is not the first case where the court has criticised lenders for their lack of record keeping - see Earles v Barclays Bank PLC in our October 2009 update. The court took the view that organisations such as the claimant should have appropriate systems in place to avoid destruction of documents where it is known that a potential claim may arise. The records in this case should have been removed from the lender's blanket policy of destruction once the original default notice had been issued.

Latest Ministry of Justice consultation

On 5 February 2010, the Ministry of Justice (MoJ) published a consultation paper seeking views on whether a minimum threshold should be imposed on orders for sale applications relating to Consumer Credit Act 1974 (CCA) debts only.

Currently, creditors can apply to the court for an order for sale, to enable the property to be sold to repay the debt, even where the amount owed is relatively small. The concern is that there is a risk that the practice could grow in the current economic climate and more people lose their homes due to relatively low levels of debt they are unable to repay.

The MoJ is therefore seeking views on whether a minimum threshold should be introduced below which creditors cannot apply for orders for sale to enforce charging orders relating to what were initially unsecured CCA debts.

The MoJ also sets out four alternative options available:

• introduce a threshold on all charging order and order for sale applications.
• restrict the scope of orders for sale so they no longer apply to consumer credit debts or residential property.
• introduce a two-limb test before an order for sale can be granted, so that a debt must be of a high amount and account for more than a certain percentage of all debts owed to the applicant.
• take no action.

The consultation period ends on 30 April 2010.

In case you missed it

See also our recent alert and analysis on reporting under Proceeds Of Crime Act 2002 (POCA) - the need for a human process and clear audit trail.