Litigation

RBS wins claim against former Halliwells partner

In The Royal Bank of Scotland plc v Michael McCarthy, the High Court ruled that Mr McCarthy, a former partner of Halliwells LLP who retired from the firm in May 2010, should repay a £120,000 professional practice loan provided by the Bank to finance his capital contribution.

Mr McCarthy sought to contest his liability to repay on several grounds, including that RBS induced Halliwells to breach the terms of his Retirement Deed by issuing a reservation of rights letter requiring the firm to seek RBS's consent to the repayment of retiring members capital; by breaching an alleged implied term of the loan that neither RBS nor Mr McCarthy would do anything to thwart repayment under the related Letter of Undertaking (LoU) (under the LoU, upon his retirement, Halliwells was obliged to pay the balance on Mr McCarthy's capital account to RBS); and by reference to what Mr McCarthy said were his right to enforce the LoU, which was an agreement between the Bank and Halliwells only, directly under the Contracts (Rights of Third Parties) Act 1999.

Picken J rejected Mr McCarthy's defences. He said that in circumstances where there was no evidence Halliwells requested RBS' permission to repay his capital loan and nothing to indicate RBS discouraged such a request, RBS could not be said to have induced a breach by Halliwells of Mr McCarthy's retirement deed and even if it had, he would have found that RBS was justified in acting as it did to protects its rights as banker to Halliwells. 

Picken J also concluded that the loan to Mr McCarthy did not contain an implied term relating to the performance of the separate LoU and the LoU itself did not confer any benefit enforceable by him under the Contracts (Rights of Third Parties) Act 1999.

Mortgage lender justified in decision to refuse borrower's request to switch mortgage

In Southern Pacific Mortgage Limited v Jacqueline Vera Green the Defendant sought to defend possession proceedings brought by a mortgage lender in Bristol County Court under the provisions of the Disability Discrimination Act 1995 and the Equality Act 2010.  

A borrower had fallen in to arrears after suffering severe depression arising from the death of a close friend and the loss of her job. The lender issued possession proceedings and subsequently refused her request to be switched to an interest only mortgage.

The borrower argued that the lender's treatment of her amounted to disability discrimination under the 1995 and 2010 Acts, that her rights under ECHR art.8 (right to family life) provided a defence to the claim and any possession order should be suspended under section 36 of the Administration of Justice Act 1970.

In giving judgement for the lender, the court held that the lender's treatment of the borrower was in response to her arrears, not her disability; that the borrower had not been treated any less favourably than any one else in arrears; that the borrower could not rely on ECHR article 8 because the lender was not a public authority. The right to possession enjoyed by a mortgage lender outweighed article 8 rights in any event. The lender's refusal to switch the borrower to an interest-only mortgage was justified, because it did not make it impossible or unreasonably difficult for a disabled person to make use of the mortgage service – the whole life of the mortgage up to redemption not just monthly servicing. It was also a proportionate and "legitimate aim to want to protect one's security".

The court also refused to exercise it's power to suspend the possession order for a reasonable period under the 1970 Act because there was no evidence the sale which would be required to discharge the mortgage was even contemplated.

Regulatory Decisions

FCA fines Threadneedle Asset Management Limited £6 million  

The FCA has fined Threadneedle for failing to put in place adequate controls in the fixed income area of its front office, which allowed a fund manager on the Emerging Markets Debt desk to initiate execute and book a trade that could have caused a $110 million loss to client funds.

Threadneedle had previously provided assurances to the regulator that adequate controls had been put in place, which overstated the position. The fine therefore also related to Threadneedle providing the regulator with inaccurate information and failing to correct the inaccurate representation.

Threadneedle received a twenty per cent Stage 2 settlement discount, without which the fine would have been £7,548,130.

Case concerning CEO referred to the Upper Tribunal

Mr Palmer, the majority shareholder and CEO of Standard Financial Group Limited, and a director and de facto CEO of Financial Limited and Investments Limited, has referred a FCA decision relating to him to the Upper Tribunal.

The FCA was of the view that Mr Palmer failed to take adequate steps to ensure the firms' Appointed Representatives and CF30 advisers would give suitable advice to approximately 40,000 customers.

Separately, the FCA fined the former risk management director at Standard Financial Group Limited £14,807 for failing to ensure an adequate risk management framework was in place to mitigate risks to the group's customers.

FOS

MoU between the FCA and Financial Ombudsman Service

A new Memorandum of Understanding between the FCA and FOS was issued on 18 December 2015.

General

Regulation round-up December 2015

The round-up identifies the suitability of investment portfolios and capital resources requirements for Personal Investment Firms as the 'hot topics'.