Unmeritorious claims don't find favour with the Court of Appeal
The courts will uphold agreements where debtors clearly know what it is they are entering into.
In HSBC Bank Plc v Brophy, the bank sent a pack of documents to the defendant inviting him to provide various personal details as part of an application for a credit card. The application form confirmed it was regulated by the Consumer Credit Act 1974 (the Act) and stipulated that the credit limit would be determined by the bank from time to time. The defendant signed and returned the form which was countersigned by a representative of the bank. The defendant received the credit card and used it until the bank terminated the agreement and sought recovery of the outstanding sums.
The defendant alleged that the debt on the credit card was unenforceable as there was no agreement in writing sufficient to satisfy the requirements of the Act. Additionally, it was alleged, the agreement did not contain the necessary prescribed term as to the credit limit nor stipulate how the credit limit would be determined.
The Court of Appeal held that by signing and returning the application form, the defendant had agreed to be bound by the terms and conditions set out in it. The form made it clear that it contained a request for credit and that it should not be signed unless the defendant was willing to be bound by it. The agreement only came into being when the bank's representative countersigned it. By signing and returning the form, the defendant had agreed to accept whatever credit limit the bank permitted.
It was clear that the bank would undertake various checks on the defendant to determine whether they should grant him credit and if so, how much. The wording used on the form was sufficient to satisfy the statutory requirements. There was no obligation on the bank to explain to the debtor at the time he signed the agreement either the amount of the credit or the formula that would be used to determine it.
Things to consider
This is another robust and welcome judgment for lenders who may face similar unmeritorious claims. The form here was clear as to what was being applied for. The debtor knew what he was entering into when the form was completed and sent off.
Guarantee by email
The High Court has recently considered whether it is arguable that an email chain may constitute a guarantee for the purposes of the Statute of Frauds 1677 and has held that it is.
This was the finding in Golden Ocean Group Ltd v Salgaocar Mining Industries PVT Ltd and another. The case related to the charter of a ship by the claimant to the second defendant. The negotiations were conducted mainly by email and referred to the charter being fully guaranteed by the first defendant. The exchange of emails covered the basic terms of the charter and certain conditions that were subsequently satisfied. Negotiations concluded and versions of the contract were circulated but not signed or authenticated by the defendants.
The defendants then refused to take delivery of the vessel denying the existence of a contract or a guarantee. The claimant claimed under the guarantee on the basis the charterer had failed to honour its obligations by taking delivery of the vessel. It claimed that the exchange of emails and documents between the parties was sufficient to establish a guarantee. The defendants contended that the email chain and draft documents were too disjointed and insufficient to establish a guarantee capable of defeating the statutory defence under the Statue of Frauds which provides that a guarantee must be in writing and signed by the guarantor.
The judge held that there was an arguable claim that the emails and documents sent between the parties were sufficient to establish the guarantee and that the matter should proceed to a trial. The judge was "entirely satisfied" that it was well arguable that the Statute of Frauds had been satisfied because the basis of the claimant's claim was that there was an agreement in writing. He held that such email correspondence and dealings were not uncommon and that it was not necessary for a guarantee to be documented in a separate agreement. A series of emails may follow more closely the sequence of offer, counter-offer and acceptance, by which a contract is made, than many negotiations between business persons.
Things to consider
Although the court did not rule definitively on whether there was a guarantee, the case is useful to argue that there may well be one where negotiations have been by email and a guarantor is attempting to avoid liability on the basis of a lack of a single, signed agreement. If all the essential parts of the contract are present and unconditional, the court may just be willing to accept that there is a binding guarantee.
Questions of mental capacity
Age alone is not a reason to question mental capacity.
This was confirmed in Thorpe v Fellowes Solicitors LLP in which the mental capacity of a 77 year old client was questioned by her son following the sale of her property and the payment of the proceeds of sale into her daughter's account. It was alleged that the solicitors acting upon the sale should have sought evidence as to the vendor's mental capacity. The evidence showed that although the vendor had mild to moderate dementia at the time of the transaction, this probably would not have been evident to a reasonably competent solicitor.
The court held that there was no duty upon solicitors to obtain medical evidence of a client's mental capacity just because they were elderly absent circumstances raising doubt about their capacity. The solicitor here had taken sufficient steps to be satisfied that the instructions received were the vendor's own independent instructions. There had been a face-to-face meeting at which the sale was discussed in detail. There was nothing present to have put a reasonably competent solicitor on notice of any incapacity. The property was the vendor's and the proceeds of sale were hers to do with as she wished.
Things to consider
Although this judgment relates to a sale of property, it is a useful judgment for lenders where issues over mental capacity arise where a loan has been entered into secured upon an elderly person's home. It is only where circumstances indicate that there may be a lack of capacity that medical evidence should be sought. The judge in this case said that for it to be otherwise would be "insulting and unnecessary".
Setting aside default judgment
Failure to follow simple procedures will lead to default judgments being set aside.
This was the finding in Gulf International Bank BSC v Ekttitab Holding Company KSCC and another where the claimant failed to send a response pack containing a form for defending the claim, a form for admitting the claim and a form for acknowledging service to the defendant when serving the proceedings as required by the Civil Procedure Rules (CPR 7.8(1)). The claimant then also failed to file a certificate of service within 21 days, as is required where no acknowledgment of service has been received (CPR 6.17(2)), before entering judgment in default.
Setting aside the judgment in default, the court held that the wording in these rules was clear and mandatory. The breach of CPR 7.8(1) was more significant as the response pack highlighted the procedural steps a defendant should take to avoid judgment being entered against it. Further, once a judgment in default has been entered, the burden of proof is on the defendant to show there is good reason why the judgment should be set aside or that it has real prospects of successfully defending the claim. However, if an acknowledgment had been served and the claimant had applied for summary judgment, the claimant would have had the burden of showing there was no real prospect of the defendant successfully defending the proceedings. Given the claimant's failure to follow the correct procedure, setting aside the judgment, and so placing the evidential burden back on the claimant, would avoid injustice.
The claimant had also failed to enter into any pre-action correspondence or comply with the applicable pre-action protocol. Had it done so, the defendant may have instructed solicitors and the issue over the default judgment may not have arisen.
Things to consider
The requirements for certificates of service and response packs are quite clear and straightforward and should be complied with to avoid issues such as in this case arising. The claimant here had to pay the defendant's costs of the set side application of £20,000 for failing to comply with relatively straightforward rules.
Vicarious liability for employees' actions
Employers are liable for the representations of their employees where an employee has apparent authority and where the party to whom the representation is made believes, and relies upon, that representation.
The court reaffirmed this in Quinn v CC Automotive Group Ltd (t/a Carcraft). The defendant's employee (K) agreed to sell a Jaguar to Quinn. Quinn's existing, silver Jaguar was to be used in part exchange. K agreed that the defendant would ensure that the finance on the silver Jaguar would be paid off. On a computer screen, K showed Quinn two potential Jaguars that he could purchase. Neither vehicle was in the defendant's possession. Quinn agreed to buy one and met K at a motorway service station to sign the necessary paperwork and, subsequently, to take possession of his new red Jaguar.
It later transpired that the finance on the silver Jaguar (which had been sold on to a bona fide purchaser) had not been repaid and that the red Jaguar did not actually belong to the defendant. K therefore had no authority to sell it. Quinn was sued for the outstanding balance of the finance on the silver Jaguar and in turn issued proceedings against the defendant on the basis it was vicariously liable for K's actions. The defendant denied liability on the basis that Quinn ought to have been put on notice that K was acting outside his authority as soon as the transaction proceeded outside the defendant's car showroom.
The Court of Appeal held that a broad approach had to be taken when considering the scope of an employee's authority in claims for fraudulent misrepresentation. The claimant has to have an honest belief in the representation made, but whether that belief is reasonable or not is neither here nor there and the benefit of hindsight is irrelevant. Here, K's actions were closely connected with his employment as a car salesman. The sale of the red Jaguar and the agreement to deal with the financial arrangements were activities that came within his usual range of activities and authority. There had been nothing to put Quinn on notice that there was any lack of authority.
Things to consider
Lenders should take note of this decision both in relation to the actions of their own employees and also in relation to the actions of their borrowers' employees. Should a corporate borrower seek to suggest that an employee acted outside his or her authority to attempt to avoid liability, so long as there was an honest belief in what the employee said, or represented to the lender and they were not clearly acting outside the confines of their employment, that should suffice to bind the employer.
55th amendments to the Civil Procedure Rules
The 55th amendments to the Civil Procedure Rules, which come into force on 6 April, will bring with them some changes to the pre-action protocol for possession claims based on mortgage or home purchase plan arrears in respect of residential property.
Essentially, the amendments are made to reflect changes introduced to the Mortgage Conduct of Business rules, particularly on dealing fairly with customers in arrears. The protocol has also been strengthened to ensure that courts have the power to insist that repossession is always the last resort. To that end, the section previously headed 'Alternative Dispute Resolution' has been amended as shown in bold below:
"Further matters to consider before starting a possession claim
Starting a possession claim should normally be a last resort and such a claim must not normally be started unless all other reasonable attempts to resolve the position have failed. The parties should consider whether, given the individual circumstances of the borrower and the form of the agreement, it is reasonable and appropriate to do one or more of the following -
- extend the term of the mortgage;
- change the type of mortgage;
- defer payment of interest due under the mortgage;
- capitalise the arrears; or
- make use of any Government forbearance initiatives in which the lender chooses to participate."
Full details of the amendments can be viewed on the Ministry of Justice website.
Irresponsible lending - Office of Fair Trading (OFT) guidance for creditors
On 2 February, the OFT issued revised guidance on irresponsible lending. This is intended to provide greater clarity for businesses and consumer representatives as to the business practices that the OFT considers may constitute irresponsible lending practices for the purposes of section 25(2B) of the Consumer Credit Act 1974. It indicates types of deceitful or oppressive or otherwise unfair or improper business practices which, if engaged in by a consumer credit business, could call into consideration its fitness to hold a consumer credit licence.
Whilst this guidance represents the OFT's view on irresponsible lending, it is not meant to represent an exhaustive list of behaviours and practices which might constitute irresponsible lending.