Banking Matters – November 2015
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FCA Consultation Proposals: PPI complaints and Plevin
Walker Morris reported previously on the Supreme Court’s decision, in Plevin v Paragon Personal Finance […]
Walker Morris reported previously on the Supreme Court’s decision, in Plevin v Paragon Personal Finance [1], that non-disclosure of a significant amount of Payment Protection Insurance (PPI) commission earned by a lender created unfairness in the lender/borrower relationship. We explained that uncertainty as to the amount of commission requiring notification in order to avoid unfairness represented a problem for lenders.
The Financial Conduct Authority (FCA) has now issued a statement [2] summarising its proposed approach to PPI complaints handling generally and following on from Plevin. The key aspects of the FCA’s statement are as follows.
PPI complaints
- The FCA will consult, by the end of the year, on the imposition of a two-year deadline, accompanied by an FCA-led communications campaign, by which consumers would need to make their PPI complaints, or lose their right to have them assessed by firms or the Financial Ombudsman.
- The FCA considers that this proposed approach would: prompt customers into complaining and getting redress sooner; bring the PPI issue to an orderly conclusion; and help rebuild public trust in the retail financial sector. It may also encourage more customers to complain to firms directly, rather than using and paying claims management companies.
Solving the Plevin problem
- The FCA will also consult on introducing rules and guidance to reduce uncertainty following the Plevin judgment and to enable firms to take a fair and consistent approach. The proposed rules and guidance would say that a firm should presume, when assessing a relevant complaint [3], that failure to disclose a commission of 50% or more gave rise to an unfair relationship. The proposed rules and guidance would provide for this assumption to be set aside in certain circumstances, but they would also envisage limited circumstances in which a failure to disclose a commission of less than 50% could be unfair.
- The proposed rules and guidance would require a firm to pay redress where an unfair relationship had arisen, such redress being:
- The difference between the commission the customer paid and 50% of the premium paid (for example, the difference between, say, 72% of the premium paid, as in Plevin, and 50%, so 22% of premium in this case); plus
- Historic interest paid on that portion (in this example, interest paid on the 22%); plus
- Annual simple interest at 8% on the sum of the above.
- The proposed rules and guidance would also require firms to consider whether, in the circumstances of the particular case, they may need to pay more redress than under this approach.
Walker Morris will keep the FCA’s consultation and communications under review and will report on any developments in due course. In the meantime, if you have any queries in connection with PPI mis-selling or any other regulatory issues, please contact Andrew Beck.
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[1] https://www.walkermorris.co.uk/plevin-v-paragon-non-disclosure-amount-ppi-commission-paid-lender-rendered-its-relationship-borrower
[2] http://www.fca.org.uk/news/statement-on-payment-protection-insurance-ppi
[3] That is, a non-disclosure/unfairness complaint in respect of a PPI policy covering a credit agreement under section 140 A of the Consumer Credit Act 1974.

Settlement release precludes swap mis-selling claim
In what was no doubt a common occurrence post the 2007/08 financial crisis, the claimant […]
In what was no doubt a common occurrence post the 2007/08 financial crisis, the claimant in Marshall v Barclays [1] entered into a settlement arrangement with his bank, the defendant, when he ran into financial difficulties. The claimant had borrowed some £1 million from the defendant and, amongst other dealings, had entered into an interest rate swap agreement. Despite being aware that he had a potential mis-selling claim in respect of the swap [2], the claimant concluded a settlement and release with the defendant, which ended all banking arrangements between them. Following the Financial Services Authority’s (FSA) findings that there had been serious failings on the part of several banks, the claimant took part in a review exercise with the defendant, the outcome of which was that the claimant was not entitled to any redress. The claimant then looked to pursue a mis-selling claim after all, and the question for the court was whether this was precluded by the settlement agreement.
The settlement agreement included a widely drafted release. The claimant had agreed to “release and waive irrevocably any claims, complaints or rights of action against the Bank in relation to this matter and your banking relationship and arrangements with the Bank… whether direct or indirect, foreseen or unforeseen, contingent or actual, present or future, and which arise, or may arise, out of or are in any way connected with this matter.”
High Court decision – of interest to banks
The High Court ordered that the claim be struck out. The judgment covers several issues which will be of interest to banks and these are summarised below.
- The release was drafted sufficiently widely to cover, and therefore to bar, the claim.
- Contrary to the claimant’s assertions, the bank had not been guilty of any “sharp practice” [3] which might nevertheless undermine the wide release and enable the claim to proceed.
- The defendant had been under no obligation to notify the claimant of the FSA investigation – it was an arrangement between the FSA and the bank. Regardless, the claimant was aware of the investigation and took part in a consequential review with the defendant.
- In any event, the FSA investigation and subsequent review process amounted to nothing materially different than that which the claimant already knew he had – that is, a potential mis-selling claim against the bank – at the time he entered the settlement and release.
- The claimant could not raise a public policy argument effectively saying “if the original swap agreement itself was void because it was illegal or otherwise contrary to public policy, then both parties were operating under a mistake when they entered into the Settlement Agreement… and that on that basis the Settlement Agreement could and should be set aside” [4].
- Similarly, the claimant could not successfully argue “I may have known in general terms that I was entitled to challenge the swap, but, because I did not know the specifics as to how I could do so, nor did I know just how bad the Bank’s conduct was in relation to the mis-selling of the swap, both to me and to others, I can escape from the wide terms of this release” [5].
- The fundamental point was the claimant’s actual knowledge of the potential for him to bring a mis-selling claim at the time he entered the settlement and release.No amount of legal argument and ingenuity could circumvent that.
WM Comment
Banks and other financial institutions should ensure that as wide-a release as possible is negotiated into any agreement that is entered into as part of the settlement of any ongoing disputes, or simply when customers wish to extricate themselves from ongoing commercial/banking arrangements. Prior to completing any such release, firms should take expert advice so that they get the balance right between not unnecessarily tipping off as to any potential claims against them, and not engaging in the sharp practice of obtaining a release by unacceptably failing to disclose material matters.
Whilst every case will turn on its own facts, this decision may well assist financial institutions when any party seeks to revisit and undo any prior settlement and release. Please contact any member of Walker Morris’ Banking Litigation team if you would like further advice or assistance.
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[1] Gary Ronald Marshall v Barclays Bank plc [2015] EWHC 2000 (QB)
[2] Evidence to this effect was adduced in the case.
[3] This is a reference to the sharp practice argument noted in Bank of Credit and Commerce International SA v Ali & Ors [2002] 1 AC 251. In that case Lord Nicholls stated that for a party to whom a release was given to proceed, knowing that the other party had or might have a claim, knowing that the other party was ignorant and yet failing to disclose the existence of the claim or possible claim, could be unacceptable “sharp practice”, for which the law should provide a remedy.
[4] Para. 46
[5] Again, para.46

Mistaken payments: Should Norwich Pharmacal disclosure be ordered?
Norwich Pharmacal disclosure The Civil Procedure Rules (CPR) provide a process by which a disclosure […]
Norwich Pharmacal disclosure
The Civil Procedure Rules (CPR) provide a process by which a disclosure order can be sought, pre-action, against a person who is likely to be party to subsequent court proceedings. A Norwich Pharmacal disclosure order [1], however, can be granted against a person who will not be party to subsequent proceedings, so as to identify another person (a wrong-doer), or so as to identify the nature of a wrongdoing, who or which will be the subject of subsequent proceedings. A Norwich Pharmacal order can also require the disclosure of information, as opposed to the disclosure of documents as per CPR disclosure provisions. Norwich Pharmacal orders involve an invasion of privacy and place a burden on the receiver, who may have become involved entirely inadvertently and innocently. They are therefore generally issued only exceptionally.
The Norwich Pharmacal principles require:
- that the person against whom the disclosure request is sought be involved, albeit possibly innocently, in the wrongdoing;
- the order must be necessary in the overall interests of justice (as part of which the court must undertake an analysis of proportionality and it must balance the interests of the people involved);
- that no other CPR provisions can achieve the necessary end;
- that the respondent is likely to have the information sought; and
- that there is already a good arguable case that a wrongdoing has occurred.
Santander v RBS and others
In this case [2], the applicant bank had made payments into various incorrect bank accounts in error. The respondents were the banks at which those accounts were held. The applicant had previously sought Norwich Pharmacal orders for disclosure of the names, addresses and other customer details for the recipient accounts. The earlier application had been refused by a Master because be considered that when the payments were made, there had actually been no ‘wrongdoing’. Wrongdoing would only occur subsequently if the recipient account-holders refused to repay. In another hearing, however, arising out of broadly the same facts but involving different recipient banks, the applicant sought Norwich Pharmacal orders before a High Court judge. He found that the mistaken unjust enrichment of the incorrect account-holders in itself was a sufficient wrong to justify a Norwich Pharmacal order. When the current application fell to be re-heard, the Master was bound to follow the High Court judge, although he did not agree.
Restating that the Norwich Pharmacal jurisdiction should be reserved for exceptional cases, the Master noted that he did not consider a mere unjust enrichment debt claim to be sufficient. In addition, the Master explained his view that, at the time of the respondent banks’ involvement (that is, the time at which monies mistakenly came in), there was no wrong. Not having induced the payments, and not knowing they were coming, it was not in any legal or moral sense wrong of the third party account holders at that point merely to receive them. The Norwich Pharmacal requirement of the respondent being involved in wrongdoing was therefore not met.
Mistaken payment cases – the law as it stands
Nevertheless, “unless and until a different view is reached at High Court judge level or above” [3] banks and building societies should note that, in mistaken payment cases, Norwich Pharmacal disclosure can be ordered, although it should be limited to the disclosure of names and addresses only (as these are the details needed for a claimant to commence proceedings), and it should involve the applicant undertaking not to use any documents or information obtained other than for the purpose of enforcing its legal rights in connection with the mistaken payment.
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[1] An order made under jurisdiction established in Norwich Pharmacal v Commissioners of Customs & Excise [1974] UKHL 6
[2] Santander UK Plc v Royal Bank of Scotland Plc (1) HSBC Bank Plc (2) and Nationwide Building Society (3) [2015] EWHC 2560 (Ch)
[3] Ibid para 17

No common law spouse; any common intention trust?
The question often arises, when a relationship breaks down and cohabitees go their separate ways, […]
The question often arises, when a relationship breaks down and cohabitees go their separate ways, whether a party whose name is not on the deeds to a property nevertheless owns a share. Today the issue arises not only between couples whose relationships have ended, but also between friends, family members, business partners and others, who have shared living or working space on all sorts of informal, quasi-legal arrangements, perhaps with a view to stepping on to the property ladder, or getting a business off the ground.
Despite the fairly widespread continued misconception of the common law spouse, the law is clear:
- “…the starting point where there is sole legal ownership is sole beneficial ownership…The onus is upon the person seeking to show that the beneficial ownership is different from the legal ownership. So in sole ownership cases it is upon the non-owner to show that he has any interest at all.” [1]. So, the party who is not named as legal owner has to demonstrate, somehow, that he or she is nevertheless entitled to a share.
- Where there is an express declaration of trust, that is generally conclusive as to beneficial ownership.
- Where there is no express declaration, a claimant must adduce evidence of an implied trust or, more specifically in the case of cohabitees, a ‘common intention constructive trust’, to establish his or her beneficial interest.
In Capehorn v Harris [2] the Court of Appeal has provided welcome, practical clarification of the two-stage test which the court will deploy in personal relationship cases to determine the existence, and extent, of a common intention constructive trust.
- First, the claimant must show that there was an actual agreement that he or she should have a beneficial interest in the property (even if there was no agreement as to the precise extent of that interest). The Court of Appeal confirmed that, whilst an agreement can be inferred by conduct, nevertheless it does actually have to exist – the court is not entitled to impute an agreement or any intention of the parties to agree.
- Second, the claimant must establish the extent of its interest. In the absence of agreement as to the extent of the interest, the court may impute an intention that the person was to have a fair beneficial share in the asset and may assess the quantum of that fair share in view of all the circumstances of the case. The Court of Appeal was careful to explain that it is only at this second stage of the test that the court has any ability to impute an intention of the parties, and to assess the value of the claimant’s share accordingly.
In the context of investment properties or other sharing arrangements, the legal position can be more complex. Where a property is purchased by one family member for him/her to live in along with another member of the family, the Capethorn common intention constructive trust analysis is likely to govern any beneficial ownership dispute. Where, however, a party or parties has/have purchased a property not as a home but with the primary purpose being investment and another family member, friend or partner claims an interest or a dispute arises as to the extent of any beneficial ownership, a resulting trust analysis may apply instead [3]. In those circumstances, any beneficial ownership may be quantified by reference to the parties’ respective contributions to the purchase price, or otherwise/subsequently to the value of the property.
WM Comment
Following the downturn in the global and national property markets post-2007/2008, people have increasingly purchased, shared and invested in properties in ever more wide-ranging and varying circumstances. As relationships and familial and business arrangements come to an end or change over time, it is likely that the courts will encounter beneficial ownership disputes pursuant to myriad different arrangements and so any clear case law, which can assist with the timely and cost-effective resolution of disputes, is to be welcomed by lenders and lawyers alike.
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[1] Stack v Dowden [2007] UKHL 17, para. 10
[2] [2015] EWCA Civ 955
[3] Laskar v Laskar ([2008] EWCA Civ 347

Litigants in Person: CPR changes
Walker Morris has reported previously on recent guidelines issued in response to increasing numbers of […]
Walker Morris has reported previously on recent guidelines issued in response to increasing numbers of individuals representing themselves in court [1]. Notwithstanding that the court has, for some time, actually had sufficiently wide case management powers, pursuant to Civil Procedure Rule (CPR) 3.1(2) (m) [2], to manage cases and adapt court processes as it sees fit to ensure the smooth running of cases involving litigants in person, the CPRs have been amended, as of 1 October 2015, to specifically cater for such proceedings.
Whilst the unnecessary proliferation of rules is generally to be deprecated – particularly in view of the fact that procedural complexity is one of the major hurdles facing those representing themselves – it is to be hoped that the new rule, CPR 3.1A, provides useful clarity for all parties and for the court.
- There is now a positive obligation on the court, when it is exercising any case management powers, to have regard to the fact that a party is unrepresented;
- It is now mandatory for the parties and the court to take any relevant multi-track/fast-track standard directions as their starting point when drafting case management directions;
- The court must adopt a form of procedure at any hearing which is appropriate to furthering the overriding objective; and
- At any hearing where the court is taking evidence, the court may question witnesses, or may cause such questions to be put to witnesses, as it considers proper.(This latter provision is intended to deal with the problem, noted in the case of Otuo v Brierly [3] earlier this summer, of a lack of proper focus within many-a litigant in person’s witness evidence.)
- Parties and practitioners should note, however, that the introduction of new CPR 3.1A is not intended, in any way, to limit the existing and enduring wide ambit of CPR 3.1 (2) (m).
Walker Morris will continue to review and report the development of case law and civil procedure relating to proceedings involving litigants in person.
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[1] https://www.walkermorris.co.uk/business-insights/litigants-person-essential-new-guidelines
[2] that is, the court’s ability to take any step or make any order for the purpose of managing the case and furthering the overriding objective
[3] [2015] EWHC 1938 (Ch)

Legislation alerter: Consumer Rights Act 2015 now in force
The main elements of the Consumer Rights Act 2015 (the Act) came into force on […]
The main elements of the Consumer Rights Act 2015 (the Act) came into force on 1 October. The Department for Business, Innovation and Skills (BIS) has published a summary of the key elements.
The BIS guidance provides a general overview of the key aspects of the Act, which changes the law relating to business-to-consumer transactions, and which will therefore affect every business that sells directly to consumers.
The guidance can be accessed here.
Key issues for financial institutions include:
- Pre-contract information. Financial institutions already have significant regulatory obligations to provide certain information about products and services to consumers. In addition, marketing campaigns, promotional offers, websites and all forms of communication between institutions and consumers form part of the pre-contract process, during which myriad representations are made. Under the Act, any such information and representations could become a binding contractual term, if it is taken into account by the consumer.
- The Act also introduces a new statutory right that if an institution provides pre-contract information in relation to a service and the consumer takes this information into account, the service must comply with that information.
- Institutions may wish to undertake a critical review of their marketing materials, websites, posters, notices and any other forms of communication with or to customers, as well as providing training to staff, to address the extent to which pre-contract information may amount to contractual terms and to ensure that standards and services offered pre-contract are ultimately delivered.
- The new transparency test. The Act largely reproduces, from the now-revoked Unfair Terms in Consumer Contracts Regulations 1999, the essential “fairness test”, which means that a contractual term is unfair (and therefore unenforceable) if it causes a significant imbalance in the positions of the parties to the detriment of the consumer in a way which is contrary to the requirement of good faith. However, the Act also introduces a new “transparency and prominence test”. This requires a seller, such as a financial institution, to use plain and intelligible language in its written terms, and to bring terms to the consumer’s attention in such a way that the average consumer would be aware of them. Terms which may otherwise escape the fairness test (for example, price or the core subject matter of the contract) will not do so if they are not expressed in plain and intelligible language and prominent.
- Institutions should ensure that key contractual information, including pricing and any conditions, obligations or potentially onerous terms, is presented to consumers in a sufficiently clear and prominent manner.
- BIS has also published guidance which explains the new requirement, under the Consumer ADR Regulations 2015, for traders to provide certain information about Alternative Dispute Resolution to consumers: Alternative Dispute Resolution Regulations 2015: Guidance for business.
Please contact Louise Power if you would like any further information or assistance.

Being non-negligent and being seen to be non-negligent
In the recent case of Worthing v Lloyds [1], the High Court considered the duties […]
In the recent case of Worthing v Lloyds [1], the High Court considered the duties on banks and financial advisors giving investment advice to customers.
Investment advice and review
In 2007 the claimants, who had previously had experience investing in commercial property, savings accounts and Treasury Deposits, invested £700,000 in a financial product portfolio (the Portfolio) provided by, and following advice from, the defendant bank. When the claimants subsequently surrendered their investment and suffered financial losses they sued the bank, alleging breach of statutory duty, breach of contract and negligence. Whilst any claim relating to investment advice originally provided in 2007 was statute-barred following expiry of the limitation period, the bank did carry out a review of the investment with the claimants in 2008 and the claimants relied upon the review to found their action.
As part of the initial advice process in 2007, and prior to the claimants’ investment in the Portfolio, the bank sought information about the claimants’ financial situation and asked various questions designed to ascertain their attitude to risk. The bank prepared a risk and planning document, which set out its assessment that the claimants had a ‘balanced’ (meaning ‘medium’) attitude to risk and its recommendation that the claimants invest in the Portfolio accordingly. The bank used standard documents to explain the nature of the investment product and its risks to the claimants. In the 2008 review the bank ascertained that the claimant’s attitude to risk had not changed and advised that no immediate decision to be taken to sell the Portfolio. At all times the bank completed and kept documentary records.
Claimants’ case
The claimants argued that:
- As first-time investors in financial products, the bank’s standard documentation and the claimants’ own acceptance of the bank’s categorisation of their attitude to risk as ‘balanced’ was insufficient to determine the claimants’ understanding. The claimants contended that, in fact, their attitude to risk was ‘low’.
- The bank’s assessment in 2007 was therefore incorrect and its consequential investment advice was incorrect. That, in turn, led to a continuing mistake in 2008, when the bank found that the claimant’s attitude to risk had not changed. The continuing assessment at the point of the 2008 review amounted to a breach of the bank’s statutory duties (under Part 1 of Schedule 2 to the Financial Markets and Services Act 2000 and under the Conduct of Business Sourcebook Rules) and a breach a post-investment contractual obligation on the bank to correct an error.
- The claimant also contended that, in failing to carry out a fresh risk assessment, the bank had been negligent and had not carried out the 2008 review with reasonable care and skill.
Decision: for the defendant bank
The court held:
- As a result of the various enquiries and steps it had undertaken and, crucially, the contemporaneous records it had kept, the bank was able to demonstrate that it had complied with the relevant statutory rules and obligations, and that the claimants had been made aware of, and understood, the assessment of their attitude to risk and the nature of, and risks with, the Portfolio.
- The bank’s use of standardised documentation was sufficient.
- There was therefore no error for the bank to correct in 2008, and even if there had been, the bank was under no continuing duty: no such contractual duty existed and the bank’s duty of care towards the claimant was simply to conduct the review with reasonable care and skill.
- It was sufficient to discharge the duty of care for the bank to ascertain that the claimants’ attitude to risk had not changed by 2008.There was no legal obligation for the bank to conduct a fresh assessment.
- It was reasonable, in all the circumstances, for the bank to maintain the assessment of the claimants’ attitude to risk as medium and to advise, in 2008, that no immediate decision be taken to sell the Portfolio. The claimants’ claims failed on all counts.
WM Comment and practical points to note
All too often, although financial institutions and advisors may well have acted reasonably and correctly, a lack of contemporaneous note-taking, procedural errors or omissions and/or poor recording keeping can mean that they face difficulties when defending themselves, and can be forced into making settlements. That can be a very bitter pill to swallow. In this case the judge placed significant emphasis on the bank’s documentary evidence of the policies and procedures it followed, the information it sought from the claimants and the analysis and assessment it undertook. That evidence proved priceless in getting the bank the decision it deserved.
Financial institutions would be well advised to keep their policies, internal processes, standard documents and pre- and post- contract information and record-keeping under review, and to train staff as to the importance of compliance with procedures and completion of documentation. As well as minimising the scope for complaints or claims, and alongside assisting excellent customer service, the new Consumer Rights Act 2015 highlights the importance, now more than ever, of clearly and transparently getting the right information to the customer every time.
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[1] Philip Worthing (1) and Wendy Worthing (2) v Lloyds Bank Plc [2015] EWHC 2836 (QB)