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Finance litigation briefing: report and review on the latest cases and issues
Finance litigation briefing: report and review on the latest cases and issues - Lexology
Notice of assignment
Notice of assignment can be given by either the assignee or assignor under the Consumer Credit Act 1974 (CCA).
This was the High Court's finding in Smith v 1st Credit (Finance) Ltd and another. Smith was notified by her credit card company that her credit card debt had been assigned to 1st Credit. 1st Credit wrote to Smith shortly afterwards confirming the assignment and advising how payment could be made. Smith failed to pay and was made bankrupt by 1st Credit which subsequently repossessed and sold Smith's property.
Some two and a half years after it was made, Smith applied to annul the bankruptcy order on several grounds including whether she had been given adequate notice of assignment of the debt under s82A of the CCA (s 82A). S82A requires an assignee to "arrange for notice of the assignment to be given to the debtor".
The High Court held that, from the evidence available, it was clear that the assignee had written to Smith notifying her of the assignment to 1st Credit and that 1st Credit had confirmed this to Smith in writing. Subsequent correspondence between 1st Credit and Smith also made reference to the assignment and demanded payment. While some of the correspondence referred to the assignee as 1st Credit's client, it made it clear that Smith should reply to 1st Credit and that it would bring the legal proceedings.
Although there were minor inconsistencies, the judge found that notice of the assignment had clearly been given. The wording of s82A does not oblige the notice to be given by the assignee itself: it can be given either by the assignee or assignor.
Things to consider
In any event, in cases such as this - where the debt undoubtedly existed, had not been paid and there had been a long delay in making the annulment application - the court would be justified in exercising its discretion to uphold the bankruptcy order; even if there had been some minor irregularity, which there wasn't here.
Mortgagee not bound by tenancy agreement
Simply accepting payments from a tenant of a property without anything more, will not prevent a mortgagee from repossessing the property.
So held the High Court in Paratus AMC Ltd v Persons Unknown & Anor. The claimant lender advanced a sum of money for the purchase of a property secured by a mortgage. The mortgage deed precluded leases of the property without the lender's consent. The mortgage fell into arrears.
Unbeknown to the lender, in 2009 a five-year tenancy agreement came into existence and the tenant (F) subsequently contacted the lender and began to pay instalments that were accepted as payments on the borrower's behalf. The lender claimed that it was not until it commenced possession proceedings that it became aware F was in fact a tenant of the property. F submitted that the lender had accepted the payments as payment of the mortgage and arrears and it would be unconscionable to grant an order for possession.
The court held that the tenancy agreement had been entered into some time after the mortgage had been registered and so was not binding on the lender. Although F had made payments (albeit sporadic) and had spoken to the lender about these, there was no evidence to suggest the lender had expressly or impliedly consented to her becoming a tenant, or to the tenancy agreement becoming binding on it. There had been no representation, encouragement or assurance given by the lender that gave rise to an estoppel argument or waiver of the lender's right to repossess.
Things to consider
Had the lender known of the tenancy agreement and made representations or assurances in relation to her becoming a tenant or treating the tenancy as binding, the position on repossession would have been different.
Timing of bankruptcy order
Where there is no answer to a bankruptcy petition and no injustice can be shown, the court can allow a bankruptcy order to stand; even where the order was made earlier than it should have been.
In Regis Direct Ltd v Hakeem, Regis obtained a default costs order in litigation against Hakeem. Hakeem's appeal against the costs order was refused and Regis served a statutory demand. Hakeem applied to set the statutory demand aside but the court erroneously refused to process the application.
In the meantime, unaware of the application to set aside, Regis petitioned for Hakeem's bankruptcy. Despite telling the judge about his outstanding application, the judge made the bankruptcy order. Three days later Hakeem's application was summarily dismissed. Hakeem appealed against the bankruptcy order on the basis that at the time it was made there was an outstanding application. It argued that Regis should not have presented the petition and the court had no jurisdiction to make the order.
The High Court held that where a petitioner knew there was an outstanding application to set aside a statutory demand, it was not in a position to present a bankruptcy petition. However, Regis had not received any notice of the application at the time of issuing the petition, so the petition was correctly presented to the court.
The judge had, however, erred in making the bankruptcy order at that time and should have adjourned the petition until after the hearing of the application. The petition could then have been restored once the application to set aside had been dealt with.
Although the bankruptcy order should not have been made when it was, as Hakeem's application was dismissed only three days after the order had been made, the correct course was to permit the bankruptcy order to stand. Hakeem had presented no evidence to show he had any answer to the petition.
Things to consider
This is a sensible judgment which will save the petitioner the time and costs of having to reissue the bankruptcy petition where the outcome would have been the same even had the original petition hearing date been postponed for a very short period.
CFA funding does not of itself lead to an adverse costs order
The High Court has reaffirmed that solicitors acting for impecunious clients upon a conditional fee agreement (CFA) will not be liable for adverse costs simply because they are acting upon that basis. This is so even if they are also funding disbursements and there is no after the event (ATE) insurance in place.
This was the position in Tinseltime Ltd v Roberts and others. The claimant's solicitors were instructed on a CFA basis. There was no ATE insurance due to the claimant's financial difficulties and the solicitors knew the claimant was impecunious. The claim was substantially struck out and the remainder dismissed when the claimant failed to make an interim payment on account of costs to the defendants. The claimant then went into liquidation.
The defendants sought a non-party costs order against the claimant's solicitors for the costs of the substantive proceedings. They alleged the claimants' solicitors were a non-party funder which had had control, or substantive control, over the litigation and had acted improperly, unreasonably or negligently.
The court held there was no evidence to establish that the solicitors had acted improperly, unreasonably or negligently, or below the usual standard of care to be expected of solicitors in their position.
The court held that solicitors acting under a CFA could be made liable for a non-party costs order where:
None of the above applied in this case. The solicitors were simply acting under a CFA and funding the disbursements, the money for which would be reimbursed if the claim was won. There was nothing to indicate that the solicitors thought they were going to receive substantial fee income and a significant success fee and there was no evidence that they had controlled the litigation. The solicitors could not be criticised or be made liable for costs for taking on a genuine case on a basis permitted by law.
Things to consider
Solicitors will not be liable for adverse costs simply because they are instructed in the litigation on a CFA (or, in future, a damages-based agreement/contingency fee) basis. There has to be more, together with control of the litigation over and above what would be the norm.
No transfer at an undervalue
If there is no evidence of a transfer at an undervalue, or of an intent to place an asset beyond the reach of creditors, the court will not set aside a transfer of property.
This was confirmed by the High Court in Withers LLP v Harrison-Welch and others. The claimant had initially acted for the first defendant in ancillary relief proceedings. The first defendant subsequently terminated the retainer and continued the claim as a litigant in person. Her current husband (the second defendant) had lent her the money to fund that litigation, selling his home and moving into her property in order to do so.
The first defendant transferred her property into the joint names of herself and her new husband, transferring 99 per cent of the beneficial interest in it to him. The claimant subsequently obtained a judgment against the first defendant in relation to its costs which had remained unpaid and then obtained a charging order over her interest in the property.
The claimant sought to set aside the transfer of the property as a transaction at an undervalue, pursuant to ss423 - 425 of the Insolvency Act 1986.
Dismissing the application, the High Court held that the transfer of equity was not a gift for no consideration even though the transfer document stated that no consideration had passed. The transfer was in consideration of the first defendant's legal costs having been paid for her. The sum that the husband had transferred to the first defendant to meet those costs exceeded the value of the equity in the property transferred to him. The transfer of the equity was not therefore a transfer at an undervalue.
There was no evidence either that the transaction had been entered into in order to put the asset beyond the reach of the defendant's creditors', or to otherwise prejudice such creditors' interests.
Things to consider
Although in this case the transfer had placed the property beyond the claimant's reach, the transaction had occurred to repay the first defendant's obligation to her husband who had financially supported her. It was not intended to thwart the claimant's (or any other creditor's) interests: that was merely a by-product.
Finance litigation briefing: report and review on the latest cases and issues - Lexology
Notice of assignment
Notice of assignment can be given by either the assignee or assignor under the Consumer Credit Act 1974 (CCA).
This was the High Court's finding in Smith v 1st Credit (Finance) Ltd and another. Smith was notified by her credit card company that her credit card debt had been assigned to 1st Credit. 1st Credit wrote to Smith shortly afterwards confirming the assignment and advising how payment could be made. Smith failed to pay and was made bankrupt by 1st Credit which subsequently repossessed and sold Smith's property.
Some two and a half years after it was made, Smith applied to annul the bankruptcy order on several grounds including whether she had been given adequate notice of assignment of the debt under s82A of the CCA (s 82A). S82A requires an assignee to "arrange for notice of the assignment to be given to the debtor".
The High Court held that, from the evidence available, it was clear that the assignee had written to Smith notifying her of the assignment to 1st Credit and that 1st Credit had confirmed this to Smith in writing. Subsequent correspondence between 1st Credit and Smith also made reference to the assignment and demanded payment. While some of the correspondence referred to the assignee as 1st Credit's client, it made it clear that Smith should reply to 1st Credit and that it would bring the legal proceedings.
Although there were minor inconsistencies, the judge found that notice of the assignment had clearly been given. The wording of s82A does not oblige the notice to be given by the assignee itself: it can be given either by the assignee or assignor.
Things to consider
In any event, in cases such as this - where the debt undoubtedly existed, had not been paid and there had been a long delay in making the annulment application - the court would be justified in exercising its discretion to uphold the bankruptcy order; even if there had been some minor irregularity, which there wasn't here.
Mortgagee not bound by tenancy agreement
Simply accepting payments from a tenant of a property without anything more, will not prevent a mortgagee from repossessing the property.
So held the High Court in Paratus AMC Ltd v Persons Unknown & Anor. The claimant lender advanced a sum of money for the purchase of a property secured by a mortgage. The mortgage deed precluded leases of the property without the lender's consent. The mortgage fell into arrears.
Unbeknown to the lender, in 2009 a five-year tenancy agreement came into existence and the tenant (F) subsequently contacted the lender and began to pay instalments that were accepted as payments on the borrower's behalf. The lender claimed that it was not until it commenced possession proceedings that it became aware F was in fact a tenant of the property. F submitted that the lender had accepted the payments as payment of the mortgage and arrears and it would be unconscionable to grant an order for possession.
The court held that the tenancy agreement had been entered into some time after the mortgage had been registered and so was not binding on the lender. Although F had made payments (albeit sporadic) and had spoken to the lender about these, there was no evidence to suggest the lender had expressly or impliedly consented to her becoming a tenant, or to the tenancy agreement becoming binding on it. There had been no representation, encouragement or assurance given by the lender that gave rise to an estoppel argument or waiver of the lender's right to repossess.
Things to consider
Had the lender known of the tenancy agreement and made representations or assurances in relation to her becoming a tenant or treating the tenancy as binding, the position on repossession would have been different.
Timing of bankruptcy order
Where there is no answer to a bankruptcy petition and no injustice can be shown, the court can allow a bankruptcy order to stand; even where the order was made earlier than it should have been.
In Regis Direct Ltd v Hakeem, Regis obtained a default costs order in litigation against Hakeem. Hakeem's appeal against the costs order was refused and Regis served a statutory demand. Hakeem applied to set the statutory demand aside but the court erroneously refused to process the application.
In the meantime, unaware of the application to set aside, Regis petitioned for Hakeem's bankruptcy. Despite telling the judge about his outstanding application, the judge made the bankruptcy order. Three days later Hakeem's application was summarily dismissed. Hakeem appealed against the bankruptcy order on the basis that at the time it was made there was an outstanding application. It argued that Regis should not have presented the petition and the court had no jurisdiction to make the order.
The High Court held that where a petitioner knew there was an outstanding application to set aside a statutory demand, it was not in a position to present a bankruptcy petition. However, Regis had not received any notice of the application at the time of issuing the petition, so the petition was correctly presented to the court.
The judge had, however, erred in making the bankruptcy order at that time and should have adjourned the petition until after the hearing of the application. The petition could then have been restored once the application to set aside had been dealt with.
Although the bankruptcy order should not have been made when it was, as Hakeem's application was dismissed only three days after the order had been made, the correct course was to permit the bankruptcy order to stand. Hakeem had presented no evidence to show he had any answer to the petition.
Things to consider
This is a sensible judgment which will save the petitioner the time and costs of having to reissue the bankruptcy petition where the outcome would have been the same even had the original petition hearing date been postponed for a very short period.
CFA funding does not of itself lead to an adverse costs order
The High Court has reaffirmed that solicitors acting for impecunious clients upon a conditional fee agreement (CFA) will not be liable for adverse costs simply because they are acting upon that basis. This is so even if they are also funding disbursements and there is no after the event (ATE) insurance in place.
This was the position in Tinseltime Ltd v Roberts and others. The claimant's solicitors were instructed on a CFA basis. There was no ATE insurance due to the claimant's financial difficulties and the solicitors knew the claimant was impecunious. The claim was substantially struck out and the remainder dismissed when the claimant failed to make an interim payment on account of costs to the defendants. The claimant then went into liquidation.
The defendants sought a non-party costs order against the claimant's solicitors for the costs of the substantive proceedings. They alleged the claimants' solicitors were a non-party funder which had had control, or substantive control, over the litigation and had acted improperly, unreasonably or negligently.
The court held there was no evidence to establish that the solicitors had acted improperly, unreasonably or negligently, or below the usual standard of care to be expected of solicitors in their position.
The court held that solicitors acting under a CFA could be made liable for a non-party costs order where:
- the solicitors were to receive some financial benefit over and above the benefit to be expected under a CFA;
- there was control of the litigation over and above that which was usual of solicitors acting for a client; or
- there was a combination of both of the above.
None of the above applied in this case. The solicitors were simply acting under a CFA and funding the disbursements, the money for which would be reimbursed if the claim was won. There was nothing to indicate that the solicitors thought they were going to receive substantial fee income and a significant success fee and there was no evidence that they had controlled the litigation. The solicitors could not be criticised or be made liable for costs for taking on a genuine case on a basis permitted by law.
Things to consider
Solicitors will not be liable for adverse costs simply because they are instructed in the litigation on a CFA (or, in future, a damages-based agreement/contingency fee) basis. There has to be more, together with control of the litigation over and above what would be the norm.
No transfer at an undervalue
If there is no evidence of a transfer at an undervalue, or of an intent to place an asset beyond the reach of creditors, the court will not set aside a transfer of property.
This was confirmed by the High Court in Withers LLP v Harrison-Welch and others. The claimant had initially acted for the first defendant in ancillary relief proceedings. The first defendant subsequently terminated the retainer and continued the claim as a litigant in person. Her current husband (the second defendant) had lent her the money to fund that litigation, selling his home and moving into her property in order to do so.
The first defendant transferred her property into the joint names of herself and her new husband, transferring 99 per cent of the beneficial interest in it to him. The claimant subsequently obtained a judgment against the first defendant in relation to its costs which had remained unpaid and then obtained a charging order over her interest in the property.
The claimant sought to set aside the transfer of the property as a transaction at an undervalue, pursuant to ss423 - 425 of the Insolvency Act 1986.
Dismissing the application, the High Court held that the transfer of equity was not a gift for no consideration even though the transfer document stated that no consideration had passed. The transfer was in consideration of the first defendant's legal costs having been paid for her. The sum that the husband had transferred to the first defendant to meet those costs exceeded the value of the equity in the property transferred to him. The transfer of the equity was not therefore a transfer at an undervalue.
There was no evidence either that the transaction had been entered into in order to put the asset beyond the reach of the defendant's creditors', or to otherwise prejudice such creditors' interests.
Things to consider
Although in this case the transfer had placed the property beyond the claimant's reach, the transaction had occurred to repay the first defendant's obligation to her husband who had financially supported her. It was not intended to thwart the claimant's (or any other creditor's) interests: that was merely a by-product.