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Ashfords has
the largest specialist corporate finance and commercial team west
of Bristol. It has an international client reach and London delivery
through serviced office in Northumberland Avenue, Trafalgar Square.
Our position as a heavyweight regional law firm, requires a dedicated
finance practice and our finance unit operates as part of the strong
Exeter Corporate team acting for banks, government agencies and
corporates on some of the most complex and innovative financing
transactions in the region. Our expertise includes acquisition finance,
secured lending, structured finance, syndicated lending, project
finance, trade finance, asset finance and restructurings. Our goal
is to be pragmatic and commercial in providing effective and quick
service.
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Walker
Morris
Kings Court
12 King Street
Leeds LS1 2HL
DX: 12051 Leeds 24 |
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Banks
have always needed to manage their relationships with customers carefully,
particularly when dealing with those who are in debt. A recent case
has highlighted the benefits of taking a sensitive approach with customers
who blame their bank for their own indebtedness.
In Wright v
HSBC [1] , the customer, Mrs Wright, claimed damages from HSBC (the
Bank) for misrepresentation, undue influence and duress and a failure
to give proper advice in relation to the cancellation of a life
insurance policy. The customer and her husband had an unsatisfactory
borrowing history at the Bank with whom they had taken out a mortgage
and overdraft facilities.
Mr and Mrs Wright
met with a financial planning manager from the Bank, with the aim
of reducing their outgoings. This resulted in a restructuring of
their borrowing, with their joint life insurance policy being cancelled
and replaced with a pension plan with insurance. The Wrights subsequently
complained to a senior compliance officer for the Bank that they
had been pressured into setting up the pension plan. The Bank concluded
that the financial planning manager had not mis-sold the product
to the Wrights, but offered to settle the pension term insurance
claim at approximately £500.
Mr Wright died
that month, and the following month a representative of the Bank
met with Mrs Wright to discuss her indebtedness. During the meeting,
the settlement of the claim with the Bank was discussed, as was
the possibility of Mrs Wright selling her home and purchasing a
smaller property. Mrs Wright subsequently accepted the Bank's offer,
on the condition that it provided her with a mortgage on the new
home she was purchasing, and overdraft facilities. When she then
began to incur further debt, she claimed that she had not been in
a fit state to make any decisions at the meeting with the Bank following
her husband's death, and claimed that the settlement agreement should
not be binding.
The High Court
rejected all of her claims and held that the Bank had acted properly
towards Mrs Wright throughout. The Bank had been entitled to demand
the money owed by the Wrights, and the Court held that had it done
so, it would have been well within its legal rights. However, the
Bank did not put the customer under pressure (owing to her vulnerable
position following the death of her husband), nor did it make it
a condition of continued lending that Mrs Wright give up her claims.
Under the 'sensitive hand' of the senior compliance officer, the
Bank sought a mutually agreeable way forward. The Bank had also
encouraged Mrs Wright to seek independent legal advice in connection
with the settlement agreement, but she had not done so. The judge
held that the facts did not support a finding of undue influence
or duress.
The Bank's success
in this case is a reminder of the need for banks to tread carefully
when seeking to safeguard their commercial interests against debtors,
particularly vulnerable ones. Many customers in financial difficulty
will require sensitive treatment and any claims should be dealt
with diplomatically, even where the bank is within its rights to
pursue more direct methods of recovering the debt. Getting the balance
right is not easy, and, as this case shows, even where banks act
ethically litigation may be unavoidable.
The position
for mortgage lenders may shortly become even more delicate. A new
bill introduced to Parliament in May – the Regulation of Mortgage
Repossessions Bill – is intended to assist responsible borrowers
who default on their mortgage repayments owing to circumstances
beyond their control, for example through unemployment or ill health.
Whilst the Bill may not make it onto the statute book (Parliamentary
time may not allow it) some of the proposals are radical and include:
• a pre-action
protocol for mortgage repossessions
• taking
a number of factors into consideration before a repossession order
is made, including any irresponsible lending, the effect on children
of a forced repossession, the duration of the occupation, and the
level of equity in the property.
If the Bill
becomes law, lenders will need to adjust their current policies
and practices. Watch this space.
[1|2006]
EWHC 930 (QB)
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