Lloyds "Victory" - A View of the Judgement

[rbrears]

Lloyds “Victory” – A VIEW OF THE JUDGMENT

 

 

There is a massive amount of activity in relation to the recent judgment by District Judge Cooke at the Birmingham County Court in favour of Lloyds TSB. Much of what is being written now on these forums relates to concerns that do not seem to me to be justified based on the actual judgment and the circumstances that lead to it.

 

I am posting this view of the judgement after reading it to try and help other users understand it better. Of course, the analysis is only my understanding and others may have different views which I welcome. It is my opinion that the judgement is of no legal relevance to the legal basis of claims for penalty charges and that its impact is being massively overstated by the media.

 

My comments are related only to the Berwick case. The other case being heard, that of Mr Haughton, was inevitably dismissed because he had not complied with the court’s order to provide a schedule of his charges and the judge therefore had no information about the extent of the charges themselves, let alone whether they were unenforceable.

 

The judgement can be found here:

 

http://news.bbc.co.uk/1/shared/bsp/hi/pdfs/15_05_07_bank_charge.pdf

 

Background:

 

The judge sets out in some detail the basis of the claim, that it is for bank charges, that they are penalties, exceed the bank’s losses, etc.

 

The bank defence is the service defence, i.e that the fees are for banking services. They say that there is no breach of contract and therefore the charges cannot be penalty charges.

 

At paragraph 14 Mr Berwick accepts that the contract is governed by the bank’s standard terms and conditions and that they contain terms permitting the bank to levy these charges and, further, that the circumstances permitting the bank to levy those charges did, in fact, occur – i.e. that he went overdrawn, exceeding an overdraft or had items returned unpaid, etc.

 

This is the crucial part of what starts the judge’s reasoning:

 

At para 14:

 

“I do not have in evidence a full set of terms and conditions applying to the account. The defence refers to a leaflet given to the customer when he opened his account, but does not attach that leaflet”.

 

This is the first issue the judge should have considered. CPR Practice Direction 16 Para 13 states that a party MAY attach documents to his statement of case (Particulars of Claim or Defence) that he considers necessary for his claim or defence. And of course Part 27 (Small Claims) disclosure provisions really do require that we as claimant's provide this document. The fact that the very document central to the claim had not been submitted by either party should have been of much more weight to the judge than it was. I would have expected that he would, in dealing with a litigant in person on the one hand, and a bank on the other, have adjourned the matter and asked the bank to provide the relevant document.

 

The judgment goes on at paras 15 and 16 to consider the text of the Current account charges pages taken from the bundle from Mr Berwick, which do not help much as the wording is couched in terms of fees rather than charges.

 

At paragraph 17 the judge says:

 

“ It is to be noted that none of the provisions I have been referred to contain any prohibition against the customer going overdrawn, or issuing a cheque or other payment instruction which, if honoured, would cause his account to go overdrawn or exceed an agreed overdraft limit.” He also mentions that the bank’s defence denies the existence of any such term.

 

The judge was absolutely rightly highlighting the fact that this was a glaring omission in the papers before him. So much so that he searched the internet himself to see if he could find any such terms and conditions. It is a pity his search was not more successful. The current terms and conditions are here, for business accounts and below for personal ones (I now have copies on my HD just in case!! and will send them to BF if he wishes):

 

http://www.lloydstsbcorporatemarkets.com/legal/tcaccounts.asp#4.%20Running%20your%20account

 

Lloyds TSB - Current account charges

 

The judge even goes onto say, having been unsuccessful in finding the current terms and conditions, that he would have given thought to including them in evidence and allowing Mr Berwick to make comments about them. This is a clear indication in judicial language that if he had seen them he would have included them as part of the evidence before him - in fact he did quote part of the personal terms but it is unclear whether this was from the documents already in the bundle or from the internet but failed in any event to take into account the most relevant passage.

 

Para 18

 

“I find it therefore ON THE EVIDENCE BEFORE ME that there is no express term of the contract between Mr Berwick and the bank of the type referred to above.” (Emphasis added).

 

This is the fatal blow to the claim that the charges are penalties.

 

The judge then goes onto say that there is not sufficient necessity to imply such a term into the contract.

 

Over the next paragraphs, from 19-23, the judge talks about the operation of bank accounts.

 

At paragraph 24 he says:

 

“It would nor doubt be possible to draw up a contract in which the customer was placed under an express obligation to ensure that there were at all times in his account sufficient cleared funds to meet any payment request authorised by him from that account on the day the payment fell to be made. Such a clause would be onerous for the customer…….”

 

The judge has just identified the terms and conditions of almost all banks – certainly Nat West and many others have exactly this term. Looking at the Lloyds T&Cs (link above) re business accounts paragraph 6.2.1. appears to me to be exactly the same:

 

“You should only overdraw your account with an overdraft limit agreed in advance with your Relationship Manager”. The words “ONLY” and “AGREED IN ADVANCE” constitute exactly the prohibition the judge was talking about.

 

 

And in respect of personal accounts the judge missed this bit:

 

 

"We use the balance on your account at the start of the day to make decisions on whether or not to pay cheques and other items presented for payment that day. Please make sure you have enough cleared money in your account at the close of business to cover any payments you have made (or cheques you have written) for the next day. We pay some cheques the same day as they are paid in".

 

 

This is equally a term requiring that in the proper running of the account there be a cleared balance OR the result will be a charge. This is, although not in as strong terms as the business account terms, a clear provision of the account showing that the fee (charge) will be imposed if you break the requirement of having cleared funds in the account or sufficient left on your agreed overdraft. At the very least it is a sure fire introduction into the argument about cloaked penalties. The term itself sets out that the fee arises purely on the happening of the event, and as such is a penalty or default charge, rather than a "fee". Even if if it is arguable that there wouldnt be a breach of the personal terms and conditions there is a very strong argument to follow the line very firmly stated by the OFT regarding cloaking the charge to make it look like something else. Personally my view is that there is a breach of a requirement by the bank. Note the "Please make sure....." I am convinced that the correct interpretation of the term is as a mandatory requirement. If you are required to make sure that you always do something then you are required always to do it.

 

The judge has specifically stated that such a term would be onerous for the customer. And there they are, in Lloyd’s own terms and conditions – the very sorts of term that Lloyds denied existed in their defence.

 

 

Para 29 - UCTA 1977

 

UCTA is dismissed as an argument because the Judge has found that there is no breach of contract.

 

Service Defence

 

The judge then goes on up to para 39 to talk about the service argument and essentially makes points about the “whole range of services” provided by the bank and the fact that such an exercise is simply not possible on the information he has. His evaluation of how one would measure unreasonableness in section 15 is interesting although certainly open to argument. My view is, and has always been, that the penalty charge argument is the correct focus and that suggesting artificially, as the Judge does, that going overdrawn (even in error) is a “deemed request” for banking services, is too fanciful and inaccurate in terms of how banks actually deal with the circumstances leading up to a default charge – sorry, to use banking language – “fee”.

 

Para 40. - UTCCR

 

Here the judge goes onto discuss UTCCR but the discussion is meaningless in the context of the claim because the judge has found that there was no breach of contract leading to the imposition of charges.

 

Conclusion

 

The claim failed entirely because the judge found no breach of contract. In fact the terms and conditions imposed by Lloyds bank DO contain a prohibition about going overdrawn or exceeding an agreed overdraft limit and so, in reality, although not on the evidence before him, the judge would have found that there was a breach of the agreement. The judgment would have been entirely different had the terms and conditions been before the judge on the day.

 

This case shows that it is for the Claimant to prove the claim. That means that you must have the terms and conditions in your court bundle. In fact, you really ought to have the terms and conditions that have applied to your account in various amended forms for the whole period for which you are claiming charges so that you can show that there has always been a contractual term that requires you not to go overdrawn or exceed an agreed overdraft limit.

 

As to appealing – it seems to me that the fact that the bank’s defence denied the existence of this term when it clearly is included in their terms and conditions is a good starting point for the appeal.

 

The judge really ought to have adjourned the hearing in my view and it is a great shame that he did not. As the judgement stands today it is of practically no relevance to the penalty charge argument by virtue of the fact that it was decided against the finding of fact that there was no breach of contract. As we have seen in reality bank’s terms and conditions are drafted such that the charges are imposed in circumstances of a breach of the agreement.

 

So, don’t stop – just be prepared. All the best everyone.

[rbrears]

Hi Muggy

 

Both are in the post above (as amended) - as I say although Lloyds take a softer approach in the personal terms and conditions, they are no different than saying, (using the polite "please"):

 

"Please note that you should keep sufficient funds in your account to cover any payments and if you do not then you will be charged".

 

Also note that on the bank's perspective the fee is for a service for personal customers but is a penalty default charge for business ones. There is merit in the comparison because it shows that in respect of personal account customers the bank is simply cloaking (whether by design or blind chance) what, in effect, is a charge for failing to have cleared funds in the account. I am convinced that the correct interpretation of the term is as a mandatory requirement, however worded, because the charge is only applied if you do not comply with the "usual" procedure of having cleared funds in the account. The fact that the bank says "Please MAKE SURE..." does not swing it with me. If you are required to "make sure" that you always do something then you are required always to do it.

 

Of the arguments that they are penalty charges, disguised penalties or service fees, the service fee interpretation is the least credible.

 

Hi Wayne,

 

I agree that maybe we should be compiling a library of T&Cs although the space and the number of people accessing it would be a problem perhaps. Maybe people should offer to email them to each other or exchange them in some other way.

[rbrears]

Hi Gaz,

 

The links are in post 1 above.

 

Regards.

[rbrears]

These are the only older Lloyds T&Cs I have been able to find.

July 27 2003

http://web.archive.org/web/20030727101005/http://www.lloydstsb.com/rates_and_charges/current_account_charges.asp

Oct 28 2004

Increase in charges amount

http://web.archive.org/web/20041028105038/http://www.lloydstsb.com/rates_and_charges/current_account_charges.asp

May 13 2005

Increase in charges amount

The relevant text also changes from:

1. Any unauthorised borrowing means extra work for us, we cover this by charging you the following fees:

to

2. Please make sure you have enough cleared funds in your account at the close of business the day before the payment is due to cover any payments that you wish to make.

http://web.archive.org/web/20050513221428/http://www.lloydstsb.com/rates_and_charges/current_account_charges.asp

Also note that these terms say, in respect of the Overdraft Excess Fee - “We will charge this when you go overdrawn by £10 or more above any agreed limit or £10 without any agreed limit. And in respect of the Unpaid Item Fee – “You’ll be charged this fee whenever there is not enough money in your account to make a payment…”

The fee is incurred at the time the overdraft is created or the lack of funds exists – no mention of it being a fee for any service and no mention of anything actually done that could constitute a service of any sort. So it is a charge triggered by circumstances and not by anything doine by the bank. If the bank had to provide a service for this fee then the T&Cs should say so and they don't because there isn't one - and as I have said the "service defence" is the most artificial interpretation of what happens in reality without a doubt. Since the previous T&Cs referred to “extra work for us” and this has not been specifically rebutted in the amendment to the T&Cs on the basis that the fee is now for a service then isn’t it acceptable to presume that the charges still relate to “extra work” in 2005 as they did in 2003 and 2004?

[rbrears]

Hi Memnoch,

 

I dont think the case is relevant. It is dealing with circusmstances where a contract requires a single payment for any breach, whether it be trifling or serious. The point is that the payment cannot represent a proper estimate of damages when it applies where there is a trifling financial loss as a result as well as when there is a substantial financial loss.