QUEEN'S BENCH DIVISION
Strand, London, WC2A 2LL
B e f o r e :
| The Governor and Company of the Bank of Scotland
|- and -
|Euclidian (No. 1) Limited and Others
Andrew Popplewell QC and Harry Matovu (instructed by CMG Law) for the Defendants
Hearing dates: 8 ,9,10 and 17 May 2007
Crown Copyright ©
Mr Justice Field:
2. Arrangements with the Funder
(c) Where Underwriters avoid or repudiate the Certificate or deny payment of any claim under the Certificate on any grounds whatsoever, whether fraudulent or not, including without limitation non-disclosure, misrepresentation, breach of Certificate or Master Certificate terms and Conditions or the application of any Exclusion, then Underwriters shall without delay indemnify the Funder to the extent of the amount of the outstanding loan (together with accrued interest payable thereon to the Funder by the Assured) due at the date of avoidance, repudiation or denial aforesaid. This Condition shall constitute a separate agreement between the Funder and Underwriters. This is without prejudice to Underwriters right of recovery from the Assured or Appointed Representative.
The factual matrix
The Client Funding Agreement
The Binding Authority Agreements
The Master Certificate of Insurance
2. Arrangements with the Funder
(c) Where the Certificate becomes void or voidable in the circumstances set out in Condition 3(a), 3(b), 4, or 6 or where Exclusion 3 applies, provided that the Appointed Representative is able to satisfy Underwriters that the circumstances entitling Underwriters to void or avoid the Certificate were not known by, nor should they have been known by, the Appointed Representative and were not the result of any negligence on the part of the Appointed Representative then, notwithstanding the avoidance of the Certificate, Underwriters shall reimburse the Funder in respect of the Premium and Loan Interest but shall be entitled to recover from the Assured the amount of that indemnity.
2 (a) It is a condition of this Master Certificate and the Certificate that the terms and conditions of the loan facilities made available by the Funder in respect of the payment of the Premium and Own Disbursements shall be strictly adhered to including the terms of repayment of the loan. In the event that the terms of repayment of the loan are not complied with, the Funder shall be entitled (but is not obliged) to require Underwriters through Underwriters' Representative to cancel the Certificate with immediate effect and the premium received by Underwriters will be forwarded to the Funder and used by way of reduction of the outstanding loan. No other amounts shall be repayable by Underwriters if the Certificate is so cancelled.
The operation of the CBUK scheme
"I agree to ...
Claims Bureau UK Ltd issuing a C.B.U.K. LITIGATION INSURANCE POLICY to cover own disbursements, third party costs and third party disbursements. The cost of the policy is £750 plus I.P.T. which will be paid to Claims Bureau UK Ltd by my appointed solicitor as a disbursement on my behalf. I FULLY UNDERSTAND THAT ANY UNRECOVERED INSURANCE POLICY PREMIUM OR PART THEREOF WILL BE DEDUCTED FROM ANY DAMAGES/COMPENSATION THAT ARE RECOVERED ON MY BEHALF.
I AUTHORISE Claims Bureau UK Ltd to receive any monies on my behalf and to deduct from those monies any of its charges which remain outstanding and account to me for the balance."
If you win your claim, you pay our basic charges, our disbursements and a success fee. The amount of these is not based on or limited by the damages. You are entitled to seek recovery from your opponent of part or all of our basic charges, our disbursements, a success fee and the insurance premium. ...
If you lose, you must pay your opponent's charges and disbursements, your own disbursements and the premium plus any related loan interest, however you have taken out insurance cover against these risks through Claims Bureau (UK) Limited. ... If you lose, you do not pay our charges.
Claims Bureau (UK) Limited Litigation Insurance Cover
Claims Bureau (UK) Limited Litigation Insurance cover is only made available to you by solicitors who have joined the scheme.
You agree to pay a premium of £750.00 plus IPT for your Claims Bureau (UK) Limited Litigation Insurance Certificate of Insurance when you sign this agreement, although to ease the financial burden upon you we will arrange for this premium to be paid on your behalf. We undertake that the premium will be sent to Claims Bureau (UK) Limited on your behalf. If you lose your Claims Bureau (UK) Limited Litigation Insurance Certificate will cover your opponent's charges and disbursements, your own disbursements that we have incurred on your behalf and the premium plus any related loan interest. The maximum amount that the Underwriters will pay out in any event is £25,000.
If this agreement ends before your claim for damages ends, your Claims Bureau (UK) Limited Litigation Insurance Certificate ends automatically at the same time."
The meaning and effect of the clause
The underwriters'submissions on the wording of the first part of the clause.
Where Underwriters avoid or repudiate the Certificate or deny payment of any claim under the Certificate on any grounds whatsoever, whether fraudulent or not, including without limitation non-disclosure, misrepresentation, breach of Certificate or Master Certificate Terms and Conditions or the application of any Exclusion then …
The certificate of insurance issued by the Coverholder to the Assured which specifies the Premium and a summary of the terms, Limit of Indemnity, Exclusions and Conditions contained in this Master Certificate.
An individual (including his heirs and assigns), who has signed an agreement with the Coverholder and a Conditional Fee Agreement with the Appointed Representative, and who has been issued with a Certificate by the Coverholder and whose insurance cover under this Master Certificate has been declared to Underwriters through the procedures agreed with Underwriters' Representative.
An enforceable agreement in writing between the Assured and the Appointed Representative entered into pursuant to Section 58(1) of the Courts and Legal Services Act 1990 as defined in the Conditional Fee Agreement Order 2000.
The underwriters' submissions on the second part of the clause.
Underwriters shall without delay indemnify the Funder to the extent of the amount of the outstanding loan (together with accrued interest payable thereon to the Funder by the Assured) due at the date of avoidance, repudiation or denial aforesaid.
The Bank's submissions on the wording of the clause
The non-construction issues
Is the clause a "security" for the purpose of section 113 (1) of the Act?
Where a security is provided in relation to an actual or prospective regulated agreement, the security shall not be enforced so as to benefit the creditor or owner, directly or indirectly, to an extent greater (whether as respects the amount of any payment or the time or manner of its being made) than would be the case if the security were not provided and any obligations of the debtor or hirer or his relative under or in relation to the agreement were carried out to the extent (if any) to which they would be enforced under this Act.
"security", in relation to an actual or prospective consumer credit agreement or consumer hire purchase agreement, or any linked transaction, means a mortgage, charge, pledge, bond, debenture, indemnity, guarantee, bill note or other right provided by the debtor or hirer, or at his request (express or implied), to secure the carrying out of the obligations of the debtor or hirer under the agreement.
In order to "request" the security, even impliedly, the debtor must at least know of its existence. For example, a recourse clause in the master agreement between a finance house and its dealer, whereby the dealer guarantees the indebtedness of its customers under higher-purchase agreements between those customers and the finance house (the existence of which the customers are usually unaware), as in Unity finance limited v Woodcock  1 WLR 455, is not a "security" within the Act
Are the loan agreements unenforceable by reason of the terms of the cancellation notices contained in the pink and yellow versions?
YOUR RIGHT TO CANCEL
Once you have signed you will have for a short time a right to cancel this agreement. You can do this by sending or taking a Written notice of cancellation to Bank of Scotland [address]. If you cancel this agreement, any money you have paid, goods given in part-exchange (or their value) and property given as security must be returned to you. You will not have to make any further payment.
Note: Your notice of cancellation will not affect your contract of insurance. [Italicised emphasis added]
This is a copy of your agreement for you to keep. It includes a notice about your cancellation rights which you should read.
YOUR RIGHT TO CANCEL
You have a right to cancel this agreement. You can do this by sending or taking a Written notice of cancellation to Bank of Scotland ….You have Five Days starting with the day after you received this copy. You can use the form provided. If you cancel this agreement, any money you have paid, goods given in part-exchange (or their value) and property given as security must be returned to you. You will not have to make any further payment.
Note: Your notice of cancellation will not affect your contract for insurance. [Italicised emphasis added]
(Complete and return this form ONLY IF YOU WISH TO CANCEL THE AGREEMENT).
To: Bank of Scotland, [address]
I/We hereby give notice that I/We* wish to cancel agreement.
[Note: Your notice of cancellation will not affect [your contract for life assurance] [your contract for insurance] [your contract of guarantee] [your contract to open a current account] [your contract to open a deposit account]4
The submissions advanced on behalf of the underwriters
The submissions advanced on behalf of the Bank
Beyond the points on which I have expressed a view I have found the arguments on each side finely balanced and I confess that my mind has fluctuated. In the end, however, I have reached the conclusion that the Bank's contentions are to be preferred. While I find no single argument to be conclusive, there is one which I have found to be particularly impressive. Mr. Howard's submission that parliament cannot have intended the Bank to make a misleading statement appeared at first sight to be a telling point. But if Goshawk were right in saying that the creditor is obliged, when considering whether or not he is required to include the relevant note, to form a view whether cancellation of part of what may be (and in this case is) a complex transaction involving a number of separate elements will in any manner at all "affect" an insurance policy which is another of those elements, the means adopted by the legislature for the communication of that view to the debtor would be wholly inadequate. The creditor is not enabled to give advice to the debtor. If he concludes that the cancellation will "affect" the policy (in the sense of "affect" contended for by Goshawk) all the creditor can do is to omit the relevant note. He cannot add words of explanation as to what sort of effect he envisages. Still less can he indicate any element of doubt. If a statement that the notice of cancellation of the credit agreement will not affect an insurance policy is to be taken as meaning that the cancellation will not have any kind of effect, direct or indirect, then the silence which would result from the creditor concluding that the notice would affect the policy would be no less misleading than an erroneous statement will not affect the policy. These problems will not arise if the legislative provisions are construed in the more limited sense contended for by Mr. Butcher. In my judgment this represents the correct view.
The issues determined
(PI Claimant means "Personal Injury Claimant")
It is agreed that condition 2 (c) constitutes a collateral contract between the Claimant and the Defendant in its own right. There may be some dispute as to whether the collateral contract is an overarching contract or whether there were individual collateral contracts but I am not asked to determine to this question.
2.1 The PI claimant did not exist.
No. For the reasons given in paragraphs 47-48 and 50-51 above the clause does not require there be a Certificate as defined or an Assured as defined.
2.2 The PI claimant's signature on the loan agreement was forged.
No, for the reasons given in paragraphs 47-51 above the clause does not require that there be an enforceable loan obligation or an Assured as defined.
2.3 The loan agreement between the PI claimant and the Claimant is void under the principle of non est factum.
See answer to 2.2
2.4 The loan agreement between the PI claimant and the Claimant is
unenforceable as a result of a failure to comply with the requirements of the Consumer Credit Act 1974 and any regulations made thereunder.
No, for the reasons given in paragraphs 49 and 51 above
2.5 The terms of the loan agreement have not been strictly adhered to.
It was agreed between the parties that this issue is no longer in play.
2.6 The PI claimant had not in fact sustained personal injury.
This question contemplates that the certificate of insurance was issued outside the authority of the binder because the claim was not vetted. It also raises the issue whether there must be a Certificate as defined. The answer is No, for the reasons given in paragraphs 47-48 and 50-51 above.
2.7 The claimant had not signed an agreement with CBUK.
No, for the reasons given in paragraphs 47-48 and 50-51 above the clause does not require that there be a Certificate as defined or an Assured as defined.
2.8 The PI claimant had not entered into a Conditional Fee Agreement which complied with section 58 of the Courts and Legal Services Act 1990 and the Conditional Fee Agreement Order 2000.
See the answer to 2.7.
2.9 The certificate of insurance issued to the PI claimant was unauthorised and is not binding upon the Defendants.
No, for the reasons given in paragraphs 47-48 and 50-51 above.
2.10 The certificate of insurance issued to the PI claimant pre-dated the execution of the agreement between CBUK and the PI claimant and /or the execution of a CFA.
See the answer to 2.7.
2.11 The PI claimant's claim had been accepted into the scheme and/or pursued without due care and diligence.
This question contemplates departures from the scheme that would be inconsistent with the definitions of Certificate and Assured. The answer is No, for the reasons given in paragraph 49 and 50-51 above
2.12 The PI claimant's claim had been accepted into the scheme and/or pursued contrary to the terms of the Operations Manual.
See the answer to 2.11
2.13 The PI claimant's claim had been accepted and pursued under the Scheme in a manner which had prejudiced the Defendants' position.
See the answer to 2.11.
3. If the answer to question 2.4 above is yes, whether a loan agreement concluded between the Claimant and a PI claimant is unenforceable by reason of the fact that the notice of cancellation included a note stating. "Your notice of cancellation will not affect our contract of insurance."
This question does not arise given the answer No to question 2.4