England and Wales High Court (Queen's Bench Division) Decisions

IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION

		Royal Courts of Justice Strand, London, WC2A 2LL
		06/04/2009

Mr Justice Blair :

1. This is an appeal by the Claimant, Mr Howard Rutherford, from a decision of His Honour Judge Simpkiss sitting in the Brighton County Court given on 31 October 2008. Permission to appeal from that decision was given by Mr Justice Eady on 12 March 2009. The Claim is one of many thousands bought in the County Courts to recover bank charges which are said to have been unfair. The vast majority of these have been stayed pending the outcome of a test case between the Office of Fair Trading (OFT) and a number of banks, including the defendant, HSBC Bank PLC. The decision appealed against was one by which the Judge refused to lift the stay that he had previously imposed on the claim on 12 October 2007.
2. Mr Rutherford has been a customer of HSBC since 1991. I am told that he is now a retired man, and is registered for disability benefit. The evidence is relatively limited, but it seems that from about 2001, he began to get into some financial difficulties. The schedule annexed to his claim shows bank charges increasing from £27.50 in March 2001 to a total of £3,226 by 30 August 2007. His claim is to recover that sum together with interest, which he says he is entitled to recover at the same rate as that which he was charged by the bank, namely 19.1%. I was told that this brings the current value of his claim to £6,110. The last charge was levied on the account on 30 August 2007, since when the account has been largely dormant. I am told that the account is currently overdrawn by £2,685, a figure which (as I understand it) is effectively frozen while the stay continues. The Judge insisted as a term of the stay that HSBC ceased to press Mr Rutherford for repayment of this money. It appears that he now uses the services of a different bank.
3. Unfortunately however, Mr Rutherford's story does not end there. His home in Hailsham, East Sussex, is subject to a mortgage in favour of a company called GE Money Mortgages Ltd. I am told that the arrears are now about £9,000 (when taking account of the share of his former wife). That may not seem a large sum, but I am sure that it is a great deal of money so far as Mr Rutherford is concerned. At the outset of the hearing, I was shown a Notice of Eviction dated 26 March 2009 that states that the court has issued a warrant for the possession of the house, and that eviction will take place on 7 April 2009 at 12pm. Mr Rutherford says if only he was able to pursue his claim against HSBC, he would be able to pay off some of the arrears, and would be able to keep his home.

The test case

4. As is well known, by early 2007 the volume of claims being commenced in the County Courts challenging the fairness of bank charges was placing an unmanageable burden on the system. The Office of Fair Trading had initiated an investigation into the fairness of the charges, but there were various unresolved legal questions, particularly as to the scope of the Unfair Terms in Consumer Contracts Regulations 1999. By an agreement made on 25 July 2007 between the OFT, various banks and the Financial Services Authority (which is the regulator of the institutions concerned) it was agreed that these issues were best determined in a test case. I understand that shortly after the test case began, Moore-Bick LJ, the Deputy Head of Civil Justice, indicated that each case should be considered on its own merits with a separate discretionary exercise, but that there might well be thought to be a case for staying most of these proceedings pending a resolution of the test case.
5. On 24 April 2008, Andrew Smith J rejected the banks' case that the OFT is not entitled to assess the fairness of the charges in question: see The Office of Fair Trading v Abbey National PLC and others [2008] EWHC 875 (Comm). On 26 February 2009, the banks' appeal was dismissed by the Court of Appeal: see [2009] EWCA Civ 116. Following judgment on 26 February, a note was read in open court by the Master of the Rolls on behalf of the Court of Appeal as follows:

1. The court is conscious that there are a large number of actions in the county court which raise the fairness of various bank charges and which are at present stayed or on hold pending the outcome of the OFT proceedings.

2. When those proceedings were before Andrew Smith J he twice referred to the position in the county courts. We refer only to the second occasion. He handed his judgment down on 24 April 2008 and at a subsequent case management conference held in late May 2008, at which permission to appeal to the Court of Appeal was given he said this:

" … as we are all conscious, the proceedings in the county courts have been on hold, if not formally stayed, pending guidance, we hope, from this litigation, and at each stage, I had been considering whether there is any reason that that position should change. I hardly need to acknowledge again that the management of the county court proceedings is not for me or the High Court but for the county courts. But the reasons that those actions should not proceed seem to me as strong as they were and will remain so until any appeal by the banks on whether regulation 6(2)(b) applies is resolved.

We understand that that guidance was subsequently communicated to the county courts by letters on behalf of all the Banks. It was in our opinion very sensible guidance.

3. The Banks' appeal to the Court of Appeal has now failed and we have now refused permission to appeal to the House of Lords. The Banks are of course entitled to apply to the House of Lords for permission to appeal. While recognising (as Andrew Smith J did) that management of county court proceedings is not in the first instance for us, any more than the High Court, it does seem to us that there is much to be said for the present position in the county courts to remain as it is until the House of Lords has decided whether to grant permission to appeal and, if it does, until the determination of the appeal. We also think that, if the decision of the Court of Appeal stands, there is much to be said for the status quo to remain until the OFT has carried out its assessment of fairness.

4. We have asked Moore-Bick LJ, as the Deputy Head of Civil Justice to consider the position, and he has decided to send a letter in the following terms to all Designated Civil Judges:

"As you may already know, the Court of Appeal has dismissed the appeal in the Bank Charges litigation, holding that the OFT is entitled to investigate the fairness of the terms which provide for the payment of charges for unauthorised overdrawing etc. There was no appeal on the penalty issue on which the Banks won below.

Permission to appeal to the House of Lords has been refused, but the matter does not end there, both because the Banks may petition their Lordships for permission to appeal and because unless the decision of the Court of Appeal is overturned, the OFT will now have to complete its investigation in order to determine whether the charges are unfair or not.

As you will appreciate, apart from knocking out the penalty argument, the proceedings have not yet produced a final answer one way or the other to the claims pending in your courts. You may be faced with applications to lift the stays which are currently in place. Circumstances may differ, but you may think that, insofar as claims turn on whether the terms in question are unfair under the Regulations and therefore unenforceable, there is much to be said for continuing the existing stays pending a decision by the House of Lords and/or the outcome of the investigation by the OFT."

5. In so far as it is for us to express a view, and without prejudice to any decision which may be made on the facts of a particular case, we entirely agree that that is a sensible approach.

6. In these circumstances we invite the Banks to communicate the position set out in this Note to the county courts.

6. It is clear from the Amended Particulars of Claim that Mr Rutherford's claim does turn on whether the terms in question are unfair under the 1999 Regulations. Paragraphs 6 to 9 raise issues as to whether the charges were disproportionate compared to the value of the instructions concerned, whether they exceeded the costs which the bank could have been expected to incur in dealing with unauthorised borrowing, whether in so far as the charges are reflective of the costs of operating a "free-if-in-credit" model of banking they are a cross subsidy of the cost of banking by other consumers, and whether the charges cause an imbalance in the relations between the parties to the agreement.
7. As anticipated in the Master of the Rolls' note and in Moore-Bick LJ's letter, on 25 March 2009 the banks did in fact lodge a petition for leave to appeal. On 31 March 2009, the Appeal Committee of the House of Lords considered the petition and granted leave. It is not yet known when the appeal will be heard by the House of Lords, but I am told that it may possibly come on before the end of July 2009. Given the submissions in the instant case, I also mention that I have been shown the Q & A issued by the OFT on 26 February 2009, which states that it expects to "reach a final decision on fairness later in 2009. If this decision is disputed, subsequent litigation may ensue. If we can resolve any concerns we have about the charging terms, (for example, if the banks provided satisfactory undertakings to the OFT) without the need for further, lengthy, court action, then this may be in the best interest of consumers".

The Judge's Order of 31 October 2008

8. Following an initial stay of these proceedings, Deputy District Judge Parkes ordered that the stay be lifted on 20 August 2007. There was an appeal in that and various other similar claims, which Judge Simpkiss determined after a full hearing on 12 October 2007. In Mr Rutherford's case, he decided to re-impose the stay. He made it clear in his judgment that if the banks took steps to enforce any of the disputed amounts, the Court would be entitled to reconsider the position.
9. Some months later, Mr Rutherford applied again to have the stay in his case lifted, and this application was heard by Judge Simpkiss on 31 October 2008. Mr Rutherford was represented by counsel, Mr Thomas Brennan, who has also represented him on the appeal. Mr Brennan appears pro bono instructed by the Bar Pro Bono Unit and (like the Judge) I take the opportunity to express my appreciation to him for his submissions. In considering the application, the Judge began by referring to the test case, which at that point in time was being argued before the Court of Appeal. He set out the arguments made on behalf of Mr Rutherford, the central point relating, as on this appeal, to the financial hardship which it is argued that the stay is causing him. The Judge expressed his considerable sympathy with Mr Rutherford, but having considered the facts of his particular case, came to the conclusion that it would be wrong to lift the stay. He did however as I have indicated, make it clear that HSBC was going to have to provide an assurance that it would not take any steps towards enforcement against Mr Rutherford, or put the matter in the hands of a third party to make a recovery, or send in his details to a credit reference agency. Through its solicitors, HSBC gave that assurance on 4 November 2008. As I have said, permission to appeal from the Judge's decision was given by Mr Justice Eady on 12 March 2009.

The parties' contentions on the appeal

10. For Mr Rutherford, Mr Brennan submits that the law is now plain. The banks' case that on its true construction, the Unfair Terms in Consumer Contracts Regulations 1999 preclude an assessment by the OFT into the fairness of the charges has been roundly rejected at first instance and on appeal. By further appealing, the banks (he says) are merely playing for time. Even if their appeal to the House of Lords is unsuccessful, that will not necessarily end the matter. A decision by the OFT that the charges are unfair would not necessarily be accepted, and the appeal process might begin all over again. He submits that the decision of Judge Simpkiss was wrong and should be overturned, because (in a sentence) he says that the Judge applied the general guidance that the courts have given in respect of stay, without regard to the facts of this case.
11. Mr Patrick Goodall, for HSBC, submits that the approach adopted by the Judge was entirely consistence with the overriding objective in the CPR. The test case, he submits, is the most efficient and proportionate vehicle by which to resolve the complicated issues raised in these claims. Even if the stay were to be lifted, he submits that Mr Rutherford would not recover sooner than if he awaited the outcome of the test case because the Court must assume that the bank will contest his claim. The Judge (it is submitted) having carefully considered the evidence as to Mr Rutherford's individual circumstances, identified correctly the relevant factors that made it both just and consistent with the overriding objective that the stay be maintained. Because this was a case management decision, there is no basis for this Court to interfere on an appeal.
12. I should also mention some points that HSBC made about Mr Rutherford's personal circumstances. The bank submits that to the extent that Mr Rutherford is in a financial predicament, it has not been caused by HSBC, and will not in any event be alleviated by success in bringing his claim. This is because (it submits) if his claim succeeds, the principal amount of £3,226 will largely go to repay the overdraft of £2,685. Mr Brennan's counter is that when interest at 19.1% is added, the value of the claim is £6,110.45, which will leave a substantial amount to go towards the mortgage. The bank submits that interest will not be recoverable, since the account was at all material times overdrawn. It also says that on 19 September 2007, it made an offer to settle with Mr Rutherford for £2,378 without any admission of liability, but that this offer was not accepted.
13. In its evidence, the bank appears to go further, and dispute that Mr Rutherford's case is one of financial hardship at all. There is evidence on both sides as to disagreements between them on this point, though it is fair to say that there is not much by way of detail as to Mr Rutherford's current financial position (he says he has supplied that to the bank already). The statement in the Grounds of Appeal that the Judge accepted that the case was one which involved severe financial hardship is not (as Mr Goodall points out) in fact correct. That said, the tenor of the judgment is that the Judge accepted that this was a case of financial hardship (see the reference to "personal hardship" in paragraph 12 in particular). There is now clear evidence that Mr Rutherford imminently risks losing his home. I would certainly accept that this is a case of financial hardship, and would expect that this fact will from now on condition HSBC's response to his claim, including full compliance with the FSA Direction in that regard.
14. So far as the possession proceedings by the mortgagee are concerned, Mr Brennan submits that the stay is relevant to an application to the County Court to suspend the warrant of possession. As he puts it, if the stay is lifted, at least Mr Rutherford can tell the Court that he is in the process of proceeding with the case with the prospect of a substantial recovery. Since the burden will in practice fall on the bank to justify its charges—a burden which he submits it will be unable to discharge—the reality is that there will be a prospect for immediate progress in the satisfaction of his claim, regardless of the position of the test case.
15. The issue of the mortgagee's possession proceedings was addressed by Judge Simpkiss in paragraph 10 of his judgment as follows: "… on 28 January 2008 [Mr Rutherford's] mortgagees, G Money Mortgages Ltd, obtained a possession order against him. He says that that order is likely to be enforced shortly. As I understand it, no application has ever been made to suspend the warrant for possession, but it may be equally a warrant for possession has not yet been granted. Were a warrant issued, it would be open to the defendant to apply to the District Judge and to appeal to a Circuit Judge on the basis that if he recovered all his monies from HSBC, then that would discharge or significantly discharge the arrears and that it would be appropriate to suspend the order. I cannot say on the information that I have that such an application would have any prospect of success, but that is at least one route for him to consider".
16. It is not for me anymore than it was for the Judge to express a view as to the outcome of any such application. The only new material I have which was not before the Judge is the notice of eviction dated 26 March 2009. Nevertheless, it is plain that Mr Rutherford has a genuine claim, albeit one in which the outcome will (in effect) be determined in the test case. It is not Mr Rutherford's fault that his claim is being held up. Far from it, he is anxious to press on. Like Judge Simpkiss, I can see no reason why these facts should not be placed before a District Judge on an appropriate application, and taken into account as appropriate in reaching any decision.

Conclusion

17. Mr Brennan submits that this appeal is an opportunity for the High Court to clarify the guidance on the handling of cases involving hardship. But the guidance is expressly stated to be without prejudice to any decision which may be made on the facts of a particular case, which clearly anticipates the possibility of hardship in individual cases, and there is no reason in my view to add to the guidance on this occasion. The letter from Moore-Bick LJ to the Designated Civil Judges quoted in the Court of Appeal's note of 26 February 2009 came after the order made by Judge Simpkiss on 31 October 2008, but it does not materially differ from the approach that he adopted. That being so, the outcome of the appeal depends on whether Mr Brennan is correct in his submission that the Judge applied the general guidance without regard to the facts of this particular case. In my view, he did not. Having identified the reasons why a stay pending the test case is fair and sensible, he went on to consider Mr Rutherford's individual position in paragraphs 10 to 14 of his judgment, including the question of financial hardship, dealing in particular with the warrant for possession which was the principal point made to him as to me. Having insisted that HSBC cease to demand repayment, he decided that the stay should not be lifted. In exercising his discretion, the Judge not surprisingly expressed considerable sympathy with Mr Rutherford, a sympathy which I fully share.
18. So far as relevant, CPR Part 52.11(3) provides that an appeal will be allowed where the decision of the lower court was wrong. As Lord Woolf MR said in AEI Rediffusion Music Ltd v Phonographic Performance Ltd [1999] 1 WLR 1507 at 1523, before the court can interfere on such an appeal, it must be shown that the judge either erred in principle, or left out of account some feature that he should have considered, or took into account some feature that he should not have considered, or that his "decision was wholly wrong because the Court is forced to the conclusion that he has not balanced the various factors fairly in the scale". Furthermore, this was a case management decision. In Powell v Pallisers of Hereford Ltd [2002] EWCA Civ 959, Lord Justice Potter said at [11] that, "This was, of course, a case management decision involving the exercise of the judge's discretion of a kind with which this court has repeatedly expressed reluctance to interfere; indeed it has been emphasised that it is wrong to do so unless it can be clearly demonstrated that the overriding objective will not be observed or maintained if the decision is permitted to stand". See also Chadwick LJ at [32].
19. Mr Brennan ripostes that this was no ordinary case management decision because of the guidance that I have quoted above. In a sense he is right, but the countervailing point is that the guidance has been given so that many thousands of cases (including Mr Rutherford's) can be dealt with in an orderly manner. The Judge's decision was a discretionary one, and in my view he fairly balanced the various factors in the scale, including the hardship being experienced by Mr Rutherford, and it is not open to this Court to substitute its own decision. The appeal will accordingly be dismissed.