Banking & Finance Litigation Update - Issue 51 - DLA Piper

We wish to establish a dialogue with our readers. Please

contact us at B&FL Update and let us know which

particular areas you are interested in and what you would

find helpful.

The Banking & Finance Litigation Update is published

monthly and covers current developments affecting the

Group's area of practice and its clients during the

preceding month.

This publication is a general overview and discussion of

the subjects dealt with. It should not be used as a

substitute for taking legal advice in any specific situation.

DLA Piper UK LLP accepts no responsibility for any

actions taken or not taken in reliance on it.

Where references or links (which may not be active

links) are made to external publications or websites, the

views expressed are those of the authors of those

publications or websites which are not necessarily those

of DLA Piper UK LLP, and DLA Piper UK LLP accepts

no responsibility for the contents or accuracy of those

publications or websites.

If you would like further advice, please contact Paula

Johnson on 08700 111 111.

CONTENTS

Domestic Banking .......................................................... 2

Domestic General ........................................................... 3

European Banking .......................................................... 4

European General ........................................................... 5

International General ...................................................... 5

Press Releases ................................................................ 6

Case Law ........................................................................ 8

BANKING & FINANCE LITIGATION UPDATE

Issue 51

mailto:[email protected]

DOMESTIC BANKING

BARCLAYS

1. Barclays is launching a new smartphone

application that will allow customers to send and

receive payments via their mobile phones. The

Pingit service will allow current account holders

to send funds to other accounts, UK account

holders will be able to use the application to

receive money.

Daily Telegraph, 16 February 2012

2. Leading Barclays shareholders including Jupiter,

FC Asset Management and Legal & General, have

warned that they will not accept large bonuses to

senior bankers. Barclays has argued it should be

able to set its own pay levels because it did not

receive any direct government support during the

financial crisis.

Daily Telegraph, 30 January 2012

3. Barclays has expressed concern that the EU's

financial transaction tax (the so-called Tobin tax)

will disproportionately damage growth and stifle

job creation among smaller businesses.


CLYDESDALE

4. National Australia Bank (NAB) is to launch a

strategic review of its wholly owned UK

subsidiary Clydesdale Bank. The bank's chief

executive Cameron Clyne said that UK growth of

just 0.2% in the final quarter of 2011 was much

lower than in other countries in which NAB

operated.

Evening Standard, 8 February 2012

HSBC

5. HSBC is considering withdrawing from the £20bn

National Loan Guarantee scheme put forward by

the Treasury to ease credit facilities. HSBC says

it could prove too expensive under the structure

being discussed.


6. HSBC is looking to increase its presence in China

with a bigger stake in the Bank of

Communications or an expansion of its network

of branches.

Times, 16 February 2012

7. As part of a reorganisation of its business HSBC

has decided to move most of its US fund

administration division to Dublin from the US,

resulting in up to 200 people being made

redundant in the United States.

Independent, 3 February 2012

LLOYDS BANKING GROUP

8. Costs incurred by the mis-selling of payment

protection insurance has resulted in Lloyds'

remuneration committee operating a new

'clawback' policy against five directors. The

policy gives the bank the right to recall part of the

bonuses paid to the directors.


9. Following the recent announcement by Santander,

Lloyds Banking Group is the latest high street

lender to clamp down on interest-only mortgages.

Applicants for new interest-only borrowing will

no longer be able to use cash savings to repay a

loan at the end of the term.

Financial Times, 16 February 2012

10. Lloyds is to appeal to the Supreme Court over a

Court of Session judgment that it should pay more

than £3.5 million to Lloyds TSB Foundation for

Scotland. The dispute is over an agreement which

gives the Foundation a share in the bank's profits.


11. There is renewed concern about bonuses at Lloyds

after it emerged that Truett Tate, head of

investment banking, is to receive a farewell

package worth up to £4.8m. Tate is leaving the

bank as part of a reshuffle.


12. Lloyds is to quit the charity credit cards market,

which it has been involved in for 23 years, saying

that it is no longer a cost-effective way of donating

to charities. The move will affect Cancer

Research UK, the NSPCC and the Scottish SPCA.

Sunday Telegraph, 29 January 2012

13. Lloyds is still negotiating with insurer RSA over

the appointment of George Culmer as finance

director. The bank may have to appoint a

temporary finance director as the present

incumbent Tim Tookey leaves at the end of

February. It may be that RSA is stipulating that

Culmer stay until he hands over to his successor

who is yet to be named.

Guardian, 24 January 2012

02 |

STANDARD CHARTERED

14. The CEO of Standard Chartered, Peter Sands, has

urged regulators to 'water down' the proposals of

the Independent Commission on Banking for

banking reform, particularly the ring-fencing of

retail banking and the higher capital ratios

suggested.

Independent, 30 January 2012

THE ROYAL BANK OF SCOTLAND

15. UK care homes operator Four Seasons is in talks

with potential investors, including The Royal

Bank of Scotland ("RBS") (the company's largest

shareholder) to deal with its debt burden.


16. It is understood that RBS is considering a debt-for

-equity swap to assist Jury's Hotel Group in

restructuring £652m of debt. Jury's is owned by

the Oman Investment Fund and Avestus Capital

Partners.

Sunday Telegraph, 19 February 2012

17. RBS has renamed its insurance business ahead of

a possible £4 - 5 billion flotation later this year.

The Direct Line Group will consist of the

Churchill, Privilege, Green Flag and NIG brands.

The state-backed bank was ordered to either sell

or float its insurance business by 2013.


18. Three potential buyers have dropped out of the

bidding for RBS's Asian and Australian equities,

mergers and acquisitions and research businesses,

leaving CIMB of Malaysia and China

International Capital Corporation to make final

offers.


19. Following the row about his bonus, Stephen

Hester has called on RBS staff to 'prove the critics

wrong' and continue with the clean-up that has so

far cost £38bn. The bank gives a full-year update

later this month.

Daily Telegraph, 7 February

20. RBS is expected to hit its overall target for

corporate lending but is likely to concede that its

SME loans have fallen short of government-set

targets.


21. Sainsbury's has decided to change underwriter for

its home insurance products from Lloyds to RBS.


22. RBS has sold its stockbroking arm, Hoare Govett,

to US investment bank Jefferies for a nominal

sum. The sale will involve the move of 50 staff in

London.


23. RBS is looking at the way pay and bonuses are

paid in an effort to avoid a repeat of recent events

whereby CEO Stephen Hester was forced to give

up his bonus. The bank is considering whether to

increase the transparency and objectivity of the

metrics it uses to calculate bonuses.

Financial Times, 31 January 2012

24. It has emerged that RBS rejected a higher offer for

RBS Aviation Capital from China Development

Bank ("CDB") in favour of a lower one from

Mitsui partly because of fears that the deal might

fall foul of Chinese regulators and partly because

CDB did not pay repeated visits to the RBS

Aviation Capital headquarters.


DOMESTIC GENERAL

25. The Office of Fair Trading will warn the banking

sector that unless there is a change in transparency

and competition, the industry will be referred to

the Competition Commission and possibly broken

up.


26. City institutions have expressed fears that the new

Financial Services Bill does not include a clause

that would protect the UK's international

competitiveness and in particular the position of

London's capital markets.

Independent on Sunday, 5 February 2012

27. Paul Tucker, deputy governor at the Bank of

England, has called for specialist bank accounts to

protect customers with temporary deposits over

£85,000 in the event of a bank's failure.


28. In its submission to a Treasury review, the

Association of Corporate Treasurers ("ACT") has

accused banks of 'cross-subsidising' cheap loans.

According to ACT offers of cheap loans to

businesses are often accompanied by an implied

EVERYTHING MATTERS | 03

message that the lending bank expects further

business to be put its way at higher costs.


29. The new Financial Services Bill will give the

Prudential Regulation Authority supervisory

powers presently vested in the FSA and will give

the Chancellor power to take control of banks in a

financial crisis. Supervision of the Bank of

England will also be increased.


30. Sir Mervyn King has hinted that there will need to

be further quantitative easing for some time to

come as the efforts of banks and households to

pay down their debts will hinder growth in the UK

economy.


31. The FSA is having 'robust' discussions with UK

banks about cutting bonus pools to reflect the

losses triggered by the mis-selling of payment

protection insurance. Although the FSA does not

have the power to intervene on bonuses it strongly

believes that bank staff should bear the

consequences of the mis-selling scandal.


32. The Treasury is consulting on whether up to

fifteen of the top banks and investment houses

should have to publish details of their top eight

bankers without seats on the board. It is unlikely

the new rules will be in place in time for this

year's annual reports.

Guardian, 23 January 2012

EUROPEAN BANKING

CREDIT SUISSE

33. 1, Cabot Square, Credit Suisse's Canary Wharf

headquarters, has been bought by Qatar's

sovereign wealth fund, the Qatar Investment

Authority ("QIA"), for around £330m. QIA is

Credit Suisse's largest shareholder with a 6 per

cent stake and also owns 28 per cent of Songbird,

the majority owner of Canary Wharf.


34. Credit Suisse has decided to use a structured note

backed by derivatives to pay employee bonuses:

the move should strengthen the bank's balance

sheet and reduce risk. It used a similar method to

pay bonuses in 2008 at the height of the financial

crisis.


DEUTSCHE BANK

35. JPMorgan and State Street have withdrawn from

the bidding for Deutsche Bank Asset Management

while another bidder, Ameriprise, may withdraw

because the price is too high. The withdrawals

make it more likely that Deutsche will have to

break up the business.


36. Deutsche Bank has set a maximum cash bonus

threshold of €100k this year and a share award to

the same value but not available until August. All

bonus awards above this level will be deferred for

three years as part of the bank's new pay structure.


37. Investment bankers at Deutsche Bank will receive

lower bonus payments after the bank revealed a

loss for the fourth quarter in succession. The total

remuneration bill at its corporate and investment

bank, which employs 15,200 staff, was just over

€5 billion (£4 billion) last year - 15 per cent lower

than the previous year.


38. Deutsche Bank is to launch a fund to buy illiquid

or damaged holdings in hedge funds which banks

and insurance companies are being forced to sell

because of financial regulations such as Basel III

and Solvency II. The bank thinks that investors

have some $80-100bn in such assets, which could

prove lucrative in years to come.


EUROPEAN CENTRAL BANK

39. Several banks in Europe are intending to double

or triple their requests for funds from the

European Central Bank ("ECB") in the bank's

three-year money auction in February.


40. The IMF is pressing the ECB to agree to a hit on

its €40bn Greek bond holding - the bank has been

accepting Greek bonds as collateral for cheap

loans to Greek banks.


04 |

UBS

41. UBS is to market tier two subordinated notes to

investors in Europe and Asia in an attempt to meet

Swiss regulations requiring banks to have a 19 per

cent capital ratio by 2019.


42. UBS has announced 'special plan' awards to its

top employees in an attempt to retain staff in the

light of a $2.3bn trading scandal and a

restructuring programme. The awards amount to

some SFr300m ($329m). Carsten Kengeter, head

of investment banking, has turned down his

bonus.


43. UK and Swiss regulators have told their

enforcement divisions to start proceedings against

UBS over the $2bn loss the bank suffered from

alleged rogue trading last year. The decision

came as a court refused to grant bail to Kweku

Adoboli, the former UBS trader facing criminal

charges over the trading.


44. The former UBS trader, Kweku Adoboli, who is

accused of making unauthorised trades that lost

the bank $2.2bn (£1.4bn), appeared in court for a

second time on 30 January after his legal team

was given more time to prepare his case. Adoboli

denied the charges.


UNICREDIT

45. Unicredit, which is in the middle of a €7.5bn

rights issue, is planning to raise as much as €25bn

through the issue of covered bonds in an attempt

to tap new sources of funding.


EUROPEAN GENERAL

46. The UK has filed another challenge at the

European Court of Justice to the ECB's proposed

policy requiring clearing houses operating in

London to move to the eurozone.


47. European banks are looking to Asian investors to

help boost their capital rather than relying on

insurers and long-term investors as they have in

the past. Regulatory changes have allowed

financial institutions to create new hybrid

securities to help prop up their balance sheets.

The new securities are better equipped to absorb

losses should a bank fall in to financial difficulties.


48. The European Commissioner's assertion that the

new Tobin tax (a tax on financial transactions)

would discourage high-risk trading has been

disputed by five trade groups including the

Association of British Insurers and the British

Bankers' Association. The groups say that the

statement is in direct conflict with the views of the

European Commission's Director General for

Competition.


49. The EU has published a draft Directive which will

mean that all EU loans must be treated as if they

are in default when they are ninety days in arrears.

There is concern that if it becomes law there will

be a rise in the number of mortgage foreclosures.


INTERNATIONAL GENERAL

50. Canada's Competition Bureau has joined the

global investigation into claims that banks acted to

influence interbank borrowing rates during the

financial crisis.

Daily Telegraph, 16 February 2012.

51. The so-called 'Volcker rule', a US measure which

would ban proprietary trading by banks, has drawn

criticism worldwide from banks with US

subsidiaries. The rule is due to be finalised by

July this year but may now be watered down.


52. Bank of America, Wells Fargo, JPMorgan Chase,

Citigroup and Ally Financial may be about to

agree to improve their mortgage procedures and

reduce repossessions in return for a guarantee

from US regulators that they will not pursue

mortgage-related legal claims against them. If

agreed, the settlement would also see the banks

reduce borrowers’ loan balances and monthly

payments and make compensatory payments of

around $4.2bn to individuals and state governors.


53. As a result of an investigation by regulators into

the alleged manipulation of interbank loan rates by

banks, more than a dozen traders and brokers in

London and Asia have been fired, suspended or


put on leave. At least nine enforcement agencies

are involved worldwide. Enquiries have also been

expanded to take in hedge funds and interdealer

brokers.


54. Brett White, chief executive of CBRE the

property fund manager, has warned that banks are

being forced out of the property market because of

pressure from governments and increased

regulation, paving the way for a greater

involvement of private equity funds.


55. The Global Financial Markets Association, which

consists of the Securities Industry and Financial

Markets Association in the US, the Association of

Financial Markets in Europe, and Asifma, their

Asian counterpart, is to become the new voice of

the world’s banks on the international stage. The

group will lobby and advise, but will also make

efforts to forge links between divergent regulatory

regimes.


56. The United States is proposing a change in the

way it will implement reporting rules for overseas

banks following pressure from foreign

governments and companies over its crackdown

on tax evasion.


57. Responding to concerns about bankers'

remuneration, the G20 Financial Stability Board

has said part of bankers' bonuses should be paid as

bonds which could be converted into equity if the

bank's position weakened, this would reduce the

likelihood of taxpayer bailouts.

Times, 26 January 2012

LEGISLATION

58. Financial Services Bill

The Financial Services Bill provides a new

framework for financial regulation in the United

Kingdom. The Bill makes the Bank of England

responsible for ensuring and protecting the

stability of financial systems in the UK and

provides for an independent conduct of business

regulator. The Bill introduces four institutional

changes, it:

■ establishes the Financial Policy Committee

(FPC) as a committee of the Court of the

Bank. The FPC will have responsibility for

macro-prudential regulation;

■ makes provision for the Prudential

Regulation Authority (PRA) as an

operationally independent subsidiary of the

Bank with responsibility for micro-

prudential regulation;

■ makes provision for the Financial Conduct

Authority (FCA) as an independent conduct

of business regulator with a strategic

objective of ensuring that the relevant

markets function well and operational

objectives focused on market integrity,

consumer protection and effective

competition;

■ makes the Bank of England responsible for

the regulation of recognised clearing houses.

The Bill sets out how the authorities will be held

accountable for fulfilling their roles and how they

will be governed, including the constitution of

their governing bodies. It also sets out the role of

HM Treasury in relation to the authorities.

A copy of the Bill and the accompanying

Explanatory Notes are available on the Parliament

website:

http://services.parliament.uk/bills/2010-11/

financialservices/documents.html

PRESS RELEASES

59. HSBC revises undertakings

The Law Society has been contacted by a large

number of members about the undertakings that

they are being asked to give by HSBC's

representatives in separate representation cases.

The concerns about the undertakings are wide-

ranging and include:

■ a lack of clarity;

■ requirements which fall outside the

solicitor's responsibilities;

■ wide-ranging requirements which would

potentially prevent a solicitor from

complying with their regulatory obligations;

■ requirements which in effect transfer the

lender's solicitor's duties on to the borrower/

purchaser's solicitor.

As agreed at a meeting, the Society has now

received a copy of revised undertakings from the

bank, which HSBC advises have now been issued

06 |

http://services.parliament.uk/bills/2010-11/financialservices/documents.html

http://services.parliament.uk/bills/2010-11/financialservices/documents.html

to all borrower's solicitors instructed in 'live

cases'.

Law Society, 17 February 2012

Further information can be found on the Law

Society's website:

http://www.lawsociety.org.uk/newsandevents/

news/view=newsarticle.law?NEWSID=445480

60. Review of EU financial markets legislation has

a significant impact on data protection

The European Data Protection Supervisor has

published a package of four opinions on

Commission proposals for the reform of the

financial sector in the EU. The four proposals all

concern monitoring of financial data, which has a

significant impact on the fundamental right to

protection of personal data.

European Data Protection Supervisor, 13

February 2012

Further information can be found on the EDPS

website:

http://www.edps.europa.eu/EDPSWEB/webdav/

site/mySite/shared/Documents/EDPS/PressNews/

Press/2012/EDPS-2012-

04_Financial_markets_EN.pdf

61. UK Financial Services Industry Annual

Review: ownership, value and M&A

developments

This annual review of the UK financial services

industry focuses on ownership, value and merger

and acquisition (M&A) developments, highlights

the size and structure of the UK financial services

industry and the increasing overseas interest in

the sector.

IMAS Corporate Finance, TheCityUK and UK

Trade and Investment

http://www.thecityuk.com/assets/Uploads/IMAS-

report.pdf

62. Financial Innovation and Consumer

Protection: An overview of the objectives and

work of the EBA's Standing Committee on

Financial Innovation (SCFI) in 2011-2012

This European Banking Authority (EBA) report

sets out an overview of the objectives and work

of the EBA's Standing Committee on Financial

Innovation in 2011-2012 and identifies areas of

concern in both the consumer protection and

financial innovation areas of the banking sector,

as well as areas where these two intersect.

European Banking Authority, 1 February 2012

Further information can be found on the EBA

website:

http://www.eba.europa.eu/cebs/media/

Publications/Consumer%20Protection/EBA-BS-

2012-003-Financial-Innovation-and-Consumer-

Protection--Overview-of-EBA-work-in-2011-

2012.pdf

63. Government publishes Financial Services Bill

The Government has published the Financial

Services Bill which will fundamentally transform

and strengthen financial regulation in the United

Kingdom. The new regime sets out a clear,

coherent and comprehensive regulatory

framework, replacing the uncertainty and

inadequacy of the previous structure, and helping

to mitigate against future risks to stability.

Amongst other changes, the Bill will give

responsibility for financial stability to the Bank of

England, abolish the FSA and introduce a crisis

management regime.

Further information can be found on the Treasury

website:

HM Treasury, 30 January 2012

Links to the Bill and associated documentation

can be found on the Treasury website:

http://www.hm-treasury.gov.uk/

fin_financial_services_bill.htm

64. Home loans: borrowers need better protection,

says Internal Market Committee

MEPs have agreed amendments in the Internal

Market Committee to ensure mortgage lending is

governed by general rules on marketing and

advertising.

Further information can be found on the Europarl

website:

European Parliament, 30 January 2012

http://www.europarl.europa.eu/news/en/

pressroom/content/20120123IPR35979/html/

Home-loans-borrowers-need-better-protection-

says-Internal-Market-Committee%20


http://www.lawsociety.org.uk/newsandevents/news/view=newsarticle.law?NEWSID=445480

http://www.lawsociety.org.uk/newsandevents/news/view=newsarticle.law?NEWSID=445480

http://www.edps.europa.eu/EDPSWEB/webdav/site/mySite/shared/Documents/EDPS/PressNews/Press/2012/EDPS-2012-04_Financial_markets_EN.pdf




http://www.thecityuk.com/assets/Uploads/IMAS-report.pdf

http://www.thecityuk.com/assets/Uploads/IMAS-report.pdf

http://www.eba.europa.eu/cebs/media/Publications/Consumer%20Protection/EBA-BS-2012-003-Financial-Innovation-and-Consumer-Protection--Overview-of-EBA-work-in-2011-2012.pdf





http://www.hm-treasury.gov.uk/fin_financial_services_bill.htm

http://www.hm-treasury.gov.uk/fin_financial_services_bill.htm

http://www.europarl.europa.eu/news/en/pressroom/content/20120123IPR35979/html/Home-loans-borrowers-need-better-protection-says-Internal-Market-Committee




65. New orthodoxy for conduct regulation - fair

deal for consumers

In a speech to the British Bankers' Association,

Martin Wheatley, managing director of the

Financial Services Authority (FSA) and also

CEO designate of FSA's successor body, the

Financial Conduct Authority, outlined a new

orthodoxy and regulatory approach for the future

of conduct regulation. He suggested firms, the

regulator and consumers will all play a part in the

new approach.

Financial Services Authority, 26 January 2012

http://www.fsa.gov.uk/library/communication/

pr/2012/004.shtml

66. MPs publish report on the Court of the Bank

of England's memorandum on accountability

The Treasury Committee has today published a

report on the Court of the Bank of England's

memorandum, published earlier this week, which

responded to the Committee’s "Accountability of

the Bank of England" report of November 2011.

In its response the Court of the Bank of England

accepted some of the Committee's proposals but

failed to agree to replace its governing Court with

a supervisory board which would have the ability

to analyse its performance and decisions.

Treasury Select Committee, 23 January 2012

Further information can be found on the Treasury

website:

http://www.publications.parliament.uk/pa/

cm201012/cmselect/cmtreasy/1769/176902.htm

CASE LAW

67. Breach of Trust: what does completion mean?

In 2007 Cheltenham & Gloucester PLC ("C&G")

(now a wholly owned subsidiary of Lloyds TSB

Bank PLC ("Lloyds")) retained Markandan &

Uddin solicitors ("M&U") to act for it on a

proposed mortgage of £742,500 to a Victor

Davies who was hoping to buy a property.

In September 2007, upon what they claimed was

completion of the purchase and C&G's charge,

M&U remitted the loan money to what they

thought was the firm of solicitors acting for the

sellers, Deen Solicitors.

In the event it turned out that both M&U and

C&G were the victims of fraud. Although there

was a genuine firm of solicitors called Deen

Solicitors, that firm knew nothing about the

transaction. Fraudsters ("HPD") had pretended to

be carrying on practice as Deen Solicitors at a

branch in Holland Park whereas in reality Deen

Solicitors had no such office. The fraudsters had

printed bogus notepaper and had duped M&U

into paying the loan money to them and had made

off with it. The owners of the property were

ignorant of the fraud and had not agreed to sell

the property to anyone. C&G received no legal

charge over the property and the transaction

represented a total loss.

Lloyds, as successor to C&G, sued M&U for

breach of trust, breach of undertakings, breach of

contract and negligence. Certain issues were tried

as preliminary issues and findings were made that

M&U:

■ acted in breach of trust in paying away the

mortgage funds without receiving the

requisite title documents or a genuine

solicitor's undertaking;

■ were not entitled to relief under s.61 of the

Trustee Act 1925 ("s.61");

■ could not rely on contributory negligence as

a defence to a breach of trust claim.

M&U appealed the finding that they had been in

breach of trust but not the s.61 point nor the

contributory negligence point.

The Court of Appeal considered the factual

background. C&G's instructions to M&U

required it to act in accordance with the

instructions contained in the Council of Mortgage

Lenders' Handbook ("CML Handbook"). M&U

were required to hold the loan on trust for C&G

"until completion".

M&U gave its certificate of title to C&G on 29

August before it had received replies to its

requisitions on title and before it received

undertakings that existing charges on the property

would be redeemed or discharged on completion.

M&U received the mortgage advance on 31

August but the replies to the requisitions on title

and the undertakings were not given by HPD until

3 September.

M&U claimed that completion took place on 4

September when it remitted the mortgage money

to HPD but it did not receive the necessary title

documents after that date.

Rather bizarrely on 25 September HPD sent back

the bulk of the mortgage money. After some

initial hesitation, M&U then agreed to remit the

money back to HPD despite the fact that by that

08 |

http://www.fsa.gov.uk/library/communication/pr/2012/004.shtml

http://www.fsa.gov.uk/library/communication/pr/2012/004.shtml

http://www.publications.parliament.uk/pa/cm201012/cmselect/cmtreasy/1769/176902.htm

http://www.publications.parliament.uk/pa/cm201012/cmselect/cmtreasy/1769/176902.htm

stage HPD had clearly stated in correspondence

that they had no executed transfer in their

possession and would not have one until their

clients had returned from a trip away. HPD had

also stated that they did not at that point have a

discharge certificate for the charge registered

against the property. Against that background it

should have been apparent to M&U that the

purported completion on 4 September had been a

non-event, that HPD had failed to honour their

undertakings and were still unable to perform

them. Nothing further was heard from HPD.

The issue which the appeal court had to grapple

with was whether completion had actually taken

place. Although M&U held the loan money on

trust until "completion", it was a term of C&G's

instructions that M&U were authorised to release

the money for the purpose of completing the

purchase. Upon such release the trust would

come to an end and C&G's right to recall the

money would cease. If what had happened on 4

September was "completion" of the purchase then

C&G would not have a breach of trust claim

against M&U.

The court considered that in a typical domestic

sale and purchase transaction "completion"

conventionally refers to the ceremony (or the

agreed postal equivalent) at which the vendor and

purchaser perform the prior contract. It is the

exchange of money and documents that is

normally referred to as "completion" not the

subsequent registration of transfer and charge.

The references in the CML Handbook to

"completion" clearly used the word in this sense.

The judge at first instance had been right to hold

that on the facts of this case there had been no

completion. Completion must mean the

completion of a genuine contract by way of an

exchange of real money in payment of the

balance of the purchase price for real documents

that will give the purchaser the means of

registering the transfer of title to the property that

he has agreed to buy and charge.

The position would have been no different had

M&U received forged documents. The "sellers"

had not agreed to sell their property at all and nor

had they authorised anyone to sell it in their

name. An exchange of real money for worthless

forgeries in purported performance of a purported

contract that was a nullity would not be

completion at all.

In this case there was no exchange of money for

documents. Instead there was a parting of money

in exchange for what M&U believed to be the

undertakings of Deen Solicitors. In fact though

M&U's belief was wrong, the real Deen Solicitors

gave no such undertaking and HPD, purporting

dishonestly to be a Deen branch office, had no

authority to give Deen undertakings.

M&U were themselves a victim of fraud and the

relevant events of 4 September were a nullity.

Such a nullity could not be characterised as

completion of either the purchase or the charge.

As the events of 4 September did not amount to

completion, M&U had no authority from C&G to

release the loan money to HPD. The loan money

was paid away in breach of trust.

Arguments that if a lender instructs solicitors to

obtain a charge in a transaction which,

unbeknown to the lender, is a fraudulent one, then

"completion" (as used in the CML Handbook) can

only mean "purported completion" were

unhesitatingly rejected.

Whilst it might seem at first blush that M&U had

suffered unfairness this was not the case. Had

they been careful, conscientious and thorough

they could have obtained relief under s.61.

However, M&U had not acted reasonably as they

had failed to establish that Deen Solicitors

actually had a branch office in Holland Park (in

breach of clause A3.2 of Section 3 (Safeguards)

of the Handbook) and they had also parted with

the loan money for a second time when they knew

that HPD had breached their earlier undertakings.

M&U had acted in breach of trust and Lloyds was

entitled to full restitution of the mortgage

advance.

Roger McCourt and Rachel Davies of DLA Piper

acted for Lloyds TSB Bank PLC in this case.

Lloyds TSB Bank PLC v Markandan & Uddin,

Court of Appeal, 9 February 2012

68. No priority for occupiers over mortgagees

under lease back scheme

In November 2010 HHJ Behrens determined

preliminary issues in a series of nine test cases in

which various mortgagees ("Mortgagees") were

seeking possession of residential properties. The

properties had been sold by the registered owners

("Sellers") to nominees for an entity called North

East Property Buyers ("Purchaser") under an

equity release scheme. Under this scheme the

Purchaser had promised the Sellers the right to

remain in their homes after the sale. The

Purchaser acquired the properties with the benefit

of "buy-to-let" mortgages from the Mortgagees.

There were substantial arrears under the

mortgages and the Purchaser had no defence to


the possession claims. However the properties

were occupied by the Sellers. What should be the

priority between the rights of the Mortgagees and

the assumed rights of the Sellers?

The judge followed Abbey National v Cann

[1991] AC56 ("Cann"); Nationwide v Ahmed

[1995] 70 P&CR 381 ("Ahmed") and Hardy v

Fowle [2007] EWHC 2423(Ch) and found that

the Mortgagees' rights under their charges had

priority over any equitable rights that the Sellers

might have acquired as against the Purchaser.

In each of the test cases, contracts had been

exchanged on the same day as completion. The

judge took the view that Ahmed was authority for

the proposition that in such a case there is no

"moment in time" between contract and

completion in which an interest can arise. Prior

to completion the Sellers' equitable rights were at

best personal and not proprietary. As such they

could not give rise to overriding interests.

Further s.63 of the Law of Property Act 1925

prevented the Sellers from relying on any pre-

completion equitable interest.

Prior to registration the Purchaser only had an

equitable estate. Any lease granted before

registration could only take effect in equity. The

grant of a legal lease could only take effect when

the Purchaser acquired a legal estate on

registration.

The Sellers appealed to the Court of Appeal.

Both sides advanced complex technical

arguments to support their case but the court

dismissed this approach. The correct approach

was to first analyse the true commercial and legal

nature of the transactions between the Sellers and

the Purchaser. Was each transaction an

agreement for sale subject to a reservation? Or

was it two separate transactions, one for the sale

of the freehold and one for a leaseback to the

vendor on completion?

The documentation pointed firmly in favour of

the latter. No reference was made in any of the

contracts for sale to a leaseback to the vendors.

The clear impression created by the contracts was

that the Sellers were selling without reserving any

beneficial interests or other rights in the

properties and that was how any third party,

including a mortgagee lending money to fund the

purchase would be entitled to view the matter.

In those circumstances no equitable interest or

equivalent equity could have arisen in favour of

the Sellers prior to completion. Further the judge

was right to conclude that Ahmed was authority

for the proposition that in such a case there is no

"moment in time" between contract and

completion when the freehold acquired by the

Purchaser was free from the mortgage but subject

to an equitable interest in favour of the Seller.

It was not possible to distinguish the Cann case

on policy grounds. There was no reason for the

Sellers to suppose that the purchase price would

not be funded in the usual way by secured loans.

Also it would not be appropriate to place on the

Mortgagees the risk of carelessness or fraud in the

carrying out of the promises or representations

made to the Sellers because the Mortgagees could

have made direct enquiries of the Sellers. The

Sellers were parties to their respective contracts

for sale. If they intended to retain any interest in

their property after completion then that should

have been made clear in the contractual and

associated documents which would then have

formed the basis of the report on title by the

Mortgagees' solicitors.

Prior to the registration of a purchaser as

proprietor, the purchaser's interest in the property

can only subsist in equity. As a matter of basic

land law, an equitable owner of land cannot grant

a legal interest. A person cannot grant a greater

interest than he possesses.

The problem which arose for the Sellers would

have been avoided if the contracts for sale had

given details of the entire contractual deal

between the Sellers and the Purchaser. If that had

been done, the precise contractual arrangements

which were to operate in relation to the

occupation of the Sellers after completion would

have been clearly stated and recorded. Further,

the Mortgagee's solicitors would have been bound

to report those contractual arrangements to the

Mortgagees. The omission of the details of those

contractual arrangements from the contracts for

sale seemed plainly inconsistent with proper

conveyancing practice.

Denise Cook (Appellant) v Mortgage Business

PLC (Respondent) & Mortgage Express

(Interested Party) : (1) Leslie Tweddell (2) Anne

Tweddell (Appellants) v Southern Pacific

Mortgages Ltd (Respondent) & Mortgage Express

(Interested Party) : (1) Lee Taylor (2) Alison

Taylor (Appellants) v Southern Pacific Mortgages

Ltd (Respondent) & Mortgage Express (Interested

Party) : Rosemary Scott (Appellant) v Southern

Pacific Mortgages Ltd (Respondent) & Mortgage

Express (Interested Party),Court of Appeal, 24

January 2012.

10 |


69. Breach of Trust in remortgage case: lender

only entitled to recover part of advance

AIB Group (UK) Plc ("AIB") advanced £3.3m by

way of remortgage to Dr Ravindra Sondhi and his

wife Dr Salma Sondhi ("Sondhis") to be secured

on their home. The Sondhis' existing mortgage

with Barclays Bank ("Barclays") secured

borrowings of about £1.5m on two accounts.

AIB's instructions to their solicitors, Mark Redler

& Co, stipulated that the Barclays charge should

be discharged out of AIB's advance.

On the day of completion, Mark Redler & Co

telephoned Barclays and were given a redemption

figure of approximately £1.23m. They paid that

amount to Barclays and the remainder of the

advance to the Sondhis. They failed to notice

that the figure which Barclays had given related

to only one of the two accounts and so was

insufficient to redeem the Barclays mortgage.

AIB's charge was not registered until two years

later when it agreed with Barclays that it should

be registered as a second charge.

The Sondhis subsequently defaulted on the loan

and AIB obtained judgment against them for the

then balance of some £3.5m and an order for

possession. The property was sold for £1.2m and

AIB, as second chargee, received £867,697.

AIB sued Mark Redler & Co for, amongst other

things, breach of trust in paying away the

advance (which Mark Redler & Co admitted was

held as trust money) without obtaining a first

charge. AIB claimed Mark Redler & Co were

liable to reconstitute the trust fund of £3.3m with

interest, less the £867,697 which AIB had

actually recovered.

Mark Redler & Co argued that there had not been

a breach of trust, or, if there had been, that their

liability ought to be limited to the loss in value of

AIB's security caused by their failure to pay off

the whole of Barclays' secured debt, this

amounted to the £300,000 or so paid to Barclays

from the sale proceeds.

The following issues were tried as preliminary

issues:

1. Did Mark Redler & Co act in breach of

trust?

2. If so, to what remedy was AIB entitled?

Mark Redler & Co accepted that it had been

negligent.

Having reviewed what was said by the House of

Lords in Target Holdings Ltd v Redferns [1996]

AC 421, the judge was in no doubt that the terms

on which a solicitor is authorised to pay out

monies held in his client account are determined

by his contract of retainer. The retainer will

include terms which deal when the solicitor is

authorised to make a payment out and if such a

payment is made which breaches those terms this

would amount to a breach of trust.

Not all terms of a solicitor's retainer relate to the

circumstances in which he is authorised to pay out

monies from client account. A payment of money

when the solicitor is in breach of one of these

other terms will not necessarily amount to a

breach of trust. Further, not all the terms that

relate to payment are necessarily preconditions to

the authority to pay.

The court's task is to construe the terms of the

solicitor's retainer in order to ascertain what

authority they confer on the solicitor to pay out

money that he holds on trust for his client. This

requires the court not only to construe any express

terms but also to take account of any implications

that may properly be made as to the authority

which the solicitor is being given, arising from

the circumstances of the instruction, the nature of

the transaction involved and the way in which

such transactions are ordinarily dealt with.

In this case the written terms of the retainer did

not deal explicitly with the precise circumstances

in which Mark Redler & Co could pay out the

money. It was therefore necessary to fill in any

gaps. The firm was instructed to obtain a first

legal mortgage. The judge was in no doubt that

this meant that the firm's retainer required it to

obtain from the Sondhis a duly executed form of

legal mortgage in favour of AIB, held to AIB's

order, before, or simultaneously with, the

payment out of any of the money that AIB had

paid into the firm's client account. This is what

the solicitor had actually done. However,

ensuring that the mortgage could take effect as a

first legal mortgage required subsequent steps to

be taken, one of which (the redemption of the

charge in favour of Barclays) required the use of

part of the money that the solicitor held. It could

not sensibly be said that the solicitor did not have

authority to apply those monies for that purpose.

Nor could it be said at the other extreme that the

extent of his authority from AIB to release those

funds became irrelevant at the moment he held

the charge.

In principle, redemption of the Barclays charge

could have been dealt with in a number of ways.

Had separate solicitors been acting for Barclays

then Mark Redler & Co would have been acting

within the scope of normal conveyancing practice

of the shortfall in the amount paid to Barclays.

Payment of that amount to the Sondhis was in

breach of trust and they were liable to reconstitute

the trust to that extent only.

However, where a breach of trust consists of a

failure to discharge a prior mortgage with the

effect that the claimant's interest is postponed to

the prior mortgagee's debt to the extent of capital

outstanding, plus interest and charges

subsequently accruing due to the prior mortgagee

and also secured by its charge, then the claimant

is also entitled to equitable compensation for the

additional amounts accruing due to the prior

mortgagee which have increased the amount

secured in priority to the claimant's interest. The

claimant should however give credit for

repayments made by borrower to the prior

mortgagee's account as these would have had the

effect of reducing the loss caused by the breach of

trust.

AIB Group (UK) Plc v Mark Redler & Co (a

firm), Chancery Division, Birmingham District

Registry, 23 January 2012

70. No prospect of success for suitability of

investment claim given findings made in

previous trial

Mr Ventouris ("V") was the sole beneficiary of an

investment company, Camerata Property Inc

("Camerata"). On the advice of an employee

("S") of Credit Suisse Securities (Europe) Limited

("Credit Suisse") V made investments in various

structured products and from 2007 onwards these

were made through Camerata.

S recommended investing in a note issued by

Lehman Brothers ("the Note"). Camerata

invested $12 million in the Note. V was not

aware of who the issuer was but thought it likely

to be Credit Suisse.

When Lehman Brothers filed for bankruptcy, the

value of the Note was lost.

Camerata complained that the investment in the

Note had been unsuitable in the light of

Camerata's investment objectives. It also alleged

that S had given various assurances about the

creditworthiness of the issuer but that he should

have warned V that the issuer was not

creditworthy and that Credit Suisse had stopped

using the issuer as a counterparty in about

February 2008. It argued that if it had been

properly advised about the doubtful

creditworthiness of the issuer it would have

liquidated the Note before the collapse of Lehman

Brothers.

if they had made a payment to those solicitors

against an undertaking from those solicitors to

provide a discharge. Mark Redler & Co would

have had implied authority from AIB to do this.

Equally, if Mark Redler & Co were dealing with

Barclays direct, they would have been acting

within AIB's authority to make a payment if they

had received a statement from Barclays giving the

amount required to redeem which amounted to an

undertaking to redeem on receipt of that amount.

Neither of these scenarios would amount to a

breach of trust even though neither payment

would result in the immediate obtaining of a first

legal mortgage. In such circumstances a solicitor

would not be in breach of trust because it would

be within his authority to accept the undertaking

and make payment.

In this case Mark Redler & Co's instructions

authorised them to pay Barclays such sum as was

required to procure a release of Barclays' charge

and to pay the balance to the borrowers. Had they

complied with these instructions they would have

paid £1.5m to Barclays and £1.8m to the Sondhis.

Instead they paid £1.2m to Barclays and £2.1m to

the Sondhis. In doing so they committed a breach

of trust insofar as the payment was made contrary

to the authority they had been given.

It did not necessarily follow though that the whole

of the payment of £3.3m was made in breach of

trust. The breach of trust was limited to the

extent to which there was a difference between

what Mark Redler & Co did do and what it should

have done if it complied with its instructions and

that amounted to the £300,000 it should have paid

to Barclays but which it paid to Barclays instead.

The judge distinguished this case from that of

Knight and Keay v Haynes Duffell Kentish & Co

[2003] EWCA. In that case obtaining an

assignment was a pre-condition of the authority to

release any funds at all, whereas in this case the

solicitors' instructions to obtain a first charge

necessarily required them first to obtain a duly

executed charge (which they did) and then to

apply the advance so that the charge took effect as

a first charge. The charge could never have been

immediately effective as a first charge because

there was already another charge which was

bound to rank in priority until redeemed.

In this case the only pre-condition to the release

of any funds was the receipt of a valid form of

charge. Having got that, the solicitors were

authorised to disburse the advance but were

required to do so by paying sufficient to Barclays

to secure redemption of its charge and the balance

to the Sondhis. They failed to do so, to the extent

12 |

No matter how Camerata's case was formulated in

respect of Credit Suisse's failure to advise it

properly before the investment it would involve V

seeking to give evidence which was contrary to

the findings made after a full trial about his

knowledge, experience and attitude to risk. The

judge could not see any court being prepared to

accept such evidence at a second trial. Quite

apart from the fact that seeking to go behind those

findings and contend that they were wrong would

be a collateral attack on the first judgment and an

abuse of process, the claim in respect of the Note

did not have any real prospect of success.

The claim for damages for breach of statutory

duty under s.150 of FSMA was hopeless because

Camerata was not a "private person" within the

meaning of the Financial Services and Markets

Act 2000 (Rights of Action) Regulations 2001

("Regulations") because it was carrying on

business as an investment company.

Even if Camerata could run a case that it would

not have entered the transaction if given the right

advice it would still only be able to recover its

foreseeable loss. In fact Camerata's loss was

caused by the bankruptcy of Lehman Brothers

and the consequent issuer default which, at the

time the relevant advice was given (July 2007)

was completely unforeseeable.

On balance, the bringing of the suitability claim

in respect of the Note in the second action was not

in itself an abuse of process. Credit Suisse was

aware that Camerata intended to bring suitability

claims in a separate action, had it been concerned

that a claim in respect of the Note might cause it

oppression or vexation it could and should have

brought the matter before the court to make a case

management decision as to whether the claim

about the suitability of the Note was determined

in the first action. Having not done so, it was

difficult now for Credit Suisse to demonstrate any

oppression or vexation by Camerata merely by

bringing the claim in the second action.

The claim in respect of the Note had no real

prospect of success and Credit Suisse was entitled

to summary judgment dismissing that claim.

Camerata Property Inc v Credit Suisse Securities

(Europe) Limited, Commercial Court, 20 January

2012

Camerata brought proceedings against Credit

Suisse but limited its claim to the

creditworthiness point.

The judge (Andrew Smith J) dismissed the action.

He dismissed V's evidence that he was only

interested in low risk investments finding instead

that in his dealings with S, V had become

increasingly interested in and attracted by more

adventurous investments. S had expressed the

view, before the Lehman Brothers collapse, that

Camerata's investments would be safe but S had

not given any firmer or more specific assurances.

The judge did not think that S had been negligent

in thinking that Lehman and other institutions of

similar standing would not default nor had he

been negligent in not warning about Lehman

Brothers' creditworthiness or in not advising to

liquidate the Note.

In a separate, later action Camerata alleged that

Credit Suisse had been in breach of duty in

contract and tort and claimed damages for breach

of statutory duty pursuant to s.150 of the

Financial Services and Markets Act 2000

("FSMA") on the grounds that the Note was

unsuitable for Camerata given its expressed

attitude to risk which was known by Credit

Suisse.

Credit Suisse applied for an order striking out the

claim or for summary judgment dismissing the

claim. It claimed that the claim in respect of the

Note was precluded by reason of issue estoppel

arising out of the earlier judgment. Alternatively

that the later claim was an abuse of process or, if

not an abuse of process was in any event

unsustainable in light of the judge's findings in

the earlier judgment.

Flaux J held that critical aspects of Camerata's

pleaded case and any evidence called to support

that case would inevitably be met with the answer

that they were inconsistent with the findings

already made after a full investigation at the first

trial. For example, any attempt by V to say in

evidence at the second trial that the investment

would not have been made if he had known that it

was at least medium risk, would fly in the face of

the findings that the first judge had made about

V's attitude to risk.

The earlier judgment encompassed findings on

the risks associated with the Note and on the fact

that, even on the most pessimistic advice

Camerata was entitled to receive about Lehman

Brothers and market conditions, V would not

have sold the Note.


NB For copyright and/or

technological reasons, any internet

addresses in the electronic version

of this publication may not be

active links.

www.dlapiper.com

DLA Piper UK LLP is authorised and regulated by the Solicitors Regulation Authority. DLA Piper SCOTLAND LLP is regulated by the Law Society

of Scotland. Both are part of DLA Piper, a global law firm operating through various separate and distinct legal entities. For further information

please refer to www.dlapiper.com

UK switchboard: +44 (0) 8700 111 111

Copyright ©2012 DLA Piper. All rights reserved. | JAN12 | LONDP: UKG\MA\12925764

This publication is intended as a general overview and discussion of the subjects dealt with. It is not intended to be, and should not be used as, a substitute for taking

legal advice in any specific situation. DLA Piper UK LLP and DLA Piper SCOTLAND LLP will accept no responsibility for any actions taken or not taken on the basis of

this publication. If you would like further advice, please contact Hugh Evans (Leeds) T: 0113 369 2200, E: [email protected] or Ioannis Alexopoulos

(London) T: 020 7796 6897 E: [email protected] or Stewart Plant (Manchester) T: 0161 235 4544, E: [email protected] on 08700 111

111.

14 |

This bulletin is intended as a general overview and

discussion of the subjects dealt with. It is not intended,

and should not be used, as a substitute for taking legal

advice in any specific situation. DLA Piper UK LLP will

accept no responsibility for any actions taken or not

taken on the basis of this publication. If you would like

further advice, please contact:

LEEDS: HUGH EVANS

T 0113 369 2200

[email protected]

LONDON: IOANNIS ALEXOPOULOS

T 020 7796 6897

[email protected]

MANCHESTER: STEWART PLANT

T 0161 235 4544

[email protected]







Date post:	11-Feb-2022
Category:	Documents
Upload:	others
View:	3 times
Download:	0 times