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You are here: BAILII >> Databases >> England and Wales High Court (Chancery Division) Decisions >> Mond & Anor v MBNA Europe Bank Ltd [2010] EWHC 1710 (Ch) (09 July 2010) URL: https://www.bailii.org/ew/cases/EWHC/Ch/2010/1710.html Cite as: [2010] EWHC 1710 (Ch), [2011] Bus LR 513, [2010] BPIR 1167 |
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CHANCERY DIVISION
Strand, London, WC2A 2LL |
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B e f o r e :
(Sitting as a Judge of the High Court)
____________________
(1) David Emmanuel Merton Mond (2) ClearDebt Limited |
Claimants |
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- and - |
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MBNA Europe Bank Ltd |
Defendant |
____________________
Matthew Collings QC (instructed by Denton Wilde Sapte) for the Defendant
Hearing dates: 15, 16, 17, 18 and 21 June 2010
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Crown Copyright ©
Sir William Blackburne :
Introduction
C's IVA proposal.
Declaratory relief: the nature of the Protocol
"When approached by an individual in financial difficulty, the IVA provider will ensure the individual receives appropriate advice in the light of their particular circumstances, leading to a proposed course of action to resolve their debt problem. Full information on the advantages and disadvantages of all available debt resolution processes should be provided. Non-financial considerations should be taken into account."
This is a provision to which the claimants attach considerable importance. The duty of the IVA provider under this clause is to the "individual in financial difficulties" who has approached him for advice. That individual, however, is not a party to the Protocol and, as has been seen, is not bound to follow "the protocol process" (see clause 3.6). The statement at the conclusion of clause 6.1 that "non-financial considerations should be taken into account" leaves unstated what those considerations might be.
"It is accepted that for some, bankruptcy is not a preferred option as it could lead to loss of employment or membership of a professional body, which then has other financial consequences. Others may wish to avoid the perceived stigma of bankruptcy."
At the most, this clause appears to remind the IVA provider that bankruptcy may not be the best "debt resolution process" (the expression used in clause 6.1) for the debtor in question.
"For protocol compliant IVAs, IPs should use the agreed standard terms (Annex 4) and the summary sheet (Annex 5). There is no standard format for the IVA proposal."
And clause 8.3 then states:
"All documentation should state clearly that the IVA follows the protocol and that the agreed format IVA documentation has been used. Similarly, any variation from the protocol …should be clearly identified in all relevant paperwork."
(There was a difference between the parties as to how strictly this provision was to be observed. Curiously, Mr Mond was of the view that any departure from the strict terms of the Protocol would render the proposal in question non-compliant, while MBNA's view was that variations from the Protocol, if identified, would not necessarily have that effect. Yet according to Mr Davies's argument, on this vital question (has there or has there not been compliance with the Protocol and, if there has not, does the Protocol nevertheless continue to apply?), hangs whether, if the proposal is Protocol-compliant, there results a contract binding on creditors who have agreed to give effect to the Protocol.)
"In all dealings with a customer proposing an IVA under this protocol, creditors will continue to treat the customer in accordance with the regulatory standards and codes of practice to which they are subject…"
There is then a reference to annex 2 which in turn contains references to the Banking Code and to certain OFT guidelines. Clause 12.2 obliges creditors "[t]hroughout the duration of a protocol compliant IVA to treat their customers as referred to in clause 12.1." The clause also obliges creditors to "co-operate with the duly appointed nominee and supervisor in relation to the efficient operation of this protocol…"
"13.1 It is understood that one of the aims of the Protocol is to improve efficiency in the IVA process and to this extent creditors and IVA providers will avoid the need for modifications of an IVA proposal wherever possible. This does not affect the right of creditors to vote for or against an IVA proposal.
13.2 Where a creditor or their agent on their behalf votes against a protocol compliant IVA proposal, their reason for so doing should be disclosed to the IVA provider."
Clauses 13.3 to 13.5 set out matters which are largely covered by the standard terms referred to in clause 8.2.
The relief which the claimants seek
Declaratory relief: is it appropriate to grant any?
"120 For the purposes of the present case, I think that the principles in the case can be summarised as follows.
(1) The power of the court to grant declaratory relief is discretionary.
(2) There must, in general, be a real and present dispute between the parties before the court as to the existence or extent of a legal right between them. However, the claimant does not need to have a present cause of action against the defendant.
(3) Each party must, in general, be affected by the court's determination of the issues concerning the legal right in question.
(4) The fact that the claimant is not a party to the relevant contract in respect of which a declaration is sought is not fatal to an application for a declaration, provided that it is directly affected by the issue; (in this respect the cases have undoubtedly "moved on" from Meadows).
(5) The court will be prepared to give declaratory relief in respect of a "friendly action" or where there is an "academic question" if all parties so wish, even on "private law" issues. This may particularly be so if it is a "test case", or it may affect a significant number of other cases, and it is in the public interest to decide the issue concerned.
(6) However, the court must be satisfied that all sides of the argument will be fully and properly put. It must therefore ensure that all those affected are either before it or will have their arguments put before the court.
(7) In all cases, assuming that the other tests are satisfied, the court must ask: is this the most effective way of resolving the issues raised? In answering that question it must consider the other options of resolving this issue."
In Financial Services Authority v Rourke [2001] EWHC 704 (Ch), Neuberger J observed (on page 6) that:
"…When considering whether to grant a declaration or not, the court should take into account justice to the claimant, justice to the defendant, whether the declaration would serve a useful purpose and whether there are any other special reasons why or why not the court should grant the declaration."
In Nokia Corporation v Interdigital Technology Corporation [2007] EWHC 3077 (Pat) Pumphrey LJ asked [at 5] when considering whether to grant a negative declaration
"…Would the declaration if granted be the legal equivalent of shouting in an empty room, or is there some point in it?"
"The successful operation of the IVA Protocol has resulted in many of the desired improvements in the IVA marketplace being implemented without the need for further legislation, a position which has become clear within the past two months. Those in the industry have worked hard to streamline the process for IVA approval with far fewer modifications now being proposed. It is now felt that the operation of the Protocol should continue to be monitored by the IVA Standing Committee, and that legislative change in this area should not be necessary as long as policy objectives are being met by non-statutory means."
The real purpose of these proceedings
"80. The effect of MBNA's conduct is not necessarily simply on the individual cases concerned. As can be seen with [C], the effect has been to expose him to a non-statutory non-contractual piecemeal set of agreements with his individual creditors, rather than a statutory scheme binding on all his creditors, treating them equally. But, because MBNA adopts a similar attitude across the whole of the industry, it is having an effect on the ways that IVAs are dealt with, ultimately to the detriment of the Protocol and to the general body of debtors.
81. My knowledge of the IVA market (derived from my own practice, my chairmanship of DRF, my work with the IVA Standing Committee and from general enquiries of other IPs) shows that MBNA is adopting a similar approach in relation to other IVA proposals where it holds a 25% majority, with the effect that this is limiting the number of IVAs that are being offered."
"It is important and relevant for Mr Mond and ClearDebt to obtain declaratory relief as to the extent that MBNA is contravening the Protocol in order that they, and other IVA providers, have a framework against which they can satisfy the valid public policy objective of providing debt relief for individuals in financial distress, as recognised by the Protocol and supported by the BBA, as:-
64.1 The Protocol, as a voluntary industry-process was intended to provide a format appropriate to industry users and to provide clarification of the obligations on creditors in relation to the IVA process, with a view to providing a satisfactory outcome for all stakeholders in a more timely and effective manner than by a regulatory solution.
64.2 The Protocol was intended to provide an agreed standard framework for dealing with straightforward consumer IVAs, whereby IVA providers drew up proposals based on standard documentation stating that it followed the Protocol, in respect of which creditors (especially creditors who are members of the BBA) were expected to abide and to avoid unnecessary modifications.
64.3 The Protocol does not fulfil its purpose if MBNA, a member of the BBA, votes entirely selfishly to reject PCIVAs where it holds more than 25% of the debtor's debts, and effectively vetoes the PCIVA unless it terms are complied with.
64.4 The Protocol only works, or is effective, if large businesses such as MBNA observe its terms and spirit.
64.5 The perception is that the conduct of MBNA in response to proposals for PCIVAs is defeating the entire purpose of the Protocol."
The core complaint
"…the meaning and effect of the Protocol, with which members of the BBA as creditors are expected to abide, is that where a PCIVA was proposed, such creditors are expected to vote in favour of the IVA, unmodified, unless good reasons to the contrary are disclosed."
It was later made clear that "expected" in that passage should be understood as meaning "required".
"My understanding is that the principal issue upon which MBNA relies is the fact that it maintains that a DMP is the most suitable form of debt solution for [C] and others in his situation. I disagree. And, not only do I think that it is inappropriate for [C], my view is that the BBA support for the Protocol is such that it is not for the MBNA to second guess my professional opinion and vote against the proposal. I respectfully suggest that the proper approach should be that, in circumstances where an IP has put his name as nominee to a PCIVA proposal, this must be taken to indicate that he has reached the view that an IVA is the most appropriate form of debt solution for the particular debtor…"
"52. …It [the Protocol] operates and relies upon trust operating between the IVA Provider and the creditors. I am obliged, by the terms of Clause 6.1 of the Protocol, my professional obligations and (it has to be said) my personal long-held view that debtors should have the appropriate advice available to them at all times, to ensure that the debtor received appropriate advice in the light of their circumstances, leading to a proposed course of action to resolve their debt problem. The Protocol has, in my view, emphasised the nature of the advice given to debtors by IVA providers, such that when faced with what appears to be a Protocol-compliant IVA Proposal, the debtor can be satisfied that that is the most appropriate debt solution for the debtor. In those circumstances, unless there are very good reasons to the contrary, the creditor, especially a BBA-member creditor, is expected to vote in favour. The fact that a PCIVA is proposed is almost like a warranty for the IVA Provider that the IVA is appropriate. It is not then for the creditor to second-guess that debtor or the IVA provider. It is certainly not the case that a BBA member should be voting against it for its own selfish (and I would say, against the background of the Protocol, capricious) reasons.
53. I firmly believe that the position of MBNA, namely that despite the Protocol and of the fact that it is a member of the BBA, it is free to vote in any way it wishes, for whatever reason, when faced with a proposal for a Protocol-complaint IVA, is wrong, both on the terms of the Protocol and certainly having regard to its spirit of promoting efficiency, certainty and above all, trust, from the point of view of creditors, debtors and IVA Providers."
Again, the reference in paragraph 52 to "expected" is to be understood as if instead "required" had appeared.
"In many cases, the member's [i.e. the IP's] role will change during the conduct of the case, for example from adviser to nominee to supervisor. These roles will involve different responsibilities: for example, when acting as adviser the member's role will be to consider the best course of action for the debtor in the light of their particular circumstances; when he becomes nominee his duty will be to the creditors and the court; and when acting as supervisor his responsibilities will be governed by the terms of the arrangement. The member should be mindful of possible conflicts of interest arising from these changes of role…"
"We would also concur with your comment that 'debtors should have access to the debt management solution identified as the most appropriate to their circumstances and their ability to repay their debt in a reasonable timescale' - where the most appropriate solution is an IVA, then our hope is that an IVA is made available."
"This does not affect the right of creditors to vote for or, subject to clause 13.2, against an IVA proposal."
and as if at the end of clause 13.2 the words "and it shall be a good reason" had been added.
A "good reason"
"9. As a starting point, we do not look at customers in financial difficulty as having a choice just between an IVA and bankruptcy. An IVA is often appropriate for a customer facing difficulties, but IVAs are not always the best alternative to bankruptcy. In suitable cases, MBNA will offer to put a customer onto an internal debt management plan ("DMP"). Under an internal DMP, we stop interest from accruing on the debt and we stop charging fees on the account. The customer makes monthly repayments of an agreed amount. This enables the customer to repay his debt over an agreed period in a way that strikes a fair balance between the customer's needs and our right to be repaid.
10. In considering whether an internal DMP would be appropriate we look, among other things, at a customer's income and expenditure, with expenditure on living expenses quantified in accordance with the Consumer Credit Counselling Service ("CCCS") Budget Guidelines… We deduct the customer's monthly expenditure from his income to give his disposable income. We multiply the disposable income by customer's debt to MBNA, and divide the outcome by the customer's total outstanding debts to all creditors. This gives the pro-rata amount that the customer could repay to MBNA each month under an internal DMP. We would consider the customer for an internal DMP if he were able to repay more than 0.8% of his debt to MBNA each month.
11. We work on the basis that MBNA should receive a pro-rata share of the customer's disposable income under an internal DMP. In doing so, we ensure that the customer is able to treat all of his creditors equally. MBNA does not seek any advantage over the other creditors. We use a figure of 0.8% per month because this gives a maximum length of internal DMP of 10 years. We do not agree DMPs of more than 10 years.
12. In considering whether an internal DMP would be appropriate, we also look at the number of other creditors that the customer has. If he has what in our opinion is a manageable number of creditors, then we feel he is likely to be able to agree DMPs or similar arrangements with his other creditors, so he may be able to avoid the need for an IVA or bankruptcy. If, after we have rejected an IVA proposal in favour of an internal DMP, the customer tries and fails to make arrangements with other creditors and needs further debt relief, we will of course reconsider whether an IVA would be appropriate.
13. Aside from the question of whether an internal DMP is appropriate, in considering IVA proposals we also consider whether the proposed fee structure is reasonable for the proposal. …the nominee and supervisors' fees can come to a substantial proportion of the customer's debts. We also take into account what interaction we have had with the customer over the months leading up to the IVA proposal. This helps us to understand the customer's circumstances and whether an IVA would be appropriate for them.
14. At a secondary level, we look at the customer's demographics and his transactional behaviour. Demographics are relevant because, for example, a young man at the start of his career is more likely to be able to sustain regular repayments on an internal DMP than a man on the verge of retirement. The customer's transactional behaviour is relevant as it may indicate the purpose for which he has been spending money and the likelihood of him being able to change that behaviour. As I said though, demographics and transactional behaviour are secondary considerations.
15. We apply the same criteria when considering IVA proposals regardless of whether MBNA holds more or less than 25% of the vote, and regardless of the identity of the IVA provider or prospective nominee. To put the decision making process in context, we approve the vast majority of IVA proposals that we receive..."
He stated, although he was strongly challenged on this and I do not consider that the precise figure is important, that MBNA votes in favour of roughly 90% of all proposals that come before it. (The challenge was directed chiefly to the fact that the perception in the "market" is that where MBNA holds more than 25% in value of the debtor's debts, IVA providers do not advise debtors to propose an IVA since they know that it is likely to be rejected by MBNA having regard to the criteria applied in the way that Mr Erwin described and that this awareness distorts the figures.)
"When a customer encounters financial difficulties, MBNA has to balance two potentially conflicting considerations. On the one hand, in order to stay in business and to operate in a way that is fair to our other customers, we have to try to recover the money that we have lent. The losses we make when individual customers do not pay their debts have to be accommodated in the business through the interest and other charges paid by other customers. On the other hand, we seek to treat the individual customer fairly and reasonably…"
Disclosure of rejection reasons
The way forward