Santander v Mayhew…

I was sent a copy of Credit Today and was interested in an article concerning the case i was involved with called Santander v Mayhew. There were actually two articles, the first written by Alex Cardno and the second by Optima Legal Solicitors.

Now Alexs article was pretty neutral and dealt with the facts of what happend. The article was not in my opinion judgmental in any way and was very good reading, well apart from one minor error about section 127(3) to (5) Consumer Credit Act 1974 but thats not a problem at all really. The provisions of s127 (3-5) were repealed by the Consumer Credit Act 2006 but for agreements entered into  before 6th April 2007  the provisions of s127(3 to 5) still have effect.

But contrary to the article, s127(3)-(5) do not give the Judge any discretion at all for an agreement executed before 6th April 2007 as if the agreement fails to comply with s61(1)(a) CCA 1974 then the Court has no power to enforce whatsoever as established in Dimond v Lovell, Wilson v First County Trust, London North Securities v Meadows etc.

I would also point out that while the Court has discretion to enforce after 6th April 07  the test that the Court has to apply is set out in s127 which states

127 Enforcement orders in cases of infringement.

(1)In the case of an application for an enforcement order under—
[F1(za)section 55(2) (disclosure of information), or]
[F2(zb)section 61B(3) (duty to supply copy of overdraft agreement), or]
(a)section 65(1) (improperly executed agreements), or
(b)section 105(7)(a) or (b) (improperly executed security instruments), or
(c)section 111(2) (failure to serve copy of notice on surety), or
(d)section 124(1) or (2) (taking of negotiable instrument in contravention of section 123),
the court shall dismiss the application if, but F3. . . only if, it considers it just to do so having regard to—
(i)prejudice caused to any person by the contravention in question, and the degree of culpability for it; and
(ii)the powers conferred on the court by subsection (2) and sections 135 and 136.
(2)If it appears to the court just to do so, it may in an enforcement order reduce or discharge any sum payable by the debtor or hirer, or any surety, so as to compensate him for prejudice suffered as a result of the contravention in question.

So yes the Court has discretion after 6th April 2007 but such issues as those that arose in Mayhew would have called for some response from the Court. An example of the provision of s127 (1)&(2) in operation can be found in Rank Xerox v Hepple where HHJ Hague QC reduced a debt from £5,000 to £500 for a simple breach of the CCA where the creditor failed to draw to the debtors attention the accelerated payment clause for breach, thus the judge held the debtor was unduly prejudiced. Another recent example of this kind of view is found in Harrison v Link Financial Limited which was heard before HHJ Chambers QC in the High Court.

Anyway, it isnt the article Alex wrote that i have issue with, it is well written and very good. It is the article written by Optima Legal that shocks me more than anything. Why? well firstly the article suggests that this case was concerned with debt avoidance. And heres a copy of it from the Credit Today Magazine.

Now then, what i take issue with is the suggestion that this case was about debt avoidance!! it was not, and i can say this because i was involved in the case, in Court when the evidence was given and listened to the submissions made by the superb Paul Brant from Oriel Chambers on Ms Mayhews behalf.

Lets stop and look at the Mayhew case.

Firstly Di Mayhew told Santander the moment she knew she was going to face financial difficulties and i refer to the Judgment directly Paragraphs 6 &  7

  • The Defendant ran into financial difficulties and in July 2009 she failed to make the minimum payment due on the card. She informed the Claimant of her problems in February 2010 and it was agreed that she would make payments of £5.44 a month from March 2010.
  • On 12th October 2010 the Claimant served a default notice with a final demand being sent on 11th November 2010. These proceedings were issued on 20th December 2010.

Now then, Di Mayhew received a Default notice and she ignored it, why? well she received the Default and then a couple of days later she received a letter saying “please ignore the previous correspondence and maintain your payment arrangement” so she did, she just carried on paying. She did not stop paying and tell Santander to get lost, she did not ever intend to avoid paying this debt, what she got was sued by er Santander and put in such a position where she needed to seek legal assistance.

Di Mayhew is a pensioner, she did not go out to avoid paying her debt, infact this lady said to me when we had been given the judgment “do i still need to keep paying because i feel that i should because i borrowed the money”

Is that the sort of thing someone intent on debt avoidance says? Lets also remember Di made a payment right on top of the trial.

Anyway, when Santander sued Di she sought legal advice as she was frightened that her home would be at risk and she couldnt work out why Santander would be suing her as she was paying what they had agreed. Anyway, she found her way to my firm and spoke with Gwyn Jones and discussed her case with him. Gwyn is very skilled in CCA affairs, and asked Di all the key questions. Di answered honestly and she helpfully had retained lots of evidence to support her case although im not sure she understood the significance of these documents as she genuinely did not have a strong grasp of the 1974 Act at the beginning.

Anyway, there were two issues arising out of this case that affected the enforceability of the agreement.

The first issue was the original store card agreement. Ms Mayhew said that she had been visiting Harrods and in the banking hall as she called it there was an area where there were numerous flyers, much like you see in most bank branches, and she saw a store card application for a Harrods card.

She recalled taking the application and took it home with her, she filled it in and posted it off. She took a photocopy of the application as she said that there was not a copy for her to keep.She said there were no separate terms and conditions booklet, and if there was terms available they were in a separate holder and thus if we look at what the 1974 Act requires, the agreement must “contain” the prescribed terms as set out in s61(1)(a) CCA 1974. Now then the High Court helped the banks by setting out how to construe the word contain and i quote from HHJ Waksman QCs judgment in Carey v HSBC Bank Plc (paragraphs 173 & 174)

Agreed Principles

    1. The parties in  Carey  have helpfully agreed the following principles. The fourth one was added by Mr Uff, with their agreement. No other party takes issue with them. The OFT has formulated the matter in a slightly different way but accepts these principles are close to its position.
  •  (1) It is not sufficient for the piece of paper signed by the debtor merely to cross-refer to the Prescribed Terms without a copy of those terms being supplied to the debtor at the point of signature;
  • (2) A document need not be a single piece of paper;
  • (3) Whether several pieces of paper constitute one document is a question of substance not form. In particular a physical connection between several pieces of paper is not necessary in order for them to constitute one document;
  • (4) Additionally, a physical connection (or one or more physical connections) between several pieces of paper does not necessarily constitute them as one document;
  • (5) Accordingly, where the debtor’s signature and the Prescribed Terms appear on separate pieces of paper, the questions of whether those pieces of paper together constitute one document is a question of substance and not form.
  1. As a matter of law, those principles appear to me to be correct, in the context of s61.

So clearly if someone leaves the premises with an application form and is unaware there are a nice shiny booklet of terms and conditions sat in a nice plastic holder, then they are NOT CONTAINED in the agreement clearly. This is not some technicality but a major error on the creditors part for failing to understand the proper construction of the Consumer Credit Act 1974 in my7 opinion.

So Gwyn drew the conclusion that any one knowledgeable in Consumer Credit Litigation would conclude, that the agreement was unenforceable for lacking the prescribed terms. Now just to say the prescribed terms for a credit card for an agreement executed before 6th April 2007 are

“Credit Limit
3. Agreement for running-account credit. A term stating the credit limit or the
manner in which it will be
determined or that there is no credit
limit.
Rate of interest
4. Agreement for – A term stating the rate of any interest on the credit to be
provided under the agreement.
Repayments
5. Consumer credit agreements. A term stating how the debtor is to discharge his
obligations under the agreement to make the
repayments, which may be expressed by reference
to a combination of any of the following – …”
And “the following” deals with the repayment.

So there we are, the agreement failed to contain the prescribed terms and thus was unenforceable. So Di Mayhew had a defence to run in this case.

Gwyn then looked at the issue of the “upgrade” as people refer to it, well it was more than an upgrade in my view. It was an entirely new agreement, the terms varied so wildly from the original store card that there was no way you could call this an upgrade. The store card only worked in Harrods, the credit card was used world wide, the differences were huge. Judge Manners saw this was the case too as can be seen from her Judgment.

Now its worth noting that Di was unaware of the legal implications of the errors made by Santander, so to suggest that she used the CCA 1974 to avoid a debt is wide of the mark. If i was paying my debt and the creditor agreed to accept my payments then sued me, id darn well use whatever legislation to protect me too.

Lets also stop and point a finger at good old Santander now, this was a bank that alleged this n that had happened and Ms Mayhew was just wrong, yet Santander could not provide any evidence before the Court and trust me they were aware this was a live issue from an early stage, now surely they would have had a copy of the terms they say are applicable?? it beggars belief that they couldnt put any evidence before the Court to satisfy the judge on balance of probabilities that there were terms. I mean lets look at what Judge Manners said

  • Evidence for the Claimant was given in the form of the statement of John-Paul Murphy the solicitor with conduct of the case. A hearsay notice was served and although Mr. Murphy was present in court no oral evidence was adduced on behalf of the Claimant. The Defendant herself gave evidence.
  • Four issues fall for determination (i) whether the agreement entered into in April 2000 was valid (ii) whether the upgrade in 2003 was valid (iii) whether the default notice complied with the requirements of the Consumer Credit Act and (iv) whether the Defendant’s request under section 78 of the Consumer Credit Act was complied with and, if it did not, whether that rendered the whole agreement unenforceable.
  • Was the April 2000 agreement valid? Section 61 of the Consumer Credit Act requires that a valid agreement must contain all the prescribed terms (credit limit, interest rate and repayment terms) and be signed by the debtor and the creditor. The Defendant’s case was that she went into Harrods banking hall and picked up a pre-paid foldable application form which she took home, filled in and sent off. She said there were no terms and conditions other than those printed on one side of the form. She had kept a copy of the form for her records. She also said that when she received the store card there were no terms and conditions with it. It was the Claimant’s case that terms and conditions were supplied, that procedures for providing terms and conditions were automated and that it would be unrealistic to expect that the Claimant could call anyone to give evidence as to the application of those procedures in this case. The Claimant was not able to provide a copy of the documents which it said would have accompanied the application form. The Defendant struck me as a methodical person who had kept a copy of the application form for her records and I have no doubt she would have kept, though possibly not read, any terms and conditions sent to her. I believed her evidence that she had not received any terms and conditions, either when she took the application form or when she received the card. I therefore find that the April 2000 agreement is unenforceable.

The bank didnt even reconstruct the agreement, so that says to me that they simply did not know what would have been with the agreement. So the bank that sues this lady cant even get its tackle in order to quote Judge Manners yet Ms Mayhews case is referred to as some kind of debt avoidance case? i think that article needs a real rethink to be honest.

Oh yeah and heres another point, Santanders witness Mr Murphy, a solicitor from Howard Cohen & Co was in Court on the day but wasnt called as a witness. Now that is of course the Claimants right not to call its witness if it so choses but why bring someone then decide not to call them? i must admit i found it somewhat strange that Santander had a solicitor from an outside firm as their witness anyway, i mean what evidence could he have given? he would not have known what happened in 2000 when GE money were the creditor, he could not say what happened with the upgrade nor about the default notice as these were all matters totally outside his knowledge. At best he could regurgitate what he had read, but that certainly wouldnt be sufficient to win the day. In Harrison v Link Financial, MBNA sent their solicitor Mrs Nicola Worden to the Court to give evidence, Mrs Worden had a working knowledge of the practice and procedures because she worked for MBNA and was involved in the processes that she gave evidence on. In the High Court case of Slater v Egg Banking, Egg sent a member of staff who was able to say what happened due to her direct involvement. So why would a bank send a witness from an outside solicitors firm who had no direct involvement in the Mayhew case? the mind boggles.

Id also point out that the leading commentators in Professor Sir Roy Goode QCs publication Goode Consumer Credit Law and Practice appeared to support out own analysis of the matter on the upgrade, infact we took the Judge to the Goode publication along with the OFTs intervention documents. So it wasnt just some Debtor thinking up technical arguments to avoid a debt!!

If i havent made my point here already then i simply need to refer to two very useful judgments which set out clearly the message to these lenders

The first is the Judgment of LJ Sedly in Wilson v Howard Pawn Brokers

The moral for a pawnbroker such as Mr Howard is that if he wants the rewards of his trade he must operate strictly by the book, and that the result of failing to do so may be not merely to unravel agreements, but to reverse the indebtedness that they have purportedly created. 

and secondly from the landmark ruling of Wilson v Secretary of State ( often called Wilson v First County Trust)

Lord Nicholls said:

“72.  Undoubtedly, as illustrated by the facts of the present case, s 127(3) may be drastic, even harsh, in its adverse consequences for a lender.  He loses all his rights under the agreement, including his rights to any security which has been lodged.  Conversely, the borrower acquires what can only be described as a windfall.  He keeps the money and recovers his security.  These consequences apply just as much where the lender was acting in good faith throughout and the error was due to a mistaken reading of the complex statutory requirements as in cases of deliberate non-compliance.  These consequences also apply where, as in the present case, the borrower suffered no prejudice as a result of the non-compliance as they do where the borrower was misled.  Parliament was painting here with a broad brush.

73.  The unattractive feature of this approach is that it will sometimes involve punishing the blameless pour encourager les autres.  On its face considered in the context of one particular case, a sanction having this effect is difficult to justify.  The Moneylenders Act 1927 adopted a similarly severe approach.  Infringement of statutory requirements rendered the loan and any security unenforceable.  So did the Hire-Purchase Act 1965, although to a lesser extent.  This approach was roundly condemned in the Crowther report …

‘It offends every notion of justice or fairness that because of some technical slip which in no way prejudices him, a borrower, having received a substantial sum of money, should be entitled to retain or spend it without any obligation to repay a single penny.’.

74.  Despite this criticism I have no difficulty in accepting that in suitable instances it is open to Parliament, when Parliament considers the public interest so requires, to decide that compliance with certain formalities is an essential prerequisite to enforcement of certain types of agreements.  This course is open to Parliament even though this will sometimes yield a seemingly unreasonable result in a particular case.  Considered overall, this course may well be a proportionate response in practice to a perceived social problem.  Parliament may consider the response should be a uniform solution across the board.  A tailor-made response, fitting the facts of each case as decided in an application to the court, may not be appropriate.  This may be considered an insufficient incentive and insufficient deterrent.  And it may fail to protect consumers adequately.  Persons most in need of protection are perhaps the least likely to participate in court proceedings.  They may well let proceedings go by default.

75.  Nor do I have any difficulty in accepting that moneylending transactions as a class give rise to significant social problems.  Bargaining power lies with the lender, and the social evils flowing from this are notorious.  The activities of some lenders have long given the business of money lending a bad reputation.  Nor, becoming more specific, I do have any difficulty in accepting, in principle, that Parliament may properly make compliance with the formalities required by the 1974 Act regarding ‘prescribed terms’ an essential prerequisite to enforcement.  In principle that course must be open to Parliament.  It must be open to Parliament to decide that, severe though this sanction may be, it is an appropriate way of protecting consumers as a matter of social policy.  In making its decision in the present case Parliament had the benefit of experience gained over many years in the working of the 1927 Act and the hire-purchase legislation, and also the views of the Crowther Committee.  Further, it must be open to Parliament so to decide even though the lender’s inability to enforce an agreement will not assist a borrower who consents to the enforcement of the agreement in ignorance of the true legal position.”

Both the Court of Appeal and House of Lords had no problem accepting that the act of parliament meant that even though the sanction may be harsh, even though it punishes the blameless on occasion that is what parliament had intended and that was its right.

These lenders need to realise that the consumers are fighting back now, and when someone like Di Mayhew who bends over backwards to pay her debt gets sued, you can understand why people are fighting back, maybe if the banks were more reasonable as i pointed out in a recent blog entry, then people would not be fighting them in court ( And WINNING) but they would be more inclined to pay the lenders what they owed. After all you cannot get blood out of a stone, so if someone like Ms Mayhew pays £5 per month because thats all they can afford, i dont see why the lender needs to sue, it makes no sense to me.

I must point out that this article is written to give my take on the case from my involvement in it. I was not the file handler and credit for the work on this case needs to go to Gwyn Jones from Watsons Solicitors.

About paul @ watsons solicitors
Member of Chartered Institute of Legal Executives and a litigator for one of the leading firms of solicitors in Consumer Credit Act litigation. I was the fee earner in the landmark ruling of Harrison v Link Financial Limited and many other County Court decisions.

3 Responses to Santander v Mayhew…

  1. DonkeyB says:

    Sounds to me like a libel against your client. Sue!

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