Brookes v HSBC Bank Plc

Section 78 of the Consumer Credit Act 1974 (“the Act”) imposes an obligation on a creditor under a regulated agreement for running-account credit to give the debtor on receipt of written notice a copy of the executed agreement (if any), together with certain information as to the state of the account. Failure to comply with that obligation renders the debt unenforceable while the request remains unfulfilled. Agreements under which banks make credit cards available to customers are regulated agreements for running-account credit and so fall with section 78 of the Act.

In 2009 a large number of claims were started by holders of credit cards in the North West of England against card issuers seeking relief based on section 78. The issue at the heart of most, if not all, of these cases was whether that section obliged the creditor to provide a copy of the original credit agreement as executed by the creditor and the debtor and all subsequent variations (as the claimants maintained), or whether it was sufficient for the creditor to provide the relevant information originally derived from the original agreement and later variations but retrieved for the purpose from its records (as the card issuers maintained). The question was of importance because in many cases card issuers had difficulty in locating copies of the original agreement, but had much less difficulty in providing the information it contained from their records. In most cases the real object of the proceedings was not to obtain a copy of the original agreement but to establish that the bank was unable to comply with the requirements of section 78, so that the debt became to all intents and purposes permanently unenforceable.

In the event, many of these cases were transferred to the Manchester Mercantile Court where His Honour Judge Waksman Q.C. selected a number of test cases which gave rise to questions that could conveniently be decided as preliminary issues. All the remaining claims were stayed pending his decision. On 23^rd December 2009 he delivered judgment in the case reported as Carey v HSBC Bank Plc [2009] EWHC 3417 (QB), [2009] CTLC 103, in which he held, among other things, that a creditor was not obliged by section 78 to provide the debtor with a copy of the original agreement, but could meet its obligations by providing the information contained in that agreement drawn from other records. There was no appeal against Judge Waksman’s judgment and as a result of it the litigation has been resolved. In many cases the proceedings were simply discontinued.

On 8^th March 2010 seven cases, including the two that are the subject of these appeals, came before Judge Waksman on applications by the claimants for orders that the defendants should bear all or part of their costs. In a careful and detailed judgment he dismissed the applications made by both Ms. Brookes and Mr. Jemitus, each of whom now appeals against his decision.

The judge’s starting point was rule 38.6(1) which provides as follows:

“Unless the court orders otherwise, a claimant who discontinues is liable for the costs which a defendant against whom the claimant discontinues incurred on or before the date on which notice of discontinuance was served on the defendant.”

Having referred to the rule and a number of authorities dealing with orders for costs on discontinuance, including RTZ Pension Property Trust v ARC Property Developments [1999] 1 All ER 532, RBG Resources plc v Rastogi [2005] EWHC 994 (Ch) http://www.bailii.org/ew/cases/EWHC/Ch/2005/994.html, In re Walker Wingsail Systems Plc [2006] 1 W.L.R. 2194, http://www.bailii.org/ew/cases/EWCA/Civ/2005/247.html Official Receiver v Doshi [2007] BPIR 1135, Maini v Maini [2009] EWHC 3036 (Ch), and Far Out Productions v Unilever [2009] EWHC 3484, http://www.bailii.org/ew/cases/EWHC/Ch/2009/3484.html the judge formulated a number of principles which can be conveniently summarised as follows:

Applying those principles the judge came to the conclusion that in both of the cases now before us the claimant should pay the bank’s costs of the proceedings, less a small reduction in the case of Mr. Jemitus.

In my view the judge fairly summarised the effect of the authorities to which his attention had been drawn and indeed the principles he derived from them were not in dispute. Since his decision, however, further guidance has become available in the form of this court’s decision in Messih v MacMillan Williams [2010] EWCA Civ 844, the circumstances of which make it particularly relevant to the present appeals. In that case the claimant brought proceedings against two firms of solicitors seeking damages for the loss of a commercial lease, which, he alleged, had been caused by their separate failures to give him proper advice. He settled the action with the first defendant (LMA) on terms that it paid him almost the whole of the amount he claimed and abandoned its right to pursue a claim for contribution against the other (MW). Having thus obtained all that he could reasonably hope to achieve by the proceedings, he discontinued the claim against the second defendant and sought an order that he be under no liability for its costs. Patten L.J. identified the question that arose for decision in the following way:

“28.

. . . the appeal does, I think, raise, in relatively stark terms, a question, the answer to which could be of some general application in similar cases. The argument for MW challenges as contrary to principle the Recorder’s conclusion that a claimant who has achieved what amounts to the satisfaction of his whole claim against one set of defendants can rely upon the avoidance of a trial on liability against the remaining defendants to recover costs alone as justifying a departure from the ordinary rule that on discontinuance a claimant should pay the defendant’s costs.”

The claimant argued that by settling the claim with the first defendant he had obtained all that he had been seeking and that by discontinuing against the second defendant he had acted reasonably and responsibly by avoiding the need for a trial with its attendant costs and use of court time. Despite that, the court did not accept that there was sufficient justification for departing from the rule. Patten L.J., with whom Elias and Ward L.JJ. agreed, said:

“30.

No judge encourages litigation about costs and a major theme of the CPR is the avoidance of unnecessary disputes and the costs which they can generate. But the avoidance of the costs of a trial is the necessary consequence of any discontinuance and cannot, of itself, justify a departure from the normal rule that the discontinuing party pays the other side’s costs up to the date of discontinuance. There has to be something more than that to justify that departure. Otherwise the normal rule would be displaced in every case.

31.

In this case there was nothing more. As already mentioned, the claimant knew what MW’s position was and that it wished to contest its liability for the claim. The claimant made his decision to discontinue notwithstanding this and in the knowledge that the settlement with LMA made no provision for the payment of MW’s costs against the claimant as opposed to those of the third party proceedings. By doing so Mr Messih removed the ability of MW to establish its defence and left the court in the position of being unable to determine what the outcome of the trial is likely to have been. The circumstances were therefore the quite usual consequences of a decision to discontinue and I can see nothing in them to justify the order which the Recorder made.

32.

Had separate proceedings been taken against MW, it is difficult to see how the claimant could have avoided paying their costs on a discontinuance. If the claimant chooses to join as defendants in the same action two separate firms of solicitors against whom he pleads separate causes of action based on different breaches of their respective retainers the costs consequences of a discontinuance against one of them ought in principle to be the same.

33.

The claimant’s natural desire to settle his claim against LMA on terms that they paid the claim in full should not be allowed, in my judgment, to override the entitlement of MW to be paid their costs when the claimant chose no longer to pursue them. . . .”

It is clear, therefore, from the terms of the rule itself and from the authorities that a claimant who seeks to persuade the court to depart from the normal position must provide cogent reasons for doing so and is unlikely to satisfy that requirement save in unusual circumstances. The reason was well expressed by Proudman J. in Maini v Maini: a claimant who commences proceedings takes upon himself the risk of the litigation. If he succeeds he can expect to recover his costs, but if he fails or abandons the claim at whatever stage in the process, it is normally unjust to make the defendant bear the costs of proceedings which were forced upon him and which the claimant is unable or unwilling to carry through to judgment. That principle also underlies the decision of this court in Messih v MacMillan Williams. There may be cases in which it can be said that the defendant has brought the litigation on himself, but even that is unlikely to justify a departure from the rule if the claimant discontinues in circumstances which amount to a failure of the claim.

Mr. Lawrence West Q.C. submitted on behalf of Ms. Brookes and Mr. Jemitus that whatever may have been the position in other cases, they had both brought proceedings to obtain performance by the bank of its obligations under section 78 of the Act and had discontinued those proceedings as soon as they had obtained what they were seeking. So, he submitted, the judge was wrong not to recognise that their cases were different in an important respect from any of those that had previously been considered. They both had a legitimate interest in bringing the proceedings and in substance they had been successful. It would be wrong, therefore, not only to deprive them of their costs but to order them to pay the banks’ costs.

In my view that submission does not fairly characterise the nature of these proceedings or their outcome, but before turning to consider that aspect of the matter it is convenient to dispose of the suggestion that the appellants had a legitimate interest in bringing proceedings of a kind which justifies a departure from the normal rule.

The argument was based on certain passages in the judgment in Carey where the judge expressed the view that the debtor has a legitimate interest in seeing a copy of the agreement he signed (paragraph 104) and may also have a legitimate interest in obtaining a decision on what constitutes compliance with section 78 (paragraph 167). He may also be entitled to declaratory relief, if he can show that some useful purpose would be served by granting relief in that form (paragraph 170). That may be so, but it does not follow that the debtor has a right to bring proceedings at the creditor’s expense in order to obtain relief which goes beyond what he is entitled to obtain under the statute or relief by way of a declaration which has no practical utility. Moreover, as the judge pointed out, whether a party originally had a legitimate interest in bringing the proceedings counts for little, if anything, if he subsequently discontinues them rather than pursuing them to a conclusion. In reality this argument adds nothing of any substance to the appellants’ principal argument that they brought proceedings merely to obtain that to which they were entitled and discontinued the proceedings once they had obtained it. On that question there are many similarities between the two appeals, but there are differences in their procedural history and in the nature of the relief that was being sought and it is therefore convenient to consider them separately

On 13^th August 2008 the solicitors acting for Ms Brookes wrote to HSBC asking it to supply a copy of the “original agreement” pursuant to section 78 of the Act. On 2^nd September HSBC replied saying that it was unable at that stage to locate the original agreement but enclosing a blank copy of the proposal form in use at the relevant time, a copy of the terms and conditions which were then applicable and a copy of the most recent form of those terms. It said that it considered that it had complied with the statutory requirement. There followed an exchange of correspondence in the course of which the solicitors again asked for a copy of the original agreement and HSBC continued to insist that it had complied with its statutory obligation. Eventually, on 6^th March 2009, Ms Brookes’ solicitors sent the bank a copy in draft of the claim form seeking a declaration of unenforceability which they said they intended to issue. In the covering letter they required the bank to confirm that the agreement was unenforceable, that the debit balance on the account would be reduced to zero and that the bank would withdraw any negative information about Ms Brookes that it had sent to any credit reference agencies. HSBC did not respond and on 9^th April 2009 proceedings were issued under Part 8 of the Civil Procedure Rules. They were served on 5^th June.

Although the proceedings were started under Part 8, a formal statement of case described as “Details of Claim” was served in which it was alleged that the documents provided by HSBC to Ms Brookes did not comprise a true copy of the executed agreement between her and the bank, or, alternatively, if they did, that the agreement was not properly executed and was therefore irremediably unenforceable. The relief sought included declarations that the bank was not entitled to enforce the agreement while the failure to comply with section 78 continued, alternatively, at all. It thus reflected the demand contained in the solicitors’ letter of 6^th March that the bank treat the balance on the account as discharged.

On 22^nd June 2009 the solicitor acting for HSBC produced a witness statement in which, among other things, she set out the basis on which the bank contended that it had provided a true copy of the credit agreement. She exhibited to the statement a copy of the credit agreement form containing Ms Brookes’ details which she had entered using information obtained from the bank’s records. Having provided that document, she contended that the bank had remedied any defect in the documentation provided pursuant to section 78.

Following the receipt of the completed credit agreement form those acting for Ms Brookes thought that the documents provided by HSBC were complete and therefore complied with the requirements of section 78 if, that is, the bank’s duty did not extend beyond producing a reconstituted version of the agreement. They continued to assert, however, that the bank was under an obligation to provide a copy of the original agreement, which it had made clear it was unable to do. It was for that reason that no steps were taken to discontinue the agreement which, one must presume, were pursued with a view to obtaining the relief sought in the details of claim.

On 23^rd December 2009 Judge Waksman delivered his judgment in Carey, in which he held that provision of a reconstituted agreement by the creditor was sufficient to discharge the duty under section 78. On 21^st January 2010 Ms Brookes’ solicitors wrote to HSBC pointing out that the documents it had provided did not include the version of the terms and conditions that applied in August 2008. The bank duly provided a copy of those terms under cover of a letter dated 29^th January 2010 and it is accepted that, having done so, it had complied fully with its obligations. Notice of discontinuance was given on 9^th February 2010.

The judge held that Ms Brookes should pay the bank’s costs because the real purpose of the proceedings had been to obtain a decision that the provision of a reconstituted version of the agreement was not sufficient to comply with its duty under section 78. He also considered it significant that in their letter of 6^th March 2009 her solicitors had threatened to commence proceedings if the bank did not withdraw any negative information it had provided to credit reference agencies.

In the light of the way in which they were conducted I am quite unable to accept Mr. West’s submission that the purpose of bringing the proceedings was simply to obtain a copy of the original credit agreement. If that is all that Ms Brookes had really wanted, she could no doubt have obtained from the bank all that she was entitled to without the need to issue proceedings at all. The bank was not unwilling to provide the information; it was unable, however, to provide a copy of the original agreement and it was the existence of an obligation to provide a copy of the original agreement that Ms Brookes was seeking to establish as the basis for making good her contention that the agreement was unenforceable. That emerges quite clearly from her solicitors’ letter, from the terms of the details of claim and from the failure to discontinue the proceedings in July 2009 when it was thought (albeit wrongly) that the bank had supplied a complete reconstituted agreement. It is reinforced by the fact that the proceedings were discontinued following the decision in Carey, which established that the provision of a reconstituted agreement was sufficient to satisfy section 78.

The interpretation of section 78 lay at the heart of these proceedings and they were discontinued once it had become clear as a result of the decision in Carey that they were doomed to fail. In those circumstances I consider that the judge was quite right to order Ms Brookes to pay the bank’s costs and I would dismiss her appeal.

The background to these proceedings is similar. In January 2000 Mr. Jemitus entered into a credit agreement with Halifax Plc, which later became a division of the respondent, Bank of Scotland Plc. His solicitors wrote to Halifax on 26^th June 2008 seeking a copy of the original credit agreement. The bank sent certain documents and after some further desultory correspondence the solicitors wrote again on 10^th  March 2009 enclosing draft details of claim and requiring the bank to confirm that the agreement was unenforceable, that the debit balance on the account would be reduced to zero and that it would withdraw any negative information on Mr. Jemitus that it had sent to any credit reference agencies. The draft details of claim alleged that the various documents provided by the bank did not satisfy its obligation under section 78 and sought a declaration that the agreement was not enforceable while the default continued, an injunction restraining the bank from taking any steps to enforce the agreement and an order under section 140B of the Act requiring it not to report any default to credit reference agencies.

Proceedings were issued on 5^th May 2009 and served on 15^th June. On 4^th September 2009 Halifax served a defence together with a copy of the application form and the terms of the agreement. It is now accepted that by doing so it complied with its obligation under section 78. No steps were taken at that stage to discontinue the proceedings and indeed at a case management conference held on 8^th October this claim was chosen as one of the test cases to be heard a few weeks later, but on 22^nd October 2009 the solicitors acting for Mr. Jemitus offered to discontinue the claim on terms that the bank pay his costs. That offer was rejected and on 13^th November 2009 notice of discontinuance was given. In due course another case involving Bank of Scotland as defendant was substituted as one of the test cases.

The judge held that that not only did the case raise the question of what was required to comply with section 78, but that one of the real aims of the proceedings was to obtain an order prohibiting the bank from reporting any default to the credit reference agencies, a claim which could not succeed on the basis of a failure to comply with section 78, as the judgment in McGuffick v The Royal Bank of Scotland [2009] EWHC 2386 (Comm), [2010] 1 All E.R. 634delivered on 6^th October 2009 had established. Moreover, there was an assertion that the relationship between Mr. Jemitus and the bank had become unfair and thus capable of supporting a claim for relief under section 140B of the Act. That was also bound to fail, because, as the judge had held in Carey, a failure to provide a copy of the agreement under section 78 does not render the relationship between the parties unfair. For all those reasons he ordered Mr. Jemitus to pay 90% of the bank’s costs.

Much of what I have said in relation to Ms Brookes’ appeal applies equally to that of Mr. Jemitus. The only real distinction between them is that the relief sought by Mr. Jemitus was less extensive in some respects than that sought by Ms Brookes and that his case notice of discontinuance was given before judgment was delivered in Carey. However, neither of these distinctions is of any real significance. In his case also the real purpose of the proceedings was not to obtain a copy of the agreement, but to establish that in the absence of a copy of the original agreement the debt was unenforceable. Once the bank produced a copy of the original agreement the case inevitably collapsed. If Mr. Jemitus had asked for no more than a copy of the agreement and had not sought, both in correspondence and in the proceedings themselves, to obtain much more extensive relief, it is unlikely that proceedings would have been issued at all. In my view the judge was right to have regard to the real nature of the dispute between the parties and to hold that insufficient grounds had been shown for departing from the position set out in rule 38.6(1).

For these reasons I am of the view that the judge’s exercise of discretion in these cases to order the appellants to pay the respondents’ costs cannot be faulted. I would dismiss both appeals.

I agree.

I also agree.