Invalid Default Notices

[Lord_Alcohol]

Isn't the issue that the OC has not terminated the agreement lawfully (ie, as required by CCA)?

 

The agreement ceases when it becomes clear that both parties reject it. The OC takes actions that indicate that the agreement is ended. These may include proceedings, repossession and so on. For a court to then consider that the agreement endures after these actions is not correct, because clearly it doesn't. It may technically endure, but not materially.

 

I would say that a defective DN which is followed by the usual end-of-contact activities is material termination.

 

There are no sanctions here (IMO). The loss of the balance due is a side-effect and not a specific financial punishment applied for a misdemeanor. If anything, it reveals a flaw in CCA for which the debtor can hardly be held responsible. In any case, had the OC got his DN correct in the first place, then he wouldn't be in this position.

 

As for issuing a new (compliant) DN, it is impossible for it to have any effect. This is because the purpose of a DN is to offer an opportunity for the debtor to put things back to how they were before any alleged breach. Unless a compliant DN is issued before the OC goes nuclear, then the opportunity for the debtor to put things right as though the breach had not occured has vanished forever.

 

Just a few thoughts...

 

LA

[frettful38]

Very good thoughts LA,

 

I found this on a website, and I know we are not supposed to attach any links to companies so copied it instead:

 

Default notices, litigation and section 127(3) of the Consumer Credit Act

 

23 July 2010

Default notices, litigation and section 127(3) of the Consumer Credit Act

 

For a creditor to enforce a credit agreement against the debtor, he must serve the latter with a default notice, this notice must be served in accordance with section 88 of the Consumer Credit Act 1974 (CCA).

Generally, the prescribed form of a default notice according section 88 is as follows:

"The default notice must be in the prescribed form and specify

(a) the nature of the alleged breach;

(b) if the breach is capable of remedy, what action is required to remedy it and the date before which that action is to be taken;

© if the breach is not capable of remedy, the sum (if any) required to be paid as compensation for the breach, and the date before which it is to be paid."

Section 127(3) of the Consumer Credit Act 1974

Should the debtor be sued for the outstanding amount, it may be open to the debtor to raise an argument that the agreement is unenforceable because it does not comply with the requirements of the Consumer Credit (Agreements) Regulations.

Agreements executed before 6 April 2007 are subject to sections 127 (3) & (4) of the Consumer Credit Act 1974 ('CCA'). Agreements entered into after that date are not by operation of the repeal under the Consumer Credit Act 2006.

The effect of sections 127 (3) & (4) truly displays the paternalistic nature of the CCA, in that where a breach of a prescribed term under regulation 6 and schedule 6 to the Consumer Credit (Agreements) Regulations 1983 is found, the agreement as a whole will be irredeemably unenforceable.

In other words, the lender cannot enforce the agreement or realise any surety under that agreement; the debt in effect is written off.

[Lord_Alcohol]

One last thought for tonight...have a look at s94(1);

 

94(1) The debtor under a regulated consumer credit agreement is entitled at any time, by notice to the creditor and the payment to the creditor of all amounts payable by the debtor to him under the agreement (less any rebate allowable under section 95), to discharge the debtor's indebtedness under the agreement.

 

As the only amount payable to the OC is the arrears (as the OC issued a defective DN that removed his entitlement to unpaid amounts), then presumably the debtor can merely form his own TN and send it to the OC with a cheque for the arrears and expect, by virtue of the OC's error at s88 and the availablity to the debtor of s94, that the agreement is ended (in every sense of the word).

 

LA

[diddydicky]

Very good thoughts LA,

 

I found this on a website, and I know we are not supposed to attach any links to companies so copied it instead:

 

Default notices, litigation and section 127(3) of the Consumer Credit Act

 

23 July 2010

Default notices, litigation and section 127(3) of the Consumer Credit Act

 

For a creditor to enforce a credit agreement against the debtor, he must serve the latter with a default notice, this notice must be served in accordance with section 88 of the Consumer Credit Act 1974 (CCA).

Generally, the prescribed form of a default notice according section 88 is as follows:

"The default notice must be in the prescribed form and specify

(a) the nature of the alleged breach;

(b) if the breach is capable of remedy, what action is required to remedy it and the date before which that action is to be taken;

© if the breach is not capable of remedy, the sum (if any) required to be paid as compensation for the breach, and the date before which it is to be paid."

Section 127(3) of the Consumer Credit Act 1974

Should the debtor be sued for the outstanding amount, it may be open to the debtor to raise an argument that the agreement is unenforceable because it does not comply with the requirements of the Consumer Credit (Agreements) Regulations.

Agreements executed before 6 April 2007 are subject to sections 127 (3) & (4) of the Consumer Credit Act 1974 ('CCA'). Agreements entered into after that date are not by operation of the repeal under the Consumer Credit Act 2006.

The effect of sections 127 (3) & (4) truly displays the paternalistic nature of the CCA, in that where a breach of a prescribed term under regulation 6 and schedule 6 to the Consumer Credit (Agreements) Regulations 1983 is found, the agreement as a whole will be irredeemably unenforceable.

In other words, the lender cannot enforce the agreement or realise any surety under that agreement; the debt in effect is written off.

 

you are getting other issues confused with DN and subsequent termination s127 is irrelevant in this respect.

 

debts are NEVER written off by s127 - the fact of the creditor being unable to legally enforce a debt- does not "write it off" - the debt still exists

[diddydicky]

lets go back to the amex v brandon case

 

the creditor and the judge state that the creditor was entitled to terminate the agreement by way of a general term in the contract which says he could do so at any time by giving the creditor 7 days notice

 

this does not mean that the outstanding balance as at the time of termination is repayable on demand - so the consumer carries on making monthly payments

 

now, if the creditor has terminated the agreement under a clause- then exactly which terms of the agreement are cancelled? are they all. just some? what?

 

if (as would appear natural) the agreement as a whole has been terminated (i cant really see any other explanation) then if the consumer then takes the decision not to make any more monthly payments- what legistlation is the creditor going to use to demand earlier repayment?

 

he cant use the terms and conditions that WERE in the agreement because he has terminated it, because he has terminated the agreement- then there is no agreement that is subject to the CCA so he cant use the regulations contained in the CCA as there is no regulated agreement left!!

[frettful38]

you are getting other issues confused with DN and subsequent termination s127 is irrelevant in this respect.

 

debts are NEVER written off by s127 - the fact of the creditor being unable to legally enforce a debt- does not "write it off" - the debt still exists

 

Thanks for clearing that up DD I did thought it sounded a bit odd especially after reading everything that can and dose happen to the debtor even after being served with a faulty DN and then TN.

[welshperson3]

in brandon the creditor relied on this

98 Duty to give notice of termination (non-default cases)

(1) The creditor or owner is not entitled to terminate a regulated agreement except by or after giving the debtor or hirer not less than seven days’ notice of the termination.

(2) Subsection (1) applies only where—

(a) a period for the duration of the agreement is specified in the agreement, and

(b) that period has not ended when the creditor or owner does an act mentioned in subsection (1),

the judge seams to think that DN irelevent as the creditor has a right under s98 CCA

[foolishgirl]

in brandon the creditor relied on this

98 Duty to give notice of termination (non-default cases)

 

I think in Brandon, it wasn't so much S98 that the creditor considered should apply but that they were relying on their own T&Cs to terminate & demand the balance without giving statutory notice

[welshperson3]

Brandon v amex

 

In Mr Brandon’s case, the default notice was served on 19 June 2007 and demanded he made payment “within 14 calendar days from the date of this default notice”. As service was deemed after 19 June 2007, Mr Brandon argued that the time period for compliance was too short. It therefore followed, so Mr Brandon argued, that the default notice did not give the statutory period required by Section 88(2) and was therefore invalid. AMEX could not, therefore, rely upon it.

After hearing submissions, HHJ Roderick Denyer QC decided that because AMEX did not take any steps until 11 July 2007 (when it wrote terminating the agreement) and Mr Brandon was not prejudiced by a technical breach of Section 88(2), the default notice was valid and the agreement had been properly terminated.

 

 

I think i read somewhere that section 98 came in to is some were but i will check it out this is what i found so far

[middenmess]

 

 

Indirect governmental pressure to ''protect'' the Bank's?

[welshperson3]

and this is a lenders view

 

 

HHJ Roderick Denyer QC’s decision is an extremely welcome one for any lender. The judge’s finding that a default notice, whilst technically non-compliant, will still be valid so long as the debtor suffers no prejudice is of crucial importance. Given its High Court status, it has far reaching implications and may mean that any technical non-compliance of a notice can be overlooked so long as there is no prejudice. Similarly, the judge’s refusal to interfere with the Deputy District Judge’s finding that the default charges were lawful is also very helpful. The customer plainly agreed to the default charges and the Court’s finding that if a debtor fails to pay on time then a lender does suffer loss is plainly right.

Going forward, lenders should ensure they are familiar with this decision to maximise their prospect of recovery. It is understood, however, that this decision has been appealed to the Court of Appeal and a hearing to decide whether permission to appeal should to be granted is currently listed for 6 December 2010. Given the difficulties with a second appeal, it will be interesting to see whether the application for permission to appeal fails at the first hurdle.

[welshperson3]

transcript of the brandon case

 

SCAN FORUM AMEX V BRANDON CASE[1].pdf

[basa48]

because the creditors (and some of the courts) are saying that the common contract law cannot override the CCA

 

their opinion - not mine!!

As far as I can see non compliance with s87 (a faulty DN) only removes the creditors entitlement under the law of the CCA to terminate. It does not IMO stop him (maybe mistakenly) terminate or repudiate under common law and it does not stop the debtor from accepting such.

 

Common law does not override the Act, but the creditor stepped outside the provisions of the Act when he terminated (by action and in writing).

[welshperson3]

I think in Brandon, it wasn't so much S98 that the creditor considered should apply but that they were relying on their own T&Cs to terminate & demand the balance without giving statutory notice

 

 

you are right they did rely on the t&c

 

s98 was mentioned as well in paragraph 40 but you are right on the termination

[middenmess]

transcript of the brandon case

 

SCAN FORUM AMEX V BRANDON CASE[1].pdf

 

13 pages to basically say you admit to owing the money so pay up CCA 1974 notwithstanding.

[welshperson3]

As far as I can see non compliance with s87 (a faulty DN) only removes the creditors entitlement under the law of the CCA to terminate. It does not IMO stop him (maybe mistakenly) terminate or repudiate under common law and it does not stop the debtor from accepting such.

 

Common law does not override the Act, but the creditor stepped outside the provisions of the Act when he terminated (by action and in writing).

 

this is my view on the matter as well just hope i can convince a judge

[emandcole]

and this is a lenders view

 

 

HHJ Roderick Denyer QC’s decision is an extremely welcome one for any lender. The judge’s finding that a default notice, whilst technically non-compliant, will still be valid so long as the debtor suffers no prejudice is of crucial importance.

 

So, critically speaking a defendant needs to demonstrate how the faulty DN caused them prejudice. If the defendant states it did and offers a plausible reason to evidence prejudice who is to determine if that level of prejudice is 'enough'? How does the court intend to measure elements of prejudice? This is surely relative to the individual involved and cannot be resolved with a fixed scale of damage. Is it enough therefore to state 'I suffered prejudice' given that the court accepts the DN is contrary to the wishes of parliament and common sense would dictate that a certain level of prejudice against the debtor must have resulted.

 

One initial argument for prejudice is that because the creditor used an invalid default against you, you were unable to secure further financial aid in order to meet the demands of the creditor. As a sole result of their action the creditor was able to engineer the situation you are now in and placed you between a rock and a hard place. Had they removed their default (that they must accept is invalid after all) you would have possibly been able to secure further lending and avoided the need for litigation. This particular argument needs work but is an idea to start minds working at least.

 

Given its High Court status, it has far reaching implications and may mean that any technical non-compliance of a notice can be overlooked so long as there is no prejudice. Similarly, the judge’s refusal to interfere with the Deputy District Judge’s finding that the default charges were lawful is also very helpful. The customer plainly agreed to the default charges and the Court’s finding that if a debtor fails to pay on time then a lender does suffer loss is plainly right.

 

This is nonsense. The similarities between any losses resulting from debtor breach and a creditor breach are not comparable. For one the debtor is 'allowed' to breach. For this luxury the debtor will be charged a fee as we are all well aware and have their performance negatively marked with credit agencies. Such a breach is hardly without cost. The debtor is also afforded (supposedly) the protection of the default system to give them warning and time to restore the relationship. The creditor is not allowed to breach at all and the debtor has no similar right to report the activity, fine the creditor or even complain in court (based on current developments).

 

Going forward, lenders should ensure they are familiar with this decision to maximise their prospect of recovery. It is understood, however, that this decision has been appealed to the Court of Appeal and a hearing to decide whether permission to appeal should to be granted is currently listed for 6 December 2010. Given the difficulties with a second appeal, it will be interesting to see whether the application for permission to appeal fails at the first hurdle.

 

So, the back room club in government is expected to deal with this little inconvenience in due course. You have to ask if the CCA is undermined in this way what else will follow? Truly dangerous and tragic times ahead and clearly the bankers can do as they wish. Far as I can see we should be able to protest that the CCA is no longer fit for purpose and as the government are effectively allowing this consumer protection to be dissolved in favour of banking institutions that have once again proved to be incompetent why should we be bound by it either?

[The Mould]

Does a defective Default Notice invalidate an agreed ending (Termination) of a Credit Agreement?

 

The simple and just answer is NO!

 

In the case of a creditor (claimant) suing a debtor (defendant) for the full balance claimed by the creditor as due and owed by the debtor under an agreement/contract following the debtor's breach of the contact, after the two said parties have agreed that the contract in question has ended by way of the creditor serving a DN and TN (or letter demanding full balance)...........

 

THE TERMINATION OF THE AGREEMENT [iS] IRREVOCABLE AND NOT A MATTER FOR ANY COURT TO DECLARE OTHERWISE.

 

The fact that both the creditor and the debtor have agreed that the said agreement (the subject of the proceedings) has ended [is] a contract itself that absolutely supersedes the said terminated agreement in any event.

 

So, in such a case, if it turns out that the DN is defective (seriously) and therefore the creditor (claimant0 does not hold the legal right to stand before Court with his claim (the full balance), it would be an incredible error of law if the Court should intervene and declare that the two parties agreement to the termination of the contract that is the subject of the proceedings, is not legally recognized.

 

And it [is] a serious error of law because the defective Default Notice does not invalidate the said agreed ending of the contract, rather the defective Default Notice invalidates the breach relied upon by the creditor and therefore invalidates the entirety of the creditor's cause of action, the creditor (in such a case) [has] repudiated by way of fundamental breach (absolute non-performance) the debtor has accepted the creditor's repudiation of the contract, the creditor's claim cannot be enforced and the Court has no right to undo the two parties agreement to the ending of the contract (the credit agreement that is the subject of the creditor's claim).

 

Kind Regards

 

The Mould

[welshperson3]

well there is plenty to think about for tonight (i will have trouble sleeping now )

 

heads together again tomorrow and just maybe we can work this one out

 

night all

 

WP3

[Ricardino]

Just to add fuel to your fire, this case may (or may not) be relevant with respect to any party affirming but later terminating the contract;

Stocznia Gdanska S.A. v Latvian Shipping Co [2001] EWHC 500

And in the words of Denning LJ

"It is contrary to public policy to allow an existing legal/ contractual duty to be used as a base for further bargaining between the parties, as it might lead to one party imposing undue pressure on the other"

[basa48]

I wonder if it is now established precedent that to break the law a little is de minimus and does not prejudice the victim, so I assume it will be OK if I shoplift a loaf from Tesco as that is surely de minimus for them?

 

Just my thought for this morning !!

[Lord_Alcohol]

The issue of an agreement enduring where a defective DN is served followed by TN, recovery, proceedings etc - does anyone have any case history where a court has specifically stated that an agreement endures nevertheless?

 

FWIW I completely agree with The Mould. I simply fail to see how an agreement can endure when unambiguously ended by the OC and accepted as such by the debtor.

 

So if anyone can point us to the relevent case that would really help.

 

TIA

LA

[Lord_Alcohol]

I wonder if it is now established precedent that to break the law a little is de minimus and does not prejudice the victim, so I assume it will be OK if I shoplift a loaf from Tesco as that is surely de minimus for them?

 

Just my thought for this morning !!

 

Well, it's a good point.

 

I note that s88 doesn't say "must give 14 days notice after service although a day or two less is absolutely fine".

 

I've also noticed that notice periods in other parts of law are rigourously observed, such as under s21 of the 1988 Housing Act. A day too little can instantly get a possession case thrown out of court. So why does de minimis even appear under CCA, as it would seem to have no place at all?

 

LA

[Peterbard]

The issue of an agreement enduring where a defective DN is served followed by TN, recovery, proceedings etc - does anyone have any case history where a court has specifically stated that an agreement endures nevertheless?

 

FWIW I completely agree with The Mould. I simply fail to see how an agreement can endure when unambiguously ended by the OC and accepted as such by the debtor.

 

So if anyone can point us to the relevent case that would really help.

 

TIA

LA

 

Hi

S is a major miss conception.

Termination cannot be accepted if it could it could be declined.

.This process you are referring to is the acceptance of a repudiatory breach, which the aggrieved party the accepts and discharges the account.

This is not applicable for two reasons.

1 termination cannot be a breach on a credit card as the regulation allow for the creditor to terminate at any time.

2lA default termination is a common law action taken by the creditor upon the repudiatory breach of the debtor the resulting termination is part of that action. If no default breach occurs the creditor is “not entitled”(section87) to terminate, therefore the agreement stands.

There is case law here Stocksnya Gdynia SA V Geaarbrook Holdings Ltd 2009

Peter

[Lord_Alcohol]

Hi

S is a major miss conception.

Termination cannot be accepted if it could it could be declined.

.This process you are referring to is the acceptance of a repudiatory breach, which the aggrieved party the accepts and discharges the account.

This is not applicable for two reasons.

1 termination cannot be a breach on a credit card as the regulation allow for the creditor to terminate at any time.

2lA default termination is a common law action taken by the creditor upon the repudiatory breach of the debtor the resulting termination is part of that action. If no default breach occurs the creditor is “not entitled”(section87) to terminate, therefore the agreement stands.

There is case law here Stocksnya Gdynia SA V Geaarbrook Holdings Ltd 2009

Peter

 

Bit puzzled by this Peter.

 

I understand that the OC can terminate at any time. That's fine. But he's issued a defective DN which appears to remove his entitlement to unpaid amounts (s87(1)(b)). So he can terminate and the debtor merely needs to pay the amount owed at termination, which is the arrears. This seems to be what CCA says.

 

CCA also states that the OC can claim all amounts where s88 is complied with. Presumably, he cannot where s88 is not complied with.

 

The OC can terminate on breach by the debtor, but must issue a DN first. But the breach is not necessarily repudiatory; the debtor is given an opportunity to remedy, which is often taken up (unless the DN is defective in a way that prevents this, hence this colossal thread!).

 

The puzzle here is what happens when the OC "terminates" after issuing a DN that fails to comply with s88. That "termination" can be a raft of actions that indicate an absolute end to the agreement.

 

Any more thoughts?

 

LA