MSE News: Mortgage blow as building society hikes SVR

sarahbennett

_Andy_ wrote: »

Nearly as tedious as any of the National Hunter threads.

It never ceases to amaze me how some people are intent on hanging around merely to add a comment that a thread is tedious. There is the whole rest of the Internet to go to, indeed even of MSE...

sarahbennett

Howard, I just wanted to say your latest posts are incredibly helpful, and I am also keen to read some reasoned rebuttals from the other side... what do we think their case will consist of, for example, the most obvious being, exemptions of financial products including interest rate rises under the UTTCRs?

Dan_1976

Jesus, this is a consumer forum for opinions and help with saving money. This thread is now reads like a dusty book you would find in a solicitors office!

I think Skipton are wrong from a moral point of view, if the condition is legal, then I think its tough luck and business is business!

sarahbennett

Dan_1976 wrote: »

Jesus, this is a consumer forum for opinions and help with saving money. This thread is now reads like a dusty book you would find in a solicitors office!

I think Skipton are wrong from a moral point of view, if the condition is legal, then I think its tough luck and business is business!

:-) Agreed, this thread is getting technical, right now that is helpful to me as a consumer though, since while the Skipton are, most people agree, morally wrong on this one, it is important that as consumers we succeed in being able to put across our arguments legally. We do not have an almost bottomless pit of financial resources to spend on lawyers, by contrast to the millions that Skipton could/are likely to put to this, so forums on the internet like this one are an especially helpful means for us to access useful advice and practice our arguments...

howardtheduck

Dan, I happen to like dusty lawbooks (although they do my asthma no favours *wheeze*)

Sarah, an excellent point well made.


As I see it, Skipton's likely tactic in court is to claim that the doctrine of ‘force majeure’ applies. So what is ‘force majeure’? The literal interpretation from French is “greater force”. However, the expression ‘force majeure’ has acquired a commercial usage which is widely recognised by businessmen and lawyers. The general principle is that a party to an agreement should not be liable for the non-performance of its obligations due to an unexpected event outside its control.

However, it is not possible to benefit from force majeure if you have not explicitly provided for it in an agreement: it does not apply automatically. More particularly, and often not appreciated by businesses, is the fact that ‘force majeure’ has no set, recognised legal meaning in English law. As a result, before the principle of ‘force majeure’ can be relied on, it needs to be clearly defined in the contract and must cover the particular event that has arisen.

As such, it is not enough simply to state that Company X will be excused from performance of its obligations under the agreement if an event of force majeure occurs. Instead, it is vital to define what you intend ‘force majeure’ to mean.

In Skipton’s case it did not define what it meant by “exceptional circumstances” at the time of the contract and only did so retrospectively, defining “exceptional circumstances” as:

1. Base Rate is less than or equal to 2.7%; or

2. Base Rate minus the UK average Branch Instant Access savings rate (as
published monthly by the Bank of England) is less than or equal to 2.5% for
each of the three preceding months.

When including a ‘force majeure’ clause in a contract, the first step is to specify the events outside your control which you wish to be covered. Usual events of ‘force majeure’ include war, act of terrorism, labour disputes, pandemics, compliance with law, order, rule or regulation, fire, flood and storm. More controversial events of ‘force majeure’ include the breakdown of machinery, failure of computer equipment and default of suppliers or sub-contractors.

Based on the facts of particular cases, the courts have found events such bad weather, football matches, funerals, insufficient financial resources AND miscalculations (being events which one party sought to rely on as events of ‘force majeure’) as not amounting to ‘force majeure’.

Clearly, the party which considers that it is most likely to need to rely on ‘force majeure’ will usually seek to make the definition of ‘force majeure’ events as broad as possible. It will often include a catchall provision or at least provide that the list of events is stated to be non-exhaustive.

Conversely, the party least likely to need to rely on ‘force majeure’ will attempt to restrict the definition of ‘force majeure’ events.

But it is not enough simply to define what amounts to ‘force majeure’. The parties also need to provide for what is to happen if an event of ‘force majeure’ occurs and as a result one party is prevented from performing the contract.

The effect of a ‘force majeure’ clause is to enable one or both parties to the contract to cancel the contract or suspend performance of their obligations under the contract.

So can a historically low interest rate be an event of ‘force majeure’? From the definition of ‘force majeure’, it is clear that the occurrence of an event that cannot be controlled is the crucial factor. As such, a historically low interest rate could potentially be an event of ‘force majeure’. However, in order to rely upon this, the parties to a contract would need to include a ‘force majeure provision’ and define events of force majeure so as to include a historically low interest rate.

Where there is no ‘force majeure’ clause that can sufficiently deal with what happens when performance of a contract is prevented by unexpected circumstances outside the parties’ control, the doctrine of frustration may come into play. However the English courts are extremely reluctant to find that a contract has been frustrated

There are also a number of disadvantages of relying on frustration. It is difficult to prove that an agreement has been frustrated. The courts have defined events which frustrate a contract extremely narrowly and have restricted such events to those which make it impossible to perform the agreement. For example, a change in the law making it unlawful to perform a particular type of agreement is likely to amount to frustration.

In addition, the doctrine of frustration is inflexible. It simply brings the agreement to an end with neither party having a right of acting against the other.

(IANYL)

howardtheduck

The following is what Halsbury’s Laws of England says about ‘force majeure’:

Many contracts expressly provide for performance to be excused if rendered impossible by unavoidable cause such as act of God, the Queen's enemies, act of state, force majeure or vis major.

Stipulations to that effect are effective, provided that they are not uncertain in their terms and that there's compliance with any notice requirement.

A force majeure clause must be construed in each case with due regard to the nature and general terms of the contract and, in particular, with regard to the precise words of the clause.

Such a clause on its proper construction may allow the court to take account of the promisor's obligations under other contracts despite the fact that, as a rule, it's no excuse that contracts with third parties prevent the fulfilment of the contract in question.

When the contract excuses a party from delays due to unavoidable causes, he may be outside the protection of that provision if he fails, before making the contract, to inquire whether such unavoidable causes exist and to inform the other party.

The party may not be protected by the clause where a force majeure event doesn't in fact render performance impossible.

(IANYL)

howardtheduck

Having tackled some of the legalities involved in the Skipton case, it may also be worth garnering some political support. I would recommend writing to your MP (they are under a duty to reply to their constituents) in addition to writing to members of the House of Lords sympathetic to the cause of Skipton borrowers e.g. Lord Oakeshott of Seagrove Bay. Members of the House of Lords, unlike MP's, are not under a duty to respond. However, unlike MP's, you can write to any member of the House of Lords wherever you are in the country although they do have a discretion as to whether to respond.

The easiest way to write to your MP (please only write to your MP as any other MP will simply ignore your letter if you are not in their constituency) is via the following website.

www.theyworkforyou.com

I have already written to my MP as well as to Lord Oakeshott.

It's a great way of potentially getting some parliamentary questions asked as well as exerting considerable political pressure on Skipton Building Society.

(IANYL)

howardtheduck

For anyone who thinks that Skipton's case is watertight because its CEO David Cutter is so authoritative in stating that the Skipton has the legal right to suspend the SVR guarantee, here's a quote from one of my favourite movies, 'My Cousin Vinny'.

"Vinny Gambini: Building a case is like building a house. Each piece of evidence is just another building block. He wants to make a brick bunker of a building. He wants to use serious, solid-looking bricks, like, like these, right?


I]puts his hand on the wall[/I


Bill: Right.


Vinny Gambini: Let me show you something.

I]he holds up a playing card, with the face toward Billy[/I


Vinny Gambini: He's going to show you the bricks. He'll show you they got straight sides. He'll show you how they got the right shape. He'll show them to you in a very special way, so that they appear to have everything a brick should have. But there's one thing he's not gonna show you.


I]turns the card, so that its edge is toward Billy[/I


Vinny Gambini: When you look at the bricks from the right angle, they're as thin as this playing card. His whole case is an illusion, a magic trick. It has to be an illusion, 'cause you're innocent."


See how it works? It's all smoke and mirrors folks.

(IANYL)

sarahbennett

howardtheduck wrote: »

See how it works? It's all smoke and mirrors folks.

Sadly I've witnessed a case won with smoke and mirrors. I'm going to try to put across the Skipton's argument, or, some of the smoke and mirrors I predict, as a consumer (IANAL) they'll put up ... to obscure and deflect...

Exceptional Circumstances
(1) Bank of England Base rate of 0.5% is unprecedented, the lowest in its 300 year history (so there are Exceptional Bank Base Rate Conditions)
(2) This has made it very difficult for building societies to obtain funding from the retail markets (so there are Exceptional Market Conditions)
(3) As a result the Building Society sector has lost money to unprecedented levels (so there is objective evidence of the exceptional market conditions referred to in 2 above)
(4) Also related to 2, above, another factor that has distorted the savings market in an unpredictable manner is the unprecedented government support given to Banks, from which building societies cannot benefit.
(5) Also related to 2, subsidised banks have been competing for savings to reduce reliance on the wholesale markets, leading to much higher competition for savings (Exceptional Competition).
(6) The gap between the high cost of retail funding and the income generated by the low base rate is unprecedented and exceptional
(7) This is evidenced by the general decision within the sector to raise SVR rates to reduce the gap referred to in 6 above.

howardtheduck

Sarah makes a very valid point about witnessing cases won with smoke and mirrors.


I’ve have sight of a response to a Skipton borrower’s complaint from Skipton CEO David Cutter in which he states:


“It was not our intention to retrospectively define “exceptional circumstances” for the purposes of the contract. Nor have we at any point claimed that we have the sole right to define "exceptional circumstances". We have defined them because of the onus to show objectively that exceptional circumstances exist. For the benefit of our borrowers we chose not to use an extensive list of circumstances - as you are aware there are many other circumstances which could have been included, but are not so easily measurable. It is not simply our own belief that the circumstances we used in our definition are exceptional.”

I consider Skipton's reply as a virtual admission that they did indeed retrospectively define "exceptional circumstances" as:

1. Base Rate is less than or equal to 2.7%; or

2. Base Rate minus the UK average Branch Instant Access savings rate (as published monthly by the Bank of England) is less than or equal to 2.5% for
each of the three preceding months.

Skipton's intention (or otherwise) not to retrospectively define "exceptional circumstances" is immaterial since clearly they have retrospectively defined "exceptional circumstances". Skipton can harp on about doing so merely for the purposes of clarity but it does not detract from the fact that the "exceptional circumstances" clause is a 'force majeure' clause which, before it could be relied upon by the Skipton, needed to be clearly defined in the contract and cover the particular event that had arisen (the historically low base rate).

It is not enough for Skipton to simply to state that it is excused from performance of its obligations under the mortgage contract if an event constituting 'force majeure' occurs. Instead, it is crucial for Skipton to define what it intends the ‘force majeure’ to mean.

That is not to say that a historically low interest rate cannot be an event of ‘force majeure’. From the definition of ‘force majeure’, it is clear that the occurrence of an event that cannot be controlled is the crucial factor. As such, a historically low interest rate could potentially be an event of ‘force majeure’. However, in order to rely upon this, Skipton would needed to have included a force majeure provision at the time of the contract (not retrospectively) and define events of force majeure so as to include a historically low interest rate.


My own view is that Skipton should have been more specific than simply referring to "exceptional circumstances" to avoid debate regarding what in fact constitutes "exceptional circumstances". The usual matters which the Parties might define as being events of force majeure are:

• Act of God including tempest, fire, or natural disaster;
• War, civil war, sabotage or act of terrorism;
• Government sanction, embargo, import or export regulation or order;
• Labour disputes, including strikes, lockouts, boycotts or other industrial action (but usually strikes of the labour force of the party claiming force majeure are expressly excluded);
• Failure in the transportation of equipment, machinery or personnel or in the provision of any utility including power, gas, water, or communication services;

Skipton's argument is based on a "catch-all" provision whereby in order to avoid failure to specify a particular event of force majeure, it is usual to include the general sweep-up proviso of "exceptional circumstances". Whether a historically low interest rate qualifies as "exceptional circumstances" in this case is something that unfortunately, can only be tested in court.

However, skipton can protest as much as it wants that it cannot afford to be held to its pledge but the courts have in the past found insufficient financial resources and miscalculations (being events which one party sought to rely on as events of force majeure) as not amounting to force majeure. What is at issue is the validity of the clause in question.

(IANYL)