MSE News: Mortgage blow as building society hikes SVR

Dan_1976

Just opinions JP, thats all!

JPS29

Maybe at the start of the thread there were opinions, which warranted acknoledgment from both sides. However as the thread has progressed people have been posting for no other reason than to have a dig or throw their twopenneth worth in when it's not needed/wanted.

Eg, "If I can stir things up a little" "Yawwwnn" "I'm not with skipton so i dont care what happens anyway" etc etc

These opinions serve no purpose other than dragging the thread OT, that is however just MY opinion

Dan_1976

Just reacting to some jumped up posts.

I do care but my original opinions and others, were treated with the same attitude but because it was against the op I am seen to be wrong. Next thing you know MSE has become Perry Mason QC!

Simply, it was in the contract so tough, but....

Morally its wrong, but maybe it saved Skiptons back side. The government would not help, then the borrowers would be moaning about mortgage books being sold off!

Good luck to you all.

howardtheduck

I've just had my first reponse from Skipton Building Society. Like the response to 'The Dentist', it's been signed by none other than Mr Cutter himself (he really is taking this seriously isn't he!). Also, just like the response to 'The Dentist', he invites me to consider whether I am "a consumer" for the purposes of the UTCCR s4(1) in relation to my BTL mortgage. Quite plainly I am "a consumer" but it is interesting how he carefully chooses his words with regards to s4(1) of the UTCCR stating "There is a strong argument that a person who has or had 2 or more let properties is carrying on the business of letting."

For the sake of clarity, s4(1) of the UTCCR defines a “consumer” as “any natural person who, in contracts covered by these Regulations, is acting for purposes which are outside his trade, business or profession”.

As for Re Citro, he dismisses the case as a bankruptcy case "likely to be of little assistance in this case" and in any event he doubts that the court was providing an all encompassing legal definition of "exceptional circumstances", "rather it was determining what those words meant in the context of the case before it".

We shall see Mr Cutter. Oh yes, we shall see. As I’ve stated before, the meaning of "exceptional circumstances" is something that is going to have to be tested in court.

p.s. Skipton is looking at the credit file of every person who sends in a complaint and will likely be inviting people to consider whether they are consumers for the purposes of the UTCCR s4(1) in relation to BTL mortgages by stating "There is a strong argument that a person who has or had 2 or more let properties is carrying on the business of letting."

Don't fall for it. You ARE consumers even if you have a BTL mortage. It would only be regarded as a "business, trade or profession" if the letting of property represented your primary source of income or if incorporated as a company.

(IANYL)

Dan_1976

Surely your business would be the consumer anyhow, just because your a business does not mean you dont have legal rights as a consumer.

I have joked about this, but if skipton win this do you think the flood gates will open?

howardtheduck

Believe me, if Skipton win this, base rate trackers or "guarantees", "promises" and "pledges" won't be worth the paper they're printed on. There is an "exceptional circumstances" (or words to that effect) clause tucked away in the small print of virtually every financial product.

The floodgates won't just open. Goddammit, the whole damn dam will burst!

Debt Apr 2010 $ 1 hundred thousand million billion trillion.

I really hope the pound recovers against the dollar.

(IANYL)

howardtheduck

I'd like to begin by reiterating the concept of force majeure.

In English law an event will be construed as a force majeure event if it amounts to a legal or physical restraint on the performance of the contract (whether or not it occurs as a result of human intervention, although it must not be caused by the act, negligence, omission or default of the claiming party) which is both unforeseen and irresistible. A force majeure clause should therefore be incorporated into a contract whenever it is required that either party (or both) should not have any liability for a failure to perform its obligations by virtue of an external event beyond its control. It is important to note that English law does not recognise any general doctrine of force majeure. It is such a vague concept that Donaldson J. remarked in the case of Thomas Borthwick (Glasgow) Ltd -v-Faure Fairclough Ltd [1968] 1 Lloyd's Rep. 16 that: "...the precise meaning of this term, if it has one, has eluded lawyers for years".

(IANYL)

howardtheduck

Force majeure clauses can be problematic, especially if they are vaguely worded, as has been confirmed in a recent English law case involving a gas supply agreement.

It is invariably better to list in the contract specific events or circumstances which the parties agree will constitute force majeure events rather than seeking to rely only upon the general concept which, although widely used, does not actually have a definitive meaning.

One question which lawyers are sometimes asked is whether "force majeure" includes an event or circumstance which makes the contract seriously uneconomic to perform. The Court of Appeal decision in Thames Valley Power Limited -v- Total Gas & Power Limited [2005] EWHC 2208 confirms that, in the absence of some express provision to the contrary in the force majeure clause, the answer is no. Thames Valley Power Limited (TVP) contracted to buy gas from Total for the operation of a combined heat and power plant at Heathrow Airport. The contract contained a pricing mechanism to fix what TVP would pay. This provided a "ceiling", above which the price could not increase, and a "floor", below which it could not fall. It also contained a clause relieving an affected party from the performance of its obligations upon the occurrence of a force majeure event. "Force majeure" was defined as "any event or circumstances beyond the control of the party concerned" resulting in that party failing to fulfil its obligations. There was a specific provision that "n assessing the circumstances of force majeure affecting the customer, the price of gas under this agreement shall be excluded". Gas prices rose and it became uneconomic for Total to keep supplying TVP at the contract price. Total informed TVP in writing that it was unable to carry out its part of the contract as a result. TVP's response was that the price increases did not make Total unable to perform - it just meant that the performance of Total's side of the deal would be less profitable for Total - and it requested an undertaking that Total continue to supply gas in accordance with the contract. Total invoked the force majeure clause. It argued that the exclusion from the definition of force majeure of gas prices affecting the customer - because it made no mention of gas prices from the supplier's perspective - meant a dramatic price increase could constitute a force majeure event if it would render Total's performance "commercially impracticable". The floor and ceiling mechanism protected TVP, but Total was very much exposed.

The judge disagreed. As a first step he considered the factual matrix (briefly: long-term contract; Total competing with other tenderers; fluctuating gas prices; pricing mechanism consistent with those in other Heathrow Airport agreements; Total's substantial resources). He then emphasised that a force majeure event must have made Total unable to supply gas. There is a distinction between inability and inconvenience. "The fact that it is much more expensive, even very greatly more expensive for it to do so, does not mean that it cannot do so". Allowing force majeure to be invoked where performance is commercially impracticable would add a "highly uncertain" and open-ended qualification which would be inconsistent with the rest of the agreement. This reflects a long line of authority. The sentence dealing specifically with gas prices affecting the customer was not enough on its own to alter the meaning of the rest of the clause. If Total had wanted to secure the result it was arguing for, it should have said so in the contract.

Notwithstanding the court's findings it is suggested that, in order to avoid any uncertainty or ambiguity, the parties to a gas supply contract (and other commercial agreements containing force majeure provisions) may wish to consider expressly excluding from the scope of force majeure any event or circumstance which makes the performance of the contract uneconomic or commercially impracticable, including changes in market conditions or a deterioration in the ability to make a profit or receive a satisfactory rate of return.

The parties may also wish to consider including other express exclusions from force majeure in relation to events or circumstances which may potentially prove controversial between the parties in terms of whether such events or circumstances were intended to constitute force majeure under the contract. The express exclusions from force majeure will need to be tailored to the particular circumstances existing between the parties.

(IANYL)

howardtheduck

The global recession has brought to the surface the question of whether an economic downturn constitute force majeure events which are unforeseeable and beyond the reasonable control of the parties, thereby excusing the parties from the performance of their obligations as long as such events persist. This issue becomes particularly pertinent where the clause is not narrowly defined, leaving the door open for such a question to be raised.


This is not the first time that the question of changing economic circumstances has turned people’s attention to such clauses. The 2005 case of Thames Valley Power considered whether the obligation of Total to supply gas to Thames Valley Power under a long-term gas supply contract could be suspended on the grounds that the then unprecedented increase in gas prices amounted to a force majeure event. The contract in question defined it as “any event or circumstances beyond the control of the party concerned” which results in that party failing to comply with its obligations. It included a specific provision that “in assessing the circumstances of force majeure affecting the customer, the price of gas under this agreement shall be excluded”.


The judge considered the facts of the case and held that for high gas prices to constitute a force majeure event, the contract needed to specifically incorporate such an eventuality as a force majeure event. The fact that the contract was no longer profitable for Total did not excuse them from performance. The wording dealing specifically with gas prices affecting the customer was not sufficient to alter the meaning of the rest of the force majeure clause.


An argument may be made that the credit crunch and the collapse in demand for petrochemical and refined products are each different from gas price fluctuations on the basis that the latter is a market reality, whereas the former were to a certain extent unpredictable, and not within the scope of the parties’ normal contemplation at the time of entry into the contract. However, given the Thames Valley case, in the absence of express wording, it seems unlikely that the courts will recognise a force majeure event where the performance of the contract could still be made, albeit with commercial difficulty or with increased cost.


For the full text of the Thames Valley Power case, go to the following webpage:

http://www.nadr.co.uk/articles/published/ArbitrationLawRep/Thames Valley v Total Gas 2005.pdf


(IANYL)

howardtheduck

The following extract from Thames Valley Power Limited -v- Total Gas & Power Limited [2005] EWHC 2208 makes for rather heavy reading but it is well worth reading. I've italicised and underlined some of the important points in the judgement. (All borrowers (be it a mortgage or any other financial product), especially Skipton borrowers, get reading!)

Extract from the judgement of MR. Justice Clarke: QBD Commercial Division. 27th September 2005.

"Force majeure

44. In order for Total to be able to be released from its obligations under the GSA on the grounds of force majeure, it must establish

(i) The existence of force majeure, that is to say an event or circumstance beyond its control.

(ii) That that event or those circumstances have resulted in a failure by Total to fulfil one or more of its obligations under the GSA because it or they have caused Total to be unable wholly or partly to carry out such obligation or obligations

(iii) That notwithstanding the exercise by Total of reasonable diligence and foresight, it was or would have been unable to prevent or overcome the relevant event or circumstances,

(iv) That Total gave notice in writing of such force majeure as soon as possible after the occurrence of the cause relied on.

45. Mr. Wolfson accepts that, but for one provision of special condition 15, Total would not be arguing that they could invoke force majeure. The provision upon which he relies is the last sentence of standard condition 15.2 which reads: ʺIn assessing the circumstances of force majeure affecting the customer, the price of gas under this agreement shall be excludedʺ.
That provision, he submits, shows that it would not be open for TVPL as customer to contend that force majeure applied because of an increase in the price of the gas to be supplied to it under the GSA.

46. But no mention is made of the price of gas to the supplier. That omission must have some significance and makes it arguable that under this agreement a ʺsufficiently dramaticʺ increase in the market price of gas could amount to a force majeure circumstance if it had the result that the losses that Total would suffer under the GSA made its continued fulfilment of the GSA commercially impracticable. There is in this respect, he observes, a noticeable difference between the exposure of TVPL and that of Total. TVPL can never suffer a loss greater than the difference between the contract price and the market value of gas; even if gas had no value their loss would not exceed that price. Hence, he suggests, the last sentence of standard condition 15.2.

47. But Total is exposed to the difference between the price that it has to pay in the market for the gas that it is to supply to TVPL and the contract price. The market price has no limit, nor therefore does Totalʹs risk. There must, he submits, be a point at which the market price becomes so high that it is commercially impracticable for Total to continue. The last sentence of standard condition 15.2 supports the proposition that the parties contemplated that, when that point was reached, there would be a circumstance of force majeure. Inability should not be limited to physical inability, but extends to being, commercially speaking, unable.

48. The force majeure event or circumstance upon which Total relied was, he submitted, the fact that the prices which Total now had to pay had reached so high a point that Total could only perform the contract at a degree of loss that was quite beyond anything that anyone contemplated at the time of the agreement. Whether that was factually correct fell to be determined in the expert determination.

The factual matrix

49. The circumstances constituting the factual matrix have been agreed by the parties. They include the fact that both parties knew when entering into the agreement (i) that TVPL was a single purpose company which had entered into agreements with HAL with a 15 year term for the acquisition of a co-generation plant that was to generate and supply electricity and heat which HAL required for Heathrow, and (ii) that it was a condition of the HAL agreements that a Gas Supply Agreement be entered into. Total also knew that it was in competition with other tenderers to supply the required gas, (i.e. it was not forced to contract) the market price of which fluctuates. In addition, the parties knew that the indices in the pricing formula in clause 6 of the special conditions were designed to be consistent with those in the HAL agreements and that such indices had themselves risen and fallen prior to 12th June 1995. The parties also knew that the Total Group had very large resources.

50. Despite the cogency with which they were advanced, I do not accept Mr. Woodfordʹs submissions for the following reasons:

1 The force majeure event has to have caused Total to be unable to carry out its obligations under the GSA.

Totalʹs obligation under the GSA is to supply, ie to make physical delivery of, gas in accordance with the conditions. These include provisions in respect of a nominated amount of consumption by the customer for each of the contract years, and a maximum consumption in any one day. Total is unable to carry out that obligation if some event has occurred as a result of which it cannot do that. The fact that it is much more expensive, even very greatly more expensive for it to do so, does not mean that it cannot do so.

2 To interpret clause 15 as applicable in circumstances where performance is ʺcommercially impracticalʺ or Total is ʺcommercially unableʺ to supply is to enforce a qualification highly uncertain in ambit and open ended in reach which is neither necessary nor obvious and which is inconsistent with the express terms of the GSA. Totalʹs obligation under the GSA to supply gas in return for the price is not dependent on nor is it related to the market price of gas. Nor is Totalʹs obligation an obligation to supply gas provided that the cost to it of doing so is not commercially unacceptable or impracticable. In those circumstances if Total can supply gas it cannot be said that they are unable to perform their obligations under the agreement.

3 The reference in the last sentence of standard condition 15.2 to what is not to be taken into account in assessing the circumstances of force majeure affecting the customer cannot in my view carry the implication, or cause standard conditions 15.1 and 15.2 to mean, that Total do not have to establish that some event has caused them not to be able to deliver gas. It serves perfectly well as a warning that so far as TVPL, which has to pay the contract price, is concerned, the size of that price is not to be considered for force majeure purposes. The customer cannot say that it is unable to pay the price because it is too high. It does not at all follow that the supplier is entitled to rely upon an increase in the market price in comparison to the contract price as a force majeure circumstance. This single sentence is in my view wholly inadequate to alter the clear meaning of the bulk of conditions 15.1 and 15.2. If the draftsman had meant these conditions to have the consequence now contended for, it is inconceivable that he would have expressed himself so obliquely.

4 This conclusion is consistent with a line of cases, both on force majeure clauses and on frustration, several of which are cited in Mr. Shepherdʹs skeleton argument, to the effect that the fact that a contract has become expensive to perform, even dramatically more expensive, is not a ground to relieve a party on the grounds of force majeure or frustration. I take as an example Tennants Lancashire Limited v Wilson CS & Co Ltd (1917) AC 495, a force majeure case where Lord Loriburn observed at p.510: ʺThe argument that a man can be excused from performance of his contract when it becomes ʹcommercially impossibleʹseems to me to be a dangerous contention which ought not to be admitted unless the parties plainly contracted to that effectʺ.
I accept, of course that each clause must be considered on its own wording and that force majeure clauses are not to be interpreted on the assumption that they are necessarily intended to express in words the common law doctrine of frustration. Nevertheless, this line of authority, the legal backdrop against which the GSA was written, strongly supports the proposition that this case is no exception. No case has been cited to me in which a clause such as the present has been interpreted as relieving a party from its obligation to perform because the performance of the contract has become economically more burdensome. If a company as familiar with the effect of fluctuations as Total wished to secure that result, it would need to do so in much more explicit terms. (Skipton Building Society as a building society would be familiar with the effect of interest rate fluctuations).

5 This conclusion is also support by a consideration of the factual matrix. In the circumstances in which the contract was entered into TVPL were, in the absence of clear word to the contrary, entitled to expect that Total would supply them with gas against payment of the contract price throughout the 15 year term and would not be entitled to refuse to do so because the cost of so doing had increased even exponentially. That was Totalʹs risk, particularly in the light of the price escalation clause which provided, within limits, for increases in the contract price in accordance with formulae based on indices. See Publicker Industries Inc v Union Carbide Corporation [1973] 17 UCC Reporter, Serv 989 where the existence of a contractual provision for limited increases in the price of ethanol resulting from a rise in the cost of ethylene ʺimpelled the conclusion that the parties intended that the risk of a substantial and unforeseen rise in its cost would be borne by the sellerʺ.

6 The letter of 5th July does not claim that Total has become unable to supply gas. It indicates that as a result of increasing prices and the price formula in the GSA, it will become ʺuneconomicʺ for large parts of the year to supply gas, and gives notice that unless there is a significant fall in the anticipated UK market price of gas during the autumn and winter months, it will be unable to supply further quantities of gas after 30th September. At the same time it offers to supply gas at the market price. It thus indicates that Total can in fact continue to supply gas but at a loss or a lesser profit if it only receives the contract price.

7 There is no evidence before me that establishes that Total cannot supply gas for the remainder of the term. On the contrary, Mr. Sheadʹs witness statement of 21st September states that Total is confident that it can procure TVPLʹs requirements beyond 1st October 2005 on a day ahead basis and offers to do so at a pass through price: and, if their argument on force majeure and remedies fails, Total have undertaken to continue to supply.

8 Mr. Shead also gives an estimate on a ʺbest guess basisʺ of totalʹs financial position in the future. His evidence is to the effect that Total will lose about £9½ million up to the date of termination of the contract. The calculation assumes that the cap will be breached, i.e. the market price of gas will exceed the maximum that TVPL can be required to pay, in the second quarter of 2006 and never return under the cap until the end of the contract. Even on the assumption – which I do not accept – that a sufficiently dramatic increase in the price of gas could amount to a frustrating event even though Total could still supply gas, an increase in market price which took the market price to a height no greater than the cap could scarcely have that consequence.

In short, Totalʹs claim to force majeure is in my judgment ill-founded. The notice does not state, nor is it the case, that Total has become unable to supply TVPL with gas. Even if the notice had stated that Total would not be able physically to supply gas in the future it would be premature; as it is, it claims only that at some unspecified date and absent a downward move in the market, it will become uneconomic to do so."


(IANYL)