Waiver/Stays Clarification

[EXC]

----- Original Message -----
From: "Consumer Queries" <Consumer.Queries@fsa.gov.uk>
To: EXC
Sent: Wednesday, February 27, 2008 4:47 PM
Subject: RE: Ref ISS668672, ISS00678806

Dear EXC

Thank you for your email of 10 February 2008.

About your enquiry

Following our previous response, you have contacted the Financial Services Authority (FSA) with several further questions relating to the FSA's bank charges waiver. I have detailed your questions, and our responses below.

Your enquiries

1) "You say that the FSA will consider the position of the waiver on ''the outcome of the test case'' but are you referring to the judgement of the initial hearing that concluded last Friday (that deals with the preliminary issues) or on the outcome of the substantive issues yet to be heard?"

- I can confirm that the FSA will need to consider the position of the waiver in the light of the circumstances at the relevant time e.g. both the outcome of the preliminary hearing and subsequent outcomes.

2) "If, on the outcome of the preliminary hearing, a significant number of stays are lifted, would the waiver be revoked?"

- The terms of the waiver included guidance that we intended to review the continued satisfaction of the criteria for giving the waiver two months after the date it was granted, and that in conducting this review we would have particular regard to several criteria including whether there was a stay of relevant proceedings in the courts of England and Wales, Scotland and Northern Ireland in materially all cases. The waiver guidance also states that if we were no longer satisfied as to the above criteria at any time while the waiver remained in force, we would expect to revoke the waiver.

3) "Is it conditional that stays must remain in place for the waiver to remain in place?"

- Please refer to the answer given in 2) above. For further information about the details of the waivers issued, you may wish to view this link - http://www.fsa.gov.uk/pages/Doing/Regulated/Notify/Waiver/pdf/direction_disp.pdf

Yours sincerely


A Franks (Mr)
Consumer Contact Centre
Financial Services Authority

[EXC]

Re: Waiver/Stays Clarification

I called the kind folks at the FSA to ask them to explain on what the basis the waiver was introduced in this context:

The FSA introduced the waiver because the test case would ''bring legal certainty against which complaints can be judged''. As we know, all the banks in the test case - with the exception of Nationwide - changed their T&Cs for the test case and only the new T&Cs were considered in the hearing. Therefore the legal issues that apply to the claims that were waived and stayed, were not dealt with in the hearing and so the waiver, in my opinion, was issued on a false prospectus.

I've had the usual bland bo**cks that I have come to expect from the Fundamentaly Supine Authority - see below, but I'll be following it up next week.

[argentarius]

Re: Waiver/Stays Clarification

Whatever the wording of the FSA's justification for the waiver, didn't they really mean "there is too much uncertainty whilst the test case is pending, for complaints to be judged sensibly meanwhile". And isn't the test case still not concluded, until at the very least the case management conference later this month, and possibly even later pending appeals etc.?

That uncertainty remains until either the OFT and the banks agree how historical terms complaints should be dealt with, or the OFT issues new legal proceedings in the absence of a proper ruling on them. Doesn't it?

And if the uncertainty remains, then the logic for the waiver remains.

The decision to limit the ruling to the new Ts & Cs was the judge's, not the OFT's or the banks, surely. I'm not sure that I understand the basis on which a judge can decide he's only going to address part of a legal claim, but that appears to be what he's done.

Having said all that, isn't there meant to be further guidance on historical terms complaints later this month?

[EXC]

Re: Waiver/Stays Clarification

Whatever the wording of the FSA's justification for the waiver, didn't they really mean "there is too much uncertainty whilst the test case is pending, for complaints to be judged sensibly meanwhile"

That's one of the reasons they gave, yes.

And isn't the test case still not concluded, until at the very least the case management conference later this month, and possibly even later pending appeals etc.?

Yes.

That uncertainty remains until either the OFT and the banks agree how historical terms complaints should be dealt with, or the OFT issues new legal proceedings in the absence of a proper ruling on them. Doesn't it?

Absolutely, which is my point: The waiver and stays on litigation should not have been granted in the hope that the legal issues that apply to those cases - yet to be scheduled - may be addressed at some point in the future

And if the uncertainty remains, then the logic for the waiver remains.

See above.

The decision to limit the ruling to the new Ts & Cs was the judge's, not the OFT's or the banks, surely. I'm not sure that I understand the basis on which a judge can decide he's only going to address part of a legal claim, but that appears to be what he's done.

That's back to front. The banks changed the T&Cs for the test case in the knowledge that the OFT would principally want a ruling on future charges and the judge could only look at what was put in front of him, which is my point.


Having said all that, isn't there meant to be further guidance on historical terms complaints later this month?

Hopefully, yes

That's the way I see it anyway.

[argentarius]

Re: Waiver/Stays Clarification

Originally Posted by argentarius
That uncertainty remains until either the OFT and the banks agree how historical terms complaints should be dealt with, or the OFT issues new legal proceedings in the absence of a proper ruling on them. Doesn't it?

Absolutely, which is my point: The waiver and stays on litigation should not have been granted in the hope that the legal issues that apply to those cases - yet to be scheduled - may be addressed at some point in the future

I believe that I understand why you hold the view that you do, but I can equally well understand the FSA's apparent view which is that, until the legal situation is clarified in a proper way (through a test case or subsequent test case-linked rulings) it's a shambles to allow individual lower court cases to proceed.

If the OFT choose not to do anything about historic terms cases, that's their failing and if that point is reached (and it becomes clear that they will take things no further) then obviously the basis for the waiver and stays falls down. But I don't think that is where we are at the moment, and I don't think the FSA's logic behind maintaining the waiver has yet fallen.

Originally Posted by argentarius
The decision to limit the ruling to the new Ts & Cs was the judge's, not the OFT's or the banks, surely. I'm not sure that I understand the basis on which a judge can decide he's only going to address part of a legal claim, but that appears to be what he's done.

That's back to front. The banks changed the T&Cs for the test case in the knowledge that the OFT would principally want a ruling on future charges and the judge could only look at what was put in front of him, which is my point.

The banks didn't change the Ts & Cs "for the test case". They did change them before the test case, however. Of course you are correct that the OFT's primary focus is going to be on future charges, but the judge did have historic terms put in front of him and chose not to look at most of them, apparently (according to the ruling) for time management reasons.

(As a complete aside, it seems like a travesty of legal justice if judges are so focused on wrapping up cases within a certain amount of time that they pick and choose what legal issues they are going to consider.)

[EXC]

Re: Waiver/Stays Clarification

If the OFT choose not to do anything about historic terms cases, that's their failing and if that point is reached (and it becomes clear that they will take things no further) then obviously the basis for the waiver and stays falls down.

The OFT cannot be blamed for not addressing historic terms vis a vis the waiver as in fact the OFT were not consulted or even informed about the waiver before it's introduction.


The banks didn't change the Ts & Cs "for the test case''

That is a matter of opinion. You know mine.


(As a complete aside, it seems like a travesty of legal justice if judges are so focused on wrapping up cases within a certain amount of time that they pick and choose what legal issues they are going to consider.)

Completely and utterly wrong. During the test case Justice Smith made clear that the original timescale for the hearing was actually decided by the banks and he made repeated reference to this when the Bank's QCs continually over ran their slots. The issue of Historical T&Cs were introduced by the banks after the hearing had begun and the judge, quite rightly, refused to entertain them.

****

[argentarius]

Re: Waiver/Stays Clarification

Thanks for the clarification, EXC.

I remembered all the references to limiting the duration of the case but didn't recall that it was the banks rather than the judge pushing this.

I also appreciate from your first paragraph that it would have made a lot more sense to everyone if the basis of the waiver had been agreed between the FSA and the OFT. If the OFT have no intention of ever clearing up the "historic terms" situation via a legal case, then the basis for a waiver/stays on the vast majority of cases falls down - which I presume is your point.

Edit: What happened, then, to the bit in the litigation agreement whereby the banks and OFT agreed that a representative sample of historic terms would be encompassed by the Proceedings? How does that stack with your comment that the banks raised this after the proceedings had begun, and with your comment that it was right for the judge to exclude them? Did the basis of the proceedings change from those documented in the litigation agreement, and if so who decided to make that change?

I'm not asking these questions to be provocative, but merely to improve my understanding.

[EXC]

Re: Waiver/Stays Clarification

Thanks for the clarification, EXC.

I remembered all the references to limiting the duration of the case but didn't recall that it was the banks rather than the judge pushing this.

As the banks would be taking up 8/9ths of the hearing the timescale was based largely on how much time they needed and from the very start the banks wanted to throw in volumes of historicals. In fact Brian Doctor took less than his one 9th of the hearing.

I also appreciate from your first paragraph that it would have made a lot more sense to everyone if the basis of the waiver had been agreed between the FSA and the OFT. If the OFT have no intention of ever clearing up the "historic terms" situation via a legal case, then the basis for a waiver/stays on the vast majority of cases falls down - which I presume is your point.

I'm sure the OFT would have had every intention of addressing what are now referred to as 'historical' T&Cs if ALL the banks hadn't simultaneously changed their T&Cs before the hearing for reasons that are too painfully obvious to warrant debating.

[Budgie]

Re: Waiver/Stays Clarification

I have re read the actual transcripts of the hearing again over the weekend. Well I looked at each days transcript, searched for the word "historic" and read the applicable paragraphs.

I am strongly of the opinion that the Banks have succesfully engineered a sitiuation whereby the Historic terms were not covered in the initial judgment. Outwardly the transcripts give the appearance that the Banks really wanted the Judge to issue some guidance on the historic terms to resolve the situation in the County Courts. However, reading between the lines I think they were actually quite happy that the historic terms debate took an ever increasing back seat as the Test Case progressed, I actually think this was the planned strategy by the Banks, some of the comments by the Banks QC's during the hearing are quite supportive of this theory. IMO the Banks were trying to get a total clean sweep of successes in the Test Case in relation to the present terms which would then put them in an extremely strong position to defend the inevitable appeals by the OFT and also argue at a later date that the same result should also be applied to Historic terms. One only has to do a few quick calculations to realise what a huge financial bonus the test case has actually been for the Banks. They are not paying out claims, they are still charging Customers, they are still reaping the financial investment benefits of the charges previously made to Customers with stayed claims plus the additional million plus Customers who havent even started claiming yet. The Banks have absolutely no interest in a quick decision being made on the Historic terms.

There are clauses in the FSA waiver which make provision for ending the waiver if no or insufficient progress is being made in the test case etc. I really think we should wait and see how things progress next Thursday and Friday and see if a clear situation develops in realtion to historic terms and lifting stays etc. If no clear situation develops and to be honest, after re reading the transcripts I seriously doubt if there will be a clear situation, purely because I can't see how the Judge can make a Judgment on something that hasn't actually been covered in the hearing, well then I think the justification will exist for all reclaimers to launch a very very strong attack on the FSA to ensure that the waiver is lifted.

Budgie

[EXC]

Re: Waiver/Stays Clarification

Edit: What happened, then, to the bit in the litigation agreement whereby the banks and OFT agreed that a representative sample of historic terms would be encompassed by the Proceedings?

That is a good question and one I can't answer concisely off the top of my head. I can't see how the judge could make a comprehensive judgment on historicals based on just a few sample T&Cs and for that reason I think it was right that he didn't.

[Budgie]

Re: Waiver/Stays Clarification

A few quotes from the FSA waiver. Just for reference.

The FSA would also expect to revoke this direction at any time if:

(a) without good reason, no material progress is made in the test case;

(b) the duration of the test case is likely to cause undue risk to consumers;

(c) a decision is made by the court on an element of the test case and is not subject to specific appeal by any of the relevant parties, where it would be appropriate for complaints of a certain description to proceed in accordance with the normal rules (in this case, the FSA would envisage replacing this direction with an equivalent direction excluding the element subject to the court decision); or

(d) the FSA is no longer satisfied that the test case covers all relevant legal issues necessary to enable the fair, consistent and prompt handling of relevant charges complaints after resolution of the test case.

(3) If the test case is not finally resolved within one year, and as long as the court stay is still in place, the FSA will extend this direction with the consent of the firm unless, in the light of prevailing circumstances, such an extension would be inappropriate.


and

Cooperation:

(7) if the firm is a party to the test case, then the firm must cooperate with the OFT and other parties to the test case and use reasonable endeavours to ensure that final resolution of the test case is achieved expeditiously;

(8) if the firm is a party to the test case, then the firm must ensure that the test case considers a representative selection of the firm's relevant historic, current and (if due to be replaced) replacement terms and charges;

[argentarius]

Re: Waiver/Stays Clarification

Very relevant quotes, Budgie.

I don't see how anyone can claim, if the historical terms remain outside the scope of the ruling, that "the test case covers all relevant legal issues necessary".

But equally well, if the OFT was bothered about historical terms, why did it allow a situation to be engineered (by whoever) which meant that the test case didn't effectively cover them at all.

I don't think it's a satisfactory situation for anyone if we end up with a test case which only deals with current Ts & Cs. Whether or not the stays/waiver are lifted, we would just be back to thousands of individual court actions with no clear statement of the law. That's inefficient for the court service, it's inefficient for the banks and it's inefficient for claimants.

(I got as far as downloading the full set of transcripts but I haven't undertaken the detailed review that Budgie has done due to lack of time. Well done, Budgie - there's a lot to get through).

[EXC]

Re: Waiver/Stays Clarification

I can only repeat what i said: if the banks had not changed their T&Cs for the test case we wouldn't be in this mess.

Unfortunately the FSA expicitly allowed this in the waiver conditions.

For what it's worth, below is the clearest the FSA have been on the waiver issues - from September - and it is predictably and nauseatingly vague.

[EXC]

Re: Waiver/Stays Clarification

Here's the second letter

[argentarius]

Re: Waiver/Stays Clarification

I can only repeat what i said: if the banks had not changed their T&Cs for the test case we wouldn't be in this mess.

I don't agree. Many of the banks have changed their Ts & Cs many times over the past (say) ten years. Ts & Cs evolve for most corporate entities to reflect any number of changes in circumstances and in what is considered appropriate/acceptable. Obviously, they have changed them recently in a more extreme way than they did previously, but that is the commercially sensible thing for them to do in order to avoid future legal challenge, not in order to somehow "get round" the test case when the test case was explicitly supposed to deal with historical as well as current terms.

Your hypothesis that the banks changed their Ts & Cs because of the test case would only be credible if the test case was explicitly focused on current Ts & Cs to the exclusion of historical ones. It wasn't: at the time the Ts & Cs were changed, the scope of the test case explicitly included historical Ts & Cs.

Furthermore, A&L (for example) has changed its Ts & Cs in exactly the same way that the others have - indeed, in a more extreme way, I would argue. And yet it isn't a party to the test case.

Why would they have done that, if the whole point of changing Ts & Cs was to hamper the effectiveness of the test case?