Need to clarify DN and unlawful rescission

**Lord_Alcohol** · 5th September 2010, 18:21:PM

Re: Need to clarify DN and unlawful rescission

Hi mahargrisch

My understanding re the DN arrears issue is that the OC must first issue a DN (where the agreement has been breached) before he can claim the unpaid amounts (ie, the balance).

The only amount he can lawfully ask for in the DN is, therefore, the arrears.

As far as demanding the entire balance in a DN, again the OC must adhere to CCA. I understand that he can only demand this (following a breach) once the debtor has failed to remedy the breach. At that point s87(1)(b) kicks in.

I think (but I could be wrong) that CCA takes precedence over contract terms.

LA

**mahargrisch** · 5th September 2010, 20:52:PM

Re: Need to clarify DN and unlawful rescission

Hi Lord_Alcohol
This is my understanding too.Gleaned from various threads.
I would like to be sure that a DN can only demand the arrears .
Default by definition just means a breach in the terms of a contract.
The default in this case is failure to pay the last 2 instalments as evidenced by their Notice of Sums in Arrears.But the ccc has stated that the default(therefore the breach) is in effect
"that I have repeatedly broken my agreement with them by failing to make the minimum payments" which is covered by their added t&c which also states they can demand balance in full.
There is no mention in the DN of arears.

Paragraph 8f was not in the original t&cs and has been introduced into current t&cs.apart from seeming to contract the oc out of s87 it also seems to fall under the banner of an unfair term and condition..

As a consumer, you are protected against unfair standard terms in contracts you make with traders by the Unfair Terms in Consumer Contracts Regulations (UTCCRs).
The UTCCRs can protect you from terms that reduce your statutory or common law rights and from terms that seek to impose unfair burdens on you over and above the ordinary rules of law.

Test of fairness
A term is unfair if:
Contrary to the requirement of good faith it causes a significant imbalance in the parties' rights and obligations under the contract, to the detriment of consumers.

This is from the consumer direct websitehttp://www.consumerdirect.gov.uk/bef...fair-contracts

So the question remains does using this term in the DN served under s87(1) and then terminating the account amount to unlawful rescission.

**Lord_Alcohol** · 6th September 2010, 06:50:AM

Re: Need to clarify DN and unlawful rescission

They've removed your entitlement to remedy the breach, a clear violation of s87. The purpose of a DN is to alert the borrower to the breach and offer a last chance to put things right, as if no breach had occurred.

Your DN effectively terminates the account. To remedy the breach, you would have to repay everything.

They have also registered a default with the CRAs, again suggesting that no remedy is possible and conflicting with the concept of the DN in rectification of the breach.

Have you looked at the Woodchester v Swain judgement? Your DN seems to demand the full balance, not the arrears, so Woodchester would I think be highly relevant.

Personally, I would take this as a unilateral termination of the contract. It may be sensible to write to the OC and accept their termination. Following that, they are only entitled to seek the arrears. I would do this when it is clear that the account is terminated, perhaps when you receive a TN or demand from their collection dept/agency.

As for your CRF, you may need to look at your contract and see if there is anything that allows the OC to do this. If not, then a letter to the ICO might be an idea if the OC refuses to remove it. This could take some time.

Btw, the ICO has a useful document on defaults (if you can find it). It's called Data Protection Technical Guidance: filing defaults with credit reference agencies. It suggests 6 months before the OC takes the steps that yours has in 2.

LA

**Angry Cat** · 6th September 2010, 09:13:AM

Re: Need to clarify DN and unlawful rescission

http://www.ico.gov.uk/upload/documen...3%20%20doc.pdf

**dad** · 6th September 2010, 21:25:PM

Re: Need to clarify DN and unlawful rescission

Hi,

On the face of it it appears the OC has breached section 88(3)

(3) The default notice must not treat as a breach failure to comply with a provision of the agreement which becomes operative only on breach of some other provision, but if the breach of that other provision is not duly remedied or compensation demanded under subsection (1) is not duly paid, or (where no requirement is made under subsection (1)) if the 14 days mentioned in subsection (2) have elapsed, the creditor or owner may treat the failure as a breach and section 87(1) shall not apply to it.

HTH

Dad

**diddydicky** · 16th September 2010, 11:55:AM

Re: Need to clarify DN and unlawful rescission

the creditor must first serve a valid default notice before he may demand entitlement of the rights contained in s87 ( termination of agreement/ demand earlier repayment of sums not yet due under the agreement

The default notice must be clear in telling the debtor what he has done wrong, what he must do to put the matter right and give him the prescribed amount of time to do so.

IF the debtor remedies the complaint in the DN then it will be as if the default had never occurred (s89)

a DN which itself demands entitlement to the benefits of s87- is therefore an unlawful repudiation by the creditor of his obligations - since he is claiming entitlement to benefits that he cannot claim until he has previously served an valid DN - which the debtor has failed to remedy

a DN which demands immediate payment of sums not yet due under the agreement therefore cannot lawfully be remedied by the recipient- since in order to do so- (by paying the full amount of the account) - the purpose and intent of the DN (s89) is defeated

**mahargrisch** · 18th September 2010, 01:11:AM

Re: Need to clarify DN and unlawful rescission

Is there any specicific format I should follow in writing a letter confirming the acceptance of rescision.

I have received my SAR and there is no terminatoin notice.
TheDCA NOA(dated 04/03/ 2010) states that the assignment was effective 23/12/2009.

The s87 default notice requesting full payment was dated 09/10/2009
to be remedied by 26/10/2009
and the default registered with cra 29/09/2009

So the creditor served an invalid DN demanding full payment and registered the default 11 days before sending me the notice.

I would like to send the OC my acceptance of the rescision of contract ,should I go into detail or just send the following.

OC
STREET
TOWN
POSTCODE

ACC NO XXXXXXXX
Dear Sir
following receipt of a Notice of assignment from xxxxDCA 04/03 2010 informing me that you have terminated and subsequently sold the above a/c no xxxxxxx on the 23/12/2010 and my subsequent requests for information from you, I am writing to accept your unlawful repudiation of this contract.
yours

**Lord_Alcohol** · 18th September 2010, 07:49:AM

Re: Need to clarify DN and unlawful rescission

Personally, I would not use the word "recission" as it implies putting things back to where they were at the outset (ie, to rescind an agreement). I would suggest using the word "repudiate" or "broken" instead - ie, the OC has broken the contract by, effectively, demanding payment of all sums on 9th Oct 2009 and causing the default to be registered before then.

So I would simply say that you accept the OC's unlawful repudiation of the contract - unlawful because, being a regulated contract, he is not entitled to end it without following the correct procedures (which include a correctly-formatted DN).

The sum he can now demand is the arrears at termination but from that I believe you can subtract damages for repudiation and also the effect of reduced creditworthiness due to his hasty recording of the default.

If it gets to court, I think Woodchester is the way to go

LA

**diddydicky** · 27th January 2011, 14:59:PM

Re: Need to clarify DN and unlawful rescission

to the best of my knowledge- the author of the following is/was a qualified lawyer (unlike some posters who give that impression)

I dont know if these arguments were used by brandons counsel but i suggest that if they had- the outcome is likely to have been different

i have posted as it might help you understand better

enjoy

++++
I have had difficulty in appreciating why the law would require the debtor to indicate his acceptance of the creditor's repuiatory breach of the agreement for some time. It doesn't stack up. Yet all the same, I acknowledge a repudiatory breach undoubtedly provides to the other party a right to either accept or reject the breach as terminating the agreement, being careful to make sure before acceptance that it is of a breach which is fundamental, not minor.

So I've gone back to the beginning to check assumptions etc.

An agreement is made up of terms and conditions. In a CCA, the terms and conditions are set out in the agreement. The Act regulates the agreement. [tick]

A debtor who fails to make instalment payments in accordance with the agreement commits a breach of it. [tick]

One term of the agreement will most likely say that in the event of the debtor failing to pay an instalment as and when it falls due will give rise to the creditor becoming entitled to certain rights, like the right to claim the immediate payment of those sums ordinarily payable in the future. The exercise of those rights are however regulated by the Act. We know what the regulations say. [tick]

The question is: If the creditor does not follow the regulations does that truly amount to a repudiatory breach of the agreement?

Here are some thoughts.

For a breach of a regulation to amount to a breach of the agreement requires adherence with the regulation to be incorporated as a term of the agreement. If a regulation forms no part of the agreement it can hardly be said that a failure to comply with that regulation represents a breach of the agreement. It's a breach of the regulation. Are the regulations implied as terms of the agreement, like for example, certain provisions of The Sale of Goods Act are by the authority of the Act incorporated as implied terms of agreements dealing with fitness for purpose etc. The Consumer Credit Act does not say expressly, that its provisions are incorporated as implied terms of agreements.

For a breach of a regulation to operate as a breach of an agreement it seems to me it would be necessary to persuade a court that the law intends that compliance with the regulations is to be treated as a term of any agreement the Act regulates. In other words, incorporation is implied even though the Act fails to say so expressly.

It seems to me that it is stretching the Act to say that its provisions are implied as terms of an agreement where the Act doesn't say so.

If I am right and this is up for debate, a breach of the regulations is simply that. Arguably it does not amount to a repudiatory breach of the agreement and accordingly there is no obligation upon the debtor to indicate his acceptance of that breach. On the contrary, the creditor will have terminated the agreement in breach of the regulations.

x20
More blatherings ..

The 'cake and eat it' tag, although applied to debtors by creditors and some judges as well, is much more suitably applied to creditors.

The consumers are the people the Act was intended to protect. The creditors with their vast resources and so forth are the people who are supposed to be able to get things right. And Kennedy LJ was not slow to criticise and slap Woodchester down when they got their DN wrong.

This statute was plainly enacted to protect consumers, most of whom are likely to be individuals. When contracting with a large financial organisation they are at a disadvantage. The contract is likely to be in standard form and relatively complex with a number of detailed provisions. If the hirer is said to have broken its terms, the hirer needs to know precisely what he or she is said to have done wrong and what he or she needs to do to put matters right. The lender has the ability and the resources to give that information with precision. If he does not do so accurately then he cannot take what Mr Gruffyd conveniently referred to as "the next step".

Yet today, ten years on from Woodchester, the creditors have the audacity to claim that it was they that the Act was intended to protect and does so by providing that where they deliver a defective DN, a perpetuating facility exists by which they are at liberty to declare that their own unambigous statement in writing that the consumer's credit agreement had been terminated, was not such a statement at all. They say that under the Act, since they were incapable of producing a DN containing precise information, the termination which they initiated and communicated to the consumer was a nullity. And since that is so, huff the creditors, they say they are now able to issue a fresh DN and regain all of those entitlements which they binned by making a cock of the earlier DN in the first place. And further, that if they make a cock of the second DN and go on to terminate, well they can have a third attempt. And a fourth. In fact they say that the Act is so protective of them that they can keep on cancelling their termination notices and issuing DNs as many times as it takes to get things right.

Now who was it that was having his cake and eat it?

I now turn to the 'Kerr' judgment. The 'Kerr' judgment is the judgment of Kerr LJ sitting in the court of Appeal in the case of State Trading Corp of India Ltd v. M Golodetz & Co Inc Ltd (1989). The essence of the speech being:

that saying and doing nothing at all, other than a continuing failure to perform, cannot constitute an acceptance of a repudiation even if the grounds for such an acceptance then exist.

Two points:

1 the speech was made in the context of a continuing failure to perfrom. That is, a failure to perform where there exists a continuing obligation to perform.

2 'Kerr' was disapproved of by Lord Steyn in Vitol SA v Norelf Ltd

I go back again to post number 1026 in this thread where I quoted from Chitty, saying:

Lord Porter pointed out in Heymans v Darwin Limited (1942):

'To say that the contract is rescinded or has come to an end or ceased to exist may in individual cases convey the truth with sufficient accuracy, but the fuller expression that the injured party is thereby absolved from future performance of his obligations under the contract is a more exact description of the position. Strictly speaking, to say that on acceptance of the renunciation of a contract the contract is rescinded is incorrect.'

In other words it is necessary to distinguish between a case where there is some obligation to perform and where the innocent party has been absolved from future performance.

The vast majority if not all of the reported cases on 'notice of acceptance' of a repudiatory breach are concerned with the common law requirement for the innocent party to communicate clearly and unequivocally its intention to treat the contract as discharged in the context where but for the innocent party's treatment of the contract as discharged, that innocent party was expected to make some performance for the benefit of the other party as if the contract endured.

It's time for a simple example. An example where you have to forget about consumer rights and The Sale of Goods Act. I go to my tailors (again). I select a moss coloured Harris Tweed for a jacket. I'm measured, informed of the price and told to come back in a week for a fitting. On my next visit I discover the tailor has made the jacket from a nasty pink linen. I try the jacket on, the tailor notes the sleeves are too long, I take it off again and am informed the jacket will be finished in another week's time. The production of a pink linen jacket is so fundamental a departure from what we agreed as to constitute the tailor's repudiatory breach of the agreement, giving me the right if I wish, to treat myself as absolved from any further duty under the agreement, ie absolved from the duty to pay the agreed price. On the other hand I might think the pink jacket would be most suitable for next months' chambers garden party.

When I am at the tailors I say nothing about the fact the jacket is pink and made of linen when it should be a manly Harris Tweed. I am silent on the matter that the jacket I tried on represented the tailor's repudiatory breach of the agreement. I indicate nothing and simply walk out the shop.

I don't show up the following week as I was supposed to. I do not take delivery of the jacket and I don't pay the price. I end up in court. I argue that the pink linen jacket represented the tailor's repudiatory breach of the agreement. I'm in difficulty on that one and the judge tells me so. He points to the fact that I failed to communicate my acceptance of the tailor's repudiatory breach. The tailor had gone on to alter the sleeves and finish the jacket without notice of accpetance of breach and thus in expectation that I would pay the price for the jacket. The judge tells me that if I had communicated my acceptance of the repudiatory breach I would have been saved. But since I didn't, I'm stuffed.

OK, so that's an example of where a notice of acceptance would have been a very good idea. Now let's look at what is going on in the minds of the creditor and consumer in a consumer credit agreement where the creditor writes to the consumer saying 'the agreement is hereby terminated give me all my money back' and where of course the creditor's DN served just seven day's earlier is consequently defective.

All the creditor thinks is 'I will send this letter to the consumer to terminate the agreement and demand all my money back.'

All the consumer thinks when he reads the letter is 'the creditor has terminated the agreement and wants all his money back'

The creditor and consumer are thinking alike. There is no confusion or misunderstanding. There is nothing which requires clarifying.

This is why I do not accept, or at least why I am having immense difficulty in appreciating why it is necessary in law for the consumer to write a letter back to the creditor saying 'I accept your termination' or do something which communicates acceptance of the termination, without which the termination is a nullity and in truth the consumer credit agreement endures. The letter back to the creditor is no more than an acknowledgment of receipt and a statement that the consumer understands the position of the creditor. Nothing else turns on it.

Ordinarily (but for this nonsense that the creditor can disregard his own termination notice and the acceptance of it and churn out another DN), the creditor does not adjust his position in light of the acceptance of termination. The creditor just bangs on with pursuing the consumer.

If we could have some case law in the context of consumer law rather than multi-million dollar international shipping contracts that may be more on the point. Lord Steyn in Vitol SA v Norelf Ltd (1996) a House of Lords decision in which 'Kerr' in State Trading was dissapproved, had a try. He said:

'I am satisfied that a failure to perform may sometimes signify to a repudiating party an election by the aggrieved party to treat the contract as at an end. Postulate the case where an employer at the end of a day tells a contractor that he, the employer, is repudiating the contract and that the contractor need not return the next day. The contractor does not return the next day or at all. It seems to me that the contractor's failure to return may, in the absence of any other explanation, convey a decision to treat the contract as at an end.'

x20

I am yet to be persuaded that in the context of a regulated consumer credit agreement and the receipt of an express notice or activity on the part of the creditor consistent with termination, that the agreement does not terminate unless and until the debtor signifies by word or deed that he accepts termination. The damned notice of termination says what it says.

For sure in those cases where the termination amounts to the anticipatory breach of the agreement by one of the parties to that agreement the law says the innocent party should elect either to accept the termination or inform the terminating party that he requires them to perform their obligations owing under the agreement. But we're not concerned with an anticipatory breach by the creditor. It's not as if the creditor having agreed to give credit has then decided not to loan after all. What the creditor is doing is calling in the loan he has already made ahead of the time when it would ordinarily have been repaid.

But in a regulated consumer credit agreement, what in reality can the court genuinely expect the innocent, ordinary and unsophisticated debtor to a consumer credit agreement, who is strapped for cash, do in response to the demands of the creditor? Write a letter saying 'I accept your repudiatory breach of contract'?. Of course not. Well I say of course not. That is a ludicrous expectation to hold. Was the Court of Appeal ever concerned to ascertain in Woodchester v Swayne & Co that Swayne had accepted Woodchester's termination on the back of their ineffective DN? Mais non. Swayne & Co had done nothing. Swayne & Co were a firm of solicitors in Cardiff for crissake. Yet they still were treated to the benefits of the Act as one intended for the protection of consumers. Swayne were, according to claue 9.1 of the terms of the agreement between Woodchester and Swayne, in repudiatory breach of contract, entitling Woodchester to immediately terminate the agreement. But all the same, Kennedy LJ held that the provisions of section 87 dictated what Woodchester were required to do in order for Woodchester to become entitled to claim early payment and demand the return of the photocopier let on hire under the agreement. This was regardless of what the agreement said.

Indeed in the context of activity, if Swayne & Co had paid some money to Woodchester they would have done themselves a favour because those payments would have been applied to the credit of the arrears.

I appreciate that counsel for banks are currently advancing that the absence of some clear acceptance on the part of the debtor operates to negate the meaning and intent of the creditor's express termination. The latest clever arguments seem to be that a DN is not required at all where the agreement has no fixed duration. But that's counsel pushing at the boundaries and thinking out the box in a novel way. All good lawyers do that. They invent and shape their arguments to distinguish their case from those which suggest they're on a loser so as to suit the requirements of their client. They have no idea as they're inventing and shaping that the argument they've conjured will succeed. But they sigh with relief when they appreciate their opponent is a LiP.

I do not buy in to the notion that unless the debtor is active or inactive in a way somewhat different to the way he was active or inactive prior to the termination, that the agreement has endured despite the delivery of an express notice of termination, or despite activity on the part of the creditor which is in keeping with the creditor having terminated the agreement. Remember this : when Woodchester v Swayne was first decided, before it got to the Court of Appeal, Assistant Recorder Higginbottom found for the creditor on the basis that

"A default notice served under Section 87 and Section 88 is not rendered defective merely because the action indicated as required to be taken to remedy the breach is in fact over and above the action necessary to remedy that breach."

The Assistant Recorder did not add 'and because the debtor had failed to serve a notice of acceptance of termination or had conducted itself in a way different to the way it had conducted itself before termination or before the creditor behaved as if the creditor had terminated.'

Kennedy regarded the Assistant Recorder's judgment 'as a model of clarity'. But he still found the decision was wrong. He held quite the reverse to the Assistant Recorder. He held the DN was rendered defective because the action indicated as required to be taken to remedy the breach was in fact over and above the action necessary to remedy that breach. He did not qualify that view by saying it was reached owing to the activity or inactivity of the debtor or that his view would have been different depending on what activity or inactivity there may have been on the part of Swayne & Co. As we know, because Swayne got hit with a judgment for the actual arrears, Swayne did nothing.

Woodchester v Swayne is still good law. Swayne & Co did the right thing. They were well placed to do the right thing. They were a firm of lawyers. The right thing they did was to appeal the decision. The result speaks for itself.

x20

Diddy D,

I follow you too. It is a great shame that after stating in the Act that before becoming entitled to any of the things set out in section 87 there must be service of an effective DN, parliament did not then see fit to state what the consequences would be if the entitlements were demanded where there wasn't an effecive DN. Back in 1974 We had a wealth of judge made contract law but precious little case law governing situations so heavily regulated as consumer credit agreements

Since then we have had cases like Woodchester v Swayne help us consider what the law might be where a creditor seeks to claim section 87 entitlements without complying with the requirements for an effective DN. In Woodchester, where the creditor issued a DN claiming in excess of the actual arrears, the DN was ruled ineffective and the creditor was denied all of the claim to include the claim for early payment of instalments ordinarily due in the future, apart from the precise arrears of instalments owing at the time of the issue of the DN.

Had the Court of Appeal deciding Woodchester been as kwayward as the Judge who decided Blue Thunder's case, the Court of Appeal would have adjourned the appeal to enable Woodchester to issue a correct DN re-convened when that had occurred and then found for Woodchester. We know this didn't happen.

It's probably worth repeating again what section 87(1) says

Service of a notice on the debtor or hirer in accordance with section 88 (a “default notice ”) is necessary before the creditor or owner can become entitled, by reason of any breach by the debtor or hirer of a regulated agreement,—
(a) to terminate the agreement, or
(b) to demand earlier payment of any sum, or
(c) to recover possession of any goods or land, or
(d) to treat any right conferred on the debtor or hirer by the agreement as terminated, restricted or deferred, or
(e) to enforce any security.

In the context of Blue Thunder's case, yesterday was the adjourned hearing of the creditor's application for summary judgment. At such a hearing it behoves the applicant to establish to the satisfaction of the court that the defence is such that the defendant has no real prospect of successfully defending the claim or issue (CPR 24.2).

At the first hearing an issue was raised that the creditor's default notice was ineffective because it allowed just 12 or certainly less days than the minimum 14 days prescribed by the Act. With this revelation the court adjourned the hearing as I say, and the new hearing took place yesterday.

In my view the decision at the first hearing was plain wrong and had I known of the case earlier than I did, my advice to Blue Thunder would have been to submit his own application for summary judgment against the creditor. Section 87 speaks of a time when a creditor can become entitled and refers to the time when that might happen by reference to a pre-condition that there has been service of a default notice in accordance with section 88.

When the first hearing took place the judge ruled that the DN relied upon by the creditor was ineffective. At that point therefore it ought to have been clear to the Judge that contrary to the creditor's argument, Blue Thunder did indeed have reasonable prospects of success. Further more of course, had Blue Thunder put in his own application for summary judgment the court ought to have ruled that the creditor had no prospect of success on its claim (save for any arrears still owing at the time of service of the DN) because the pre-condition giving rise to when the creditor becomes entitled to the things under section 87 had not been fulfilled. In short, the creditor had no reasonable prospect of success. Or put strictly speaking : the creditor had no reasonable prospect of success as things stood at the date of that hearing.

So for that reason the hearing was adjourned and an effective DN was then served during the interval so that by when the court reconvened, the court could pretend there had never been an obstacle to awarding the creditor summary judgment.

All this sticks in my throat. And there's more. Evidently (I will be corrected if I am wrong) the Judge allowed the application for judgment without first requiring the creditor to amend the Particulars of Claim by reciting its reliance upon the matter of the second DN. The judge decided the case on evidence and submissions which formed no part of the creditor's pleaded case!

Worse, the judge decided in the creditor's favour in a claim commenced before the right advanced in the evidence and submissions had crystalised. By that I mean a claimant must have a cause of action, a legally recognised right to sue if you like, readily avialable at the time the proceedings are begun. Put another way, I would not expect to succeed on a case issued by me today for the price of the fee I propose to charge for conducting a case I might be instructed to deal with in 3 months time. You've got to get your horse before your cart.

If the creditor in Blue Thunder's case based its case upon the second DN delivered during the interval between the first and second hearings of its application for summary judgemnt and thus had no right to any of the section 87 entitlements until then, what was it doing issuing proceedings last year? Evidently the creditor and judge were alert to that difficulty. I have seen the skeleton argument put in by the creditor by which they endeavoured to get around that difficulty. In it they contend that the right to sue for everything crystalised on Blue Thunder's missing an instalment payment. Again and in my opinion, utter nonsense. Such an argument entirely ignores the pre-condition element of section 87.

I suppose this ought to be added to Blue Thunder's thread which I found earlier today. In my opinion the decision is quite clearly appealable and what I understand of the the judge's handling of the case and reasoning is shocking.

x20
Hmm, where to start.

I suppose the place to start is to say from the outset that on balance, and it is a balancing act - the better course being to weigh up the pros and cons in a given case - I side against formally writing to the creditor giving notice of acceptance of the notice of termination.

Why?

In my opinion, the debtor to a consumer credit agreement who, following on from the service of a default notice, receives a letter from his creditor stating in unequivocal terms 'you have not complied with the requirements of our default notice. We hereby terminate the agreement', is entitled to believe the creditor has terminated the agreement. Further, if ever questioned in court about his belief and whether or not when he read the letter he truly believed the creditor meant what he said, I take the view that the court will find that the debtor honestly believed the creditor had terminated the agreement.

Further, let's put the bloke from the creditor's office who signed the termination letter in the witness box. Let's ask him what he believed. Of course he might say that terminating the agremeent was never further from his mind. But would he be likely to say that on oath? If he did and was asked to read aloud the words from his letter, would the court, on a balance of probability, believe him? Or on balance again, would the court dismiss his evidence as incredulous?

If this bloke happens to confirm he thought his letter had the effect of terminating the contract, what's left to decide on the issue? Both sender and receiver understood one another. What chance does the creditor then have in those same proceedings, of persuading the court that the notice of termination, the understanding and intent of which both parties shared at the time of its delivery, should now be turned on its head and the very opposite of this 'joint understanding' imposed by the court. So that far from having been terminated, the agreement has continuously endured?

I say the creditor has precious little chance. It wouldn't happen that way. I have sufficient confidence in the English Courts to beleive that the proper presentation of the facts in a consumer credit scenario would be to hold the creditor, by his own action, terminated the agreement. To sustain this view I go back to what I said in what is these days termed 'the parent thread'. In it I said:

It seems to me on the basis of the passages below, the courts will be ready to hold a creditor to his words and actions.

"... a person who signs a document, and parts with it so that it may come into other hands, has a responsibility, that of the normal man of prudence, to take care what he signs, which if neglected, prevents him from denying his liability under the document according to its tenor".
[per Lord Wilberforce in Gallie v Lee (1971)]

'.. a man cannot escape from the consequences, as regards innocent third parties, of signing a document if, being a man of ordinary education and competence, he chooses to sign it without informing himself of its purport and effect..'
[per Scott LJ in Norwich & Peterborough Building Society v Steed (1992)]

In short, the creditor is bound by his deed. All that is required is for the debtor to accept the creditor's termination. He can write saying 'thank you I accept you termination' or he can conduct himself in a way in keeping with that termination. Not paying the instalments would be in keeping with an acceptance of the termination.

So if the court were prepared to find there had been intentional termination by the creditor (regardless of whether the intent was ill-advised), I next question whether, again in the consumer credit scenario, the court's willingness to so find would be put in jeapardy because of the absence of written notification from the debtor if his acceptance of the termination.

I go back again, this time to post number 1026 in this thread where I quoted from Chitty, saying:

Lord Porter pointed out in Heymans v Darwin limited (1942):

'To say that the contract is rescinded or has come to an end or ceased to exist may in individual cases convey the truth with sufficient accuracy, but the fuller expression that the injured party is thereby absolved from future performance of his obligations under the contract is a more exact description of the position. Strictly speaking, to say that on acceptance of the renunciation of a contract the contract is rescinded is incorrect.'

This statement was unanimously approved by The House of Lords in Johnson v Agnew (1980)

Thus and first, Lord Porter said that after termination 'that the injured party is thereby absolved from future performance of his obligations under the contract is a more exact description of the position.'

Lord Porter didn't go on to say 'All this is of course subject to a proviso that the injured party first writes a letter of acceptance of termination to the other side.' It will be observed that Lord Porter was concerned to provide 'a more exact description' and express it 'strictly speaking'. If the exact position, strictly speaking, was that the innocent party was to be absolved subject to the supposed proviso, he would have said so and formulated the proviso in clear terms.

Further, we have what he in fact said: 'Strictly speaking, to say that on acceptance of the renunciation of a contract the contract is rescinded is incorrect.'That is, to say strictly speaking that 'rescission is dependent upon acceptance' is incorrect.

Next, regardless of any need for acceptance (and I am not persuaded there is a need), I do not accept that written notice of acceptance is the one and only way of making one's position understood. For my part, I take the view that the recipient of a notice of termination of a contract is entitled to regard himself as absolved from the contract. But if something else from the injured party should be thought ideal, in my view, any conduct clearly intimating acceptance would suffice. Indeed, I go so far as to say any conduct not inconsistent with an acceptance of the termination of the agreement would suffice.

Third, the context in which the courts have said that some form of acceptance is required on the part of the injured party, is where the injured party proposes to pursue the contract breaker for damages for anticipatory breach of the agreement. I would not have thought the ordinary debtor would be inclined, following notice of termination on the back of a defective DN, to then launch into legal proceedings for damages. I'm not even persuade that termination after lending constitutes an anticipatory breach. We can discuss when and whether the ordinary debtor might do this at some stage, but as a general rule I would advise against suing the creditor in those circumstances.

Last, assuming the debtor were to give a notice of acceptance, there is a risk that the creditor might scratch his head and wonder why there was such a notice on his desk. He might cause enquiries. He might discover his DN was dodgy. He might then issue another, being careful to ensure it was effective and beyond reproach. For sure the canny debtor might turn around on receipt of the new DN and say 'but you've already terminated and I accepted termination'. And what's more, the canny debtor would have a good point. But if the case then goes to court (and let's face it, we're examining the position in the only forum which counts - legal proceedings) the likelihood is that the creditor will frame his claim on the new rather than the old DN. There will still be an issue to determine. The debtor will still be able to advance a defence. But and this is the big but, the debtor will have lost the advantage of having the case against him advanced on the basis of a DN he knows to be dodgy and where termination can be said to have been the creditor's renunciation of the agreement. Issuing legal proceedings is a major thing. When those proceedings are issued someone verifies the truth of what is said in it. Seeking to scrub out what he earlier said was true on the basis that what he then said was in truth untrue, is something a creditor will approach will rightful unease.

But I go back to what Lord Porter said 'strictly speaking'. Lord Porter has to be persuasive, surely.

continued on next post

**diddydicky** · 27th January 2011, 15:02:PM

Re: Need to clarify DN and unlawful rescission

x20

J&S,
(At post 1622) That's absolutely right. However, there are two or three hurdles to overcome.

Hurdle 1: CPR 38.7
CPR 38.7 says:

A claimant who discontinues a claim needs the permission of the court to make another claim against the same defendant if
(a) he discontinued the claim after the defendant filed a defence; and
(b) the other claim arises out of facts which are the same or substantially the same as those relating to the discontinued claim.

As to which the editors of the Civil Court Practice 2009 add:

If following discontinuance fresh proceedings are commenced either with or without permission of the court the discontinuance is not of itself a defence to the fresh claim. It is suggested that the permission to commence fresh proceedings will not be easily given since in any event the new claim could be struck out as an abuse of the court’s process under CPR 3.4 (see para CPR 3.4). The court is likely to attach conditions to any permission given under this Rule such as an initial requirement that the costs for which the applicant is liable upon the discontinued proceedings are paid beforehand and that the claimant otherwise makes a payment into court.

Hurdle 2: issue estoppel
The reference above to CPR 3.4 and striking out the second proceedings as an abuse covers issue estoppel. Again, the editor's notes to the Civil Court Practice 2009 under CPR 3.4 gives as an example of a case which might be struck out as a case involving facts

(2) which could or should have been raised in earlier concluded proceedings between the same parties (see Henderson v Henderson [1843-60] All ER 378, (1843) 3 Hare 100; Yat Tung Investment Co v Dao Heng Bank Ltd [1975] AC 581, [1975] 2 WLR 960, PC) and (Wain v F Sherwood & Sons Transport Ltd [1998] 25 LS Gaz R 32, CA in which a second claim (for injuries) was struck out following the successful first claim for damage to the car).

Hurdle 3: facts
The second claim will inevitably plead that the creditor had served a default notice (being a default notice post-dating the issue of the first set of proceedings), that the debtor had failed to comply with the requirements of the notice and that in consequence and upon that failure to comply, the creditor became entitled to all those things set out in consumer Credit Act 1974 section 88, to include of course, an entitlement to demand early payment and recover possession of any goods let on hire.

The defence to the claim will plead that the default notice relied upon had no such effect and did not lead to the debtor failing to comply with it, nor to the coming into effect of an entitlement to any section 88 benefits. On the contrary, the defence will plead that by the first proceedings which the creditor verified as true, the creditor claimed that it possessed section 88 rights by reason of the debtor's failure to comply with an earlier DN. It was in reliance upon this earlier DN that the creditor terminated the agreement either expressly or implicitly by commencing proceedings.

I say the effect of termination was to absolve the debtor from any further obligations under the agreement. The supposition that the debtor was in breach of an agreement by his failure to comply with the terms of the second DN ignores that at the time of service of the second DN the debtor was by then absolved of all obligations once owing under the agreement. The subsequent issue of a second DN and new proceedings exposes and relies upon the fiction that the agreement had endured throughout the time when the first proceedings had been ongoing and that the debtor had failed to comply with an effective DN.

Hurdle 3 coupled with hurdles 1 and 2 may combine to persuade a court that the new proceedings do amount to an abuse resulting in permission to begin new proceedings being refused.

Of course, a creditor may suceed in overcoming all three. But I maintain that to overcome hurdle 3 requires the judge to spoon feed the creditor with cake robbed from the debtor. That oughtn't to happen though it did in Blue Thunder's case.

x20

Originally Posted by surfaceagentx20
My fellow Caggers, back to the general issue ..

May be it was my doing or we've just hung on to this word 'termination' like Rotweillers. The thing is, at least as I see it is, that where a creditor seeks early repayment or the return of goods following service of an ineffective DN, he is by his words and conduct expressing in clear terms that he is no longer willing to perform the essential obligations he promised to provide under the credit agreement. True, these words and conduct ride on the back of the debtor's failure to perform the debtor's essential obligations. But in this event the creditor has only to follow the procedure laid out in the Act and Regulations. And the Act says unless and until he has met the requirements of the Act and the Regulations, he acquires no such entitlement. Accordingly, to withdraw from the debtor the right to pay sums due by instalments or withdraw the right to continue with possession of the goods is to withdraw in breach of the statutory code which regulates the agreement.

The withdrawal of the debtor's rights may in one person's parlance be the same as the creditor's termination of the agreement. Just like 'default' in the words of one person may amount to 'breach' in the words of another. Or 'repudiatory breach' in the language of lawyer A is 'renunciation' in the language of lawyer B. Let's say though, for the purpose of the stream of thinking which follows, that strictly and legally speaking, withdrawal of these rights in default (or breach) isn't a termination of the agreement and that for termination strictly so called to have occured, the creditor miut have served a notice of termination. Does that mean therefore that the creditor's withdrawal and demand for early payment and/or return of goods is something the court can waive? Something the debtor can be expected to have understood was a mistake and unintended? That it is of no consequence?

I've got Chitty on Contracts General Principles (26th Edition) (1991). A bit out of date but good enough on General Principles I would have thought. And I'd thought I'd open it. Always a good idea when examining the contractual relationship of parties. Interestingly, 'termination' does not have an entry of its own in the umpteen page index at the back. It says in relation to Renunciation (and if you look up Repudiatory Breach it refers to to the same page number) that:

A renunciation of a contract occurs when one party by words or conduct evinces an intention not to perform, or expressly declares that he is or will be unable to perform, his obligastions under the contract in some essential respect. An absolute refusal by one party to perform his side of the contract will entitle the other party to treat himself as discharged, as will also a clear and unambiguous assertion by one party that he will be unable to perform when the time for performance should arrive. Short of such an express refusal or declaration however, the test is to ascertain whether the action or actions of the party in default are such as to lead a reasonable person to conclude that he no longer intends to be bound by its provisions. The renunciation is then evidenced by conduct. Also, the party in default 'may intend in fact to fulfil (the contract) but may be determined to do so only in a manner substantially inconsistent with his obligations' [Federal Commerce & Navigation Co Limited v Molena Alpha Inc (1979)] or may refuse to perform the contract unless the other party complies with certain conditions not required by its terms. In such a case, there is little difficulty in holding that the contract has been renounced.

If one party evinces an intention not to perform or declares his inability to perform some but not all of his obligations under the contract, then the right of the other party to treat himself as discharged depends upon whether the non-performance of those obligations will amount to a breach of a condition of the contract or deprive him of substantially the whole benefit which it was the intention of the parties that he should obtain from the obligations of the parties under the contract then remaining unperformed.

The renunciation must be made quite plain. In particular where there is a genuine dispute as to the construction of a contract, the courts may be unwilling to hold that an expression of intentino by one party to carry out the contract only in accordance with his own erroneous interpretation of it amounts to a repudiation and the same is truew of a genuine mistake of fact or law.

The demanding of early payment is to my way of thinking the immediate withdrawal of consent to all the remaining credit provided for under the agreement. Further, that it substantially deprives the debtor of the prime benefit he was to derive under it. Such a demand constitutes a breach of the regulated agreement save where it is demanded in compliance with the Act. If the demanding of such things is not tantamount to the creditor terminating the agreement, it is, nonetheless in my opinion, the creditor's renunciation of it. in consequence and in my opinion, the debtor may fairly regard himself as discharged from the agreement.

Chitty has this to say:

Consequences of Discharge - Effect on Contract
It has become usual to speak of the exercise by one party to treat himself as discharged as a 'recission' of the contract but as Lord Porter pointed out in Heymans v Darwin limited (1942):
'To say that the contract is rescinded or has come to an end or ceased to exist may in individual cases convey the truth with sufficient accuracy, but the fuller expresion that ther injured party is thereby absolved from future performance of his obligations under the contract is a more exact description of the position. Strictly speaking, to say that on acceptance of the renunciation of a contract the contract is rescinded is incorrect.'

This statement was unanimously approved by The House of Lords in Johnson v Agnew (1980) where Lord Wilberforce emphasised that this so-called 'recission' is quite different from recission ab initio as may arise for example in cases of mistake, fraud or lack of consent. It has also become usual to speak of the contract as having been 'terminated' or 'discharged' by the breach. Again however, these expressions may be somewhat misleading for they might suggest that the contract ceases forv all purposes to exist in that event. Such an approach was indeed adopted by the Court of Appeal in Harbutt's Plastercine Limited v Wayne Tank & Pymp Co (1970) so as to prevent the party in default from relying on an expemtion clause inserted in a contract which had been 'terminated' by breach. But this case was overruled by the House of Lords in Photo Production limited v Securicor Transport limited (1980). The true position was there stated to be, where the innocent party elects to terminate the contrsct, ie to put an end to all primary obligations of both parties remaining unperformed - that (per Lord Diplock) '(a) there is substituted by implication of law for the primary obligations of the party in default which remain unperformed a secondary obligation to pay money compensation to the other party for the loss sustained by him in consequence of their non-performance in the future and (b) the unperformed primary obligations of that other party are discharged.'

Given Diplock's statement of the position, may be to describe the agreement as 'terminated' following the events we are describing is, to adopt the words of Lord Porter, '.. to convey the truth with sufficient accuracy.'

x20

My view on danger, would be that it would be dangerous for the debtor to conduct himself in a way which was inconsistent with his regarding himself as discharged. I'm not satisfied that it is essential for the debtor to be treated as discharged that he must first give express notice of acceptance of the renunciation to the creditor and that without such notice the agreement endures. If the creditor can renounce by conduct why should the debtor be precluded from relying on his own conduct as evidence that he treats himself as discharged? As such I take the view that if the debtor intends to make a payment after renunciation he should say that the payment is exclusively for the purpose of reducing or discharging the arrears which had accumulated up to the time of renunciation. If there are no arrears he would be unwise and in danger of being treated as affirming the contract if he were to make a payment.

That said, in the main we're not dealing with a beast of outer wordly intelligence. Or even creditors who read letters. Nine times out of ten the creditor will be delighted to send you his official notice of termination at the very earliest possible moment. If he doesn't, whether or not the debtor writes in saying 'I accept your renunciation', the creditor will bash on in a way which demonstrates [a] he doesn't intend to be bound regardless of any affirmation and [b] he repeats his renunciation. And the next thing you know there's a Claim Form on your doormat.

x20

I've always looked at it like this:

The text of the Regulations uses the phrase 'BEFORE THE DATE SHOWN', meaning the last day on which the debtor may comply with the DN is the date of the day immediately before the date shown. The date shown is the date on which the creditor may terminate.

Therefore if the date shown is 14 May, the 'remedy date' would or ought to have been 13 May, not 14 May. You can not have a day which is a day on which a party might remedy as well as being a day when the other party might terminate for failure to remedy.
If the creditor is relying on that DN I think it is ineffective to give rise to a right to claim early payment, though the arrears would remain recoverable. The text of the DN is prescribed. The DN must specifiy a date before which you are requried to comply with the terms of it. You will notice the DN uses the phrase (correctly) 'before the date shown'. When is 'before the date' and which is shown? The only date shown is the date of the DN. This is an example of a lazy creditor seeking to escape the burden imposed by the regulations by use of the phrase 'within 17 days of the date of this notice'. That's not good enough in my opinion. The Regulations require the creditor to specify a date. If they wanted you to settle by 27 May 2008, the date which ought to have been but which was not shown, was 28 May 2008.
I though people might like to learn of the succesful outcome of my one and only CCA case. Short version as short as I can make it is as follows:

A enters into HP agreement for a car with ABC Finance Co. Bolted on is PPI insurance. Things go fine for six months or so until A ceases to work. A calls on the PPI policy, making token payments to ABC in the meantime, only to be told the policy is unsuitable for a self-employed person. At this ABC write to A advising the matter of the mis-selling of the PPI policy should be taken up with the dealer, its nothing to do with them but that A should stop making instalment payments on the PPI policy. Unfortunately, the dealership has been bought out so the question of the mis-selling is taken up directly with ABC, who A holds as responsible (A little knowing at this stage that section 75 Consumer Credit Act 1974 had just been invoked).

ABC don't take too kindly to accusations of this kind and turn on A owing to the fact that there were arrears in instalments. A get's a letter terminating the agreement, a demand for the return of the car and for payment of the sums outstanding under the agreement. ABC then sue for recovery of the car and all sums owing, including future instalments due under the agremeent. At which A comes to see me.

A never received a default notice and this fact along with the PPI shortcomings are pleaded in Defence. Still ABC won't budge nor discuss the position. The case comes to the return of goods hearing where the Judge is critical of ABC's conduct post issue of the proceedings, awards the costs of that hearing against them and directs upon my application that a copy of the DN to be relied upon is to be furnished in accordance with CPR 31.14.

The DN once provided is regarded by me as effective in all but one salient feature. ABC had included arrears of the PPI instalments notwithstanding that some months earlier they had given notice to A to cease making payments of the PPI instalments. ABC are advised of the meaning and effect of section 87 and 88 of the Act and the decision in Woodchester v Swayne. Notwithstanding, ABC refute the notion the DN was ineffective, alternatively that if it was ineffective, it was ineffective to terminate the agreement also, therefore enabling them to serve a second DN.

Serve a second DN they did, swiftly followed by a notice of termination and after that, an application to amend the Particulars of Claim so as to substitute the second DN as the DN relied upon in place of the former DN.

There then follows more posturing and gnashing of teeth. I quote Durkin v DSG as a modern authority for the proposition A may recover substantial damages for damage to credit without proof of actual pecuniary loss. I batter ABC with the hopelessness of their prospects and that their opportunities to make any recovery of any description has been lost for all time.

With this, negotiations begin to incrementally measure up to the bar, are more in earnest and demonstrate a reluctant acceptance on ABC's part that the claim may not be on so sound a footing after all.

So to the result. At the doors of the court, the following deal is achieved:

[1] ABC will write off its money claim worth £X
[2] ABC will transfer title to the car to A, worth £Y
[3] ABC will recall and/or permanently delete all adverse credit data relating to A
[4] ABC will pay A costs of the case worth £Z

ABC depart the case with nothing but a bill from their lawyers. A leaves with the benefit of £X + £Y + £Z equating to the very best part of £30,000.00, and a smile from ear to ear.

I do so love dodgy DNs. Hope you do too.

The contention advanced by ABC's lawyers was that if the DN was ineffective, the termination which ABC subsequently brought about in reliance upon that ineffective DN, was itself ineffective. In support, ABC said that since the law did not permit a creditor to terminate an agreement unless there had been serivce upon a debtor of an effective DN, by extension therefore, rather than having been terminated, the agreement endured.

The law in support of this proposition was Consumer Credit Act 1974 section 87(1)(a) which says:

(1) Service of a notice on the debtor or hirer in accordance with section 88 (a “default notice ”) is necessary before the creditor or owner can become entitled, by reason of any breach by the debtor or hirer of a regulated agreement (a) to terminate the agreement

ABC went on to say that owing to the agreement enduring, ABC were therefore at liberty to serve a second DN.

At first blush, that looks quite a convincing argument. The Act itself forbids the creditor the right to terminate save in certain circumstances. So if the required circumstances were not present, how could the law regard the agreement as having terminated?

[1] Termination of a Contract and General Principles
A good place to start would be to dispel the myth that the law will not tolerate contract breaking. On the contrary whilst not actively ncouraging it, the law will tolerate it. The courts will rarely impose upon one party an obligation to perform under a contract against its will, to do what it failed to do or redo what it tried and failed to do. Instead, what the law will do is on the one hand restrain the contract breaker from procuring the benefits it would have enjoyed had it fulfilled its contractual obligations and on the other, enable the injured party to recover damages flowing from the breach.

In Golden Strait Corporation v Nippon Yusen Kubishka Kaisha [2007], Lord Bingham said:

'The repudiation of a contract by one party ("the repudiator"), if accepted by the other ("the injured party"), brings the contract to an end and releases both parties from their primary obligations under the contract. The injured party is thereupon entitled to recover damages against the repudiator to compensate him for such financial loss as the repudiator's breach has caused him to suffer. This is elementary law.

The damages recoverable by the injured party are such sum as will put him in the same financial position as if the contract had been performed.'

What's more, the law will not merrily award whatever loss the injured party says he suffered. The court will require the injured party to prove his loss and further, will expect the injured party to take steps to mitigate the loss.

'An injured party such as the owners may not, generally speaking, recover damages against a repudiator such as the charterers for loss which he could reasonably have avoided by taking reasonable commercial steps to mitigate his loss.' [Lord Bingham in Golden Strait Corporation.]

Further still, in assessing damages the law will not even award what the parties may at formation of the agreement have agreed should be payable as liquidated damages in the event of breach. The court will not permit the recovery of liquidated damages unless the damages represent a fair pre-estimate of what loss might flow from the breach. If the liquidated damages are shown to be excessive and unrepresentative of the sactual loss suffered the law will readily declare the liquidated damages as a penalty and unenforceable.

In short, not only does the law tolerate contract breaking, but also, it will not tolerate the injured party taking advantage of the wrongdoer. The law does not pounce on the contract breaker to teach him a lesson. The court only awards the innocent party what damages truly flow from the breach. That admits of the possibility that a contract breaker can get away with it. If the injured party is unable to show resulting loss, the injured party may get nothing.

'One must look at the contract as a whole, and if it is clear that the innocent party has lost nothing, he should recover no more than nominal damages for the loss of his right to have the whole contract completed.' [Edmund Davies LJ in 'The Mihalis Angelos' (1971)]

[2] Termination in Non-Conformity with section 87.
The contention I advance is that an ineffective DN does not prohibit the creditor from terminating the agreement. Termination after service of an effective default notice is lawful termination, but as we have seen, a party may still terminate an agreement and be in the wrong for doing so. The law operates on a wrongful termination to offer to the injured party the choice of accepting the termination or to hold the contract breaker to his promise.

In the world of consumer credit, I contend a termination of the agreement by a creditor in terms whereby he announced he would no longer permit the debtor time to repay the credit, was a creditor in repudiatory breach of the agreement, unless in leading up to termination, the creditor complied with the requirements of the Act in circumstances where the debtor was in first breach of the agreement.

Further, and it is worth remembering, the Act is an Act for the purpose of consumer protection. The purpose of the Act is not to preserve the rights of creditors in contracts and to protect them from misadventure where for example, they terminated an agreement where it subsequently transpired the termination had not been in their interests. If that were so, the Act would have been an Act for the better protection of financiers.

In a proper case, the law will come to the aid of the vulnerable to protect them from the consequences of their contracts (for example the unsound in mind, children, those under duress or undue influence). To suggest financiers fell into that bracket and the Consumer Credit Act
operated to protect them and not the consumer, was absurd. The civil law does not come to rescue the misadentures of the sain and the savvy.

The clue to the position of the creditor on termination is in the use of the word 'entitled' in section 87(1). 'Entitled' connotes a right or a benefit. The Act therefore confers rights, conditional upon the provisions of section 87(1) being fuilfilled. Fail to fulfill the condition and the entitlements do not become available.

In the case of a contract entered into by a person under duress and who then breaks the contract the law will come to that person's aid by recognising that person's plea that the contract was made under duress. If that person seeks a declaration of the court that the contract was made under duress the court wil readily declare the contract void.

If the Act had intended that a creditor's termination in circumstances where section 87(1) had not been fulfilled by the creditor and was to be of no effect, the Act would have declared that termination void. It doesn't. The termination is voidable at the option of the debtor.

[3] The Debtor's Point of View
Third, let us look at the position from the ordinary man as debtor's point of view in a consumer credit situation.

The DN is defective for failing to conform to the prescribed terms, or gives misleading information or at worse is plain nonsense so that the debtor does not know precisely what he has to do in order to comply with it and is consequently disadvantaged. Should the law disregard the fact that the creditor put the debtor at a disadvantage and thereby at risk the creditor might lawfully terminate the agreement?

'This statute was plainly enacted to protect consumers, most of whom are likely to be individuals. When contracting with a large financial organisation they are at a disadvantage. The contract is likely to be in standard form and relatively complex with a number of detailed provisions. If the hirer is said to have broken its terms, the hirer needs to know precisely what he or she is said to have done wrong and what he or she needs to do to put matters right. The lender has the ability and the resources to give that information with precision. If he does not do so accurately then he cannot take what Mr Gruffyd conveniently referred to as "the next step". [per Kennedy LJ in Woodchester v Swayne [1998]]

Moving on, if the debtor receives a notice from the creditor in which the creditor expressly states the contract is terminated, what is the debtor supposed to think? Would the law regard him as likely to think the creditor had terminated the contract or would the law regard him as thinking it had not terminated because strictly speaking, the creditor had served a default notice which was not in accordance with prescribed terms?

Or where perhaps the creditor did not expresly terminate but sent the bully boys over to demand the keys to the car. What was the debtor to think then? Would the debtor think the creditor had terminated?

It seems to me on the basis of the passages below, the courts will be ready to hold a creditor to his words and actions.

"... a person who signs a document, and parts with it so that it may come into other hands, has a responsibility, that of the normal man of prudence, to take care what he signs, which if neglected, prevents him from denying his liability under the document according to its tenor".
[per Lord Wilberforce in Gallie v Lee (1971)]

'.. a man cannot escape from the consequences, as regards innocent third parties, of signing a document if, being a man of ordinary education and competence, he chooses to sign it without informing himself of its purport and effect..'
[per Scott LJ in Norwich & Peterborough Building Society v Steed (1992)]

In short, the creditor is bound by his deed. All that is required is for the debtor to accept the creditor's termination. He can write saying 'thank you I accept you termination' or he can conduct himself in a way in keeping with that termination. Not paying the instalments would be in keeping with an acceptance of the termination.

[4] The fiction of the Second DN and the Enduring Obligation
The service of any second default notice, at a time when the contract is terminated, owing to the wording of the DN in its prescribed form, would perpetuate the fiction that the contract endured. The same can be said owing to the provisions of section 89 of the Act.

The form of words in the DN incorporate text in order to meet the intention of section 89 of the Act which provides:

'If before the date specified for that purpose in the default notice the debtor or hirer takes the action specified under section 88(1)(b) or (c) the breach shall be treated as not having occurred.'

In other words, in serving the second DN, the creditor would be suggesting:

[a] an obligation had persisted post termination by which the debtor was bound to make instalment payments (ie post-termination 'arrears'), and
that if payment of those 'arrears' was made, an obligation to make future instalment payments would endure.

The obligations at [a] and are obligations enduring during the currency of the agreement. Besides maintaining the fiction of the enduring agremeent as I say, it seems to me any second DN would be bound to be defective for over-stating the sums due. The creditor can not state as an amount due for 'arrears' of instalments that which he said in consequence of his termination was no longer due and payable by instalments. If the creditor sought to use a form of DN which made sense by getting round the fact the agreement had been terminated, the DN would not be in prescribed form.

The only way in which a second DN would be of value to the creditor would be where the contract had been re-instated. If the debtor has accepted the termination, re-instatement requires the consent of the debtor.

The net result of [1] to [4] is the agreement is terminated for all time. The creditor's remedy is now limited by section 87(1). All that is left for the creditor to recover is the sum truly in arrear at the date of the default notice.

Damage to Credit
A man's credit is damaged when it is impugned. He learns it is damaged when he seeks credit to fund a transaction and is turned away or when his creditors seek to call in debts. The effect can be simple embarrasment to being totally destabilising. A learned his credit was impugned when he was warned by his bankers. The damaging effect of the adverse reporting could have been a lot worse.

I had deliberately tried to keep my first post as simple and straight forward as I could. I hope this expanded version showing the way strands of law can intertwine to build a case is of assistance.

**The Debt Star** · 27th January 2011, 15:04:PM

Re: Need to clarify DN and unlawful rescission

Hi DD. Great to see you over here.
Mammoth post but very informative. Thanks.

**diddydicky** · 27th January 2011, 15:23:PM

Re: Need to clarify DN and unlawful rescission

thanks - yes it is a bit lengthy- but relevant i feel and i know that then poster won in a case over an attempt to reposses his car

i beleive he ended up with the (valuable) car and a lot of dosh

**ellamay** · 12th October 2011, 21:26:PM

Re: Need to clarify DN and unlawful rescission

Can I join in this as I have a headache of situation which arose a few years ago whereby the creditor - a bank - withdrew a business overdraft and issued a Formal Demand for this and another loan which was under the CCA. Except this loan was not in arrears.

The account wasn't mine but a relatives and he was a self employed sole trader and the loan was for his business but was a regulated fixed term loan under the CCA.

There was no DN issued (how could they the loan payments were up-to-date) just the FD. It put him in a very difficult situation and couldn't get new banking terms had to cease trading yet was stuck with a loan he had never defaulted on.

Any advice on this one?

**Lord_Alcohol** · 15th October 2011, 14:22:PM

Re: Need to clarify DN and unlawful rescission

ellamay

I know that a lender can terminate a fixed-sum regulated loan under S98 at any time, by serving a S98 notice of termination.

However, I don't know (and hope others may comment) whether the loan agreement must stipulate reasons for termination by the lender. I would imagine this is necessary otherwise the borrower would always be at risk of having his loan terminated and of being presented with a demand for the balance on the whim of the bank.

If this is the case, and termination clauses are a necessary part of any loan contract, and you find that there is nothing mentioned regarding the bank's entitlement to terminate through unhappiness with your relative's other account, then the bank may be in breach of contract (termination without contractual clause, if such a thing exists).

If there is such a clause then it's difficult to know what to do, as both accounts were in the same name (a business). Also, if your relative was a sole trader, then I guess he automatically assumes liabilities for his trading, unlike with a limited company.

Anyway, would be worth having a close look at the contract and the liabilities on cessation of trading, and also whether the proper notice was served (under S98).

LA

Need to clarify DN and unlawful rescission

Need to clarify DN and unlawful rescission

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