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July 2018

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Moore v National Westminster Bank Plc [2018] EWHC 1805 (TCC) Breach of contract – failure by lender to provide HomeBuyer Report – quantum of damages – diminution in value or cost of repair Doran v Paragon Personal Finance (1) Limited (Unrep) Manchester County Court, 26 June 2018 Fixed sum credit agreement – PPI commission paid to lender - unfair relationship – limitation - remedies Legislation: Creditworthiness Assessment Bill Publication: HM Land Registry Practice Guide 29: Registration of legal charges and deeds of variation of charge
Case name Neutral citation Legal points Case summary Facts Held Comment Moore v National Westminster Bank Plc [2018] EWHC 1805 (TCC) Breach of contract – failure by lender to provide HomeBuyer Report – quantum of damages – diminution in value or cost of repair On appeal, the High Court upheld an award of damages for breach of contract by a lender for failing to provide a HomeBuyer Report assessed by reference to the cost of repairs as opposed to diminution in value Borrowers purchased a flat for £135,000 with a mortgage advance of £81,000 from the bank. In their mortgage application form, they requested a HomeBuyer Report, and proceeded on the basis that a satisfactory report had been obtained. In error, the bank failed to obtain a report and the property (Grade II Listed in a Conservation Area) required extensive repairs. The borrowers claimed damages for breach of contract and at trial the judge awarded a sum of £115,000 to reflect the cost of repairs. The bank appealed, contending that the correct approach on quantum was the diminution in value of the property which they valued at £15,000 On the evidence available at trial (which was limited) the judge had been entitled to award damages based on the cost of repairs. The judge rejected the diminution in value approach for three reasons: (1) This case involved a failure to provide a report, rather than the provision of a negligent report. (2) There is a difference between negligent surveyor cases and transaction cases, in which a claimant would not have entered into the purchase transaction but for the breach. This is a distinction without a difference. Although the borrowers would not have bought the property but for the bank’s breach, the fact is they did, and they have an asset of value. If the true value of the property was £120,000 (as contended for by the bank) there would be no justification for awarding the much larger costs of repair claimed in the sum of £115,000. (3)The true extent of the loss is the cost of repair rather than diminution in value. On the authorities (Phillips v Ward [1956] 1 WLR 471; County Personnel v Alan Pulver [1987] 1 WLR 916; Watts v Morrow [1991] 1 WLR 1421; Steward v Rapley [1955-95] PNLR 451) diminution in value is not an invariable rule, and it can in a proper case be determined as the cost of repair. The judge’s decision could be supported on two bases (a) the evidence about the diminution in value was too speculative, and (b) the cost of repair was the only practical indicator of what the diminution in the value of the asset was. The judge was therefore entitled to find that damages were £115,000. Appeal dismissed Working out quantum, in cases such as this, is a common problem. The outcome in this case, whilst perhaps surprising on the figures, turned largely on the quality of the valuation evidence available at trial. In addition, the judge on appeal was critical of the parties for adopting what he called a ‘polarised view’, being essentially an all or nothing approach on the figures, and it is implicit in his final comments that he thought the parties and their valuers should have been prepared to explore other, intermediate, figures, which might have been more amenable to the trial judge. Perhaps the answer is for parties to bear in mind the requirement in CPR PD 35 para 3.2(6) for experts to explore a range of opinion, and for the parties to pursue this by way of questions to the expert under CPR 35.6, and/or in a discussion between experts and subsequently in any joint statement, under CPR 35.12. The case contains a useful review of the authorities on diminution in value/cost of repairs.
Case name Neutral citation Legal points Case summary Facts Held Doran v Paragon Personal Finance (1) Limited (Unrep) Manchester County Court, 26 June 2018 Fixed sum credit agreement – PPI commission paid to lender - unfair relationship – limitation - remedies The court determined issues about an unfair relationship, the appropriate limitation period, and the appropriate remedies, in a case in which mortgage borrowers had paid for an expensive PPI policy out of which 76% was paid to the lender by way of commission. In 2004, Cs entered into a 10-year fixed sum credit agreement with D secured on mortgage. The total amount of credit was £40,500 comprising (1) a loan of £30,000, and (2) a PPI policy at a premium of £10,500. D received gross commission of £7,985.46 on the sale of the PPI (76% of cost). In 2013, Cs redeemed the loan early, by which time they had paid D £14,916.84 in respect of the PPI with interest. In 2017, Cs issued the present claim for relief under s 140B seeking repayment of the sums paid in respect of the PPI. Three issues arose: (1) Was the relationship between Cs and D unfair within the meaning of s 140A CCA 1974? (2) Is the claim statute-barred under the Limitation Act 1980? (3) If the relationship was unfair, and the claim is not statute-barred, what is the appropriate remedy? As to (1), a reasonable consumer would be concerned to find that 76% of the price of the policy was being paid to the lender as commission and would have questioned the wisdom of taking out the policy. There were striking similarities between this case and Plevin v Paragon Personal Finance Limited [2014] 1 WLR 4222 in which Lord Sumption concluded that a similar arrangement (where the commission represented 71.8% of the premium) gave rise to an unfair relationship. Here, D had failed to discharge the burden of proving that the relationship was not unfair (s 140B(9) CCA 1974). There was no evidence to justify commission payments at this level. As to (2) the court was guided by the decision in Patel v Patel [2009] EWHC 3264 (QB). It was common ground that this is a claim for a sum recoverable by statute under s 9(1) Limitation Act 1980, and the time limit for bringing a claim is six years from the date on which the cause of action accrued. Although the allegation of unfairness related to matters that took place when Cs entered into the loan, the court could not make a judgment on the fairness of the relationship (which might change over time) without looking over its full course. Time runs from the date when the relationship ends, or if it is still continuing, from the date of trial. Accordingly, the claim was not statute-barred, having been brought less than five years after the loan was repaid. As to (3) although Cs obtained a benefit from having PPI, the policy was procured unfairly. Had D disclosed the level of commission, Cs would not have purchased it. Accordingly, the proper remedy is to aware repayment of the full amount of the premium, with interest on that element of the borrowing, less a modest credit (total £14,849.22). As for interest to date, the court awarded half of the special account rate from June 2004 to the date on which judgment was handed down (16.81% or £2,496.15) making a total award of £17,345.27.
Legislation The Creditworthiness Assessment Bill is a private members bill which was introduced in the House of Lords last year, and had its 3rd reading on 18th July 2018. It is now going to the House of Commons. The Bill currently seeks to amend s 64A Financial Services and Markets Act 2000 by inserting a new sub-clause (1A) as follows: “The FCA must, in making rules under this section, ensure that firms carrying on credit-regulated activities and connected activities and those entering into or varying a regulated mortgage contract or home purchase plan take into account rental payment history and council tax payment history when assessing a borrower’s creditworthiness.” There is a House of Lords Library Briefing Note about the Bill.