JOHNSON V FIRSTRAND BANK, WRENCH V FIRSTRAND BANK, HOPCRAFT V CLOSE BROS  

[2024] EWCA Civ 1282

These three appeals, which were heard together, concerned the common situation of buying a car from a motor dealer who also arranges finance for the purchase.

The structure of each transaction was that, once the claimant had agreed a price for the vehicle, the dealer would approach a prospective lender, or a panel of lenders, for terms of credit.  The dealer then put forward a single proposal to the claimant for the financing. Once the terms of the loan were agreed, the dealer sold the car to the lender and the claimant then entered into a hire purchase or other credit agreement with the lender.  

Separately from this transaction, the lender also had a side agreement to pay a commission to the car dealer, funded from the interest payments made by the claimants. 

In the first of the three cases, Hopcraft, the commissions were not disclosed to the claimant at the time of the transaction.  

In the second case, Wrench, the hire purchase agreement that the claimant signed did incorporate standard terms, albeit in “very small print”.  These provided amongst other matters that the lender “may” pay a commission to the broker who had introduced the transaction.  The standard terms did not explain how this commission would be calculated, or who “the broker” might be. 

In the third case, Johnson, the claimant was given what he described as “an enormous amount of paperwork” and asked to sign the agreement then and there.  The hire purchase agreement he signed incorporated standard terms in substantially the same form as Wrench, above.  However, in addition, the claimant signed a “Suitability Document” which stated amongst other matters that the dealer made no charge for handling his application for consumer credit, but may receive a commission from the product provider. 

In all three cases, the claimants assumed that the dealer was deriving its income from the sale of the vehicle.  The claimants were in fact unaware of the commissions and said that, if they had known about them, they would have shopped around, rather than proceed with the transaction. 

The fact that the lenders had paid commission to the dealers subsequently came to light.  For example, in Johnson, the commission paid to the dealer was some 25% of the total amount advanced by the lender, FirstRand, to the claimant.  It further emerged that FirstRand required its dealers to give FirstRand first refusal in every case where finance was required.  This was not disclosed to Mr Wrench or Mr Johnson.

On discovering the true position, the claimants sued the lenders, seeking the return of the commissions paid to the dealers.

The decision

The Court of Appeal held in favour of the claimants, who were found to be financially unsophisticated “consumers”.  

The court held that, in each of these cases, the dealer had two roles, first as seller of the car and second as a credit broker acting as the consumer’s agent for the purpose of finding a potential lender who could offer a deal suitable for the consumer’s requirements. Pursuant to the nature of this role, the dealer owed the consumer a duty to provide information, advice and recommendation on an impartial and disinterested basis.  Separately, the dealer owed the consumer a fiduciary duty, that is, a duty of loyalty in the performance of its duty to find financing on competitive and suitable terms, reflecting the repose of trust and confidence by the consumer in the dealer in relation to the transaction.  The dealers were in breach of both these duties, as a result of receiving the commission.

Lenders’ liability for paying a secret commission – The court held further that the lenders were under a primary liability to compensate the consumers for the consequences of the brokers’ breaches of duty.  Primary liability arose in this situation because the payer of a secret commission is regarded in the same way as the payer of a bribe, such conduct being actionable in its own right.  

As stated above, in Hopcraft, the commission was found to have been secret.  In Wrench, the court held that the disclosure had been insufficient to negate secrecy. Therefore, in these two cases, the lender was held liable to pay compensation as a primary wrongdoer.

Lenders’ liability as accessories to the brokers’ breach of fiduciary duty – Turning to Johnson, here the consumer accepted that the possibility that the dealer might receive a commission from the lender had been sufficiently drawn to his attention, so as to negate secrecy.  

However, the very limited information (referred to above) provided at the time of the transaction had constituted only a partial disclosure.  The court held that the dealer, who was the consumer’s agent, had breached its fiduciary duty to the consumer by receiving a commission from the lender, without obtaining the consumer’s consent after making full disclosure of all material facts.  

From there, the court held that the lender was liable on equitable principles as an accessory because it had paid the commission, thus giving the dealer a conflict of interests, whilst aware of, but turning a blind eye to, the failure to obtain consent, thus procuring the dealer’s breach of fiduciary duty.  In this sense, the lender had been dishonest.  The lender was accordingly liable to compensate Mr Johnson for the full amount of the commission paid to the dealer, plus interest.

The court also found that the relationship between Johnson and his lender was unfair for the purposes of sections 140A-C of the Consumer Credit Act 1974.

Lovetts comment

Subject to any appeal, the effect of this decision is that both dealers and lenders in the huge motor  finance sector have been breaching the civil law by keeping commissions hidden from buyers. Some large figures may be involved in compensation.  The decision comes on top of the Financial Conduct Authority’s ban of discretionary commission arrangements in 2021 and their announcement in January 2024 of a review into potentially unfair motor finance commissions going back to 2007.  The FCA aim to publish their findings in 2025.

For further information, please contact Wendy Miles, Chris Earl-Anderson or William Sturge at Lovetts.

Dealing with unpaid invoices can be a frustrating experience for any business. Late payments not only disrupt cash flow but also create uncertainty in your financial planning. When it comes to recovering commercial debts, understanding the legal landscape is crucial. Whether you’re facing a particularly stubborn client or simply want to know your rights and options, navigating the debt recovery process can feel overwhelming.

Understanding Commercial Debt Recovery

Commercial debt recovery is the process of reclaiming money owed to your business from your customers. It’s more than just chasing a late payment; it involves understanding your rights and the legal frameworks in place.

The law provides various tools for recovering debts, including negotiation tactics, legal claims, and enforcement actions. Each option has its own set of procedures and potential outcomes.

Understanding these elements allows businesses to take informed steps toward resolution. Whether you’re handling small amounts or larger sums, grasping the essentials of commercial debt recovery equips you with knowledge that could save time and resources down the line.

Steps to Take Before Initiating the Legal Process

Before jumping into the legal process, it’s crucial to take a few preliminary steps. Start by reviewing your records thoroughly. Gather all documents related to the unpaid invoice, including contracts, emails and payment history.

Next, communicate with the debtor. A friendly reminder can sometimes prompt immediate payment. If that does not work, consider sending a formal letter before action. This document notifies them of your intention to pursue debt recovery if they fail to pay.

Assess whether the amount owed justifies legal action. Sometimes it may be more efficient to explore alternative options or negotiate directly with the debtor.

Keep in mind any specific terms outlined in your contract regarding late payments or dispute resolution processes. Documenting everything meticulously can strengthen your position should legal claims become necessary down the line.

The Legal Process for Commercial Debt Recovery

The legal process begins with the formal Letter Before Action, which notifies your debtor of their outstanding payment and urges them to settle the unpaid invoice within a reasonable time, typically within 7 days where you have already gone through your credit control process.

If this approach fails, you may proceed with a court claim to recover the outstanding sums. It is important that you provide us with details of the outstanding invoices and your terms of business to avoid any delays.

Once filed, the court will issue a claim and serve this directly on your debtor. They must respond within 14 days to the claim, which may be extended by a further 14 days where an acknowledgment of service is filed. If no response to the claim is made within the requisite time frame, you may then apply for a default judgment against the debtor for the sums claimed.

Once judgment has been obtained the debtor has 14 days to pay, after which enforcement options will become available to you. Each option has its own procedure and you should ensure you understand the implications of each option thoroughly before proceeding with enforcement.

Common Challenges Faced During the Legal Process

Navigating the legal process for debt recovery can be fraught with challenges. One common hurdle is the complexity of legal procedures. Many businesses find themselves overwhelmed by paperwork and jargon.

Furthermore, timelines can stretch out longer than expected. This delay often leads to frustration, especially when dealing with late payments or unpaid invoices.

Another challenge is the potential for disputes. Debtors may contest claims, leading to protracted negotiations or court hearings that divert resources from core business activities.

Enforcement actions add another layer of difficulty. Securing a favourable judgment doesn’t guarantee payment, as collecting on that judgment can prove equally challenging.

Alternative Options for Debt Recovery

When traditional legal methods feel daunting, businesses can explore alternative options for debt recovery. These strategies may offer a faster and less costly route to resolve unpaid invoices.

Mediation can be an effective option. This involves bringing in a neutral third party who facilitates discussions between both parties. Mediation often leads to productive outcomes without the need to escalate matters and bring formal legal proceedings.

Arbitration is a non-judicial process for the settlement of disputes where an independent third party makes a decision that is binding upon the parties to a dispute. The arbitrator can be chosen by the parties for their particular expertise. A decision is reached by an arbitrator either on a documents only basis, or following hearings that take place at an agreed venue. The process is confidential and is usually a quicker and more cost effective process than taking the matter through County Court proceedings.

Exploring these alternatives before engaging in more extensive legal processes can prove advantageous for many businesses facing outstanding payments.

Undoubtedly you will have heard about the discussions in parliament about getting rid of “no fault evictions” as this has been going on for quite some time now.

The so called “no fault evictions” actually arise from section 21 of the Housing Act 1988 which permits landlords to repossess their residential property when the assured shorthold tenancy (“AST”) has come to an end and no further AST has been entered and where the landlord has provided the tenant with at least two months’ notice in writing.

The section 21 process is there to ensure that if a tenant remains in the property after the expiry of the AST without agreeing to a new one that there is a mechanism by which the landlord can get their property back.

However, over the last few years there have been reports of landlords using section 21 notices for so called “revenge evictions” when tenants have complained of issues of disrepair or refused to agree to a substantial increase in rent.

The increase of these “revenge evictions” has led to the government looking at the legislation and trying to work out how to prevent this going forward.

It appears that successive governments have indicated a desire to make changes, but landlords and tenants had been left in limbo about the prospective changes.

The Kings Speech following the election in 2024 set out that the government planned to abolish section 21 of the Housing Act 1988 in favour of a new Renters (Reform) Bill. This Bill is currently going through parliament, but at the time of writing has not yet received Royal Assent and therefore is not yet law.

Currently, the Renters (Reform) Bill is with the House of Lords for the second reading. It will still need to go through the committee stage, report stage and third reading after this, before there is any consideration of amendments and Royal Assent given.

The Bill in its current form introduces several key changes to the grounds for possession that a landlord may utilise. The Bill is set to abolish section 21 evictions altogether and introduce new grounds requiring private landlords to have a prescribed reason for seeking possession of their property, which are set to include:

• the sale of the property; and
• student lettings.

Landlords will not be able to seek to take possession of their property within the first 6 months of a tenancy and will need to provide two months’ notice to the tenants.

There will also be a ground which will allow landlords to evict tenants, where the tenants have been in arrears with their rent for two months on three separate occasions within a three year period. The notice period for which will be four weeks rather than the two weeks typically seen with the current section 8 process.

24 October 2024

Hamilton Corporate Member v (1) Afghan Global Insurance (2) Anham USA 

[2024] EWHC 1426 (Comm)

Summary

Where insurance covers property damage only, consequent upon political violence risks, and “seizure” is excluded from cover, this exclusion has been held to extend to both belligerent and non-belligerent forcible dispossession, either by a lawful authority or an overpowering force.   

Moreover, such insurance protects against property damage and has therefore been held not to extend to protect the insured against being deprived of its property consequent upon political risks.

The facts

Anham owned and operated a warehouse in Afghanistan, which was used to distribute foodstuffs for the US military.  During 2021, US forces were withdrawing from Afghanistan and the Taliban were active.  It was common ground between the parties that the warehouse was lost in August 2021 as a result of armed seizure by the Taliban. 

The insurance

Anham made a claim of some US$ 41m in respect of its loss of the warehouse under its policy of political violence insurance placed with Afghan Global Insurance (“AGI”).

Hamilton reinsured AGI in respect of the policy.  These reinsurers maintained that the loss of the warehouse fell outside the scope of cover on two grounds, as follows.

Ground 1: “seizure” was an excluded cause of loss – Any loss directly or indirectly caused by seizure was excluded from cover.  As stated above, it was common ground that the loss of the warehouse was caused by its seizure by the Taliban.  Therefore, the reinsurers maintained that there was no cover for this loss.

Ground 2 – Under the reinsurance, there was only cover for property damage, not for where the insured was deprived of its property consequent upon seizure, which was the position in the present case.

The dispute

The reinsurers brought proceedings against AGI and Anham, seeking a declaration of non-liability. They did so by seeking summary judgment, i.e. a shortened court procedure which they contended was appropriate because there was no need for a full trial in that the insured had no real prospect of succeeding on the claim.

The terms of cover

The interest reinsured was described in the slip as in respect of property damage only, resulting from direct physical loss of, or damage to, the insured’s physical assets as declared to underwriters, caused by various perils in the nature of civil disruption (i.e. riots, strikes, civil commotion and malicious damage) or challenges to the state (i.e. political violence, terrorism and war),  the reinsurance responding only to claims admissible under certain AFB Political Violence wording which was attached to the reinsurance slip and deemed to be the wording of the insurance issued by AGI to Anham. 

This AFB wording was headed “Political Violence Insurance – Property Damage Wording”.  Under the insuring clause, cover was provided for physical loss or damage to the insured’s buildings and contents directly caused by various perils of the type referred in the preceding paragraph and also including, insurrection, revolution, rebellion and civil war.  

Meanwhile, a clause in the wording, headed “EXCLUSIONS”, provided as follows.

“This Policy DOES NOT INDEMNIFY AGAINST … (2) Loss or damage directly or indirectly caused by seizure, confiscation, nationalisation, requisition, expropriation, detention, legal or illegal occupation of any property insured hereunder, embargo, condemnation, nor loss or damage to the Buildings and/or Contents by law, order, decree or regulation of any governing authority, nor for loss or damage arising from acts of contraband or illegal transportation or illegal trade.“

The reinsurers were successful.  The court accepted that the loss fell outside the scope of cover.  This was because, although an insured peril (such as civil war) may have been operating at the time of Anham’s loss, this was irrelevant because Anham’s loss of the warehouse was not caused by such a peril, but by seizure by the Taliban.  The unsuccessful arguments raised by the insured, and the court’s approach in dealing with these, included the following.

Ground 1: whether the loss was caused by the excluded cause of seizure

1. Whether it was only seizure by a governing authority that was excluded – The insured submitted that, on proper construction of the exclusion clause quoted above, the words “by law, order, decree or regulation of any governing authority” qualified all the preceding wording, including “seizure”. The result was that the only situation where loss consequent upon seizure was excluded was where the seizure was by “any governing authority”, whereas, at the time of the loss, the Taliban were not a governing authority, but in direct conflict with the de jure governing authority. 

However, the court found that, as a matter of grammar and syntax, the exclusion clause was clearly  to be broken down into three separate parts, the second and third parts each beginning with the word “nor”.  The words “by law, order, decree or regulation of any governing authority” were in the second part of the clause.  The draftsman had not related these words to loss caused by seizure, which was in the first part.  Therefore, properly construed, and subject to the meaning of the word “seizure” itself, the first part of the clause dealt with loss or damage by reason of dispossession by anyone and the second part dealt with loss or damage by reason of acts of a governing authority.

As for the meaning of the word “seizure” itself, the court held that there was settled authority that the word had the meaning ascribed to it in the Summary section of this note: the term extends to both belligerent and non-belligerent forcible dispossession, either by a lawful authority or an overpowering force.  Therefore, loss directly or indirectly caused by forcible dispossession by the Taliban was excluded from cover.

2. Whether the meaning of “seizure” was determined by neighbouring words – The insured put forward an alternative argument to the effect that the word “seizure” took its meaning from its juxtaposition to the words “confiscation, nationalisation,” etc, which typically concern the actions of a governing authority.  However, the court held that the surrounding words had no such common characteristic.

3. Relevant insurance market practice/ commercial purpose/ factual matrix – Further in support of the argument that the exclusion of loss caused by seizure was confined to actions of a governing authority, the insured put forward the arguments that (i) the clause as it appeared in the policy should be given the same effect as clauses in the Institute War and Strikes clauses from which the insured claimed that the clause had evolved; and (ii) the exclusion clause should be construed by reference to the distinction drawn in the insurance market between the risk of loss flowing from action by a governing authority  (such as expropriation and nationalisation) which is insured under political risk policies, and the risk of loss flowing from challenges to the state, which are insured under political violence policies.  As this was a political violence policy, the court should approach the wording as not excluding cover for seizure where the seizure was not by a governing authority. 

However, the court did not accept that these matters affected its findings as to the clear meaning of the policy.  The effect of an insurance contract is not to be determined by what may be regarded as paradigm examples of the risk, but by the actual words used.  

Ground 2: whether there was only cover for property damage, and not for loss by deprivation – The insured relied on sections 57 and 60(1) of the Marine Insurance Act 1906 in support of the argument that there is an actual total loss where the insured is irretrievably deprived of his property, and a constructive total loss where the insured is deprived of possession of his property and it is unlikely that he will recover it. Accordingly, the insured submitted that the warehouse was lost when the insured was irretrievably deprived of possession of it.

The court accepted that a person can lose property as a result of either the physical loss of property or by being irretrievably deprived of it.  However, the cover in the present case, on its clear wording, was only for the former, namely the total physical loss of the property. 

Thus, as stated above, the reinsurers successful established that they were not liable under the political violence cover for loss caused by the Taliban’s seizure of the warehouse.

For further information, please contact Wendy Miles, Chris Earl or William Sturge at Lovetts.

We often see terms such as insolvency, bankruptcy and liquidation used synonymously. Whilst these terms are related they mean different things.

Insolvency is used to describe both companies and individuals that are unable to pay their debts as and when they fall due. This is the definition of insolvency under s123 of the Insolvency Act 1986.

Bankruptcy is the process which relates to an individual. Where are individual is declared bankrupt by the Court and a bankruptcy order is issued by the Court, the Court has found that individual to be insolvent.

Winding up is the process which relates to companies. Where a company is wound up by the Court and a winding up order is issued by the Court, the Court has found that company to be insolvent.

Liquidation is the process by which an insolvent company’s assets are liquidated in order to pay its debts.

What are Insolvency Proceedings?

Insolvency proceedings are the processes by which an individual debtor is made bankrupt or a company is wound up.

For both individuals and companies the first stage of the process is a formal demand for payment. In the case of individuals this must be in the form of a statutory demand. For companies there is no specific requirement for the form that the demand must take, although this should be in writing.

Draft Winding-Up Petition

A draft winding up petition can serve as a formal demand for payment against a company. This can then be updated ahead of filing a full petition to wind up a company with the Court. This is often a very useful as it sets out details of the outstanding sums, together with any costs, late payment compensation and interest that may be due and sends a clear message to debtors that you unless payment or a satisfactory plan for payment is agreed that winding up proceedings will be commenced.

Draft winding up petitions typically elicit a rapid response from a debtor if they have previously not been communicative and often allows for matters to be resolved quite quickly without the need to incur the costs of filing a full petition with the Court.

Winding-Up Petition

A winding up petition when filed at Court is essentially a request to place a company into liquidation for the benefit of the creditors. This should only be pursued if the debt is not disputed and the creditor does not believe the debtor is able to pay the debt.

Winding up petitions are filed electronically with the Court through CE filing. Once the petition is issued by the Court the debtor must be served with the petition and notice of hearing and the hearing of the petition must be advertised in the London Gazette. The advertising of the petition is to allow other creditors of the debtor to support the petition if they wish to do so or simply to put them on notice of the proceedings.

If a company is wound up an official receiver or insolvency practitioner will liaise with the company’s director(s) and seek information about the assets of the company and start the liquidation process. Creditors will be invited to file a proof of debt. At the end of the process, after the official receiver or insolvency practitioner has deducted their costs, any residual balance will be distributed to the creditors.

Statutory Demands and Bankruptcy Proceedings

A statutory demand is a formal demand for payment. For companies the debt must be for £750 or more. For individuals the debt must be for £5,000 or more.

A statutory demand must be personally served upon the debtor. Once served, the debtor has 21 days to pay the outstanding sums or make satisfactory proposals for payment.

In the case of individuals only, the debtor will have up to 18 days to apply to set aside the statutory demand in the event that the sums claimed are disputed. This is not the case with companies. Companies will have to apply for an injunction to restrain a creditor from filing a winding up petition with the Court if the sums claimed are disputed. Although, typically debtors will request that the statutory demand be withdrawn in such circumstances and an undertaking not to file a winding up petition without a period of written notice.

If the debt is not paid (and no application is made by the debtor to set it aside or for an injunction) then the next step would be to file either a bankruptcy petition (for individuals) or a winding up petition (for companies) with the Court for issue.

Once the petition has been issued, the Court will issue a notice of hearing which would then need to be personally served with the petition upon the debtor or an officer of the debtor company. Proof of service must then be provided to the Court before the Court will grant a final order.

Lovetts is a specialist UK & International debt recovery solicitors with more than 25 years of industry experience. If your business has overdue debts that’s it’s seeking to recover, contact us today.

Dealing with unpaid debts can be a stressful and challenging experience. In this article, we will explore the legislation you need to follow, when chasing for payment of debts from individuals. We will also provide tips for negotiating a repayment plan and how to protect yourself from debts arising in the future. 

What is the Pre-Action Protocol for debt claims?

If you are owed money by an individual or sole trader, the Pre-Action Protocol will apply. This means that you will need to follow the requirements set out in the protocol before you could consider issuing Court proceedings.

This protocol aims to encourage communication between creditors and debtors and hopefully a resolution, leaving Court proceedings as a last resort. It promotes early settlement and helps both parties understand their respective positions at the earliest stage possible. By following this protocol, it may be possible to resolve the issue without the need for costly legal proceedings.

If you are considering initiating debt recovery proceedings against an individual who owes you money, familiarise yourself with the Pre-Action Protocol. Understanding these guidelines can help streamline the process and increase the chances of reaching a satisfactory resolution.

Tips for Negotiating a Repayment Plan

Negotiating a repayment plan with someone who owes you money can be a delicate process. It’s essential to approach the conversation with empathy and understanding, recognising that unexpected financial difficulties can happen to anyone.

Start by initiating a discussion about the debt and finding out if there is any reason for non-payment. Often small issues can be the cause for delay in payment. If you can ascertain this early on and can resolve these issues, you may be able to obtain payment quickly and amicably.

When considering a repayment plan, the most crucial part is establishing what the debtor can regularly pay. If you seek payment of instalments at a higher rate than the debtor can afford, it is likely that they will default quickly and this may result in a breakdown of communication. If that happens, it is likely that you will have to incur the costs of issuing Court proceedings, which ultimately results in more costs for you and a delay in obtaining payment.

The key to achieving payment of the debt as quickly as possible with the least cost, is to work with the debtor. If you can maintain an amicable relationship, they are more likely to continue to communicate with you and try harder to maintain payments.

Bear in mind that an individual may not be able to afford payment at a level that you would ideally like and pushing for this will not help you recover the outstanding sums. It is important to set realistic amounts and deadlines for payments.

How to Protect Yourself from Debts Arising in the Future

One effective way of minimising the risk of late payments is by running credit checks on new and existing clients. This helps to establish clear boundaries from the offset. You may wish to set credit limits for customers/clients with a low to medium credit score or request payment of your invoices upfront.

Remember, you must have the consent of an individual to run a credit check against them and you should obtain this consent in writing and retain this for your records.

Another crucial step is to document all agreements in writing. A signed contract outlining each party’s obligations, agreed repayment terms and your entitlement to any additional interest etc in the event of non-payment, is very helpful. This means that there is less opportunity for any ambiguity about exactly what was agreed between the parties and therefore aid in a resolution pre-action. It also means that it will be a lot easier to demonstrate what was agreed, should you later need to take legal action.

You should ensure that you keep detailed records of all financial transactions and communications related to debts owed. These will likely be needed in the event that you have to issue legal proceedings.

A good credit control process is important to stay on top of recovering sums that are due. You can implement automated payment reminders or invoicing systems which will also help.

You should check that your terms and conditions are still relevant and in compliance with any change in the law as part of your annual review process and seek legal advice, when necessary to help safeguard your interests.

By following these proactive measures, you can minimise the risk of experiencing owed debt in the future and protect your financial well-being.

Conclusion

If you find yourself in a situation where you are owed a debt by an individual, it is essential to understand your rights and options. By following the Pre-Action Protocol for debt claims and negotiating a repayment plan, you can work towards resolving the issue fairly and efficiently.

Dealing with unpaid debts can be a frustrating and challenging experience. Fortunately, there are various methods of enforcement available to creditors to help recover what they are owed. Whether you are owed money by an individual or a business, understanding your options for enforcement is crucial for securing repayment.

High Court Enforcement Officers

HCEOs have the ability to seize and sell assets in order to satisfy the debt. This means that if the debtor fails to comply with payment demands, HCEOs can take possession of valuable items such as vehicles, artwork, or even property. The proceeds from the sale will then be used towards repaying the outstanding amount.

County Court Bailiff

County Court Bailiffs are Court officials who have the authority to visit debtor’s premises and seize assets in order to satisfy the outstanding judgment debt.

The bailiffs will typically make contact with the debtor first, informing them about their presence and giving them an opportunity to pay off the debt voluntarily. If this fails, they may proceed with taking control of goods or seizing assets owned by the debtor.

It’s important to note that County Court Bailiffs have limitations in terms of the assets they can seize and sell. They are not permitted to enter certain types of property without permission, such as hospitals or diplomatic premises. Additionally, any items that are considered essential for daily living, such as clothing, basic household furniture or “tools of the trade” cannot be seized and sold.

Third Party Debt Order

A Third Party Debt Order order will typically be used to freeze a debtor’s bank account. This type of order is used where a third party has control over money that belongs to the debtor. This is not limited to the debtor’s bank and may include an employer or another party that is either due to pay monies to the debtor or is otherwise holding monies that belong to the debtor. 

When you apply for a Third Party Debt Order, the Court will grant an interim order requiring the third party to confirm what is being held in the applicable account for the benefit of the debtor and require the account to be frozen. The Court will then determine at a hearing how much to order the third party to pay to you directly on behalf of the debtor. This means that even if the debtor refuses or fails to make payment, you still have a chance of recovering your money through this method.

Timing is crucial with this type of enforcement and it may not be effective if there are no funds available in the third party’s account at the time of freezing.

Attachment of Earnings

When applying for an Attachment of Earnings order, the Court will initially send out a form to the debtor to complete to provide details of their income and expenditure. If the debtor fails to respond, the Court then ask the debtor’s employer to provide details of the debtor’s earnings. The Court will then assess how much the debtor can afford to pay each month and will order the debtor’s employer to deduct a specified amount from the debtor’s wages each month and pay this into Court. The Court will then account the sums collected periodically to the creditor and the Attachment of Earnings will remain in place until the debt is fully repaid or the debtor no longer works for the employer.

The advantage of this method is that repayments are taken out of the debtor’s hands and monies are deducted from their wages. It also provides a consistent stream of payment for creditors. Where the debtor has multiple Attachment of Earnings orders against them, the sum deducted will be shared between the creditors on a pro-rata basis.

If you have an Attachment of Earnings order in place you will not be able to take any further enforcement action.

Charging Order

A charging order is a means of obtaining a Court order that permits you to secure the debt by way of a charge against a debtor’s share of the equity held in any property they own. Typically this will be their home if they are an individual, but this can include any property owned by the debtor. It gives the creditor the right to apply for an order that places a charge on the property, effectively turning the debt into a secured one.

Once the final charging order is issued, the charge will then be registered as an official charge on the Land Registry records. This means that if and when the debtor sells their property or in some cases seeks to remortgage the property, your debt should be paid from the proceeds of sale.

Where the debt is particularly large and there is significant equity in the debtor’s property, you may be able to consider further order for sale proceedings to force the sale of the property in order to recover the outstanding sums secured by way of a charge. However, this is quite rare and you would need specialist advice from our litigation team if this was an option you wished to pursue.

Information Order

An Information Order can be obtained from the Court. Essentially the order will require the debtor to attend Court to provide details of their income, assets, and liabilities. This enforcement method is often used as a precursor to other enforcement methods, as it provides valuable insight into the debtor’s financial position which can help to determine which method of enforcement would have the best chance of successful recovery.

Information Orders can be used to summons individuals to Court to provide information whether they are individual debtors or directors of a company. This can be particularly helpful where a debtor is refusing to engage with you. If a debtor fails to comply with an order to attend Court to provide information, the Court does have the power to hold the debtor in contempt of Court. This means that, whilst rare, the debtor could go to prison for a short period of time if they do not comply. The threat of which can make debtors take the situation more seriously and engage with you to agree a payment plan.

Conclusion

When it comes to debt recovery and enforcement of a County Court Judgment (CCJ), there are several methods available to you. Each method its own advantages and the best method will vary from case to case, depending on the specific circumstances.

Remember that each case is unique and requires careful consideration before deciding which enforcement method is most appropriate for you. Consult with professionals who specialise in debt recovery for tailored advice based on your situation.

GATWICK INVESTMENTS AND OTHERS V LIBERTY MUTUAL [2024] EWHC 124

Insurance for losses arising out of the interruption of a business is often provided as an adjunct to cover for property damage.

Cover can additionally be obtained for business interruption where the insured’s premises has not itself been damaged, but the insured is prevented from access to its premises by some external factor.  This cover is available in various forms of “Non-Damage Denial of Access” (NDDA) clauses, “Prevention of Access (Non Damage)” (POA) clauses and “Action of Competent Authority” (AOCA) clauses. In this note, the term POA clause is used to refer to such clauses generally.

Here, cover is provided when access to the insured premises is prevented by (a) an endangering episode in the vicinity and/or (b) the authorities reacting to such an episode.

Early editions of texts on business interruption illustrated this type of cover by the example of a fire in a shopping mall where the insured premises were located, rendering buildings in the vicinity structurally unsafe and resulting in the prevention of access to the insured premises.

Since the 1980’s, POA clauses have provided cover for a broader range of circumstances.  Wordings for such clauses vary widely and the precise words used matter greatly.  A typical wording is as follows.

“Denial of access (non-damage) cover

We will cover you for any loss insured by this section resulting from interruption or interference with the business where access to your premises is restricted or hindered for more than the franchise period shown in your schedule arising directly from:

1. The actions taken by the police or any other statutory body in response to a danger or disturbance at your premises or within a mile radius of your premises.
2. The unlawful occupation of your premises by third parties. …”

Thus, for example, cover can be provided for business interruption arising from terrorist activity, flooding, a gas leak, traffic accident or other dangers in the vicinity of the premises, to which the authorities respond by temporarily closing businesses.

This type of cover has been tested extensively in the context of the Covid 19 pandemic, with the result that the parameters of the POA clause have been clarified in a number of respects, as follows.

Whether POA Clauses provide only a narrow, locally focused cover – These clauses distinguish between the consequences of episodes occurring within the radius and those not doing so.  The courts consider that something more would be required than, for example, the mere presence within the radius of a person with diagnosable covid.  The requirements (a) for an occurrence of some sort, i.e. something that happens at a particular time, at a particular place, in a particular way and (b) that this must occur within a radius of the insured premises, means that this is, in principle, a narrow, localised cover (1).

The requirement for loss to be caused by an insured peril – Under English law, the insurer is, subject to the terms of the cover, liable for any loss proximately caused by a peril insured against.   (The term “efficiently caused” is sometimes used as an alternative to “proximately caused”, to denote that the search is for the dominant or operative cause in the sequence of events leading to the loss, assessed by reference to the nature of the cover provided.) A widely-used approach to establishing whether this requirement has been satisfied is to apply the “but for” test, i.e. to ask whether, but for the operation of the insured peril, the insured would have suffered the loss. 

One of the insured perils in the wording quoted above is (we paraphrase) interruption of the business where access to the insured’s premises is restricted arising from the actions of the police or other statutory body in response to a danger or disturbance within a mile radius of the premises.

The “danger” referred to in the wording quoted above has been held to include one or more cases of covid occurring within the radius (2). As to the requirement that the insured peril must be the cause of loss, the specific wording of the policy is always crucial.  However, in the case of cover against covid, the important question for the court does not concern the localised nature of the peril insured against.  Rather, it concerns the approach that should be adopted to causation in circumstances where the impact on the policyholder’s business is the combined result of at least one event that occurred within the radius and a large number of individual events that occurred outside the radius.  Here, the court considers that a “concurrent cause” approach to causation is applicable.  The covered occurrence within the radius, in combination with the large number of occurrences of a similar nature outside the radius, not covered under the insurance but not excluded either, is considered to be the effective cause of the governmental restrictions which led to the policyholder’s loss, thereby satisfying the requirement for causation.

This approach to causation applies even where the insured has taken out insurance only against the risk of closure of his own premises by a competent authority as a result of an outbreak of a notifiable disease at his premises (3).

Meaning of “the police or any other statutory body” – While insurers have argued that this phrase suggests actions taken locally, the courts have held that the wording “any other statutory body” is wide enough to encompass central government.  Moreover, the focus of the clause is not on whether the originator of the restrictions owes its existence to a statute (4).

Other matters clarified in the recent case law

1. It is not the case that every new set of restrictions qualifies as a separate interruption of the insured’s business.  There is no significance in new restrictions if there is a continuity of closure and no changes in the effect of the restrictions on the insured’s business (5).
2. The type of restriction covered by the clause is generally one having the force of law, but can extend to clear, mandatory instructions given on behalf of the UK government, such as the Prime Minister’s statement on 20 March 2020, when he instructed named businesses to close “tonight” (6). Further, restrictions need not be addressed directly at the insured (7).
3. A large number of business activities, such as professional firms and construction and manufacturing businesses, were not closed under the regulations.  However, general restrictions affected the operation of these businesses, such as the prohibition against people leaving the place where they were living without reasonable excuse.  The courts have held that the reference in a POA clause to “inability to use” the business premises can include an insured’s inability to use either the whole or a discrete part of the premises, for either the whole or a discrete part of its business activities.  Nevertheless, it will be rare for businesses that were not directly made the subject of specific restrictions to be able to claim under their POA clauses.  This is because, generally, such clauses require an actual inability to use, rather than a mere hindrance or disruption.  It is likely to be difficult for such businesses to demonstrate the requisite inability (8).
4. Under many policy wordings, the insureds have to give credit in their business interruption claims for furlough payments.

For more information, please contact Wendy Miles, Chris Earl or William Sturge at Lovetts.

Notes

1. FCA Test case [2020]  EWHC 2448 (Comm), para 406, 436, 466, 499.
2. FCA Test case [2021] UKSC 1 para 213; Corbyn & King v AXA Insurance [2022] EWHC 409 (Comm), para 220)..
3. London International Exhibition v  RSA [2023] EWHC 1481 (Comm) para 180.
4. Gatwick Investment Ltd v Liberty Mutual [2024] EWHC 124 (Comm) para 143.
5. Ibid para 163.
6. FCA Test case [2021] UKSC 1 para 120f.
7. Ibid para 128.
8. Ibid para144f.

Dealing with overdue invoices can be a frustrating experience. However, there are effective steps you can take to tackle this common issue. In this blog post, we’ll explore essential strategies that will help your business collect late payments and maintain a healthy cash flow.

Understanding the Importance of Collecting Overdue Invoices

Late payments can disrupt the financial stability of your business, affecting your ability to pay suppliers and meet expenses on time. Unpaid invoices not only strain cash flow but also consume valuable time and resources that could be better utilised elsewhere. By promptly addressing overdue invoices, you demonstrate the importance of timely payment to clients and maintain a healthy relationship with them. 

Step 1: Communicate Clearly and Early

When it comes to dealing with late payments and overdue invoices, clear communication is key for businesses. The first step in addressing this issue is to communicate openly and early with your clients or customers.

Initiate a friendly reminder about the outstanding payment as soon as it becomes overdue. Be polite but firm in your message, clearly stating the amount owed and the due date.

Utilise various communication channels such as emails, phone calls, or even face-to-face meetings if necessary. By being proactive in your approach, you can show that you are serious about collecting the overdue invoice while maintaining a professional relationship with your client.

Clearly outlining the consequences of non-payment can also serve as a motivator for prompt settlement.

Step 2: Set up a Payment Plan

Setting up a payment plan can be a proactive approach to facilitate the recovery process. By offering flexibility in how the debt can be repaid, businesses demonstrate understanding while also ensuring you receive what is owed to your business.

A well-structured payment plan should outline clear terms and deadlines for repayments. This clarity helps both parties stay on track and avoids any confusion or misunderstandings along the way. It’s essential to communicate openly about expectations and make sure all terms are agreed upon by both parties involved.

Step 3: Consider Legal Action

Sometimes the case may require more serious measures. This is where considering legal action can be a necessary step for UK businesses.

Legal action involves taking formal steps to recover the debt owed to your business through the court system. It sends a clear message to the debtor that you are serious about collecting what is rightfully due.

Before pursuing legal action, it’s important to review all documentation related to the debt and seek advice from debt recovery solicitors. We can provide guidance on the best course of action based on your specific circumstances.

Step 4: Utilise Debt Collection Services

By partnering with reputable debt recovery solicitors, you can increase the chances of recovering the money owed to you while maintaining professional relationships with your clients. As professionals we understand the legal aspects of debt recovery and can navigate complex situations efficiently.

Timely action is crucial when dealing with late payments and overdue invoices. Implementing these essential steps in your collection process will not only help you recover what is rightfully yours but also ensure smoother cash flow management for your business. Stay proactive, communicate clearly, consider payment plans, explore legal options if necessary, and leverage debt collection services to maximise your chances of successful debt recovery in the UK market.

If you’re unsure if your business debt is worth pursuing, check out our recent article here.

Running a business comes with its fair share of risks and challenges. One such challenge is dealing with unpaid invoices and the looming threat of business debt. Late payments from customers can have a significant impact on your cash flow, hindering your ability to meet financial obligations and potentially stalling growth opportunities.

Understanding the different types of business debt

One common type of business debt is late payment from customers. This occurs when clients fail to pay for goods or services on time. Late payments can have a significant impact on your cash flow and hinder your ability to meet financial obligations.

Another type of business debt is overdue invoices. This happens when clients neglect to pay their bills within the agreed-upon timeframe. Overdue invoices can lead to strained relationships with clients and create additional stress for your company’s finances.

Signs that your business debt is worth pursuing

If you have provided goods or services and haven’t received payment, it may be wise to take action.

One indication that your debt is worth pursuing is if there are repeated instances of late payments from the same customer or client. This pattern demonstrates a lack of consideration for payment terms and could suggest ongoing financial difficulties on their part.

Consider the potential impact on your cash flow and overall profitability. Unpaid debts can restrict your ability to grow and invest in new opportunities for your business. By actively chasing overdue invoices or late-paying customers who owe you money, you will ensure healthier financial stability for yourself.

Factors to consider whether to outsource your debt recovery

When it comes to deciding whether to outsource your business’s debt recovery, there are several factors that you need to consider. Each case is unique, so it’s important to carefully weigh these factors before making a decision.

Evaluate the likelihood of successfully recovering the debt. Has the debtor shown any willingness or ability to pay in the past from your in-house debt collection efforts? If you aren’t getting responses back from your debtor or no longer have contact details or your debtor (including address details) a debt recovery solicitors can help to trace your debt and encourage conversations to amicably settle the debt.

Another factor to consider is your relationship with the debtor. Is this a long-standing customer who has always paid on time in the past? If this is the case, passing your debt recovery to an expert debt recovery solicitors will help you to maintain an amicable relationship with your customers. This approach will help to minimise risk of late payments in the future.

Additionally, think about potential legal costs associated with debt recovery. Will taking legal action be cost-effective in relation to what you’re owed? Consulting with a lawyer can help you determine if legal action is warranted and what potential outcomes you would expect. At Lovetts we offer legal advice with our commercial litigation department. Our advice is tailored to your specific case, will give you an insight into the costs of pursuing your debt and set out a strategy to increase your chances of a successful collection.

Limitation Period in the UK

The Limitation Act 1980 says that any legal action founded on a simple contract cannot be brought after the expiration of six years from the date on which the cause of action accrued. 

This means that if you have a debt that any legal action must be taken within that six year period, otherwise you cannot pursue the debt after the expiry of that period. 

There are some exceptions to this rule, where the limitation period may be extended by an acknowledgment of the debt or indeed payment, but this will depend on the circumstances involved.

Lovetts is a specialist UK & International debt recovery solicitors with more than 25 years of industry experience. If your business has overdue debts that’s it’s seeking to recover, contact us today.