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 bodyWhile 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.


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.

If you have a residential tenant that has fallen behind with their rent, it is important to try to get back on track. Whether you are a private landlord for one property or have a portfolio of properties, a tenant falling behind on their rent can leave you feeling stressed and frustrated and questioning what you should to recover the money owed to you?

In this blog post, we’ll explore your options for resolving such issues.

The importance of timely rent payments

For landlords, receiving regular rent payments is essential for financial planning. It helps cover expenses associated with maintaining the property and ensures steady cash flow. When tenants fail to pay their rent on time or accumulate arrears over time, it can cause wider disruption and problems to your financial position, as a landlord.

The reasons for unpaid rent

Communicating with tenants and understanding whether the reason that lead to the rent arrears is a short term or long term issue can often help landlords to decide how best to proceed in order to mitigate their losses and where possible avoid damaging the relationship with the tenant.

If the reason behind the tenant’s failure to keep up with their rent is a short term issue, the parties could look to try to arrange a payment plan to get the tenant back on track.

If the reason behind the tenant’s failure to keep up with their rent is a long term issue, meaning that the tenant can no longer afford to live at the property the landlord will need to consider how they wish to proceed.

Your legal options for dealing with rent arrears

Assuming that your residential tenant is residing at the property under an Assured Shorthold Tenancy Agreement and arrears have accrued, as a landlord you can:

  1. Issue a section 8 notice to the tenant, giving two months’ notice of your intention to recover possession of the property on the basis that the tenant is in breach of the tenancy agreement by failing to pay the rent; or
  2. You can issue a letter before action in accordance with the pre-action protocol for debt claims to demand payment of the unpaid sums. The debtor will then have 30 days to respond to this letter.

At the expiry of a section 8 notice, you can then issue possession proceedings for the recovery of your property, together with any rent arrears.

Alternatively, if you have sent a letter in accordance with option 2, provided the tenant has not responded or requested further information, you can issue County Court proceedings to recover the outstanding sums.

It is likely that if the rent arrears are accruing and the tenant is still at the property whilst making no effort to redress the situation, a section 8 notice may be the better option as this enables landlords to seek both a possession order and monetary judgment.

Often tenants will not leave the property following a section 8 notice if they cannot afford to do so, particularly if they are looking for assistance from local authorities to re-house them. Local authorities will often advise people in such circumstances that if they leave the property, without being evicted, they will be considered to have made themselves voluntarily homeless and therefore ineligible for local authority assistance.


Lovetts Solicitors specialise in debt recovery with over 25 years of industry experience and can assist you with recovering the outstanding sums and/or re-possessing your property. If you are a landlord or managing agent looking for advice or assistance in recovering rent arrears or possession of a property, contact us today.

If you have recently issued a Court claim or obtained a County Court Judgment (CCJ), you may be wondering what happens next. We are here to guide you through the process step by step. From the point your claim has been issued through to exploring different methods of enforcement. We will provide you with all the information you need to navigate the legal landscape.

What Happens After a Claim is Issued?

After your claim is issued by the Court, the Court will post the claim to your debtor. The debtor will deemed to have been served by a date set by the Court but is typically within 5 days from the date the claim is issued. Once served with the claim, your debtor has 14 days to respond to the claim. They may choose to admit liability and offer payment in full or part-settlement. If they do not respond within the given time period, you have the option to request a default Judgment from the Court.

If your debtor files an Acknowledgement of Service, this will give them a further 14 days to file a defence. This means they will have a total of 28 days to deal with the claim. Should your debtor simply ignore the claim, you may obtain a County Court Judgment (CCJ).

Obtaining and Enforcing a CCJ (County Court Judgment)

A County Court Judgment (CCJ) is an official legal document that states that your debtor owes you money. It is important to note that receiving a CCJ does not guarantee immediate payment.

The CCJ will outline how much money is owed, plus any additional costs or interest. You should keep this document safe as it serves as evidence of the debt owed to your business. 

Once you have obtained a CCJ, you can now consider various methods of enforcement to recover the debt. These methods include:

1. High Court Enforcement Officers (HCEO): The High Court Enforcement Officer (known as the HCEO) is the preferred method of enforcement for the majority of County Court Judgments (CCJs). The HCEO is an employee of a private company licensed by the High Court to enforce debts with a value of over £600 (unless the debt is regulated by the Consumer Credit Act and under £25,000).

2. County Court Bailiff: Unlike the High Court Enforcement Officer, a County Court Bailiff can enforce debts under £600 or debts under that are regulated by the Consumer Credit Act and under £25,000. They will often only make visits during office hours whereas a High Court Enforcement Officer is more flexible.

3. Attachment of Earnings Order: If the debtor is employed, this order allows deductions to be made directly from their wages by their employer until the debt is repaid.

4. Charging Order: If the respondent owns property, this order secures your debt against it so that when they sell or remortgage, they must repay what they owe. It’s important to note that a Charging Order may also be registered against stocks and shares, it does not have to be placed on a property.

5. Third-Party Debt Order: This enables you to freeze funds held by third parties for or on behalf of the debtor – such as bank accounts – until your debt is satisfied.

6. Information Order: An Information Order is a Court Order that requires the debtor to attend Court for questioning. It does not require the debtor to make payment, however it may be used to enable you to make a more informed decision on which enforcement method to use.If the debtor fails to attend, they can be held in contempt of Court and committed to prison for a short period. 

Every enforcement method has its pros and cons, depending on individual circumstances of your case. It’s worth seeking advice from a debt recovery solicitors who can guide you through these options and help choose which one suits your situation best.

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.


With sanctions an increasingly routine part of business life, the courts have been considering the circumstances in which US sanctions prevent a contracting party from making a payment that they would otherwise be legally obliged to make in the English jurisdiction. The recent cases emphasise the difficulty of relying on US sanctions in such situations. 

The facts of the Celestial Aviation case were that, between 2005 and 2014, certain aircraft were leased to two Russian companies.  The payment obligations of the Russian companies were secured by standby letters of credit (“LOCs”) issued in favour of Celestial and another Irish aircraft-leasing company.  As of 2017, the LOCs were issued by Sberbank, a Russian bank, and confirmed by the London branch of UniCredit, a German bank.

In 2022, following the invasion of Ukraine, events of default were declared under the leases and Celestial demanded payment under the LOCs.  It was common ground that, subject to the question of sanctions, UniCredit was liable to pay under the LOCs. 

As to the question of sanctions, the LOCs were governed by English law and payable in US Dollars.  Celestial demanded that payment be made into accounts held in London and Dublin.  However, at the time that payment was demanded, the financing of aircraft leasing had been made the subject of UK trade sanctions. Sberbank itself was then listed as a “designated person” for the purposes of the UK sanctions restricting use of funds or economic resources, which, amongst other matters, prohibited paying out under LOCs. Sberbank also became the subject of US and EU sanctions.

After several months, UniCredit paid out, following receipt of a licence issued by the UK’s Office of Financial Sanctions Implementation (“OFSI”).  UniCredit paid the amount due under some of the LoCs in US Dollars and then the remaining ones by paying equivalent sterling amounts to accounts held at non-US banks in London.

The dispute that remained was as to whether Celestial was entitled to interest and costs. In order to determine these aspects, the Commercial Court was asked to determine certain matters giving rise to issues of general interest, as follows.

Prior to the granting of the OFSI licence, had UniCredit been prohibited from making payment by the UK sanctions regulations?

The court concluded that UniCredit had not been prohibited from making the payments under the LOCs.  This was because the purpose of the UK’s trade sanctions against Russia was to prevent financial assistance from being provided to Russian entities in relation to the supply of aircraft.  However, in the present case, any services of that type had been provided many years previously.  All that remained to be done as at the time the prohibition came into effect was for UniCredit to perform the obligation that it had taken on long before as confirming bank, which obligation would benefit the Irish companies, rather than any Russian entity.  Therefore, paying out under the LOCs would not have been in breach of the trade sanctions.

Nor had UniCredit been prevented by the economic resource sanctions from paying out, both because these sanctions had not come into effect at the time that payment fell due and also because the payment by UniCredit was in discharge of its own independent obligations under the LOCs and did not affect Sberbank’s property.

Did US law suspend or otherwise excuse non-performance of UniCredit’s obligations under the letters of credit?

The issue of the potential relevance of US law arose because inter-bank transfers of US dollars are routed through the New York banking system, thereby bringing them within the US jurisdiction. 

The court found that there had been no relevant US sanctions in force as at the date that the payment obligations fell due.  However, a directive issued by the US’s Office of Foreign Asset Control (“OFAC”) which subsequently came into effect could be read as prohibiting US financial institutions from processing transactions involving Sberbank in the broadest sense.

The court held that, to the extent that the OFAC directive had a bearing on UniCredit’s pre-existing obligation to pay, and it would be an offence under US law for UniCredit to pay Celestial under the LOCs, the starting point under English law is that a breach of US sanctions, as with breach of any other foreign law,  is generally irrelevant to the enforceability of an obligation governed by English law.

More specifically, English law draws a distinction between cases where performance of the act which is illegal under foreign law would take place in the foreign country, and cases where a party would merely be equipping itself in the foreign country, to perform the obligation in England (for example, to make a payment in London) where the act would not be illegal.  Under English law, only the former would relieve a party from performing the obligation.

The court held further that it was established under English law that, where a dollar payment is required under the contract, the payee is in principle entitled to demand such payment in cash.  This is the basis for the principle that, where the fundamental obligation is to make payment, and where it is possible to make such payment legally, then the bank must do so.  UniCredit had accordingly been under an obligation to find a means of paying, albeit in another currency.

In case that analysis was wrong, the court went on to consider whether payment out under the LOCs was in fact prohibited under the OFAC directive.  UniCredit put in evidence as to the broad approach that they said that OFAC would take, by implementing the directive with the purpose of cutting Russia off from the US banking system.  However, the court found this evidence unpersuasive because the examples given as to the approach taken by OFAC in previous cases were regarded as distinguishable on the facts.  Celestial Aviation was accordingly entitled to interest and costs.

In another recent case, Gravelor Shipping v GTLK Asia M5 (2023, Commercial Ct), the court took a similar approach, finding that contract wording governed by English law and providing for payment in US dollars could, in the circumstances of sanctions, be performed satisfactorily by payment by other means.

However, note that the outcome of the issues discussed above could be different, depending on the terms of any sanctions clause in the agreement.

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

From 1st October 2023, there will be a significant change to Civil Litigation in England and Wales with the introduction of a new Intermediate Track and Fixed Recoverable Costs Rules. This will impact the way civil cases are conducted and managed. In this article, we explore the key aspects of these new rules, their implications, and what they mean for litigants and legal practitioners.

Understanding the Intermediate Track

The Intermediate Track is a procedural innovation introduced to streamline and expedite the resolution of certain civil cases in England and Wales. It falls between the Fast Track and the Multi Track in terms of complexity and value of claims. The primary goal of this track is to enhance the efficiency and cost-effectiveness of litigation, making it accessible to a broader range of litigants while reducing the burden on the court system.

1. Applicability: The Intermediate Track is designed for cases with a financial value between £25,000 and £100,000.

2. Simplified Procedure: To achieve its objectives, the Intermediate Track features a simplified procedure, which includes stricter case management and fixed recoverable costs (“FRCs”). This simplification aims to reduce the uncertainty and costs associated with litigation.

Fixed Recoverable Costs

Fixed Recoverable Costs are predetermined costs that a successful party in a case can recover from the losing party for each stage of the litigation process. An amendment to Civil Procedure Rule 45 will introduce FRCs for Fast Track and Intermediate Track claims. It is a significant departure from the traditional method of costs being assessed by a Judge. The key aspects of FRCs are as follows:

1. Predictability: FRCs provide greater predictability for litigants, as they know in advance the maximum amount they can recover if they win the case. This predictability reduces the risks associated with litigation and encourages settlement.

2. Cost Control: FRCs are intended to control and limit the costs of litigation. By fixing the recoverable costs, the court aims to ensure that the legal expenses incurred by the parties remain proportionate to the value and complexity of the case.

3. Encouraging Efficiency: The fixed nature of these costs incentivizes parties to resolve disputes efficiently. Prolonged and unnecessary litigation can result in parties incurring costs beyond what they can recover, thus encouraging early settlement and cooperation.

4. Reduced Burden on the Courts: By reducing the scope for protracted cost disputes and detailed assessments, FRCs alleviate the burden on the court system, allowing it to allocate resources more effectively.

View Our Fixed Costs Guide Here

Challenges and Considerations

While the introduction of the Intermediate Track and FRCs has many advantages, there are also challenges and considerations to be mindful of.

The amount of fixed recoverable costs you can recover will depend on the complexity of the case. Each case will be allocated to one of four bands depending on complexity – with band 1 being the simplest. Straight forward debt claims will generally fall into ‘band 1’. Case assessment will therefore be extremely important.

There will also be changes to Part 36 offers with fixed recoverable sums increasing or decreasing in certain circumstances. For example, a claimant who matches or beats its own Part 36 settlement offer at trial may receive a 35% uplift on the fixed recoverable costs. However, if there is unreasonable behaviour during litigation a 50% increase or reduction of fixed recoverable costs may be applied as a penalty.


For the last 30 years, Lovetts Solicitors has been campaigning for efficient, accessible, and cost-effective debt recovery. The FRCs gives costs certainty to creditors when they are forced into litigating due to non-payment of debts and Lovetts Solicitors fees will mirror the FRCs to achieve a costs neutral position for our clients in the majority of our clients.

While these changes come with challenges and considerations that legal professionals and litigants must navigate, Lovetts Solicitors believes the introduction of the Intermediate Track and Fixed Recoverable Costs Rules represents a significant step forward.


‘Authorised push payment’ (‘APP’) fraud, as it is known, is the situation where individuals or businesses are manipulated, through impersonation, into making payments to fraudsters.  It is one of the biggest types of fraud reported by the UK banking and financial services sector.

Compensation schemes – Various voluntary codes of practice (notably the CRM Code, introduced in 2019) have been developed within the financial services industry to compensate customers.  These codes operate subject to their terms and conditions.  They do not cover international payments and not all UK banks have signed up.

Under the Financial Services and Markets Act 2023, a mandatory reimbursement scheme is to be introduced by the Payment Services Regulator.  This will oblige payment service providers to reimburse customers in respect of payment instructions executed subsequent to fraud or dishonesty.  The intention is to protect consumers, charities and micro-enterprises in respect of payment orders executed over the Faster Payments Scheme.  The regulator is aiming to have the scheme operating in 2024.

The legal principles applying where the scheme will not apply – Where it applies, the scheme will overlay the existing legal principles determining when banks must pay out compensation. 

In April 2022, we circulated a briefing note, reporting on a judgment of the Court of Appeal relating to the duty of banks to compensate customers who had been victims of APP fraud.  The Supreme Court has recently allowed an appeal in the same case, making very different findings as to the extent of the banks’ duties, as follows.

The facts in Philipp v Barclays Bank

Mrs Philipp is a music teacher and her husband a retired physician.  A fraudster tricked them into believing that they were cooperating with the Financial Conduct Authority, the National Crime Agency and the Fraud Department of HSBC.  The fraudster persuaded the couple to transfer in excess of £700,000, being the bulk of their life savings, into Mrs Philipp’s account at Barclays and thence to accounts in the United Arab Emirates.

Mrs Philipp claimed that the bank was responsible for this loss.  She brought proceedings, contending that the bank owed her a duty under its contract with her or at common law not to carry out her payment instructions if the bank had reasonable grounds for believing that she was being defrauded.

The bank’s case was that, as a matter of law, it did not owe such a duty. The bank also took a point on causation, arguing that Mrs Philipp and her husband had been so thoroughly deceived that they did not trust the police or the bank and lied to the bank about the purpose of the transfers.  Thus, even if the bank had delayed the transaction and asked questions, Mrs Philipp would have gone ahead anyway.

The bank applied for ‘summary judgment’, that is, to strike out Mrs Philipp’s claim on the basis that the court could decide without a trial that there was no such duty. 

Supreme Court’s judgment as to the duties owed by the bank

Terms of the contract – The Supreme Court held that it would be possible for a bank to agree as an express term of the contract with a customer that it would not comply with a payment instruction if it had reasonable grounds for believing that the customer had been tricked into authorising the payment.  That was not the case in Mrs Philipp’s contract.

No duty of care implied by law – In the absence of such an express term, no obligation of this kind can be implied.  To the contrary, the terms on which a bank is authorised and undertakes to carry out its customer’s instructions are generally referred to as the bank’s mandate.  Unless otherwise agreed, the bank’s duty to comply with its mandate is strict and must be complied with, subject to certain special situations such as where the payment would be unlawful, or to prevent money laundering.

Term implied under the Supply of Goods and Services Act 1982 – The bank is under an implied term to supply its services with reasonable care and skill. However, this relates only to the manner of providing the services and would not go so far as to support Mrs Philipp’s claim.  It is not possible to derive a duty not to do something from a duty to do something carefully.  Thus the implied term does not create a tension with the bank’s duty to comply strictly with the mandate. 

Where the customer has appointed signatories – Payment instructions given by an agent of the customer, for example on behalf of a company or for joint account holders, where the authorised signatory is acting dishonestly or fraudulently, are in a separate category.  The Supreme Court held that the decision in Barclays Bank v Quincecare  (1992) was correct only to the extent that a signatory, being an agent, can never have actual authority to defraud their principal (unless the principal had specifically extended the actual authority to include such a situation, which would not be likely).

Therefore, the act of the fraudulent signatory will only bind the customer if, in their capacity as agent of the customer, the signatory had apparent authority.  The relevant legal principle is therefore that the bank will not be entitled to rely on the apparent authority of a signatory if it fails to make the enquiries that a reasonable person would make in all the circumstances to verify that the signatory has actual authority to give the instruction.  Examples of circumstances giving rise to the need to enquire would be where the agent signatory could be seen to be using his principal’s funds to buy himself a Rolls Royce or pay off his own debts. Giving effect to the agent’s instructions without making inquiry whilst being on notice of such circumstances would be outside the mandate. 

However, that did not assist Mrs Philipp, who was the customer in her own right and had actual authority to give the payment instructions.  Her instructions were valid and her intention clear.  The fact that she would not have given the instructions if she had not been lied to  by the fraudster did not negative her intention in giving the instructions. Therefore she had no basis for claiming from the bank.

Limit of the duty to execute valid instructions –  The Court acknowledged the possibility of a further implied term, as  identified in the Australian case of Ryan v Bank of NSW (1978).  The analysis there was that a carrier carrying goods under contract and ordered to deliver them to a particular unloading bay at a factory would act unreasonably in complying with this order if, on arrival, the factory was on fire.  A paymaster, ordered by his employer to bring the employees’ cash wages to the pay office would act unreasonably in complying if, on the way, he learned that the pay office was occupied by armed robbers.  These examples showed that even provisions in a contract expressed in unqualified language will be interpreted as subject to an implied qualification preventing them from applying in particular circumstances.

This suggested that there may be an implied term that a bank should not comply with a payment instruction if a reasonable banker, properly applying his mind to the situation, would know that the customer would not wish their instructions to be carried out in the circumstances.

The Supreme Court expressed no firm view on this but acknowledged that, if a bank received reliable information suggesting that a payment instruction had been procured by fraud, it might be right to refrain from complying with the instruction without first alerting the customer.  However, that was not the present case, as the information which might have led the bank to refrain from making the payment was known to Mrs Philipp and therefore the bank had no reason to doubt her instructions.

The Court therefore struck out Mrs Philipp’s claim insofar as it was based on the allegation that the bank owed her a duty not to execute her payment instruction.  The Court did, however, allow Mrs Philipp’s fallback argument, that the bank had failed in a duty to attempt to recover the funds, to proceed to trial.

Lovetts’ comment

The Supreme Court’s analysis is restrictive and represents a substantial departure from previous cases.  It is unlikely to be the last word on the issue of a bank’s duty not to execute payment instructions in certain circumstances.

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

If you’re looking for a more cost-effective, legal way to resolve your debt claims we can assist. At Lovetts, we are committed to helping your business find a time and cost effective way around commercial litigation. In this article we are going to have a look into Construction Adjudication, the process, costs involved and how you can use this form of Alternative Dispute Resolutions (ADR) to settle your dispute.

What is Adjudication?

Construction adjudication is a process whereby an impartial third party, known as an adjudicator, is appointed to make a binding decision concerning a construction dispute. The adjudicator will consider the evidence and arguments presented by both parties and will make a decision based on what they believe is fair and reasonable in the circumstances.

The construction adjudication process is often used where there is a disagreement over the terms of a contract, the quality of workmanship, or the payment of fees. It can also be used to resolve disputes between neighbours over boundary walls or other shared structural elements.

Adjudication is generally considered to be a quicker and cheaper alternative to litigation, as it avoids the need for costly and time-consuming court proceedings. It also has the advantage of being binding on both parties, meaning that the decision of the adjudicator must be complied with.

Construction disputes are often adjudicated to determine who is liable for damages. In many cases, the adjudicator will review the evidence and decide based on the facts of the case. This can be a very effective way to resolve construction disputes, as it allows both parties to present their case before an impartial third party.

If you are involved in a construction dispute which you believe could benefit from adjudication, then you can speak to our litigation team at Lovetts Solicitors who specialize in this area of law for advice on how to proceed.

The process of Adjudication

The process of resolving construction disputes with adjudication relative to debt recovery is as follows:

  1. The parties to the construction contract agree to submit their dispute to adjudication.
  2. An adjudicator is appointed by the parties or by an independent body such as Royal Institution of Chartered Surveyors (RICS).
  3. The adjudicator hears both sides of the argument and makes a decision on the matter in dispute. This decision is binding on both parties unless and until it is overturned by a court or arbitration tribunal.
  4. If one party does not comply with the adjudicator’s decision, the other party can enforce proceedings through the courts.

How long does the process take?

The process begins when the Referring Party serves the Responding Party with a Notice of Adjudication. After serving the Notice of Adjudication, the Referring Party must serve its Referral within 7 days of serving the notice. The adjudicator has 28 days to decide after the Referral is served by the Referring Party. (This period can be extended by 14 days if the Referring Party agrees).

The time required to decide adjudication is significantly shorter than in court, which is consistent with the overarching goal of improving cash flow. Whereas a party referring a dispute to adjudication may receive an adjudicator’s decision within 4-6 weeks, if that same dispute is referred to the courts, the referring party may reasonably expect the courts to render a decision within 9 to 12 months, or possibly longer.

The costs involved

The adjudication process can be costly, depending on the severity of the debt recovery dispute. If the dispute is minor, then the cost of adjudication may be minimal. However, if the dispute is more severe, then the cost of adjudication can be quite high. There are a few factors that will affect the cost of adjudication, such as:

How can Lovetts assist you?

If you are involved in a construction dispute involving debt, our experienced solicitors at Lovetts Solicitors can help. We are a debt recovery solicitors with a wealth of experience in dealing with all types of construction disputes, from payment disputes and defects to professional negligence claims.

Part of our debt recovery adjudication process includes- Fixed Fee Advice, Unlimited Legal Advice, Alternative Dispute Resolution, and Advice on Payment Terms. You can learn more about these debt recovery services via our website.

Contact Us Now.

Quadra Commodities SA (“Quadra”) v XL Insurance Co [2023] EWCA Civ 432 (Court of Appeal)

This is believed to be the first reported case on the statutory right to claim interest on the late payment of an insurance claim.  The issue arose in the manner described below.

The issues in the case

The facts – The case involved a grain commodities fraud. The Ukrainian group Agroinvest obtained grain, corn and sunflower seeds from local farmers, which it on-sold to international markets.  When the group made a sale, the buyer would pay 80% of the purchase price and Agroinvest would issue the buyer with a receipt for delivery of the goods into its warehouses.  Pending physical delivery to the buyer at the seaport, payment of the final 20% and transfer of title, buyers could send surveyors periodically to check and sample the goods.  However, the goods as thus sold were not kept separate by Agroinvest, but stored in bulk with other quantities of the same commodity.

One such purchasing trader was Quadra, who declared its purchases from Agroinvest under its marine cargo open policy, which gave cover against misappropriation, amongst other perils. 

Agroinvest’s fraud consisted of selling the same goods to numerous different buyers.  Obviously, when it came to delivery against the warehouse receipts, there was not enough of the commodity to go round. Agroinvest collapsed, at which point the goods that Quadra had purchased were nowhere to be found.  Quadra submitted a claim under its insurance.

The terms of Quadra’s insurance – As to the subject matter of this insurance, Quadra’s “interest” was described as being on,

“goods … and/or … interest of every description incidental to the business of the Assured … consisting principally of but not limited to cereals, grain … and food products in  container, bulk and/or break-bulk”.

It is possible to insure against perils adversely affecting a marine “adventure” such as the storage and subsequent carriage of goods by sea, and also against the loss of profits.  However, the Commercial Court held that, in the present case, the subject matter of the insurance that Quadra had obtained was simply goods in which Quadra had an insurable interest.  

Insurers’ central defence was that, because of the facts of the case, Quadra had no insurable interest in the subject matter insured.  The court therefore had to consider the relationship between the subject matter of the insurance (damage to, or loss of, goods) and any insurable interest that Quadra had in that risk.

The court’s decision – The court accepted that the policy would not cover a situation where no goods had existed (because the goods could not then be lost or damaged).  Nor did Quadra have any proprietary interest in the goods. However, the court did accept that there would be coverage for misappropriation if (a) there had been goods (b) in which Quadra had an insurable interest.

Even though the evidence partly depended on documentation issued by, and warehouse access controlled by, the fraudulent Agroinvest,  the court accepted that Quadra had established, on a balance of probabilities, that goods corresponding to the cargoes they had purchased were sufficiently identified as physically present at the time the warehouse receipts were issued to Quadra. 

As to insurable interest, the court held that Quadra had an immediate right to possession of the goods, the insurers not having established that any other party had any rights that would oust Quadra’s rights. The court held further that, as Quadra had rights derivable from “a contract about the property”, on old English authority Quadra did have an insurable interest in the goods.  The court was fortified in this conclusion by a US court decision, itself based on English law principles, to the effect that part payment of the purchase price in respect of unascertained goods gave rise to an insurable interest even though the insured did not have a proprietary interest in the goods. Quadra therefore succeeded in its insurance claim (this decision being upheld on appeal).

The claim for interest

Pursuant to s.13A Insurance Act 2015, it is an implied term of every contract of insurance that the insurer must pay any sums due in respect of a claim within a reasonable time.  The section makes clear that a reasonable time includes a reasonable time to investigate and assess the claim. 

Section 13A states that what is reasonable depends on the circumstances, but (a) the type of insurance, (b) the size and complexity of the claim, (c) compliance with statutory or regulatory rules and guidance and (d) factors outside the insurer’s control, may need to be taken into account.  If the insurer shows that there were reasonable grounds for disputing the claim, the insurer does not breach the implied term by failing to pay the claim while the dispute is continuing, but the insurer’s conduct may be relevant.

In the present case, there were some 15 months between the insured giving notice of loss and the commencement of proceedings. Quadra contended that the insurer did not pay sums due to it within a reasonable time, asserting that the insurer’s conduct of the claim was wholly unreasonable and its investigations either unnecessary or unnecessarily slow.

The Commercial Court approached Quadra’ claim for interest by considering two separate questions; (1) What was a reasonable time within which the insurers should have paid the claim? (2) Were there reasonable grounds for disputing the claim, the insurer’s conduct being relevant to this question?

As to the first question, the court held that the burden of proof was on the insured to show that the insurers had taken longer than a reasonable time.  In the present case, Quadra offered no expert or comparative evidence. Therefore, the court considered the factors listed alphabetically above. As to (a) the type of insurance was marine cargo.  Claims under such covers could involve “very various factual patterns and differing difficulties of investigation”.  As to (b), the size and complexity of this claim was substantial, but not exceptional.  The fraud, the uncertainty as to what happened at the warehouse and issues concerning the governing law of the insurance were all significant complicating factors.  There were no relevant circumstances to consider under factor (c) but as to (d), a number of factors had been outside the insurer’s control, in particular certain local proceedings and the recovery effort in Ukraine.  The court concluded that a reasonable time to investigate, evaluate and pay the claim was ‘about a year from the notice of loss’, assuming no reasonable grounds for disputing the claim.

As to the second question, the court held that the insurers did have reasonable grounds for disputing the claim.  The fact that the court had found the grounds to be wrong did not indicate that the grounds were not reasonable.

Quadra argued that the issue of the insurers’ conduct should be considered in its own right, and that the insurers’ handling of the claim was unreasonable and too slow.  However, the court considered that the insurers’ conduct, for example in the investigations that they made, should not be regarded as a relevant factor because it could not sensibly be distinguished from their grounds, considered reasonable, for disputing the claim.  Therefore, the Commercial Court held that Quadra was not entitled to interest.  This decision was not the subject of any appeal.

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