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For over three years, I have represented and advised over 60 small businesses and private individuals with claims or complaints in relation to interest rate hedging products. Each situation has been unique, and has been treated as such. However, the common theme has been that people have entered into contracts where they did not properly understand the features and risks of such contracts. Due to the magnitude of interest rate hedge mis-selling, over recent months there has been a proliferation in the availability of potential advisers, representatives and experts. How should a business go about choosing an appropriate representative, and is there a risk that some businesses are again entering into contracts for representation with risks that may not be made entirely clear?
There are basically three potential routes for redress for a hedging claim; the FSA review process, the Financial Ombudsman Service (FOS) and litigation. In its recent report (January 2013), the FSA states that “the process is straightforward” and suggests that representation, certainly by a claims management company, is unnecessary. It is correct that it is possible to use the FSA review process or the FOS without legal or other representation. However, many businesses feel that they have lost trust in their banks and that they would like to pay for representation of some sort. In the circumstances, this is a reasonable decision to take, and certainly where litigation is a potential option, is necessary.
With such a diverse range of advice and representation now available, I have noted below some issues to be aware of, to avoid unwittingly taking on additional risks:
Claims Management Companies are not generally obliged to carry professional indemnity insurance and are very loosely regulated. If something goes wrong with the handling of a claim, for example, if a limitation period is missed, there is likely to be no realistic redress against that company.
Bespoke or group representation – being part of a group of complainants / claimants may bring strength in numbers, but it should be considered carefully how an adviser will be pursuing your claim; will your claim receive individual attention and will any unique features be highlighted, will some matters be prioritised and others not. These are all questions which need to be asked.
Experts play an important role and have access to pricing information and market knowledge which is not accessible to other advisers. It is important, however, to assess the stage at which an expert is needed and what the breadth of their remit will be (specific questions or a wider brief) to ensure that money is appropriately spent on expert services.
Payment Structures. All advisers will offer different structures. Some may appear more attractive than others but a full understanding of the overall likely cost of representation, any hidden extras and exactly what will happen if a case is won or lost needs to be understood to properly evaluate the risks and benefits of different structures. This is particularly important where there is more than one route for redress because a structure that works well in litigation may not work so well for the FSA review or for the FOS.
Conditional Fee Agreements – by way of example, no-win no fee or no-win low fee arrangements (CFAs) work best in litigation, where the uplift on costs can be recovered from the bank (under current rules, due to change in April). What happens, however, if a case is won through the FSA review or the FOS? Some advisers’ CFAs will provide that an uplift is only paid if recoverable from the bank, other will require you to pay that uplift regardless of whether the uplift is recovered. A situation could arise therefore where a case succeeds in the FSA review, the uplift cannot be recovered from the bank because no costs order is made but the adviser expects a significant uplift to be paid. This could significantly diminish compensation, or even create a liability if the only redress has been to avoid break costs, or put in place an alternative structure. It is vital therefore that before agreeing to a CFA, a business understands how “success” is defined and exactly what the representative will expect to be paid if the case fails or wins, whether it is litigated or resolved in the FSA Review or FOS.
Limitation Periods – in most circumstances the banks are prepared to enter into Standstill Agreements to prevent the expiry of a limitation period for litigation, without incurring the expense of issuing proceedings. These are effective and important agreements that ought to be drafted by a lawyer to ensure adequate protection. In most situations a 6 year limitation period will run from the date of the hedge. This needs to be protected and your representative needs to be asked to and able to advise on limitation issues.
After the Event Insurance – there are important rule changes coming into effect in April 2013 so the window for arrangement of effective insurance is diminishing. There is a diverse range of ATE products available from a number of providers. Different policies will provide different levels of protection, will contain different definitions of success and will structure their premium payments in different ways. As with CFAs it is vital that before entering into an ATE policy, it has been fully explained and you understand the circumstances in which the premium will be payable, where it may not be recoverable from the bank and whether the extent of cover is adequate for your case.

Having accepted a favourable determination from the Financial Ombudsman Service (FOS) can you then claim in Court for additional compensation to recover the full alleged loss? The case of Andrews –v- SBJ Benefit Consultants Ltd [2010] EWHC 2875 (Ch), [2011] Bus LR 1608 would suggest not. However, the more recent case of Clark and Another –v- Focus Asset Management and Tax Solutions Ltd [2012] EWHC 3669 (QB) would suggest otherwise, in certain circumstances.
Mr and Mrs Clark, in their late sixties, sold their business and business premises in 2004. They received financial advice from Focus which led them to borrow an additional sum and invest, together with the proceeds of sale, in endowment policy plans leading to losses thought to be in excess of £500,000. They complained to the FOS in 2008 who concluded the complaint should be upheld. The FOS’s jurisdiction was then limited to £100,000 but the Ombudsman, in support of an earlier decision by an Adjudicator, recommended that Focus paid the full amount of the loss. Focus did not agree and offered £100,000 in full and final settlement of the complaint. In February 2010 Mr and Mrs Clark reluctantly accepted the offer and amended the pro forma FOS acceptance form to add “We reserve the right to pursue the matter further through the Civil Court.” Payment was made by Focus on 19 March 2010. Mr and Mrs Clark commenced proceedings in respect of the balance in June 2010, within 6 years of the alleged negligent acts on the part of Focus. The claim was initially struck out on the basis that Mr and Mrs Clark had accepted the Ombudsman’s award and the Court had no jurisdiction to hear the claim. The rider to the Acceptance Form had no effect, said the judge and having accepted the decision of the Ombudsman, they were barred from litigating as the doctrine of merger applied. The effect of the doctrine is that, a person who has obtained a final judgement in a tribunal of competent jurisdiction is precluded from later recovering, in Court, a second judgement for the same relief in respect of the same subject matter.
The Court of Appeal did not agree with the first instance judge on the basis the FOS was not a “tribunal”. In particular the scheme was one for the “informal resolution of disputes”, the FOS need not apply the law in reaching a disposal of a complaint and any determination was not binding unless accepted by the complainant. The Court of Appeal said that the FOS deals with complaints and not causes of action. Therefore any reference to “final” in respect of the FOS’s findings refers to the end of the FOS’s process and does not result in the operation of the doctrine of merger whereby the claim is extinguished. In addition, the FOS does not prevent claimants from claiming damages for an amount in excess of the FOS’s determination, which they have accepted. Mr and Mrs Clark were, therefore, able to pursue their claim in court.

In recent months, we have come across a number of situations where bank customers have encountered major problems with Loan to Value (LTV) Covenants. Typically, an LTV covenant is set at the time a loan is taken out and provides that at any time during the term of the loan the capital amount due under the loan shall not exceed a particular percentage of the value of the property held as security for that loan. The loan conditions will usually also state that if the LTV covenant is breached, that entitles the bank to treat the loan as in default, and therefore trigger their ability to change the conditions of the loan (in respect of the length of the term, lending margin or otherwise) or even to call in the loan.
In circumstances where banks are looking to exit certain markets or increase their profitability on commercial loans they are often keen to establish that a breach has taken place. However, because of the draconian consequences, it is vital that care is taken to ensure that this is or has been done correctly.
Examples of the types of issues we have come across are:
• A bank insisting that an LTV covenant had been breached, in circumstances where the loan agreements did not actually contain such a covenant. Without a covenant in the loan agreement, the bank cannot establish a breach and therefore cannot change the loan terms.
• Situations where there are two loans in place, each with different LTV covenants where the correct interpretation and therefore validity of the covenants depends on a detailed interpretation of the loan documentation.
• LTV covenants which contain a specific procedure to be followed in the event of potential breach, for example for the customer to be given the opportunity to add security to remedy the breach, but where that procedure has not been followed.
• Situations where the LTV covenant states that any breach must be tested by an independent valuer, but the bank has assumed that there has been a breach based on internal assumptions of general movements in the property market, without involvement of professional valuers.
• Covenants which are worded ambiguously where one interpretation may favour the bank and one may favour the customer.
• Conflicting references in the loan documentation to differing valuation assumptions, for example market value or vacant possession basis where the use of different assumptions can determine whether or not there has been a breach of covenant.
Claire Collinson Legal is able to advise on disputes relating to loan to value covenants and advice whether procedures set out in loan agreements have been adhered to correctly. Please contact us for further information.

The FSA Report on Interest Rate Hedging disputes of 29th June 2012 was welcome in that it found serious failings in the sale of these products, corroborating the claims made by large numbers of businesses, which to date, have almost all been vigorously defended by the banks. I report below on the current position in the immediate aftermath of this report, how the various banks and the FOS have reacted to date and what I consider to be the main issues of concern:
The Financial Ombudsman Service reacted swiftly to announce that all current hedging cases were to be transferred to a new dedicated “swaps” adjudication team, made up of senior adjudicators. The team wrote to the banks involved on each current case on 2nd July 2012, asking for a reconsideration of the banks’ previous position by 16th July 2012. The swaps team also specifically noted that they were aware that complainants were in difficult financial circumstances and “This is why we are keen to progress your client’s case as soon as possible”. I have been unable to ascertain from the FOS what the bank’s responses to these letters have been, and my letters of concern noting the potential delay and the impact of the FSA report on individual cases has been met with the response “We will review your comments and respond in full as soon as we are able to do so”.
I have written to each bank involved asking them to confirm the timescale for the FSA review, the identity of the review team and whether they intend to re-review cases which have already been considered by the complaints team / external solicitors. To date, the responses have been:
RBS have stated through their solicitors that they are working through what the report means for its customers and will be in touch shortly and “Our client is committed to the fair and timely treatment of its customers and will work closely with the FSA to achieve that aim”.
Barclays have indicated that they are finalising the detail of the review, after which they will be writing to customers to let them know the next steps, and that they have “agreed to prioritise contacting those customers who are in financial hardship”.
Lloyds have stated that they have created a website with questions and answers which will be updated periodically, and are in the process of determining which customers fall within the review and will be contacting customers directly. In the meantime, they have stated that they will not respond to requests for documentation.
HSBC have not responded to my queries, but on at least one case have transferred their instructions from Stephenson Harwood to Freshfields since publication of the FSA report. HSBC have also failed to respond to requests to put Limitation Standstill Agreements in place on cases and to respond to requests for release of documentation which have been outstanding for a number of months.
It is of course very early days but my view is that the manner in which the FSA report has put control of the review process firmly in the hands of the banks without stipulation of timescales has created a situation where there is a significant risk that this development will have a detrimental effect on many cases. The banks have been handed an opportunity to delay and the generic responses noted above, which all fail to give any commitment in relation to timing of the process, do not alleviate these concerns.
Limitation Periods for litigation (and probably also for FOS complaints) continue to run despite the FSA report. Many businesses do not understand the draconian effect of missing a limitation period and assume that if they have raised a complaint, they have stopped time running. This is not the case and in order to stop time running and preserve the right to litigate in the future if necessary, it is vital to either issue proceedings or agree a Limitation Standstill Agreement with the bank. Some banks are prepared to enter into such agreements, but this is not always the case. HSBC has failed to respond to a request for a Standstill Agreement, initially made in May 2012.
Changes in the civil costs rules are due to come into effect in April 2013 which will have a major impact on the commercial viability of many of these cases, should they need to be litigated. Most businesses affected would not be able to litigate without obtaining After the Event Legal Expenses Insurance to cover the potential risk of losing the case and meeting the bank’s legal costs. Under current rules, if the case is won, the premium for that insurance (which is likely to be a 5 or 6 figure sum) is recovered from the losing party, i.e. the bank. As from April next year, the rules will change so that if the case is won, the premium is paid by the winning party, i.e, the business itself. This comes out of the compensation recovered, and in many hedging disputes where a significant proportion of the redress sought is avoidance of the liability for break costs rather than an actual compensatory recovery, it may well be the case that many businesses will find that their cases are no longer viable as if they win, their net recovery will be minimal, after payment of this insurance premium. There is a significant concern therefore that if the FSA review is not concluded within a very short timescale (i.e. before the autumn) then many cases will be unable to pursue litigation if they are unhappy with the outcome of that review process.
It is also currently unclear exactly how the Financial Ombudsman Service intend to progress cases in tandem with the FSA review and whether they will honour their initial commitment to proceed with cases as quickly as possible. It is also unclear whether the general FOS approach will change in the light of the FSA report. If so, that will create a very unfair outcome for complainants who have already been through the FOS procedure and had their cases rejected.
In conclusion, my central concern is the potentially serious effects of delay, if the FSA review is not conducted expeditiously by the banks, coupled with the structure of the process which appears to have handed the banks the ability to control the timescale of the process. It is very much in the interests of the banks to delay the process for the reasons noted above and my view is that all efforts need to be concentrated on ensuring that delay does not prejudice the rights of businesses to obtain the correct level of redress for their individual circumstances.

Claire Collinson has been dealing with interest rate hedging product disputes since 2009 and has represented a wide variety of businesses and individuals with claims and complaints against all of the high street banks. These types of cases are currently receiving a significant amount of media and political attention, highlighting the appalling financial position these products have left many small businesses in.

Some of the situations I have come across include:

• A bank insisting on a swap continuing when the underlying loan was never entered into because the purchase transaction fell through;
• Swaps and collars being sold for double or triple the length of the underlying loan terms;
• Very small businesses being told that the proposed product was exactly the same as a fixed rate loan, with no explanation of risks;
• Long term products sold with “on demand” facilities;

Some of the issues potential complainants need to be aware of in pursuing a claim include:

• Limitation periods. Strict time limits apply to litigated cases and complaints taken to the FOS, which, if not met, can mean that there is a complete defence to the claim. In many cases this will be a 6 year period from the date the product was entered into. Therefore for products entered into in 2006 or earlier, legal advice is recommended on this issue as arrangements may be possible to prevent time expiring.
• Is the Financial Ombudsman Service a valid option? For smaller businesses and individuals, the Financial Ombudsman Service (FOS) is an option worth considering. It has advantages in that there is no risk of paying the bank’s legal costs in pursuing a complaint, an independent view can be obtained reasonably quickly, it demonstrates a willingness to consider Alternative Dispute Resolution and there is no obligation to accept any decision from the FOS at the end of the process. However, in very general terms the FOS has not been sympathetic towards complaints of this nature, and in some cases the adjudicators have lacked an understanding of the applicable FSA rules. In my view, the decision as to whether the FOS should be approached depends very much on the circumstances of the case: where, for example, there is a significant mis-match between the loan and hedge, or a clearly unsuitable transaction, then the FOS remains a valid option: cases have been successfully resolved via the FOS procedure and the FOS will review each case on its own merits.
• Litigation – changes to rules on funding protection. Most claimants would be ill-advised to commence litigation against a bank without some form of After the Event insurance in place, to protect against the risk of paying the bank’s costs if the claim does not succeed. At present, if the case is successful, the premium for that insurance can be recovered from the bank, along with most of the legal costs spent in pursuing the case. However, earlier this month the Legal Aid Sentencing and Punishment of Offenders Act received Royal Assent. This is due to be implemented in April 2013 and once in place will prevent the recovery of costs insurance premiums from a losing bank, meaning that such premiums would have to come from any compensation received from the bank. This ought to be of major concern to potential claimants in these cases as in circumstances where a large proportion of the resolution sought is often avoidance of a break cost rather than compensation, it could well be the case that once an insurance premium had been paid, the commercial viability of the cases, particularly for smaller amounts, could no longer be viable. This is an issue which needs careful consideration in deciding whether to and when to issue proceedings.

Claire Collinson can advise on hedging disputes, and can deal with cases which are appropriate either for the FOS or litigation.

It is positive to see that the banks have at last backed down in the PPI  mis-selling saga and the deluge of complaints waiting to decided either within the banks’ complaints procedures or at the Financial Ombudsman Service (FOS), can now proceed. If you have a concern about PPI, I recommend that you contact your bank and if you are not happy with their response, contact the FOS. They have a good system in place to deal with PPI complaints and it ought not to be necessary for you to pay for a representative or a claims management company to pursue a PPI claim on your behalf. The FOS staff will help you through the process.

There are many other types of complex investment products, however, which may not have been explained properly at the time of sale, or which have not turned out to work in the way you were led to believe and where it may be helpful to have some guidance in pursuing a complaint and indeed advising as to whether a complaint is worth pursuing.

Structured products are good example of this. There are a huge range of these products on offer through high street financial institutions. They are often sold as a kind of “win-win” product, where you are guaranteed to get your money back at the end of the term, but you can potentially receive good returns from the investment, as they are tied to the performance of an index, such as the FTSE 100.

This all sounds good, but what are the catches? In fact, although they may sound simple, the underlying investment structures are quite complicated: they usually comprise a form of “note” which will protect the capital of the investment and repay all or part of the money at maturity, and also a “derivative”, which is the part of the investment which is linked to an index (and not therefore directly invested in shares) but which can move up and down. Most ordinary investors will not have knowledge of the implications of these structures. If you were fully informed, would the deal still sound so good?

• Can you access the money? Usually, any benefits from the product will only be paid if the product is held for the full term. If you want to or may need to access the money part way through the term, that may not be possible, or you may have to pay some kind of penalty.
• Who is the product held with? Although the product may be sold by a financial institution you trust, is the company which provides the guarantees and the returns a good credit risk? Are they covered by the Financial Services Compensation Scheme if they do go bankrupt?
• Effect of inflation? Where the product has a long term and inflation is high, it may well be the case that on receiving your capital back at the end of the term, you have done much worse than simply putting the cash in a deposit account, where at least some interest would have been earned, to partially offset the erosion effect of inflation.
• Charges? Do you know what commissions and / or charges are paid on the product? Structured products tend to have very high commission charges – up to 6 or 7% which will be taken from any returns before you receive them.
• Are you getting the full benefit of the market? Structured products often cap the level of returns you get, so if the connected index rises sharply, you will not receive all of that growth. Also, you will only receive a return based on the capital increase in the index and will not receive any dividend income from companies within the linked index. Both of these points mean that whilst you may be taking a considerable risk in investing in the market, you are not getting all of the gains that a direct investment in shares in that index would give.
• What investment risk are you taking? The amount of risk depends from product to product, but if the capital invested is not 100% protected, then if and when the connected index falls you may lose capital.
• Fixed maturity date - where the value of the investment is calculated on a fixed date sometime in the future, you have no choice as to when may be the best time to exit the market. Markets can fluctuate wildly in a matter of days, as was seen recently with the Japanese earthquake. If the product matures on a day where markets are very low, then you are stuck with a valuation at that date, even if a couple of days either side would have made a huge difference.
• Tax. The way these products are treated for tax purposes will depend on their exact structure and that could materially change the expected gains.

If you have a complaint about a structured product, Claire Collinson Legal is able to provide advice and guidance as to whether you have a genuine complaint, and if so, to represent you in pursuing a claim or complaint.

Lloyds Banking Group has recently announced a compensation package benefitting hundreds of thousands of Halifax mortgage holders. The payments relate to a sentence in mortgage offers which indicated that mortgage rates would not exceed 2% above Bank of England base rate, whereas in fact, in certain circumstances Halifax reserved the right to charge more than this. Their current Standard Variable Rate is 3% above Bank of England Base rate.

The compensation package, agreed between Lloyds and the FSA to avoid enforcement proceedings, will in many instances represent an unjustified windfall for customers, and demonstrates the serious dichotomy between the way certain “groups” of consumers (on the one hand) and individual customers with distinct circumstances (on the other hand), are treated by the banks and financial regulators.

The general principle of a compensatory payment should be to put the complainant in the position they would have been in had correct advice or information been given. Apparently fewer than 50 Halifax customers have complained about the potentially confusing sentence which is the cause of this pay-out, yet around 300,000 will receive a compensation payment. This demonstrates that the vast majority of affected customers did not consider that they had any reason to complain, were probably not misled, and importantly, had they been given a clear explanation of the mortgage product without this confusing sentence, would probably have opted for it in any event. For customers who would have taken the product anyway, this compensation payment represents an unjustified windfall.

Unfortunately, this apparent generosity and focus on customer clarity is in stark contrast to the approach taken by most banks (Lloyds included) to individual customer complaints. I deal with numerous cases where individuals have strong and valid grounds for complaint. In some circumstances they have been sold products entirely unsuitable for their needs or not properly informed about the risks of a product and have suffered significant financial losses. These customers feel very aggrieved about the service provided by the banks they were encouraged to, and did trust, yet their complaints are by and large met with vehement denials of any responsibility.

The FSA will not intervene in individual cases and therefore for those consumers whose complaints do not fall neatly within a defined group, such as these Halifax mortgage customers, their only remedy is either an expensive court battle or the lengthy process of tacking the banks’ internal complaints procedures followed by a referral to the Financial Ombudsman Service.

This compensatory deal represents a tick box culture at its worst – those customers who happen to tick the right boxes will receive a payment, which in many cases will be a windfall, leaving those who do not fit so neatly into such boxes to struggle on alone against the banks.

The £7.7 million fine imposed on Barclays this month for poor investment advice highlights an ongoing problem but fails to help the majority of bank customers let down with inadequate financial advice. The FSA’s fine relates only to one bank and only two specific investments funds, yet the issue of unsuitable products being recommended to inexperienced investors is relevant across the banking and financial services sector. In some ways, the unfortunate Barclays’ customers who have been sold the poorly performing Aviva funds, are the lucky ones. Barclays have appointed a firm of accountants to review the sale documentation and customers who have lost out will receive compensation.

Most consumers who have been sold investment products which are unsuitable for them will not have the weight of the FSA behind them. They must initially go through the bank’s complaints procedure which more often than not will result in a “we are sorry that you are unhappy” response, but point to a small print, generally worded risk warning, as an explanation as to how they fulfilled their obligations to advise. The consumer then faces the uphill struggle of either a complaint to the Financial Ombudsman Service or court action, both of which are pursued and decided on an individual basis and invariably fought strenuously by the banks.

The specific failings highlighted in the FSA’s Final Notice on Barclays are useful for would be complainants and are seen time and time again:

• Product brochures containing inadequate information about the nature and level of risk;
• Much greater emphasis being put on benefits than risks and insufficiently prominent risk warnings;
• No explanations that when markets fall, customers drawing income are at risk of capital being eroded, and the amount of income they can draw declining over time;
• Complex investments being sold to inexperienced and vulnerable customers;
• Advisers not advising customers about mismatches in their investment objectives, financial circumstances, experience and capacity for loss.

The full text of the Final Notice is available on the FSA website (www.fsa.gov.uk/pubs/final/barclays_jan11.pdf)             

It is good to see that the FSA is taking action further in this area and has opened a consultation on assessing suitability. 50% of investment files assessed by the FSA between March 2008 and September 2010 were rated unsuitable, largely because the investment selection failed to meet the risk a customer was willing and able to take. The FSA have raised concerns about the over reliance on risk-profiling and asset-allocation tools, failures to properly account for all relevant information when assessing risk, poor descriptions of attitudes to risk, failures in selecting suitable investments and the inappropriate focus on risk at the expense of other needs objectives and circumstances.

Claire Collinson has experience of claims and complaints relating to poor investment advice and is available to advise in such circumstances.

The government’s acceptance of the Jackson report on civil costs represents a devastating blow for access to justice and has failed to address the main problem inherent in civil costs. In recent years, the cost of litigation has increased hugely. This has been driven by two factors: the front loading of litigation requiring detailed preparation at the early stages of a claim and, most importantly, the huge hikes in lawyer’s charging rates, particularly in the large city firms which are invariably instructed by large institutions.

An individual or small business who has suffered losses caused by the negligence of a large institution ought to be able to take a case to court without risking financial ruin. However, a claimant has no control over the costs run up by his opponent and therefore runs the risk of paying those costs in full if the case is lost. With spiralling charging rates and the courts’ failure to enforce proportionality on costs, it is eminently reasonable for a claimant to look for protection against that risk.

Over the last few years, that has been possible by setting up a Conditional Fee Agreement (CFA) under which their own lawyer’s fees are waived if the case is lost and taking out insurance cover which will pay the opponent’s costs if the case is lost. If the case is won (ie a judge has decided that the case deserves to win, or the parties have reached a settlement in favour of the individual) then the uplift on the CFA (which recognises the risk the lawyer takes in not getting paid if the case is lost) and the insurance premium are met by the losing party.

These rules have meant that meritorious cases could be pursued without an individual risking bankruptcy and if the case was won, the compensation awarded was not significantly reduced by legal fees or insurance premiums.

The Jackson cost reforms will alter this system fundamentally, providing that for successful cases a claimant must pay both the CFA uplift and the insurance premium from his compensation. For cases with a monetary value of less than around £150,000 (a life changing amount for most individuals and the difference between success and failure for most small businesses) such cases will no longer be commercially viable. The claimant will be caught between a rock and a hard place.

On the one hand they could pursue a claim without funding protection, but that would mean risking financial disaster if unsuccessful. If they take out funding protection, that would still be effective in preventing financial disaster, but the financial rationale for pursuing the claim would be largely removed – the compensation would be so significantly reduced by a combination of the usual shortfall on costs, the insurance premium and any CFA uplift as to render the litigation pointless.

The ability of David to take on Goliath has long been a vital feature of our rights under the English legal system; it has been of benefit to countless individuals, has helped to prevent inequitable behaviour by large corporations and led to legal precedents which have shaped our common law. Along with the demise of legal aid, these reforms will sweep all of this away and represent a disenfranchisement of all but the richest individuals and largest corporations.  The review of civil costs presented an ideal opportunity to impose innovative rules to ensure that costs are kept proportionate to the amount in dispute; they have singularly failed, however, to properly grapple with the issue at the heart of the current problem with costs – the amount of costs incurred and their disparity to the amount in dispute and have simply shifted the burden of paying those costs from a losing defendant to a successful claimant.

Most motor insurance policies contain an exclusion clause removing cover for theft claims where keys have been left in a car. A number of different types of argument arise, depending on the circumstances of the case:

Interpretation disputes – if a theft occurs and it is accepted that the insured left the keys in the car, whether or not the repudiation is correct depends on the interpretation of the clause. The courts take a fairly strict view. In Hayward v Norwich Union (2001) the Court of Appeal upheld a repudiation where a Porsche had been stolen from a petrol station when the keys had been in the ignition, but the car had been in sight of the owner at all times. The court decided that the keys had still “been left” in the car. In a situation like this, it may be worth taking a case to the FOS as they will look at the overall fairness of the situation including where the car was when it was stolen, whether the insured was close enough to deter a theft and any reasons why the insured left the keys in the car.

Factual disputes – Insurers may repudiate a claim on the basis of an argument that the vehicle in question was a sophisticated vehicle and the manufacturer has stated that the vehicle could not be stolen without a key and therefore the most likely explanation is that a key was left in the car. This is often in a situation where the only one set of keys can be produced. The legal position in these cases is to consider what the most likely explanation is “on the balance of probabilities”. Therefore, it is important to collect as much evidence as possible on issues such as where any missing keys are or could be, the opinion of the police on the possible causes of the theft and any industry input into the possibility of theft without a key.

“What is a key” disputes - these claims arise where an insurer repudiates on the basis that a service key or emergency key has been left in the vehicle. Insurers say that the vehicle could have been started with one of these keys yet often the insured may never have seen or used such a key. In these cases it is important to get evidence from the manufacturer as to exactly what these keys could do – if they could not start the car if it had been locked with a fob key, for example, there is a good argument that they should not be considered to be a “key” under the exclusion, making the repudiation invalid.

Selling disputes – If a policy has been repudiated validly on one of these grounds, it may well be worth looking at a complaint that the policy was sold without this condition being made clear. The FOS specifically says that it will look at the issue of whether these exclusion clauses were sufficiently highlighted when the policy was sold. Claire Collinson Legal is happy to advice on the prospects of challenging the repudiation of claims on these types of cases.