Page 13 Barristers Feature
challenge the legality of the government’s nationalisation scheme.

‘This was a case which developed in isolation, in which the issues were immediately reasonably straightforward to identify, and where the battlelines were drawn up early in the case – all rather ­orderly by comparison with the present maelstrom,’ he explains. Professor Mark Watson Gandy, of London’s 13 Old Square, who is also a qualified accountant, says the credit crunch has changed ­everything for the banking bar but not entirely for the better. ‘The work is much busier but suddenly the tenor has changed. Everybody is either trying to wriggle out of contracts or trying to shift the blame.’

Litigation issues that were ­common after the 1990s housing crash are being revisited, he says. Scared banks are pulling the plug on hitherto sound businesses more out of panic than any commercial judgement, and are seeking ­possession against properties – in a race before any remaining equity vanishes – as well as trying to ­enforce guarantees against ­directors rash enough to sign them. But this time, there is more than self-preservation ­motivating bankers, Watson-Gandy explains. ‘We have numerous ­enquiries from brokers trying to sound out our take on the bank’s ­attitudes to their covenants. The subtext is that they are trying to get a sense of debts recoverability, and whether the book position of the bank will be ­negotiated away once litigation begins and the haggling starts.’ This stance has led to a raft of potential claims against banks, which are usually based on heavy handling of clients, causing loss to the clients or their businesses. ‘Few of these claims, in practice, find their way to court. This is mainly because the duty of care owed by banks to their clients is surprisingly limited,’ adds Watson-Gandy.

Another litigation headache looming for banks is brought about by changes to the Consumer Credit Act 1974 introduced by the Consumer Credit Act 2006, which took effect in April 2008. Banks like HBOS and Barclays and their­subsidiaries face group litigation with numerous claimants over “shared appreciation mortgages”, which were sold by the bucket-load in 1997/98. These loans secured on residential properties, explains David Lowe QC of 13 Old Square were made on a zero-interest or a fixed-interest basis. When the owner sold, the banks received a proportion of the appreciation in value of the property over the ­period since the date of the loan and repayment of the loan itself, with interest.

Many complaints have been made about such mortgages, with little effect. However, the provisions of the new act which cover ­‘extortionate credit bargains’ have retrospective effect and operate on the basis of a lower and more flexible threshold than those in the ­previous act.
Lowe explains: ‘If the court ­determines the relationship ­between the creditor and the debtor is unfair to the debtor, it has wide powers to vary the terms of the agreement.’ The case, he says, would ­thoroughly test the new legislation and, given the amounts involved and the potential importance of the decision both to the parties and in the financial/consumer sector as a whole, could go on appeal all the way to the top.
Lowe adds: ‘When the ­proceedings have actually been ­issued, one important effect is that the application of the new ­legislation to pre-existing agreements will become appreciated. This may come as a surprise to many and it may result in a remedy hitherto denied becoming available in a range of other situations.’

Large-scale litigation

Ben Valentin, of 3-4 South Square in London, predicts an ­increase in large-scale banking ­litigation, but probably not until late 2009/2010. ‘Regulatory oversight of the financial markets will be scaled up to ensure past mistakes are not repeated. The entire sector will ­become risk-averse for a time and focus on consolidation and cleaning up the mess caused by the credit crunch,’ he says. Richard Adkins QC of 3-4 South Square says the credit crunch has led to a drying up of work – advice and litigation – ­concerned with structured finance, which has taken most of the blame for the existence of the credit crunch. ‘In the future, there are likely to be substantial mis-selling claims made in respect of the ­securities issued in the
securitisations and otherwise.’

A year ago, Adkins (pictured below) says, the work consisted of transactional ­advisory work and litigation in ­relation to structured finance, particularly securitisation, and also the work-out of structured investment vehicles (SIVs). ‘Now it is almost solely SIV workouts and the ancillary questions which arise, such as currency and credit enhancement swap issues,’ he adds. The collapse or plummeting value of many hedge funds is another area providing a healthy source of work for the commercial/chancery bar, says Edward Sawyer, a barrister at Wilberforce Chambers in London. ‘Clients are seeking to extricate themselves from their investments in hedge funds, while the funds themselves have attempted to prevent investors redeeming.’ Many clients, he says, are seeking advice on loan agreements, where a dispute has arisen as to whether the lender is obliged to advance more money and if so on what terms. Similarly, the seizure of the Icelandic banks’ deposits and issues arising from the Lehman Brothers administration have given rise to much advisory work.

Barry Isaacs, of 3-4 South Square in London, is advising the administrators of Lehman, the ­Financial Services Authority and the Financial Services Compensation Scheme in relation to the Icelandic banks and the administrator of ­Italian airline ­Alitalia. Isaacs says the ­administration of Lehman Brothers is probably the UK’s largest and most complicated insolvency. ‘It will generate litigation for years to come, both because many of the issues it raises are complex and novel, and because the amounts at stake are enormous.’ Those who said that the massive litigations relating to BCCI and ­Equitable Life were the last of their kind are likely to be proved wrong, he adds. One of the biggest changes to ­affect commercial lawyers lately is the introduction of a pilot scheme at the Commercial Court, which is designed both to reduce the cost of heavy litigation as well as the amount of court documents. Changes include pleadings being limited to 25 pages and opening speeches to last no more than two days.

Sawyer explains: ‘This might be thought to reduce the amount of work for juniors working on a large case, because the need for ­elaborate court documents is ­reduced, but the new procedure calls for careful analysis and a ­targeted approach at a very early stage, which may encourage solicitors to involve counsel more than they might otherwise.’ Simon Mills, head of the commercial team at 5 Paper Buildings in London, says the factoring and discounting sector is relatively busy and ­well-placed for the recession. ‘This is partly because this type of funding has traditionally taken over where other types of funding have been sparse, but also because the market is much less susceptible to structural asset-based problems that are indicative of the credit crunch. So there will be many more opportunities for invoice financiers with solid credit lines.’ There has been a greater drive by the clearing banks to move into ­invoice finance, he says, particularly following the judicial developments in the Brumark (Agnew v CIR [2001]

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