Farol Holdings Limited & Ors v Clydesdale Bank Plc & Anor

Under section 140A of the Consumer Credit Act 1974, the court must assess the fairness of the particular debtor-creditor relationship in the round. Evidence that a practice was usual among banks does not, without more, establish an accepted standard of conduct or show that the practice was fair.

Expert evidence is admissible only where it concerns a recognised body of expertise governed by recognised standards or rules of conduct and is capable of assisting the court. Evidence merely describing what market participants usually did is generally factual evidence, not expert evidence. This is especially so where the alleged conduct involved deliberately concealing additional income from customers.

The claimants alleged that the defendants had added undisclosed basis points to fixed-rate loans, generating additional treasury income, and that this conduct made the credit relationship unfair under section 140A(1)(c) of the Consumer Credit Act 1974. In one claim, the pleading alleged that the conduct fell below the standard of commercial conduct reasonably to be expected of banks providing loans to SME customers. In another, the claimant alleged that disclosure would have affected hypothetical negotiations with the bank or another lender.

The defendants applied at a case management conference for permission to adduce financial-markets expert evidence about how banks priced fixed-rate loans, whether additional income elements were usual, and whether those elements were disclosed. The issue was whether the proposed evidence was relevant and admissible expert evidence.

1. Application refused. The proposed evidence would not assist determination of the pleaded allegation that adding hidden basis points to meet internal targets fell below the relevant commercial standard. Evidence that banks commonly included an income element, or commonly failed to disclose it, would not address whether that particular conduct was unfair.
2. The enquiry under section 140A(1)(c) of the Consumer Credit Act 1974 is broad and concerns whether the relationship was unfair having regard to all matters the court considers relevant. The standard of commercial conduct reasonably to be expected of a bank is only one element of that enquiry. The statutory question is not equivalent to whether the bank breached a regulatory or other legal duty: Plevin v Paragon Personal Finance Ltd [2014] UKSC 61.
3. Expert evidence is admissible only where there is a recognised expertise governed by recognised standards and rules of conduct, relevant to an issue for the court, and the witness has sufficient knowledge to provide potentially valuable assistance: The RBS Rights Issue Litigation [2015] EWHC 3433 (Ch), applying Barings Plc v Coopers & Lybrand [2001] PNLR 22.
4. Evidence of an accepted professional standard sanctioned by common usage may be admissible. Evidence merely describing the witness’s experience, or what other banks usually did, is evidence of fact and does not satisfy the threshold. The distinction identified in Midland Bank Trust Company v Hett Stubs & Kemp [1979] 1 Ch 384 required more than ordinary market practice.
5. Because the alleged conduct involved keeping additional income hidden from customers, even widespread practice would be unlikely to amount to common usage sanctioning it as accepted conduct. Evidence concerning other lenders’ pricing would also not assist in assessing hypothetical negotiations where the hidden element was assumed to have been disclosed. The fact that the defendants bore a burden on fairness, or that experts were permitted to address other pricing issues, did not remove the admissibility requirement.
6. The court left open the possibility of a differently formulated expert application based on published guidance or accepted standards of conduct.