High Court dismisses summary judgment application in credit card portfolio transfer case

In CCUK Finance Ltd & Anor v Barclays Bank plc [2018] EWHC 304 (Comm), the High Court has rejected the claimants’ application for summary judgment in respect of its claim and summary dismissal of the defendant bank’s counterclaim.

The effect of this judgment is that the bank will be allowed to pursue its multi-million pound counterclaim in relation to monies paid to the claimants under an indemnity against customer mis-selling claims, following the transfer of a portfolio of credit cards from the bank to the claimants.

The judgment serves as a helpful consolidation of the principles applicable to applications for summary judgment, strike out and orders for specific performance. In particular in relation to summary judgment, the High Court emphasised that it may not be appropriate to decide questions of law or construction on an interlocutory application where the facts may be determinative of those legal issues and/or where the legal issues require more detailed analysis. This was a case in which account needed to be taken of the commercial background and practical and commercial consequences of rival constructions - which required more detailed evidence and greater argument and mature reflection than was permitted on a summary judgment application.

Background

The case concerned a Sale and Purchase Agreement entered into by Barclays Bank plc (the “Bank”) and CCUK Finance Limited (“CCUK”) (previously CompuCredit UK Limited) on 4 April 2007 (the “SPA”) under which the Bank sold CCUK a portfolio of credit card accounts. According to CCUK, the Bank had mis-sold a product known as a Payment Break Plan (“PBP”) to approximately 40% of the accounts within the transferred portfolio.

The SPA provided that “[the Bank] shall remain liable for and shall pay, discharge and perform in accordance with their respective terms when due all Retained Liabilities” (the “Performance Obligation”) and “shall indemnify and hold [CCUK]…harmless against any Losses relating to any Retained Liabilities” (the “Indemnity”). It was common ground that to the extent that PBP was mis-sold by the Bank in relation to the transferred portfolio, the liability of CCUK to compensate cardholders constituted a 'Retained Liability' and engaged the Indemnity. The parties were not however in agreement, as a matter of contractual construction, as to whether the Performance Obligation was engaged in cases of PBP mis-selling.

In 2011, the parties reached agreement that CCUK would handle complaints from cardholders relating to the mis-selling of PBP products, invoice the Bank, and that the Bank would indemnify CCUK in accordance with the terms of the SPA. The sums paid by the Bank to CCUK under this arrangement were in excess of £350 million which the Bank said were paid on the basis that the sums fell within the Indemnity. However, the Bank said that, in July 2017 it identified posts on consumer websites indicating that customers had received unsolicited payments from CCUK in respect of PBP mis-selling where they had not made a PBP mis-selling complaint, and that such payments would be outside the scope of the Indemnity. As a result the Bank suspended payments to CCUK in August 2017.

CCUK subsequently applied to the court for summary judgment, seeking orders compelling the Bank to either take over the remediation exercise pursuant to the Performance Obligation, or to pay future invoices issued by CCUK seeking reimbursement from the Bank under the Indemnity (plus summary judgment in respect of certain outstanding invoices). CCUK also sought strike out or summary judgment on the Bank’s counterclaim to recover overpayments made to CCUK. The counterclaim was framed as one for unjust enrichment in relation to the payment of past invoices, in an unquantified amount.

Decision

The court found in favour of the Bank and dismissed the application in full.

Application for summary judgment/strike-out

The court reaffirmed the position that, on an application to strike-out, the question is whether the whole or material part of a statement of case discloses reasonable grounds for bringing the claim (or, as in the present case, the counterclaim). In relation to summary judgment, the principles have been summarised in a number of cases, most recently in Global Asset Capital Inc v Aabar Block SARL [2017] 4 WLR 163approving the well-known passage in Easyair Ltd v Opal Telecom Ltd[2009] EWHC 339 (Ch). The court identified five points which were of relevance to the applications before it:

1. The court must consider whether the respondent to the application has a “realistic” as opposed to a “fanciful” prospect of success; a “realistic” prospect of success is one that carries some degree of conviction and not one that is merely arguable.
2. The court should avoid being drawn into an attempt to resolve conflicts of fact.
3. The court must take into account not only the evidence actually placed before it on the application for summary judgment, but also the evidence that can reasonably be expected to be available at trial.
4. This does not mean that the court must take at face value everything that a respondent says, but the court can only dispose of factual issues in a summary judgment hearing if there is no real prospect of the evidence of one side being accepted.
5. It may not be appropriate to decide difficult questions of law or construction on an interlocutory application where the facts may be determinative of those legal issues and/or where the legal issues require more detailed argument.

The Bank to take over the remediation process

In considering the application by CCUK for an order requiring the Bank to take over the remediation exercise pursuant to the Performance Obligation, the court could see considerable force in the Bank’s opposing submissions on construction. In particular, the Bank identified certain commercial and practical difficulties with the construction of the clause as put forward by CCUK. For example, the Bank had identified examples of what it would need to know in order to understand the implications of the proposal, such as details of the data, files or systems which would need to be transferred; but such requests for information remained unanswered by CCUK. The court found that it could not resolve this point of construction in CCUK’s favour on a summary basis. It held that construction involves an iterative process in which account needs to be taken of the practical and commercial consequences of rival constructions. There was little evidence addressed to this question, and the argument was not developed in any great detail.

Continuing entitlement to the Indemnity

CCUK sought alternative relief on the basis that there was a continuing entitlement to the Indemnity. The court held that there was a realistic case that CCUK had over many years made payments to cardholders, for which it had been paid by the Bank, but which did not fall within the Indemnity and that this had occurred on a significant scale, rather than in occasional isolated incidents. As such, if relief was granted on this basis, the Bank would be being ordered to indemnify CCUK for payments which fell outside the Indemnity. Further, the court held that CCUK had not sufficiently made out its argument that, by course of conduct, the Bank was liable in the past and for future for sums which did not in fact fall within the scope of the Indemnity (e.g. because of an estoppel by representation, convention or otherwise).

Counterclaim

The court also found that the Bank had raised a sufficiently arguable case on its counterclaim, which should not be struck out nor should summary judgment be ordered against the Bank. The court held that on a summary judgment or strike out application, a party should not be precluded from giving further particulars of its case whose essential allegations are already pleaded if the evidence adduced shows a sufficiently arguable case to support them, unless there is a particular reason why justice requires that such evidence should not be taken into account.

Specific Performance

The court further held that - had it reached a conclusion in favour of CCUK as a matter of construction on either of the two claims above - it would still not have been prepared to grant the relief sought on a summary basis. Although the relief sought was in the form of declarations, they were in substance orders for specific performance: for the Bank to take over the remediation process and to continue to indemnify CCUK.

Comment

This decision is a useful reaffirmation of the key points to consider for those bringing applications for strike-out/summary judgment or specific performance, and underlines the approach the court will take when considering whether those tests have been satisfied.