A group of MPs and peers has called on UK banks to follow the example of Australia’s largest banks and adopt ‘model litigant principles’, which aim to level the playing field in disputes with customers.
These set out clear guidance on how the larger party must act in disputes where there is a significant disparity in resource between the parties.
The All-Party Parliamentary Group (APPG) on Fair Business Banking, co-chaired by MPs Kevin Hollinrake and William Wragg, said the introduction of “fair, honest and mandatory” principles which enforce good faith would be a “first step in driving change”.
The APPG wrote to the Financial Conduct Authority about the idea last month as part of its ongoing work on Lloyds Banking Group’s handling of the HBOS Reading scandal. Lloyds took over HBOS in 2008.
This followed the APPG’s 21-page submission to the Solicitors Regulation Authority last summer, strongly criticising the advice provided to Lloyds by City law firm Herbert Smith Freehills.
The HBOS Reading scandal saw six people jailed in 2017 for pushing business customers into distress or failure between 2003 and 2007 after referring them to a turnaround consultancy, which led to them being saddled with debt.
The APPG described the scandal as a “clear example” of how, even in cases involving proven victims of fraud, inequality of arms between banks and customers created “unfair outcomes and immense personal distress”.
The APPG said “fundamental changes to culture of dispute resolution in the business banking sector” were needed.
It suggested to the authority that a model litigant code of conduct be introduced into the regulation of banks in all of their dealing with SMEs, and there should be “strict and substantial financial penalties”, payable to customers, where the bank has “deliberately delayed, obfuscated and caused further detriment when it knows it is in wrong”.
While the creation of the Business Banking Resolution Service was an important step in the right direction, “introducing fair, honest and mandatory model litigant principles to the sector which enforce good faith would be a first step in driving change”.
The model litigant principles were originally established in Australia for disputes involving the government but, following a royal commission on banking, the largest banks were “forced to adopt the principles in recognition of the vast inequality of arms between banks and their customers” when it came to disputes.
The core principles of the rules are:
- Acting honestly, consistently, and fairly in the handling of claims and litigation;
- Dealing with claims promptly;
- Making an early assessment of the litigants’ prospects of success;
- Paying legitimate claims without litigation;
- Not taking advantage of a claimant who lacks resources;
- Not relying on a merely technical defence against a claim; and
- Considering alternative dispute resolution (ADR) options.
In its version of the principles, the Commonwealth Bank of Australia said it would also, in situations where it was not possible to avoid litigation, keep “the scope and costs of litigation to a minimum”, by, among other things not requiring the other party to prove a matter it knew to be true and not contesting liability if it knew the dispute was really about quantum.
The bank said it would also ensure that any employees representing it at settlement negotiations has the authority to settle the claim.
The APPG said the principles had changed the way banks in Australia saw their customer interactions “forever”.