Breaking news - HBOS doesn't lose £500 million

It was announced yesterday (see here) that Lloyds Bank, the lucky owner of HBOS (Halifax Bank of Scotland), will have to pay around £500million to HBOS customers who took out a particular type of loan. The long and short of it is that customers were told they would be given notice if HBOS changed its policy from charging a maximum of 2% above base rate to charging 3% above base rate. The policy was changed, as they were probably entitled to do, but notice was not given to all customers who were told they would be given notice. Nonetheless, 3% above base rate was charged. Lloyds has agreed to compensate those who paid the additional 1% but were not given notice.

On the face of it the position is very straightforward. Whether or not customers would have sought a replacement loan on being informed of the change, they would have had the opportunity to do so. As it is they were deprived of that opportunity. Had they been given notice it seems fair to presume that some would have found another lender and ended up paying less than the amount they paid Lloyds, some would have found another lender and ended up paying more than to Lloyds, some would have switched to a different type of loan with Lloyds and some would have just left the original loan in place and paid the extra interest. There is no way of knowing how many would have fallen into each category although it is probably not unrealistic to suggest that most would have left things as they were and just paid the higher interest charge. After all, base rate had fallen substantially and 3% above base was less than many had been paying a year before when the mark-up was 2%.

If this were looked at as a claim for breach of contract the assessment of compensation would be fiendishly difficult. Leaving aside the question whether there was any breach of contract, compensation would have to be calculated by trying to value the loss of opportunity to switch mortgage from Lloyds to another lender or from one Lloyds mortgage product to another. The position would be different for different borrowers, depending on their own financial circumstances and the degree to which they would have been likely to seek out an alternative loan. Few would have been entitled to repayment of the whole of the additional 1% they paid although it is theoretically possible that a very small number would have been able to prove a case for a larger sum (if they were able to satisfy the court they would have switched to a loan charging less than 2% over base).

Reports say up to 300,000 HBOS customers were affected. It would make no sense (except to the bank managers of the lawyers involved) to have 300,000 separate claims. Were this dealt with by way of claims for breach of contract there would be only one claim in which all customers who showed interest would be involved. "Class actions", as these cases are known, are relatively new beasts to the English judicial process, we see them most often when a large number of people suffer personal injuries due to the same cause - perhaps a drug that proves to have bad side effects or a work practice that causes many employees to suffer illness or injury. Although the accuracy of the compensation in each individual case is somewhat rough and ready the process is generally quicker, certainly much cheaper and has the added advantage of everyone knowing their case has been considered in the same way as everyone else's.

The intervention of regulators of businesses such as banking means that legal claims do not always need to be made, the regulator can step in and require redress to be paid for an apparent wrongdoing. This, of course, is what happened in the present case. We will probably never know how much pressure was applied by the regulator and how much the decision to offer compensation was motivated by either a genuine sense of the need to do the right thing or exasperation at Lloyds with the shabby practices of HBOS and it does not really matter. A problem was identified, a solution worked out and litigation avoided.

At the heart of the solution is the implicit assumption that HBOS/Lloyds should not have charged an extra 1% interest without giving notice to their customers. Whether they were entitled to do so in law is not the point, they said they would give notice and they did not; of itself that is bad practice and, some would say, fundamentally unfair. The amount they received from customers by increasing their margin seems to have been around £500million. They simply should not have received that sum in the first place. Had they followed good practice they would have received the money and would not now be liable to repay it, as it is they should not have received it and now must repay it.

In making the repayments Lloyds will not be losing anything they will simply be handing back money they should not have received. It is quite wrong to think of this as a loss. Any loss is purely hypothetical and results from not giving the promised notice - had it been given they would have received £500million, by not giving it they have lost £500million, except they haven't. By not giving notice they lost the chance of receiving up to £500million but they did not lose any money. By not investing one pound on the numbers 6, 16, 26, 32, 33, 34 and 46 for last Saturday's lottery you lost £4million - that is not a loss it is a failure to make a profit that would have ensued from doing something other than what you actually did.

Captain Ranty's "Legal Fiction"

I have been reminded by the good Mr Wadsworth (here) of a recent posting on the site of the deliciously entertaining but occasionally deranged Captain Ranty (here). In the piece highlighted by Mr Wadsworth the Captain made a bizarre and patently absurd assertion, namely that a judge in a County Court had made a finding in law that there is a distinction between between someone calling himself Roger Hayes and living at a particular address, let's call it 34 Acacia Avenue, and Mr Roger Hayes who has been billed for Council Tax at 34 Acacia Avenue.

The case to which he refers involved a claim being made in the County Court and I infer the local council had issued a summons against "Mr Roger Hayes" and served it at 34 Acacia Avenue claiming whatever sum of Council Tax for 34 Acacia Avenue had not been paid. I also infer that the only adult human being who is both known as Roger Hayes and lives at 34 Acacia Avenue attended court. When there he claimed not to be Mr Roger Hayes and not to be liable to Council Tax for 34 Acacia Avenue because he was Roger Hayes, the human being, whereas Mr Roger Hayes is legal corporation but not comprised of flesh and bones. I don't propose to waste a good keyboard on explaining everything that is wrong with this manifestly ludicrous proposition, save to say it has no merit in law and is almost certainly unfounded in fact (for example, I'll bet you a pig to a pork scratching that the human being has acknowledged himself to be Mr Roger Hayes hundreds if not thousands of times and has benefited from doing so - in passing, I wonder whether he has a bank account and, if so, whether the bank records the account as being that of Roger Hayes or Mr Roger Hayes, if the latter poor Roger would be liable to repay every penny he has ever withdrawn). What I want to explain is what the judge's conduct of the hearing amounted to.

By way of background, I should point out that nothing Captain Ranty or (Mr) Roger Hayes are saying today is at all novel. Every year the courts hear these and similar arguments being put forward in a vain attempt to challenge either the right of the court to hear the case or the very concept of enforceable law. Friday afternoons are reserved for such people by the procedural judges (known as Masters) of the Queen's Bench Division of the High Court. The arguments range from demands that the judge provides evidence of his appointment followed by a refusal to accept that the judge is a judge unless he can do so, to assertions that certain Acts of Parliament have no effect because they contravene Magna Carta, to attempts to get one judge to re-hear a case that has already been heard by another judge, and all sorts of nonsense in between. Experience shows that the best thing to do is sit back, let the barmy argument be put and then get on with the case. Frequently this involves adjourning the matter to a later date on the ground that further evidence is required on one point or another or because the court has run out of time due to the spouting, at great length, of unmitigated tosh by the misguided litigant. In some instances these adjournments are made in the hope the nutter will give up, and sometimes they do.

The choice for the judge is to allow the rubbish to be spouted, or to try to prevent it being spouted. No third way exists. Trying to prevent carries risks because the litigants are often either unstable or obsessed or both. Neither County Courts nor the High Court are usually staffed by a six-foot bouncer with a stun gun, instead they have an usher who is more likely to be a lady in her late fifties called Enid with no weapon more effective than a clipboard and a ballpoint pen. No judge is going to put his or her staff at any physical risk if they can avoid it, so the path of least resistance is adopted. This involves trying to dismiss the point briefly in the hope the annoyance will accept the indication and go away, but if that fails it is safer to allow them a "day in court". That does not mean that any credence at all is given to the eccentric theories being expounded, far less does it amount to an acceptance of those theories or that the person arguing them has any legal right to appear in the case at all. It's all a matter of practicalities. Years ago judges tended to be somewhat brusquer on average than they are today, yet even the most robust would show their greatest politeness when faced with a litigant in person barking up the wrong end of a very sturdy tree.

Nothing in the case referred to by Captain Ranty hints for even a second that the judge accepted any part of the fanciful arguments being put in front of him. Rather, it is a classic case of a judge trying to get a nutter to go away and then sitting back resignedly and facing the unappealing fact that the nutter will persist and should be allowed to do so to prevent any unpleasantness and/or the wasting of even more time by another judge being faced with exactly the same scenario at a later date.

We really do need a property crash

I was musing the other day about what FatBigot Towers would command on the "open" market if it's value had increased at the rate of general inflation. Of course there is no way of knowing because there is no such thing as a single rate of non-housing inflation - it all depends what products you include in the calculation. To arrive at some sort of figure I googlised "UK inflation since 1993" and found a fun site that allowed me to find the value in 2010 of any given sum at an earlier date (here). I know not how accurate it is, but it's fun anyway.

What I found is that the rates of inflation used at that site indicate FatBigot Towers to have increased in "value" by almost two and a half times general inflation. That really is an absurd state of affairs, not that I mind because free money is free money and I might get around to cashing it is in the not too distant. One factor that needs to be borne in mind is that I purchased my modest hovel at a time when prices had fallen substantially and the market was extremely flat, prices could well have been below a fair market price due to suppressed demand. The vendors, who were and are friends of mine, had found their ideal property and beaten the price down substantially, they also had not needed to use estate agents, so it might well be that I paid a bit under the odds. Even so, FatBigot Towers would seem to be "worth" well over twice what it would have cost today had house price inflation been roughly in line with general inflation.

I can understand why the current government feels it would be politically dangerous to allow the property market to correct itself. We had a decade of Blair and Brown telling people they were rich because their houses had gone up in value, boom-and-bust was a thing of the past, caution was thrown out of the window and a lot of debt additional to house-purchase loans was secured on homes. That sort of thing gives rise to expectations. The government had made them so much richer than they were before, they thought, and if they still hold that view there is every likelihood that they will consider the government to have made them poor if prices crash to a sensible level.

The position is a little different to that of twenty years ago. The price bubble is much larger than it was then and far more people have dipped into the bubble to pay for holidays, cars and electronic goodies. Although a lot of loans have been repaid since things went bang that process has itself made people feel poorer, so adding a drop in house prices to the pot would risk adding insult to injury. There is also the psychological effect of the sums of money involved. Twenty years ago a property previously priced at £200,000 might have fallen to £140,000, that's £60,000 and no one sniffs at that. By contrast, today the equivalent sums for the same property might be £400,000 and £280,000; £120,000 is so much more, not least because it is six figures rather than five. The general inflation calculator I linked to above says £60,000 in 1991 is equivalent to £96,000 in 2010; for the loss to be £120,000 not £96,000 gives the impression things are worse even though the same percentage of bubble has been removed in the two examples.

Looking back to the early 1990s I cannot recall any significant political backlash as a result of the property market collapsing. It had collapsed by the time of the general election in 1992 but the incumbent government won a majority (albeit much reduced). All the usual suspects were bleating on about people losing their homes but when details were given it became apparent to all that the genuine stories of bad luck were accompanied by many more of people borrowing more than they could afford to repay. In those days that seemed to be considered the fault of the borrowers rather than the lenders. Interest rates soared because base rate reflected the state of the government's finances and the ERM farce had rather pissed in the soup in that regard. Nonetheless, the government got back in and, not least because bad debt had been written off rather than carried over, it took only a few years for the nation's finances to be on a very sound footing.

The whole mood seems to be different now. No doubt it is due in part to so much of life now being tied into government activity. Never before have so many been dependent on government for so much of their income - due in large part to the evil tax credits scheme. And never has government presented itself as having magical powers to solve all ills as it has over the last ten years or so. A problem arises and government appoints someone to deal with it and/or throws money at a quango to solve it. The problem usually doesn't go away and the level of amelioration provided in return for the taxpayers' buck is pitiful, but the problem is now in the hands of government. No other solution is affordable because no one has the money government has, and failure to solve the problem can only be explained by not enough tax having been thrown at it. And we are led to believe that more and more of life's problems are under the control of government because they have outlawed this, regulated that and have an army of day-glo jacketed wardens imposing fixed penalty notices for everything else. No solution exists other than government. Two consequences follow. First people believe government can control things it actually has no ability at all to control and, secondly, any problems that remain are placed firmly at the door of government whether or not it is realistic to do so.

Allow a collapse in the bogus wealth contained within the house price bubble and government runs a huge risk to its chance of surviving the next election. Or so it thinks. Maybe it is correct in that thought although I have my doubts. I talk to lots of people about these things, not just fellow pompous barristers but ordinary people doing ordinary jobs to support themselves and their families. The only people I hear supporting government involvement in everything are the "liberal" Islington chatterati who seem to have the view that only they are capable to supporting themselves and everyone else, all the little people, need a massive network of support and counselling in order to boil an egg. The people doing ordinary jobs just want to be taxed less and left alone to look after themselves. It does not, however, follow that they would vote for a governing party that withdrew all the nannying unless it also reduced their tax bills.

Against that background I can see why the current government will not step aside and allow property prices to fall to affordable levels as their predecessors did two decades ago. Ironically, the one thing they want to achieve is more economic activity in the country and a thriving property market helps achieve that because moving home always involves the purchase of new stuff for the new abode. A thriving property market is one in which there are many transactions and has nothing to do with the nominal value of each transaction. At the moment the complaint of those involved in the business of property is that few transactions are taking place. Were prices more realistic it is reasonable to infer that there would be more. The other side of the coin is that some would be lumbered with negative equity and would be unable to move or would even face insolvency. It happened before and things soon recovered. You cannot set economic policy by trying to protect everyone from ever making a loss on a deal - well, actually, you can but you would create something nearly as bad as the mess Gordon Brown left the country.

In this respect, as in many others, I despair at the lack of guts displayed by the current government. They know houses are grossly overpriced and that the result is the current generation of young adults being priced out of the market completely unless their families already have money. They also know that all sorts of businesses benefit from property transactions - builders, painters and decorators, carpet suppliers, white goods suppliers, garden centres and a host more; their trade is suppressed if the property market is suppressed. Although it would be a short-term political gamble, a government of principle would say it is the right thing to do and would explain why. My money would be on that position being accepted by far more floating voters than the number who reject it. In any event, and I know I am dreaming here, I wish that just once we had a government that looked to the interests of the country rather than to its own electoral prospects when deciding policy.

Today's bad word - "diversity"

On Thursdays the Times newspaper has a Law section containing snippets of legal news and gossip, the profile of a lawyer who has been involved in a recent newsworthy case and a main article dealing with an issue likely to be of interest to members of the legal profession. This week's article highlights concerns expressed by the Lord Chief Justice (the conveniently named Lord Judge - incidentally, we also have a Court of Appeal judge with the surname Laws) that too few solicitors from high-powered city firms are applying to sit as judges and too few people of high quality are attracted to criminal and family work because the pay is poor.

The article appears under a sub-heading reading "The Lord Chief Justice is worried about the diversity of the Bench" and was illustrated with a column listing the number of women and former solicitors sitting at the different levels of the judiciary. I cannot speak for Lord Judge but I think both the sub-heading and the illustrative numbers are misleading. Not only can I not speak for Lord Judge but I do not know him personally and can interpret comments he made only against the background of his well-known reputation at the Bar. Somehow I doubt that "diversity" of itself is his desire. Indeed, I think it impossible that diversity could ever be his desire although it could be a pleasant consequence of the system of judicial appointments. My point is about the whole concept of "diversity" and the way it is interpreted in the article in the Times because I believe it has been misinterpreted.

Let's take a heart by-pass operation as an example of what I mean. If you need one, what would you expect of the surgeon assigned to carry out the procedure? Well, that's simple, you would expect him or her to be at least basically competent at heart by-pass operations. That's all. Male or female, dusky-hued or blotchy pink, old or young - all irrelevant; they should be able to do the job. Then let's ask who should be appointed to a vacant cardiac surgical post. That's also simple, it should be the applicant who is best at the job. Male or female, dusky-hued or blotchy pink, old or young - all irrelevant; ability should be the only guide. It is only by appointing the people best able to do the job that the customer (patient) can have the greatest chance of being sliced and spliced by someone who is likely to do it well.

So also with the judiciary. Different types of judges deal with different types of work, some of which require a vast amount of technical knowledge of relatively narrow fields of law and others of which are more concerned with the management of evidence. If the Chancery Division of the High Court needs a new judge because an established expert in company law has retired or been promoted it would be no surprise to find an expert in company law appointed to fill the gap; you would not find a criminal law practitioner being appointed because, no matter how brilliant he or she might be in their chosen work, the skills and knowledge they have developed in practice would not make them suitable for such a specialist judicial post. The only question should be "which of the applicants will do the job best?"

Whether the result is that heart surgeons or judges comprise the same proportions of men and women, dusky-hueds and blotchy pinks and fortyishs and sixtyishs as the population as a whole is neither here nor there.

That is not to say we should not ask "why are so few women / ethnic minoritists applying to be judges?" Of course that question should be asked because there might be something about the application prodecure or the judicial work itself which deters suitably qualified people and that the obstacle is especially high for women, the darkly pigmented or, indeed, any other category of potential applicant. The only way to deal with such an issue fairly is to amend the procedure or introduce different working practices for judges so that suitably qualified people of all types can apply and know they are competing on a level playing field. This is to approach the issue of "diversity" from an inclusive frame of mind. You keep the quality standard and do what you can to ensure as many people of the required quality are involved, no matter who they are.

It is a different thing entirely to start from the premise thay we must have a judiciary that is "diverse" and treat that as an end in itself rather than a desirable consequence of a fair recruitment system that always appoints the best candidates regardless of any minority label that some might wish to attach to them (or that they might wish to attach to themselves). To treat diversity as a criterion for selection is, necessarily, to exclude some better candidates because they carry no such label and that is a worse vice.

One reason Lord Judge is the Lord Chief Justice is that he is a hugely fair man. Over his long career in the law there has never been a hint that he would treat someone less fairly because they happen to be female, dark-skinned or have non-standard sexual tastes. Nor would he treat a blotchy-pink heterosexual male less fairly than anyone else. He is, in my view, someone who looks on "diversity" of the judiciary as a desirable end of a selection process based purely on merit. Indeed, in order to be based purely on merit it is necessary for the process not to discriminate against anyone by reason of them falling into a numerical minority for one reason or another.

Having spent some time mulling-over the column of judicial statistics, I am hard-pressed to see its relevance. What it shows is that only 1 of the 11 Supreme Court Justices is female (actually it's 1 out of 12), 3 of 37 Court of Appeal judges, 16 of 108 High Court Judges, 87 out of 680 Circuit Judges and 110 out of 448 County Court District Judges (there are also 143 District Judges who sit in the Magistrates' Courts but no figure is given for the number of those who are female). On the face of these figures women could be said to be discriminated against; but who are the applicants who have been refused appointments because of their gender? Who are the potential applicants who wanted to apply but did not because the process was obstructive to women? My adult lifetime has been spent in the law and I have never met such a person. These numbers don't really tell us much.

There are all sorts of reasons why we have so few women judges. In order to gain an appointment it is usually necessary to have at least 20 years' experience and usually more, so what follows relates to those who qualified two decades and more ago. First, there are far fewer female lawyers than male lawyers. Secondly, the proportion falls as they reproduce and either leave practice for ever or take a long break to supervise the fruit of their loins and then return to work part-time. Thirdly, those who return to work full-time once the last speck of vomit has been mopped from the nursery floor miss several years of experience and feel that gap means they are not yet ready to apply. Fourthly, those who still have dependent children sometimes feel the relative lack of flexibility over working hours (and days) would be inconvenient. Fifthly, many are not the primary earner in the family and are not particularly career-minded. These points are relevant more to those who might be considered for positions as Circuit Judges and District Judges than to the high-flyers who would aim for the High Court bench but they are all derived from my own experience of the very many senior female lawyers of my acquaintance.

Before the Harriet Harman fan club pelts me with rotten tomatoes and chants "sexist pig, sexist pig, sexist pig pig pig" to the tune of the William Tell Overture, I must remind them of one thing. Female lawyers are a tough breed. They take their own decisions. That those decisions deprive simple Harriet of the statistics she wants is her problem not theirs. I know not whether the Times' legal editor is of the Harriet Harman school, but I do know that including bare statistics about the current numbers of female judges when discussing future judicial appointments is, at best, an irrelevance.

This whole exercise illustrates something about the bad word "diversity". In the wrong hands "diversity" means discrimination - discrimination of the worst type, discrimination based on pigmentation and gender. In the right hands it is a useful watchword against which to assess whether admission to certain positions is open to all regardless of pigmentation and gender. "The Lord Chief Justice is worried about the diversity of the Bench" is a classic formulation from the wrong side of the fence and does not match what Lord Judge said. He is definitely on the right side.