16 December 2010
As they scramble to shore up their balance sheets, Britain’s banks are treating some of their corporate and small and medium-sized business customers with barely disguised contempt. A tactic commonly used once they’ve reneged on pre-crisis lending agreements and decided to recover what they can from a customer is to try and grind down and silence their opponents.
They do this by a variety of means including driving the directors of once loyal business customers into personal bankruptcy, driving once loyal owner/manager customers from their homes, ensuring that they are denied access to justice for example by intimidating their solicitors, and sometimes lying about them in court. In some cases that I’m aware of, banks, chartered surveyors and insolvency practitioners are alleged to have colluded with supposedly “pro-bank” judges to strip customers of their legitimate business assets.
These were my impressions of the behaviour of certain UK-based banks and insolvency practitioners before I became aware of the case of the Hamilton-based property developer Derek Carlyle. His case has reinforced my view that banks and bankers are either seriously misguided in their pursuit of profit or perhaps even evil.
The story began in August 2007, when RBS was in throes of a takeover battle with Barclays for the Dutch bank ABN Amro and global credit markets had started to implode in the wake of massive subprime fraud in the US and massively reckless lending by the likes of RBS. At that point, RBS verbally agreed to fund the next stage of construction of a speculative residential development that Carlyle, a long-standing customer of the Edinburgh-based bank, was planning to build at Queen’s Crescent near Gleneagles Hotel in Perthshire.
But one year later, in August 2008, once the penny had dropped inside the bank that its ex chief executive Sir Fred Goodwin had led it to the brink of collapse, the bank reneged on a pledge it had made to Carlyle. The bank had agreed to lend Carlyle an additional £700,000 to finance the completion of the project. But rather than honouring this commitment, the bank instead opted to sue Carlyle for the £1.4 million he had already borrowed. The bank’s Global Restructuring Group (GRG) (formerly known as Specialised Lending Services and founded by ex 3i executive Derek Sach in 1992) then set about trying to “destroy” him both financially and psychologically.
It did this using bully tactics, harassment and persecution of his family, intimidation of his solicitors and playing a part in getting him sequestrated – the Scottish version of bankruptcy – over a £4,000 debt. Carlyle counter-sued the bank and on 13 January 2010, Scottish judge Lord Glennie found in his favour. RBS, it seemed, had been held to account for its failure to honour a financial commitment – a “collateral warranty” – that it had with Carlyle. Glennie also censured the bank accusing it of ‘a lack of candour’ in its handling of the case – a phrase generally used by the judiciary to describe lying. Glennie, added “In my opinion, the pleading of the Bank’s case on this matter fell far below the standard which the court is entitled to expect.”
In a debate in the House of Commons on March 10th, 2010 Carlye’s MP, Jim Hood (Labour, Lanark and Hamilton East) outlined the bank’s despicable treatment of Carlyle. “I first met Mr. Carlyle in January last year, when he undertook to highlight difficulties that he had encountered over the previous months in his business arrangements and dealings with the bank. I was horrified then, and I remain horrified today, by the inexcusable and underhand tactics adopted against him, both personally and professionally.”
Hood (pictured left) explained that Carlyle “had enjoyed an excellent working relationship with [RBS] over the years.” He said the bank professed enthusiasm for the Gleneagles project, agreed to back it and released initial funding of £1.45m to support the purchase of land in August 2007. The bank also agreed to provide development funding for the new luxury homes as and when required. Initial building works commenced, and the bank made continued assurances it would support the project.
However, in August 2008, the bank changed its tune. There followed an extraordinary saga of intimidation, chicanery and deceit, which may represent the tip of an iceberg of sociopathic and immoral behaviour by RBS and other British banks.
“On 12 August 2008, Mr. Carlyle and his solicitors were abruptly advised that the bank would not provide the development funding, and that it demanded repayment of the £1.45 million used to purchase the Gleneagles land by 10.30 the next day, or, it said, it would “destroy” Mr. Carlyle; and it advised him that he “should be clear about the chaos that would ensue”.
“The reason given for the action was that there had been no agreement to provide the development funding, and that all the funds from the property that Mr. Carlyle had sold should have gone straight back to the bank; the bank was not happy about that. It claimed to have an agreement that the total funds from the sale should have gone back to the bank, but since then it has been unable to produce such an agreement.
“The bank’s solicitors then embarked on a series of actions that is shocking. In a short space of time Mr. Carlyle’s bank accounts were frozen, his company forced into administration, his assets seized, and action to repossess his family home commenced, with arrestment and inhibition orders from the Court of Session in Edinburgh.
“Not satisfied with that, the bank manipulated a personal account used for school fees so that it became overdrawn, resulting in payment of Mr. Carlyle’s children’s school fees not being honoured. Furthermore, to make things more difficult for him, the bank prevented solicitors from acting on his behalf, and it was only with the bank’s approval that his current solicitors in Edinburgh were able to be appointed.
“The project in East Kilbride [another of Derek Carlye’s development sites] was also the subject of seizure and was sold by the bank at a considerable loss, of almost half its value. The unjustified attack resulted in the chaos and destruction that the bank had intended, destroying the man’s business and causing horrendous damage to his personal life and reputation.
“The bank pressed on against Mr. Carlyle through the action it had raised in the Court of Session. Mr. Carlyle counterclaimed, on the basis that the promise from the bank to provide development funding was a contractual one, and that the bank was in breach of that contract, known as collateral warranty.
“The Court of Session agreed with Mr. Carlyle. The judgment from Lord Glennie of 13 January 2010 found not only that the bank had failed to keep its contractual promise to provide the development funding, but that the conduct of the bank in the Court of Session fell far below the required standards. That is strong criticism from a judge.
“He also said that the Royal Bank of Scotland lacked “candour” in the proceedings, specifically in its deliberate failure to admit to key evidence in the Court of Session. If someone is described in a judge’s language as lacking candour, that might mean to some of us in the House that they were lying through their back teeth.
“Since the beginning of August 2008 the bank has bullied and intimidated Mr. Carlyle’s usual solicitors, threatening them with destruction of their business practice, which resulted in their withdrawing from acting for him in this matter. That is the thing that I really want to point out to the House, and to the Government. Here were lawyers-and it is the case today-having to approve the person who was representing the person opposing them. The firm of solicitors whose business was threatened with ruin was a small one, with little option but to tell my constituent, “I’m sorry, I can’t carry on representing you.”
Ian’s interlude here:
The banks have for years been able to deny their “victims” access to justice by sewing up the legal profession. They do this by having scores of law firms on their “panels” and barring firms on these panels from representing, or even advising, anyone with a grievance against their bank (or indeed any bank) or who is considering suing their bank (or indeed any bank). In the hope of winning business from banks in future, other firms are invariably reluctant to take on clients with claims against banks, irrespective of the validity of these claims. They don’t want to bite the hand that might feed.
I referred to this situation during my evidence to the Court of Session (also in front of Lord Glennie) at a hearing intended to rubber-stamp the ‘scheme of arrangement’ by which Lloyds TSB was seeking to acquire HBOS in January 2009. David Sellar QC was representing HBOS. On that occasion I asked whether the court had considered whether Mr Paul Hally might be “conflicted” in his role as the (supposedly independent) “court reporter” on the HBOS case, given that the firm of which he was senior partner, Shepherd & Wedderburn, has HBOS/Lloyds as one of its largest clients.
In the court I added: “An organisation called the Members Action Group was seeking legal representation in Scotland and the law firms it approached universally declined to represent it, citing possible conflicts of interest. The suspicion is that there is an uneven playing field.” The assurances I was given by the QCs and the judge at the time seemed unconvincing.
Hood went on to say:-
“One thing has really irked me. Another of Mr. Carlyle’s solicitors threatened by the bank found out that a letter concerning an alleged attempt to obtain substantial funds from RBS had been “concocted” by RBS staff. The solicitor threatened to report the incident to the police and the fraud office. Only then was the matter dropped. Sinister stuff.
“The bank then pressed another large firm of solicitors to stop acting for Mr. Carlyle. I know which firm it was, but it would not be fair to name it at this stage; we may have to name it later, but we do not want to do so now. Mr. Carlyle was advised that no sizeable firm would act for him in a case against RBS. His current solicitors took the case only after saying to RBS, “Is it okay if we take the case?” They had to be approved by RBS before they could act. What sort of situation are we in?
“The bank’s specialised lending services and recoveries department in Edinburgh delivered a one-sided report to Mr. Dickinson, the chief executive (pictured above with Peter Mandelson), in order for him to respond to a letter from me. Again, it was lack of candour to brief the chief executive, but I leave that to him.
“In the spring of 2009, the bank falsely advised the Court of Session, the bank’s chief executive and Mr. Carlyle’s solicitors that the latter’s key witness, an RBS manager at the time, had changed her statement made in support of Mr. Carlyle’s claim, and that there was no point in going to court. That, too, was found to be completely false. Indeed, the woman in question — I have a copy of her statement with me — never made such a retraction. That was proved to be the case in evidence given to the Court of Session. That is what made Lord Glennie refer to a “lack of candour”.
“Following the proof being given to the Court of Session in October 2009, and while awaiting judgment, the bank apparently conspired to influence a third party and its representatives to have Mr. Carlyle sequestrated for the small sum of £4,000, a sum unconnected with the bank. That was wrong and unfair; it was an attempt to destroy his ability to claim justice and reparation if he succeeded in his Court of Session counterclaim.
“Despite admitting in court that the promise was breached, RBS has apparently decided to bring in another highly paid legal team that includes — get ready for this — the Dean of Faculty to represent it at the taxpayers’ expense, in order to examine Lord Glennie’s judgment.
“The inexcusable and underhand tactics of bullying and intimidation by RBS personnel of individuals and organisations, no matter whether it is done in an uncontrolled manner or with the full knowledge and authority of the RBS directors, is wholly unacceptable. Once again, RBS personnel seem to believe that they are above the law and not accountable for their actions, and that the institution, with its bottomless pit of taxpayers’ funds, will bail them out. They had the power to bully and destroy — and to hide when caught.
“I would urge RBS — via Mr. Dickinson, its chief executive — to follow up its admission in the Court of Session that it breached its promise and honour it by providing the reparation due to Mr. Carlyle for its wrongful actions once his damages claim has been quantified. The taxpayer should not be funding personal vendettas by bank personnel; nor should RBS be allowed to wriggle out of honouring the clear promise made to Mr. Carlyle.
“On a wider note, I am sure that there are many without Mr. Carlyle’s determination and strength of character who have been mistreated, bullied and intimidated by RBS. I urge them to lodge a detailed formal complaint to not only the Financial Ombudsman Service but their local MP.
“I received a letter from RBS yesterday. I understand that the Minister has a copy. It was one of those “pp” letters that we see far too often; although I know where it came from, I do not know who wrote it. It contains the same stuff — I was going to say “garbage” but I do not want to be too disrespectful — but it has the same garbage that the bank presented in its case at the Court of Session, which Lord Glennie said was “less than candid”. I shall disregard much of the letter’s contents, as it contains information that we already know. However, it also includes an invite to a meeting at my constituency office to discuss this and other cases; I look forward to that.
“I ask the Minister to take all this information away. I do not say that he or the Government are responsible. When I came to this debate, I hoped that we were dealing with rogue managers and rogue directors at RBS, but from the interventions that I have taken — they were from Members from Northern Ireland and from many other parts of the country — I suspect that it is even more serious.
“It is not rogue people: it may be institutionalised. If so, it must be sorted; and we, as major shareholders in RBS, have a duty to sort it.
“I did not mention the solicitors for that reason. However, if I need to mention them I shall certainly do so. Solicitors, and groups of solicitors, need to be defended against such behaviour. Lawyers must be free to represent their clients, regardless of what has happened. This case indicates that that was not so. There may be some legal questions about interfering with due process, and we may have to return to the subject.
Tavish Scott leader of the Scottish Liberal Democrats told the Scotsman: “In the normal world, a promise should be honoured, but yet again banks don’t seem to operate in the real world. If RBS have billions of pounds of taxpayers’ money to spend on bankers’ bonuses, why didn’t they honour their commitment to [Mr Carlyle]. ”
In Carlyle’s case he did find a law firm to represent him — Edinburgh-based MBM Commercial, whose litigation lawyers David Calder and Cat McLean are rapidly emerging as creditable ‘Davids’ to the banking ‘Goliaths’. In a recent blog Calder wrote:-
Lots of our clients are in the same position as the client in the [Small Print No 1] case study. Many of the loan agreements which they have with their banks contain similarly unreasonable clauses allowing banks to charge whatever they like by way of fees, whether the fees were reasonably incurred or not. You may be in the same position. If so, we’d like to hear from you because we think these clauses can and should be challenged.
Footnote: Alan Dickinson (pictured above), former chief executive of RBS in the UK, left the bank soon after the bank lost its case in the Court of Session. In May 2010 Dickinson pitched up at Nationwide as a non-executive director and chairman of its board risk committee.
(minor updates December, 16th 2013)