1.         Why is it that the position has now changed? 

            It has always been appreciated that holders of SAMs could seek to challenge the terms of their loan agreements under certain Regulations (The Unfair Terms in Consumer Contracts Regulations 1994) which were in force when the loan agreements were made.   But there has been, and there still is, some uncertainty as to the operation and effect of these Regulations both in general terms and more specifically in the context of the claims made by holders of SAMs in relation to their loan agreements.

            In the absence of a successful claim by holders of SAMs under the 1994 Regulations (the effect of which would be that the relevant terms in the loan agreements would not be binding on them), any challenge ought to be founded on the Consumer Credit Act 1974. 

            Recent legislation (the Consumer Credit Act 2006) introduced new provisions in the Consumer Credit Act 1974 in substitution for certain provisions which were in force when the loan agreements were made.  The new provisions finally took effect in April 2008.  They operate retrospectively and can now be relied on by holders of SAMs in challenging the terms of their loan agreements if their loans remained outstanding on 6 April 2008 and provided that their loans continue to remain outstanding.   

 2.         What difference does this change make to holders of SAMs? 

            The previous provisions in the Consumer Credit Act 1974 applied in relation to “extortionate credit bargains”.  They were seldom invoked and where invoked were rarely successfully invoked because the Courts applied the provisions in a restrictive manner.  The new provisions which have been substituted operate on the basis of a lower and more flexible threshold.  If the Court determines that the relationship between the creditor and the debtor is “unfair” to the debtor, it has wide powers to vary the terms of the loan agreement.   In considering whether the relationship was “unfair”, the Court is required to focus on certain matters (which include the terms of the loan agreement itself and anything done or not done by the creditor before the making of the loan agreement):  the Court is also entitled to have regard to all matters which it thinks relevant. 

3.         Was the relationship between the Bank and the holder of a SAM “unfair” to the holder of the SAM? 

            Leading Counsel has advised that there are strong grounds for contending that the relationship was “unfair” to the holder of the SAM for the purposes of these new provisions.  It is not desirable to become involved in any discussion (now) of the detail in this respect, but it will be said that certain of the terms of the loan agreement were in themselves “unfair” and that the Brochures issued by the Banks in each case were misleading in a number of respects.     

4.         What will holders of SAMs ask the Court to do?

            Following the advice of Leading Counsel, in addition to claims under the 1994 Regulations, claims will be made under the new provisions.  In reliance on the new provisions, the Court will be asked to reduce the percentage of “the Appreciation” (the increase in the value of the property over the period of the loan) payable to the Bank, or alternatively to introduce a cap or limitation on the amount payable to the Bank as the Bank’s share of “the Appreciation”.  Under the new provisions, the powers of the Court are extremely wide and it could in fact vary the terms of the loan agreement in a different manner if it thought fit. 

5.         Why do holders of SAMs need to do anything?

            There is a twelve year limitation period, and it is possible that the period may start to run from as early as the date when the offer of a loan was formally accepted (rather than the date when the loan was made or the date of the SAM Legal Charge).  Holders of SAMs who do not make a claim in legal proceedings commenced within the correct time limit will not be able to challenge the amount payable to the Bank as the Bank’s share of “the Appreciation”.

            It follows that the holders of BOS 1 and 2 SAMs may have to start their claims by the end of December 2008 or at the very latest at the beginning of 2009.   

            It is intended that there should be a Group Action with claims in relation to all seven classes of SAMs (BOS 1 to 6 SAMs and Barclays’ SAMs) being dealt with within the Group Action, and it will be necessary to apply to the Court to obtain a Group Litigation Order.   

The objective is to obtain such an Order, and to start as many claims as possible in relation to all seven classes of SAMs, before the end of December 2008. 

6.         Why should holders of SAMs join in the Group Action?

            A Group Action is the only cost-effective way of litigating claims in relation to the SAMs.   

Furthermore, this is a situation where there really is strength in numbers:  the more claimants there are in the Group Action, the greater the number of properties where the percentage of “the Appreciation” payable to the Bank is in issue and the greater the potential impact of the Group Action when repayment and redemption takes place. 

7.         Why should holders of SAMs whose claims do not face an early limitation date join in the Group Action now rather than later? 

            It is necessary to proceed with substantial preparatory work before proceedings are instituted by any individual claimants and before a Group Litigation Order is sought and obtained.  It is vital that this work should be properly funded from the outset and thus that there should be as many claimants as possible in relation to all seven classes of SAMs from the outset.  That will maximise the impact of the claims and will encourage other holders of SAMs to come forward and join in as claimants in the Group Action before it is too late for them to do so. 

8.         Why cannot holders of SAMs just await the result of a Group Action involving some holders of SAMs? 

            The Group Action is not likely to be finally determined before the end of 2010, at the earliest.  By that time, all the holders of SAMs who are not claimants in the Group Action will be unable to make a claim because the limitation period will have expired.  Thus if the Group Action is successful (ending either in a decision by the Court or in a compromise on terms which are beneficial to the claimants in the Group Action) the holders of SAMs who are not claimants in the Group Action will no longer be able to make a claim (as mentioned in Q.5 above):  and they will not benefit as the result of the Group Action because they were not parties to it.    

9.         How much will holders of SAMs save if the Group Action is successful?

            There is no simple answer to this question.  Three principal factors are relevant in this respect.

(1)        There are in fact seven different classes of SAMs (the three fixed interest SAMs each at different rates of interest granted by BOS 1, 3 and 5 and the four zero interest SAMs granted by BOS 2, 4 and 6 and Barclays) and different considerations apply or may apply in relation to each class.   

(2)        In the case of each individual SAM, the details will be different – the date of the loan, the amount of the loan, the Loan to Value percentage, the initial value of the property, and the current value of the property.  There may be other relevant details in particular cases – e.g., notified improvements / alterations may have been made at a cost in excess of £10,000, and partial repayments of the loan may have been made. 

(3)        Until the case has been determined by the Courts, it is not possible to say exactly how the terms of the loan agreement will be affected and / or (if relief is granted under the new provisions) varied.  

The end result is that if the Group Action is successful (ending either in a decision by the Court or in a compromise), it is likely that the effect on individual holders of SAMs will vary widely, with some being affected to a greater degree and some to a lesser degree.   The position will not in fact be completely clear until such time as the individual holders of SAMs repay their loans, at which point the amount payable by them to the Bank as the Bank’s share of “the Appreciation” will be determined.    

What can, however, be said categorically is that if the holder of a SAM does not join as a claimant in the Group Action (or take and pursue proceedings as a claimant at his or her own expense if the Court agrees to this), he or she (or his or her personal representatives) will not be able to challenge the amount payable to the Bank as the Bank’s share of “the Appreciation”.       

10.       Why are holders of SAMs who have already repaid their loans unable to make a claim and seek repayment of the excess paid by them? 

            Any such claim would be barred by limitation since the limitation period for a claim for repayment would be a six year period, rather than a twelve year period.  The period would run from the relevant date in relation to the original transaction (see Q.5 above) rather than the date when the holder of the SAM repaid the loan. 

11.       What should holders of SAMs do if they think they may wish to repay their loans now or in the near future? 

            Unless they are prepared to pay the Bank the amount payable to the Bank as the Bank’s share of “the Appreciation” under the loan agreement, they should become claimants in the Group Action.  

            If they do need to repay their loans thereafter and before the Group Action has been finally determined, it may be possible to put in place arrangements (by agreement with the relevant Bank or in the absence of agreement under a formal Court Order) which will protect their position after repayment and redemption. 

12.       What should the personal representatives of a deceased holder of a SAM (a sole borrower or a last surviving joint borrower) do? 

            Under the loan agreement, the loan should be repaid within such reasonable period as the Bank may require and in any event within eighteen months of the date of death.

            Unless the personal representatives are prepared to pay the Bank the amount payable to the Bank as the Bank’s share of “the Appreciation” under the loan agreement, they should become claimants in the Group Action. 

            See further Q.11 above. 

            In this situation, the personal representatives should take account of their position as personal representatives and where appropriate they should discuss the matter with the persons beneficially entitled to the Estate of the deceased holder (the personal representatives may of course be or be included among those persons). 

13.       What happens if the holder of a SAM (a sole borrower or a last surviving joint borrower) becomes a claimant in the Group Action and dies before the Group Action has been finally determined?

            His or her personal representatives will be able to continue as claimants in the Group Action in place of the deceased holder for the benefit of the Estate of the deceased holder. 

14.       Are there any holders of SAMs who would not be able to benefit or who would be unlikely to be able to benefit as claimants in the Group Action? 

            The holders of SAMs whose properties have not increased in value since their loan agreement was made in 1997 or 1998 or whose properties have not increased in value by a substantial amount over that period would not benefit or would be unlikely to benefit materially as claimants in the Group Action. 

15.       What should holders of SAMs do if they have already repaid their loans in full? 

            They will not be eligible to join in the Group Action.

            Any claim for repayment (on the basis put forward in the Group Action) would be barred by limitation (see Q.10 above). 

            They may wish to take separate legal advice but, in the absence of very special circumstances peculiar to the particular case, it does not appear that they would now have any effective legal remedy.