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In this October edition of The Finance Brief we consider a number of cases which have been decided over the past few months and which each potentially have a impact on private banking matters: the latest decision of the Privy Council in the Cukurova Group v Alfa Finance adds more colour to the discussions around acceptable rates of default interest; the freedom of parties to choose the governing law of an agreement was reiterated in Mauritius Commercial Bank Limited v Hestia Holdings Limited; and we discuss the fallout from the Supreme Court's decision in Prest v Petrodel Resources Limited with regard to the corporate veil, a long established principle of English law. Although not a recent case, Wilson v Hurstanger provides the basis for an outline of the disclosure requirements for lenders when paying commission to brokers.
In addition, we highlight the main features of the new consumer credit regulation regime, ahead of the imminent publication of the second consultation paper setting out the proposals for the new regime.
Finally, we have updated and refreshed our Guide to Corporate Jet Finance, which we hope is a useful reference for financiers (and borrowers) lending or considering lending against aircraft.
Hannah Rowbotham, Editor
Upcoming changes to the Consumer Credit Regulation Regime
From 1 April 2014 the Financial Conduct Authority will take over responsibility for consumer credit regulation from the Office of Fair Trading. The change will represent a significant shift in the way in which consumer credit and consumer hire is regulated in the UK.
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Does a lender have to disclose commission paid to broker?
It is common practice for lenders to pay a commission to brokers, but issues can arise if that commission is not disclosed to the borrower. This briefing paper is a general introduction to the subject, outlining the position following Wilson v Hurstanger Ltd (2007) EWCA Civ 299 and subsequent cases and highlights some traps for the unwary.
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When is default interest penal?
In our last edition we commented on the risk that default interest under a loan agreement may be unenforceable as being penal. The prevailing market view was that charging an additional 2 or 3% per annum was unlikely to be treated by the courts as penal, but the only recent authority on the point in a lending context was a decision in which an additional 1% was held to be non-penal.
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Jurisdiction clauses: can the lender have it both ways?
The typical jurisdiction clause in a loan agreement contains an exclusive submission to the jurisdiction of the English courts, but for the benefit of the lender (or finance parties), and on the basis that the lender may waive it and take proceedings in any other court or courts having jurisdiction. The clause is therefore deliberately asymmetrical, the commercial intention being that the lender should be able to take proceedings against borrowers or security providers in any jurisdiction in which they have assets (if that court accepts jurisdiction), while they should not be entitled to make life difficult for a lender seeking to recover what it has advanced by requiring it to take proceedings in a jurisdiction that is unduly "borrower friendly".
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The corporate veil is a fundamental principle of English law that a company has a distinct and separate legal identity from that of its owner (Saloman v A Saloman). This distinction ensures that a company cannot be liable for the obligations of the owner and vice versa. Pursuant to this principle, property owned by a company cannot be directly accessed when the owner is being pursued and should therefore remain the property of that company.
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A Guide to Corporate Jet Finance
With confidence in the business jet market finally starting to improve, we thought it an opportune time to update and refresh our guide to corporate jet finance. In this guide we set out the main structural and documentary issues which lenders should take into account throughout an aircraft finance transaction: from the early stages to taking delivery of the aircraft, as well as the ongoing monitoring of the aircraft during the term of the lender's facility.