David Emmanuel Merton Mond & Cleardebt Ltd v MBNA Europe Bank Ltd (2010)


The Individual Voluntary Arrangement Protocol was not intended to create mutual legal obligations, but that did not mean that the court could not exercise its discretion to grant relief in a dispute involving its interpretation. However, it would not be right for the court to pronounce formally on what was an industry-wide guide to good practice without representations from a broader range of interested parties.


The claimant debt solution providers (X) sought declarations that the defendant bank, which was a creditor of a third party (C), had breached the terms of the Individual Voluntary Arrangement Protocol, having voted against an IVA proposal in respect of C's debts. C had approached X to obtain advice about his debts. He owed money to a small number of creditors, including the bank, which held more than 25 per cent of that debt. Acting through X as nominee and proposed IVA supervisor, C proposed an IVA to his creditors. The bank stated that it would vote against the proposal on the belief that C could enter into informal arrangements with his creditors. Consequently, the IVA proposal was withdrawn and C proceeded to enter into such informal arrangements with all his creditors. It was X's case that, in expressing its intention to vote against the IVA, the bank had breached various provisions of the protocol. The British Bankers Association (BBA) had stated that its members, including the bank, agreed to comply with and support the protocol. The principal issue for determination was what scope there was under the protocol for a creditor, expected to abide by the protocol's terms, to reject an IVA proposal. X submitted that the bank, as a member of the BBA, was bound by the terms of the protocol, and that the promises each party to the protocol made were not gratuitous but supported by consideration. The bank contended that the protocol was no more than a voluntary industry standard or guideline framework for use by those who had agreed to give effect to it and it did not create binding obligations enforceable between creditors and IVA providers; therefore disputes over its meaning and application were non-justiciable.


(1) The protocol was not intended to create mutual obligations of a bilateral nature. It operated as a voluntary industry standard or code of best practice. That was evident not least from its language and the imprecise and aspirational nature of many of its terms. The overall impression was that the protocol set out how the IVA provider, on whose advice and with whose assistance the debtor presented an IVA proposal, should go about the process of formulating and advising him on it and, assuming the proposal was protocol-compliant, how the creditors who had elected to abide by it should treat the debtor. It was clearly a statement of best practice. It did not seek to set out the terms of any contract by which the IVA provider and the creditors, electing to operate the protocol, were to be bound in law. (2) The fact that the protocol was no more than a voluntary code of practice did not mean that the court could not exercise its discretionary jurisdiction to grant relief, Rolls-Royce Plc v Unite the Union (2009) EWCA Civ 387, (2010) 1 WLR 318 applied, Financial Services Authority v Rourke (t/a JE Rourke & Co) (2002) CP Rep 14 Ch D and Nokia Corp v InterDigital Technology Corp (2007) EWHC 3077 (Pat), (2008) 31(2) IPD 31012 considered. However, the court was reluctant to grant relief where the only parties before the court were two connected IVA providers and one member of the BBA; in those circumstances it would not be right for the court to pronounce formally on the meaning and effect of an industry-wide guide to good practice. It might have been more inclined to grant relief if, for example, the BBA had made representations and if it was clear that X's views were representative of the broad spectrum of IVA providers. Moreover, it was inappropriate to grant relief in respect of an IVA proposal which had been withdrawn and where the creditors had since entered into informal arrangements with C. (3) (Obiter) It was not right to construe the protocol as permitting a creditor, bound by its terms, to vote against an IVA proposal only if it had good reason to do so. If that had been its intention, then it would have been explicit, which it was not. The bank's approach to IVA proposals, and the circumstances in which it rejected them in favour of informal arrangements, were reasonable. There was no intrinsic reason why an IVA proposal could not be rejected because the creditor considered that an informal arrangement was preferable. If the application of the bank's policy meant that fewer IVAs were approved than persons in the position of X considered should be the case, the remedy lay in modifying the terms of the proposal or in persuading Parliament to amend the legislation governing IVAs.

Judgment for defendant