THE LEGAL ARGUMENT

The background

‍When the government implemented the Bounce Back Loans and Coronavirus Business Interruption Loans it specifically legislated (s.12 of the Business and Planning Act 2020) to prevent challenges to the loans based upon consumer credit legislation.

It did so on the basis that the loans were needed urgently and in large numbers so usual consumer protections should not apply.

However the right to challenge the loans under English common law remains, and the government expressly made it clear that the Financial Conduct Authority rules and the Financial Ombudsman Scheme would continue to apply, as would the Lending Standards Board’s standards of lending practice.

BackBritishBusiness.com will focus upon two primary grounds of challenge at common law, based upon the doctrines of frustration and common mistake.

The legal argument

‍The argument based upon the doctrine of frustration is that at the time the loans were taken out the banks and their customers expected companies to be able to repay their loans out of future trading profits, but that the lockdown restrictions imposed upon British businesses forced them to shut or to have substantially reduced trading (the further restrictions were a ‘frustrating event’). As a consequence, under the Frustration Act 1943 s.1(2) the expenses businesses suffered should justly be offset against the sums otherwise repayable to the bank.

The argument based upon the doctrine of common mistake is similar ie at the time the loans were taken out the banks and their customers were mistaken as to how long lockdown would last and as a consequence the contract should be avoided (torn up); and under the law of restitution (an equitable remedy at the discretion of judges) businesses should not have to repay the full amount of their loans.

So, for example, we will rely upon the statement of the Prime Minister Boris Johnson on 28th March 2020 that the UK could turn the tide of the outbreak in 12 weeks; and again on 27th April 2020 when he said that ‘this is the moment when we have begun together to wrestle it [the virus] to the floor’. Many similar statements were made by HMG at about this time.

Crucially, we will be arguing that the losses that your business suffered due to extended lockdown restrictions should be offset against your loan repayments in partial or total extinguishment of the loan.

We can complain to the Financial Ombudsman if your turnover is less than £6.5m and you have fewer than 50 employees or less than £5m on your balance sheet.

The legal arguments will be set out on your behalf in considerable detail in our complaints to the banks and the Financial Ombudsman.