Liquidated Damages – the truth

In RTA’s Contracts there is usually a Clause about ‘Agreed’ Liquidated Damages. Well, did you Agree? According to various Judgments, the parties to a contract may or may not have had ‘equal bargaining power’. (See Unfair Contract Terms Act 1977). Was there any bargaining done before you entered what RTA term ‘an agreement’? Chances are, unless you were well-versed in legal terminology, you had less or no bargaining power over ANY of the terms. Also, no idea what the term ‘Liquidated Damages’ actually meant. Under those circumstances, you DID NOT have equal bargaining power and most small claims track court cases so far have ruled that clause penal – except for one case that RTA may produce against a market trader Mr Robert Taylor. The judge in that case took into consideration that the unpaid Registration Fee sum was fairly near, monetarily, to the ‘half commission’ that RTA claimed, so the Judge thought it reasonable, not penal.   See below on the actual cases that can help you if RTA issue a Court Claim against you.

Below is a summary/extract of he courts rulings in some cases that relate to penalty charges:

from: http://www.st-phillips.com/v7/web/FILES/Member_CVs/PaulDean_cv.pdf

RTA (Business Consultants) Ltd v Admiral Self Storage Ltd [2006] 12 CL 91 - a contractual term
which provided for full payment of a sales commission of £130,000 in the event of non-payment of a
registration fee of £3,500 when the contract was terminated days of inception was a penalty. Limiting
the sales commission claimed did not affect the analysis of whether it was a penalty or not.

From: http://www.penaltycharges.co.uk/pages.php?id=4

Dunlop Pneumatic Tyre Co. Ltd.  Vs New Garage and Motor Co. Ltd. (1915) 
Lord Dunedin set out some tests that are considered even in modern cases when the court is asked to rule on penalty charges. They are; 1) If it is “extravagant and unconscionable” i.e. that the cost incurred by the business because of the breach is lower than what the consumer is being expected to pay because of the breach. 2) It is also a penalty where the consumer is to pay a larger sum due to failure to pay a smaller sum. Ford Motor Co. v. Armstrong (1915)

Lordsvale Finance PLC Vs  Bank of Zambia (1996) QB 752 
“whether a provision is to be treated as a penalty is a matter of construction to be resolved by asking whether at the time the contract was entered into the predominant contractual function of the provision was to deter a party from breaking the contract or to compensate the innocent party for the breach. That the contractual function is deterrent rather than compensatory can be deduced by comparing the amount that would be payable on breach with the loss that might be sustained if the breach occurred”

Bridge Vs Campbell Discount Co. Ltd (1962) 
The court held that the term that specified charges in the case of cancellation of a hire purchase agreement was a penalty charge and therefore it was unenforceable. Therefore where there is a term in a contract that is a penalty it can not be enforceable.

Murray Vs Leisureplay (2005) EWCA Civ 963 
English contract law recognises that, if the parties agree that a party in breach of contract shall pay an unjustifiable amount in the event of a breach of contract, their agreement is to that extent unenforceable.

CEBTA’s opinion, backed up by three judge so far, is that RTA should not be suing you for the failure to pay the Registration Fee when RTA  have failed to give you a 14-day Notice of Right to Cancel their “off premises” contract (off the trader’s premises – the trader is RTA). They have assumed you are not a consumer and are basically saying that their ‘agreement’ to market (not sell) your business and/or property is a business-to-business contract. But they are the supposed marketing experts, not you, and it is an occasional transaction with no degree of regularity (see the case of R & B Customs Brokers v UDT) of dealings between the parties, signed on the written standard terms (see Unfair Contract Terms Act 1977) of  RTA's  pre-printed 'agreement'.

Below:SUPREME COURT: Cavendish Square Holding BV (Appellant) v Talal El Makdessi (Respondent) UKSC 4 NOV 2015

The true test is whether the impugned provision is a secondary obligation which imposes a detriment on the contract-breaker out of all proportion to any legitimate interest of the innocent party in the enforcement of the primary obligation [32]. Lord Mance agrees with that test. The first step is to consider whether any (and if so what) legitimate business interest is served and protected by the clause, and if so and secondly, whether the provision made for that interest is extravagant, exorbitant or unconscionable [152]. The penalty doctrine has been applied to clauses withholding payments, and transfers of moneys worth [154-159], and may be considered alongside relief against forfeiture [161]. It should not be abolished or restricted: its existence is justified by its longstanding invocation and endorsement in the United Kingdom, Europe and across common law jurisdictions [162-170]. Lord Hodge concurs, reviewing the authorities from England and Scotland and the historical development of the doctrine in Scots law. The doctrine only applies to secondary obligations arising out of a breach of contract, but is not confined to cases requiring the payment of money on breach. It applies to clauses withholding payments on breach, clauses requiring the party in breach to transfer property, and clauses requiring payment of a non-refundable deposit if that deposit is “not reasonable as earnest money” (particularly where such a clause exceeds the percentage set by long-established practice) [234-241]. The test is whether the sum or remedy stipulated as a consequence of a breach of contract is exorbitant or unconscionable when regard is had to the innocent party’s interest in the performance of the contract. A clause fixing a level of damages payable on breach will be a penalty if there is an extravagant disproportion between the stipulated sum and the highest level of damages that could possibly arise from the breach [255]. Lord Toulson agrees with Lord Hodge’s formulation of the test above, and with Lord Mance and Lord Hodge on the relationship between penalty and forfeiture clauses [294].

BELOW IS A DEFENCE FOR A CLAIM OF LIQUIDATED DAMAGES. IT NEEDS EDITING AND CEBTA TAKE NO RESPONSIBILITY IF IT IS USED WITHOUT LEGAL HELP

IN THE COUNTY COURT MONEY CLAIMS CENTRE CLAIM NUMBER ????

LOCAL COURT [name] COURT

HEARING DATE [ dd mm 2016 CLAIMANT CLAIMS £?,000

BETWEEN

RTA (BUSINESS CONSULTANTS) LIMITED CLAIMANT

AND

Miss X DEFENDANT

DEFENCE

ANSWERING PARTICULARS OF CLAIM

1. The Claimant's Particulars of Claim do not refer to any specific agreement clauses so hopefully this document will save the Judge's time.

Paragraph 1 is admitted in part as the Defendant did sign an 'agreement' dated [dd/mm/yy] [the Claimant fails to quote the date] but it was an Estate Agency Agreement and no actual sale of the business or the residential building was guaranteed.

Paragraph 2 is admitted save for the fact that the Defendant was told that the Registration Fee was necessary to start the marketing process.

Paragraph 3 is denied in that the agreement does not state the exact wording quoted in the Particulars. It is assumed that the Claimant is referring to Clause [find the clause]. The non-payment of the up-front fee that was not notified as being necessary before the Field Agent's visit does not constitute a good reason to have 'prevented [us] from selling'.

Paragraph 4 is denied. The alleged breach is quoted as rendering 'the Defendant liable to pay one half of the Commission charges in compensation for a loss of opportunity to earn full fees'. The Defendant assumes that the Claimant refers to a Clause the Claimant cites as 'agreeing' to 'liquidated damages' At no time did the Defendant know that she was “agreeing” to liquidated damages as she does not have the necessary legal knowledge.

Paragraph 5 is denied. There was alternative action, the Claimant could have mediated in accordance with Alternative Dispute Resolution.

Paragraph 6 is neither admitted nor denied. The Defendant takes the view that the Claimant knows that the claim for damages is exorbitant and unconscionable and therefore attempts to protect itself from the Claim's failure by seeking the lower amount of the Registration Fee only.

THE PARTIES

2. The Claimant is a Limited Company acting as an Estate Agent with a controversial history of taking its clients to court after a field sales agent has had the owner of a building or business sign an “off trader's premises” written standard terms 'agreement'. Proof of 132 Claims is provided via the answer to a Freedom of Information Request result from the Ministry of Justice – evidence in the forthcoming Evidence Bundle. The Defendant is an [delete as applicable] Owner/Director/Shareholder of a small business/Limited Company [give detail] and avers that she is the weaker party in terms of the 'agreement' she was persuaded to sign.

3. The writer assumes that the Claim is escalated to £10,000 'liquidated damages' when the Defendant cancelled, which is exorbitant and unconscionable compared to the Registration fee of £[quote it] plus VAT. The Defendant seeks strict proof of the Claimant's purported loss.

4. The test of reasonableness is strained, as per the Unfair Contracts Act 1977 via Clause 16 which attempts to absolve the Claimant of all responsibility for anything stated verbally by the Field Sales Agent. The Defendant avers that Clause 16 [check which clause number] is an exclusion/non reliance clause that attempts to exonerate the sales agent from anything he says. That surely is unreasonable, given that the said Agent is the only person from the Claimant company that the Defendant ever meets.

5. The Defendant was under the impression from the Field Sales Agent's representations that the 'Commission' or 'Agency Fee' would only be chargeable if the business sold. More details of the Agent's techniques are supplied in the Defendant's Witness Statement. The Commission fee was devised by the sales agent, Mr [name of agent ], after valuing the Business excessively-high at a minimum of £???????????? on date ??????????????.

6. Moreover, the Commission fee is a hefty ????% - a fixed fee of £????? regardless of the selling price or whether the business is sold or not - it is not sold. Additionally or alternatively

7. The 'agreement' has only one clause with wording that describes what the Claimant will do (the 'offer') in return for any fee proffered or owing by the Defendant (the 'acceptance'). The only part 'consideration' (what the Claimant promises) is in Clause [quote it] which is not an actual 'promise'; instead it is the Defendant 'agreeing' that the Claimant “will produce sales particulars and advertise on the Claimant's [own] web site'. The Defendant therefore avers that such 'consideration' is not drafted properly. Moreover, prospective purchasers of the properties or businesses on the Claimant's site need to Register on the site in order to view a property or business – a disincentive nowadays with the amount of junk mail and spam the average individual can receive. The Defendant avers that the 'agreement' thus fails the test of being a contract between the Claimant and the Defendant. Alternatively or in addition -

8. The Defendant alleges a breach of the Statutory Instrument The Estate Agents (Provision of Information) Regulations 1991. In regard to those Regulations, the Defendant avers that the 'agreement's 'Sole Selling Rights' are not explained in plain English and do not exactly match those found in The Estate Agents Act 1979, on which the 1991 update is based. ['Name of Business'] is the Defendant's home so the Claimant should have abided by The Property Ombudsman Service (TPOS) Guide for Residential Sales as well as the TPOS Guide for Commercial and Business Agents which in itself is based on The Estate Agents Act 1979. The Claimant company is a Member of TPOS yet breaches TPOS rules in that it fails to display the TPOS logo; so customers cannot know to whom they can complain. The TPOS Rules state that the logo should be displayed, together with the Claimant's complaints procedure. Both are absent from the Claimant's web site and correspondence. Alternatively or in addition -

9. The Claimant has contravened the 1991 Regulations, as zero written pre-contract information regarding remuneration were sent to the Defendant prior to the 'agreement' signing date. Please can the Judge refer to 3.1 of The Estate Agents (Provision of Information Regulations) 1991 which is the up-date to the 1979 Act. The Claimant was at all material times carrying out Estate Agency work as defined in and for the purposes of section 1 of the Estate Agency Act 1979 and the Statutory Instrument The Estate Agents (Provision of Information) Regulations 1991. This is accepted by the Claimant's Membership of a Redress Scheme and detailed in the High Court case of RTA v Bracewell 2015. Therefore the Defendant seeks an order or declaration pursuant to Section 18(5) of the Estate Agents Act 1979 and/or the provisions of the Statutory Instrument The Estate Agents (Provision of Information) Regulations 1991 that the 'agreement' is not enforceable as alleged or at all. Alternatively or in addition -

10. The 'agreement' was signed BEFORE the Claimant had carried out any checks as to whether there were any other Beneficial Owners. That means that another owner/interested party could have objected to the ultimate sale of the premises or its leasing, thus rendering the Defendant herself liable to pay fees through no fault of her own. The Field Agent pressed for a signature before checking the full situation with the Defendant regarding the ownership or lease and failed to obtain any identification documents belonging to the signee. That practice is a clear breach of the Statutory Instrument The Money Laundering Regulations 2007 requirement for Customer Due Diligence. The requirements of the Regulations are explained later on in this Defence Document. Alternatively or in addition -

11. The history of this case is as follows: After several unsolicited telephone calls from the Claimant, the Claimant's 'EValuation'/Sales Agent attended the Defendant's home; claiming that there were 'buyers waiting” for such a business/property. Further details of the Field Sales Agent's representations and misrepresentations will be supplied in the Defendant's Witness Statement. Suffice to say that the Defendant alleges the Agent's breaches were innocent, negligent or fraudulent according to The Misrepresentation Act 1967. At all material times the Defendant relied upon the supposed professionalism of the Claimant's sales representative to explain the legal terms of the agreement. He did not. Therefore the Defendant is disadvantaged by the legal wording of the agreement. Additionally or alternatively

12. Under the Statutory Instrument The Money-Laundering Regulations 2007 Regulation 5, it is required that the Agent for the potential sale of a business must carry out ‘Customer Due Diligence’ and as an Estate Agency, the Claimant – RTA (Business Consultants) Ltd, is a ‘relevant person’ under the Regulations.

13. Regulation 11(1) provides the detail, which is shown as an Annexe to this Defence. The meaning of “customer due diligence” is set out at Regulation 5, the full requirements are laid out in Regulation 7 (1) (in the Annexe to this Defence) especially because of this being an occasional transaction. It is a question of identifying the customer and his/her Beneficial Ownership of the business or property. Ownership and Identification documents should be examined and copied before a business relationship is established. The aforementioned Defence Annexe sets out the actual Regulations. The Claimant and Mr .......... the Field Representative failed to check any Beneficial Ownership or “picture” Identity at all, or even to identify whether the Defendant was in a position to legally instruct the marketing of this business.

14. Several District Judges have ruled that the 'agreement' is 'tainted with illegality' because of the Claimant's method of seeking a signature at the time of the Field Sales Representative's half-hour visit; which does not give the chance for the signee to read or understand this complex legal 'agreement' that demands a fee from the signee whatever happens – yet the Claimant expects the signee to somehow be able to understand, and to lose the right to 'cool off', just because he or she runs a business. No Notice of Right to Cancel is given with the 'agreement' as the Claimant claims a lack of all signees 'Cooling off' period even though the person signing does so as an individual.

15. As such the purported 'agreement' that the Claimant seeks to rely upon should fail in its entirety as a result of the Claimant Company's failure to conform to the Money Laundering Regulations 2007. Evidence is in the form of write-ups of cases showing that Estate Agents were fined by the former Office of Fair Trading for their failure to carry out Customer Due Diligence; and in the form of Transcripts and Judgments. All evidence will be provided in the Evidence Bundle. Alternatively or in addition -

16. The Defendant avers that Clause 1 of the 'agreement' makes him or her, the individual, a 'natural person' responsible for the Claimant's fees for the business [name of business], an entirely separate legal entity. Yet [name of business] itself has not been invoiced by the Claimant. The monetary income and expenditure accounts of the business are kept entirely separate from the accounts of the Defendant, in different bank accounts. The Claimant may argue that the Defendant is a business person, but that does not make him or her any more able to understand the 'agreement' terms. Being in business makes no difference as the Defendant is a 'natural person' contracting with the Claimant 'outside [the Defendant's] usual trade, profession or craft – she is a person offering [type of service] from her home [from leased business premises]. She was persuaded to enter into this 'occasional transaction' – a 'one-off' transaction entirely unrelated to her regular business dealings, so there was no degree of regularity in the relationship between the partues. Alternatively or in addition -

17. The terms of the Claimant’s 'written standard terms' (see Unfair Contract Terms Act 1977) 'agreement', which were stated by the Claimant’s representative, to be "normal in the Estate Agency industry”, are clearly not in that they are restrictive sole selling rights. They have been described as onerous and draconian. Now that the Defendant is being sued, she takes particular issue with the exclusion/non-reliance Clause at Clause 16 [some contracts differ, so check the number] . She is told that this breaches UCTA's provisions as the sales agent is the only person from the Claimant's premises that the Defendant meets, so what is the point of the visit if nothing the agent says can be relied upon? Further or in the alternative:

18. In providing its services, the Claimant owed the Defendant a duty to carry out those services with 'reasonable care and skill' as defined in the Supply of Goods and Services Act 1982. In breach of such duty and obligations to the Defendant, the Claimant:

(a) Over-valued the business; (b) Failed to consider the accounts of the business; (c) Failed to write down full details of the property; (d) Failed to explain fully, or at all, the ‘onerous’ clauses in the agreement; (e) Failed to advise the Defendant, properly or at all, of the lack of a 'cooling off' period and of all matters in explained in (a) to (d) above. Further or in the alternative -

19. The Claimant company is attempting to sue the Defendant for £10,000 including VAT yet it has failed to supply any proof that it has incurred such costs and expenses. It has no contractual right to this figure because, according to HMRC Regulations (proof of which will be in the Evidence Bundle) EEC rules dictate that VAT is only chargeable on goods or services, not on a breach of contract – evidence to be supplied in the Bundle. As such the claim is entirely unfounded and should fail as being defective. Further or in the alternative

20. If it is found that the Defendant entered into a legal agreement with the Claimant then it is the Defendant’s case that she did so exercising her rights under the The Consumer Contracts (Information, Cancellation and Additional Charges) Regulations 2013 because the Defendant entered the agreement as an individual having received unsolicited calls and having entered into an 'agreement' away from the trader's premises. She agreed to a meeting in her home, to get an ‘Evaluation’ of the business with a view to ‘possibly’ marketing it. The Defendant acted wholly as an owner of a [type of business] business, who was not in business to value, market or sell businesses.

21. The Claimant may also seek to rely on a case lost by the Claimant RTA v Bracewell where Judge Seymour ruled that Mr Bracewell was not a consumer. As Mr Bracewell was running two businesses from his premises, the Honourable Judge's comments are understandable in that he used EEC case law, Council Directive 85/577/EEC. In English Law 85/577/EEC is now repealed and replaced with The Consumer Contracts (Information, Cancellation and Additional Charges) Regulations 2013 which Judge Seymour could not have used as Mr Bracewell signed in 2010. The Defendant pleads that her circumstances bear no resemblance to Mr Bracewell's. Further or in the alternative -

22. The entire agreement is written in very small print, with no highlighted, bold or underlined clauses at all. The various clauses cross-reference to one another so there is ambiguity – the legal terminology is nearly impossible for the non-legal signee. The terms 'cancel' 'terminate' and 'withdraw' (and their derivatives) are scattered amongst the various clauses without explanation of the difference (if any) between them. There is a 2-year period attributed to cancellation in one clause; whereas there is just a six month period attributed to termination. The Defendant asserts that it defies the spirit and/or the law of Lord Denning's Red Hand Rule as explained in Spurling v Bradshaw. The Claimant’s representative at the very least failed to point out the onerous nature of the clauses therein and at worst deliberately and fraudulently misrepresented them to the Defendant therefore the agreement should fail in its entirety.

23. For the reasons set out in this Defence, the Claimant's Claim is denied in its entirety and the Claimant is put to strict proof of all matters alleged by the Claimant Company, in particular the amount spent on any advertising, or on withdrawing the Defendant's details from the Claimant's web-site.

24. To sum up, the Defendant alleges that the Claimant has breached procedural irregularities; the 'agreement' has conflicting clauses; The Claimant demands half Commission fees; and seeks to rely on unfair terms which conflict with many Acts and Regulations. For points of law the Defendant relies on the following: Lord Denning's 'Red Hand Rule' as cited in Spurling v Bradshaw because of the use of small print. together with a 'termination or withdrawal' clause written only in Clause 14 [check which clause] but not mentioned in Clause 2; The Estate Agents Act 1979 and the Estate Agents (Provision of Information) Regulations 1991; update; The Unfair Contract Terms Act 1977 and/or The Consumer Contracts (Information, Cancellation and Additional Charges) Regulations 2013; The Supply of Goods and Services Act 1982; The Misrepresentation Act 1967; The case of Great Estates v Digby EWCA 2011 where, in order to claim Commission, the Agent must be the effective cause of a sale; The Money Laundering Regulations 2007 applying to Estate Agents since 2010; specifically Regulations 5, 7, 9 and 11.

STATEMENT OF TRUTH

I believe the foregoing Defence Document represents a True Statement of the Facts

Signed ……………………………………. Miss X Date …………………… 2016

IN THE COUNTY COURT MONEY CLAIMS CENTRE CLAIM NUMBER ???

LOCAL COURT [name] COURT

HEARING DATE ????? CLAIMANT CLAIMS £10,000

BETWEEN

RTA (BUSINESS CONSULTANTS) LIMITED CLAIMANT

AND

Miss X DEFENDANT

COUNTERCLAIM

Paragraphs 1 to 24 of the Defence are repeated. This Counterclaim is limited to £9,000 and therefore suitable for the small claims track. The Defendant's understanding is that no fee is due as the Counterclaim is only invoked upon dismissal, or withdrawal by the Claimant, of this Claim against the Claimant.

If the Claimant's Claim is dismissed, the Defendant would like to Claim costs as follows:

A payment of £155 paid to the Court to attempt an adjournment and apply for this replacement Defence

A payment of £10 paid to the Court for a copy of the Claim (yet to be received at the date of signature of this Defence)

Printing and Recorded Delivery postage – details will be provided at Hearing

Mileage and/or Public transport @ £0.45 per mile to deliver documents to Court

For the Judge's ease of reference, the defence annexe containing Regulations 7, 9 and 11 of The Money Laundering Regulations 2007 follows overleaf:

IN THE COUNTY COURT MONEY CLAIMS CENTRE CLAIM NUMBER

LOCAL COURT [name] COURT

HEARING DATE [dd/mm/ 2016 CLAIMANT CLAIMS £10,000

BETWEEN

RTA (BUSINESS CONSULTANTS) LIMITED CLAIMANT

AND

Miss X DEFENDANT

DEFENCE ANNEXE Regulations 5, 7, 9 and 11 of The Money Laundering Regulations 2007

Regulation 5 of the Money Laundering Regulations reads as follows:

Meaning of customer due diligence measures

5. “Customer due diligence measures” means—

(a) identifying the customer and verifying the customer’s identity on the basis of documents, data or information obtained from a reliable and independent source;

(b) identifying, where there is a beneficial owner who is not the customer, the beneficial owner and taking adequate measures, on a risk-sensitive basis, to verify his identity so that the relevant person is satisfied that he knows who the beneficial owner is, including, in the case of a legal person, trust or similar legal arrangement, measures to understand the ownership and control structure of the person, trust or arrangement; and

(c) obtaining information on the purpose and intended nature of the business relationship.

Regulation 7 of the Money Laundering Regulations reads as follows:

Application of customer due diligence measures

7.—(1) Subject to regulations 9, 10, 12, 13, 14, 16(4) and 17, a relevant person must apply

customer due diligence measures when he—

(a) establishes a business relationship;

(b) carries out an occasional transaction;

(c) suspects money laundering or terrorist financing;

(d) doubts the veracity or adequacy of documents, data or information previously obtained

for the purposes of identification or verification.

Regulation 9 of the Money Laundering Regulations reads as follows:

Timing of verification 1) This regulation applies in respect of the duty under regulation 7(1)(a) and (b) to apply the customer due diligence measures referred to in regulation 5(a) and (b).

(2) Subject to paragraphs (3) to (5) and regulation 10, a relevant person must verify the identity of the customer (and any beneficial owner) before the establishment of a business relationship or the carrying out of an occasional transaction. Note the use of the word before. The Claimant has, in previous cases attempted to use Regulation 9 (3) 'Such verification may be completed during the establishment of a business relationship if— (a) this is necessary not to interrupt the normal conduct of business'. However, judges have criticised the Claimant's methods of getting the 'agreement' signed on the sales agent's one and only visit as being 'tainted with illegality' and the Claimant has yet to prove that his company have been audited (and passed said audit) like he has claimed in previous cases. The Defendant will provide HMRC's guide to the paperwork that is checked in an audit.

Regulation 11 states: (1) Where, in relation to any customer, a relevant person is unable to apply customer due diligence measures in accordance with the provisions of this Part, he—

(a) must not carry out a transaction with or for the customer through a bank account;

(b) must not establish a business relationship or carry out an occasional transaction with the customer;

(c) must terminate any existing business relationship with the customer.

NOTE: Although it is an occasional transaction, the 'agreement' has sole selling rights for an irrevocable twelve months.