The Cranston Review – where next?

Gavin Cunningham - Forensic Accounting Partner Menzies LLP

Gavin Cunningham –
Partner, Forensic Services

Matthew Haddow

Matt Haddow –
Director, Forensic Services

In December 2019, Sir Ross Cranston delivered his eagerly anticipated report into the heavily criticised “Customer Review” that was established by Lloyds Banking Group (“LBG”) in the wake of the HBOS criminal fraud scandal and subsequent cover up within LBG. The “Customer Review” was overseen by Professor Russel Griggs, OBE, to deliver “fair” compensation to victims”.

Sir Ross Cranston was severely critical of LBG and the Customer Review. This review failed to provide adequate compensation for the victims of the original criminal activity involving LBG staff and external fraudsters. His main recommendation is that the process of assessing the Direct and Consequential losses (“D&C losses”) suffered by victims “must be re-done” to put right the wrongs of LBG and the Customer Review process. This has been well received by those that have suffered and long campaigned for “fairness” including key victim support groups such as the SME Alliance.

The question becomes what mechanism will now be put in place to facilitate a fair, transparent and independent review, binding on LBG so that victims who have suffered for well over a decade finally receive the recompense they are long overdue?

He suggested as one possibility an “independent panel which would proceed in a non-legalistic manner to conduct the assessments”.  However, as he states, the detail of that process needs to be carefully thought through as a result of a collaborative discussion with relevant stakeholders: his recommendation is quite clear that “certainly, the Bank should not conduct this revised D&C assessment”.

Such discussions are still taking place but are likely to involve victim representatives and also quasi-public bodies such as the All Party Parliamentary Group on Fair Business Banking and the Business Banking Resolution Service. The latter was itself set up following the 2018 Walker Review into the inadequacies of the current system in enabling SME businesses to obtain fair and swift redress when they are failed by their banks.

The Cranston Review main findings

The main findings of the Cranston Review regarding the Customer Review were that:

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1 – There were “serious shortcomings” and “flaws”.

2 –  “…the methodology and process did not achieve the purpose of delivering fair and reasonable offers of compensation”.

3 – LBG did not make a single award for D&C losses which amounted to an “unacceptable denial of responsibility”.

4 – It sent a “damaging” message that destruction of businesses had nothing to do with the actions of the criminals and that all business failures and suffering were all of the customers’ own making.

5 – There were various deficiencies in the way LBG determined whether individuals who were not formally appointed directors qualified for inclusion in the Customer Review.

6 – His review of a sample of cases “…demonstrated that the judgments made on individual customer cases have not always been fair and reasonable.”

7 – LBG’s policy to writing off customers’ debts was done in a “discriminatory” manner.

8 – He also appears to resist the label “HBOS Reading” to reflect the activities of both the Reading branch and Bishopsgate which serviced the impaired assets division in the South of England.

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Further comments from Sir Ross Cranston

In addition to the re-assessment of compensation payments, Sir Ross also recommended that:

1 – LBG must reconsider all cases where an individual sought inclusion in the HBOS Customer Review on the basis that they were a de facto director or were otherwise involved in the running of the business.

2 – In determining whether an individual was a de facto director or actively involved in the running of the business, LBG should consider all relevant evidence, and give weight to the individual’s written statement and any corroborative statements of others involved in the running of the business at the relevant time.

3 – Where an individual who is found to qualify for inclusion in the HBOS Customer Review in this way is a spouse or partner of another director of the business, in the absence of evidence to the contrary, LBG should consider each of them to have suffered the same or similar distress.

4 – In line with this approach, LBG must reconsider customers’ eligibility for debt relief payments where such debt existed at the time of the HBOS Reading fraud, and that debt was subsequently repaid or refinanced before the commencement of the HBOS Customer Review.

5 – For individuals, LBG must arrange for the reassessment of D&C losses by an independent body, on an opt-in basis, after agreeing the arrangements with key stakeholders. The principles underlying the structure (proposed at Appendix 2 of his report) must form part of the agreed revised D&C assessment process.

6 – For a business, if any of its shareholders sought to make a claim in the course of the HBOS Customer Review LBG must arrange for the independent body (to be constituted in accordance with Recommendation 3.1 of his report) to conduct a D&C assessment.

7 – LBG must release non-director shareholders (or any other third parties, including the companies themselves) who only received a QCS-fee refund from their settlement agreements.

8 – LBG must write to the Treasury Select Committee providing an accurate picture of the use of settlement templates in the course of the HBOS Customer Review.

9 – LBG must release customers opting into a revised D&C assessment from the relevant provisions of their settlement agreement.

10 – LBG must undertake (i) not to bring or threaten to bring any breach of confidence claim under any clause in the settlements other than clause 4 of those agreements; and (ii) not to bring or threaten to bring any breach of contract claim in respect of customers sharing information under clauses 2.2 and 2.3 (save to the extent that the same would constitute a breach of clause 4).

LBG has previously confirmed that it will abide by the recommendations of Sir Ross’ report and it is to be hoped that it will now, finally, deliver fair compensation to all victims and bring closure to over a decade of suffering.

Our assessment

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We have spent much of the last 6 years assisting victims of banking malpractice to recover losses they have incurred as a consequence of the Banks’ actions. It has been an uphill struggle, firstly with a blanket denial of any liability by the Banks. Even if there was then a begrudging acceptance of liability, what followed was the somewhat curious intellectual position being adopted by Banks that even if their actions were wrong and had cost businesses hundreds of thousands, or millions of pounds in unnecessary costs, that such expense did not impact on the ongoing performance of their own customers’ businesses. When these businesses failed it was then apparently nothing to do with the impact of the Bank involved and that such businesses would have failed anyway and hence the Bank did not cause any loss and did not need to pay anything back to the customer.

This clearly flawed logic was applied by LBG to victims of both the HBOS scandal and also those who had been mis-sold IRHP products. The Banks were professionally supported in this by the ingenious legal arguments put forward by highly experienced and seasoned banking litigation lawyers. These could adopt the inappropriate adversarial approach highlighted in the Cranston Report to beat down the attempts by victims to obtain fair recompense. In this way it has been an unfair battle of David against Goliath.

The Cranston Report has now stipulated that LBG re-assess victims’ claims for direct and consequential losses; those losses victims actually suffered as a result of the destruction of their companies in whole or in part.

While the former customers may understandably be cautious in hoping that fair compensation may finally nearly be at hand, the creation of the new mechanism to allow for this to happen is a final opportunity to redress the great injustice that victims have suffered for so long. Finally it is to be hoped that David will now be armed with a slingshot that can at least force Goliath to stop fighting the many victims of the criminal activity perpetrated with LBG.  For those who have never adequately recovered their true IRHP losses it sadly seems it is too late.

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