Evidence presented to the FCA

Evidence presented to the FCA at a meeting on 13 April 2013


  • As a preliminary point NW will say that it should be simple matter for the FCA to verify the facts stated here by asking HSBC for copies of all invoices from Weightmans and Restons solicitors for debt recovery up to 2010 which were actually paid by the bank – i.e. not pro-forma invoices. There will be none.
  • NW acted for John Lewis Partnership in debt recovery for over 20 years; at Jansons, Simon Jackson Solicitors, Vizards and Weightmans, the company following him to the different firms.
  • In 2003 John Lewis decided to sell its store card business to HFC Bank Limited, a subsidiary of HSBC. HSBC created a new company for the purpose, John Lewis Financial Services Limited.
  • At a meeting at HFC head office in Winkfield in October 2003 the bank’s solicitor, Duncan Hamilton, explained to NW how the bank’s contract for debt recovery worked with their existing solicitors Restons. The arrangement was that 16.4% of the debt would be added by the solicitors on receipt from the bank to cover their costs. (14% fee plus 17.5% VAT). The solicitors pay all the disbursements (court fees, enquiry agents etc) and the solicitors recover their costs and disbursements from the debtor. For every sum received the solicitors remit 50% to the bank and retain 50% themselves until their costs and disbursements are paid. Here is a flowchart, showing how the arrangement worked – the bank (HFC or HSBC) paid nothing for legal costs or disbursements. This is NW’s contemporaneous note of the contract terms. If the debtor paid nothing the solicitors received nothing. If the charges were ever challenged they were dropped immediately. The firm’s relied on default judgments.
  • NW explained to Duncan Hamilton that such an arrangement was illegal. It is a contingency fee arrangement forbidden by the Solicitors Act 1974. The Senior Partner of Weightmans also attended the hearing and on the journey back to London NW explained to him why the firm couldn’t act on such a basis.
  • Weightmans continued to proceed with the contract despite NW’s protests. NW was involved in the drafting of the contract and for this purpose was sent a copy of Reston’s contract by Duncan Hamilton for reference.
  • It took approximately a year for the contract to mature with ever increasing volumes of work. Throughout the period NW remonstrated with the partners that the contract was illegal and eventually refused to do the work, resulting in period off sick with stress. An email sent by NW to all relevant partners concerning the contract, received no response.
  • When it became clear that Weightmans had no intention of changing the contract NW reported them to the Law Society. By this time all the work relating to the contract had been taken away from NW and dealt with at the head office in Liverpool, and the team headed in London by NW were all made redundant.
  • After 11 months the Solicitors Regulation Authority (which had come into existence during the period of the investigation) adjudicated that the contract was an unlawful contingency fee arrangement but that it “only happened in a small number of cases” and no action was taken.
  • During the period of the SRA investigation NW was “made redundant” by Weightmans, immediately after his report to the SRA. He and Weightmans attended a mediation resulting in a Compromise Agreement, containing a gagging clause, meaning that NW was not able to discuss the contract with the banks. In their “defence” at the mediation Weightmans stated that they undertook a “substanital” amount of work for HFC  and referred to the fact that Restons had operated a similar contract for a number of years
  • In the year of his complaint to the SRA NW estimates that between Weightmans and Restons £44m in illegal charges were added to accounts. HFC accounts included Dixons, Currys, PC World, Furniture Village, B&Q, Courts, Halfords, Beneficial Finance, HFC Bank, Marbles Credit Card, Hamiltons Direct. The work was divided evenly between Weightmans and Restons.  Even if the the above estimate is not accepted, it is clear that Weightmans issued proceedings in 2,981 cases, which is not a “small number” and since the solicitors took the risk on court fess etc, it was in their interests not to issue proceedings. Their preferred method if the debtor owned property was to apply for a legal charge over the property, to convert the debt into a secured debt. Therefore Weightmans’ claim that they only issued proceedings in 20% of cases is credible.
  • Following the SRA adjudication against Weightmans, NW discovered, whilst working as a consultant for a firm of solicitors in Brighton, that Weightmans were still adding the charges to debts. Even if this was no longer a contingency fee it is still in breach of solicitors rules forbidding solicitors for claiming costs to which they are not entitled. Of course throughout this time Restons were continuing to add the illegal charges (so far as NW is aware)
  • In November 2010 the Office of Fair Trading made a requirement against HFC Bank that they should stop adding the charges to accounts unless they changed the terms of the credit agreements. The existing credit agreement terms relating to default stated that “reasonable costs” or costs “on an indemnity basis” would be applied to the account. Neither of these terms allow for a universal addition of 16.4% to debts, which is neither reasonable nor an indemnity basis.
  • It should be noted that the OFT order was against HFC Bank. Not against John Lewis Financial Services Limited (HSBC) so NW has no knowledge of whether those charges ceased. This is the subject of a separate report to the FCA.
  • Finally, NW is of the view that the charges are fraudulent because they breach every one of the definitions of fraud in the Fraud Act.  If HSBC were reckless as to the legality of the charges that would also constitute fraud. Despite all the evidence of wrongdoing HSBC continues to deny to the media and Parliament any wrongdoing and no compensation has been paid to debtors affected apart from those costs recovered by NW through the Financial Ombudsman Service. NW estimates the total illegal charges added throughout the whole period (i.e. including prior to HSBC purchase of HFC) at £1bn. HSBC had previously made provision in its accounts for $1bn but this has now been reduced to $400m.