Biallifs white paper

31st October 2011
A White Paper On:
Bailiff Studies Centre Report
Profit Sharing & Professional Practice:
Recent developments in Local Authority tendering-
A study commissioned by Local Authority Debt Enforcement &
Recovery (LADER)
Profit Sharing & Professional Practice: Recent developments in local authority tendering – a study
commissioned by LADER – 31 October 2011
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Foreword by Philip Evans, Co Founder of the Enforcement Law Reform Group
I had some small role in the genesis of this Report. At the Parking Summit in July 2010,
organised by the British Parking Association, I spoke on the need for Local Authorities to
keep within the law and promote good practice in order to get the best from their contracted
bailiffs. I cited some ‘representative problems’ and said that getting away with whatever
illegality you can in the cause of economy and expediency can never be good public service;
I said that Local Authorities are not responsible for everything that’s wrong with the bailiff
industry, but they are ‘the accelerator in the compost bin’.
That might have been that, had not a later speaker told the conference of his Authority’s
requirement for its contracted bailiffs to pay over a percentage of its enforcement fees, in
addition to the debt itself. He prefaced the revelation by saying that I wouldn’t like it. His
comment provoked criticism from the audience and he defended the practice on the basis
that it was a form of profit sharing that Authorities couldn’t overlook in the current economic
climate.
John Kruse (the author of this Report) was sitting beside me and reminded me that the
National Standards for Enforcement Agents dissuades any sort of payment for awarding
contracts. I mentioned this to the conference and added that an Authority’s demand for a
percentage would compel bailiffs to artificially increase their fees in order to comply. I might
have also said (although I can’t now recall whether I did) that as the fees for the early stages
of the enforcement are fixed by statute, there is a risk of bailiffs having to remove or attend
to remove goods unnecessarily in order to raise the revenue needed to pay the Authority its
piece of the action.
Since then, the issue has been aired in trade journals and raised in Parliament. Local
Authority Debt Enforcement & Recovery then commissioned this Report from the Bailiff
Studies Centre.
I have warned for many years of the consequences of a commercial environment which
incentivises bailiffs to cut corners and push back the boundaries of acceptable behaviour. I
first said it publically at an Institute of Revenues Rating & Valuation (IRRV) Enforcement
Conference in April 1998. Now, as this report reveals, we have gone a step or two further
into the quagmire, with some Authorities requiring their bailiffs to act this way in order to get
contracts.
The media don’t see this, of course. It’s just too easy to criticise bailiffs. Just before this
Report is to be published, a television documentary in the ITV ‘Exposure’ series is scheduled
that promises to uncover the inadequate guidelines under which bailiffs operate. It remains
to be seen, but I personally doubt the programme will get to the real problems; I think it will
stick to the sort of superficial stories that makes people’s blood boil, but don’t provoke
serious thought about how things can be improved. But if you don’t correctly diagnose the
problem, you won’t formulate the remedy.
This Report by the Bailiff Studies Centre is the real exposé, uncovering something of what
makes the bailiff industry what it is. And it could go deeper, to the constitutional complacency
that has let bailiff law and practice drift into disrepute for so many years. Successive
administrations, going back to the Payne Report (‘Report of the Committee on the
Enforcement of Judgment Debts’) when Harold Wilson was Prime Minister, have
unwaveringly ignored the issues. Bailiffs themselves have been under continuous
Government review since 1992 but, through it all and heedless of public concern,
Profit Sharing & Professional Practice: Recent developments in local authority tendering – a study
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Government has been painting itself and the Local Authorities into a corner, becoming
increasingly dependent on bailiffs to enforce an ever expanding range of taxes, fines and
penalties, rather than risk a pragmatic reform of debt and debt enforcement.
I hope this Report provokes the sort of serious thought that will bring meaningful change.
Philip Evans
October 2011
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Contents
Introduction …………………………………………………………………………………………………………………………. 5
Contract clauses …………………………………………………………………………………………………………………. 5
Fee dividends ………………………………………………………………………………………………………………….. 5
Unlawful activities …………………………………………………………………………………………………………….. 6
Ancillary services ……………………………………………………………………………………………………………… 7
Practical consequences ………………………………………………………………………………………………………. 8
Breaches of bailiff law ………………………………………………………………………………………………………. 8
Breaches of public law ……………………………………………………………………………………………………… 9
Codes of practice …………………………………………………………………………………………………………….. 9
Conclusions ………………………………………………………………………………………………………………………. 10
Contract checklist ………………………………………………………………………………………………………………. 12
Profit Sharing & Professional Practice: Recent developments in local authority tendering – a study
commissioned by LADER – 31 October 2011
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Introduction
The Bailiff Studies Centre was commissioned to prepare this report in response to a growing
tendency for local authorities to require bailiff companies tendering for contracts to promise
to pay to the authority a share of the fees collected, over and above the repayment of the
debt that is being enforced.
The London Borough of Harrow, particularly, has enthusiastically promoted the strategy of
negotiating a “cut” of bailiff profits as a means of revenue enhancement. The response of
the enforcement sector to these suggestions has been unanimously unfavourable. It is
definitely not a matter of mere parsimony- this development, combined with procedural
demands specified in tender documents, risk reversing many of the positive developments
within the industry that have taken place over the last decade.
Contract clauses
The problematic clauses in tender documents may be grouped into three separate
categories- those relating to revenue, those governing the levy process and those ‘ancillary’
services that local authorities seek by way of ‘added value’.
Fee dividends
Increasingly, tender documents contain clauses that seek to ‘share profits’ with a bailiff
company by requiring a fixed percentage of ‘profits’ – that is, the fees allocated to the bailiffs
to cover their costs and expenses.
A distinction needs to be made between the fees for enforcing local taxes (council tax and
non-domestic rates) and road traffic management penalties (parking penalties, congestion
charge and the like). By statute, the former belong to the local authority, but historically the
bailiff has been allowed to keep them for carrying out the enforcement process. In contrast,
for road traffic penalties, the relevant legislation specifically grants the fee to the bailiff.
Regardless of the legal position, however, the growing practice of ‘profit sharing’ places an
additional burden on defaulters who ultimately bear the cost of the entire enforcement
regime and not just the enforcement of their own debt.
This trend is not new, but a return to something that was prevalent during the early 1990s. At
that time, though, the impulse for such practices came largely from bailiff companies as they
sought to secure contracts in the new, rapidly expanding, market for community charge (‘poll
tax’) enforcement. Today, by contrast, the idea comes from local authority officers as they
seek to alleviate budgetary strictures.
Here are some examples.
· A North London Authority requests that its enforcement agents pay it a profit share of
the fees they raise equivalent to £1 for each penalty charge notice enforced. This is
justified as a source of income generation for the Authority that could enable it to
make savings of 5% to 12% of the costs it incurs in parking enforcement.
· A number of councils in East Anglia are requesting a ‘return’ of 0.5% on all revenue
collected by the agencies acting for them.
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· Another East London Council demands 4% of all bailiff fees recovered and justifies
this as ‘profit sharing’.
Unlawful activities
This second class of clauses is not new, having been around for at least the last decade, but
it is worth highlighting here as it is likely to interact in an adverse manner with the demands
for a share of profits.
It is not uncommon for local authority tender documents and contracts to include clauses
requiring or encouraging certain policies and procedures. Often these aim to protect debtors
and to maintain high standards of practice and, as such, are not to be criticised. Sometimes,
however, stipulations about the manner of levying or about the application of fees are
deliberately or unwittingly unlawful.
Examples of directions on the conduct of seizures (sometimes referred to as the ‘initial levy’)
follow:
· A couple of years ago, a large central government department in a tender document
seemed deeply confused about the terminology of enforcement. The result appeared
(at least) to endorse seizing goods without the necessity for any prior entry to
premises. More worrying still was the suggestion that removals could take place
when entry to premises was forced to levy on goods. Both of these practices are
wholly unlawful.1
· A large London Authority in a recent tender for parking enforcement gave a clear
indication that it would condone the seizure of goods that were not owned by the
debtor. The document stipulated that vehicles on Motability leases should only be
removed with council permission; later in the same document, the authority again
explicitly endorsed the seizure of vehicles owned by Motability Finance. Moreover,
the Authority appeared to indirectly condone the use of wheel clamps, a practice of
very uncertain legality.2While the Authority was clearly concerned with the treatment
of disabled persons, especially where only one or two penalties might be due, the
fact that the vehicle would not belong to the debtor (but to the lesser) meant that it
could not be seized (‘levied on’), clamped or removed under any circumstances.
Some local authorities stipulate how fees may be applied. This may be understandable, and
even commendable, as the charging of fees is a regular source of contention between
debtors and bailiffs. It must, however, be done in a way that complies with statutory fee
scales.
In this respect, we note that one large Bedfordshire Authority in a tender document observed
that it had “identified some inconsistencies in charging; different bailiff companies were
charging different amounts for essentially the same service of ‘attendance at a debtor’s
property with the intention of removing goods’.” The document continued: “This procurement
process addressed this issue by setting out the fees within the specification.”
1 This process would violate several basic principles of bailiff law- for example, see the case of Evans
v South Ribble BC [1992] in which the court decided that a valid seizure of household goods could
only follow a physical entry to the house.
2 Clamping is explicitly authorised by only a handful of statutes; although its use is widespread, the
right of bailiffs to employ the technique has yet to be tested in the courts.
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This council rightly identified a key area for dispute because it is one in which bailiffs may set
their own ‘reasonable charges’ and, inevitably, views on reasonability differ. While the
solution found by stipulating the fee chargeable may be laudable, it must be lawful.
Unfortunately, this is not always the case.
These are some examples:
· One council in the North of England very recently issued a tender in which it stated
that the fee for removal set by Parliament is £150- but there is no such set fee.
· A London Authority in its tender for various debt enforcement services enquired as to
the fees charged to debtors for taking credit card or debit card payments and for
administering payment plans. While this was merely a request for information, it
implicitly accepted that such charges could be made, although they are not contained
within the statutory fee scales and are therefore unlikely to be considered lawful by
the courts.3
· More explicitly, one North East London Council recently issued a draft service level
agreement incorporating a fee scale that proposed clamp fees, HPI and DVLA
search fees and credit and debit card payment fees.
· Two London Traffic Authorities require their bailiffs to charge debit/credit card fees as
a standard part of their transactions with debtors.
It is fair to say that the tendency for enforcement agencies to seek to charge fees over and
above those contemplated by the legislature is not new and is probably not a product of local
authority actions. However, it is regrettable that public bodies like local authorities should be
so remarkably unfamiliar with this area of law and encourage its agents to act in ways that
may be outside their legal powers.
It should also be noted, however, that the bailiff sector has for many years had to cope with
revenue problems caused by the low levels of fees set by Parliament in statutory fee scales.
The scales themselves are structured to suit a Victorian enforcement sector and have not
been adequately revised to reflect modern realities, although individual fees have been
increased from time to time. Among the changes to business practice that the fee scales
have not accommodated is the fact that firms are now national, rather than local, and the
services required of them go far beyond the simple levying and removing of goods. Today,
data cleansing, searches, tracing and the provision of telephone call centres are routine
services expected by local authority clients for which no allowance is made in the fee scales.
Ancillary services
The problems explained above are aggravated by the additional demands made by councils
for their enforcement agents to take on functions, which are more properly those of the
councils themselves. These come under the general heading of ‘added value’. For instance,
some authorities require their bailiffs to deal with court applications challenging traffic
management penalties, including representing the councils at court hearings. For instance,
one East London Authority tried to impose a contractual clause requiring that bailiff
companies pay its £5.00 court registration fee for all traffic management penalties.
3Day v Davies [1938].
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Increasingly, too, Authorities expect their bailiffs to deal with all aspects of complaint
handling, including drafting response letters on behalf of council officers. Leaving aside the
public law issues raised, extra revenue must be generated by firms to provide staff and
resources to fulfil these demands; inevitably, the burden of generating that money falls on
debtors.
Practical consequences
Councils’ demands for a share of bailiff company revenue, plus the encouragement of
practices of dubious legality, are bound to have a deleterious impact within the industry.
Corners will be cut and the duty to take into account the needs of the vulnerable will be
ignored. The results will rebound on both councils and bailiffs to the benefit of neither. The
problems are likely to fall into three broad categories.
Breaches of bailiff law
As stated in the previous section, local authority tendering practices may give rise to
unlawful practices in fee charging and levying. It seems reasonably clear how bailiff
companies will accommodate demands for a ‘profit-share.’ Both for traffic management
penalties and for local taxes, the cost of attendances to remove is a ‘reasonable charge’ that
a bailiff may set. Fees of £150-200 are not unusual and the fee heading is also widely used
to accommodate a range of other expenses, among them ‘clamping vehicles’ and ‘tow truck
cancellation’ fees. These charges may readily be increased and expanded to absorb the
extra demands made by local authorities.
Moreover, there is a risk that in order to pay over a percentage of the statutory fees that are
fixed, bailiffs may feel pressurised into unnecessarily attending to remove goods – and
maybe even removing them – in order to incur a flexible fee they can manipulate.
Encouraging the charging of fees not permitted by the fee scales laid down by Parliament is
very poor practice on the part of local authorities. Where such fees are unlawful, they should
not have to be paid by the debtor, but in any event debtors facing genuine financial
difficulties have their problems compounded and their burden increased. Of course, if the
bailiff company takes its fees first from the proceeds received, the repayment of the debt to
the authority is further delayed.
Existing commercial pressures on bailiff companies have already promoted the development
of time saving practices of dubious legality. These are only likely to become more prevalent
as a consequence of the need to get extra fee income out of debtors. Examples of these
follow and include:
· Claims to have levied on household goods by looking through windows.4
· Claims to have seized motor vehicles by means of a so-called ‘drive-by levy’. This is
where a bailiff drives past a property and notes down the registration details of any
vehicle parked on or near the premises; there is not contact with or notice sent to the
debtor; no checks on ownership are made.
· The use of short-cut techniques to conduct levies of domestic chattels. These may
include ‘generic’ lists of household goods, to save on the time spent drawing up full
inventories, or the practice of ‘two stage levies’ that rely on a cursory seizure of a few
items at the first visit and a claim to ‘all other distrainable goods’ on the inventory.5
4 See Evans v South Ribble BC in footnote 1.
5 The courts have required that inventories are clear and precise- see most recently Ambrose v
Nottingham City Council (2004).
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Court judgments have demonstrated the inadvisability or ineffectiveness of all of these
practices, but they continue nonetheless and must be exacerbated by increased financial
pressures on bailiff companies.
None of these activities are without consequences for local councils. Bailiffs act as their
agents: they are legally liable for what the bailiffs do, especially in cases where they have
clearly ratified those acts in advance. Both parties may be taken to court with claims for
damages by aggrieved debtors or other individuals.
Inevitably, endorsing actions during levies that are not lawful has an impact on the whole of
a levy. If exempt or third party goods are seized deliberately, this can render the process a
trespass from the start and can invalidate the entire seizure. It will have to be abandoned
and started again. The result for the bailiffs and for the council for whom they operate is
wasted time, wasted resources and wasted opportunities. A levy that might have succeeded
the first time around may fail when the bailiff tries to return to a property and repeat the
process. This carries not only financial but also reputational risk.
Breaches of public law
Debt recovery action for local authorities sits within a wider legal context. Not only must the
council and its agents respect the laws of distress and execution, they are under wider
duties as public authorities.
Councils have obvious responsibilities under ‘public law’ to ensure that their decision-making
is lawful and correct. If tender documents clearly endorse activities that are unlawful, there
may be challenges in the High Court on the grounds that the council has acted ultra vires or
has made an error of law. A good example of an unlawful decision might be the tacit or
explicit permission given in some contracts to charge fees over and above those allowed by
the statutory fee scale. It need hardly be said that only Parliament can set fee scales in
legislation: there is no basis for council departments to seek to permit extra sums to be
charged by way of contracts, service level agreements or codes of conduct. It should be
obvious that these additional fees can have no legal basis. In addition to judicial review, a
complaint to the Local Government Ombudsman would be appropriate. At present the
Ombudsman is taking a particular interest in bailiff enforcement action and, in addition to
awarding compensation, has the power to order authorities to amend their practices.
Moreover, enforcement cannot be indiscriminate, taking little or no account of the situations
of the people being enforced against. Public authorities are answerable not just for the
legality and propriety of their decision-making, but also for the attention paid to the human
rights of the individual. They (and their agents) have duties under the European Convention
on Human Rights and the Equality Act 2010. There must be a real concern that the
pressures on bailiff companies to generate revenues sufficient to not only make a profit, but
also to pay a dividend to the local authority will force them to pay less attention to these
duties. Once again, High Court action or Ombudsman complaints are increased possibilities.
Codes of practice
In April 2003, the Lord Chancellor’s Department (now part of the Ministry of Justice)
introduced the National Standard for Enforcement Agencies. This is a national code of
practice for bailiff companies and their users, laying down minimum standards of good
practice across all forms of seizure of goods. The signatories included the Local Government
Association and the Institute of Revenues, Rating & Valuation, as well as the bailiff trade
bodies. The National Standard is still applicable, although it does not receive the publicity it
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deserves. Experience suggests that neither bailiff companies nor council staff are as familiar
with it as they need to be.
The Standard includes a number of clauses relevant to the current discussion, as follows:
· ‘Enforcement agents must act within the law at all times, including all defined
legislation;
· Enforcement agents/agencies and creditors must recognise that they each have a
role in ensuring that the vulnerable and socially excluded are protected and that the
recovery process includes procedures agreed between the agent/agency and
creditor about how such situations should be dealt with;
· In order for the enforcement process to work effectively, creditors must be fully aware
of their own responsibilities. These should be observed and set out in terms of
agreement with their enforcement agent/agency; and
· Creditors must not seek payment from an enforcement agent or enforcement agency
in order to secure a contract.’
It should be apparent that many of the tender requirements (and subsequent contractual
clauses) discussed in this report are in direct violation of the National Standard. Council
officers and their enforcement agents are setting out deliberately to breach the terms of best
practice laid down in this guidance from government and also to ignore the
recommendations of professional and representative bodies.
Conclusions
The conclusions of this brief report cannot be hopeful. After several years of effort by the
enforcement industry to improve its reputation, companies may be driven by local council’s
demands to undo many of the gains made. The endorsement of unlawful practices and the
magnification of the commercial pressures on individual bailiffs to get results in order to
generate income to meet extra demands cannot have a positive influence on the
development of good practice over the next few years. This in turn will be damaging for
debtors, both directly and indirectly.
· Directly, indebted individuals will feel the impact of profit sharing through increases to
‘reasonable’ fees and by the addition to their bills of various extra-statutory amounts.
· Indirectly debtors will feel the effect of profit sharing through an exacerbation of
practices designed to levy at all costs.
In short, as must always be the case in a sector where the creditor does not pay for the cost
of debt collection, it will be debtors who carry the burden of enhanced returns to local
authority departments.
The demands of councils for additional payment and the trend towards extra contractual
terms should be resisted and reversed for the good of all parties.
We are arranging a conference to be held at the House of Lords on Thursday 24 November
2011 to enable local authority staff, MPs and policy makers to debate the issues raised in
Profit Sharing & Professional Practice: Recent developments in local authority tendering – a study
commissioned by LADER – 31 October 2011
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this report. Please note that places are limited to so please RSVP; Philip Evans at
lader@lader.org.uk for information on reserving a place.
John Kruse,
Bailiffs Studies Centre*
October 2011
The contributions and input of Philip Evans are gratefully acknowledged, as is the assistance
of Katherine Lee-Ball and Jamie B Waller of JBW Group Limited.
* The Bailiff Studies Centre was set up in 2010 to promote the best standards of practice
founded on the best principles of law. It produces a regular Bulletin, Practice Notes and
research reports on aspects of bailiff law and practice.
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Contract checklist
Complete this checklist to assess the legality of your agreements.
Levying
In your contracts or service level agreements do you:
· Recommend goods that may be seized?
· Endorse (directly or indirectly) levies on cars subject to hire purchase or lease?
· Suggest categories of exempt goods or classes of ‘vulnerable’ individuals?
Fees
In respect of charges, do you:
· Allow or encourage your bailiffs to charge for sums not on the relevant fee scale?
· Recommend figures for “reasonable” charges?
· Encourage or endorse fees for activities not allowed specifically by the regulations?
· Ask for a percentage of the bailiff companies’ fee income?
Results
If you have ticked two or more, we recommend that you seek further legal advice and/ or
attend our forthcoming conference on this subject. We are arranging a conference to be
held at the House of Lords on Thursday 24 November 2011 to enable local authority staff,
MPs and policy makers to debate the issues raised in this report.
Please contact Philip Evans on lader@lader.org.uk for information on reserving a place.