Bank lending to borrowers under three separate credit facilities – Two facilities comprising of joint loans – Whether bank barred from recovering under facilities by sections 11 and 18 Consumer Credit Act 1974 – Whether facilities provided under one agreement – Judge finding bank entitled to recover under facilities – Appeal dismissed
The claimants, S and P, were the joint owners and residents of Castlebrook House, Compton, Dundon, Somerset. S carried on a carpentry business from the house. In January 1986 the defendant bank granted them a joint loan of £10,000 supported by a second charge to enable them to discharge an overdraft of £3,500 in order to enlarge the house and enable S to purchase tools. The bank also agreed to permit the continuance of a joint home improvement loan of £1,500. By November 1986 S had added to the facilities granted by the bank an overdraft of £5,000 in his own name. In November 1986 the bank agreed to lend the claimants a total of £35,000, replacing the existing facilities of £16,500. It was to consist of three separate credit ‘facilities’, one them by way of an overdraft of £15,000 to S and two of them by way of joint loans to both claimants of £5,000 and £15,000. The division of the joint facility of £20,000 into two accounts was to provide simple accounting for what was believed to be their entitlement to mortgage relief of £5,000, after taking into account a first mortgage on their home.
Subsequently, the bank issued proceedings to recover sums due under the joint loans. The claimants contended that joint loans were provided for under two separate agreements each for credit not exceeding £15,000 and accordingly the loans were irrecoverable for want of compliance with the formalities of the Consumer Credit Act 1974. The respondent contended that the two loans were provided for under one agreement which provided credit for more than the £15,000; thus it was unregulated and the banks could recover the sums claimed.
The judge found for the respondent.
Held: The appeal was dismissed.
1. The clear object of the transaction was to provide an overall letter of credit of £35,000, partly to replace existing borrowing and partly to provide new moneys. It was negotiated, agreed and documented as one transaction. The allocation of the borrowing within different facilities, subject to different requirements, made fiscal, commercial and administrative sense but was not a reason for regarding the transaction as three instead of one. Nor was the fact that each of the facilities could be drawn on, or not, independently of the use made of the others.
2. There was no reason for treating the one agreement as being separate by virtue of sections 18, 11(1) and (2) of the Act. Nothing less than a contractual commitment placed a part of an agreement in the restricted-use category in section 11(1) of the Act and there was no evidence that there was a term, express or implied, that the moneys drawn on the £5,000 facility would only be used to repay existing indebtedness to the bank with the effect that the part of agreement was placed in the restricted-use category in section 11(1)(c) of the Act.
Jonathan Gilman QC, Gregory Treverton-Jones and John Snider (instructed by Humphreys & Co and Cartwrights, both of Bristol) appeared for the claimants; Andrew Smith QC and Neil Levy (instructed by Osborne Clarke, of Bristol) appeared for the respondent.
Thomas Elliott, barrister
