Consumer credit – Credit agreement – Section 77A of Consumer Credit Act 1974 – Appellant bank making unsecured credit agreements with respondent borrowers – Parties formulating agreements as if subject to statutory regulation under 1974 Act – Bank statements failing to comply with requirements of 1974 Act – Whether statutory rights and remedies contractually imported into unregulated agreements – Whether binding on appellant by virtue of estoppel – Appeal allowed
The appellant was the successor company to which Northern Rock Building Society transferred its business in 1997. In February 2008, it was nationalised, since when it had not undertaken any new lending but still held a substantial book of historic residential mortgages and unsecured lending, dating back before nationalisation. This included a large number of unsecured credit agreements with borrowers who had been permitted to borrow up to 95% of the value of their home on a secured basis, and take out a fixed-sum unsecured loan of up to 30% of the value of their home, capped at £30,000. It was an advantageous feature of the product that, for so long as the secured loan remained outstanding, interest on the unsecured loan was charged at the same rate as in respect of the secured loan. The respondents had taken out such loans, with their unsecured loan being the maximum of £30,000.
The paperwork which the appellant used for its unsecured loans did not differentiate between loans not exceeding £25,000, which, by section 8(2) of the Consumer Credit Act 1974, were subject to the regulatory requirements of that Act, and loans over £25,000 which, until 6 April 2008, were not so regulated. The relevant documents were typically headed “Fixed sum loan agreement regulated by the Consumer Credit Act 1974” and contained information on the rights conferred by that legislation.
The appellant did not provide periodic statements to the respondents with the form and content required for regulated agreements by virtue of section 77A of the 1974 Act and the Consumer Credit (Information Requirements and Duration of Licences and Charges) Regulations 2007. In proceedings between the parties, the court held that the rights and remedies in relation to section 77A of the 1974 Act, which would not otherwise have applied to the respondents’ loan agreement, had been imported into it such that the respondent was in breach by issuing statements which did not comply with the statutory requirements. The appellant was held to be obliged to furnish the respondents with a set of corrected statements and to re-credit to their account any sum wrongly debited on account of interest and default sums in respect of the period of non-compliance: see [2014] EWHC 4174 (Admin); [2014] PLSCS 352. The appellant appealed.
Held: The appeal was allowed.
(1) It was not possible for parties to contract out of the 1974 Act and it was questionable whether parties to an unregulated agreement could contract into it. The jurisdiction given to the court by section 141 of the 1974 Act was to hear and determine any action by the lender to enforce a regulated agreement or a linked transaction. On the face of it, the 1974 Act had no application to unregulated agreements such as loan agreements for sums in excess of £25,000 made before 6 April 2008. Even assuming that it was possible to contract into the Act, the parties had not done so on the facts of the instant case. In light of the highly technical provisions of the Act, including, in particular, the role of the court in enforcing regulated agreements, very clear words would be required before it was possible to conclude that parties had agreed to give the court power to enforce the agreements in the limited circumstances given by the 1974 Act and in no other circumstances. The wording of the appellant’s standard loan agreements was insufficient to amount to an express or implied agreement by the borrower or the lender to incorporate the provision of the 1974 Act into the contract or to give the borrowers the protection afforded by that Act.
(2) There was no express incorporation of the 1974 Act into the loan agreement. The statement that the agreement was “regulated by” the 1974 Act was a statement of fact rather than a phrase of incorporation: Adamastos Shipping Co Ltd v Anglo-Saxon Petroleum Co Ltd [1959] AC 133 and Larussa-Chigi v CS First Boston Ltd [1998] CLC 277 distinguished. Moreover, some of the provisions of the 1974 Act could not legitimately be incorporated, such as the provision saying that in some circumstances (such as improper execution) the agreement could only be enforced by court order. The provisions as to enforcement were fundamental to the regulatory scheme envisaged by the 1974 Act. The language of the express references to the 1974 Act in the loan agreements was not consistent with an intention on the part of the lender and borrower to incorporate some, but not all, of the provisions of the Act. The language could not be clearer: the rights arose under the 1974 Act by virtue of the regulated status of the agreement, not by virtue of a term of the contract.
(3) Nor could the loan agreements be construed as including any term, whether express or implied, that the appellant would treat the borrowers as if they had the protections of the 1974 Act irrespective of whether such protections actually applied. While it was conceptually possible for parties, as a matter of contractual intention, to agree that their unregulated loan agreement should have the protections which the Act conferred on “regulated agreements”, the statements in the appellant’s loan documentation did not amount to an express or implied agreement that any provisions of the 1974 Act would apply as terms of the agreement.
Parties might expressly set out statutory rights and immunities as contractual terms of their unregulated agreement. However, a mere statement such as “Fixed sum loan agreement regulated by the Consumer Credit Act 1974” was simply stating and warranting what the position was, namely that the agreement was regulated under the 1974 Act and that the Act conferred certain additional rights on borrowers. It was not be construed as an additional contractual agreement or promise that, if that statement proved to be incorrect and the agreement was not in fact a regulated agreement, the appellant would treat unregulated borrowers as if they had the benefit of unspecified, but not all, of the statutory protections afforded to regulated borrowers by the Act. Not only was there no linguistic basis for construing the language used to amount to any such express contractual term, but the implication of such a term was inconsistent with the express warranty or representation that the agreement was indeed regulated by the 1974 Act. Read in context, the statements were simply asserting, wrongly, that the agreement was regulated by the 1974 Act and they did not reflect any bilateral agreement between the parties that they intend to apply the provisions of the 1974 Act by contract to an agreement that lies outside its scope. There was no contextual background to support the conclusion that the parties had entered into what necessarily would have been a complicated contract that afforded the borrower some, but clearly not all, of the protections afforded by the 1974 Act, whether as then in force, or which might be subsequently enacted.
(4) Since the admissible background did not provide a sufficient basis for construing the statutory wording as having that meaning, there could be no proper basis for implying a term into the agreement which bore the same meaning: Tomlin v Reid (1963) 185 EG 91 considered; Daejan Properties Ltd v Mahoney (1995) 28 HLR 498; [1995] 2 EGLR 75 and Wroe v Exmos Cover Ltd [2000] 1 EGLR 66 distinguished.
(5) Nor were there any grounds for arguing that the appellant was estopped, by some sort of contractual estoppel, estoppel by convention or estoppel by representation, from denying that the respondents had the benefit of some, but not all, of the protections contained in the 1974 Act and in particular those contained in section 77A. The language of the express references to the 1974 Act in the loan agreements was not consistent with a joint assumption to that effect on the part of the lender and borrower, or a representation to that effect by the lender. While the loan agreement contained a representation that it was an agreement regulated by the 1974 Act, the relevant representation was that a borrower thereunder had the benefit of all, not just some, of the rights and protections contained in the 1974 Act. Accordingly, an estoppel limited to those rights under the 1974 Act which could have been included and enforced as contractual rights in an unregulated agreement would not reflect the breadth of the representation, which was not limited in any such way.
(6) Instead, the relevant statements amounted to a representation by the appellant that the loan agreement was an agreement regulated by the 1974 Act and that the borrowers were entitled to the protections afforded by the Act to borrowers under such regulated agreements. That representation had the legal effect that, being false, it entitled the borrower to sue for misrepresentation under the Misrepresentation Act 1967 and also for breach of contractual warranty, subject to any limitation or other defences.
Malcolm Waters QC and Patrick Goodall (instructed by Ashurst LLP) appeared for the appellant; John Taylor QC and James McClelland (instructed by Simmons & Simmons LLP) appeared for the respondents.
Sally Dobson, barrister
Click here to read the transcript of NRAM plc v McAdam and another
