Hurstanger Ltd v Wilson and another
| Jurisdiction | England & Wales |
| Judge | Lord Justice Tuckey,Lord Justice Jacob,Lord Justice Waller |
| Judgment Date | 04 April 2007 |
| Neutral Citation | [2007] EWCA Civ 299 |
| Docket Number | Case No: B2/2006/1134/CCRTF |
| Court | Court of Appeal (Civil Division) |
| Date | 04 April 2007 |
Lord Justice Waller
Vice President of the Court of Appeal
Civil Division
Lord Justice Tuckey and
Lord Justice Jacob
Case No: B2/2006/1134/CCRTF
B2/2006/1293 & 1293(Y)
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM COVENTRY COUNTY COURT
MR RECORDER MICHAEL DOUGLAS Q.C.
5CV02279
Royal Courts of Justice
Strand, London, WC2A 2LL
Mr Bradley SAY (instructed by Messrs Heer Manak) for the Appellants
Mr Thomas SEYMOUR (instructed by Messrs Butcher Burns) for the Respondent
Hearing dates: 14 March 2007
This appeal raises two points under the consumer credit legislation and more generally and important points about commissions paid in breach of fiduciary duty. They arise on appeal from a judgment of Mr Recorder Michael Douglas Q.C. given in the Coventry County Court. He gave the defendant borrowers, Mr Wilson and Ms Burton, permission to appeal his conclusion that their loan agreement did contain a prescribed term correctly stating how they were to discharge their repayment obligations and to the claimant lender, Hurstanger Limited, to appeal his conclusion that the agreement did not state the amount of each repayment to be made. These conclusions meant that the agreement could be enforced by order of the court. The court so ordered on terms that the defendants were discharged from any liability to pay the claimant's administrative/legal costs. Repayment of the loan was secured by a second legal charge on the defendants' house and the Recorder made an order for possession. He rejected a submission that the claimant had paid a secret commission to the defendants' broker and refused permission to appeal this part of his judgment. We granted permission at the beginning of the hearing.
The Facts
By early 2003 the defendants were in arrears under their mortgage with the Alliance and Leicester Building Society. They applied for a loan of £8,000 to the claimant through a local broker, Mr Dunk, who carried on business as One Way Finance in Coventry. The loan was to pay off the arrears on the first mortgage of about £5,500, to pay the broker's arrangement fee of £1,000 and to provide some surplus liquid funds for the defendants' own use. Upon receipt of their loan application from the broker the claimant sent the defendants three documents for them to sign and return.
One of these documents authorised payment of the broker's fee out of the loan proceeds. It also said “we understand that an amount in the sum of £295 will be debited to the loan balance being the legal costs incurred in this matter”.
A longer document was headed PLEASE READ THIS COMMUNCAITON CAREFULLY. BY SIGNING SAME WHERE INDICATED YOU CONFIRMED THAT YOU HAVE STUDIED AND UNDERSTOOD THE CONTENTS, PRIOR TO OUR PROCEEDING FURTHER WITH YOUR APPLICATION FOR A LOAN. This document which the defendants signed made a number of statements designed to show that they knew what they were letting themselves in for, including:
(d) The broker who assisted us in making this loan application, is acting as our agent and is not tied in any way whatsoever to the company. We have not been persuaded, pressured or induced in any way to accept this loan or to borrow more money than we require or can comfortably afford to repay together with interest. In certain circumstances this company does pay commission to brokers/agents. In as far as it is able to do so; it endeavours to insure that the Broker conducts their business activities in a fair and proper manner. We will pay monies to your broker strictly in accordance with your signed authority by the deduction from this advance; this is not a condition of the loan.
This document also said that the sum of £295 would be debited to the mortgage balance on completion of the loan.
The transaction was completed on 5 August 2003 when the defendants executed the second charge on their house and the proceeds of the loan were dispersed in accordance with the authority which they had given to the claimant. But as well as the agreed arrangement fee of £1000 the claimant also paid the broker a commission of £240.
The loan agreement was a regulated consumer credit agreement for a fixed sum credit. (Consumer Credit Act 1974 Act sections 8 and 10 (1) (b)). It is on a standard form which states that it is regulated by the Act. The material terms for present purposes appeared under the heading “The Loan and Monthly Payments”. Then in lettered boxes it said:
A. NETT AMOUNT OF LOAN £7000.00
B. PROTECTION PAYMENT PLAN PREMIUM (OPTIONAL) £0
C. TOTAL LOAN INCLUSIVE OF BROKERS FEE OF £1000.00 £8000.00
D. RATE OF INTERST PER MONTH 1.29%
(Variable in accordance with Condition (4) overleaf)
E. APR (No account of any variation of the rate or 16.60%
Amount of interest payable has been taken)
F. NUMBER OF MONTHLY REPAYMENTS 240
G. AMOUNT OF MONTHLY REPAYMENTS £93.33
(Assuming no variation of the rate of interest)
Under these boxes the agreement said:
The APR at (E). is based upon a total charge for credit which includes, the total charge for credit (other than interest at clause 1.4 overleaf) inclusive of (a) the borrowers brokers arrangement fee of £1,000 which sum is not a condition of the loan imposed by the lender and (b) the lenders administrative/legal costs of £295 (which becomes due and payable upon completion of the loan). The lender may agree to defer collection of this sum to a date no later than termination of this agreement or its earlier redemption, such costs if deferred will continue to bear interest at (D) above until discharged in full.
The defendants made various payments under the agreement, but when these mortgage possession proceedings were started in March 2005 they were nearly £700 in arrears.
The second defendant took no part in the proceedings but at trial the claimant accepted that any defences raised by the first defendant also availed her. His defence took points under the consumer credit legislation in addition to the one with which we are concerned and, by amendment on the first day of the trial, he contended that the agreement was void or voidable by reason of the £240 payment by the claimant to the broker. By his counter claim he elected to avoid the agreement and claimed rescission and such other equitable relief as the court considered just.
The Consumer Credit Legislation
It is not necessary or rewarding to go on a grand tour of the legislation in order to explain the issues we have to decide. Put shortly section 60 (1) of the Act gives power to the Secretary of State to make regulations as to the form and content of documents embodying regulated agreements. Section 61 (1) provides that a regulated agreement is not properly executed unless it is in a document containing all the prescribed terms and conforming to the regulations made under section 60 (1). An improperly executed agreement is enforceable against the debtor only on an order of the court (section 65 (1)), but no such an order can be made unless it contains all the prescribed terms (section 127 (3)).
The relevant prescribed term for present purposes is to be found in paragraph 5 of schedule 6 to the Consumer Credit (Agreements) Regulations 1983. It says that the agreement must contain:
A term stating how the debtor is to discharge his obligations under the agreement to make the repayments, which may be expressed by reference to a combination of any of the following –
(a) number of repayments;
(b) amount of repayments;
(c) frequency and timing of repayments;
(d) dates of repayments;
(e) the manner in which any of the above may be determined,
or in any other way, and any power of the creditor to vary what is payable.
Paragraph 4 requires “a term stating the rate of any interest on the credit to be provided under the agreement”.
Schedule 1 to the 1983 Regulations sets out the “information to be contained in documents embodying regulated consumer credit agreements”. Some of this information mirrors the terms prescribed by schedule 6, but some does not. Contrasting the provisions of the two schedules the Judge said:
33. In my judgment the objective of Schedule 6 is to ensure that, as an inflexible condition of enforceability, certain basic minimum terms are included which the parties (with the benefit of legal advice if necessary) and/or the court can identify within the four corners of the agreement. Those minimum provisions combined with the requirement under section 61 that all the terms should be in a single document, and backed up by the provisions of section 127 (3), ensure that these core terms are expressly set out in the agreement itself: they cannot be orally agreed; they cannot be found in another document; they cannot be implied; and above all they cannot be in the slightest mis-stated. As a matter of policy, the lender is denied any room for manoeuvre in respect of them. On the other hand, they are basic provisions, and the only question for the court is whether they are, on a true construction, included in the agreement. More detailed requirements, which are designed to ensure that the debtor is made aware, so far as possible, of specified information (including information contained in the minimum terms) are to be found in Schedule 1.
I agree. The discretionary power under section 65 (1) to order enforcement of an agreement which does not comply with schedule 1 may be exercised on terms discharging the debtor from having to pay any sum payable under the agreement (section 127 (2)).
Paragraph 13 of schedule 1 required the agreement in this case to contain...
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