Nram Plc v Jeffrey Patrick McAdam and Another
| Jurisdiction | England & Wales |
| Judge | Lady Justice Gloster |
| Judgment Date | 23 July 2015 |
| Neutral Citation | [2015] EWCA Civ 751 |
| Docket Number | Case No: A3/2015/0150 |
| Court | Court of Appeal (Civil Division) |
| Date | 23 July 2015 |
[2015] EWCA Civ 751
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
THE HONOURABLE MR JUSTICE BURTON
Royal Courts of Justice
Strand, London, WC2A 2LL
Lord Justice Longmore
Lord Justice Richards
and
Lady Justice Gloster
Case No: A3/2015/0150
Mr Malcolm Waters QC & Mr Patrick Goodall QC (instructed by Ashurst LLP) for the Appellant
Mr John Taylor QC & Mr James McClelland (instructed by Simmons & Simmons LLP) for the Respondents
Hearing dates: Monday 27 th April 2015
Tuesday 28 th April 2015
Introduction
This is the judgment of the court to which all members have contributed. The Consumer Credit Act 1974 ("the 1974 Act") introduced a new and comprehensive structure of regulation covering all forms of consumer credit. One of its many important provisions was that an improperly executed agreement could not be enforced by the lender without the leave of the court. Most of the provisions of the Act did not become operative until May 1985 when it applied to agreements to lend sums under £15,000. This ceiling was later increased to £25,000 with effect from 1 st May 1998 and, by the Consumer Credit Act 2006 ("the 2006 Act"), removed altogether in respect of consumer credit and hire agreements with effect from 6 th April 2008. In spite of the existence of the ceiling of £25,000 before 2008, some lenders, including the Northern Rock PLC, used the same documentation for pre-2008 loans over £25,000 as well as for loans of sums less than £25,000; typically such documentation was headed by the statement
"Fixed sum loan agreement regulated by the Consumer Credit Act 1974"
and stated that the 1974 Act laid down requirements for the protection of the borrower. The question on this appeal is whether such statements had contractual (or any other legal) force and, if so, what effect they had. This question has come into critical focus because another section of the 2006 Act (which has become section 77A of the 1974 Act) provides with effect from 1 st October 2008 that, if periodic statements, in a form prescribed by the Consumer Credit (Information Requirements etc.) Regulations 2007 ("the 2007 Regulations"), are not given to the borrower, the borrower is to be under no liability to pay any interest or default sum in respect of the period of non-compliance.
The Facts
The appellant ("NRAM"), previously known as Northern Rock PLC, is the successor company to which Northern Rock Building Society transferred its business in 1997. It was nationalised in February 2008 and is indirectly wholly owned by HM Treasury. Since nationalisation it has not undertaken any new lending, but holds a substantial book of historic residential mortgages and unsecured lending, dating back before nationalisation.
Between 1999 and March 2008 NRAM entered into a large number of unsecured credit agreements, as part of a product called the "Together Mortgage". This allowed borrowers to borrow up to 95% of the value of their home on a secured basis, and in addition to 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.
Jeffrey McAdam and Ann Hartley, the original defendants to the action, (whom we shall refer to as "the respondents" or "the borrowers") are two of those who borrowed on such basis, their unsecured loan being the maximum of £30,000 and, therefore, in excess of the ceiling for regulated agreements. The action is in the nature of a test case and is brought against them to enable the court to resolve a dispute between NRAM and some 41,000 other borrowers who stand in the same position as the respondents in relation to similar loan agreements; the respondents' legal costs are being paid by NRAM. Although the respondents have not been formally appointed as representative defendants under CPR 19.6, as the judge recognised, and as was common ground, the result of these proceedings will almost inevitably predicate the outcome for the other borrowers who stand in the same position as the respondents.
NRAM did not implement the requirements of section 77A and the 2007 Regulations correctly – a fact of which it became aware in late 2012. In particular the statements provided to borrowers (provided by NRAM in the same form whether or not the amount of credit exceeded £25,000) did not state the amount of credit originally provided to the borrower under the agreement as required in relation to a regulated agreement by paragraph 3(b) of Schedule 1 to the 2007 Regulations. In relation to borrowers who had regulated agreements, and who received statements since 2008 which also did not comply with the requirements prescribed in the 2007 Regulations, NRAM has provided redress by furnishing them with a set of corrected statements and by re-crediting to their account any sum wrongly debited on account of interest and default sums in respect of the period of non-compliance, repaying those sums insofar as they had already been paid out by those borrowers to NRAM.
However, NRAM has not provided the same (or any) redress to borrowers who entered into agreements before 6 th April 2008 under which the amount of credit provided exceeded £25,000, such as the respondents, on the basis that such agreements were not regulated by the 1974 Act, and, accordingly, such borrowers did not have any rights under s. 77A.
Some 277 complaints have been received by NRAM from borrowers who entered into unsecured (Together) loan agreements which, although the amount of credit provided exceeded £25,000, were documented as if they were regulated by the 1974 Act. If NRAM is obliged to provide redress to the approximately 41,000 borrowers in the same position as the respondents, the current cost of doing so is said to be about £258 million. By his order made on 10 th December 2014 Burton J, sitting in the Commercial Court, has held that they are obliged to provide this redress and NRAM now appeals to this court.
The Relevant Documents
The documents are in the form used for all borrowers during the period from 31 st May 2005 until the withdrawal of the Together Mortgage product in March 2008, whether borrowing an unsecured amount of less than £25,000 or more than £25,000.
The material passages are as follows:
i) Pre-contract information
After setting out the lender and the borrowers and other financial information, there is then a box under the heading "Key Information" which includes the following passage:
"IMPORTANT – READ THIS CAREFULLY TO FIND OUT ABOUT YOUR RIGHTS –
The Consumer Credit Act 1974 lays down certain requirements for your protection, which should have been complied with when this agreement was made. If they were not, we cannot enforce the agreement against you without a court order.
The Act also gives you a number of rights. You can settle this agreement at any time by giving notice in writing and paying off the amount you owe under this agreement. Examples indicating the amount you might have to pay appear in this agreement.
If you would like to know more about your rights under the Act, contact either your local Trading Standards Department or your nearest Citizen's Advice Bureau."
There is then a further box, headed up "YOUR RIGHT TO CANCEL":
"Once you have signed this agreement, you will have a short time in which you can cancel it. The Lender will send you exact details of how and when you can do this."
ii) The secured part of the loan was the subject of a Mortgage Application, which contained the following passage:
"37. Regulated Mortgage Contracts … Mortgages where less than 40% of the land used as security is used as or in connection with a residential dwelling and all unsecured loans, are not classed as FSA Regulated Mortgage Contracts, although all unsecured loans will be regulated under the provisions of the Consumer Credit Act 1974."
iii) The Offer of Loan, which dealt primarily with the mortgage offer, provided in section 3 "Your Mortgage requirements" the following: "You also wish to borrow £30,000.00 as an unsecured loan – see section 12 for details". Section 3a included the provision: "You are under no obligation to accept this Offer of Loan or to enter into the Consumer Credit Agreement, or any other agreement with us". The Section 12 to which attention was drawn by section 3 reads under "Unsecured borrowing":-
"An unsecured loan of up to £30,000.00 is also available with this mortgage. The interest rate for the unsecured borrowing is the same as that charged for the secured mortgage … This additional feature is not regulated by the Financial Services Authority, but is regulated under the Consumer Credit Act 1974. You will receive separate documentation regarding this additional feature, describing the detailed terms on which this borrowing is available."
iv) This leads to the unsecured Loan Agreement itself, which is headed "Fixed-sum loan agreement regulated by the Consumer Credit Act 1974". There is then the same "Key Information" as was provided in the Pre-contract information set out in (i) above, in identical terms, including the rubric "IMPORTANT – READ THIS CAREFULLY TO FIND OUT ABOUT YOUR RIGHTS", followed by the same notice setting out "YOUR RIGHT TO CANCEL". The reference to the 1974 Act is then repeated over the borrower's signature, namely: "This is a Credit Agreement...
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