NRAM Plc v McAdam and another
| Jurisdiction | England & Wales |
| Judge | Mr Justice Burton |
| Judgment Date | 10 December 2014 |
| Neutral Citation | [2014] EWHC 4174 (Comm) |
| Court | Queen's Bench Division (Commercial Court) |
| Date | 10 December 2014 |
| Docket Number | Case No: 2014 FOLIO 507 |
[2014] EWHC 4174 (Comm)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Royal Courts of Justice
Strand, London, WC2A 2LL
Mr Justice Burton
Case No: 2014 FOLIO 507
Malcolm Waters QC and Patrick Goodall QC (instructed by Ashurst LLP) for the Claimant
John Taylor QC and James McClelland (instructed by Simmons & Simmons LLP) for the Defendants
Hearing dates: 18 and 19 November 2014
The Claimant, 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. Although there has been more than one change of name, and change of ownership and entity, I shall refer throughout this judgment to the Claimant.
Between 1999 and March 2008 the Claimant 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.
The Defendants are two of those who borrowed on such basis, their unsecured loan being the maximum of £30,000. This action is brought against them effectively to enable the Court to resolve a dispute between the Claimant and some 41,000 other borrowers who stand in the same position as the Defendants; their legal costs are being indemnified by the Claimant. I have been greatly assisted by counsel, and am conscious that where, for ease, I refer to the leading counsel on each side, much assistance has been given by their team.
The dispute arises in this way. Prior to 6 April 2008, by virtue of s.8(2) of the Consumer Credit Act 1974 ("the 1974 Act") a consumer credit agreement was regulated if the amount of credit provided under it did not exceed £25,000. Thus a regulated agreement was one where the principal loan was £25,000 or less. There were detailed provisions relating to regulated agreements, both in the 1974 Act itself and by virtue of a number of regulations, including variously the Consumer Credit (Agreements) Regulations 1983 ("the Agreements Regulations"), the Consumer Credit (Cancellation Notices and Copies of Documents) Regulations 1983 and the Consumer Credit (Disclosure of Information) Regulations 2004. There were thus substantial rights and remedies available and protections given in respect of a regulated agreement by virtue of the statutory scheme. Additionally (and with particular relevance in this case), as from 1 October 2008 s.77A of the 1974 Act, which was introduced into the 1974 Act by the Consumer Credit Act 2006 ("the 2006 Act"), effective as from that date, provided for periodic statements to be provided to the debtor by the creditor under a regulated agreement for fixed sum credit. The form and content of such statements is prescribed by the Consumer Credit (Information Requirements and Duration of Licences and Charges) Regulations 2007 ("the 2007 Regulations"), which came into force on 1 October 2008. Pursuant to s.77A(5) and (6), where the creditor fails to give a statement under the section to the debtor within the time specified in s.77A(1E), one of the consequences is that the debtor shall have no liability to pay any interest or default sum in respect of the period of non-compliance (as defined in s.77A(7)). By virtue of Schedule 3 to the Consumer Credit Act 2006 (Commencement No.3) Order 2007, the creditor's obligation to provide statements under s.77A took effect on 1 October 2008 and applies (materially) to regulated agreements made both before and after 1 October 2008.
The paperwork for the unsecured credit agreements entered into by the Claimant between 1999 and March 2008 did not differentiate between regulated and unregulated agreements, in that the same documentation was used for unsecured loans of more than £25,000 as was used for loans of £25,000 or less. Thus, even though the amount of credit exceeded £25,000, such agreements were documented as though they were regulated by the 1974 Act. The issue that falls to be determined in these proceedings is the effect of the unregulated agreements having been documented in this way: were the rights and remedies available under the 1974 Act, or protections equivalent to such rights and remedies, imported into such agreements notwithstanding that they fell outside the statutory scheme?
The particular circumstance in which this issue arises is that the Claimant did not implement the requirements of s.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 the Claimant 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, the Claimant 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 the Claimant.
However, the Claimant has not provided the same (or any) redress to borrowers who entered into agreements before 6 April 2008 under which the amount of credit provided exceeded £25,000, such as the Defendants, 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. The obligation of the Claimant, if any, is thus to be resolved in these proceedings, issued under CPR Part 8.
Some 277 complaints have been received by the Claimant 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; and some 79 borrowers have complained to the Financial Ombudsman Service, of which none have been successful. I have not seen any of those adjudications, and have had the benefit of very full and careful submissions by counsel for the Claimant and for the Defendants, and it is agreed that the Court's decision, whether or not favourable to the Claimant, will assist the Claimant by clarifying a number of key issues which bear on the question whether, and if so on what basis, the Claimant should provide redress to borrowers, who like the Defendants, had entered into agreements which were not regulated but were documented as though they were, reliance being placed on the Court's approval of similar scenarios in Office of Fair Trading v Abbey National PLC [2009] 1 AER (Comm) 717 at paragraphs 4–6 and in Re London Scottish Finance Ltd (In administration) [2014] Bus LR 424 at paragraphs 16–20. If the Claimant is obliged to provide redress to the approximately 41,000 borrowers in the same position as the Defendants, the current cost of doing so will be about £258 million.
As it is put by Mr Taylor QC in his skeleton argument (at paragraph 5), it is common ground that the Defendants' agreement was not a regulated agreement. However both within the Loan Agreement itself and in the wider suite of pre-contractual and contractual documentation, as will appear, the Claimant repeatedly informed the borrowers that the loan was regulated by the 1974 Act and that they would benefit from the rights available under that enactment. The central issue in these proceedings is thus what (if any) effect those statements (and the Claimant's related conduct) had as a matter of contract, and, in the alternative and if necessary, whether they were sufficient to amount to a " shared assumption" for the purposes of estoppel by convention or constituted representations such as to found estoppel by representation.
The ambit of the Part 8 claim is set out in the claim form pleaded by Mr Waters QC and Mr Goodall QC for the Claimant namely:
" 11. The remedy sought by the Claimant is declarations that:
(a) the rights and remedies available under the 1974 Act or protections equivalent to such rights and remedies, in particular under section 77A, were not imported into the Agreement;
(b) the Claimant is not in breach of its obligations under the Agreement by (i) issuing the Defendants with statements which do not comply with section 77A, and (ii) not repaying or re-crediting to the Defendants interest or default sums paid by them during the alleged period of non-compliance; and
(c) neither (i) the statements in the documentation referred to in paragraphs 4 or 5 above nor (ii) the Claimant's subsequent conduct in providing statements to the Defendants were sufficient to give rise to a shared assumption between the Claimant and the Defendants or constituted representations to the effect that:
(i) the Agreement was a regulated agreement under the 1974 Act in effect from time to time; and/or
(ii) the Defendants were entitled to section 77A rights; and/or
(iii) the Claimant would treat the Defendants as if the matters in...
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