Southern Pacific Personal Loans Ltd v Walker
| Jurisdiction | England & Wales |
| Judge | Lord Justice Mummery,Lord Justice Sullivan,Mr Justice Owen |
| Judgment Date | 12 November 2009 |
| Neutral Citation | [2009] EWCA Civ 1218 |
| Docket Number | Case No: B2/2009/0915 |
| Court | Court of Appeal (Civil Division) |
| Date | 12 November 2009 |
[2009] EWCA Civ 1218
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM CHESTER COUNTY COURT
HHJ HALBERT
Before: Lord Justice Mummery
Lord Justice Sullivan
and
Mr Justice Owen
Case No: B2/2009/0915
7PA 89134
MR NICHOLAS ELLIOTT QC and MR WILLIAM EDWARDS (instructed by Rosling King LLP) for the Appellant
MR DAVID BERKLEY QC and MR ADRIAN SALTER (instructed by Turner Coulston) for the Respondent
Hearing date: 14 th October 2009
The issue
Was it wrong for the court below to rule that the credit agreement made between the parties on 20 April 2005 (the Agreement) is unenforceable on the ground of non-compliance with a requirement of the consumer credit legislation? The answer to the question will affect other cases in the current spate of consumer credit litigation and potentially many other credit agreements.
The point turns on whether the Agreement included, as prescribed in the legislation, a term correctly stating “the amount of the credit.” The statutory meaning of “credit”, how “the amount of credit” should be calculated, and whether, once properly calculated, the amount was correctly stated in the Agreement all arise for consideration.
The completed application form was for a loan of £17,500. That sum appears in box C in an enclosed graphic section on the front page of the Agreement headed “FINANCIAL MATTERS” containing a display of information boxes. The designation at the side of box C is “Amount of Credit.” It includes the sum of £17,500 also included in box A by the designation “Loan.”
The complication in this case originated in the deferred obligation for payment of, and the charging of interest on, the sum of £875 which appears in box D. The designation at the side of the box is “Broker Administration Fee.” The fee was added to the sum of £17,500 and produced the total figure of £18,375 appearing in box E. The designation at the side of box E is “Total Amount Financed (C+D).”
The borrowers agreed to repay the “Amount of Credit” together with “any amount financed under the Agreement” with interest at the rate payable by making the monthly payments stated in the Agreement over a period of 180 months. Which sum was “the amount of the credit” for the purposes of compliance with the legislation: £17,500 or £18,375? Putting the question another way, was the £875 fee itself “credit”, or was it what is referred to in the legislation as a “charge for credit”? How does “credit” differ from a “charge for credit.” These questions matter because the Agreement is unenforceable if the “amount of credit” is incorrectly stated.
Permission for a second appeal was granted by Moore-Bick LJ on the ground that the case raises a point of principle on the construction and application of the Consumer Credit Act 1974 (the 1974 Act); the Consumer Credit (Total Charge for Credit) Regulations 1980 ( SI 1980/51) (the 1980 Regulations), as amended, which include provisions for determining the true cost to the debtor of the credit provided and prescribe what items are to be treated as entering into “the total charge for credit”, and how their amount is to be ascertained; and the Consumer Credit (Agreements) Regulations 1983 ( SI 1983/1535) (the 1983 Regulations), as amended, which, until they were superseded, governed the form and content of documents embodying regulated agreements with a view to ensuring that the debtor is made aware of the amount and rate of the total charge for credit.
Background facts and proceedings
On 26 March 2005 Mr Michael Walker and his wife Mrs Suzanne Walker, who applied for a loan, signed the Agreement. It was a fixed sum credit agreement regulated by the 1974 Act. It was subject to requirements as to the form of the document and as to the content of prescribed terms and information. Southern Pacific Personal Loans Limited (SPPL), who were the lenders and on whose behalf the Agreement was signed on 20 April 2005, agreed to a loan of £17,500 on the terms of the lending conditions in the Agreement. The money owing under the Agreement was to be secured by a mortgage in relation to the Walkers' home at 4 Sandringham Close, Winsford, Cheshire (the Property). The Walkers granted a second charge over the Property to SPPL.
The Walkers fell into arrears, which already top £40,000. They risk losing their home in the possession proceedings taken by SPPL. According to SPPL's Statement of Estimated Costs lodged in this court a grand total of £100,021 in legal costs is also claimed against the Walkers if SPPL win the appeal.
For their part SPPL said that, if the judge was right, the Walkers would stand to gain a windfall of over £40,000 and the clearance of the second charge on the Property. SPPL would be faced with the prospect of cases of irrecoverable loans made to other borrowers.
The questions of enforceability of the Agreement arose in the context of possession proceedings brought by SPPL. At first the proceedings went in SPPL's favour. On 21 June 2007 District Judge Gilham made a suspended order for possession of the Property on terms that the Walkers made the payments due and paid off the arrears by monthly instalments. The point that the Agreement did not correctly state “the amount of the credit” was not taken before the judge. The Walkers appealed and were permitted to take the new point on appeal.
Judgment below discussed
On 27 April 2009 HHJ Halbert allowed the appeal. He held that the Agreement was totally unenforceable and ordered the discharge of the charge registered on the Property.
In his findings he stated that the designation “Broker Administration Fee” was “artificial” as the fee was charged by the finance company in the absence of any intermediary. On this point SPPL applied to this court for permission to adduce fresh evidence on the appeal. It was not opposed and permission was granted. The fresh documentary evidence showed that it was inaccurate to describe the fee as artificial, as there was in fact an intermediary (Guardian Home Loans Ltd) involved in the transaction. The judge's perception of the artificiality of the fee was not, however, essential to his ultimate conclusion that the Agreement was unenforceable because it did not correctly state “the amount of the credit.”
The judge cited the leading case of Wilson v. First County Trust Ltd [2001] QB 407 in which it was held that the court was barred from enforcing a credit agreement on the ground that the amount of credit was not correctly stated in it. In that case the lender agreed to a loan of £5,000. There was added a document fee of £250. The agreement stated that the “amount of the loan” was £5,250. The Court of Appeal held that the “amount of the credit” was £5,000 and was incorrectly stated as being £5,250. The agreement lacked a prescribed term. As it was improperly executed, the court could not enforce it against the borrower at the instance of the lender.
The decision in Wilson was based on the statutory meaning of “credit.” That basic concept in the legislation is given the meaning set out in section 9 of the 1974 Act-
“(1) In this Act “credit” includes a cash loan, and any other form of financial accommodation.
(2) …..
(3) …
(4) For the purposes of this Act, an item entering into the total charge for credit shall not be treated as credit even though time is allowed for its payment.”
The distinction between “credit” and “charge for credit” is essential to an understanding of how the legislation works. It was explained by Professor Goode in his work Consumer Credit Law and Practice quoted by Laddie J in Wilson v. Robertsons (London) Ltd [2005] EWHC 1425 (Ch); [2006] 1 WLR 1248 at paragraph 35. Those items financed by the creditor which form part of the “total charge for credit” must be identified and “stripped out” before the amount of credit is itself determined. After charges for credit have been stripped out the other items financed by the creditor go to make up the “amount of the credit.”
The 1974 Act does not define a “charge for credit.” It may sometimes be difficult, as observed by Peter Gibson LJ in Watchtower Investments Ltd –v—Payne [2001] EWCA Civ 1159; [2007] GCCR 3055 at paragraph 52, to draw the line between an item forming part of the total charge for credit and an item forming part of the credit itself when the borrowing is for expenditure or a purpose required or authorised by the credit agreement. In drawing the line the court must consider all the circumstances, including the documents relating to the agreement. It must ascertain the purpose of the borrowing and decide what is really the true cost to the debtor of the credit provided.
In the case of Wilson the Court of Appeal had no difficulty in finding that the £250 fee was a charge for lending the money. Additional loan or financial accommodation made or afforded by the lender to discharge the borrower's liability to pay that charge was “an item entering into the total charge for credit” for the purposes of section 9(4). It could not properly be treated as part of the amount of credit to which the charge related. As Sir Andrew Morritt V-C said-
“19. ….section 9(4) must be applied without too narrow an interpretation of the word “item.” If a charge for credit is correctly recognised in accordance with the detailed regulations …. then any cash loan or other financial accommodation made or afforded by the creditor to the debtor for the purpose of discharging the liability for that charge should not be treated as part of...
To continue reading
Request your trial
-
Southern Pacific Personal Loans Ltd v Walker
...borrowers, Michael and Suzanne Walker, from the Court of Appeal (Lord Justice Mummery, Lord Justice Sullivan and Mr Justice Owen) ([2010] Bus LR 418) which on November 12, 2009, allowed an appeal by the claimant lender, So uthern Pacific Personal Loans Ltd, from Judge Halbert at Chester Cou......
-
2009 - The Banks' Annus Mirabilis: Through the Consumer Credit Looking-Glass
...dismissed Mr McGuffick's application for permission to appeal on 16th February 2010. Southern Pacific Personal Loans Ltd v Walker [2009] EWCA Civ 1218, 12 November This was a very different sort of case, turning on a technical argument that the lender had wrongly stated the "total credit" i......