UK: When Is An Unregulated Agreement Not An Unregulated Agreement? The Perils Of Offering Added Protections

Last Updated: 18 December 2014
Article by Katharine Harle and Emma Radmore

The judgment in NRAM PLC v. (1) JEFFREY PATRICK McADAM (2) ANN HARTLEY serves as a warning to regulated firms that if you offer a customer greater protections than they are legally entitled to, you have to provide them or face the consequences. In this case, Northern Rock sought a declaratory judgment having treated a set of loans to consumers as regulated agreements for the purposes of the Consumer Credit Act 1974, although some of them exceeded the then £25,000 limit. When Northern Rock failed to provide its customers with required statements, it claimed it was not obliged to provide these to customers whose loans were not in fact regulated. In this note, we explain why the court thought otherwise.

The Facts

Background

The Claimant, Northern Rock Asset Management PLC, the successor company to which Northern Rock Building Society transferred its business in 1997, entered into a large number of unsecured credit agreements between 1999 and March 2008 as part of a product called the "Together Mortgage". This allowed consumers to borrow up to 95% of their home's value on a secured basis and then a further fixed sum unsecured loan up to 30% of the value of their home, capped at £30,000. Interest on the unsecured loan was charged at the same rate as for the secured part. The Defendants for the purposes of these proceedings were two such borrowers who took out the maximum £30,000 loan.

The basis of the dispute

Prior to 6 April 2008 consumer credit agreements were regulated by the Consumer Credit Act 1974 (1974 Act) if the amount of credit provided under them did not exceed £25,000. 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), required periodic statements to be provided to the debtor by the creditor under a regulated agreement for a fixed sum credit. Where the creditor failed to give a statement to the debtor within the prescribed time limit for doing so, the debtor would have no liability to pay any interest or default sum in respect of the period of non-compliance. The creditor's obligation to provide s.77A statements took effect on 1 October 2008 and applied to all relevant agreements in force at that point.

The Claimant treated all loans, whether under or over £25,000, as if regulated under the 1974 Act. The dispute arose because the Claimant failed to implement the requirements of s.77A properly. The statements they provided did not state the amount of credit originally provided to the borrower under the agreement as required. The Claimant recognised this breach and had already provided redress to affected borrowers with regulated agreements (ie for £25,000 or less) by furnishing them with a correct set of statements and re-crediting to their accounts any sums wrongly debited on account of interest and default sums during the period of non-compliance. However, the Claimant had not provided any such redress to borrowers whose loans exceeded £25,000 on the grounds that as their loan agreements were not regulated by the 1974 Act they had no rights under s.77A. If the Claimant was required to make redress to this wider set of customers then there were approximately 41,000 further affected borrowers and the estimated cost of compensation was an additional £258 million. It therefore began declaratory proceedings in the High Court to determine what the correct position should be.

Both sides accepted that the Defendant's agreement was not a regulated agreement, so the issue under consideration was the impact various statements made to the opposite effect by the Claimant had in contract. Alternatively, it was also considered whether they amounted to a "shared assumption" for the purposes of estoppel by convention or constituted representations such as to found estoppel by representation.

The decision and judge's reasoning

Considering the wording of the pre-contractual information, loan offer and loan agreement documents provided to all the borrowers, Mr Justice Burton indicated that the repeated references to the fact that the agreements were regulated under the 1974 Act constituted "the clearest possible warranty that the agreement was regulated such that, given that it was not regulated, the claimant was in breach of that warranty". It was agreed by the parties and Mr Justice Burton that they could not have, by agreement, converted the contract into a regulated agreement. Mr Justice Burton acknowledged that the Claimant was unlikely to be the only bank who had treated loans above and below £25,000 in the same way as the practice was addressed in two leading textbooks - Goode: Consumer Credit Law and Practice and Guest & Lloyd Encyclopaedia of Consumer Credit Law.

The Defendants maintained that, although the agreements were not regulated agreements, they were agreements whereby the Claimant agreed to give the Defendants the rights and benefits of the 1974 Act as if it was a regulated agreement (so far as possible). Relying on a number of authorities demonstrating that the courts have been willing to allow provisions from a range of sources to be incorporated into contracts, even where some of them are clearly not relevant, the Defendants argued that the 1974 Act had been incorporated into the agreements, except insofar as its provisions were irrelevant. Furthermore, the defendants asserted that incorporation included subsequent amendments (because s.77A had not been implemented at the time of the agreements) because any other such interpretation would be illogical as the legislation was known to change often.

The Claimants responded by arguing that because the agreements were not regulated agreements the references to the 1974 Act must be disregarded as inappropriate or immaterial and the court should imply the words "if applicable" after each reference. They further argued that much of the 1974 Act was irrelevant as there were already express provisions in the agreements covering the same issues. Indeed, they stated that the s.77A provision for repayment or discharge of liability was directly inconsistent with the express terms for payment in the agreements. The Claimants also asserted that in the event that the Defendants argued that "as if" rights applied by reason of contract, there was nothing to indicate that at the time of contracting the parties intended such contractual rights as existed should vary with future amendments to the legislation. By this they meant that there was no justification for treating the Defendants "as if" they had borrowed under a regulated agreement, nor any implication that they should be treated "as if" so entitled.

Mr Justice Burton found that as the 1974 Act was expressly mentioned in the agreements, such references to it could not be ignored. He also rejected the argument that only the 1974 Act as it stood at the time was incorporated. He said that the parties knew that they had tied their agreements to a regulatory regime which would change over time. He found that where provisions of the 1974 Act override or qualify express terms in the agreements then it is as if these terms are written out of the agreements. He was satisfied that the references to the 1974 Act were as contractually binding in those agreements for amounts over £25,000 as for those under £25,000. Mr Justice Burton reasoned that the Defendants were contending that they had entered into "whether or not" contracts. He concluded that, whether or not the agreements were regulated agreements, they were to be treated as if they were, such that the agreements for loans over £25,000 and those under £25,000 received the same treatment.

In the alternative, he also found that there was a shared assumption that all the agreements were regulated agreements sufficient to give rise to an estoppel by convention and/or a contractual estoppel. However, he cautioned that estoppel might not be available on the basis that it can only be used as a shield, not a sword.

Regarding estoppel by representation, he referred to Goode's argument that a contracted party is estopped from reneging on express statements made regarding another parties' rights as under legislation which could have been terms of the agreement and which represent the common intention of the parties.

Overall he concluded by declaring that:

  • the rights and remedies in relation to s.77A were imported into the agreements; and
  • the Claimant was in breach of its obligations under the agreements by virtue of its failure to indemnify the Defendants in respect of its breach of s.77A.

Conclusion

Northern Rock has indicated that it is still considering whether or not to appeal this judgment. However, assuming either that it does not, or that any such appeal is unsuccessful then, as Mr Justice Burton observed, Northern Rock will not have been the only financial institution to decide one set of documents is easier to manage than two, and as a result to have - whether intentionally or not - offered greater protection to some customers than it legally needed to. The judgment serves as a warning that, where you do this, you are likely to be warranting that you provide those protections, and therefore will incur liability if you fail to provide them.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Events from this Firm
6 Sep 2018, Business Breakfast, Glasgow, UK

Decarbonising our heat is a key component of The Scottish Energy Strategy and an essential piece of the complex matrix we must tackle if we are to meet our climate change obligations.

11 Sep 2018, Business Breakfast, Milton Keynes, UK

Join us for our next development breakfast round table event reflecting on the on-going planning discussion regarding the Oxford-Cambridge corridor and helping you consider how best to cash in on the exciting opportunities by considering the benefits of promotion and option agreements.

20 Sep 2018, Seminar, London, UK

Environmental regulation and liability have risen up the boardroom agenda over the past decade. Recent changes to environmental sentencing have brought this area of risk even more into focus.

 
In association with
Related Topics
 
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions