The Court of Appeal has recently had to determine whether the
payment of a non-disclosed procuration fee (the Procuration Fee)
from a bank to a broker meant that the relationship between the
bank and the borrower was unfair under s140A of the Consumer Credit
Act 1974 (CCA).
In Nelmes v NRAM PLC, Nelmes, with the
assistance of a broker, obtained a loan of in excess of £2
million from the bank secured on 26 properties. Nelmes paid the
broker a fee of 0.75% of the sum advanced (£16,112) and the
bank a 1% arrangement fee (£21,483). In turn the bank paid
half of the arrangement fee to the broker as the Procuration Fee by
way of commission. This payment was not disclosed to Nelmes.
Nelmes defaulted and the bank sought to enforce its security.
Nelmes brought proceedings alleging that the relationship between
himself and the bank was unfair as the broker and bank had colluded
to ensure the bank got his business and that they misled him as to
the terms of the offer. He alleged he had not been provided with a
copy of the offer letter initially so he could not see the terms
and how the offer differed from what he actually required. He
alleged all the documentation was passed to the broker. The
evidence was that the reason for this was that the broker had been
concerned Nelmes would use the bank's offer to obtain a loan
from elsewhere, jeopardising his fees. Nelmes further alleged that
the non-disclosure of the Procuration Fee deprived him of the
disinterested advice of his broker.
At first instance the court had held that the payment of a
Procuration Fee was not uncommon, and neither was the
non-disclosure of it, but that did not mean the bank and broker
were misleading the borrower. It found there had been no
The Court of Appeal disagreed in relation to the Procuration Fee
only and allowed the appeal to that extent. It held that the broker
was acting as agent for Nelmes in his dealings with the bank and
Nelmes was entitled to the broker's undivided loyalty.
Acceptance by the broker of the Procuration Fee was a breach of the
duty owed by the broker to Nelmes and was brought about by the
bank. The relationship between the bank and Nelmes was unfair due
to the bank's non-disclosure of that payment which had deprived
Nelmes of the disinterested advice of his broker.
Besides the payment of the Procuration Fee, the Court of Appeal
found there was no evidence of any other unfairness in the
relationship between Nelmes and the bank or concealment of terms.
The non-disclosure of the Procuration Fee did not mean Nelmes was
not in a position to assess the value for money offered by the
Nelmes was entitled to damages, being payment of the Procuration
Fee paid to the broker plus interest thereon from the date of
payment but to no other damages or remedy under s140B CCA.
Things to consider
The borrower in this case was an experienced, commercial
borrower borrowing against buy-to-let properties and the court
found he was well aware of the terms of the loan. Having considered
the various elements of the unfair relationship test as set out in
s140A CCA, the court
found that there was no other evidence to indicate the relationship
was generally unfair.
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