England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE FC3 1999/6502/3

IN THE COURT OF APPEAL (CIVIL DIVISION ) CHBKF 1999/0140/3

(HIS HONOUR JUDGE WEEKS QC )

Sitting as a Judge of the High Court

Royal Courts of Justice

Strand

London W2A 2LL

Monday 12th July 1999

B e f o r e

LORD JUSTICE STUART-SMITH

LORD JUSTICE BUXTON

MR JUSTICE RATTEE

FATTAH NEJAD Appellant

v.

CITY INDEX LIMITED Respondent

(Computer Aided Transcription of the Stenograph Notes of

Smith Bernal Reporting Limited, 180 Fleet Street

London EC4A 2HD Tel: 0171 421 4040

Official Shorthand Writers to the Court)

MR IAN HUNTER QC, acting on a pro bono basis (instructed by Messrs Richards Butler, London EC3A 7EE) appeared on behalf of the Appellant (Claimant).

MR MURRAY ROSEN QC and MR JONATHAN LOPIAN (instructed by Messrs Bevan Kidwell, London EC1N 8UW) appeared on behalf of the Respondent (Defendant).

J U D G M E N T

(As approved by the court)

©Crown Copyright

LORD JUSTICE STUART-SMITH: I will ask Mr Justice Rattee to give the first judgment.

MR JUSTICE RATTEE: This is an appeal from an order made by His Honour Judge Weeks QC, sitting as a High Court judge, on 4 November 1998, the appeal being brought pursuant to leave granted by this court on 8 February 1999. The hearing before Judge Weeks was an appeal by the appellant against a decision made by Mr Registrar Jaques in the Bankruptcy Court on 22 June 1998, when the learned registrar refused an application by the appellant to set aside a statutory demand that had been served upon him by the respondent to this appeal on 12 November 1997.

The appellant, Mr Nejad, appeared in person both before the learned registrar and before the learned judge below, but he now has the benefit of representation by Mr Hunter QC before us. Mr Hunter submitted, in my judgment rightly, as part of his skeleton argument, that, in order to succeed on the appeal, he has to satisfy this court that Judge Weeks erred in law when he dismissed Mr Nejad's appeal from the registrar. Mr Hunter referred us, quite rightly, to the provisions of the Insolvency Rules 1986 which govern the hearing of an application to set aside a statutory demand. As Mr Hunter pointed out, the circumstances in which the court will set aside such a demand are dealt with in rule 6.5 of the Insolvency Rules and in particular 6.5(4) which provides:

"The court may grant the application if-

(a) the debtor appears to have a counterclaim, set-off or cross demand which equals or exceeds the amount of the debt or debts specified in the statutory demand; or

(b) the debt is disputed on grounds which appear to the court to be substantial;

(c) ... or

(d) the court is satisfied, on other grounds, that the demand ought to be set aside."

Mr Hunter also correctly submitted that it is plain from the Practice Note (Bankruptcy: Statutory Demand: Setting Aside) (No 1/87 ) [1987] 1 W.L.R. 119, and from many cases in which the court has considered applications to set aside statutory demands, that the test in a case where the debtor is seeking to set up either a counterclaim or a dispute to the existence of a debt on which the statutory demand is purportedly based is whether there is a genuine triable issue as to the existence of such a counterclaim or dispute.

The background facts can be summarised as follows. The respondent, City Index Limited ("City Index"), runs a business of accepting bets on the movement over a specific period of various Stock Exchange indices. The client of the City Index wagers either that the appropriate index, be it the FTSE 100 Index, the Dow Jones Index or Standard and Poor's Index, or whatever other index may be in question, will go up over the given period or that it will go down, and wagers so much per point of movement in the direction chosen by him. City Index also offers what it calls spread betting on "a differential index", which enables a client to bet on a future difference between the FTSE 100 Index and the Dow Jones Index. The way in which the bet is placed with City Index is summarised in a brochure which is produced by the company, a copy of which is annexed to Mr Hunter's skeleton argument, in these terms:

"HOW DOES IT WORK?

The principles involved in trading in all these markets are the same (although there are special considerations in the case of traded options). It is a case of familiarity breeding understanding.

The following examples illustrate deals in some of the majority markets.

STOCK INDEX FUTURES

Since its establishemnt in the UK in 1984, the FTSE 100 Share Index Futures market has proved enormously popular. It allows clients to back their judgement about the direction in which the share index will move. It also provides a mechanism for clients to ´hedge' against falling share prices.

Contracts cover quarters of the year, expiring on the third Friday of the month in March, June, September and December. Clients bet on what the level of the underlying FTSE 100 Share Index will be on the expiry date.

An illustration:

In July you telephone City Index for a quote on the September FTSE 100, and are told that it is 3578-3586.

Remember that this quote relates to the level of the index on the third Friday in September. The level quoted in July may be higher, or lower, than the then current level of the underlying index, depending on how optimistic or pessmistice investors are about future trends.

If you think the underlying index will be higher than 3586 on the September expiry date and our quote is undervalued, you buy at 3586 for, let us say, £10 a point, your stake. If, however, you think it will be lower than 3578, you sell, at so much per point.

You always buy at the top quoted figure, and sell at the lower figure. The difference or spread between the two figures represents our profit margin after paying betting duty and other overheads.

On the contract's expiry date in September, the FTSE 100 Index stands at 3725. If in July you had bought at 3586 for £10 a point, then you would make a profit-

bought at 3586 sold at 3725

= 139 point profit

multipied by the £10 a point stake

= £1,390 profit

But if in July you had sold at 3578 for the same unit stake, you would incur a loss of 3725 minus 3578 = 147 x £10 = £1,470. You may still be smiling, however, because you may have sold the futures index as a means of hedging against a fall in the market."

In order to deal with City Index a customer has to open an account, which may be what is called a deposit account or may be what is called a credit account. On 8 October 1997 the appellant, Mr Nejad, completed an application form indicating that he wished to enter into an arrangement with City Index in accordance with City Index's printed terms and conditions, to which I will refer in a moment, and on 10 October 1997 he was granted what was called a "credit allocation" of £15,000. The basis on which customers did business with City Index was, as I have said, either on the basis of what was called a credit account or on a deposit account; if on a deposit account, the customer had to place a deposit of a specified amount as a precondition of being allowed to place a bet; if on the basis of a credit account, a credit allocation was made by City Index enabling the client to place bets without having to make a deposit until at any rate such time as his credit allocation, as it was called, was used up.

The amount of either the deposit or the credit allocation respectively which was acquired from a client of City Index was determined by multiplying the proposed stake which the customer was proposing to place on the relevant index by what was called "a notional trading requirement multiplier"; and the appropriate multiplier, depending upon the index in question that was being bet upon, could be ascertained from looking at the terms and conditions issued by City Index. They were set out in what is called City Index's "Market information sheet". One of the provision of City Index's terms and conditions, condition 2, was in the following terms:

"CREDIT ALLOCATION AND DEPOSIT ACCOUNTS

Following a risk assessment of the Client and assuming acceptance of the Clients' application by City Index, City Index in its absolute discretion, may either require that the Client open and deal on a deposit account or give the Client a credit allocation. If a Client's application is accepted, the Client may elect in any event to deal on a deposit account (see below).

A credit allocation does not constitute a credit facility as it is no more than a risk allocation figure which, if exceeded, permits City Index in its absolute discretion, to make margin calls (see clause 11). Such credit allocations can be altered by City Index with or without notice to the Client. A credit allocation does not represent and is not to be interpreted as the Client's ultimate financial liability.

In applying for a credit allocation or deposit facility, the Client does so on the understanding that, in order to establish credit worthiness/acceptability, City Index is authorised by the Client to avail itself of any avenue open to it and may make use of any information provided on the Client's application form. The Client agrees that City Index may write to the bank (or any other financial organisation supplied by the Client) requesting them to provide a reference from time to time and may disclose any information relating to the Client to The Securities and Futures Authority (SFA), any SFA Member Firms and other third party who may contact City Index in order to obtain a credit rating for the Client.

If the Client wishes to open a deposit account, the Client can place funds on deposit. The required amount of initial deposit may be calculated by consulting the ´Notional Trading Requirement' for the appropriate market in the ´Market Information' sheets and multiplying that by the proposed unit stake. The Client is, at all times, required to maintain the appropriate ´Notional Trading Requirement, against open positions and in addition, will be subject to margin calls on any adverse position'."

In other words, if and when a client's potential exposure on a contract with City Index exceeded the amount of the client's credit allocation or deposit, then margin might be called for by City Index by way of additional security.

Clause 9 of the terms and conditions provided the ability for a client to place a limit on his exposure or to place stop loss orders on bets placed. There was also provision enabling a client to close an open position on a bet at any time during the hours the relevant market was traded by City Index. That is to be found in clause 8 of the terms and conditions.

Once a client had placed a bet with City Index, then, as I have indicated, if his level of exposure came to exceed the amount of his deposit account or credit allocation, then City Index might call upon him to provide margin. The requirements relating to provision of margin are to be found in clause 11 of City Index's terms and conditions, which is in these terms:

"PAYMENT OF MARGIN

11.1 Margin calls may be made by telephone or letter at any time. In the case of the former, where practicable, they will be confirmed in writing. Payments, whether requested by telephone or letter, are due immediately. Therefore, the Client was make all necessary arrangements to cover existing or potential financial liabilities, if they anticipate being out of contact for any reason. Subject to clause 11.2, if funds are not received within three business days of margins becoming due, City Index, in its absolute discretion, reserves the right to close all, or part, of each and every open position held by the Client with City Index. If the Client is unable to provide funds when requested to do so, City Index must be notified immediately in order that City Index may consider the situation of both parties.

11.2. Without prejudice to clauses 11.1 and 14, City Index reserves the right to close the Client's position(s) on the basis of its current market quotation, with or without notice to the Client, when the net total of the Client's cash and open position evaluation exceeds the agreed credit allocation and/or the amount deposited by a factor of three times or when, in the absolute discretion of City Index, there is doubt that the margin due will be received. This does not imply any limitation as to the client's financial liability."

Realised losses on a contract between a client and City Index are, under the terms of clause 13 of the terms and conditions, due for payment immediately on a statement of account, which is produced weekly by City Index, and has to be settled within five business days.

I should refer to one provision on which reliance is placed by Mr Hunter in another printed document issued by City Index. That is a document headed, "Risk Warning Notice" and it contains the following paragraph:

"If you deal on a credit basis, which may amongst other payments cover the initial margin requirements, the extent of your agreed credit facility does not limit your loss or financial liability and you can be subject to margin calls for an amount in excess of your facility. As a consequence, the amount of capital which you are prepared to place at risk should be sufficient to cover your credit limit and the possibility of subsequent margins calls which will only be made once your credit limit has been exceeded."

The only other provision from that document which I should quote, as some reliance is placed on it by Mr Hunter, is paragraph 8:

"Your bookmaker is prohibited under SFA requirements from providing you with investement advice relating to investments or possible transactions in investments of from making investement recommendations of any kind. This prohibition is subject to an exception where advice given amounts to the giving of factual market information or information in relation to a transaction about which you have enquired as to transaction procedures, potential risks involved and how those risks may be minimised."

Mr Nejad placed his first bet with City Index on 14 October 1997. It was a £50 stake on the December FTSE 100 index, betting that it would rise. He placed a further £25 on another bet on the December FTSE 100 Index on 21 October 1997. On 22 October 1997 he placed a £40 bet on the Dow Jones Index, betting on a fall in that index. He closed his short position in the Dow Jones Index on 24 October 1997 and on the same day he placed a £30 on the Standard & Poor Index (S&P), betting on a fall. He closed his short position on that index on 27 October 1997. The FTSE 100 Index, the Dow Jones Index and the S&P Index were the only ones on which Mr Nejad placed bets with City Index. He did not at any time place a bet on City Index's differential index, that is to say the index enabling bets to be plaed on a differential between the FTSE 100 Index and the Dow Jones Index.

On 23 October 1997 City Index made a call on Mr Nejad for margin in accordance with the provisions of clause 11 of its Terms and Conditions. Mr Nejad had a conversation with the representatives of City Index following that call, in which Mr Nejad resisted the call for margin that was being made upon him on the basis that he was contending that his bets in opposite directions on the Dow Jones Index on the one hand and the FTSE 100 Index on the other should be treated as offsetting each other, just as though he had placed a single bet on the differential index, rather than as two separate bets on the two indices, with the result that he should only have to pay one lot of margin and not the double amount of margin which was being called for by City Index. It is apparent from transcripts which have been put in evidence by Mr Nejad of relevant conversations with the representative of City Index on that occasion that City Index did agree to waive the double margin requirement in that instance.

On the morning of 27 October 1997 City Index made a further margin call on Mr Nejad in respect of the open positions which he had in respect of bets both on the FTSE 100 Index and the S&P Index. Mr Nejad raised a similar argument to that which he raised on 23 October, namely that, for the purposes of ascertaining the amount of margin which could properly be required from him, his position on the FTSE 100 Index and that on the S&P Index should be regarded as in fact one transaction, so that the margin claim should be made only as though one contract had been entered into rather than two separate contracts.

During somewhat prolonged conversations with representatives of City Index in which Mr Nejad persistently pursued this argument, it is Mr Nejad's case, and indeed this is borne out by the transcript, that the City Index representative indicated that there was no question of City Index doing what Mr Nejad wanted in relation to his separate contracts on the FTSE 100 Index and the S&P Index. According to City Index, they had only agreed to a set-off in respect of the margin requirement on 23 October, because the two contracts in issue in that case were one on the FTSE 100 Index and one on the Dow Jones. Although the bet was not placed on the differential index which City Index operated as between those two indices, the company was prepared, according to its representatives on that occasion, to treat Mr Nejad's two separate bets as though they had been one for the purposes of margin.

It is Mr Nejad's case also that in the conversation on 27 October a representative of City Index made a misrepresentation to the effect that City Index could no longer, as it had done on 23 October, offer Mr Nejad the facility of providing only one amount of the margin in respect of two contracts, even if one were on the FTSE 100 Index and one on the Dow Jones Index. It is Mr Nejad's case that the reason which City Index's representative gave in that conversation for their inability to do so was that the SFA had recently changed its rules so that it was no longer possible for City Index to offer to treat two separate contracts on the two separate indices as though they had been one for the purposes of margin.

On the following day, 28 October, City Index made a further margin call on Mr Nejad. At that stage his position on the FTSE 100 Index was showing a heavy loss and City Index called for a margin of £40,000. Mr Nejad said he did not have the funds to meet the margin. City Index thereupon closed his FTSE 100 Index positions crystalising a loss of some £48,435, which is the subject of the statutory demand served upon Mr Nejad which is under attack by him in these present proceedings.

Before the learned registrar Mr Nejad, who on that occasion appeared in person, argued various alleged complaints against City Index which he said gave him a counterclaim which would exceed the amount of the debt, the subject-matter of the statutory demand, and which therefore entitled him to have the demand set aside. The registrar rejected all those arguments.

When Mr Nejad appeared in person before His Honour Judge Weeks, again he raised several different arguments as to why he had a counterclaim against City Index, and again all were rejected. Only one of the bases for an alleged counterclaim raised before the learned judge by Mr Nejad is now persisted in before this court. That is a contention to the effect that Mr Nejad has at least an arguable counterclaim against City Index based on alleged misrepresentation by a representative of that company in the conversation between Mr Nejad and such representative on 27 October 1997, to which I have already referred. According to Mr Nejad, in that conversation City Index's representative indicated that it could no longer permit a single margin only in respect of separate bets on the FTSE 100 Index and the Dow Jones Index because of a recent change in SFA rules on the subject. According to Mr Nejad that representation was wholly false; there had been no such change. According to him, in reliance upon the truth of that representation, he did not go ahead to try and place a hedging bet on the Dow Jones Index, which would have reduced, if not wiped out, his losses on the FTSE 100 Index which became the subject-matter of the statutory demand.

Mr Hunter has taken us through what he says are the relevant parts of transcripts of the conversations between Mr Nejad and representatives of City Index. For my part, it is clear that what was being said by the representative of City Index on 27 October was that City Index was no longer able to offer to deal with Mr Nejad on the basis that he need provide only a single margin in respect of separate contracts on the FTSE 100 Index and the Dow Jones Index, because it would be uneconomical for City Index to do so, having regard to the fact that the SFA had made it clear to City Index that the SFA would require City Index itself to provide two sets of margin, one in respect of each of the two separate contracts, to SFA under arrangements which had to be complied with by City Index as a condition of their being able to carry on with the business.

It was Mr Hunter's contention that, on a proper reading of the transcript of the relevant conversation, what Mr Nejad was being told, untruthfully, was that the SFA had changed its rules to the effect that it was no longer permissible for City Index to allow a client to place bets on the FTSE 100 Index and on the Dow Jones Index on the basis of the two contracts being treated as one for the purposes of margin. That, as I have said, is not my reading of the conversation.

However, it seems to me that there is a further fundamental objection to this alleged counterclaim on the part of Mr Nejad and that is this: what is clear from the conversations, the transcript of which we have been shown, is that City Index for whatever reason, was unwilling to deal with Mr Nejad on or after 27 October 1997 on the basis that they required only one lot of margin in respect of two separate contracts, one on the FTSE 100 Index and one on the Dow Jones Index, notwithstanding that on 23 October they had been willing by way of a concession to deal with him on that footing. On that basis there is no question, it seems to me, of Mr Nejad having suffered any damage as a result of the alleged misrepresentation, even if it was made, because, even if he had tried to place a separate contract with City Index on 27 or 28 October by way of a bet on the Dow Jones Index, he would have found that City Index was not prepared to deal with him on the basis that they required from him only one set of margin in respect of both that contract and the existing contract on the FTSE 100 Index. When faced with that difficulty, Mr Hunter on behalf of Mr Nejad sought to submit that in fact the result of the conversation on 23 October between Mr Nejad and representatives of City Index was that some enforceable contractual obligation was entered into by City Index under which City Index was obliged - not only on that one occasion, 23 October, but in future - to deal with Mr Nejad on the basis that he could operate separate bets on the FTSE 100 and the Dow Jones indices while only having to provide a single amount of margin, as though it had been a single contract.

It seems to me impossible to spell out any contractual obligation to that effect from the conversation, a transcript of which we have been taken through by Mr Hunter. Apart from anything else, Mr Hunter did not suggest any basis on which it could be said that there was consideration given by Mr Nejad for any such new obligation entered into by City Index. In my judgment it is hardly surprising that an allegation of such a contractual obligation has, up until the present hearing, formed very little, if any, part of the case put forward by Mr Nejad. It is perfectly plain, in my judgment, from the learned judge's judgment below that he certainly did not understand that Mr Nejad was putting forward a case on the basis that there had been any contractual obligation on City Index to deal with Mr Nejad on the single margin for two contracts basis.

In my judgment, as I have said, it is impossible, looking at the transcripts of the conversations in issue, to construe any such contractual obligation out of them. It seems to me clear that what was done on 23 October was that City Index agreed by way of a concession to allow Mr Nejad to operate his then two contracts on the FTSE 100 and the Dow Jones indices respectively with one set of margin. That they were no longer prepared to do on 27 October. Even if - which seems to me impossible to spell out from the transcripts of the conversations through which we have been taken - there had been some misrepresentation of fact made in one or other of those conversations by City Index, then, as I have said, it seems to me impossible to see how, even if he had relied on such a misrepresentation, Mr Nejad can say that he suffered any loss as a result. For the fact is that, with or without the misrepresentation, City Index was not prepared on 27 October to deal with him on the basis on which he desired to be dealt with, namely that there should be a single margin for two separate contracts.

Thus, in my judgment, there is nothing in the argument based on misrepresentation. In my judgment the learned judge below was correct to conclude that there was no triable issue raised in respect of that argument which would justify setting aside the statutory demand.

However, Mr Nejad has now, with permission from the court, introduced a wholly new point which was not argued below. That is a point based on the Consumer Credit Act 1974, an argument leading to the conclusion, so it is said, that there is no indebtedness at all as between Mr Nejad and City Index, because the contract of wager entered into by Mr Nejad with City Index is unenforceable by reason of the terms of the 1974 Consumer Credit Act. The relevant provisions in that Act relied upon by Mr Hunter are the following. Section 40 of the Act provides in subsection (1) that:

"A regulated agreement other than a non-commercial agremeent, if made when the creditor or owner was unlicensed, is enforceable against the debtor or hirer only where the Director has made an order under this section which applies to the agreement."

It is common ground that City Index is and was at material times unlicensed for the purposes of that section. It is also common ground that the director had not made any order under that section as contemplated by section 40(1), so that, if in fact the agreement between City Index and Mr Nejad was a regulated agreement other than a non-commercial agreement within the meaning of section 40(1), it will be unenforceable. It is necessary to find out what a regulated agreement for that purpose is. Section 8(3) of the Act provides:

"A consumer credit agreement is a regulated agreement within the meaning of this Act if it is not an exempt agreement specified in or under section 16."

There is no question of the agreement in the present case being specified in or under section 16. So the question then is whether that agreement is a consumer credit agreement within the meaning of section 8(3). Section 8(1) is in these terms:

"A personal credit agreement is an agreement between an individual (´the debtor') and any other person (´the creditor') by which the creditor provides the debtor with credit of any amount."

Subsection (2) provides:

"A consumer credit agreement is a personal credit agreement by which the creditor provides the debtor with credit not exceeding £15,000 [at that time, although that limit, as I understand it, has been increased subsequently to the relevant date for present purposes]."

Thus, runs the argument, the agreement between Mr Nejad and City Index will be a consumer credit agreement, and therefore a regulated agreement, within the meaning of the 1974 Act, and therefore unenforceable within section 40, if in fact it can be said to have been an agreement by which City Index provided Mr Nejad with credit of any amount.

Section 9(1) of the Act provides:

"In this Act ´credit' includes a cash loan, and any other form of financial accommodation..."

As Mr Hunter rightly points out, the definition of "credit" in that subsection for the purposes of the Act is in extremely wide form. It includes in particular "any form of financial accommodation".

It is Mr Hunter's submission that the agreement in this case did indeed provide financial accommodation to Mr Nejad, in that it absolved him from the need to provide a deposit before he was able to place a bet, since the agreement gave him what was called a "credit allocation". According to Mr Hunter's argument, the position of Mr Nejad under that so-called credit agreement is to be compared and contrasted with the position that he would have been in had City Index not granted him a credit allocation, in which event he would have had to put up a cash deposit on a deposit account with City Index as a precondition of his being able to enter into a betting arrangement.

The fact that, by the terms of the agreement between City Index and Mr Nejad, he did not have to put up the deposit, which another non-credit customer would have had to put up, constitutes, says Mr Hunter, the provision of financial accommodation and therefore credit within the meaning of section 9(1).

The meaning of "credit" for the purposes of the provisions of the 1974 Act has been considered recently by this court in Dimond v. Lovell [1999] 3 All ER 1. In that case the claimant's car had been damaged in an accident by another car driven by the defendant. The claimant hired a replacement car while hers was being repaired from a company called 1st Automotive under an agreement under which the claimant did not have to pay 1st Automotive hire charges for the car until the conclusion of an action for damages which 1st Automotive would pursue against the defendant, that is to say the other party to the accident, in the name of the claimant. The defendant, when sued, resisted the claim for hire charges on the basis that the claimant herself was not, according to the defendant, bound to pay any hire charges to 1st Automotive, since the agreement between her and 1st Automotive was unenforceable by reason of the provisions of the Consumer Credit Act 1974. The question before this court was whether the agreement between the claimant and 1st Automotive was indeed a consumer credit agreement by reason that it provided the claimant with credit, by virtue of the fact that its effect was to defer the claimant's obligation to satisfy hire charges run up by her with 1st Automotive until the conclusion of the proceedings against the defendant. This court held that it did constitute a consumer credit agreement within the meaning of the Act. On page 7 of the report, paragraph 20 of the judgment of the court, Sir Richard Scott, Vice-Chancellor, said this by reference to the terms of the agreement relevant in that case:

"These features of the conditions of hire make it clear, in my judgment, that the agreement creates an underlying indebtednss on account of hire charges notwithstanding that the hirer's damages claim has not yet been concluded and that the time for payment of the indebtedness has not yet arrived."

At paragraph 53 of the judgment the Vice-Chancellor said this:

"53. So I return to the critical question, namely, whether a hire agreement under which payment for the hire is deferred for a period after the hire has come to an end is a personal credit agreement as defined in s 8 of the 1974 Act.

54. The recorder held that it was not. He noted that, under condition 5 of the agreement, payment was not due ´until such time as a claim for damages has been concluded' and held that because the hirer had no contractual obligation to pay until that time, credit was not being given. This reasoning cannot, in my judgment, be accepted. If payment for goods or services or land is deferred after the time when, if nothing about time of payment had been agreed, the payment would be due, the payer is being given credit. Such authority as there is supports this view.

55. In R v Miller [1977] 3 All ER 985 at 991 ... a case in which an undischarged bankrupt was charged with obtaining credit while a bankrupt, Roskill LJ, giving the judgment of the court, said:

´The obtaining of credit, in our view, means obtaining some benefit from another, without immediately giving the consideration in return for which that benefit is conferred.'

On this view Mrs Dimond obtained credit from 1st Automotive.

56. In Goode Consumer Credit Legislation 1999 vol 1, para 437, p 205 contains a discussion of ´The ingredients of credit'. Credit involves, in the view of the editor, Professor Goode:

´... (a) the supply of a benefit; (b) attracting a contractual duty of payment; (c) in money; (d) the duty to pay being contractually deferred; (e) for a significant period of time after payment has been earned; (f) such deferment being granted by way of financial accommodation.'

Each of these elements is present under the agreement between Mrs Dimond and 1st Automotive. In para 443 the following general principle is expressed:

´... debt is deferred, and credit extended, whenever the contract provides for the debtor to pay, or gives him the option to pay, later than the time at which payment would otherwise have been earned under the express or implied terms of the contract.'

57. This principle, in my judgment, correctly expresses the test for identifying ´credit' for the purposes of the 1974 Act.

58. After we had reserved judgment in this appeal a decision of Pumfrey J in a tax case, Grant v Watton (Inspector of Taxes ) [1999] STC 330, came to my attention. The question in the case was whether a close company had made a loan to a director. A loan, for this purpose, would include ´any form of credit'. The judge considered the scope of these words and said ...

´In my judgment, on the face of it, credit is granted where payment is not demanded until a time later than the supply of services of goods to which the payment relates. Credit is the deferral of payment of a sum which, absent agreement, would be immediately payable.'

I entirely agree."

Mr Hunter on behalf of the appellant submits that, having regard to that explanation given by this court as to the meaning of the word "credit" for the purposes of the 1974 Act, it is necessary, in order to see whether credit was afforded by the agreement in the present case between Mr Nejad and City Index, to make a comparison of his position with that of the customer who has not been afforded a credit account. As Mr Hunter submits, the latter has to put up a deposit as a condition of doing business with City Index. By comparison one sees that the credit customer does not have to make any payment until a date later than the deposit account dealing customer, and has to make a payment only on the realisation of losses or a possible subsequent call for margin.

For my part I would accept the submission made by Mr Rosen QC on behalf of City Index that this represents a false analysis of the agreement between the parties in this case. Under the agreement with City Index neither the deposit account customer nor the credit account customer is under any obligation until such time as his losses, if any, become realised on a closing of his contract, either by its expiry in accordance with its provisions on the date fixed for the ascertainment of the level of relevant index, or on its earlier closing by the customer, or by City Index in accordance with the terms and condition to which I have referred. The difference between the credit account customer and the deposit account customer, in my judgment, is that the credit account customer does not have to put up the immediate security for possible future obligations for as yet unrealised losses which the deposit account customer does as a condition of being allowed to place bets with City Index. In the case of the credit account customer, what in fact City Index is doing is abstaining from requiring any security for possible future indebtedness from that customer, having regard to City Index's own credit assessment of the customer's worth.

Mr Hunter's argument on behalf of Mr Nejad, that the payment by a deposit account customer of a deposit is in fact payment of some obligation arising from the contract between City Index and the customer, is shown, in my judgment, to be false by the fact that at the time that deposit is paid, there is no certainty that there will ever be any indebtedness of the customer to City Index. If in fact the customer proves to have made a good bet and the market moves in the right way for him, then, far from there being any obligation at any stage on the customer to pay in respect of his losses to City Index, City Index will come under an obligation to pay winnings to the customer. The payment of the deposit is not, in my judgment, in any sense the satisfaction of an obligation in respect of unrealised losses on the betting contract. It is simply the provision of security required by City Index from a deposit account customer against possible liability in future when the results of the bet can be ascertained on finality under the relevant contract.

In my judgment that represents a fundamental difference between this case and the situation in Dimond v. Lovell . In Dimond v. Lovell there is no doubt, as is indicated by the passages from Sir Richard Scott's judgment that I have quoted, that 1st Automotive earned hire charges under the contract between it and the claimant by providing a hire car for the claimant's use. In the present case, on the other hand, the contract between the customer and City Index cannot properly be described as a contract for the provision of any services by City Index for which City Index earns some entitlement to payment by provision of the service. It is simply a contract that, if the relevant Stock Exchange Index is above or below a specified figure on a specified date, or on early closing of the contract in accordance with City Index's terms and conditions, the customer will pay or receive the appropriate amount of money. There may never be any indebtedness by the customer to City Index; all will depend on the movement of the relevant index.

Mr Hunter also relied on a passage in the judgment of Mr Justice Pumfrey, referred to by the learned Vice-Chancellor in Dimond v. Lovell , in Grant v. Watton [1999] STC 330 at 348. Mr Justice Pumfrey said this in a passage relied upon by Mr Hunter:

"The question here is has a relevant person incurred a debt to the close company? This is essentially a question as to what is meant by the phrase ´incurred' or ´incurs a debt'.

On the fact of it, as Mr Brennan for the Revenue submitted, the question is not a question of when the debt became due and payable, but a question simply of when it was incurred. In my judgment the word ´incurred' is apt to describe the point in time at which the debtor became legally committed to some future expenditure albeit unascertained. If the debtor knows in respect of a service which he has received that he will have to pay for that service on some date in the future, if he has not already done so, I believe that in the ordinary sense of the words he has incurred a debt, albeit that the debt will not be due until that future date and although its quantum may not be capable of ascertainment because of the possibility of disharge or partial discharge between the date on which it is incurred and the date on which it becomes due and payable.

I believe that a passage relied upon by both Mr Sherry and Mr Brennan in O'Driscoll v Manchester Insurance Committee [1915] 3 KB 499 at 512-513 in the judgment of Swinfen Eady LJ is of some assistance where he said:

´It is contended, however, that there cannot be a ´debt' until the amount has been ascertained, and in support of this contention cases have been cited to us where it was attempted to attach unliquidated damages. But in such cases there is no debt at all until the verdict of the jury is pronounced assessing the damages and judgment is given. Here there is a debt, uncertain in amount, which will become certain when the accounts are finally dealt with by the Insurance Committee. Therefore there was a ´debt' at the material date, though it was not presently payable and the amount was not ascertained. It is not like a case where there is a mere probability of a debt, as, for instance, where a person has to serve for a fixed period before being entitled to any salary, and he has served part of that period at the time the garnishee order nisi is served. In such a case there is no ´debt' until he has served the whole period.'"

That passage clearly does represent authority for the proposition that there may well be an existing debt whose amount has yet to be ascertained. But that is not this case. As I have endeavoured to explain, in the present case, until the closing of the relevant contract between the customer and City Index, it cannot be said that there is a debt at all. It follows, in my judgment, that it cannot be said that the effect of the agreement in providing what was called a "credit allocation" to Mr Nejad was to grant him any credit in respect of what would otherwise be an indebtedness payable at an earlier date. At the stage the contract was entered into there might or might not be an indebtedness in future. All that was happening, as I have indicated, by the credit allocation was an absolution of Mr Nejad from having to provide security for such possible future indebtedness until such time as his potential loss had exceeded the amount of his credit allocation.

It follows from that that there is no substance in the point now sought to be argued under the Consumer Credit Act. Despite struggling manfully to clothe the argument with substance, Mr Hunter has failed to do so. There is, in my judgment, no more triable issue on the Consumer Credit act than there is on the misrepresentation point.

For those reasons I for my part would dismiss this appeal.

LORD JUSTICE BUXTON: I agree that the appeal should be dismissed for the reasons given by my Lord.

LORD JUSTICE STUART-SMITH: I also agree.

Order: Appeal dismissed with costs; costs assessed at £20,000;

application for permission to appeal to the House of Lords refused.y