England and Wales Court of Appeal (Civil Division) Decisions

IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM HUDDERSFIELD COUNTY COURT
SITTING AT BRADFORD
MR RECORDER CADWALLADER
2YK20474

		Royal Courts of Justice Strand, London, WC2A 2LL
		05/08/2015

See: Supplemental Judgment at the foot of this judgment

The Hon. Mr Justice Hildyard :

1. Two issues arise in this appeal from the decision of Mr Recorder Cadwallader ("the Recorder") sitting at Bradford and Leeds County Courts on 28^th January 2014 and 17^th March 2014. Both concern the application of the Consumer Credit Act 1974 ("the Act", as amended by the Consumer Credit Act 2006) to an agreement dated 8^th July 2010 ("the Credit Agreement"), under which the Respondent to this appeal, being the Claimant below ("the Claimant"), provided bridging finance to the Appellant ("the Appellant").
2. The first issue is whether the Recorder erred in concluding that, for the purposes of section 140A of the Act, the relationship between the parties arising out of the Credit Agreement was not unfair to the Appellant, and that it would therefore be wrong to make any order under section 140B of the Act as sought by her in defence to the claim. If the Recorder did err, a consequential question then arises as to what order this court should make under section 140B, which confers on it broad discretionary powers in that regard. It has never been disputed that sections 140A, 140B and 140C of the Act apply to the Credit Agreement, by virtue of the broad definition in section 140C(1): those sections apply to any agreement between an individual (the 'debtor') and any other person (the 'creditor') by which the creditor provides the debtor with credit of any amount.
3. The second issue is whether a provision in the Credit Agreement for the payment of what was described as default interest is void by reason of sections 93 and/or 173(1) of the Act, so that the Recorder was wrong in law in awarding interest at the rate stipulated in that provision. Those sections only apply to regulated credit agreements as defined in the Act.
4. It was in dispute at trial whether the Credit Agreement was exempt from regulation under the Act. The Claimant contended that it was exempt, on the basis that it fell within the exemption provided in section 16B of the Act in relation to loans in excess of £25,000 wholly or predominantly for business purposes. The Recorder did not accept this contention. He held on the facts that the loan was for business purposes; but that the credit extended under the Credit Agreement did not exceed £25,000, even though fees in addition to the principal sum of £25,000 were also provided as items of credit. There is no cross-appeal from those findings.
5. Nor is there any cross-appeal from the Recorder's finding that in a number of formal respects the Credit Agreement did not satisfy the detailed requirements of Schedule 1 to the Consumer Credit (Agreements) Regulations 1983 ("the Regulations"), and in consequence was improperly executed and only enforceable against the Appellant if so ordered by the court pursuant to section 65 of the Act. Although the Claimant's grounds of appeal originally contained an appeal against the Recorder's decision to grant an enforcement order in light of his findings that the failures to fulfil various requirements of the Regulations did not prejudice the Appellant, that part of the appeal was not pursued.

Statutory provisions and their interpretation

6. Section 140A of the Act provides as follows:

"(1) The court may make an order under section 140B in connection with a credit agreement if it determines that the relationship between the creditor and the debtor arising out of the agreement (or the agreement taken with any related agreement) is unfair to the debtor because of one or more of the following–

(a) any of the terms of the agreement or of any related agreement;

(b) the way in which the creditor has exercised or enforced any of his rights under the agreement or any related agreement;

(c) any other thing done (or not done) by, or on behalf of, the creditor (either before or after the making of the agreement or any related agreement).

(2) In deciding whether to make a determination under this section the court shall have regard to all matters it thinks relevant (including matters relating to the creditor and matters relating to the debtor).

(3) For the purposes of this section the court shall (except to the extent that it is not appropriate to do so) treat anything done (or not done) by, or on behalf of, or in relation to, an associate or a former associate of the creditor as if done (or not done) by, or on behalf of, or in relation to, the creditor.

(4) A determination may be made under this section in relation to a relationship notwithstanding that the relationship may have ended.

(5) An order under section 140B shall not be made in connection with a credit agreement which is an exempt agreement by virtue of section 16(6C)."

7. Section 140B(1) of the Act provides as follows:

"An order under this section in connection with a credit agreement may do one or more of the following–

(a) require the creditor, or any associate or former associate of his, to repay (in whole or in part) any sum paid by the debtor or by a surety by virtue of the agreement or any related agreement (whether paid to the creditor, the associate or the former associate or to any other person);

(b) require the creditor, or any associate or former associate of his, to do or not to do (or to cease doing) anything specified in the order in connection with the agreement or any related agreement;

(c) reduce or discharge any sum payable by the debtor or by a surety by virtue of the agreement or any related agreement;

(d) direct the return to a surety of any property provided by him for the purposes of a security;

(e) otherwise set aside (in whole or in part) any duty imposed on the debtor or on a surety by virtue of the agreement or any related agreement;

(f) alter the terms of the agreement or any related agreement;

(g) direct accounts to be taken, or (in Scotland) an accounting to be made, between any persons."

8. In determining the question of unfairness for the purposes of section 140A of the Act the court has to consider (as the Recorder did):

(a) the terms of the agreement and any related agreement (see section 140A(1)(a));

(b) the way in which the creditor has exercised or enforced any of his rights under the agreement or any related agreement (see section 140A(1)(b)); and

(c) any other thing done (or not done) by, or on behalf of, the creditor (either before or after the making of the agreement or any related agreement (see section 140A(1)(c)).

9. As to the interpretation and effect of these provisions, there is little if anything between the parties. Some time after the hearing below, and indeed after Vos LJ had (by his Order of 30^th June 2014) given permission to appeal on all grounds, the Supreme Court handed down its judgment in Plevin v Paragon Personal Finance Ltd [2014] 1 WLR 4222, affirming the decision of the Court of Appeal in the result, but on different grounds. That is now the leading case.
10. In his judgment in Plevin, at paragraph 10, Lord Sumption JSC explained the ambit and purport of section 140A as follows:

"Section 140A is deliberately framed in wide terms with very little in the way of guidance about the criteria for its application, such as is to be found in other provisions of the Act conferring discretionary powers on the courts. It is not possible to state a precise or universal test for its application, which must depend on the court's judgment of all the relevant facts. Some general points may, however, be made. First, what must be unfair is the relationship between the debtor and the creditor. In a case like the present one, where the terms themselves are not intrinsically unfair, this will often be because the relationship is so one-sided as substantially to limit the debtor's ability to choose. Secondly, although the court is concerned with hardship to the debtor, subsection 140A(2) envisages that matters relating to the creditor or the debtor may also be relevant. There may be features of the transaction which operate harshly against the debtor but it does not necessarily follow that the relationship is unfair. These features may be required in order to protect what the court regards as a legitimate interest of the creditor. Thirdly, the alleged unfairness must arise from one of the three categories of cause listed at subparas (a) to (c). Fourthly, the great majority of relationships between commercial lenders and private borrowers are probably characterised by large differences of financial knowledge and expertise. It is an inherently unequal relationship. But it cannot have been Parliament's intention that the generality of such relationships should be liable to be reopened for that reason alone."

11. The emphasis on the application of the section being dependent on the court's "judgment of all the relevant facts" and the discretionary nature of its powers is obviously of import in the context of an appeal from the findings and conclusions of the first instance judge who had the full opportunity to consider the evidence in the round and assess the witnesses in relation to disputed facts.
12. Otherwise, it is scarcely necessary to elaborate on the legal test. I need only note in passing that the Supreme Court adopted a more restrictive view than had the Court of Appeal of the application of the section in at least one respect that might have affected this case. The Court of Appeal had determined that the words "by, or on behalf of, the creditor" in section 140A(1)(c) extended beyond agency relationships to any conduct by any person that "played some part in the bringing about of the transaction giving rise to the allegedly unfair relationship" (see per Briggs LJ [2013] EWCA Civ 1658 at [49]). The Supreme Court considered that to be wrong, and confined the words to agency or deemed agency relationships. In this case, it at one time seemed to me possible that it might be argued that the Recorder's analysis of the role of Mr Hopkins (see paragraph [13] below) meant that his activities were not "things done (or not done) by, or on behalf of, the creditor in section 140A(1)(c)". But in the event that was not argued; and given Mr Hopkins's status as a director of the Claimant it is understandable why it was not. A further point may arise in relation to Mr Yardley: I address that later.
13. I should also mention section 140B, which details the powers of the court in connection with a credit agreement, and prescribes one important evidential standard. Suffice it to say as to the powers of the court that considerable discretionary latitude is supplied. As to the evidential standard, it is important to note (as, indeed, the Recorder did) that section 140B(9) provides that where the debtor (or surety) alleges that the relationship is unfair, it is for the creditor to prove that it is not: the burden is squarely on the creditor; and see Bevin v Datum Finance Limited [2011] EWHC 3542 (Ch) at [59].

The Recorder's findings and the facts

14. In his well structured and careful judgment the Recorder set out the facts at some length, focusing particularly on the somewhat unusual context in which the Credit Agreement was entered into. The following description of the parties and a summary of the background to the Credit Agreement are culled from that judgment.
15. The Claimant is in the business of providing bridging finance, usually short term closed bridging finance, which is to say, loans with a definite end date for which the means of repayment is already known and reasonably secure at the outset. The Claimant is owned as to 48% by a Mr Lindsay Hopkins ("Mr Hopkins") and as to 52% by a Ms Gillian Fielding.
16. Mr Hopkins had a number of other roles and interests of relevance in the context. He was the principal of a business called Trafalgar Square Financial Planning Consultants ("Trafalgar Square"); and he was also concerned with, and worked part-time as a trainer or coach for, a business then called The Wealth Intelligence Academy ("WIA", subsequently re-named Tigrent Learning UK).
17. It was when he became her coach and trainer in courses run by WIA that the Appellant first came across Mr Hopkins in 2009. Already a member of the Chartered Institute of Management, she had signed up to a series of finance, property and business courses run by WIA after her husband's business (concerned with timber-framed buildings) had gone into administration. She was looking for ways of supporting herself and her family (including her severely disabled grandchild) in hard times.
18. In addition to her home the Appellant had a buy-to-let property at 57 Thomas Street, Lindley, Huddersfield. However, it had been empty for some time and was not generating rental income. She was under financial stress. This was exacerbated by the considerable expense of the WIA courses she undertook at a total cost of £13,744, which she paid on two separate credit cards. Through 2009 and early 2010 she was continuing to juggle payments on one of those cards.
19. To address her financial problems, the Appellant appears initially to have had in mind, and been preparing for, carrying on a property business of some kind. By September 2009 she had caused a company called Rainbow Property Sourcing Limited ("Rainbow Services") to be incorporated probably with a view to carrying on a business in relation to timber-frame homes adapted for the disabled.
20. In the course of her coaching programme the Appellant came to rely on Mr Hopkins to a substantial degree. The coaching agreement encouraged this. For instance, one of its provisions stated that in order to gain maximum advantage from the coach, the client had to agree to "listen and act upon information and advice your coach gives you with a view to making impacting changes to your current situation".
21. The Appellant discussed Rainbow Services and her plans for a property business with Mr Hopkins. He introduced her to Trafalgar Square; and when she started seeking mortgage finance with a view to raising funds from her existing buy-to-let property by way of a re-mortgage to use as a deposit for further property purchases intended to generate rental income, she did so through Trafalgar Square and a Mr Stuart Yardley ("Mr Yardley") who was working for it as a mortgage broker and financial advisor.
22. Mr Yardley, rather than Mr Hopkins, was the Appellant's direct contact for these purposes. On the basis "at least in part" of information supplied to him directly by the Appellant, Mr Yardley completed a Mortgage Application Fact Find document ("the Fact Find") for her. It seems that this was for his own and Trafalgar Square's use: it was never dated and he never sent her or asked her to sign a completed copy.
23. The Fact Find described the Appellant as self-employed as the director of Rainbow Services as from November 2008 (the date upon which she had bought her buy-to-let property at 57 Thomas Street). It showed her as having an annual income of £27,392, including £2,352 which Mr Yardley explained in evidence was what he understood her rental income to be. It also showed her as receiving £1,500 per month, amounting to £18,000 per year, which Mr Yardley explained as being money received from her husband. The rest of her income came from benefits, in the form of care allowance, disability living allowance and child tax credit. Under the heading 'Commitments' she was shown as having seven credit cards, with a total debt of approximately £39,000 on them, only one of which was cleared off monthly. The value of her property was shown as £450,000, subject to a mortgage of £138,000, with monthly repayments of £1,195. The section on affordability was not filled in.
24. At least as regards its description of the Appellant's employment details and income the Fact Find was inaccurate in almost every respect. Rainbow Property had never traded. The Recorder found that it was not intended to trade in the foreseeable future. The Appellant was not self-employed as its director. She did not have an income of £27,392. She was not receiving a rental income at the time (since 57 Thomas Street had been empty), nor was she receiving £1,500 per month from her husband. Her only income in fact came from benefits. However, what the Fact Find said about her credit cards was roughly accurate.
25. The Recorder described these inaccuracies as "troubling", as plainly they are. Mr Yardley's evidence was that the document reflected what the Appellant told him at the time, and was in any case only a preliminary document on which further work would be done in due course. The Appellant denied that she had given inaccurate information; she said it was not Mr Yardley but Mr Hopkins who had prepared the document, and he had made it up. The Recorder rejected this. He found that (as Mr Yardley himself had accepted) it was Mr Yardley who had prepared the Fact Find, but that he had done so on the basis of what he had been told by the Appellant.
26. The Recorder was "driven to the conclusion" that the "inaccuracies were Mrs McMullon's responsibility". His expressed view was that "she was ready to say anything more or less plausible in the hope of achieving her object". He expressly rejected any suggestion that the Fact Find was falsified by Mr Yardley.
27. Further to the Fact Find, Mr Yardley sought to discover whether a re-mortgage in sums ranging from £100,000 to £111,600 might be possible by making a number of applications in principle (which the parties referred to as 'dips') to potential lenders on behalf of the Appellant. These were submitted electronically and decided automatically and almost instantly. The advantage of testing the market in this way was that such 'dips' did not appear on or affect the Appellant's credit record as a full application might.
28. The first such application was declined on 10^th June 2010. There was a second 'decline' (as Mr Yardley called them) on 16^th June 2010, and a third on 30^th June 2010. By this time, the Appellant's credit card history recorded in an Equifax report, which the Appellant herself printed off on 21^st June 2010, was showing a missed credit card payment in May 2010.
29. Mr Hopkins's evidence was that the Appellant was insistent on being helped somehow to resolve this predicament, and that it was in response to this that Mr Hopkins suggested that she should obtain a temporary loan of £25,000 (by way of a bridging loan for approximately three to four months) to allow her to reduce her credit card debt. The purpose of this was to remove one aspect of the potential lenders' concerns, and to secure time for her to clear the record of the single missed payment on one of her credit cards, which she insisted was a mistake on the part of the credit card company which she would get rectified. This was a strategy that had succeeded for other clients before, although there was no guarantee that it would work, being dependent on finding a willing lender.
30. The Appellant's account differed in two respects. Her version was that the impetus came from Mr Hopkins, and that he not only told her to take out a bridging loan with the Claimant itself, but also that a specific lender, BM Solutions Ltd (a subsidiary of Lloyds Bank plc), had been in Trafalgar Square's office and said that it would be prepared to lend to the Appellant once it saw that her credit card had been reduced by 50%.
31. The Recorder preferred Mr Hopkins's account, and held that BM Solutions had indicated no more than that a re-mortgage would probably be available if the credit card problem was overcome. He found the Appellant's account implausible; and that if the Appellant really believed that Mr Hopkins had told her that a re-mortgage was "in the bag", that was because "she had misled herself into ignoring the qualifications in what he said by the urgency of her need and desire for the re-mortgage".
32. The Recorder also rejected the Appellant's claims that the document she signed was different (except for the page bearing the signature), that she had been rushed into signing the Agreement without being given a proper opportunity to read it, and that she had been misled into thinking that it was in standard form. The Recorder concluded that the Agreement was in a standard form, and found that the document the Appellant signed was in the same form, noting that there would on that basis be no reason for such subterfuge; and as to the circumstances of its signature he said:

"…having seen them both [that is, Mr Hopkins and Mrs McMullon] in the witness box, I prefer and accept Mr Hopkins' evidence that he took at least some time to go through it with her, and gave her the opportunity to take more time to consider it, but she was in a hurry to proceed and elected to sign it immediately."

33. At all events, the Appellant did then enter into the Credit Agreement on 8^th July 2010. Since the Appellant did not and does not rely on any of its terms as of itself giving rise to an unfair relationship, it is not necessary to set out any here. (Clauses 6 and 7 are provisions as to fees and interest which give rise to the second issue: it is convenient to quote them later when dealing separately with that issue.)
34. On or about 15^th July 2010 the bridging loan of £25,000 was paid to the Appellant. On 3^rd August 2010, and after (so the Recorder found) the Appellant had contacted Mr Yardley to confirm to him that her credit cards had been cleared off her report, they decided to obtain a further 'dip'. This was declined; Mr Yardley's evidence was that he concluded that the explanation was that the lender's systems must not have been updated with the reduced credit card balances. Further applications for 'dips' were made on 1^st and 10^th September and on 13^th October: but each was declined.
35. Mr Yardley's evidence was that it was only at that stage, after the bridging loan had been taken out and on review of the Appellant's credit file prompted by this sequence of 'declines', that he discovered from an Equifax Report dated 5^th August 2010 that there were two defaults since the original declines. His evidence was also that he discussed this in some detail with her and she said it was an error, and that she would contact the companies concerned to get them removed. Mr Hopkins' evidence corroborated this, though the Recorder recognised as to this that "they had an association at the time".
36. The Appellant, on the other hand, denied that she had discussed the matter with Mr Yardley; but she was adamant in evidence that she had told Mr Hopkins about the defaults before any credit checks with Equifax were undertaken and, more importantly, before the bridging loan was taken out.
37. The Recorder acknowledged that it was not easy to reconcile these accounts. However, he concluded that the evidence of Mr Yardley and Mr Hopkins, which was consistent, was to be preferred to that of the Appellant. He reasoned that Mr Yardley was accepted by the Appellant to be, and in his assessment plainly was, a witness of truth: and Mr Yardley was clear that the defaults were not mentioned or discovered until later.
38. As for Mr Hopkins, the Recorder considered it more likely than not that if the Appellant had told Mr Hopkins of a genuine second default before the bridging loan was taken out, he would have been likely to conclude not only that there was no point in the Appellant taking out a bridging loan (because no full re-mortgage would be likely to be available), but also the bridging loan would be at risk since the Appellant would not have any funds to repay.
39. The Recorder acknowledged that by the same reasoning it was not rational for the Appellant to proceed with the bridging loan. However, he found the answer in her predicament, and concluded that

"…in the circumstances in which she found herself, she must have been desperate to do everything that could be done to obtain a remortgage, or at least the bridging loan; and the evidence of Mr Hopkins, which was amply borne out by my observation of her in the witness box, was that she was a very determined person."

40. Up until after a further automated 'decline' on 15^th October 2010, the Appellant made the payments required by the Credit Agreement. On 15^th November 2010, however, she missed a monthly repayment for the first time. To quote the Recorder once more,

"there then followed a lengthy period during which Mr Hopkins, by his lights, attempted to assist; and Mrs McMullon, by her lights, complained bitterly of the way in which she had been treated."

41. One such complaint, which she pursued in the proceedings and reiterated on appeal, was that Mr Hopkins had deliberately waited eight weeks to tell her of the automated 'decline' on 10^th June 2010, just before she committed to the Credit Agreement: she contended that, had she known, she would never have borrowed money from Secure the Bridge. The Recorder rejected this complaint. He found that she had been well aware of that 'decline' and the reasons for it (a large credit card debt, and, perhaps, a first credit card default) before entering the Credit Agreement.
42. Thus, in essence the Recorder concluded that the Appellant knew what she was doing, was determined to achieve her object of a re-mortgage, and had only herself to blame.

Rationale of Recorder's approach

43. As previously indicated, it was not disputed that the Credit Agreement fell within the scope of sections 140A, 140B and 140C of the Act, and that its unfairness having been asserted by the Appellant, it was (pursuant to section 140B(9) of the Act) for the Claimant to establish that the Credit Agreement was not unfair to the Appellant.
44. In reaching the conclusion that the Claimant had discharged the burden of establishing absence of material unfairness, the Recorder followed closely and answered one by one the particulars of unfairness relied on by the Appellant in her Defence.
45. Thus, dealing with each in turn, the Recorder

(a) in answer to the plea that Mr Hopkins, in purporting to act on her behalf in brokering the Credit Agreement, did not disclose to the Appellant his directorship of and 48% shareholding in the Claimant, found that she knew about both;

(b) in answer to the plea that Mr Hopkins gave the Appellant advice as a broker to take out the bridging loan upon the assurance that a long term mortgage would be available as the means of repaying it, found that Mr Hopkins was not giving advice as a broker but as a coach and experienced lender, and the advice was not wrong or misleading on the facts (at least as they were known to Mr Hopkins at the time);

(c) in answer to the plea that Mr Hopkins' advice to the Appellant that she had to reduce her 'credit file' by 50% to secure a long term mortgage was unwarranted since she did not need a bridging loan, held that it was the Appellant who was determined to obtain such a loan, and that again the advice was not wrong or misleading;

(d) in answer to the plea that Mr Hopkins told the Appellant to trust him, found that although she came to rely on him to a substantial degree, her trust was not misplaced;

(e) in answer to the plea that Mr Hopkins completed a mortgage application form on the Appellant's behalf which was materially incorrect, found that it was not Mr Hopkins but Mr Yardley who completed the form, and that the latter did so on information supplied by the Appellant herself;

(f) in answer to the plea that Mr Hopkins procured the Appellant's signature on the Credit Agreement by assuring her it was in standard form and gave her too little time to read it, found that the Credit Agreement was in standard form and that the Appellant did have adequate time to read it;

(g) rejected the allegation the document signed by the Appellant was not in the same form as that now relied on by the Claimant, and gave no indication that the bridging loan was to be secured, and found that the document she signed was in the same terms as that attached to the Particulars of Claim;

(h) rejected also the allegation that the Claimant, in order to gain interest on the bridging loan, neglected for 8 weeks to inform the Appellant of the fact that her application for a long term mortgage had been declined and that she would have to re-apply, and found (in effect) that there was never an occasion for the Claimant so to inform the Appellant since although numerous automated applications in principle were made (and declined) no formal application was made by or on her behalf or declined;

(i) as to the last allegation particularised to the effect that the Claimant by its director Mr Hopkins had made abusive telephone calls to the Appellant, the Recorder found that even though Mr Hopkins had (as he had admitted and apologised for) lost his temper on one occasion that was because the Appellant had unjustifiably accused him of twisting the truth and being dishonest: "it was not abuse but a loss of temper, and for understandable reasons".

46. The Recorder did not shy away from the fact of Mr Hopkins' multiple roles and interests; and he recognised their propensity to give rise to unfairness. He stated that it was his view that it was

"inappropriate for a bridging finance company to offer loans to persons in financial difficulties in circumstances in which such a relationship has come into existence as a result of extensive training and coaching provided by a key individual in the lending company via a different company of which he is also an owner".

47. Nevertheless, he accepted that the relationship established in such an 'inappropriate' way was not, in all the circumstances, unfair to the Appellant. The Recorder summarised his conclusion as follows:

"It is for the Claimant to prove that the relationship was not unfair. For the reasons given above, and despite my concern over the matters mentioned in [paragraph 34(c) above], I conclude that the relationship between the Claimant and the Defendant arising out of the agreement was not unfair to the Defendant. In coming to that conclusion I have taken into account the whole course of the evidence before me and the manner in which it was given. I have concluded it would be wrong to make an order under s.140B of the 1974 Act."

48. As to the claim for interest at the contractually stipulated monthly rate of 4% (namely £1,000 per month), the Recorder's judgment does not explain his reasoning for rejecting the Appellant's pleaded case that the contractual provision had no validity and contravened Regulation 5 of the Regulations. The Recorder simply stated his decision to grant an enforcement order of the Credit Agreement "according to its terms".

Appellant's case on appeal

49. On appeal to this Court, it was primarily submitted by Mr John Pugh of Counsel ("Mr Pugh") on behalf of the Appellant that the Recorder had failed to carry out any adequate analysis of the relationship between the Claimant and the Appellant for the purposes of section 140A of the Act. Mr Pugh contended that even on the basis of the unchallenged evidence and his findings of fact the Recorder had failed to identify any evidence from the Claimant sufficient to negate or outweigh the inherent unfairness of the transaction and the relationship between the parties arising out of it.
50. Mr Pugh advanced his arguments under three headings:

(a) his 'Conflict of Interest' argument;

(b) his 'Affordability' argument; and

(c) his 'Fact Find argument'.

51. As will already be apparent, there is some overlap between the 'affordability' argument and the 'conflict of interest' argument, in that both rely on the Appellant's precarious financial position: in one case, to show her susceptibility and that the Claimant took advantage of it, and in the other, to show objectively the possible irrationality of the transaction from her point of view, contrasted with its advantages from the point of view of a secured creditor enjoying a beneficial interest rate. There is also overlap between those arguments and the 'Fact Find' argument, since it is the inconsistencies between what was stated in the 'Fact Find' and the reality of the Appellant's financial position which is relied on by her as further demonstrating the unfair risk for the Appellant and the near inevitability of it eventuating. Nevertheless, for the purposes of analysis, and consistently with the approach adopted by Mr Pugh, I turn to deal in turn with the arguments adumbrated above.

The Conflict of Interest argument

52. The essence of Mr Pugh's argument under this head was that the Recorder had entirely failed to explain and demonstrate how he had concluded that the Claimant had proved the relationship between the parties to be fair, notwithstanding his finding that it was 'inappropriate'.
53. For the Claimant, Mr Peter Fortune of Counsel ("Mr Fortune") submitted that it was wrong to equate 'inappropriateness' with unfairness, and that there was no conflict of interest between the Claimant and the Appellant: the Recorder had accepted that Mr Hopkins did not mislead the Appellant, nor did he unduly influence her or abuse her trust; and he had found (correctly) that the Credit Agreement provided a means of achieving an objective which she was entirely determined to achieve.
54. In my view, and contrary to Mr Pugh's submissions, the Recorder's judgment does identify the evidence which he considered negated what Mr Pugh described as the "very strong prima facie evidence of unfairness" inherent in the parties' relationship, and his factual findings satisfactorily justify his determination that though the agreement was 'inappropriate' in its origin, the relationship arising out of it was not unfair to the Appellant.
55. I have already adumbrated the evidence identified by the Recorder in paragraph [45] above. I would add, since it obviously bears on the issue of conflict of interest and whether the Appellant was misled in any way, that although the Appellant contended to the contrary, she has never identified any evidence or ground for dislodging the Recorder's conclusion that before she entered into the Credit Agreement she knew that Mr Hopkins was a director and co-owner of the Claimant.
56. The Recorder's assessment that the Appellant was neither misled nor unduly influenced by Mr Hopkins, and that she acted not on the advice of Mr Hopkins so much as her own determination to obtain such a loan, seems to me, on the facts as he found them, to be reasoned and unassailable, as also is his conclusion that the inappropriate nature of the relationship was not such as to render it, in all the circumstances, unfair.

The Affordability argument

57. The strands of the Appellant's affordability argument were that, even taking the Fact Find to be accurate, the Recorder erred in concluding that the Claimant had discharged the burden of proving fairness, given that (a) the Credit Agreement profited both Mr Hopkins' brokerage (by commission) and the Claimant (by interest) in circumstances where (b) the Appellant could not afford to repay out of income and could only repay if she could get a long term mortgage and (c) she had already repeatedly been refused such a mortgage before the Credit Agreement was made.
58. Mr Pugh understandably sought to emphasise the disparity between the security and profitability of the Credit Agreement for the Claimant and its exposure and expense for the Appellant. The Appellant was entirely dependent on obtaining a re-mortgage: she had no other means of servicing, still less repaying, the bridging loan.
59. It seems to me plain from his judgment that the Recorder was well aware of the disparity and the Appellant's predicament, but concluded that so too was the Appellant: "it was made perfectly clear to Mrs McMullon that there was no guarantee it would work", but she was determined on the course and dominated by her desperation "to obtain a remortgage or at least the bridging loan".
60. On the facts as found by the Recorder, there do not seem to me to be sufficient grounds to interfere with his conclusion that the Appellant was fully aware of, and determined to take, the risk that she could only afford the Credit Agreement if she obtained the re-mortgage and that that was by no means certain; and that in all the circumstances the Claimant had discharged the burden of establishing that the Credit Agreement was not unfair to her.
61. However, the Appellant also sought before us to challenge certain of the Recorder's factual findings relevant to the affordability issue, on the basis that he omitted to consider material facts. Although the Appellant's grounds of appeal did not expressly identify these, the Appellant provided greater definition of them in court, and it is right that I should address them.
62. Mr Pugh identified these omissions and errors as being the following:

(a) the Recorder had, he submitted, overlooked Mr Hopkins' evidence under cross-examination to the effect (it was said) that he knew of Mrs McMullon's prior defaults on her credit card payments before the Credit Agreement was made, and erred in consequence in finding that neither Mr Hopkins nor Mr Yardley knew of such defaults until August (and thus after the loans provided for by the Credit Agreement were made);

(b) the Recorder, had, it was submitted, failed to take into account the deficiencies in the 'Fact Find', which included the fact that it was incomplete and the fact that an income of £1500 per month in addition to benefits payments had been added as an after-thought without any information or verification of its source; this failure, it was submitted, resulted in the Recorder accepting that the Respondent had proceeded on a false basis as to the Appellant's financial position for which she herself was responsible, whereas the truth was that Mr Hopkins must have known that he had to falsify any long term mortgage application by presenting her as having an income to service it which he knew she did not have;

(c) the Recorder had, it was also submitted, failed to take into account evidence given by Mr Hopkins under cross-examination admitting that he had told her that BM Solutions would agree to a mortgage if the credit card missed payments on her credit card (or 'blips') were errors (as she had assured him) and if her credit card debt was halved, and that this resulted in the Recorder discounting the Appellant's evidence that Mr Hopkins had assured her (and, in effect, induced her to proceed on the basis) that if she borrowed money from the Claimant a re-mortgage was "in the bag".

63. The Appellant's precarious financial position was not in dispute. The crux of the argument on her behalf was that the Recorder had erred in that he had overlooked highly material evidence which it was submitted invalidated his finding that neither Mr Hopkins nor Mr Yardley knew until August 2010 of the Appellant's defaults (or at least, her second default) in respect of her credit card payments. It was submitted that in fact they did know this prior to the Credit Agreement being made; and that it could not be (and was not) disputed that a second credit card default meant that it was practically inconceivable that she would ever obtain a re-mortgage.
64. Mr Pugh relied especially on the following exchange (taken from the transcript of the proceedings below):

"Q, …….You will notice again the second missed payment is in June, which clearly must have shown you how much we were struggling financially and also why then would you tell me I need to take out a bridging loan in July?

A. Because you were adamant that these credit blips were an error and you were adamant and, in fact, I believe you told me that you had a dialogue with your bank and they had admitted they had made an error and, therefore, we were happy that these credit blips would be taken off and so that's why it was logical to take out the bridging finance."

65. This, it was suggested with some initial force, signified that Mr Hopkins did know, before the Credit Agreement was made, that the Appellant had already actually defaulted twice. However, I do not think that the Recorder ignored this evidence: on the contrary, it is plain from his judgment that he took it into account, but was not persuaded that it signified that Mr Hopkins was aware before the Credit Agreement of any second "genuine" default such as to count against the Appellant in terms of obtaining a full re-mortgage.
66. The Recorder makes clear in paragraph 26 of his judgment that he was not persuaded that the Appellant had told Mr Hopkins of any purported defaults before the Credit Agreement; but that in any event, whenever she did tell him, her explanation (which Mr Hopkins said he accepted) was that it was the credit card company that was in error and she was not in "genuine" default. The Recorder supported his understanding of the evidence of Mr Hopkins (who in re-examination said he was not acting as the Appellant's broker, was not involved in the 'dips' at the time and could not remember when he had been told of the purported second default) by reference to the evidence of Mr Yardley (who was directly involved as her broker). The Recorder described Mr Yardley's evidence in this regard as being that at least the second purported default

"was not mentioned until later, and when it was, Mrs McMullon was making out that the second default was an error…"

67. In short, I do not consider there to be any sufficient basis for concluding that the Recorder was in error in concluding that neither Mr Hopkins nor Mr Yardley was aware of any "genuine" second default prior to the Credit Agreement.
68. I have been more troubled by the further question whether Mr Hopkins knew that, even on the basis of her income being as stated in the Fact Find (and thus including £1,500 per month from her husband), there was no real prospect of her obtaining a re-mortgage. The Appellant's basis for asserting such knowledge, and error on the part of the Recorder in failing to address the issue, is the content of the formal mortgage application made to NatWest Bank, albeit some time after the Credit Agreement. Mr Hopkins was named in the form as the intermediary. The form stated the Appellant's income very differently from that shown in the Fact Find: it stated the Appellant's income to be wholly profit from Rainbow Services (which Mr Hopkins admitted he knew was not trading) and included all her income, including from benefits as a carer for her grandchild, as turnover of that company. The Appellant did not sign and there was no evidence that she was in any way responsible for that application.
69. The reason this has given me some concern is two-fold. First, although after the event (of the Credit Agreement) and not proceeded with, the misrepresentations in the application form and the likely responsibility of Mr Hopkins for them does suggest that Mr Hopkins was not only prepared but may have seen the need to misrepresent the Appellant's earnings both as to source and amount in order for her to have any chance of a mortgage. Secondly, the Recorder's judgment does not really address this point, or indeed the application at all: having satisfied himself that (contrary to the Appellant's contention) no formal mortgage application (as distinct from an application for a 'dip') had been made on her behalf prior to the Credit Agreement, he did not concern himself with the later application to NatWest Bank (which appears to have been the only formal application ever made).
70. Nevertheless, I have concluded that these concerns are not such as to warrant disturbing the Recorder's assessment of and conclusions as to (a) Mr Hopkins' role prior to the Credit Agreement or (b) Mr Hopkins' confidence prior to the Credit Agreement, and before he became aware of the Appellant's second credit card default, that the Appellant could obtain a mortgage. In the latter context, it is not disputed that BM Solutions, having reviewed the Appellant's credit file as it was as at May 2010 (and prior to the second default), had stated that it would make a mortgage available if she reduced her credit card exposure by £25,000.
71. As to whether Mr Hopkins came to consider that the Appellant's income had to be dressed up once her second default was known, that may be: but although that would not speak well of Mr Hopkins, it does not unsettle the Recorder's conclusion that the primary source of the information as to her income and financial position prior to the Credit Agreement was the Appellant herself. Nor does it unsettle his firm assessment that the Appellant "was…absolutely determined if at all possible to achieve a remortgage" and "ready to say anything more or less plausible in the hope of achieving her object".

The Fact Find

72. That brings me back to the Fact Find argument. The nub of the Appellant's case on this issue is her contention that (a) the Recorder was wrong to conclude that the information about her income recorded in the Fact Find was her responsibility and (b) the information given was not only incomplete but also inconsistent with facts already known to Mr Hopkins. The Appellant contends that in truth the deficiencies in the Fact Find were not her responsibility, and told not against her case but against the Claimant's.
73. As previously noted, the Recorder expressly acknowledged that he found the inaccuracies in the Fact Find document troubling. He did not shy away from the issue. The conclusions to which he "was driven", that (a) it was Mr Yardley who prepared the Fact Find document, (b) the completed document did indeed reflect information that the Appellant gave to Mr Yardley, (c) there would be no reason for Mr Yardley (whom the Appellant accepted was honest and straightforward) to falsify the position, and (d) the inaccuracies were the Appellant's responsibility, seem to me to be assessments, after considering the evidence in depth and hearing the witnesses, which this court has no sufficient basis or warrant to disturb.
74. Much was sought to be made on behalf of the Appellant of the possibility that the inclusion in the Fact Find document of a figure of £1,500 for monthly income may have been by later amendment, and of the fact that in any event the document is notably silent as to the source of such income. It is said to be "unaccountable" that "the Recorder did not even allude to this oddity". However, it does not strike me as of great relevance that the Recorder did not deal with this detail particularly. I think it is clear that the Recorder did take into account the deficiencies, but was satisfied that these were the Appellant's responsibility. Further, having determined that Mr Yardley was responsible for preparation of the document, any suggestion of contrivance necessarily pointed at him; and in paragraph 14 of his judgment the Recorder quite clearly rejected "any suggestion that the information on the form was falsified by Mr Yardley".
75. One further matter merits a mention, even though neither Mr Pugh nor Mr Fortune pursued it: that is the legal consequences of the Recorder's clear conclusions (in paragraph 14 of his judgment) that it was Mr Yardley and not Mr Hopkins who completed the Fact Find, and that Mr Yardley was not working for the Claimant. As explained in paragraph [10] above, the Supreme Court's decision in Plevin v Paragon Finance Ltd has clarified that the words "on behalf of" in section 140A of the Act denote agency (actual or deemed). If Mr Yardley did not work for the Claimant and was not its agent, any failures on his part do not assist the Appellant anyway.

Conclusion on first main issue

76. In a nutshell, in my view the Recorder was correctly concerned (a) to acknowledge and take into account the factors suggesting unfairness; (b) to address the fundamental issues in that context as to whether the Appellant was misled or unduly influenced by Mr Hopkins (or indeed Mr Yardley, though she never suggested that); and (c) to determine whether (as the Appellant contended) Mr Hopkins (or Mr Yardley), and thus the Claimant, knew or should have known, prior to the Credit Agreement and/or the advance of the loan for which it provided, of facts such that there was no realistic prospect of her ever obtaining a re-mortgage in time to repay that loan.
77. I have concluded that there is no proper basis for this court to gainsay or disturb the Recorder's findings of fact and conclusions on these matters. I have concluded further that those findings of fact, together with his determination (in effect) that it was the urgency of the Appellant's need and desire for the re-mortgage, and her determination to do whatever was necessary to achieve her objective, which led to the Credit Agreement, rather than any abuse of position, undue influence or non-disclosure on the part of the Claimant, sufficiently support his decision that the relationship between the parties arising out of that agreement was not unfair to the Appellant.

Second main issue: validity of the provision for interest at 4% per month

78. I turn to the second issue, and the Appellant's contention that the Recorder was wrong in law to award interest at the contractual rate of 4% per month. As previously mentioned, the Recorder's judgment does not address this issue, save inferentially in stating his conclusion that the Credit Agreement should be enforced in all its aspects.
79. The relevant contractual provisions of the Credit Agreement read as follows:

"6. Fees

The fees payable for this loan total £2,279.00 plus legal fees. That sum is made up by the following fees:

(a) Bridging finance facility fee of 1.5% of the loan, namely £375.00 to be paid on entry; 1.5% of the loan, namely £375.00 to be paid per month for 3 months totalling £1,125.00; 1% of the loan, namely £250.00 to be paid on exit.

…

7. Interest

The monthly fee is payable on this loan during the 3 month closed bridging period. If funds are not repaid back to us within the3 months closed bridging period default interest of 4% per month of the amount outstanding will be chargeable. (Note: any part of a month will be charged at a full month's interest.)"

80. The Recorder having found that the Credit Agreement was a regulated agreement for the purposes of the Act, it is therefore subject to the provisions of section 93 of the Act. This provides:

"93. The debtor under a regulated consumer credit agreement shall not be obliged to pay interest on sums which, in breach of the agreement, are unpaid by him at a rate:

(a) where the total charge for credit includes an item in respect of interest, exceeding that rate of interest, or

(b) in any other case, exceeding what would be the rate of total charge for credit if any items included in the total charge for credit by virtue of S 20 (2) were disregarded."

81. The Appellant submitted that the provision in clause 6 of the Credit Agreement for the payment of 1.5% per month, although described as a fee, is in reality an "item in respect of interest" included within the "total charge for credit", and thus falls within section 93 of the Act. The Claimant submitted to the contrary. In my view, the Appellant is plainly correct: whatever the badge the substance is clear.
82. The question then is whether the provisions of clause 7 imposing a rate of interest of 4% per month on the amount outstanding in the event of default in repayment, and thus imposing a rate exceeding the rate specified by clause 6, is precluded by section 93 of the Act and/or section 173 of the Act. Section 173 of the Act provides as follows:

"173 (1) A term contained in a regulated agreement or linked transaction, or in any other agreement relating to an actual or prospective regulated agreement or linked transaction, is void if, and to the extent that, it is inconsistent with a provision for the protection of the debtor or hirer or his relative or any surety contained in this Act or in any regulation made under this Act."

83. In my view, section 173 applies to preclude any inconsistency between the interest provisions in the Credit Agreement and section 93(a). The next question, therefore, is whether there is any inconsistency between the provisions of clause 6(a) of the Credit Agreement and the provisions for default interest at a higher rate in clause 7 of the Credit Agreement.
84. The Appellant submitted that the inconsistency is plain, and that the combined effect of the relevant sections is at least to preclude recovery of the default rate of interest. The Claimant, on the other hand, contended that there is no such inconsistency, since clause 6 only applies in relevant part for a period of three months.
85. In my view, and given the nature of the Credit Agreement, being a closed agreement under which the loan was to be repaid at the end of the three month term, the interest rate provided for by clause 6 was intended to govern throughout the term. The effect of section 93 of the Act is to preclude a provision within the same agreement for a higher rate. The provision for default interest at a considerably higher rate is thus void under sections 93 and/or 173, as the Appellant contends. The appeal must to that extent at least be allowed.
86. The third question which arises is as to what, if any, interest rate should be applied in respect of the outstanding sums further to the Appellant's default. At this point in the argument, the Appellant points out (perhaps somewhat inconsistently) that if clause 7 is void, there is no provision for any interest after the three month period covered by clause 6, which is in any event expressly limited to a total charge of £1,125.00.
87. In my view, that argument is correct, even if possibly the result is unintentional and odd. That leads to the final question, which is whether this court should make an award of interest under the County Courts Act 1984.
88. The Appellant contends that no such interest should be awarded, because the Claimant claimed only contractual interest, and not statutory or court ordered interest. The Claimant's response is that it did (by paragraph 10 of its Reply to Defence and Defence to Counterclaim) plead that:

"if, which is denied, the loan falls within the provisions of the Consumer Credit Act 1974, the Claimant will seek an order to enforce the repayment of the loan together with such interest as the Court may order."

The Claimant submits in the alternative that had the matter been addressed at trial, permission to amend would surely have been given, there being no relevant prejudice to the Appellants.

89. I have some doubt as to whether the existing plea is sufficient: it invokes the jurisdiction of the court under the Act, rather than under the County Courts Act. However, I accept that had the issue been identified an amendment would have been granted, as causing no relevant prejudice. I would award interest accordingly on that basis.
90. It seems to me that, until judgment, the appropriate rate is the same as that stipulated for the term of the loan: 1.5% per month. I am fortified as to the overall fairness of that rate by the fact that the Appellant had the use of the money, and has thereby been saved interest on her credit card debts, which would be likely to be in that range.
91. [After judgment, the rate should be that prescribed by the County Courts (Interest on Judgment Debts) Order 1991 (SI 1991/1184), which is 8%. That is in some ways an odd result too, because the effect is to provide for a lower rate after judgment than before. However, that result seems to me to flow from the fact that (a) there is no valid contractual right such as to preserve a right to post-judgment interest at a higher rate (and see the notes to CPR 40.8 in Civil Procedure Volume 1 at 40.8.3 and the cases cited there) and (b) the statutory rate may not be varied by the court (see ibid.).]

[NB: The content of paragraph 91 above has now been corrected by a supplemental judgment dated 20 November 2015.]

Overall conclusion

92. In summary and by way of conclusion:

(1) I would dismiss the appeal on the first issue of fairness; but

(2) I would allow the appeal on the second issue (the interest payable), and I would substitute as the relevant rates of interest payable (a) 1.5% per month pre-judgment and (b) 8% per annum post-judgment.

Lord Justice Underhill

93. I agree. This is undoubtedly a troubling case. Two points are of particular concern. The first is that, in the light of the previous "coaching" relationship between Mr Hopkins and the Appellant, he should have arranged for her to obtain a loan from a company in which he had a 48% interest, and all the more so when the loan was obviously high-risk for her and very profitable for the company. The second is that both the documents completed in connection with actual or potential applications were so dramatically inaccurate. But the Recorder expressly acknowledged these features, and was indeed troubled by them himself; and, as Hildyard J demonstrates, he carefully confronted them. His reasons for holding that they did not justify the conclusion that the relationship was unfair for the purpose of section 140A are essentially based on findings of fact. In particular, though without attempting to be exhaustive, he found that the Appellant was fully aware of Mr Hopkins' interest, that Mr Hopkins did not abuse his position or give any wrong or misleading advice, and that in so far as the Appellant entered into a high-risk transaction she did so with her eyes open and because she was willing to take a risk if it gave her a prospect – as this would have done, if she had not defaulted again on her credit card payments – of qualifying for a long-term loan. I agree with Hildyard J that those findings of fact cannot be challenged in this Court and that they are indeed capable of justifying the Recorder's conclusion – which, being a matter of judgment and evaluation, should not be overturned unless we are sure that it is plainly wrong. I would not, however, want this Court to give the impression that it is either good practice or legally safe for advisers in positions analogous to that of Mr Hopkins in this case to enter – themselves or through associated companies – into credit agreements with their clients. On the contrary, the Court is likely to subject any such relationship to jealous scrutiny; the fact that in the particular circumstances of this case the Respondent survived that scrutiny does not mean that that will necessarily be the outcome in most – perhaps not even in many – other such cases arising out of relationships of this kind.

The President of the Family Division

94. I agree with both judgments and have nothing to add.




APPROVED SUPPLEMENTAL JUDGMENT

95. The purpose of this Supplemental Judgment of the Court is to correct an error in the judgment of Hildyard J that has latterly been notified to us by Counsel for the Appellant, who was himself alerted to the point after our main Judgment had been handed down.
96. The error is in paragraph 91. That paragraph stated that interest should be payable after judgment at the rate prescribed by the County Courts (Interest on Judgment Debts) Order 1991 (SI 1991/1184).
97. However, that Order, by Articles 2(1) and 2(3), stipulated that interest shall not be payable in proceedings to recover money due under an agreement regulated under the Consumer Credit Act 1974.
98. Although section 130A of the Consumer Credit Act 1974, which was inserted by virtue of section 17 of the Consumer Credit Act 2006 (which was in full force by 1^st October 2008), provides for post-judgment interest relating to regulated agreements, it stipulates that any right to recover interest is conditional upon the giving of notices to the debtor both (a) after the giving of judgment and (b) thereafter at intervals of not more than six months.
99. Counsel are agreed that no such notices were given in this case, and that it follows that post-judgment interest is not payable.
100. Since no order has yet been perfected (and issues remain outstanding on the question of costs) it is not too late to correct the error in paragraph 91 of Hildyard J's judgment.
101. The order will in due course reflect the result that post-judgment interest is not payable.
102. Paragraph 91 of Hildyard J's judgment should be read subject to this Supplemental Judgment, and in effect treated as deleted.