England and Wales High Court (Commercial Court) Decisions

IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT

		Roya1 Courts of Justice Strand, London WC2A 2LL
		12 November 2004

Mrs Justice Gloster DBE:

1. This is an application by the Office of Fair Trading ("the OFT") for the determination of certain issues arising in relation to the construction of section 75 of the Consumer Credit Act 1974 ("the Act") and, in particular, the section's application to "overseas" credit card transactions. The defendants are sued as representatives of all UK credit institutions who are licensed under the Act to carry on consumer credit business and who issue credit cards under regulated credit agreements with consumers. The first defendant, Lloyds TSB Bank plc ("the bank") issues credit, as well as debit and charge cards under the MasterCard and Visa schemes; the 2nd defendant, Tesco Personal Finance Limited ("TPF"), a joint venture company between the Royal Bank of Scotland Plc ("RBS") and Tesco plc ("Tesco"), likewise issues credit cards under the MasterCard and Visa schemes; the 3rd defendant, American Express Services Europe Limited ("AESEL"), a wholly owned member of the American Express Company group ("the Amex group"), issues charge and credit cards on the American Express card payment network in the UK.
2. Section 75 of the Act provides for creditors to be jointly and severally liable to debtors (cardholders) for misrepresentations and breaches of contract by the supplier of goods and services financed by the credit provided by the creditor under a regulated agreement. The section is in the following terms:

(1) If the debtor under a debtor-creditor-supplier agreement falling within section 12(b) or (c) has, in relation to a transaction financed by the agreement, any claim against the supplier in respect of a misrepresentation or breach of contract, he shall have a like claim against the creditor who with the supplier, shall accordingly be jointly and severally liable to the debtor.

(2) Subject to any agreement between them, the creditor shall be entitled to be indemnified by the supplier for loss suffered by the creditor in satisfying his liability under sub-section (1), including costs reasonably incurred by him in defending proceedings instituted by the debtor.

(3) Sub-section (1) does not apply to a claim:

(a) under a non-commercial agreement, or

(b) so far as the claim relates to a single item to which the supplier has attached a cash price not exceeding £100 or more than £30,000.

(4) This section applies notwithstanding that the debtor, in entering into the transaction, exceeded the credit limit or otherwise contravened any term of the agreement.

(5) In an action brought against the creditor under sub-section (1) he shall be entitled, in accordance with rules of court, to have the supplier made a party in the proceedings."

3. A debtor-creditor-supplier agreement falling within section 12(b) is defined in section 12, so far as material, as follows:

"A debtor-creditor-supplier agreement is a regulated consumer credit agreement being: ...

(b) a restricted-use credit agreement which falls within section 11(1)(b) and is made by the creditor under pre-existing arrangements, or in contemplation of future arrangements, between himself and the supplier …"

(The OFT does not pursue any argument based on the contention that the card arrangements give rise to an unrestricted use credit agreement under section 12(c).) Section 11(1)(b) defines a restricted use credit agreement as a regulated consumer credit agreement to "finance a transaction between the debtor and a person (the "supplier") other than the creditor". Thus essentially, for present purposes, in order to attract the "connected lender liability" imposed by section 75, the credit agreement must finance a transaction between the debtor and a supplier and be made by the creditor under pre-existing arrangements, or in contemplation of future arrangements, between the creditor and the supplier.

4. The application of the section to credit card arrangements has long been an area of dispute between credit card issuers and the industry regulator, the OFT, because of the nature of credit card operations The defendants assert that the Act does not impose a liability in relation to them in relation to overseas credit card transactions. This is primarily on the basis that:

(1) as submitted by the bank and by TPF (but not by AESEL), credit card issuers now operate through complex international networks scheme such as Visa and MasterCard; under those schemes, it is submitted there cannot be said to be "an arrangement between" the card issuer/creditor and the supplier where the supplier's agreement to accept cards the of a particular network is made not with the card issuer but with another member of the network; this is a common situation domestically and in overseas credit card transactions will often be the case;

(2) as submitted by all three defendants, the Act, properly construed, does not apply section 75 to a contract for goods and services that is made outside the United Kingdom, or has other foreign characteristics ("a foreign transaction"). (I refer in greater detail below to what the defendants contend are the constituent elements of a foreign transaction.)

5. Credit card issuers operate under the Visa, MasterCard and American Express international network schemes, of which they are members. This membership permits them to print the respective trademarks "Visa", "MasterCard" and "American Express" on their cards issued to cardholders under their credit agreements. The networks have comprehensive rules governing the operation of the respective schemes. In particular the rules provide that suppliers are recruited only by a limited number of members of the networks, who are given the status of "merchant acquirers". A supplier enters into a contract with a merchant acquirer, which contract obliges the supplier to accept all cards bearing a trademark of the relevant network as payment for goods or services supplied by them to such cardholders. In return, the merchant acquirer agrees to pay the supplier for any such transaction, less a discount. The merchant acquirer recoups his payment to the supplier from the card issuer through a settlement system organised by the network, together with a fee representing a proportion of the discount. The card issuer in turn is paid the supply price in full by the card holder pursuant to the credit card agreement. A credit card transaction of this nature is referred to in the industry as a "four-party transaction" with debtor, creditor, merchant acquirer and supplier involved. It is contrasted to the "three-party transaction" where the card issuer also "acquires" the merchant. There are approximately 100 Visa card issuers in the UK, and probably a similar number of MasterCard issuers in the UK, most of which do not acquire merchants. The detailed workings of the three schemes are extensively rehearsed in the evidence and it is not necessary for me to set them out in any greater detail at this stage. It suffices to say that in card payment systems there are commonly four parties, namely: (a) the card issuer (or creditor) who supplies the card to the customer and operates the customer's account from which payment is made; (b) the customer (or debtor) who makes payment using the card and is liable to pay the issuer; (c) the supplier or merchant (who is not a member of Visa or MasterCard or the Amex scheme or network) who exchanges goods or services for the customer's card details and consent to make the payment; and (d) the merchant acquirer, who recruits merchants/suppliers to the scheme, pays the merchant and obtains reimbursement from the card network clearing system. In a three-party transaction, there is no separate merchant acquirer as the card issuer selects and acquires the merchant. Consequently, the card issuer will reimburse the merchant directly for the particular transaction. In a four-party transaction, neither the card issuer nor its associate, are the same person as the merchant acquirer. It has been accepted by card issuers that domestic three-party transactions involve "arrangements between" the creditor and the supplier.
6. The bank and AESEL are both merchant acquirers and card issuers. The bank acquires merchants using the trading name "Cardnet Merchant Services" or "Cardnet". Depending upon where in the world the transaction takes place, and with which supplier, many transactions between the bank's respective debtors and suppliers will not be with suppliers in relation to whom the bank (or its associates) are the merchant acquirers, although in some cases that will be the Position. In other words, as with domestic transactions, some foreign transactions are third-party transactions and some four party transactions. In the case of AESEL, an Amex company (within the definition of associate in section 184 of the Act) operates (with certain exceptions) as merchant acquirer in the UK. AESEL issues or licenses its credit cards over its own separate network. In the case of AESEL and the Amex scheme, however, a large majority of the merchant acquirers are group companies within the Amex group. AESEL's credit card transactions in the UK will usually be a three-party transaction as mostly (but not always) it or its associates or licensees will issue and acquire merchants. It is therefore the case that the preponderance of Amex transactions, both domestic and foreign, are three-party, rather than four-party, transactions, Accordingly AESEL does not argue the applicability of section 75 to UK four-party transactions but only its applicability to overseas transactions. TPF issues credit cards but does not acquire merchants although it has associates within the definition of the Act which are merchant acquirers.
7. The OFT seeks declarations to the effect that (i) four-party credit card transactions and (ii) foreign transactions are subject to the connected lender liability imposed by section 75(1). The bank and TPF seek a declaration to the effect that section 75 does not apply to four-party credit card transactions (whether "foreign transactions" or UK transactions), All defendants seek a declaration in the following terms that the section does not apply to "foreign transactions":

"A declaration that section 75 (1) of the Act does not apply where the contract between the debtor and the supplier of goods or services has the following characteristics:

(1) the contract was made wholly outside the United Kingdom; and

(2) the contract was governed by a foreign law; and

(3) the goods were delivered, or the services were supplied, outside the United Kingdom.

Further, the defendants invite the court to rule that it makes no difference to the non-application of section 75 (1) that:

characteristic (1) above differs in that the acts of offer and acceptance were done partly within the United Kingdom and partly outside the United Kingdom ("characteristic (1A)") and/or

characteristic (3) above differs in that the goods were despatched outside the United Kingdom for delivery within the United Kingdom ("characteristic (3A)").

Further, the defendants invite the court to rule that section 75(1) does not apply where:

characteristics (2), and (3) or (3)(A), are present, but not characteristics (1) or (1A); or

any one of the characteristics (1), (1A), (2), (3) or (3A) are present."

The formulation of characteristic (1A) adopts the language of sub-section 26(4)(b) of the Unfair Contract Terms Act 1977 ("the acts constituting the offer and acceptance were done in the territories of different States"). The various ways in which foreign transactions are sought to be defined is apparent from the defendants' proposed declarations.

8. Thus the formal list of issues which the court is asked to determine (subject to the defendants' amendment so as to raise the detailed sub-issues as to the definition of foreign transactions) is as follows:

(1) Whether a regulated credit agreement under which the creditor provides the debtor with a credit card which can be used by the debtor in payment of goods and services in transactions with suppliers of those goods and services able to accept the card ("a regulated credit card agreement") falls into the definition of a restricted-use credit agreement in section 11(1)(b) of the Consumer Credit Act 1974 (the "Act").

(2) [This issue was not proceeded with.]

(3) Where there is a regulated credit card agreement, whether there are "arrangements between" the creditor and the supplier, for the purposes of the definition of "debtor–creditor–supplier" agreement in section 12(b) of the Act, in the circumstances set out in paragraph I and/or paragraph 2 of the appendix to the claim form and the schedule thereto ("four-party transactions") and in particular under the current Visa and/or MasterCard rules.

(4) If the answer to (3) is "yes", whether such arrangements are to be disregarded for the purposes of sub-section 187(1) and (2) of the Act by virtue of sub-section 187(3).

(5) Whether section 75(1) of the Act applies so as to make a creditor under an agreement falling within section 12(b) or (c) and to which the Act applies potentially liable for a claim in respect of a transaction which is a foreign transaction (as variously defined in the defendants' proposed declarations).

Background to the current dispute

9. It is perhaps helpful to describe the genesis of the current dispute. I gratefully adopt the following narrative from the appendix to TPF's skeleton. Section 75 was included in the Act following recommendations in the Report of the Crowther Committee, Cmnd 4596 published in March 1971. The Government White Paper substantially adopted the Crowther Committee's approach for a form of connected lender liability to be incorporated into UK consumer credit law. Section 75 came into force in 1977 but the subsequent change in payment systems and methods gave impetus to the dispute as to its application to credit card transactions. In 1989 Professor Jack's report ("Banking Services: Law and Practice Report by the Review Committee") found no logic in applying connected lender liability on the basis of a chosen means of payment, The Banking Ombudsman, in its 1989/90 report, considered that section 75 was not intended to apply to claims involving a foreign element and was, in fact, rejecting claims brought before him on such basis. On the other hand, the Director General of Fair Trading ("DGFT") asserted that section 75(1) would apply to four-party and overseas transactions. In 1995, following a review of the applicability of section 75 to credit card transactions, the DGFT recommended that liability be limited to the amount charged to the card in respect of the transaction ("the 1995 Report"). Following the 1995 Report the Department of Trade and Industry ("DTI") undertook a consultation with various interested parties, including the banking industry, on the scope of section 75. Subsequent to the DGFT's recommendations in the 1995 Report, card issuers agreed, for a specified period – until 31 December 1996 – to meet section 75 claims on overseas transactions ex gratia on the basis that the law was as recommended by the DGFT in his May 1995 report ie limited to the amount deducted on the credit card for the transaction, Card issuers also confirmed that they would meet claims in respect of four-party transactions, without admission of liability, on the same basis as claims made under three-party transactions. This "voluntary agreement" was made by the issuing banks in anticipation of changes to the law following the consultation. Following the 1995 Report, the DTI released a press statement on 28 October 1996 which stated that the Government believed that the law required no clarification and that the law should be maintained as it stood, Following the change of Government in 1997, the DGFT was again requested to consider the nature of advice to be offered to Government on the matter. At that time the issuing banks continued to treat (on a voluntary basis) domestic four-party transactions in the same way as three-party transactions with regard to section 75 claims; however, there was no industry standard in respect of overseas transactions (the date of the voluntary undertakings having expired).
10. TPF, for example, applies a voluntary undertaking to domestic four-party transaction claims and considers overseas transaction claims on a case by case basis and without any admission of liability. Whilst it is common practice so to treat domestic four-party transactions, there is no industry agreement to do so. (Pending the outcome of these proceedings, TPF continues to reserve its right as to liability under section 75 in both overseas and domestic four-party transactions.)
11. On 24 April 2001 a draft Consumer Credit Directive was discussed at European level, which included a provision for connected lender liability. It was proposed by the Council that the draft directive would replace the current Consumer Credit Directive. The consultation process on the proposed directive with Member States was launched immediately following approval at European level. The DTI was concerned that connected lender liability for cards was not included in the proposed directive.
12. In May and June 2001, the OFT wrote to TPF stating that it viewed TPF's policy of "denying liability for four-party and overseas transactions" as a "Community Infringement" falling within the Stop Now Orders (Injunctions Directive) Regulations 2001 (the "SNO Regulations"). TPF in response objected to the appropriateness of the SNO Regulations to the current dispute. The OFT stated that it was considering issuing proceedings under the SNO Regulations (which came into force on 1 June 2001). Stop Now Orders ("SNO") were designed to enable certain specified public bodies to obtain injunctive relief to restrain actual or threatened breaches of particular statutory provisions including Consumer Credit legislation, SNO proceedings applied in circumstances in which there was a "Community Infringement" in which case an injunction could be granted under the SNO Regulations to "stop" the infringing action. TPF disputed the appropriateness of the SNO procedure; it considered that its interpretation of section 75(1) liability did not infringe Community law: that section 75 predated and "gold-plated" the Consumer Credit Directive 1987; and that even if the Act "transposed" the Directive despite being passed 13 years prior to the Directive, TPF's interpretation of section 75 could not constitute a Community Infringement as the Directive legislated for lesser protection to the consumer which was added to by the Act. TPF submitted that the SNO procedure was not appropriate in such circumstance On 21 February 2002, the OFT indicated in a letter to TPF that unless it received assurances that TPF would "comply in full with section 75, on the basis of the OFT's interpretation regarding four-party and overseas transactions" then the DGFT would "seek an undertaking under section 14 of schedule 2 to the SNO Regulations from TPF and may consider bringing proceedings with a view to the matter being resolved through court action". Following this, correspondence was entered into between the bank/TPF and the OFT regarding the dispute.
13. In February 2003 the bank, following advice from Mr Hapgood QC, invited the OFT to consider instituting declaratory proceedings. TPF were informed by the OFT that it intended to do so and invited comments prior to issuing Proceedings. Declaratory proceedings were issued by the OFT on 20 June 2003 out of the Queen's Bench Division of the High Court. On 25 September 2003, on the bank's application, the proceedings were transferred to the Commercial Court. At the initial case management conference on 5 December 2003, AESEL made a successful application to join the proceedings.
14. I should also state for the sake of completeness that elsewhere in Europe the liability of the issuer in the case of breach of contract or duty by the supplier has generally been limited to re-crediting the sum charged to the card, in line with the Consumer Credit Directive, rather than extending to consequential damages. Elsewhere in the world, the protection afforded to consumers may well be more limited.

Issue (1)

15. Despite the somewhat wider formulation of this first issue, as set out above, the real issue under this head, as argued before me, is whether four-party transactions fall within the section 11(1)(b) definition of restricted-use credit. The submission, as developed by Mr Ali Malek QC for TPF (and supported by Mr Mark Hapgood QC for the bank) is that, in a four-party transaction, the transaction between the supplier and the Customer (ie the actual purchase of goods or services by the customer from the supplier) is not a transaction that is financed by the regulated credit agreement between the customer (the debtor) and the card issuer. Mr Malek submits, in effect, that because, under the provisions of the relevant schemes, in a four-party transaction the card issuer has no liability to pay the supplier, and the only person contractually liable to pay the supplier, once the card is accepted, is the merchant acquirer, it is the agreement between the supplier and the merchant acquirer, and not the regulated consumer credit agreement between that customer and the card issuer, that finances the transaction between the customer (the debtor) and the supplier for the purposes of section 11(l)(b). He submitted that the fact that the merchant acquirer may (or may not) receive funds via the card system emanating from the card issuer referable to the regulated consumer credit agreement and the transaction which the supplier has effected with the customer, does not mean that the regulated consumer credit agreement has financed that transaction. He further submitted that, whereas, under a three-party situation, the obligation to pay the supplier ("to finance") is on the card issuer/creditor, which is also the merchant acquirer to whom the supplier can properly contractually look for payment, in a four-party situation the supplier is indifferent as regards the card issuer or the regulated consumer credit agreement because he contractually looks to the merchant acquirer only. He relied upon Example 16, in schedule 2 to the Act, which envisages an agreement whereby the credit card is issued: ".... for use in obtaining ... goods ... from suppliers ... who have agreed to honour credit cards issued by" [the creditor]. In a three-party situation, the creditor will have entered into an agreement with suppliers for them to honour the credit cards issued by that card issuer. He submitted that there is no such agreement in a four-party situation where the supplier's agreement to honour the card will not be by reference to the credit cards issued by any specific creditor; the obligation will be to honour those cards described in the merchant acquirer agreement carrying the specified trademark. He likewise applied his argument to the word financed in section 75 itself.
16. Mr Mark Howard QC for AESEL (who supported the OFT on this issue) and Mr William Hibbert for the OFT argued, to the contrary, that the bank's and TPF's contentions on this issue were technical and that it was impossible to distinguish, in the real world, between a three-party transaction and a four-party transaction. The obvious and simple purpose of the regulated credit agreement is to provide the customer with credit (ie financial accommodation) so that he can purchase goods or services from the supplier. I accept these submissions. The phrase "to finance" is not defined in section 189(1). "Finance" has to be read in the context of its use in sections 11(1)(a) and 9(3), which do not involve the transfer of money by the creditor. Approaching the matter in a common sense way, the phrase must mean "provide financial accommodation in respect of" (see also the definition of credit in section 9(1)), rather than simply "pay money"). A credit card issuer clearly provides financial accommodation to its cardholder, in relation to his purchases from suppliers, because he is given time to pay for his purchases under the terms of the credit card agreement.
17. Accordingly, I decide Issue (1) in the affirmative and contrary to the contentions of the 1st and 2nd defendants. As I have said, Issue (2) is no longer live.

Issue 3

18. The issue under this head is whether, where there is a regulated credit card agreement, there are "arrangements between" the creditor and the supplier, for the purposes of the definition of "debtor–creditor–supplier" agreement in section 12(b) of the Act, in four-party transactions, and, in particular, under the current Visa and/or MasterCard rules. As I have said, the 1st and 2nd defendants submit that, under those schemes, there cannot be said to be "an arrangement between" the card issuer/creditor and the supplier where the supplier's agreement to accept the card of a particular network is made not with the card issuer but with another member of that network. It will be obvious from the brief description of the mechanics of the operation of credit card schemes that I have given above, that the determination of this issue adversely to the contentions of the OFT would have the effect that, irrespective of the position in relation to foreign transactions, section 75 connected lender liability would not be invoked in relation to the large number of credit card transactions in the UK that are structured as four-party transactions.
19. For present purposes, section 75 connected lender liability applies, if the agreement is a debtor–creditor–supplier agreement as defined by section 12 (b); that is to say, is a regulated consumer credit agreement being a restricted-use credit agreement which falls within section 11(l)(b) and "is made by the creditor under pre-existing arrangements, or in contemplation of future arrangements, between himself and the supplier ...". Section 189 provides that "pre-existing arrangements shall be construed in accordance with section 187". By subsection 187(1):

"A consumer credit agreement shall be treated as entered into under pre-existing arrangements between a creditor and a supplier if it is entered into in accordance with, or in furtherance of, arrangements previously made between persons mentioned in sub-section (4)(a), (b) or (c)."

Section 187(4) provides:

"The persons referred to in sub-sections (1) and (2) are–

(a) the creditor and the supplier;

(b) one of them and an associate of the other's;

(c) an associate of one and an associate of the other's.

"Associate" (so far as a body corporate is concerned) is defined in sections 184(3) and (4) in the following terms:

(3) A body corporate is an associate of another body corporate –

(a) if the same person is a controller of both, or a person is a controller of one and persons who are his associates, or he and persons who are his associates, are controller of the other; or

(b) if a group of two or more persons is a controller of each company, and the groups either consist of the same persons or could be regarded as consisting of the same persons by treating (in one or more cases) a member of either group as replaced by a person of whom he is an associate.

(4) A body corporate is an associate of another person if that person is a controller of it or if that person and persons who are associates together are controllers of it.

20. The arguments before me raised two points of construction in relation to the application of the section to four-party transactions. The first is whether a merchant acquirer is a person mentioned in subsection 187(4)(a), (b) or (c), namely whether it can be an "associate" for the purposes of section 187(4), notwithstanding that it does not satisfy the defining criteria in section 184. The second, and critical point, is whether, even on the assumption that a merchant acquirer is not such a person, four-party transactions involve an arrangement made between the creditor and the supplier.
21. Sub-section 187(4) confines the persons referred to in sub-sections (1) and (2) to (a) the creditor and the supplier, (b) one of them and an associate of the other, or (c) an associate of one and an associate of the other. The list is tightly drawn. The striking feature of section 184 which defines "Associate" is its technicality and precision. A merchant acquirer in a four-party transaction is not a person mentioned in subsection 187(4). He is not the creditor, the supplier, or an associate of either of them. He is an independent person carrying on business separately from the creditor and the supplier. I accept the submission of the 1st and 2nd defendants that the definition of associate in section 184 is exhaustive, not inclusive. If Parliament had intended to give the courts scope for treating other persons as associates, the Act would have used the conventional technique of providing that: "An associate includes …". Accordingly, on the first point of construction, one cannot regard a merchant acquirer as a person falling within section 187(4) notwithstanding that it does not satisfy the defining criteria in section 184 of associate.
22. The crucial issue is thus whether, in a four-party transaction situation, the consumer credit agreement can be said to have been entered into in accordance with, or in furtherance of, arrangements previously made between a card issuer (the creditor) and a supplier. The 1st and 2nd defendants' submissions on this issue were summarised by Mr Hapgood as follows:

1. The point of statutory construction under section 187 of the Act has to be determined by reference to (a) the language of the Act, (b) the Crowther Report, and (c) the record of proceedings in Parliament.

2. The basis on which the Crowther Committee recommended connected lender liability was its perception that a creditor who "lists" a merchant is engaged in a joint venture with that merchant. This is the recruitment factor. The Committee was also influenced by the leverage factor. The same factors were relied on by the sponsors of the Bill in Parliament.

3. The Crowther Committee did not mention four-party transactions, and nor were they mentioned by the sponsors of the Bill.

4. The imposition of connected lender liability in four-party transactions cannot be justified by the recruitment factor or the leverage factors. Neither of these factors will typically be present in a four-party transaction.

5. Accordingly, Parliament's implementation of the Crowther Committee's recommendations in respect of connected lender liability in domestic three-party transactions evinces no intention at all with respect to such liability in four-party transaction, whether made in the UK or overseas.

6. The point of statutory construction has to be decided in accordance with the propositions stated by Lord Wilberforce in Royal College of Nursing v Department of Health and Social Security [1981] AC 800 at 822. All the factors which he identifies as being relevant to the application of a statute to a new state of affairs weigh heavily against extending section 75 to four-party transactions.

7. The word "arrangement" is not to be construed in isolation. It is part of the composite expression "arrangements made between". There is no arrangement between the creditor and the supplier and certainly no arrangement made between them.

8. In a four-party transaction under the MasterCard or Visa scheme, there is no arrangement made between the creditor and the supplier because: (a) there is no contract between them; (b) they are unlikely ever to have had any contact at all, whether directly or indirectly; (c) the creditor will often not even know of the existence of the supplier; (d) the creditor will not have recruited the supplier, so that the recruitment factor is completely absent; (e) the creditor has no leverage over the supplier, so that the leverage factor is also completely absent; and (f) the only situation permitted by section 187 in which an arrangement can be made between a creditor and a supplier otherwise than directly between them is where the parties act through associates, and the merchant acquirers who operate under the network schemes are not associates of the bank.

23. All parties made submissions at some considerable length as to what was said (and what was not said) in the Crowther Report as an aid to the construction of section 187, and, in particular, as an indication of the mischief at which section 75 was aimed and of the circumstances in which, it was said, the Report intended that connected lender liability should arise. I shall return to the Report in due course. However, I first propose to construe the language of the relevant sections without regard to the Report. I should also say that, whilst I accept that the long title to the Act and authority make it clear that, in construing its provisions one should bear in mind that its intention is to protect consumers (see per Dyson LJ in Broadwick Financial Services Ltd v Spencer [2002] 1 All ER (Comin) 446 at para 21), and that such intention might justify a purposive approach to the Act's construction, such intention does not per se justify the conclusion that four-party transactions necessarily fall within the ambit of the relevant sections because that result would give maximum protection to consumers. At times Mr Hibbert's submissions on behalf of the OFT came precariously close to such a consulary assertion.
24. There is no definition of the word "arrangements" in section 189(1) of the Act. Nor do sub-sections 187(1) and 187(2) contain a definition of "arrangements". The second half of each subsection itself uses the word "arrangements" as part of the explanation there set out. But, in my judgment, in its context it clearly betrays a deliberate intention on the part of the draftsman to use broad, loose language. It is to be contrasted with the far narrower word "agreement". In the words of Wilmer LJ in Re British Slag Ltd's Application [1963] 1 WLR 727, at page 739, "Everybody knows what is meant by an arrangement". As he also said, where the word is not defined, the draftsman intends that the word should be understood and construed in its ordinary and popular sense.
25. I thus approach the matter by asking the simple practical question whether the terms on which the three networks operate involve arrangements made between the card issuer (the creditor) and the supplier. It is common ground that three-party transactions involve such arrangements. Does the intervention of the fourth party make a difference? As Mr Mark Howard QC for AESEL submitted, the critical features of the networks are that the suppliers, by whomsoever they have been acquired, must honour all cards bearing the relevant logo, when properly presented for payment. The suppliers may not themselves be "members" of the networks or directly party to the clearing house arrangements, but they clearly agree as part of their contract with their merchant acquirer to take part in the arrangements that involve honouring all cards on the relevant network. Likewise, what the card issuer is saying to the customer (the debtor) when the former issues the card to the latter, is, in effect, that there are arrangements in place whereby you can go into any store bearing the logo on the card and use the card to buy goods or services; arrangements are in place whereby your supplier will be paid. Although it is common ground there is no direct contractual link between the supplier and the card issuer, it was common ground that there was probably a contractual link between all members of the network (ie the issuers and the merchant acquirers) since there are broad indemnities in place between all members of the network against loss, and that, even if that were not the position, there were clearly arrangements in place between all members. (It was also common ground that it was irrelevant to the issue whether the obligation on a card issuer to pay into the clearing house the credit amount, and the right of the merchant acquirer to receive the credit amount, involved a bilateral contract between the issuer and the merchant acquirer, or merely gave rise to a contract with the clearing house.)
26. In my judgment, in the natural ordinary sense of the word, there are clearly arrangements in place made between the card issuers and the suppliers, notwithstanding the absence of any direct communication between them, or any direct contractual relationship, or even of knowledge on the part of the issuer of the identity of the particular supplier. The fact that there are a number of different arrangements, reflecting the various roles, contractual or otherwise, played by different participants in the network, does not mean that there is not an arrangement in place between the issuer and the supplier. I consider that it is unrealistic to look merely at the individual links in the chain; rather one should stand back and look at the whole network of arrangements that are involved in the operation of the schemes. If one does so, one can, in my judgment, properly conclude that, by virtue of the supplier and the issuer being subject to the rules and settlement processes common to all participants in the card network, there is indeed an arrangement (albeit indirect) between them.
27. I am assisted in reaching this conclusion by the decision of the Court of Appeal in Re British Slag Ltd's Application below, notwithstanding that the word "arrangement" there had to be construed in the different context of section 6(3) of the Restrictive Trade Practices Act 1956. The Court of Appeal proceeded upon the basis that there must be communication of the arrangement to each of the two or more persons between whom the arrangement was to have existed. However, the decision, in each of the judgments, depended upon the knowledge of the parties to the arrangement rather than the disputed question of direct communication between them; see per Willmer LJ at 740, Dankwerts LJ at 742–43 and Diplock LJ at 747, who said:

"It is sufficient to constitute an arrangement between A and B, if (1) A makes a representation as to his future conduct with the expectation and intention that such conduct on his part will operate as an inducement to B to act in a particular way, (2) such representation is communicated to B, who has knowledge that A so expected and intended, and (3) such representation or A's conduct in fulfilment of it operates as an inducement, whether among other inducements or not, to B to act in that particular way."

There is no requirement as to how the information is communicated to B. All that is required is that B is aware of A's position. I accept Mr Hibbert's submission that the words are apt to describe a four-party transaction in the present case. There is an indirect communication of intent, all parties being aware of the operation of the scheme, which depends on each party performing their allotted role and thus giving rise to a common expectation. The case is not in my judgment to be distinguished on the grounds that "arrangement" in the 1956 Act had to be one "under which restrictions are accepted by two or more parties". Although it was specifically on account of this qualification that the arrangement was interpreted as one involving mutuality, I consider that one can test whether there is indeed an arrangement made between a supplier and an issuer under the Act, by asking oneself whether they have respectively accepted mutual obligations dependent upon the other party's expected performance under the network's rules. As Diplock LJ said at page 746:

"and since it must be an arrangement "under which restrictions are accepted by two or more parties2, it involves mutuality in that each party, assuming he is a reasonable and conscientious man, would regard himself as being in some degree under a duty, whether moral or legal, to conduct himself in a particular way or not to conduct himself in a particular way ..."

28. There is clearly mutuality in this sense between credit card issuers and suppliers who agree to accept credit cards: the supplier is obliged to accept cards issued by the issuer and to obtain for the issuer the customer's authorisation (by signature or PIN) allowing the issuer to debit the debtor's card. The issuer is obliged to pay the supplier's merchant acquirer in respect of sales made by the supplier to the issuer's cardholders. The issuer profits both directly from each transaction for which its card is accepted and indirectly from the reassurance given to the cardholder that the card is an acceptable means of payment. The supplier benefits in that he obtains custom that he might not otherwise obtain. If any party (supplier, merchant acquirer or issuer) were to refuse to perform its role, the system, in the sense of an ongoing business relationship between the parties, would cease to function, to the detriment of all.
29. A similar analogy may be drawn from the approach taken by the Courts to clubs, whose membership can give rise to a contract based upon the rules of the club; see eg The Satanita [1895] P 248; [1897] AC 59; and In re Royal Institution of Chartered Surveyors' Application [1986] ICR 550; and, on the other side of the line, where there was held to be no mutual obligations as between individual licensees of the National Greyhound Racing Club Limited, Fisher v Director General [1982] ICR 71. In the present case, I do not need to go so far as to find there is a contract, since mere arrangements are enough. I am also supported in my conclusion by the fact that certain distinguished commentators on the Act support the position that section 12(b) and section 75(1) should apply to four-party transactions: see eg Goode Consumer Credit Law and Practice at IC 25.63(a), IC 33.148; Guest and Lloyd Encyclopaedia of Consumer Credit Law pp 2074/2; 2074/6; Brindle and Cox Law of Bank Payments 3rd edn, 4–066, 5–027 and 5–029.
30. It is also correct to say, as submitted by Mr Howard, that to exclude four-party transactions would lead to an anomalous and capricious result, since in my judgment there is no commercial or policy based reason for not applying section 75(1) to such transactions. It was said by the 1st and 2nd defendants that the leverage considerations referred to in the Crowther Report so as to ensure that only reputable suppliers were recruited and that they conducted business properly, did not apply to a four-party transaction where the issuer was not the merchant acquirer, but I do not find such arguments convincing. The evidence showed that the rules of the four-party card schemes control which suppliers may participate in the schemes by, for example,

(i) stipulating that merchant acquirers must only put transaction details into interchange for suppliers with whom they have valid and subsisting merchant acquirer agreements;

(ii) requiring merchant acquirers to screen suppliers before entering into agreements with them, in order to establish that the suppliers are creditworthy and carrying on bona fide businesses;

(iii) requiring merchant acquirers to monitor suppliers to deter wrongful activity;

(iv) requiring merchant acquirers to forward information to the network merchant databases where, for example, a supplier is suspected of fraud or where a supplier's ratio of transactions "charged back" by the card issuer exceeds established criteria.

Likewise card issuing creditors exert leverage over suppliers, through the networks, in that the networks reserve rights to insist that suppliers' merchant acquirer agreements are terminated and to exclude suppliers from entering into merchant acquirer agreements. Thus some sort of leverage is available, at least in domestic four-party transactions, but even if it were not, that would not affect my conclusion.

The Report of the Crowther Committee and the approach to construction

31. It was common ground that it is permissible to have regard to the Crowther Report to identify the purpose of section 75 and the mischief which section 75 was intended to meet: Pepper v Hart [1993] AC 593 per Lord Browne-Wilkinson at 635B. The Crowther Report did not refer expressly to four-party transactions. The 1st and 2nd defendants relied upon the Report in support of an argument that today's credit card industry is so fundamentally different from the credit card industry which existed when the Crowther Committee reported in March 1971, and that the court is faced with a state of affairs which did not exist in 1974. From this starting point it was argued that, approaching the point of construction in accordance with the propositions stated by Lord Wilberforce in Royal College of Nursing v Department of Health and Social Security [1981] AC 800 at 822, one could not extend section 75 to four-party transactions. Mr Hapgood summarised Lord Wilberforce's propositions as follows:

9. "Leaving aside cases of omission by inadvertence, this not being such a case, when a new state of affairs, or a fresh set of facts bearing on policy, comes into existence, the courts have to consider whether they fall within the Parliamentary intention.

10. They may be held to do so, if they fall within the same genus of facts as those to which the expressed policy has been formulated.

11. They may also be held to do so if there can be detected a clear purpose in the legislation which can only be fulfilled if the extension is made.

12. How liberally these principles may be applied must depend upon the nature of the enactment, and the strictness or otherwise of the words in which it has been expressed. The courts should be less willing to extend expressed meanings if it is clear that the Act in question was designed to be restrictive or circumscribed in its operation rather than liberal or permissive. They will be much less willing to do so where the subject matter is different in kind or dimension from that for which the legislation was passed.

13. In any event there is one course which the courts cannot take, under the law of this country; they cannot fill gaps; they cannot by asking the question 'What would Parliament have done in this current case – not being one in contemplation – if the facts had been before it?' attempt to supply the answer, if the answer is not to be found in the terms of the Act itself."

32. He went on to make the following submissions by reference to Lord Wilberforce's propositions:

(1) "Three-party and four-party transactions cannot fairly be said to fall within the same genus of facts, As is explained below, four-party transactions are structured in an entirely different way and involve a very different set of contractual relations. Most importantly, there is no contractual relation between the creditor and the supplier.

(2) As will become apparent when the Crowther Report and the proceedings in Parliament are considered, there is no "clear purpose" in the legislation which can only be fulfilled if section 75 is extended to cover four-party transactions. The clear purpose of the legislation has been, and will continue to be, fulfilled by the availability of connected lender liability in three-party transactions.

(3) The Consumer Credit Act 1974 is drafted in language, and by reference to concepts, which are technical and (supposedly) precise. The Act is intended to be a complete code. At the time, the Act was one of the most technical pieces of legislation ever to have been enacted. It does not permit a liberal construction.

(4) The scale of potential liability for card issuers which results from treating section 75 as applying to four-party transactions is of a different dimension to the scale of potential liability which results from treating section 75 as limited to three party domestic transactions – this being the liability which Parliament must have had in mind in 1974.

(5) It is not permissible to approach the issues in the present litigation by asking what Parliament would have decided if the issues had been expressly addressed in 1974; this is clear from proposition (5)."

33. I reject these submissions. It is clear that there has been substantial development in the mechanism of credit card operation within the UK in that the overwhelming majority of supply transactions financed by credit cards now involve four parties, whilst, at the time of the Crowther Report, and for a good time after section 75 came into force in 1977, such transactions appeared to have involved only three parties. It is also clear that the number of cards and the number of outlets accepting cards, and the amount of credit afforded to customers, have increased enormously. Thus, the evidence shows that there are now about 1,300 types of credit card available to UK consumers compared to a single card (Barclaycard) in 1971, and that the total amount owed on credit cards in the UK today is in the order of £49 billion compared with £3 million in 1969 (equivalent to £32 million today). However, while so-called "four-party transactions" were not common at the time of the Report as regards UK consumers, they did exist. In the US, they were already standard. It is speculation whether the Crowther Committee knew about their existence. There are other significant increases in the various statistics. However, in my judgment, one cannot say that one is looking at a fresh state of affairs in the sense used by Lord Wilberforce. It was clearly anticipated in the Crowther Report that the credit card industry would be likely to expand and develop. This is not a situation such as that which arose in Fitzpatrick v Sterling Housing Association Ltd [2001] 1 AC 27, HL (same-sex partner held to be 'a member of the original tenant's family' within paragraph 3(1) of schedule 1 to the Rent Act 1977). If I am wrong on that, then, in my judgment, and contrary to Mr Hapgood's submission, three-party and four-party transactions can fairly be said to fall within the same genus of facts. I gain no assistance from the absence of any reference to four-party transactions in the Report as to the mischief at which the Act was aimed, let alone as to its construction. In the circumstances it was understandable. I accept the submission of the OFT that, if four-party transactions were uncommon at the date of the drafting of the Act, the fact that the draftsman did not refer to them expressly does not warrant the inference that the statute, although intended to create a comprehensive code, was not meant to apply to them. I agree with Mr Howard's submission that the real issue is the construction of the wording of the Act itself, and whether it could be said that Parliament intended that section 75 liability could be avoided by interposing a merchant acquirer into the arrangements with the supplier. As to that, I have already concluded that it could not.
34. Accordingly, in my judgment Issue (3) is to be decided in the affirmative.

Issue (4)

35. This issue raises the question (if the answer to (3) is "yes") whether the relevant arrangements are to be disregarded for the purposes of sub-section 187(1) and (2) of the Act by virtue of sub-section 187(3).
36. Section 187(3) provides that:

"Arrangements shall be disregarded for the purposes of subsection (1) or (2) if

(a) they are arrangements for the making, in specified circumstances, of payments to the supplier by the creditor, and

(b) the creditor holds himself out as willing to make, in such circumstances, payments of the kind to suppliers in general."

37. The point is very short. Even if, as the OFT contends, arrangements do exist in a four-party transactions, then the 1st and 2nd defendants submit that such arrangements should be disregarded under the two limbs of section 187(3), because: (a) as to sub-section (a): on the OFT case there are payments to the supplier by the creditor; and (b) as to sub-section; (b) the creditor (card issuer) is holding himself out to make payments to suppliers generally.
38. In my judgment, this argument is wrong for the reasons submitted by Mr Hibbert on behalf of the OFT. The credit card issuer does not hold itself out as willing to make payments to suppliers generally, but only to suppliers who have a subsisting agreement with a member of the network. Although large numbers of suppliers can accept credit cards, they remain within a limited class. This can be contrasted with the creditor's holding itself out as being willing to make payments contained in a cheque card, which can be made to any supplier - any person can accept a cheque supported by a cheque card.
39. The meaning of "generally" in this sense is confirmed by the fact that Parliament introduced by amendment section 187(3A). Notwithstanding the large number of suppliers with whom a debit card can be used, there was still a need to exempt EFTPOS payment systems as banks wished to pick and choose which suppliers were allowed to accept the debit card. The point is made in Bennion's Consumer Credit Control at para 2–188 on p 2170/1; section 187(3) was inadequate to exempt agreements in this situation.
40. Accordingly I decide Issue 4 in the negative. The relevant arrangements are not to be disregarded for the purposes of sub-section 187(1) and (2) of the Act by virtue of sub-section 187(3).

Issue 5

41. The issue here is whether section 75(1) of the Act applies so as to make a card issuer potentially liable for a claim in respect of a transaction which is a foreign transaction (as variously defined by the defendants). The dispute between the claimant and credit card issuers over the extra-territorial application of section 75 has been ongoing for many years. There is no binding authority on the point. Many lenders have continued to follow the approach referred to in the evidence, namely to compensate borrowers on a voluntary basis to the extent of the amount of credit involved in the transaction. This addressed the concern of many lenders that section 75 is unlimited in scope and therefore potentially could give rise to large claims for consequential loss by the debtor in respect of breaches of contract, often way beyond the extent of the amount of credit involved in the transaction.
42. It is relevant to remind oneself by way of introduction that the scheme imposed by section 75 has the following effect:

1. It is premised upon the debtor having a claim against the supplier "in respect of a misrepresentation or breach of contract".

2. In such a circumstance, the section imposes a "like" liability on the creditor ie exposing him to a liability as if he were the supplier or requiring him to stand behind the supplier. Thus, the debtor enjoys a "like" claim against the creditor who is "jointly and severally liable" with the supplier to the debtor.

3. This statutorily imposed liability only applies to claims where the sterling cash price was above a floor (£100) and below a ceiling (f30,000).

4. As a quid pro quo for the imposition of this statutory liability upon the creditor, he is granted a statutory right of indemnity against the supplier and entitled to have the supplier made a party to the proceedings.

43. The OFT seeks to argue that such matters are wholly irrelevant to the application of section 75. If this were right, it would mean that Parliament had purported to legislate to impose liability on creditors and suppliers notwithstanding the potentially very limited connection of the supply transaction to the UK. Indeed, on the OFT's case the nexus with the UK is merely provided by the fact that the payment for a supply is made by a credit card issued to a UK individual. On this basis section 75 would apply to any purchase from an overseas supplier in any far flung corner of the world, however remote. The defendants submitted that the implications of holding that section 75 does apply to overseas transactions are startling and readily apparent. The evidence shows that, if such were the case, issuers carrying on business in the UK would become the insurers of some 29 million foreign suppliers. The total amount owed on credit cards in the UK alone is £49 billion. The issuer itself will never have heard of the overwhelming majority of these foreign suppliers. As the availability of a remedy under section 75 becomes better known among an increasingly aware population of consumers, the issuer will be at risk of being inundated with claims whose merits the Issuer will generally be incapable of assessing. They gave the example of the payment of hotel bills abroad which are commonly paid by credit card; if section 75 were extended to overseas transactions, the issuer would become the insurer (for no premium) of the performance of most of the hotels in the world; this, it was submitted, was far removed from the type of situation in which the Crowther Committee thought it appropriate to impose connected lender liability; there is no joint venture of any sort between the issuer and these hotels, and the issuer has no means of exerting pressure on them to honour their contracts with their guests or to pay damages for any breach of contract, other than (very indirectly) through the network rules. Moreover, the concerns of the card issuers are underlined by the huge growth in recent years of purchases by means of credit cards from foreign suppliers over the internet. If section 75 applies to such transactions, then card issuers will have to bear the liability not only for fraudulent internet transactions, but also for fraudulent foreign suppliers who misrepresent their goods or fail to deliver, with the card issuers in reality having very little influence over local foreign merchant acquirers, other than to attempt to insist upon commercial chargeback provisions where such liability is passed back down the line to the merchant acquirer.
44. There is a debate in the evidence about the extent to which credit cards could be used abroad in 1974. It appears that a Barclaycard could be used in some foreign jurisdictions, but there is little evidence as to the extent of such use. I accept Mr Hapgood's submission that this evidence is irrelevant. The relevant point is that there is absolutely nothing in the Crowther Report or the record of proceedings in Parliament to suggest that the members of the Crowther Committee or the sponsors of the Consumer Credit Bill ever applied their minds to the territorial scope of section 75. The context in which their Report was produced was vastly different from the modern marketplace. It is plain when one examines their conclusions that they are entirely focused on domestic transactions. However, what is also clear from the Report is that the Committee attached considerable importance to the fact that the creditor would, as part of their recommendations, have a right of indemnity from the supplier who was responsible for the breach of contract, that being, in effect the reverse side of the coin to the Committee's view that it would be easier for the lender to put pressure on the supplier to deal with any customer complaint, or to indicate that financing facilities would be withdrawn if it was not; see paragraph 6.6.29 of the Report. The Committee went on to state at paragraph 6.6.31 that:

"It is of course implicit in our recommendations that a lender who incurs a liability to the borrower in the circumstances we have described should have a right of indemnity from the dealer or supplier who caused the trouble. To avoid any doubt, this right of indemnity should be expressly stated in the enactment."

In other words, the Committee took the view that the corollary of the imposition of a like liability on card issuers, to that of suppliers, was the entitlement of card issuers to an indemnity. That is reflected in section 75 of the Act itself. This, in my judgment, is an important feature to bear in mind when one comes to consider the construction of the section and its potential extra-territorial effect, to which I now turn. Subject to the point I have just made, it was effectively common ground, that the process of construction involves ascertaining the intention of Parliament on the basis of: (i) the rules of statutory construction in relation to the extra-territorial application of English statutes; (ii) what is in the Act itself; and (iii) just as importantly, what is not in the Act.

45. The general principle of statutory construction in relation to the extra-territorial application of English statutes is well-known. As Lord Scarman said in Clark v Oceanic Contractors Inc [1983] 2 AC 130 at 144–45:

"It is well-settled law that English legislation is primarily territorial: Ex parte Blain (1879) 12 Ch D 522, 528 per Brett J ... Put into the language of today, the general principle being there stated [in Blain] is simply that, unless the contrary is expressly enacted or so plainly implied that the courts must give effect to it, United Kingdom legislation is applicable only to British subjects or to foreigners, who by coming to the United Kingdom, whether for a short or a long time have made themselves subject to British jurisdiction."

I refer also to the rule as stated in section 102 of Bennion's Statutory Interpretation: 4th edn (2002), p 275:

"(1) Although an enactment may be expressed in general terms, the area over which it is law excludes territories where Parliament lacks jurisdiction, It also excludes territories for which the legislator did not intend to legislate.

(2) Parliament has ordinary jurisdiction to legislate for any of Her Majesty's dominions, except Her Majesty's independent dominions. In addition, Parliament has extraordinary jurisdiction to legislate for New Zealand. Parliament has no jurisdiction to legislate for any other country."

Bennion further states in section 130, headed "Application to foreigners and foreign matters outside the territory", that:

"Unless the contrary intention appears, and subject to any relevant rules of private international law, an enactment is taken not to apply to foreigners and foreign matters outside the territory to which it extends …"

This principle is clearly supported by the authorities; see, for example, The Amalia (1863) 1 Moo PCCNS 471; and Re AB & Co [1900] 1 QB 541, where Lindley MR stated at p 544 as follows:

"What authority or right has the court to alter in this way the status of foreigners who are not subject to our jurisdiction? If Parliament had conferred this power in express words then, of course, the court would be bound to exercise it. But the decisions go to this extent, and rightly, I think, in principle, that unless Parliament has conferred upon the court that power in language which is unmistakable, the court should not assume that Parliament intended to do that which might so seriously affect foreigners who are not residents here and might give offence to foreign governments. Unless Parliament has used such plain terms as show that they really intended us to do that, we ought not to do it."

46. In my judgment, having considered the extensive arguments of the OFT, on the one side, and the opposing arguments of the defendants on the other, section 75 cannot properly be construed as applying to foreign transactions. (I set out below what I regard as the necessary characteristics that qualify a transaction as a foreign transaction.) My reasons may be summarised as follows.
47. The issue of construction is whether the phrase "... any claim against the supplier ..." is limited to claims enforceable in a UK court. As I have stated above, in the absence of express enactment or clear implication, the rules of statutory construction are strongly against giving a UK statute extra-territorial effect and are also against subjecting foreigners to liability under English legislation in respect of acts committed abroad. The words "... any claim against the supplier ..." are so wide that, in accordance with such rules, some limitation must be given to them, and to the scope of the claims covered, in the absence of express enactment or clear implication that the section extends extra-territorially. A good illustration of the application of the principle is Tomalin v Pearson (S) & Son Ltd [1909] 2 KB 61 where it was held that the Workmen's Compensation Act 1906 did not apply to an accident happening abroad. Subject to exceptions provided in the 1906 Act, including in section 7, it was held that it did not apply to an accident beyond the territorial limits of the United Kingdom. Cozens-Hardy MR stated at 64:

"What is the widow's claim here? She is claiming, not as a party to the contract, not as claiming any rights under a contract made by her or by any person through whom she claims, but she is simply claiming the performance by the defendants of a statutory duty, which statutory duty is said to be found in the Workmen's Compensation Act. Now that brings us face to face with this proposition. What is the ambit of the statute and what is the scope of its operation? It seems to me reasonably plain that this is a case to which the presumption which is referred to in Maxwell on the Interpretation of Statutes in the passage at p 213 … must apply: 'In the absence of an intention clearly expressed or to be inferred from its language, or from the object or subject-matter or history of the enactment, the presumption is that Parliament does not design its statutes to operate beyond the territorial limits of the United Kingdom.'"

Farwell LJ stated at 65:

"The question is one purely of the construction of the statute. The words of s 1, sub-s 1, are so wide that some limitation must necessarily be affixed to them. The words are, 'If in any employment personal injury by accident arising out of and in the course of the employment is caused to any workman', and so on. To my mind the words 'any employment' there must be restricted to employment within the ambit of the United Kingdom or on the high seas as provided by s 7."

48. There is no express provision in the Act that applies section 75 to claims that a debtor has against foreign suppliers or states that section 75 gives creditors a right to the statutory indemnity against such suppliers. I reject the argument that section 75(1) has no extra-territorial effect, on the basis that it merely provides a cause of action to a UK cardholder against a UK card issuer. Such an argument ignores the effect of the remainder of the section. By subjecting a foreign supplier to a statutory liability to indemnify a creditor carrying on business in the UK, section 75 would indeed be given an indirect extra-territorial effect. But for section 75, there would be no legal relation at all between the UK creditor and the foreign supplier. From the standpoint of the foreign supplier, England could only be seen as asserting a long arm and exorbitant jurisdiction. There is no express provision that justifies such a jurisdiction.
49. Nor can I find any clear, or indeed any, implication that the section is so to apply. "Extra-territoriality by necessary intendment" is discussed in Bennion at pp 320–22. At p 320 it is stated that:

"Although an Act may contain no express provisions rendering it operative in relation to foreigners outside the Act's territory, such operation may be implied. The implication must be strong enough to overcome the reverse implication that an Act is intended to apply only to persons and acts within its territory."

There is nothing in the Act to suggest or support such a necessary implication. The Act is plainly intended to protect UK consumers within a scheme of regulation which was designed for the UK market. There is no reference within the Crowther Committee Report to any intention to regulate transactions outside the UK. Moreover, although there have subsequently been EC Directives on consumer credit (such as Directive 87/1 02/EC), there was no European legislation, nor any proposal for such legislation, at the time of the Crowther Committee report or by the time the Act was drafted. One therefore cannot impute to the Act any extra-territorial dimension by reason of the existence of the emergent common market.

50. On the contrary, in my judgment, the implication is that the section does not so apply. The whole premise of section 75 is that the UK court has an enforceable and effective jurisdiction over the supply transaction and over the supplier. By section 75(2) the card issuer is given an indemnity against the supplier, which includes his costs of defending the cardholder's claim. He is also entitled, by section 75(5) and "in accordance with rules of court" to have the supplier joined to the proceedings. In my judgment, this points clearly to the conclusion that the Act envisages that the supplier must be amenable to the jurisdiction of the English court (otherwise the creditor would not be able to join him to such proceedings – necessarily English proceedings).
51. As Mr Hapgood submitted, in the context of claims for contribution under section 1 of the Civil Liability (Contribution) Act 1978 ("the 1978 Act"), the courts of this jurisdiction have sought to minimise the extra-territorial effect of the 1978 Act by insisting that, if the respondent to the contribution claim is a foreigner, then the party claiming contribution must establish some procedural right recognisable under CPR Part 6 which entitles the claimant to proceed against the respondent in this country: The Benarty [1987] 1 WLR 1614 at 1622C (Hobhouse J). There can be no question of extending section 75 to overseas transactions without imposing the same requirement. Mr Hapgood gave the worked example of a contract entered into by the debtor for cosmetic surgery in New York, governed by New York law, and containing a clause conferring exclusive jurisdiction on the courts of the state of New York, where the surgery, paid for by a credit card issued by the bank, is unsuccessful, and the debtor returns to the UK and issues proceedings against the bank. Mr Hapgood demonstrated the real difficulties that would arise if section 75 were to be extended to overseas transactions in relation to (i) obtaining leave to serve out; (ii) non-appearance by the supplier; and (iii) enforcement of an English judgment in New York. I need not rehearse them in detail, but these kinds of problems support my conclusion that, given the machinery of section 75, the rules of court, and the principles on which this jurisdiction recognises foreign judgments, demonstrate that there can be no implication that section 75 should extend to overseas transactions because any such notion is in practice unworkable, where that person is not amenable to the UK jurisdiction. It is unlikely that Parliament intended to legislate for something which was unlikely to be effective in practice.
52. Another problem is that the legal relation between the debtor and a foreign supplier will almost always be governed by a foreign law of which the Consumer Credit Act forms no part. If their relationship is contractual, the contract may well include a clause giving the courts of the supplier's country exclusive jurisdiction to settle any disputes arising out of or connected with the contract. In the context of contribution claims, this problem has been solved not by the courts, but by the 1978 Act itself It expressly provides, in section 1(6), that it is immaterial whether any issue arising in an action by the person who suffered the damage against the party from whom contribution is sought would be determined (in accordance with rules of private international law) by reference to the law of a country outside England and Wales. The existence of this provision was invoked by Mr Justice Hirst in The Kapetan Georgis [1988] 1 Lloyd's Rep 352 in support of his conclusion that the 1978 Act is not limited in its scope to liabilities incurred in England and Wales. He remarked of section 1(6): "This important provision, going well beyond anything contained in the 1935 Act, is well worthy of the careful exposition it receives in the sub-section". The absence of any equivalent provision in the Consumer Credit Act, enacted only four years earlier, is an important indication, in my judgment, that section 75 was not intended to apply where the relationship between the debtor and the supplier is governed by foreign law.
53. Both section 9(2) and section l⁶(5)(c) of the Act, coupled with the absence of corresponding provisions in section 75, point to an intention that section 75 does not extend to overseas transactions. Section 9(2) provides that where credit is provided otherwise than in sterling, it shall be treated for the purposes of the Act as provided in sterling of an equivalent amount. Thus, in dealing with the question of whether a credit agreement is within the Act at all, the impact of credit being given in a foreign currency (for example, a loan denominated in US dollars) is expressly addressed. By section 75(3)(b), connected lender liability under section 75 arises so far as the claim relates to any single item to which the supplier has attached a cash price of not less than £100 and not more than £30,000. The level of credit given to the cardholder is not the same either conceptually or in amount as the cash price attached by the supplier. Conceptually, the credit agreement, and the transactions financed by credit provided under the credit agreement, are two different things. As to amount, a credit card could have been used to pay for only part of the overall cash price of the cosmetic surgery. Yet section 75 does not provide that a cash price denominated in a foreign currency is to be treated as a cash price in the sterling equivalent. I accept the defendants' submission that the absence of any provision in section 75 for any sterling equivalent, or any mechanism by which this may be determined, is not simply a drafting oversight, or a matter which could be dealt with by necessary inference. The absence of any such equivalent provision to section 9(2) in relation to the amount of the supply transaction in s 75(3)(b) is a significant indicator that Parliament was only concerned with domestic transactions.
54. I also accept Mr Hapgood's submission that some, albeit small, assistance can be derived from the point that if section 75 had been intended to apply to overseas transactions, one would have expected to find a corresponding provision to section 16(5) empowering the Secretary of State to exempt certain transactions, or transactions within specified jurisdictions, from the scope of connected lender liability. However, I do not regard this point as being of any great significance.
55. Mr Hibbert on behalf of the OFT relied upon the decision of the Court of Appeal in Jarrett v Barclays Bank [1999] QB 1 in support of his argument that section 75 applied to foreign transactions. In Jarrett, on a preliminary point of jurisdiction, the CA held that although Jarrett's case involved a contract governed by Portuguese law, with a Portuguese company for a timeshare property in Portugal, in respect of which, as between the consumer and the supplier, the Portuguese courts had exclusive jurisdiction under Article 16(1) of the Brussels Convention, this was not an obstacle to a section 75(1) claim against the card issuer being brought in the UK courts, despite the fact that the underlying contract breached was for the transfer of an interest in immovable property located in another jurisdiction. The ratio was that the proceedings were based on the debtor-creditor supplier agreements rather than the time share agreements, that they did not have as their objects tenancies of immovable property and that accordingly Article 16(1) did not apply. However, the point was not taken by the bank card issuers that section 75 did not apply in any event, because of the principle against the extra-territorial application of UK legislation. In my judgment, the decision in Jarrett does not assist in my determination of Issue 5. I was also referred to a decision of HH Judge Behar in Grove v American Express Services Europe Limited, unreported 28 April 2003, who upheld the application of section 75 to foreign transactions. He did not have the benefit of the extensive argument which I have received and for the reasons stated in this judgment I do not, with respect, agree with the conclusion of the learned county court judge in that case.
56. The academic writers to which I was referred in the course of argument are divided over the application of section 75 to overseas transactions. I have in the event not derived much assistance from them, since, apart from expressing conflicting views, the level of analysis is not sufficiently deep. It is perhaps worth summarising a selection of the views:

(i) Professor Sir Roy Goode

In his Consumer Credit Law (1989) at paragraph 16.61, Professor Goode considers that section 75 should apply to overseas transactions, but some of his reasoning could be said to support the defendants' approach:

"The fact that the supply contract is governed by foreign law would not appear to affect the creditor's liability under s 75 of the Act, assuming that the credit agreement is itself within the Act and is not exempt … Thus, a bank issuing a credit card under a regulated consumer credit agreement will be liable under s 75 if the cardholder uses the card abroad to purchase goods or obtain services and the supplier commits a misrepresentation or breach of contract. This may seem hard; but it has to be remembered that liability is imposed on the creditor only as the result of the credit being extended pursuant to or in contemplation of arrangements between him and the supplier, and it is therefore for the creditor to exercise care in selecting overseas suppliers with whom to conclude arrangements. Indeed, it can be argued that the consumer needs even greater protection in dealings with a foreign supplier than with a trader in his own country, for the problems of litigating abroad are formidable". (emphasis added)

The italicised words arguably support the defendants because what the OFT is seeking to achieve is to impose section 75 liability in relation to suppliers whom the bank most certainly has not selected. Professor Goode also recognises that the extension of section 75 to overseas transaction would be "hard" (on creditors). I also accept Mr Hapgood's submission that Professor Goode's concluding point is misplaced. If the problems of litigating abroad are formidable, why should the problem be borne by the bank rather than the debtor who voluntarily went abroad to a country of his choice and purchased goods or services from a local supplier there?

(ii) Professor Guest

In the Encyclopaedia of Consumer Credit Law by Guest and Lloyd, the editors do not express a concluded view at 2074-2075, but rather canvas the following competing arguments:

"There is no specific provision, as is found in s. 9(2), whereby for the purposes of s 75(3)(b) a cash price in a foreign currency is to be treated as a cash price in sterling of an equivalent amount; and the reference to a claim against the supplier in respect of 'a misrepresentation or breach of contract' suggests a claim in English or Scots law, and not a claim under some comparable or similarly characterised principle in a foreign law. Further, there is the 'extraterritorial' principle of statutory interpretation whereby the courts are reluctant (where the statute does not so provide expressly) to give statutes extraterritorial effect. On the other hand, there is no good policy reason why a s 75 claim should be confined to cases where the supply contract has no foreign connection, On the contrary, it is in just such cases where the consumer is most at risk and ill-equipped to bring a direct claim against the supplier. Moreover, so interpreting s. 75 only gives the section 'extraterritorial' effect in the indirect sense that the creditor's liability is determined by foreign law. Finally, s 16(5)(c) contemplates that the Act may apply to cases with an overseas connection and provides a mechanism for exempting credit agreements with such a connection."

(iii) Paget's Law of Banking

The contributor to the consumer credit chapter in Paget's Law of Banking (Neil Levy of Counsel) considers that section 75 does not extend to overseas transactions:

"A question also arises whether connected lender liability would extend to a claim by the debtor in respect of a transaction made abroad with a foreign supplier and which may be subject to foreign law. Although the statutory wording seems wide enough to cover such a case, this would be tantamount to according the Act extraterritorial character. It is suggested that the application of s 75 ought not to be given that effect in the absence of words making it clear that this was Parliament's intention, and because it imposes an artificial liability upon the creditor which would not otherwise arise. This adverse effect is mitigated by the creditor's right to join the supplier to the proceedings to recover from him by virtue of the statutory indemnity, but these rights may not be capable of effective enforcement against a foreign supplier. In addition, the use of the terms 'misrepresentation' and 'breach of contract' may also be read as supporting the view that the only claims which Parliament had in contemplation as giving rise to connected lending liability were those of England and Wales or under Scottish law."

57. In paragraphs 166–77 of his written argument, Mr Hibbert raised a point purportedly based on Articles 28 and 29 of the EC Treaty in relation to the prohibition on trade between member states. He did not develop it in his oral argument to any extent, and I was not referred to the Treaty or any relevant authorities. However, in my judgment it does not assist him in any event. The arguments put forward by the defendants are based essentially on whether or not the supply contract is governed by a foreign law, and where it is made, not based on a distinction between UK nationals and other EU nationals, Moreover there was no evidence whatsoever before me that the unavailability of a section 75 remedy would be liable to dissuade LIK customers from purchasing goods or services from overseas EU suppliers, or from going on holiday abroad. Accordingly, I reject this argument. I also reject the OFT's argument that consumers are in greater need of protection in relation to foreign transactions than domestic transactions, due to the difficulties inherent in litigation abroad, and hence that one should not "limit" the scope of section 75 liability to the domestic sphere. Quite apart from the inconsistency of such an analysis with the intention one can draw from the words used in the legislation, I accept Mr Howard's submission that it is also flawed in policy terms. As he said, credit cards are a global phenomenon. UK consumers already enjoy a greater degree of protection from their use domestically than holders of cards issued in other countries. If that protection were to be extended to use of credit cards anywhere in the world, UK consumers would be put at a massive advantage to holders of cards issued on the same networks in any other country.
58. Finally, I accept the submission made on behalf of the defendants that it is unlikely that Parliament intended to place creditors in a position where they would be exposed to connected lender liability for overseas transactions, not only because they would be defending claims without direct knowledge of the facts (or the ability to obtain such knowledge) but also, without in many cases the actual supplier coming in to defend the claim.

Conclusion on Issue (5)

59. Accordingly I hold that, on its true construction, section 75(1) does not apply to foreign contracts, where the contract between the debtor and the supplier of goods or services has the following characteristics:

(1) the contract was made wholly outside the United Kingdom; and

(2) the contract was governed by a foreign law; and

(3) the goods delivered, or the services were supplied, outside the United Kingdom.

I rule that it makes no difference to the non-application of section 75 (1) that: characteristic (1) above differs in that the acts of offer and acceptance were done partly within the United Kingdom and partly outside the United Kingdom (characteristic (1A)) and/or characteristic (3) above differs in that the goods were despatched outside the United Kingdom for delivery within the United Kingdom (characteristic (3A)). However, in the absence of further argument I am not prepared to rule one Way or another whether, in any particular case, section 75 (1) does not apply where: characteristics (2) and (3) or (3)(A), are present, but not characteristics (1) or (1A); or any one of the characteristics (1), (lA), (2), (3) or (3A) are present. It seems to me that, having decided the point of principle, it is not satisfactory to lay down a template for whether in any particular factual situation, a contract can indeed be characterised as a foreign contract. It seems to me that it is preferable for the application of the principle to be left to be worked out by reference to the particular facts of any given case.

60. I shall hear argument as to the form of any order.