England and Wales High Court (Queen's Bench Division) Decisions

IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION

		Royal Courts of Justice Strand London WC2A 2LL
		22nd March 2010

MR JUSTICE FLAUX:

1. In this case Mr Patrick Brophy, the debtor of the HFC Bank Ltd, appeals, with the permission of Mr Justice Eady, against the judgment of His Honour Judge Million in the Willesden County Court given on the 9^th July 2009 by which the learned judge dismissed the various defences of Mr Brophy under the Consumer Credit Act 1974 and held that the credit card agreement which operated between Mr Brophy and the bank for a period of some 14 years, from 1994 to 2008, was a valid and enforceable agreement.
2. The essential facts as the learned judge found them and as emerged from the materials which are before the court are not seriously in dispute and can be stated briefly as follows. Firstly, the evidence of Miss Clark of HFC (which is a subsidiary of HSBC) as to the procedure which was followed for applications for the relevant GM credit card was as follows: the bank sent the prospective debtor an unexecuted form of the application form as part of the initial pack of material. The application form as sent was the form which is now in the bundle before the court. The original sent to Mr Brophy had the application details for completion by him on its face and the terms and conditions of the agreement on the reverse. Accordingly, it constituted one document for the purposes of the Consumer Credit Act.
3. Secondly, as to the application form itself, it was headed 'priority application form' and then in the box at the top left it stated, 'Credit agreement regulated by the Consumer Credit Act 1974. This agreement is made between us, HFC Bank Ltd,' and it then gave the registered address, 'and you, the customer named below. Application subject to status.' The name and address of the applicant were then typed on the form, evidently having been typed by the bank. Then there were various boxes for the completion of information by the debtor about himself and his home and his job and employer and so forth, and details of his bank and what he required and also details of any additional card holder, which in this case was his wife Mrs Stella Brophy. Those details were all completed as necessary by the applicant.
4. The right-hand side then included a notice under the Data Protection Act under which it stated,

'You agree that we may make such enquiries and searches and obtain such references about you as we consider appropriate from any person, including any credit reference agency, at any time prior to or during the period of this agreement or whilst monies are owing under it.'

There was then a box, which is of considerable importance, which stated, 'This is a credit agreement regulated by the Consumer Credit Act 1974. Sign it only if you want to be legally bound by its terms.' In the box below that the applicant had inserted his signature. Finally, on the front of the form at the very bottom on the left-hand side it stated, 'Please note this application is valid until the 31^st March 1994.'

5. The terms and conditions on the reverse included, so far as relevant for present purposes, Clause 3, which is headed 'Credit Limit' and stated, 'Your credit limit will be determined by us from time to time and notified to you.' Clause 11 was headed 'Ending this Agreement' and it provided under subparagraph (a): 'Either of us may terminate this agreement by giving at least seven days' written notice to the other.'
6. Thirdly, having received the package and the form, Mr Brophy signed the form and sent it back to the bank. It was then countersigned by a representative of the bank on the 4^th March 1994.
7. Fourthly, the evidence of Miss Clark, which the judge also accepted, was that thereafter the bank sent Mr Brophy his credit card as part of a five-page letter or series of documents. The judge found that these contained the essential terms of the agreement for the purposes of compliance with Section 63 of the Consumer Credit Act. One of the grounds of appeal originally advanced was that that was wrong and that the materials sent had not included the debtor's name and address, accordingly not complying with the duty to supply a copy of the executed agreement under Section 63 of the Act. That ground was effectively abandoned at the hearing this morning, but in any event it seems to me that, on the basis that the bank did send the debtor the essential terms with his credit card, that inevitably included his name and address. It is difficult to see how it can have been otherwise. Accordingly, in my judgment, no question of non-compliance with Section 63 arose here.
8. Turning to the live grounds, ground (1) is that the judge erred in finding that the application form signed by Mr Brophy was an executed agreement for the purposes of the Consumer Credit Act. The way in which Miss O'Connor, for Mr Brophy, puts her case is refined somewhat from what she submitted before the learned judge, where she essentially sought to argue that there was no intention to create legal relations as there was no certainty as to whether Mr Brophy would be granted credit and, if so, in what amount.
9. What is now said is that this application form was in essence merely an agreement by which the debtor gave the bank permission to investigate his credit rating and, accordingly, it was no more than an agreement to enter into a prospective regulated agreement, which is void under Section 59 of the Act, which provides as follows: 'Subsection 1: An agreement is void if and to the extent that it purports to bind a person to enter as a debtor or a hirer into a prospective regulated agreement.' In support of that submission Miss O'Connor relies upon the words on the form 'Application subject to status' and 'Application valid until the 31^st March 1994'. She submits that unless and until the bank accepted Mr Brophy's application for credit, having conducted the appropriate credit checks and determined the level of credit they were prepared to provide, and then returned a true copy of the agreement to Mr Brophy telling him his credit limit, there was no agreement. She submitted that there was no certainty at the time when he completed the application form, and that he did not know what he was letting himself in for in terms of the credit that would be provided.
10. It seems to me that Miss O'Connor's submissions mischaracterise what is the correct contractual analysis here. By completing the application form the debtor agreed to be bound by the terms and conditions, as was expressly stated, in the event that the bank agreed to extend credit to him. The agreement warns him in terms not to sign it unless he wants to be legally bound by its terms. Thus, by completing the application form Mr Brophy made an offer to contract on these terms, which the bank accepted by counter-signing, and at that point there was an executed agreement within the meaning of Section 61 of the Act.
11. Accordingly, contrary to Miss O'Connor's submissions, there are not two agreements, which is the proposition on which reliance on Section 59 is predicated, but only one agreement. That analysis, it seems to me, is consistent with the worked example given by His Honour Judge Waksman QC in the recent test cases which he determined in the Manchester Mercantile Court in the case of Carey v HSBC Bank plc [2009] EWHC 3417 (QB). At paragraphs 23 to 28 he said this,

'23: The way in which credit card agreements are made and become executed agreements naturally varies but one common way is illustrated by the "Barclaycard Platinum" booklet provided to me. This consists of 11 pages and attached to the final page by perforations is a form which can be detached and folded into four pages, one of which is a stamped addressed envelope to Barclaycard. Pages six to nine contain all the terms of the intended agreement. The Prescribed Terms are set out at page six which, together with page seven, contains what is described as key financial and other financial information and key information, as well as a box explaining the prospective debtor's right to cancel. Pages eight and nine contain what are described as "Barclaycard conditions".

24: The applicant, having received the booklet, then makes the application for the credit card by filling in the detachable form and sending it off. In this particular example, the applicant must give his name and address as well as other personal details. On the same pages as those details will be found a box telling the applicant about his right to cancel, but the Prescribed Terms are also set out again in highlighted boxes. There is a signature box in the centre of the first two pages of the form which make up one landscape page. Underneath the signature box it reads, "For the other conditions which form part of this agreement please refer to the accompanying Barclaycard Conditions," i.e. those at pages eight and nine of the booklet.

25: On the other side the Prescribed Terms and other information is repeated.

26: The signed application form, detached from the booklet, is then sent to Barclaycard. If it approves the application, it signs the form as well. At that point there comes into existence an executed agreement.

27: In this example, the unexecuted agreement does not become executed when signed by the debtor because it has to be signed by the creditor after receipt of the application form, so Section 62(1) applies. Here the Section 62 duty will be satisfied by the provision to the applicant of the booklet from which the form was detached. All of the terms of the prospective agreement are at pages six to nine.

28: But a copy of the executed agreement must also be provided under Section 63. In this example it will be provided not by sending back to the debtor a photocopy of the signed application form but a document very similar to the booklet except that there is different cancellation notice.

It seems to me that, absent matters of detail, that describes in essence the same procedure as applied in the present case. It is also a means of contracting which is described in Guest and Lloyd's Encyclopaedia of Consumer Credit Law at page 2058/12. Accordingly, in my judgment, ground (1) of the appeal must fail.

12. Grounds (2) and (4) are essentially two ways of putting the same point, the thrust of which is that Clause 3 of the terms and conditions, headed 'Credit Limit', failed to comply with Schedule 6 of the Consumer Credit Agreements Regulations 1983. That Schedule sets out the so-called prescribed terms for the purposes of Section 61(1)(a) and Section 127(3) of the 1974 Act, and, as Miss O'Connor points out, a failure to comply with those sections and with that Schedule will result in this agreement being irredeemably unenforceable. Following the decision of the House of Lords in Wilson v First County Trust [2004] 1 AC 816, Section 127(3) was repealed by the Consumer Credit Act 2006, but only with prospective effect for agreements made after that Act came into force. It follows that if this agreement does not comply with the requirements for the prescribed terms in Schedule 6 of the Agreements Regulations then it is irredeemably unenforceable under Section 127(3). In relation to agreements which are for running account credit Schedule 6 sets out the prescribed terms as follows: 'Credit Limit: a term stating the credit limit or the manner in which it will be determined or that there is no credit limit.'
13. What Miss O'Connor argued before the learned judge and before this Court is that Clause 3 does not set out the manner in which the credit limit is to be determined. Compliance with the Schedule requires the bank to state that the credit limit will be set by checking the debtor's credit record and financial status in order to see whether the bank is prepared to lend money. The learned judge rejected this argument on the basis that since Clause 3 of the terms and conditions complied with the requirements of Schedule 1 of the Agreements Regulations, which sets out the information to be contained in regulated consumer credit agreements, other than modifying agreements (which this is not), it also complied with the bare minimum prescribed terms in Schedule 6.
14. Schedule 1, paragraph 8 which is headed 'Agreements for running account credit' says this under 'Credit Limit':

'The credit limit expressed as:-

(a) a sum of money,

(b) a statement that the credit limit will be determined by the creditor from time to time under the agreement and that notice of it will be given by him to the debtor,

(c) a sum of money together with a statement that the creditor may vary the credit limit to such a sum as he may from time to time determine under the agreement and that notice of it will be given by him to the debtor or

(d) in a case not falling within head (a), (b) or (c) above either a statement indicating the manner in which the credit limit will be determined and that notice of it will be given by the creditor to the debtor or a statement indicating that there is no credit limit.'

15. It is accepted by Miss O'Connor that Clause 3 complied with paragraph 8(b) of Schedule 1, since that is precisely what it stated, namely that the credit limit would be determined by the creditor from time to time under the agreement and that notice of it would be given by him to the debtor. However, she submits that merely because the clause complied with paragraph 8(b) of Schedule 1 it does not mean that it complied with Schedule 6 and that the learned judge was wrong to so conclude. Her submissions on this point can be summarised as follows: firstly, compliance with Schedule 1 does not necessarily comport compliance with Schedule 6 since Schedule 1 concerns a number of matters which are not prescribed terms, whereas it is only Schedule 6 which deals with prescribed terms.
16. Secondly, the words in Schedule 6: 'the manner in which in which it will be determined' are not synonymous with the words in Schedule 1(b), as demonstrated by the use of the same words – 'the manner in which it will be determined' – in Schedule 1, paragraph 8(d), which deals with cases other than Schedule 1, paragraph 8(a), (b) or (c). Thirdly, as a matter of language the statement in Clause 3 'your credit limit will be determined by us from time to time and notified to you' is simply not informing the debtor what is the manner in which the credit limit will be determined, which is the requirement for the prescribed terms in Schedule 6.
17. Fourthly, so far as the reliance by the bank on the fact that the model agreement for running account credits set out in the leading text books and the OFT publications, include provisions such as Clause 3 and the submission by Miss Tolaney that it would be very odd if those model agreements failed to set out prescribed terms as required by Schedule 6, Miss O'Connor submits that the answer to those points is that the point she raises has not previously been addressed. In essence she says, if no one has addressed this point, it is of no significance that everyone has missed it up until now, nor, if her point is correct, should the Court be deterred from concluding that this agreement does not contain all the prescribed terms and is irredeemably unenforceable, merely because of the potential financial impact on this and other banks in relation to other agreements.
18. I agree that the possible effect on other cases of a decision in Mr Brophy's favour should not deter the Court from that decision if Miss O'Connor's point is right, but the critical question remains whether it is right. I agree with Miss Tolaney that the essential difficulty which Miss O'Connor's argument faces is that it necessarily requires that the prescribed terms under Schedule 6 contain more information about the credit limit and how it is calculated than the creditor is required to give pursuant to Schedule 1 in circumstances where it is Schedule 1 which contains the information which the creditor is required to provide.
19. The distinction between the purpose of Schedule 1 and the purpose of Schedule 6 was clearly set out in the decision at the first instance of Mr Recorder Michael Douglas QC sitting in the Coventry County Court in the case of Hurstanger Ltd v Wilson [2006] WL 4402848. He said this, starting at paragraph 27:

'The 1983 Regulations prescribe, among other things, the minimum contents of a regulated agreement, the information which must be brought to the attention of the borrower and the manner in which it is to be brought to his or her attention.

28: By Regulation 2 documents embodying regulated consumer credit agreements must "contain the information" set out in Schedule 1. Column two of Schedule 1 specifies the relevant information and column one correspondingly identifies the type or category of regulated agreement in which that information is to be included.

29: Regulation 6 states that the "terms" specified in Schedule 6, column two are prescribed in relation to the types of regulated agreement referred to in column one. The terms are said to be prescribed for the purposes of Section 61(1)(a) and Section 127(3) of the 1974 Act. It is the failure to incorporate these terms or any of them into the document signed by the debtor or hirer which leads to irredeemable unenforceability.

30: The 1983 Regulations thus distinguished between the "information" set out in Schedule 1 and the "terms" set out in Schedule 6.'

I then miss out a passage and pick it up later in the paragraph,

'The organisation and wording of the relevant provisions in the 1983 Regulations therefore suggest that the object of Schedule 1 is to fulfil that part of the purpose of Section 60 which is designed to inform the borrower of all relevant aspects of the agreement. The phraseology of Regulation 6 suggests that it is fulfilling that purpose of Section 60, and 61 is amplified by Section 127(3), which requires certain minimum terms to be included in a regulated agreement.

31: Regulation 2(4) as it was worded at the date of the agreement in this case makes further a provision about the way in which Schedule 1 information is to be presented: "The information about financial and related particulars set out in paragraphs 3 to 19 of Schedule 1 to these Regulations and also the statements of the protection and remedies available to debtors under the Act specified in Forms 5, 7 and 9 of Part 1 of Schedule 2 shall be shown together as a whole in documents embodying regulated consumer credit agreements and not interspersed with other information, apart from subtotals of total amounts and cross-references to terms of the agreement.'

20. I interpolate here this is what is known as the "Holy Ground" rule or principle. 'In other words,' continues the Recorder,

'certain information contained in Schedule 1, primarily financial information, must be presented as a single block so as to prevent any possibility of bits of relevant information being concealed or tucked away in places where the borrower might not look. This provision appears to implement the requirement contemplated in Section 60(2)(b) of the 1974 Act.

32: On the other hand, Regulation 6(2) as it was at the time of the agreement in this case required only that the terms of the agreement and the information required by Schedule 1 should be legible and of a colour readily distinguishable from the colour of the paper on which they are written. Mr Say accepted in answer to a question which I posed that there is nothing in Regulation 6 which would have made it obligatory for the prescribed terms or any of them to be placed in a prominent part of the document or to have prevented them being interspersed throughout the document. This tends to reinforce the conclusion that the purpose of Schedule 6, whilst of course not inconsistent with the purpose of Schedule 1, is not primarily to inform the borrower (a task discharged by Regulation 2 and Schedule 1).

33: In my judgment the objective of Schedule 6 is to ensure that as an inflexible condition of unenforceability certain basic minimum terms are included which the parties (with the benefit of legal advice if necessary) and/or the court can identify within the four corners of the agreement those minimum provisions, combined with the requirement under Section 60(1) that all the terms should be in a single document, and backed up by the provisions of Section 127(3) ensure that these core terms are expressly set out in the agreement itself. They cannot be orally agreed. They cannot be found in another document. They cannot be implied and, above all, they cannot be in the slightest misstated. As a matter of policy the lender is denied any room for manoeuvre in respect of them. On the other hand, they are basic provisions and the only question for the court is whether they are, on a true construction, included in the agreement. More detailed requirements which are designed to ensure that the debtor is made aware so far as possible of specified information (including information contained in the minimum terms) are to be found in Schedule 1.'

That analysis, specifically paragraph 33, was approved by the Court of Appeal in that case see paragraph 11 of the judgment of Lord Justice Tuckey [2007] 1 WLR 2351 and 2356-7.

21. Since that, as the learned Recorder held in that case, it is not the purpose of Schedule 6 primarily to inform the borrower, a task which is discharged by Schedule 1, but rather the purpose of Schedule 6 is to set out the bare minimum terms which have to be included as an inflexible condition of enforceability, I agree with Miss Tolaney that it would be very odd, if in relation to information about the credit limit, Schedule 6 in fact required the creditor to provide more information than was required by the very schedule which actually deals with the information which has to be provided, namely Schedule 1.
22. In my judgment the structure and purpose of the Agreements Regulations and these two Schedules is that to the extent that the creditor has provided the information required by one or other of paragraphs 8(a), (b), (c) or (d) of Schedule 1 in relation to a running credit account agreement as regards the Credit Limit, the creditor will necessarily have done sufficient to comply with the prescribed terms requirement as regards credit limit in Schedule 6. Furthermore, in my judgment, a provision which states 'your credit limit will be determined by us from time to time and notified to you' not only complies with paragraph 8(b) of Schedule 1, but is stating the manner in which the credit limit will be determined, namely at the discretion of the bank, for the purposes of the prescribed terms in Schedule 6.
23. The contrary argument advanced by Miss O'Connor seems to me to lead to the logical conclusion that the prescribed term about credit limit addresses the situations covered by paragraphs 8(a) and (d) but not those covered by paragraphs 8(b) or (c) of Schedule 1. I do not consider that Parliament can have intended such a result, which would be unreasonable and which would lead in effect to the tail of Schedule 6 wagging the much larger dog of Schedule 1.
24. As for the use of the words 'the manner in which the credit limit will be determined' in paragraph 8(d) it seems to me that the fallacy in Miss O'Connor's argument is that those words do not mean that an agreement which expresses the credit limit as set out in paragraph 8(b) has not indicated the manner in which the credit limit will be determined, rather paragraph 8(d) is dealing with those cases where the credit limit is determined in some other manner than that set out in (b) or, for that matter, (c); for example, where it is determined by reference to market forces or multiples of the debtor's salary or on the basis of some other factors beyond the creditor's control.
25. It follows that in my judgment Clause 3 of the terms and conditions did state the manner in which the credit limit would be determined, not only for the purposes of paragraph 8(b) of Schedule 1, but also for the purposes of Schedule 6 and the learned judge's judgment to that effect cannot be faulted. There were no technical breaches by the bank of the Regulations or the Act and the agreement was and is valid and enforceable. The appeal must be dismissed.