Wilson v First County Trust Ltd

A document fee forming part of the total charge for credit cannot also form part of the amount of credit under the Consumer Credit Act 1974. Financial accommodation provided specifically to discharge that fee must therefore be excluded when stating the amount of credit.

A regulated agreement which states an incorrect amount of credit omits a prescribed term. It is improperly executed and, subject to any Convention-compatible interpretation, irredeemably unenforceable under sections 65(1) and 127(3). The associated security cannot be enforced for the creditor’s benefit.

Where that statutory consequence may constitute a disproportionate interference with the creditor’s Convention rights, the court should notify the Crown and consider compatibility before finally determining the appeal.

The appellant borrowed £5,000 from the respondent pawnbroker on the security of her car. A £250 document fee was added to the stated loan, and the written regulated agreement recorded the amount as £5,250. After default, the appellant sought declarations that the agreement and security were unenforceable.

HH Judge Hull QC held that the £250 fee formed part of the total charge for credit but that the agreement correctly stated the credit as £5,250. He nevertheless reopened the transaction and reduced the interest. The appellant redeemed her car for £6,900 and appealed against the rejection of her enforceability claim. There was no cross-appeal.

The central issues were whether section 9(4) of the Consumer Credit Act 1974 excluded the fee-funded accommodation from the amount of credit; whether the resulting misstatement made the agreement irredeemably unenforceable; and whether that consequence was compatible with Convention rights.

1. Disposition. The court unanimously adjourned the appeal. Notice was to be given to the Crown under section 5 of the Human Rights Act 1998, and the Attorney-General was to be invited to consider appointing an amicus curiae. The court reserved the possible incompatibility of section 127(3) of the Consumer Credit Act 1974 with Article 6(1) and Article 1 of the First Protocol.
2. Amount of credit. The Vice-Chancellor held that the £250 advanced to discharge the document fee constituted financial accommodation in ordinary terms. Section 9(4), however, had to be construed in the context of the consumer-protection scheme. A charge included in the total charge for credit could not also enter the amount of credit used to calculate the annual percentage rate. The statutory amount of credit was therefore £5,000, not £5,250. Chadwick LJ agreed, and Rix LJ agreed with both judgments.
3. Improper execution and enforcement. The agreement failed correctly to state the amount of credit, a prescribed term under regulation 6 and Schedule 6 paragraph 2 of the Consumer Credit (Agreements) Regulations 1983. It was consequently improperly executed under section 61(1)(a) and enforceable only by court order under section 65(1). Section 127(3) precluded such an order because the prescribed term was absent. A merely incorrect figure did not suffice, although an obvious mistake might in another case be addressed through construction or rectification.
4. Security. On the ordinary construction of the 1974 Act, the unenforceability of the agreement prevented enforcement of the pledge for the creditor’s benefit. The Vice-Chancellor considered that sections 106 and 113 prima facie required return of the security and repayment of the redemption money. Chadwick LJ likewise considered it very difficult to justify retaining pledged property where the underlying obligations could not be enforced.
5. Convention issue. The statutory outcome deprived the creditor of repayment, the security and the redemption money despite no apparent misunderstanding by the borrower. The court held that this arguably failed the proportionality and fair-balance requirements of the Convention. It therefore required fuller argument before deciding whether section 3 of the 1998 Act permitted a compatible interpretation or whether a declaration of incompatibility should be considered.

1. Court of Appeal: In [2000] EWCA Civ 427, unanimously held that the agreement misstated the amount of credit and was prima facie irredeemably unenforceable. The appeal was adjourned for notice to the Crown and argument concerning Convention compatibility.
2. Epsom County Court: HH Judge Hull QC rejected the claim that the agreement was unenforceable. He reopened the transaction, reduced the monthly interest charge and permitted redemption of the car. He granted permission to appeal.