McMillan Williams (a firm) v Range

An agreement provides credit within the Consumer Credit Act 1974 only where it gives rise to a monetary debt whose payment is deferred. The character of the agreement must be determined when it is made. Complete uncertainty at that time about whether any debt will arise is inconsistent with the provision of credit.

The court must identify the agreement’s essential character. Payments made in advance for future services are remuneration rather than credit, even if the recipient may later have to repay a shortfall. A successful party may nevertheless be denied appeal costs where both parties unreasonably frustrate court-recommended mediation through positional conduct.

A firm of solicitors employed an assistant solicitor under a commission arrangement. She received monthly advances equivalent to an annual salary, subject to a calculation after two years or upon termination. Any shortfall between earned commission and the advances was repayable. Following her resignation, the firm claimed approximately £18,333.

The assistant solicitor contended that the arrangement provided regulated credit under the Consumer Credit Act 1974. His Honour Judge Lloyd accepted that contention and dismissed the firm’s claim on a preliminary issue. The firm appealed.

The central question was whether the employment agreement provided credit within sections 8 and 9 of the Act. Further questions concerning the statutory credit limit and exempt agreements arose only if credit had been provided.

1. Appeal allowed unanimously. Ward LJ, with whom Mantell and Jonathan Parker LJJ agreed, held that the employment agreement did not provide regulated credit under sections 8 and 9 of the Consumer Credit Act 1974. The agreement was enforceable.

2. Whether an agreement provides credit must be determined when the agreement is made. The parties need to know at that point whether the statutory form and formalities apply. Credit requires a debt whose payment is contractually deferred. Where it is wholly uncertain whether the arrangements will produce any debt, postponement of payment until possible indebtedness crystallises does not itself provide credit. The principle in Nejad v City Index Ltd [2001] GCCR 2461 applied.

3. The court must identify the agreement’s essential character by asking whether it is an arrangement for making loans or for paying remuneration. Clause 9 was headed “Pay” and described the payments as commission, advances on commission and a possible bonus. Its true nature was therefore an arrangement under which remuneration was paid in advance of services. It was not an arrangement for loans.

4. The principle in Fisher v Raven [1964] AC 210 assisted despite its different facts and statutory context. An advance payment for future services does not give credit because it involves neither an existing obligation to repay money nor the deferment of such an obligation. Moreover, when this agreement was made, it was impossible to know whether the employee or the firm would ultimately be the debtor.

5. The issues concerning running-account or fixed-sum credit and exemption under section 16 were not decided. They became unnecessary once the court concluded that no credit had been provided.

6. The employee was ordered to pay the firm’s costs of the discrete preliminary issue below. Payment was deferred until the remaining costs of the claim and counterclaim became payable, to avoid abuse of the firm’s financially stronger position. Although the firm succeeded on appeal, both parties had engaged in positional correspondence that frustrated the recommended mediation, and the firm withdrew from mediation shortly before it was due to occur. Each party was therefore ordered to bear its own appeal costs.

1. Court of Appeal (Civil Division): The firm’s appeal was allowed unanimously. The court declared that the agreement was enforceable and made no order for the costs of the appeal.

2. Brighton County Court: His Honour Judge Lloyd decided the preliminary issue in favour of the employee and dismissed the firm’s claim, holding that the monthly payments constituted credit under the Consumer Credit Act 1974. That determination was reversed.