Office of Fair Trading v Lloyds TSB Bank Plc & Ors

Section 75 of the Consumer Credit Act 1974 applies to four-party credit-card transactions. A regulated credit-card agreement provides financial accommodation for purchases even where the issuer is not contractually liable to pay the supplier directly. The network rules and settlement arrangements may constitute indirect arrangements between creditor and supplier, despite the absence of direct communication or contract. Those arrangements are not excluded by section 187(3) where the creditor holds itself out as paying only suppliers within the relevant network. Section 75 does not extend to a wholly foreign contract governed by foreign law where the goods are supplied or delivered outside the United Kingdom. The same conclusion applies where offer and acceptance occur partly inside and partly outside the United Kingdom, or goods are despatched abroad for delivery in the United Kingdom.

The Office of Fair Trading sought declarations concerning connected lender liability under section 75 of the Consumer Credit Act 1974. The defendants issued credit cards through Visa, MasterCard or American Express networks. The application concerned whether four-party transactions involved restricted-use credit and arrangements between creditor and supplier, whether those arrangements were excluded by section 187(3), and whether section 75 applied to transactions with foreign characteristics.

The proceedings were declaratory proceedings issued in the High Court and later transferred to the Commercial Court. The court was required to determine the construction of the relevant provisions and the territorial scope of section 75.

1. Four-party transactions. A credit-card agreement falls within section 11(1)(b) because the issuer provides financial accommodation for the cardholder’s purchases. Financing does not require the creditor to transfer money directly to the supplier.
2. Arrangements between creditor and supplier. The ordinary meaning of “arrangements” is broad. The relevant question is whether the network rules and settlement processes create arrangements between issuer and supplier when viewed as a whole. Direct contractual relations, direct communication, or the issuer’s knowledge of the supplier’s identity are unnecessary. Suppliers agree to honour cards bearing the relevant network logo, while issuers undertake to fund transactions through the network. This mutuality constitutes an indirect arrangement.
3. Section 187(3). A merchant acquirer is not an “associate” within the exhaustive definition in section 184 merely because it participates in the network. However, the arrangements are not disregarded under section 187(3), because the issuer does not hold itself out as willing to pay suppliers generally. It undertakes to pay suppliers within the limited class participating in the network.
4. Foreign transactions. Applying the territorial principle of statutory construction, section 75 does not extend to foreign transactions absent express words or clear implication. The statutory indemnity in section 75(2), the power to join the supplier under section 75(5), the absence of a foreign-currency mechanism corresponding to section 9(2), and the absence of an equivalent to section 1(6) of the Civil Liability (Contribution) Act 1978 supported that conclusion. The section presupposes an effective jurisdiction over the supplier and supply transaction.
5. The court therefore answered Issues (1) and (3) affirmatively and Issue (4) negatively. Section 75(1) was held not to apply where the contract was made wholly outside the United Kingdom, governed by foreign law, and the goods were delivered or services supplied outside the United Kingdom. The court declined to prescribe a complete test for other combinations of foreign characteristics and reserved the form of order.

First-instance declaratory proceedings in the High Court. The proceedings were issued in the Queen’s Bench Division on 20 June 2003 and transferred to the Commercial Court on 25 September 2003. American Express Services Europe Limited was joined on 5 December 2003.