Goshawk Dedicated (No 2) Ltd v The Bank of Scotland

Under the Consumer Credit Act 1974, the cancellation notice accompanying a regulated credit agreement must be construed within the statutory scheme governing linked transactions and exempt transactions. Where an insurance policy is a linked transaction excluded from the cancellation consequences by the Exemption Regulations, the prescribed note stating that cancellation will not affect the insurance contract is applicable.

A credit facility is not partly fixed-sum credit merely because the creditor knows that identified sums will be debited first. The relevant question is whether the debtor has a genuine drawing facility. A facility used for successive disbursements remains running-account credit where no part is earmarked by the creditor for a separate liability.

Goshawk, representing insurers participating in The Accident Group claims-management scheme, sought declarations concerning the enforceability of credit agreements made by the Bank of Scotland with clients. The agreements financed insurance premiums, investigation fees and litigation disbursements.

Goshawk alleged that the agreements failed to comply with the Consumer Credit Act 1974 in two respects: the prescribed cancellation notices contained an inapplicable insurance note, and the facility was a multiple agreement combining fixed-sum and running-account credit. It also contended that the Bank’s assignment of policy benefits could not be enforced. The central issues were the proper construction of the cancellation provisions and the classification of the credit facility.

1. Cancellation notices. The Bank’s inclusion of the note stating that cancellation would not affect the insurance policy complied with the statutory requirements. The court construed “applicable” and “affect” in the context of the statutory scheme, rather than requiring the creditor to investigate every possible indirect contractual consequence of cancellation.

2. The insurance policy was a linked transaction under section 19 of the Consumer Credit Act 1974, but insurance contracts were excluded from the cancellation consequences by the Consumer Credit (Linked Transactions) (Exemptions) Regulations 1983. Cancellation of the credit agreement therefore did not itself cancel the policy, so the relevant note was applicable.

3. Alternatively, if “affect” required consideration of indirect effects, cancellation would have affected the policy in the circumstances of the scheme. The court nevertheless held that this wider construction was not the correct one. It also found that a conditional fee agreement was a linked transaction because disbursements under it were financed by the credit agreement. Whether the conditional fee agreement or the TAG Service Agreement was initiated within section 19(1)(c) depended on the facts of the individual case and could not be determined generally.

4. Multiple agreements. The credit agreement provided running-account credit only. The Bank imposed no requirement that the insurance premium or investigation fee be paid from a separately earmarked part of the facility. The debtor had a continuing drawing facility, and the fact that the Bank knew in advance that particular payments would be required did not convert those payments into fixed-sum credit. The agreement was therefore not a multiple agreement.

5. The court declined to decide the wider controversy concerning the meaning of “part” and “category” in section 18, because it was unnecessary to the result. It also held, alternatively, that if either alleged non-compliance had been established, the statutory consequences would have applied strictly and the assignment of the policy benefits would have constituted security within section 113(1).

6. The declarations sought concerning the alleged Consumer Credit Act breaches were refused. The court expressed the provisional view that the Lender’s Clause issues should not be determined in these Part 8 proceedings and left them to be raised, if appropriate, in individual cases.

This was a first-instance decision of the High Court (Chancery Division). No appellate history is stated in the judgment.