Wilson & Anor v Hurstanger Ltd

A regulated consumer credit agreement must contain correctly stated prescribed terms within the agreement itself. The prescribed repayment term permits different repayment arrangements and need not state the repayment amount if it otherwise explains how the obligation is discharged. The separate repayment-information requirements are stricter.

A broker receiving commission from a lender requires the borrowers’ informed consent to the resulting conflict of interest. Disclosure sufficient to negate secrecy may still fall short of informed consent. For vulnerable borrowers in the non-status lending market, disclosure should identify the commission and its amount and explain the potential effect on impartial advice. A lender procuring the breach may owe equitable compensation. Rescission for breach of fiduciary duty is discretionary and may be refused where compensation provides fair and proportionate relief.

Mr Wilson and Ms Burton instructed Mr Dunk, a broker trading as One Way Finance, to arrange an £8,000 loan from Hurstanger Ltd. The loan was secured by a second legal charge on their home. Its proceeds included a £1,000 broker’s fee. Hurstanger also paid the broker £240 commission. The borrowers signed a document stating that Hurstanger paid brokers commission in certain circumstances, but the document did not identify the actual payment or its amount.

After repayment arrears arose, Hurstanger brought possession proceedings in Coventry County Court. Recorder Michael Douglas QC held that the agreement contained the prescribed repayment term but failed to provide the required information about repayment of £295 administrative and legal costs with deferred interest. He ordered enforcement while discharging the borrowers from liability for those costs, and made a possession order. He rejected the contention that the commission was secret.

The borrowers appealed the prescribed-term ruling and the lender appealed the repayment-information ruling. The Court of Appeal also granted the borrowers permission to appeal on commission. The issues concerned the distinct statutory repayment requirements, the adequacy of commission disclosure, and the remedies available for a broker’s conflict of interest.

The borrowers’ appeal was allowed in part. Both consumer credit appeals were dismissed, but the commission appeal was allowed. Jacob and Waller LJJ agreed with Tuckey LJ’s judgment.

1. The prescribed terms required by the Consumer Credit Act 1974 and Schedule 6 to the Consumer Credit (Agreements) Regulations 1983 had to appear correctly within the agreement itself. They could not be supplied orally, incorporated from another document or implied. Paragraph 5 nevertheless permitted flexibility in expressing repayment obligations. Different obligations could be addressed through different terms. A provision requiring repayment of £295 with interest at the stated rate upon termination satisfied that paragraph without expressly stating the resulting repayment amount. The dictum in McGinn v Grangewood Securities Limited [2002] EWCA Civ 522 required qualification accordingly.

2. Schedule 1 paragraph 13 imposed more precise requirements. Where the repayment could be expressed as a sum of money, a specified proportion of a specified amount, or their combination, merely explaining its calculation was insufficient. Collection of the £295 had been deferred by agreement. Stating a monthly interest rate did not express the resulting repayment as a specified proportion. The lender’s appeal therefore failed.

3. The broker owed fiduciary duties to the borrowers. Receiving commission from the lender created a conflict between securing the best available deal and obtaining remuneration. Informed consent required full disclosure of the material circumstances and the nature and extent of the interest. Disclosure merely putting the principal on inquiry was insufficient. The agent bore the burden of establishing informed consent, and the lender, knowing of the agency, had to establish consent to its payment.

4. The statement that commission might be paid negated secrecy. It did not obtain informed consent. For these vulnerable borrowers in the non-status lending market, disclosure should have identified the actual commission and its amount, clearly sought consent, and warned of its potential effect on unbiased advice. The lender had procured a breach of fiduciary duty, although it had not paid a secret commission.

5. Rescission for this breach was discretionary. Johnson v E.B.S. Pensioner Trustees Limited [2002] Lloyds Reps. PN 309 established that fairness governed both the availability and form of equitable relief. The agreement and charge were fair and enforceable apart from the £295 costs. Full compensation made rescission unfair and disproportionate, irrespective of the borrowers’ ability to make counter-restitution. Whether rescission would be available as of right for a wholly secret commission was left open.

6. Mr Wilson was awarded £240 equitable compensation against the lender, with simple interest at 1.29% per month from 5 August 2003. The parties were to agree arrangements ensuring that payment also satisfied Ms Burton’s corresponding claim. Rescission of the agreement and charge was refused.

1. Court of Appeal (Civil Division): In [2007] EWCA Civ 299 , dismissed both consumer credit appeals and allowed the borrowers’ commission appeal. Awarded equitable compensation and interest, but refused rescission.
2. Coventry County Court: Recorder Michael Douglas QC ordered enforcement of the loan agreement while discharging the borrowers from liability for the lender’s administrative and legal costs. He made a possession order and rejected the secret-commission contention. He granted permission for both consumer credit appeals. The Court of Appeal subsequently granted permission on commission.