Evans v Cherrytree Finance Ltd

A contractual early-redemption term may be unfair where it is opaque, produces a significant imbalance to the consumer’s detriment and requires payment of a disproportionately high sum. The court must assess fairness in the circumstances existing when the contract was made, including the term’s clarity, prominence, commercial effect and the parties’ positions. Legal representation does not necessarily cure an unclear term which was not explained. An unfair term is not binding on the consumer, but the remainder of the contract may survive if severable. Where the term cannot be severed, redemption is limited to the arrears and outstanding principal, without the additional redemption charge.

The claimant borrowed £105,000 from the defendant under a secured credit agreement relating to property used both as his home and for his antiques business. Clause 1.8 provided for an early-settlement rebate calculated as if the agreement were regulated by the Consumer Credit Act 1974, with settlement deferred by six months.

On redemption, the defendant applied the Rule of 78 and claimed additional interest and administration fees. The claimant sought repayment of the alleged overpayment. The issues were whether the redemption calculation was enforceable, whether the interest was calculated on the outstanding balance, and whether administration fees were payable at £250, £125 or nothing.

1. Consumer status. The claimant was a consumer under the Unfair Terms in Consumer Contracts Regulations 1999. Although the secured property included business premises and the loan had a commercial form, its predominant purpose was personal: enabling the claimant to buy out his former wife and retain a home as well as a place of work.
2. Unfairness. Clause 1.8 was a pre-formulated, non-negotiated term. It was opaque and unclear because it did not explain how the rebate would operate. Its application produced a significant imbalance and required payment of a disproportionately high sum on redemption. The claimant’s solicitor and the warning at the end of the agreement did not alter that conclusion.
3. The court applied the approach in Director General of Fair Trading v First National Bank plc [2002] 1 All E.R. 97: good faith requires fair and open dealing, and fairness is assessed by reference to the circumstances and the position of typical parties when the contract was made.
4. Under Regulation 8 of the 1999 Regulations, Clause 1.8 was not binding on the claimant. The agreement could continue without it. The defendant was entitled to the arrears and outstanding principal at redemption, but not to the additional six months’ interest. The clause could not be severed so as to preserve that additional charge.
5. The interest provision was construed as charging 12.9 per cent per annum on the outstanding loan balance, with the capital element reducing over time.
6. The administration fee issue had been compromised in the possession proceedings. The defendant was therefore entitled to calculate the fee at £125 per month, rather than £250.
7. The claimant’s arguments based on Interfoto Picture Library Ltd v Stiletto Visual Programmes Ltd [1988] 1 All E.R. 348 and Multiservice Bookbinding Ltd v Marden [1978] 2 All E.R. 489 were unnecessary to the result and failed on the facts.
8. Judgment was entered for the claimant for the surplus attributable to the Rule of 78 calculation, while the defendant could retain the outstanding principal, arrears, agreed administration fees and undisputed costs.

First-instance decision. No appellate history is stated in the judgment.