Office of Fair Trading (Respondents) v Lloyds TSB Bank plc and others (Appellants) and others (Respondents)

Under section 75(1) of the Consumer Credit Act 1974, a creditor’s joint and several liability for a supplier’s misrepresentation or breach of contract extends to foreign supply transactions. The territorial requirement is satisfied where the credit agreement is a United Kingdom credit agreement.

The creditor’s liability does not depend upon an effective statutory indemnity against the foreign supplier. Nor do the Act’s potentially ineffective cancellation provisions justify implying a domestic-transactions limitation. The statutory language is unqualified, and the consumer-protection policy places upon creditors losses which they can manage and distribute more readily than consumers.

The Office of Fair Trading sought to establish that section 75(1) of the Consumer Credit Act 1974 protected United Kingdom credit-card holders in relation to foreign purchases. Lloyds TSB Bank plc and Tesco Personal Finance Ltd contended that the provision applied only to domestic supply transactions.

Gloster J, reported at [2005] 1 All ER 843, accepted that four-party credit-card arrangements fell within the statutory concept of arrangements but accepted the issuers’ territorial argument. The Court of Appeal, reported at [2006] EWCA Civ 268 and [2007] QB 1, rejected that territorial limitation. The House had refused permission to appeal on whether four-party schemes involved the arrangements required by section 12(b).

The remaining question was whether section 75(1) covered a supply contract made and performed abroad and governed by foreign law.

1. Appeal dismissed unanimously. Lord Mance delivered the principal speech. Lord Hoffmann and Lord Hope gave concurring reasons, while Lord Walker and Lord Brown agreed with those speeches. The House held that section 75(1) of the Consumer Credit Act 1974 applies to foreign supply transactions where the underlying credit agreement is a United Kingdom credit agreement.

2. Per Lord Mance, the presumption of territoriality did not require the further restriction advanced by the card issuers. Section 75(1) regulates the relationship between a United Kingdom creditor and its debtor. It does not regulate the foreign supplier or impose liability upon that supplier. Domestic obligations may validly be defined by reference to foreign contracts and events.

3. Per Lord Mance, the statutory language contains no domestic-supply limitation. The consumer-protection considerations identified by the Crowther Committee apply at least as strongly to overseas transactions. Creditors can use contractual and commercial arrangements within card networks to obtain redress, manage unreliable suppliers and distribute irrecoverable losses. The modern development of four-party networks did not justify narrowing language enacted against the earlier tripartite model.

4. Per Lord Hoffmann, Lord Hope and Lord Mance, section 75(2) does not make an effective statutory indemnity a condition of liability under section 75(1). The provisions serve different purposes. Section 75(1) gives consumers a mandatory right against the creditor, whereas section 75(2) is a default rule governing creditor-supplier relations and may be displaced or supplemented by contract or applicable foreign law. Parliament contemplated that creditors might sometimes bear irrecoverable losses.

5. Per Lord Mance, the cancellation provisions in sections 67–74 did not alter that construction. Their application to some foreign linked transactions might be ineffective, but they are ancillary, operate only in limited circumstances and can be modified by regulations. That possibility was insufficient to qualify the central and unqualified protection in section 75(1). The card issuers’ proposed domestic-transactions limitation was therefore rejected.

1. House of Lords: The appeal was dismissed unanimously. The House affirmed the Court of Appeal’s conclusion that section 75(1) extended to foreign supply transactions: [2007] UKHL 48.

2. Court of Appeal: Waller, Smith and Moore-Bick LJJ rejected the card issuers’ proposed territorial limitation: [2006] EWCA Civ 268; [2007] QB 1.

3. High Court: Gloster J accepted that four-party card schemes involved statutory arrangements, but accepted the card issuers’ argument that section 75(1) was limited to domestic supply transactions: [2005] 1 All ER 843.