Conister Trust Ltd v John Hardman & Co & Anor

Where a contract requires a party to discharge a borrower’s remaining liability under a consumer credit agreement, the natural meaning of liability is a liability enforceable in law. Unless the contract indicates otherwise, an irredeemably unenforceable credit agreement therefore leaves no remaining liability to discharge.

An independently undertaken primary obligation to reimburse a lender is not necessarily a security under the Consumer Credit Act 1974. It falls outside section 113 where the borrower neither requested it nor provided it, and it was not undertaken to secure performance of the borrower’s obligations.

Conister Trust Ltd operated a personal injury litigation funding scheme. It lent clients money under regulated consumer credit agreements and entered into a panel solicitor agreement with John Hardman & Co. Clause 4.5 required the solicitors to discharge any remaining liability of a borrower after the claim and any insurance recovery had been concluded.

The credit agreements were assumed, for a preliminary issue, to be irredeemably unenforceable under the Consumer Credit Act 1974. HH Judge Chambers QC held that the borrowers nevertheless had a remaining liability for the sums advanced and that the solicitors had to pay Conister.

The central issue on appeal was whether unenforceability afforded the solicitors a defence to Conister’s claim under clause 4.5.

1. Appeal allowed. The Court of Appeal unanimously held that unenforceability of a borrower’s consumer credit agreement afforded the solicitors a defence to Conister’s claim under clause 4.5. The preliminary issue was answered in the affirmative.

2. The natural and ordinary meaning of “liability”, in the language and commercial context of clause 4.5, meant a liability enforceable in law. Although “liability” does not invariably import enforceability, the references to a borrower’s “remaining liability” and to “any liability” under the borrower’s consumer credit agreement pointed to an enforceable legal obligation. An irredeemably unenforceable agreement therefore left no liability within clause 4.5 for the solicitors to discharge.

3. The competing authorities concerning the legal effect of unenforceable credit agreements did not resolve this contractual question. In particular, the differing formulations in Wilson v First County Trust Ltd (No 2) [2003] UKHL 40 concerned Convention rights and did not determine the meaning of “liability” in this agreement. The judge had also erred in treating Lord Nicholls’s use of “debtor” and “creditor” as colloquial, because those expressions were statutorily defined.

4. The commercial background and the suggested anomalies did not displace the natural meaning. Any right of reimbursement by the solicitors against individual clients was controversial, uncertain and commercially theoretical. The possibility that the solicitors’ conduct might make an agreement unenforceable was too remote to control construction and might instead support a damages claim for breach of an implied term.

5. Clause 4.5 imposed a primary reimbursement obligation and was not a guarantee, although that classification did not determine the appeal. Nor was it a “security” within sections 113 and 189(1) of the Consumer Credit Act 1974. It was undertaken before and independently of the individual credit agreements, without an express or implied request by the borrowers, and not to secure their performance.

6. Section 170(1) did not preserve Conister’s claim. If clause 4.5 referred only to enforceable liabilities, its construction involved no additional statutory sanction.

1. Court of Appeal (Civil Division): The appeal was allowed unanimously. The court substituted a declaration that unenforceability of a credit agreement afforded John Hardman & Co a defence to Conister’s claim under clause 4.5: [2008] EWCA Civ 841.

2. Cardiff Mercantile Court: HH Judge Chambers QC, sitting as a High Court judge, decided the preliminary issue in Conister’s favour on 11 April 2008. He held that “remaining liability” identified the outstanding advances even though the credit agreements were unenforceable.