Khodari v Al Tamimi

Regular lending to one person, even at substantial scale and for profit, does not by itself amount to carrying on a lending business. The court must assess regularity together with the nature and purpose of the relationship and the surrounding circumstances. A short-term charge is not unfair merely because it is large in proportion to the loan period where the credit risk and the borrower’s circumstances justify it. Loans intended for gambling are not invalid under the Gaming Act 1892 unless they are subject to an express or implied stipulation that the money must be used to pay a betting debt. Mutual trust and confidence in an informal lending relationship does not, without an obligation to subordinate one party’s interests to the other’s, create a fiduciary relationship.

The claimant, a banker, sued to recover the balance of eighteen short-term loans made to the defendant between April and September 2007. The defendant accepted that substantial dealings had occurred but disputed the sums claimed and challenged the additional 10 per cent charge. He relied on the Consumer Credit Act 1974, the Consumer Credit Act 2006, the Gaming Act 1892 and alleged that the claimant was his fiduciary.

The principal issues were whether the claimant was carrying on a lending business, whether the credit relationship was unfair, whether the loans were invalid because they facilitated gambling, and whether an account was required on fiduciary principles.

1. Loan balance. The claimant proved the eighteen advances, repayments and outstanding balance of £240,500. The defendant’s admissions to two witnesses and the surrounding documentary evidence resolved the remaining evidential doubt.
2. Ten per cent charge. The court rejected the allegation that the defendant had been induced by a misrepresentation that five per cent represented the claimant’s borrowing cost. The charge had generally been paid over a substantial period and its basis had not ordinarily been discussed. Judgment was therefore given for the balance claimed.
3. Consumer credit. Under section 40(1) of the Consumer Credit Act 1974, the relevant question was whether the loans were made in the course of a business. Regularity was relevant but was not conclusive. The lending was overwhelmingly to one important banking client and was explained by that relationship. The claimant was not carrying on a money-lending business.
4. The court rejected the unfair-relationship argument under sections 140A(1)(a) and (c) of the Consumer Credit Act 1974. The charge was large compared with the short duration of the loans, but that had to be assessed against the credit risk and the defendant’s ability and desire to obtain the advances.
5. Gaming Act. Applying the distinction in MacDonald v Green [1951] 1 KB 594, a loan remains valid where the borrower is free to use the money as he wishes, even if gambling use is contemplated. The loans were not subject to an express or implied stipulation that they had to be used to pay betting debts. Section 1 of the Gaming Act 1892 therefore did not invalidate the loans or the ten per cent charge. The repeal of section 1 by section 334 of the Gambling Act 2005 did not affect the earlier loans.
6. Fiduciary relationship. Applying Bristol & West Building Society v Mothew [1998] Ch 1, fiduciary obligations require a relationship in which one party must subordinate his own interests to those of the other. Mutual trust and confidence in this informal relationship did not satisfy that requirement. The claim for an account failed.

The claimant was entitled to judgment as claimed.