Patel v Patel

For relief from an unfair credit relationship, the court assesses fairness over the whole relationship and by reference to circumstances existing when the relationship ends or, if it continues, at trial. The debtor’s cause of action continues to accrue from day to day until the relationship ends.

Unfairness may arise cumulatively from an exorbitant compound interest rate, prolonged failure to provide statements or demand repayment, inadequate records, lack of transparency and an imbalance between the parties. Any remedial order under section 140B of the Consumer Credit Act 1974 should reflect, and be proportionate to, the nature and degree of the unfairness.

The claimant advanced £56,450 to a close family friend under oral agreements made between 1979 and 1983. The court found that the agreements required interest and, for one business, a share of profits. A further oral agreement in 1992 consolidated the debts at £207,465 and imposed interest of 20% per annum compounded monthly.

After repayments totalling £72,336, the claimant sought more than £4.5 million. The defendant denied the alleged contractual terms, disputed the claimant’s entitlement to money advanced through Mandamus Limited and sought relief under sections 140A and 140B of the Consumer Credit Act 1974. The principal questions were whether binding agreements existed, whether the statutory claim was time-barred and whether the creditor-debtor relationship was unfair.

1. Binding agreements. The parties made legally binding oral loan agreements on the terms alleged by the claimant. The documentary accounts, repayment history, jointly instructed handwriting evidence and the parties’ conduct supported those findings. The 1992 agreement consolidated the earlier loans and contractually entitled the claimant to the amount claimed. Mandamus Limited had acted as the claimant’s agent or nominee, so payments from its account did not defeat his entitlement.

2. Limitation. The defendant’s application under section 140B of the Consumer Credit Act 1974 was not time-barred. Unlike the former jurisdiction concerning an extortionate credit bargain, section 140A requires examination of the relationship arising from the agreement, including post-contractual conduct. Fairness is determined using the whole relationship up to its end or, if it remains current, the time of trial. The cause of action therefore accrues from day to day until the relationship ends. Rahman v Sterling Credit [2001] 1 WLR 496 and Nolan v Wright [2009] 3 All ER 823 were distinguishable because they concerned section 139 of the 1974 Act.

3. Unfair relationship. The original loan agreements were fair, but the 1992 agreement and the subsequent relationship were unfair to the defendant. The fixed rate of 20%, compounded monthly, was exorbitant relative to prevailing base rates. Unfairness was substantially increased by the claimant’s failure over many years to provide current calculations, maintain proper repayment records, make meaningful demands or explain the practical consequences of compounding. The absence of timely written records, the lack of transparency and the personal imbalance between the parties were also material. The claimant failed to prove that the relationship was fair, as required by section 140B(9).

4. Relief. A section 140B order should be proportionate to the nature and degree of the unfairness. Complete discharge was inappropriate because the defendant knew that the debt had not been forgiven and had benefited substantially from the loans. The sum payable was reduced to £207,465, eliminating the further compound interest claimed after 30 June 1992.

This was a first-instance claim commenced on 19 June 2008. Before trial, Master Rose ordered the joint instruction of a forensic handwriting expert. No appellate history is stated in the judgment.