Consolidated Finance Ltd v MccLuskey & Anor

For a loan to be a restricted-use credit agreement, its stated purpose must amount to a binding contractual term. A shared commercial purpose or intention is insufficient. A term may be implied only where it expresses what the agreement, read as a whole against its relevant background, would reasonably be understood to mean.

A court cannot use implication to repair a meaningless purpose clause or to rewrite the parties’ agreement. Where the proposed term is imprecise, the agreement could operate without it, and several methods of performance are possible, the term is not implied. The loan consequently remains regulated rather than exempt under the Consumer Credit Act 1974.

Consolidated Finance Ltd advanced, or agreed to advance, a £24,000 loan secured by a charge over property owned by Ms McCluskey and her brother. The wider arrangements were intended to facilitate the annulment of Ms McCluskey’s bankruptcy. The facility letter stated that the loan was to refinance the debt, but that provision was circular because the defined debt was the loan itself.

Recorder Pugh held that no term could be implied requiring the loan to finance services provided by Bankrupt Fund Ltd (BPF). The agreement was therefore regulated, not exempt, under the consumer-credit legislation. Consolidated Finance appealed, contending that such a term should be implied from the surrounding documents. It also sought, belatedly, to advance an alternative argument based on unrestricted-use credit.

The central issue was whether the facility letter contained an implied contractual purpose sufficient to make it an exempt debtor-creditor-supplier agreement.

1. Appeal dismissed unanimously. The loan agreement was not an exempt agreement under Article 3 of the Consumer Credit (Exempt Agreements) Order 1989/869. To satisfy section 11(1)(b) of the Consumer Credit Act 1974, the agreement itself had to contain an express or implied binding provision that the credit would finance a transaction between the debtor and BPF. A common purpose falling short of a term could not suffice. The court applied National Westminster Bank v Storey and Pallister [1999] CCLR 70.

2. Applying Attorney General of Belize v Belize Telecom [2009] 1 WLR 1988, implication was an exercise in interpretation, not an opportunity to improve the parties’ bargain. The question was whether the proposed provision would express what the instrument, read as a whole against the relevant background, would reasonably be understood to mean.

3. The proposed term failed that test. The only express purpose clause was meaningless and could not support a different implied purpose. The proposed term also lacked the precision required to bind both parties. The agreement permitted several possible methods of performance, and a loan agreement could operate effectively without a purpose restriction. The differing formulations of the term advanced below and on appeal further showed that no reliable implied term had been identified.

4. Accordingly, the agreement did not fall within section 11(1)(b), could not satisfy section 12(1)(b), and was regulated rather than exempt. The court also refused permission to add a late alternative argument under sections 11(2) and 12(c), because it was unexplained, potentially prejudicial to the respondent, and would raise matters not investigated at trial. No order was made on the respondent’s notice.

• Court of Appeal (Civil Division): Dismissed Consolidated Finance’s appeal and upheld the conclusion that the loan agreement was regulated rather than exempt.
• County Court (Mr Recorder Pugh): By an order dated 25 May 2011, declined to imply the proposed purpose term and held the agreement to be a regulated agreement.