McMullon v Secure the Bridge Ltd (Rev 1)

A court assessing an allegedly unfair credit relationship under section 140A of the Consumer Credit Act 1974 must evaluate all relevant circumstances. Inequality of expertise, financial hardship, a conflict of interest or a high-risk transaction may indicate unfairness, but none is necessarily decisive.

For a regulated agreement, the substance of a charge determines whether it is interest. Sections 93 and 173 prevent a creditor from imposing a higher rate on unpaid sums than the interest included in the total charge for credit. An inconsistent default-interest term is void. Post-judgment interest under section 130A depends upon the creditor giving the prescribed notices.

The respondent bridging-finance company lent the appellant £25,000 under a three-month credit agreement. The appellant alleged that the relationship was unfair because of her financial vulnerability, the lender's director's earlier role as her coach, his interest in the lender, the uncertain prospect of refinancing and inaccuracies in financial documents.

The Recorder found that the appellant understood the risks, knew of the director's interest and had not been misled or unduly influenced. He held that the relationship was not unfair under section 140A of the Consumer Credit Act 1974 and enforced the agreement, including default interest of 4% per month.

The appeal concerned whether that evaluation of unfairness could stand and whether the default-interest provision was void under sections 93 and 173. A supplemental judgment also determined whether post-judgment interest was payable.

1. Appeal allowed in part. The Court unanimously upheld the Recorder's determination that the credit relationship was not unfair, but held that the 4% monthly default-interest term was void.

2. Section 140A of the Consumer Credit Act 1974 requires an evaluative judgment based on all relevant facts. The relationship, rather than merely a term or transaction, must be unfair. Financial inequality or hardship does not alone establish unfairness, particularly where a feature adverse to the debtor protects a legitimate interest of the creditor.

3. The Recorder had confronted the lender's director's multiple roles, the appellant's vulnerability, the transaction's risk and profitability, and the inaccurate financial documents. His findings established that the appellant knew of the director's interest, understood that refinancing was uncertain, received no wrong or misleading advice and entered the transaction with her eyes open. Those findings supported the conclusion that the creditor had discharged its burden under section 140B(9).

4. Underhill LJ stressed that lending by advisers, or their associated companies, to clients is neither good practice nor legally safe. Such arrangements are likely to receive jealous scrutiny. The result depended on the particular findings and did not indicate that similar relationships would usually survive scrutiny.

5. The monthly charge of 1.5%, although called a fee, was in substance an item of interest within the total charge for credit. Section 93 prohibited a higher rate on sums left unpaid in breach. Section 173 therefore rendered the 4% monthly default rate void. No contractual interest was provided after the three-month term, but the court awarded pre-judgment interest at 1.5% per month.

6. The supplemental judgment deleted the original provision for post-judgment interest. Articles 2(1) and 2(3) of the County Courts (Interest on Judgment Debts) Order 1991 excluded regulated consumer-credit debts. Section 130A permitted post-judgment interest only after the required notices, and none had been given. No post-judgment interest was payable.

• Court of Appeal (Civil Division): In [2015] EWCA Civ 884, the appeal was dismissed on unfairness but allowed as to contractual default interest. A supplemental judgment corrected the order by providing that no post-judgment interest was payable.
• Huddersfield County Court sitting at Bradford and Leeds: Mr Recorder Cadwallader held that the relationship was not unfair and ordered enforcement of the regulated credit agreement according to its terms, including the stipulated default interest.