Nelmes v NRAM Plc

Under the Consumer Credit Act 1974, fairness is assessed in the round, having regard to all relevant matters. In substantial commercial lending, standard terms, legitimate risk protection, the borrower’s experience and access to advice, and the absence of creditor pressure may weigh against relief. An undisclosed commission paid by a lender to a borrower’s broker, who owes undivided loyalty, can make the relationship unfair and require the lender to account for the commission. Unfairness does not automatically justify wider relief. A precipitate appointment of receivers may be unfair, but no further order is required where a reasonable delay would have made no substantial practical difference.

The appellant had obtained substantial lending secured on a portfolio of residential properties and his home. After the lender enforced the security, he claimed that the relationship was unfair under the Consumer Credit Act 1974, relying on the lending terms, the conditional credit facility, alleged concealment, valuations, enforcement conduct and the appointment of receivers.

The County Court at Leeds found only limited unfairness, declined to grant relief and ordered possession. The appeal concerned whether the relationship was unfair, what relief was appropriate, and whether the lender was entitled to enforce the security and appoint receivers.

Christopher Clarke LJ gave the judgment, with which Elias and Kitchin LJJ agreed. The appeal was allowed only to the extent that the lender was required to account for the undisclosed procuration fee, with interest.

1. Fairness. Section 140A of the Consumer Credit Act 1974 requires a fact-sensitive assessment of the relationship as a whole. Relevant matters include the terms, the creditor’s conduct before and after formation, the parties’ bargaining positions, commercial context, pressure, advice and attempts at accommodation. The appellate court should be slow to interfere with detailed factual findings or the trial judge’s evaluative conclusion unless the findings were unavailable or the conclusion could not properly be reached.
2. Loan terms and disclosure. The 70 per cent loan-to-value limit, conditional credit facility, possession rights and receivership provisions were commonplace and commercially justifiable. The borrower was experienced, had access to professional advice and had time to consider the formal offer. The lender was entitled to assume that he accepted its clear terms. There was no unfair concealment concerning the conditional facility or inclusion of the home as security.
3. Procuration fee. The broker acted for the borrower and owed him undivided loyalty. The lender’s payment of half the arrangement fee to the broker, without disclosure, breached that duty and made the relationship unfair. Applying the principle in Wilson v Hurstanger [2007] EWCA Civ 299, the lender had to account for the commission. However, as in Plevin v Paragon Personal Finance Ltd [2014] UKSC 61, the consequences of nondisclosure depended on its practical effect. Here the nondisclosure did not prevent the borrower from assessing the value of the bargain, so no wider relief was justified.
4. Enforcement. The borrower had committed serious breaches, including the loan-to-value covenant, repair and access obligations and payment obligations. The demands were valid and the lender was entitled to enforce the security. The appointment of receivers was nevertheless unfair because it was made prematurely, before the lender’s own enforcement date and while relevant information was being sought. No order under section 140B was required because a reasonable delay would have made no substantial difference. The valuation argument was also rejected; any claim against valuers would have to allow for the true value of the security and the borrower’s covenants, as explained in Canada Square Operations Ltd v Kinleigh, Folkard & Haywards Ltd [2016] PNLR 3.

• Court of Appeal (Civil Division): On 26 May 2016, in [2016] EWCA Civ 491, the appeal was allowed in part. The lender was ordered to account for the procuration fee with interest.
• County Court at Leeds: Mr Recorder Cadwallader found limited unfairness, declined to grant relief and ordered possession of the property.