Promontoria (Henrico) Ltd v Samra

Under sections 140A and 140B of the Consumer Credit Act 1974, unfairness concerns the debtor-creditor relationship viewed in all the relevant circumstances. The creditor bears the burden of proving that the relationship is not unfair once unfairness is alleged, but the debtor must prove the factual allegations on which the allegation depends. Commercial lending is not unfair merely because the parties have unequal knowledge or bargaining strength. The court may consider earlier consolidated credit agreements and conduct before the latest agreement. An assignment of the creditor’s rights does not itself create unfairness where it causes no additional liability or loss of substantive rights. A borrower’s hope that further finance will be offered is insufficient where the existing agreement clearly provides for repayment or further negotiation.

The claimant sought approximately £640,000 under an overdraft facility and possession of two commercial properties charged as security. It claimed as assignee of rights formerly held by Clydesdale Bank plc. The defendant challenged the effectiveness of the assignment and alleged that his relationship with the Bank and the claimant was unfair under sections 140A and 140B of the Consumer Credit Act 1974.

The alleged unfairness principally concerned the duration of earlier lending facilities, an asserted understanding that further finance would be available until 2022, interest-rate hedging, and the assignment of the debt to a non-bank purchaser. The court had to determine whether the assignment was effective and whether the relationship was unfair.

1. Assignment. The deed of assignment identified the relevant borrower and loan asset and assigned absolutely the Bank’s rights under the relevant facility and security documents. On the totality of the evidence, the assignment was effective. It operated as an assignment at law under section 137 of the Law of Property Act 1925, and the claimant was entitled to enforce the claims available to the Bank.
2. Applicable unfairness principles. Section 140A of the Consumer Credit Act 1974 requires an overall judgment having regard to all relevant circumstances, including matters relating to the creditor and debtor. The creditor bears the burden under section 140B(9) of proving that the relationship is not unfair. That burden does not require the creditor positively to disprove factual allegations made by the debtor; the debtor must establish those allegations on the ordinary civil standard.
3. The relevant relationship could be assessed by reference to the successive facilities. Each later facility consolidated its predecessor within sections 140C(7) and 140C(8). In any event, earlier assurances or conduct could constitute matters done before the later overdraft for the purposes of section 140A(1)(c).
4. The court rejected the alleged common intention that the Bank had agreed, or committed itself, to provide ten further years of repayment finance after the five-year facilities expired. The written terms made repayment due at maturity, and the evidence showed that any later finance remained subject to future agreement. A borrower’s expectation of renewal, arising from the Bank’s previous lending strategy, did not make it unfair for the Bank to change that strategy.
5. The other complaints did not establish unfairness. The commercial terms had been negotiated with a commercially aware borrower. The assignment did not increase the liability, remove a defence, or deprive the defendant of regulatory or ombudsman redress. The defendant understood the hedging product and had received compensation under the FCA review scheme. The Bank and claimant had also shown substantial indulgence before enforcement.
6. The claim therefore succeeded. Judgment was entered for the claimant for the amount claimed, less approximately £53,000 of waived default interest, together with possession of the two charged properties.