TFG Security Limited v Howard Shade & Anor

A borrower who has represented that credit was obtained wholly or predominantly for business purposes may be estopped from asserting that the agreement was regulated consumer credit, where the lender relied on that representation. A declaration which does not comply with the prescribed form cannot create the statutory presumption under Article 60(c), but it may support an estoppel. A contractual increase in interest on default may be a primary obligation rather than a penalty. The court may nevertheless find an unfair relationship under the Consumer Credit Act 1974. Where the lender cannot justify charges exceeding the industry norm, those charges may be reduced under section 140B.

The claimant lent money to the defendants’ haulage business and obtained a second charge over their home. The defendants defaulted and the claimant sought possession and judgment for the outstanding debt.

The defendants argued that the loan and mortgage were unenforceable because the claimant was unauthorised, that the transaction was regulated consumer credit, and that various terms were penalties or created an unfair relationship. The court considered whether the business-purpose exemption applied, whether the defendants were estopped from denying their representations, and whether relief should be granted under sections 140A and 140B of the Consumer Credit Act 1974.

1. The mortgage was not a regulated mortgage contract because, at the relevant time, only first mortgages were regulated under article 61 of the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001.

2. The declarations did not comply with the prescribed form and therefore could not give rise to the statutory presumption under article 60(c). The declarations nevertheless constituted representations. They were incorporated into the mortgage documents but were properly treated as admissions of the factual basis of the transaction rather than contractual warranties.

3. The claimant relied on the defendants’ representations in deciding to lend in that form. The defendants were therefore estopped from denying that the loan was for the purposes of a business carried on by them. The loan was consequently not unenforceable for regulatory non-compliance.

4. The defendants could not rely on the unfair-terms legislation because they were estopped from asserting that they were consumers. The court indicated, obiter, that their arguments would in any event have faced substantial difficulties.

5. The increased default interest was viewed, for the purposes of the common law doctrine of penalties, as part of the price of credit and therefore a primary obligation. The issue nevertheless remained relevant under the unfair-relationship provisions.

6. Under section 140B of the Consumer Credit Act 1974, the court reduced the deferred arrangement fee from £4,000 to £1,276. It also reduced default interest from 4% to 3% because the claimant had not explained why the contractual rate exceeded the rate recommended by the relevant industry association.

7. The agreement and charge remained enforceable. A possession order was made. Assessment of the monetary balance was adjourned because the sums required recalculation and the balance would be clearer after sale of the property.

First-instance decision. No appellate history was stated in the judgment.