Credit Capital Corporation Ltd v Watson

A credit relationship is not unfair merely because its terms operate harshly against the debtor. The court must assess the relationship as a whole, considering all relevant matters concerning both parties and the statutory categories in Consumer Credit Act 1974, sections 140A and 140B. Commercial context, legal advice, bargaining position, the nature of the lending, contractual warnings and the creditor’s conduct are relevant. Aggressive language or enforcement pressure will not by itself establish unfairness where enforcement is commercially justified and not arbitrary or exploitative. An intentional misrepresentation may be proved, yet fail to justify relief where it was not relied upon or did not cause the relevant loss. The claim therefore succeeded, subject to recalculation of interest and charges that had been calculated on money never advanced.

The claimant lent Mr Watson £1,475,000 under a short-term property-based bridging facility. A related company provided a further £47,500 loan. Mr Watson disputed part of the debt and counterclaimed under sections 140A and 140B of the Consumer Credit Act 1974, alleging unfair terms, bullying and exploitative conduct, a false representation about the identity of the buyer of 16 Heathfield Terrace, an undervalue sale, improper acquisition of his property portfolio, and unfair conduct concerning other secured properties.

The court found that a representation had been made that the buyer would be from the Jewish community, but Mr Watson and his solicitors discovered before exchange that the purchaser was connected with the claimant’s director. The central questions were whether the relationship was unfair and whether any proven conduct caused a loss warranting relief.

1. Outcome. The claim succeeded and the counterclaim was dismissed, subject to consequential recalculation of the debt. The sum of £26,460 retained for mortgage arrears had never been advanced and was therefore to be credited from 13 January 2016, with consequential reductions in capitalised interest and default interest. The arrangement fee and other recoverable costs also required adjustment.
2. Unfair relationship. Sections 140A and 140B of the Consumer Credit Act 1974 confer a broad evaluative jurisdiction. The court must consider all relevant matters relating to both creditor and debtor. Unfairness may arise from contractual terms, the exercise or enforcement of rights, or anything done or omitted by or on behalf of the creditor. The statutory burden lies on the creditor once unfairness is alleged.
3. The rolled-up interest provision was not unfair. The transaction was commercial, Mr Watson received independent legal advice, the provision was disclosed in the contractual documentation, and it gave him the benefit of making no interest payments during the intended term. The broker commission was also properly chargeable because the broker continued to act and the commission had been sufficiently notified.
4. The allegations of a scheme to cause default, inflated valuations and bullying were not established. The court considered the short-term nature of the borrowing, Mr Watson’s financial difficulties, the contractual warnings, the involvement of solicitors, the further three-month facility and the delay before enforcement. Pressure associated with default and warnings of a receiver appointment were not, without more, arbitrary or exploitative.
5. The representation about the buyer’s identity was false and was made to conceal the involvement of the claimant’s director. However, it did not cause the sale. Mr Watson and his solicitors knew the true position approximately two weeks before exchange, and he continued negotiating with other prospective purchasers. He proceeded with the sale through solicitors and could not prove that the property was sold at an undervalue.
6. The claims concerning 25 St Mary’s Court and 7 Brighton Road failed. The receivers were deemed agents of the mortgagor under section 109(2) of the Law of Property Act 1925, and there was no evidence that the claimant had directed or interfered with their conduct. The evidence did not establish bad faith, an undervalue, or any other basis for relief.
7. Even if an unfair relationship had been established, it had no causative effect requiring a remedy. The court adjourned consequential matters so that the parties could submit an appropriate draft order.