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    Neutral Citation Number: [2011] EWCA Civ 105

    Case No: B2/2010/0231


    Royal Courts of Justice
    Strand, London, WC2A 2LL

    26 January 2011
    B e f o r e :



    - and -



    (DAR Transcript of
    WordWave International Limited
    A Merrill Communications Company
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    Official Shorthand Writers to the Court)


    Ms Kelly Pennifer (instructed by Messrs Watsons) appeared on behalf of the Appellant.

    Mr Guy Sims (instructed by Messrs Weightmans LLP) appeared on behalf of the Respondent.


    1. Lord Justice Lloyd:
    2. This appeal is avowedly about an issue of fact, and a single issue. It is brought against an order of HHJ Hampton made on 12 January 2010 in the Leicester County Court. The claim is for the amounts due on a credit card agreement, that is, a regulated agreement under the Consumer Credit Act 1974. The judge decided in favour of the creditor and against a number of points taken by the defendant, who then appeared in person. Only one of those points is now pursued. Before us the appellant was represented by Ms Kelly Pennifer and the respondent by Mr Guy Sims. Both counsel addressed us in able, well-focussed and economical submissions which assisted us to get to what we see as the real point of the appeal without delay.
    3. On 6 February 2007 the defendant wrote to the creditor requesting a copy of the credit agreement under Section 78 of the 1974 Act. On 19 February 2007 the creditor responded and sent something which either was, or included, a scanned version of the application form signed by the defendant, counter-signed for the creditor and said to constitute the agreement, or at least part of it. The defendant argued, and still argues, that this did not comply with Section 78 of the Act, in particular because it was not complete. Later the defendant was supplied with what the creditor said were the terms and conditions incorporated into the agreement. The dispute now is as to whether this was a true copy of the correct version.
    4. The defendant's application for the credit card was signed by him on 28 May 1998 on a form which he said he had received with a mailing from the Institute of Directors, of which he was a member. The creditor is identified in the application form as Beneficial Bank plc and the form was signed on its behalf on 29 July 1998. The application was accepted and a credit card was issued, which the defendant used extensively. The defendant was told of the acceptance of his application by a letter from Beneficial dated 30 July 1998, to which I will refer later.
    5. Some time after the issue of the credit card and the making of this regulated agreement Beneficial Bank and HFC Bank plc merged. The latter took over and carried on the former business of Beneficial Bank, trading as "Beneficial". As is generally the case with mergers between banks, there was a private Act of Parliament implementing and facilitating the transfer of the business, the HFC Bank Act 1999.
    6. Much later, in February 2007, the defendant made his request under Section 78 of the 1974 Act to HFC and received the response to which I have referred. Soon after that the defendant came to be in breach of the terms of the agreement. On 25 September 2007 HFC served a default notice on him and on 15 February 2008 it issued these proceedings. Later in 2008 HFC assigned this claim to Phoenix, the present claimant, which was then substituted. I should say that Ms Pennifer told us that the defendant reserves his position as to the identity of the assignee. Nothing turns on that for today's purposes.
    7. The relevant ground of defence is that HFC had not complied with the request under Section 78 and could not therefore enforce the agreement. The relevant terms of Section 78 are as follows:
      "(1) The creditor under a regulated agreement for running-account credit, within the prescribed period after receiving a request in writing to that effect from the debtor and payment of a fee of £1, shall give the debtor a copy of the executed agreement (if any) and of any other document referred to in it, …"
      I need not read the rest of that subsection.
      "(6) If the creditor under an agreement fails to comply with subsection (1), (a) he is not entitled, while the default continues, to enforce the agreement."
    8. In order to comply with the request the creditor must supply a copy of the whole of the agreement, not just part of it. Any terms and conditions incorporated have to be supplied.
    9. In the course of the proceedings and in advance of the trial, HFC supplied two further pages. (HFC at any rate certainly supplied one page; it may be that the second page was not supplied until after Phoenix had been substituted as the claimant). The first page is the first of two pages of terms and conditions of a credit agreement regulated by the Act and the second page is the second of those pages. There is no doubt that these have been supplied; the issue is whether these terms and conditions are the correct ones. The defendant argues that they are not and that it is manifest that they are not, because they are expressed to relate to an agreement under which the creditor is HFC Bank trading as Beneficial. The claimant's case is that HFC retains, and Beneficial used to retain, the first page of each regulated agreement signed by each party in scanned form, but these agreements are invariably made by reference to printed terms and conditions which are incorporated and probably printed on the back. Not every copy of every set of terms and conditions is retained, but it is said on the claimant's behalf that the different versions of the terms and conditions are kept and that the creditor can always tell which version went with which form of agreement, and can therefore supply a true copy of the correct version.
    10. In Carey v HSBC Bank plc [2009] EWHC 3417 (QB) HHJ Waksman QC (sitting in the High Court at Manchester) held that the obligation under Section 78 requires delivery of a copy of the actual terms of the agreement (not necessarily an exact copy of the document itself) and that the copy supplied can be a reconstituted version made from sources other than the original signed document.
    11. The case on the pleadings stood as follows. In the defence, among many other points, the defendant said that a single piece of paper was supplied in response to his request, but this could not comply with the Act generally as it did not set out the terms and conditions. In the reply HFC took issue as to what had been supplied in response to the request and said that a full copy of the agreement was attached to the reply. Unfortunately what was attached, although it was more than had been supplied in response to the request, was, as it is now seen, undoubtedly incomplete. It was the application form (one page) plus the first page of the terms and conditions, but not the second page. The basis on which the terms and conditions were supplied is explained in paragraph 24 of the pleading as follows:
      "The terms and conditions of the agreement are set out on the face of the agreement and on the second page headed 'Terms and Conditions'. The terms and conditions on the second page are standard for various types of agreements at various times. Rather than scanning in the terms and conditions the claimant retains copies of the standard terms used for particular agreements at particular times. Terms and conditions annexed to the Particulars of Claim with the first page of the agreement are the terms and conditions of the agreement."
      (The reference to the Particulars of Claim is unfortunate; it should be to the Reply. No document was annexed with the Particulars of Claim which were issued through the Northampton County Court Bulk Processing Centre.)
    12. As I say, page one of the terms and conditions is manifestly incomplete because at the bottom right hand corner of the page one gets to an incomplete sentence. Despite that, the reply at paragraph 16 asserted that the two pages -- that is to say the first of those pages and the application form which were attached to the reply -- were a full copy of the agreement, and paragraph 17 asserted in terms that the agreement was a two page document.
    13. Then in the one witness statement served on behalf of the claimant -- that of Mr Gregor Klaedtke made in May 2009 -- he referred to and adopted the reply, except for the fact that what he attached was a three-page document, including both pages of the terms and conditions. He had no personal knowledge of any of the relevant matters and, as he said, he relied on information derived from documents and computer records held by HFC Bank and provided to him by his solicitors.
    14. At the trial on behalf of the claimant it was made plain that reliance was placed on three pages as constituting the copy of the original agreement. The defendant gave oral evidence, having put in several witness statements. He accepted that the application form that he signed came with other pages of documents but denied that there had been any terms and conditions attached or printed on the back. In the judge's judgment she referred to the original application form, which is common ground. She said that the copy originally supplied had not been properly legible but that legible copies had been supplied since then. She then referred to the two pages of the terms and conditions and to the defendant's argument that it was not proved that these were true copies of what went with the documents that he signed. She referred to the reply and to the witness statement which I have already mentioned. On that basis she said this at paragraph 20:
      "Accordingly, there is acceptable evidence before the Court that the terms and conditions that are set out on pages 59 and 60 of the Court's bundle were those that were in operation at the material time and were those that would have been attached to the application form and which subsequently became the credit agreement which had been signed by both parties, as can be seen on page 58."
    15. At paragraph 21 she referred to the question of the date of the terms and conditions supplied, but also to the evidence that this did set out the terms and conditions in force at the material time. At paragraphs 27 and 28 she said this:
      "27. The claimant has appropriate records and those records, in my judgment, establish on the balance of probabilities that the terms and conditions that had been archived by the claimants relating to this particular agreement are those which are to be found on pages 59 and 60 of the Court bundle. The fact that there had been a change of name when Beneficial merged with HFC is neither here nor there. It seems to me that the document on pages 59 and 60 is clearly referring to what is described as a Beneficial scheme at the bottom left hand corner of page 59 when HFC took over Beneficial and its business and started to use Beneficial as one of its trading names. That does not necessarily mean that the terms and conditions set out on pages 59 and 60 related to a different time.
      28. Accordingly, from the defendant's description of the type of document he signed, I find on the balance of probabilities that the document he signed did indeed contain terms and conditions of the credit card agreement and that those terms and conditions I find, using the evidence that the claimant has supplied, on the balance of probabilities, are those terms and conditions set out at pages 59 and 60 of the Court bundle."
    16. The challenge on the appeal is on the basis that there was no credible evidence that the terms set out in the document in evidence were the same as had been used in relation to the agreement with the defendant.
    17. On behalf of the defendant Ms Pennifer showed us two documents which had been before the judge but which did not feature in the skeleton argument, nor in the argument before the judge or her judgment. One is the welcome letter dated 30 July 1998 from Beneficial Bank to the defendant. By this letter he was told that his application had been accepted and that he would shortly receive his new credit card. The letter said that it enclosed a booklet with full details of how to get the best from his new account. The letter also drew attention to what was said to be a competitive interest rate of 9.9% APR on balance transfers. The other document is a single page, and almost certainly manifestly not a complete document, which the defendant had scanned into and saved in his computer and which he produced from his computer in the course of the hearing below. It is part of a leaflet relating to the Beneficial Bank Institute of Directors credit card. This too draws attention to a 9.9% APR rate for balance transfers, which is said in the smaller print to revert after six months to 16.9%. It also mentions an interest rate of 18.7% on cash withdrawals.
    18. By contrast, page one of the terms and conditions in evidence sets out the terms of the agreement as to interest rates, which of course is one of the prescribed terms which under the Act and Regulations are required to be set out in a regulated agreement. Condition 4 deals with charges. At paragraph (a) it specifies a rate of, in APR terms, 20.9% on balance transfers fixed for a period of six months from the date of the transfer. At paragraph (b) it specifies a rate of 22.8% APR on cash advances other than balance transfers. All of these rates, I should say, are of course variable. At paragraph 4(e) it says this:
      "We may from time to time, by giving you reasonable notice which will not be less than seven days' notice in writing or notice in such other way as is required or permitted by law…
      (ii) introduce and/or maintain either generally or on specific promotions only different interest rates and APRs for balance transfers, cash advances, transactions or different balances outstanding on the account."
      I need not read out (iii), which deals with the right to vary the interest rate.
    19. Thus Ms Pennifer submitted that the evidence before the judge shows at least three respects in which it can be seen that the terms and conditions for HFC trading as Beneficial which are before the Court are not the same as those that were attached to the document which the defendant signed in 1998. First, the creditor is identified as HFC, not Beneficial Bank; secondly, the interest rate on balance transfers is identified as 9.9% (reverting to 16.9% after 6 months) in the transaction with the defendant instead of 20.9% in condition 4(a); thirdly, the rate for cash advances would have been 18.7% in July 1998 rather than the 22.8% which appears in condition 4(b) in the document before the Court.
    20. The point about the identity of the creditor might be sufficiently explained by the history and the statutory transfer, together with the fact that HFC is described in the document as "trading as Beneficial". It could be a legitimate inference that after the statutory transfer HFC continued the Beneficial credit card business but introduced its own new terms and conditions, reproducing more or less closely – and perhaps very closely – those already in use by Beneficial Bank. If this were the only discrepancy it seems to me that, while it would have been better for the point to be explained in evidence, the judge might reasonably have inferred that the terms and conditions were a true copy of the originals, allowing for the substitution for Beneficial Bank of HFC.
    21. The discrepancy as to interest rates is different. It seems to me that Ms Pennifer certainly raises a strong prima facie case that the interest rates charged in July 1998, and which would have been specified in the document that the defendant signed, were not those that appear in the HFC terms and conditions that are in evidence. The welcome letter of course postdates the application form and it only refers to the 9.9% balance transfer rate. Mr Sims submitted that this could have been a special promotional rate for temporary purposes in relation to the IoD card promotion.
    22. The status of the leaflet is not entirely clear. The judge dealt with this at paragraph 24 of her judgment. It may have been part of the document or set of documents that accompanied the application form that Mr Kotecha signed. Mr Sims submitted that it may instead have been part of a booklet sent with the welcome letter. However, either way, it is contemporaneous with the transaction. The particular significance is in the cash advance rate of 18.7% instead of 22.8%, not drawn attention to as a concession and possibly less likely to be the subject of a concessionary promotion than the rate on balance transfers. The discrepancy as to the rate on balance transfers (whether the concessionary rate or the ordinary rate, arising after 6 months) is also significant.
    23. It may be, as Mr Sims argued, that the discrepancy as to interest rates is explicable, but that explanation would need to be dealt with by evidence. The interest rate under a consumer credit agreement is a term of central importance, even if it is a variable rate. It may be that by the end of 1999 the rate payable by the defendant under his agreement dating back to mid-1998 had been varied by Beneficial and then by HFC and that those rates were the same as are set out in HFC's terms and conditions in evidence. However, the obligation under Section 78 requires the creditor to supply a document which sets out the original terms, including the original terms as to interest rate. In my judgment the claimant has not proved that that obligation has been satisfied.
    24. It is fair to say that the point about the interest rates was not among those taken by the defendant at trial nor in the skeleton advanced on his behalf on the appeal, but it is a point which is within the ambit of the point taken on appeal and which arises on the evidence before the Court. As matters stand, in my judgment the claimant has not proved its case and is therefore not entitled to judgment.
    25. What follows from that is something on which I would invite submissions from counsel. On the one hand it is for the claimant to prove its case, and it has not done so on its own documents. On the other hand, first the point was not taken below; and secondly the effect of Section 78 is only suspensory so that if the claimant can give further evidence, either by finding the correct version of the terms and conditions in HFC's archives inherited from Beneficial Bank or by putting in evidence as to the interest rates prevailing in the summer of 1998 or in some other manner, the claimant may yet be able to prove its case and to comply with the obligation under Section 78, in which case it may be that it will become entitled to judgment. It is accepted, and there are first instance authorities for this, that failure to comply with Section 78 does not prevent a creditor from starting proceedings, but it does prevent a creditor from obtaining judgment.
    26. Accordingly, there may be a case for this Court on allowing the appeal to remit the case to the county court so as to give the claimant an opportunity to put in further evidence and to try again to comply at last with the request made under Section 78 in February 2007 rather than to dismiss the claim entirely. Whatever order should be made in consequence, however, I would allow the appeal and set aside the judge's order on the basis that the claimant has not shown that the documents in evidence are a true copy of the agreement between the defendant and Beneficial Bank in July 1998 and therefore has not shown that the obligation under Section 78, which arose on the request made in February 2007, has been complied with.
      Lord Justice Patten:
    27. I agree.
      Lord Justice Thorpe:
    28. I also agree.
      Order: Appeal allowed
    Last edited by Riz; 11th February 2011, 16:05.
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