DOUGLAS NAPIER v HFC BANK LTD [2010]

[Never-In-Doubt]

SHERIFFDOM OF TAYSIDE, CENTRAL ANDFIFE AT DUNFERMLINE

A483/09

JUDGMENT

by

SHERIFF DANIEL KELLY Q.C.

in the cause

DOUGLAS NAPIER

Pursuer

against

HFC BANK LTD, trading as THE GM CARD

Defenders

___________

Act: Stalker, Advocate; Gildeas, Glasgow; Alt: Kennedy, Advocate, Shepherd & Wedderburn, Glasgow.

DUNFERMLINE: 31 March 2010

The Sheriff, having resumed consideration of the case:

[1] upholds the first plea-in-law for the defenders and dismisses the action;
[2] finds the pursuer liable to the defenders in the expenses of the action as taxed except as otherwise dealt with; and
[3] certifies the cause as suitable for the instruction of Junior Counsel.

NOTE

Action
(1)

This case called at Dunfermline Sheriff Court on 10 March 2010 for Debate. In this action Mr Napier sought declarators that an Agreement with the HFC Bank Ltd trading as the GM Card ("HFC Bank") which he had entered into on 29 January 1994 relating to the supply of a credit card had not been properly executed and, thereby, that it was unenforceable. The central issue was whether there was a term in the Agreement which specified the credit limit, as required in the applicable Regulation. Parties were both agreed that the case did not need to proceed to probation and was capable of being resolved at Debate. Either the term was not in the Agreement and Mr Napier was entitled to decree de plano withdeclarators that the Agreement was not properly executed and was unenforceable being granted, or the term was contained in the Agreement and there was no barrier to it being enforced. I was informed that parties were not aware of the particular provision relating to "credit limit" having been interpreted by the courts before and that this was regarded as a test case.

The Agreement
(2)

The Agreement between the parties referred to "credit limit" in three instances. In Condition 1 headed "Definitions" the Agreement specified:

"Credit Limit" means the maximum debit balance which at any time may be outstanding on the Account as determined under Condition 3".

Condition 3 was headed "Credit Limit" and specified:

"Your Credit Limit will be determined by us from time to time and notified to you."

Thirdly, Condition 12 was headed "General" and specified inter alia:

"(b) We may from time to time vary this Agreement to such extent and in such manner permitted by law including but not limited to the interest rate, the Credit Limit, and Statement date."

Parties were agreed that the operative Condition which might potentially satisfy the requirement in the Regulation was Condition 3 and that was the one which was concentrated upon.

The consumer credit legislation
(3)

A credit card holder is provided with what is termed running-account credit. In the legislation in force in 1994 this was defined in Section 10(1)(a) of the Consumer Credit Act 1974 as follows:

"running-account credit is a facility under a personal credit agreement whereby the debtor is enabled to receive from time to time (whether in his own person, or by another person) from the creditor or a third party cash, goods and services (or any of them) to an amount or value such that, taking into account payments made by or to the credit of the debtor, the credit limit (if any) is not at any time exceeded".

Credit limit is defined in Section 10(2) as follows:

"In relation to running-account credit, "credit limit" means, as respects any period, the maximum debit balance which, under the credit agreement, is allowed to stand on the account during that period, disregarding any term of the agreement allowing that maximum to be exceeded merely temporarily."

(4)

A personal credit agreement is a regulated agreement by virtue of section 8 of the Consumer Credit Act 1974. Section 60(1) gives power to the Secretary of State to make regulations as to the form and content of documents embodying regulated agreements:

"The Secretary of State shall make regulations as to the form and content of documents embodying regulated agreements, and the regulations shall contain such provisions as appear to him appropriate with a view to ensuring that the debtor or hirer is made aware of-
(a) the rights and duties conferred or imposed on him by the agreement,
(b) the amount and rate of the total charge for credit (in the case of a consumer credit agreement),
(c) the protection and remedies available to him under this Act, and
(d) any other matters which, in the opinion of the Secretary of State, it is desirable for him to know about in connection with the agreement."

Section 61(1) provides that a regulated agreement is not properly executed unless it is in a document containing all the prescribed terms and conforming to the regulations made under section 60(1):

"A regulated agreement is not properly executed unless-
(a) a document in the prescribed form itself containing all the prescribed terms and conforming to regulations under section 60(1) is signed in the prescribed manner both by the debtor or hirer and by or on behalf of the creditor or owner, and
(b) the document embodies all the terms of the agreement, other than implied terms, and
(c) the document is, when presented or sent to the debtor or hirer for signature, in such a state that all its terms are readily legible."

(5)

By virtue of the powers bestowed on the Secretary of State, regulations have been made pursuant to section 60. Regulation 6 of The Consumer Credit (Agreements) Regulations 1983 (SI 1983/1553) provides the detail as to the signing of agreements, corresponding to section 61 of the Consumer Credit Act 1974. Regulation 6(1) (as then in force) provides for prescribed terms:

"The terms specified in Column 2 of Schedule 6 to these Regulations in relation to the type of regulated agreement referred to in Column 1 (and no other terms) are hereby prescribed for the purposes of section 61(1)(a) of the Act (the terms which must be contained in a document if a regulated agreement is not to be improperly executed) and of section 127(3) (the terms which must be contained in a document before any enforcement order can be made under section 65(1), if section 61(1)(a)

Coming on to the particular prescribed term which was in issue in this action, Schedule 6, para. 3 prescribes the term "credit limit":

(6)

While not directly in point, it is also worth recording that Regulation 2 and Schedule 1 make provision for the information to be contained in regulated consumer credit agreements, in this way corresponding to section 60 of the Consumer Credit Act 1974. In setting out the information to be contained in the agreement, paragraph 8 of Schedule 1 deals with agreements for running-account credit and states that the credit limit might for that purpose be expressed in various ways:

Agreements for running-account credit. The credit limit expressed as:-

(a) a sum of money;

(b) a statement that the credit limit will be determined by the creditor from time to time under the agreement and that notice of it will be given by him to the debtor;

(c) a sum of money together with a statement that the creditor may vary the credit limit to such sum as he may from time to time determine under the agreement and that notice of it will be given by him to the debtor; or

(d) in a case not falling within head (a), (b) or (c) above, either a statement indicating the manner in which the credit limit will be determined and that notice of it will be given by the creditor to the debtor or a statement indicating that there is no credit limit.

(7)

There is a discretionary power under section 65(1) of the 1974 Act to order enforcement of an agreement which does not comply with Schedule 1. An improperly-executed agreement is enforceable against the debtor only on an order of the court in terms of section 65(1):

"An improperly-executed regulated agreement is enforceable against the debtor or hirer on an order of the court only."

This discretionary power may be exercised on terms reducing or discharging the debtor from having to pay any sum payable under the agreement, in terms of section 127(2). However, under section 127(3)
no enforcement order can be made unless the agreement contains all of the prescribed terms:

"The court shall not make an enforcement order under section 65(1) if section 61(1)(a) (signing of agreements) was not complied with unless a document (whether or not in the prescribed form and complying with regulations under section 60(1)) itself containing all the prescribed terms of the agreement was signed by the debtor or hirer (whether or not in the prescribed manner)."

The non-enforceability of these regulated agreements under section 127(3) has been revoked by section 15 of the Consumer Credit Act 2006. However, by virtue of the transitional provisions and savings contained in section 69 and Schedule 3, para. 11, the repeal of this provision has no effect in relation to improperly-executed agreements made before the commencement of section 15 on 6 April 2007, such as the present Agreement.

(8)

Drawing together these various strands, it may be summarised that the present Agreement is a regulated agreement for the purposes of section 8 of the Consumer Credit Act 1974. A regulated agreement is not properly executed unless the document signed contains all the prescribed terms: section 61(1)(a). One of the prescribed terms is the "credit limit": the Consumer Credit (Agreements) Regulations 1983, regulation 6 and Schedule 6, para 3. The consequence of failure to state all of the prescribed terms of the agreement is that the court is precluded, by section 127(3), from enforcing the agreement. In the absence of enforcement by the court the agreement is altogether unenforceable: section 65(1).

Submissions of parties
(9)

Counsel for Mr Napier submitted that the Agreement did not contain the prescribed term in relation to credit limit. Analysing the provision in Condition 3 that the credit limit would be determined by the bank from time to time and notified to the debtor, Counsel submitted that this did not contain a specified credit limit; nor did it provide that there would be no credit limit. This only left that the credit limit would be determined by the bank from time to time and notified to the debtor. Counsel discounted the provision of notification to the debtor, on the basis that this was simply advising the debtor of what the limit was but did not involve the manner in which it was set. He maintained that the remainder of the provision did not state the manner in which the credit limit would be determined. Counsel argued that the phrase "from time to time" dealt simply with when the limit was determined, not how it would be done. Counsel classified "manner" as the way in which something was done, the method of action or the mode of procedure (under reference to "manner" in The Oxford English Dictionary). While it was not for him to devise a method of determining the credit limit, he envisaged that this could be done by way of setting out procedures (such as who would determine it) and criteria (such as the income of the applicant, the frequency with which the card was used and the payment history). Counsel submitted that sub-paragraphs 8(b) and (d) of Schedule 1 of the 1983 Regulations must be mutually exclusive, otherwise (b) would be superfluous. In short, Counsel maintained that the prescribed term was not contained in the Agreement and so the Agreement was unenforceable.

(10)

Counsel for the HFC Bank submitted that the term relating to the manner in which the credit limit would be determined in paragraph 3 of Schedule 6 of the 1983 Regulations should be interpreted as meaning the manner in which the credit limit would be determined between the parties for the purposes of the Agreement. Counsel argued that this was specified, namely as being by the bank from time to time and notified to the debtor. He maintained that this meant that it was in their absolute discretion, with no restriction stated. Counsel for the HFC Bank also submitted that the wording used in Condition 3 could be said to express the "credit limit". He relied upon the way in which "credit limit" could be expressed under paragraph 8(2) of Schedule 1 of the 1983 Regulations for the purposes of the information to be contained in regulated consumer credit agreements as a statement that the credit limit would be determined by the creditor from time to time under the agreement and that notice of it would be given by him to the debtor. He submitted that so, too, could it be expressed in this way for the purposes of the prescribed term in paragraph 3 of Schedule 6 of the 1983 Regulations.

Discussion and conclusion
(11)

The sole question to be determined is whether on a true construction the prescribed term relating to credit limit is included in the Agreement. The recorder, Michael Douglas QC, put it this way at para 33 of his Judgment in a passage contrasting the provisions of Schedules 1 and 6, which was endorsed on appeal by the Court of Appeal in England in Hurstanger Ltd v Wilson [2007] 1WLR 2351 at 2356-7, para 11:

"In my judgment the objective of Schedule 6 is to ensure that, as an inflexible condition of enforceability, certain basic minimum terms are included which the parties (with the benefit of legal advice if necessary) and/or the court can identify within the four corners of the agreement. Those minimum provisions combined with the requirement under section 61 that all the terms should be in a single document, and backed up by the provisions of section 127(3), ensure that these core terms are expressly set out in the agreement itself: they cannot be orally agreed; they cannot be found in another document; they cannot be implied; and above all they cannot be in the slightest misstated. As a matter of policy, the lender is denied any room for manoeuvre in respect of them. On the other hand, they are basic provisions, and the only question for the court is whether they are, on a true construction, included in the agreement. More detailed requirements, which are designed to ensure that the debtor is made aware, so far as possible, of specified information (including information contained in the minimum terms) are to be found in Schedule 1."

(12)

While section 127(3) might be considered drastic, even harsh, in its adverse consequences for a lender, the House of Lords has been satisfied that it was a measure which Parliament was entitled to take and that it was not incompatible with the right to peaceful enjoyment of possessions under article 1 of the First Protocol to the European Convention on Human Rights: Wilson v First County Trust Ltd (No 2) [2004] 1 AC 816 paras 68-78; 106-109; 138; 167-172. In Wilson v First County Trust Ltd (No 2) Lord Nicholls of Birkenhead provided this commentary on section 127(3) at pages 844-846:

"71. I turn to the statutory setting of section 127(3). The Consumer Credit Act 1974 contains many requirements about the form and contents of regulated agreements. Parliament has singled out some obligations as having such importance that non-compliance leads automatically and inflexibly to a ban on the making of an enforcement order whatever the circumstances. These obligations are specified in section 127(3) and (4). In these two subsections Parliament has chosen, deliberately, to exclude consideration of what is just and equitable in the particular case. The latter approach, enabling the court to consider the circumstances of the particular case, was adopted as the general rule in section 127(1). Section 127(3) and (4) are, expressly, exceptions to the general rule. In prescribing these two exceptions Parliament must be taken to have considered that the sanction generally attaching to non-compliance with the statutory requirements was not sufficient to achieve compliance with the duty to include all the prescribed terms in the agreement (section 61(1)(a)) or the duties to provide copies and notice of cancellation rights (sections 62 to 64). Something more drastic was needed in order to focus attention on the need for lenders to comply strictly with these particular obligations."

Although the Consumer Credit Act 2006 has now revoked section 127(3), since it did not do so retrospectively the original provisions continue to apply to an agreement such as that between the parties.

(13)

By stating that the credit limit would be determined by the HFC Bank from time to time and notified to Mr Napier, I take the term in Condition 3 as providing a manner for determining what the credit limit will be. I consider that the term "Your Credit Limit will be determined by us from time to time and notified to you." may properly be read to the effect that there is no restriction placed upon the HFC Bank in determining what the credit limit might be and that this might be determined by them in their absolute discretion, subject only to notice. A power to vary is implied in the use of the expression "from time to time". In my view this is what an applicant such as Mr Napier, reading such a term before signing an agreement, ought reasonably to have taken the provision to mean. I, therefore, regard Condition 3 of the Agreement as specifying the manner in which the credit limit will be determined. On that basis, I view the prescribed term as being included in the Agreement, which is therefore enforceable.

(14)

A similar approach was adopted by the Court of Appeal in England in Lombard Tricity Finance Ltd v Paton [1989] 1 All ER 918. There, the interest payable on the credit balance of a credit agreement was stated as being "[s]ubject to variation by the creditor from time to time on notification as required by law". The Court had to determine whether this complied with paragraph 19 of Schedule 1 of the 1983 Regulations which called for:

"[a] statement indicating the circumstances in which any variation referred to in paragraph 18 above may occur and, where that information is ascertainable at the time at which the document referred to in section 61(1) of the Act is presented or sent to the debtor for signature, the time at which any such variation may occur."

A view taken by the Judge that notice was something essentially different from the change in circumstances which gave rise to the variation was not a factor taken up by the Court of Appeal. Although that case concerned the interpretation of a provision in Schedule 1 of the 1983 Regulations, nonetheless to my mind similar considerations would apply to the interpretation of a similarly constructed provision in Schedule 6.

(15)

Since I would regard Condition 3 as providing a manner for determining what the credit limit will be, that is sufficient to resolve the matter and it is unnecessary to go on to consider whether Condition 3 could also be said to state the credit limit. Paragraph 8(2) of Schedule 1 of the 1983 Regulations does provide that "credit limit" might be expressed as a statement that the credit limit will be determined by the creditor from time to time under the agreement and that notice of it will be given by him to the debtor. That is of some significance since this is, in effect, what Condition 3 does. Applying the principle of statutory construction that when the legislature uses the same language in different parts of a statute it intends that language to have a consistent meaning, in the same way when using the same language in different parts of a statutory instrument the Secretary of State might be taken to have intended that the language should have a consistent meaning. There is, therefore, some force in interpreting term "credit limit" in Schedule 6 in a similar way to that in Schedule 1, whereby it might be expressed as a statement that the credit limit will be determined by the creditor from time to time under the agreement and that notice of it will be given by him to the debtor. Equally, it would have been open to the Secretary of State expressly to have provided that "credit limit" would have a similar meaning in both Schedules. However, it is unnecessary to reach a concluded view on this, since I have in any event taken Condition 3 as providing a manner for determining what the credit limit will be.

Judgment
(16)

It follows that the action falls to be dismissed.

Expenses
(17)

It was agreed that expenses would follow success and that the case should be certified as suitable for the instruction of Junior Counsel.