The Court of Appeal has handed down its judgment in the NRAM PLC v McAdam and others test cases bringing relief to NRAM PLC, and undoubtedly other lenders.
Our coverage of the first instance decision in January, and from which the background of the case can be recalled, can be found in our Finance litigation briefing - January 2015 and in this article originally written for Motor Finance.
In a nutshell, for administrative convenience NRAM PLC (NRAM) used the same form of agreement for both its regulated and unregulated consumer credit loans.
The pre-contractual and contractual documentation repeatedly stated that the agreements (and there were in excess of 40,000 of them) were regulated under the Consumer Credit Act 1974 (CCA) despite the loans being for in excess of £25,000, which prior to 6 April 2008 was the CCA limit for regulated agreements.
NRAM proceeded to treat the loans as if they were regulated under the CCA but failed to comply with the prescribed requirements of s77A CCA when sending periodic statements to the borrowers. NRAM argued that the agreements were not regulated despite the wording in the documentation.
First instance decision
At first instance, the court held, on a proper construction of the loan agreements, that they were to be treated as regulated agreements and the borrowers would have the protection and rights conferred by the CCA. This decision was set to cost NRAM some £258 million in repayment of interest and default charges.
Court of Appeal decision
The Court of Appeal considered five issues:
1. Was it possible to "contract in" to the CCA?
Although possible, the court considered it would require very clear words before it could be concluded that the parties intended to contract in to the CCA.
2. Whether, on the true construction of the loan agreements, the provisions of the CCA were incorporated?
The court found there was no express incorporation of the CCA. The language of the express references to the CCA in the relevant statements was not consistent with an intention by either party to incorporate some but not all of the provisions of the CCA. The rights under the CCA arose by virtue of the agreements being regulated, not by virtue of a term of the contract.
3. Whether there was an express or implied agreement that the borrowers were to have some or all of the protections of the CCA as if it applied to an unregulated agreement?
The court found that there was not. The language used, such as "This is a credit agreement regulated by the Consumer Credit Act 1974", could not be construed as giving an additional contractual agreement or promise that even if the agreement was not a regulated agreement, NRAM would treat unregulated borrowers as if they had the benefit of some, unspecified statutory protections afforded to regulated borrowers. The statements were simply asserting, wrongly, that the agreements were regulated by the CCA. The wording did not reflect any bilateral agreement between the parties that they intended to apply the provisions of the CCA by contract to an agreement that was outside its scope.
4. Was the statutory wording in the relevant statements capable of giving rise to an estoppel preventing NRAM from denying the borrowers the relevant rights conferred by the CCA?
Again, and based on its findings as per three above, the court found there was no estoppel by convention or representation. The wording was not capable of being regarded as a shared assumption that, whether or not the agreement was regulated, it would be treated as if it were and as if, so far as possible, the borrowers would have the protection of the CCA.
5. Was there a representation or warranty that the loan agreement was a regulated agreement?
The court found there was. The court held the various statements to be not only representations which were false but also, given their prominence, contractual warranties. The borrowers would be able to sue for misrepresentation under the Misrepresentation Act 1967 and for breach of contractual warranty.
The decision is good news for NRAM as the first instance decision was likely to cost some £258 million. Although the Court of Appeal held that there were misrepresentations and breaches of warranty, as those breaches arose when the loan agreements were entered into (prior to 6 April 2008), limitation defences may be available to NRAM if claims have not already been issued.
This is a helpful decision for lenders with documentation drafted in the same way as NRAM. However, as with any issue of construction of an ambiguous or potentially ambiguous contract term, it will depend on the wording used and what a reasonable person having all the background knowledge which would have been available to the parties would have understood it to mean using the language in the contract. The decision may therefore not help all lenders in a similar position.