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Lenders will welcome judge's ruling

12 February 2010

On 23 December 2009 His Honour Judge Waksman sitting in the High Court in Manchester handed down his key judgment in the Carey v HSBC test case.

The judgment deals with two matters concerning requests for copies of credit card agreements in connection with Section 78 of the Consumer Credit Act 1974 and the consequence for non-compliance with that provision.

The first matter concerned the six preliminary issues of law arising out of a number of selected cases.  The second matter concerned the application by two of the defendant bank’s to strike out or dismiss certain claims brought against them.

The six preliminary issues revolved around Section 78(1) of the Act, which concerns the duty to give information to a debtor under running-account credit agreements, a query as to what constitutes the ‘document’ signed by the debtor for the purposes of Section 61 and Section 127(3) of the Act and whether or not an unfair relationship would automatically arise if it were not established at trial that there was a document signed by the debtor containing the prescribed terms.

With regard to the provision of a copy of an executed agreement in response to a request under Section 78(1) of the Act, certain of the debtors argued that a photocopy of the original agreement that was signed by the debtor or a copy which is derived directly from the original agreement or complete copy thereof should be provided.

The defendant banks argued that it was sufficient for a creditor to provide a document which is a reconstitution of the original agreement, which may be from sources other than the actual signed agreement itself.

Not surprisingly, and given that counsel for certain other debtors involved in the action agreed with the defendants, the court held that a creditor can satisfy its duty under Section 78 by providing a reconstituted version of the executed agreement which may be from sources other than the actual signed agreement itself.

The judge also provided that the following information needs to be included in the reconstituted agreement (assuming that it was contained in the original executed version):

In complying with Section 78, a creditor need not provide a document which would comply (if signed) with the requirements of the Consumer Credit (Agreements) Regulations 1983 as to form as at the date the agreement was made. All of the information set out above can be provided by the creditor on a sheet which is separate from the full statement of terms and conditions which also form part of the reconstituted agreement.

However, the creditor could also decide to reconstitute the agreement in a different way so that, for example, the information set out above is populated electronically on to the same sheet as that which sets out the terms and conditions.

The judge did state, however, that if an agreement has been varied by the creditor under a unilateral power of variation, the creditor must still provide a copy of the original agreements, as well as the varied terms.

The judge also dealt with two others issues concerning a breach of Section 78(1).

Firstly, if a creditor is in breach of 78(1), this does not of itself give raise to an unfair relationship within the meaning of Section 140A of the Act.

Secondly a court has jurisdiction to declare whether or not in a particular case there has been a breach of Section 78.  Whether it will be appropriate to grant such a declaration depends upon the circumstances of the particular case in question.

A further issue revolved around whether a document signed the debtor ‘contains’ the prescribed terms for the purposes of Section 61 and/or Section 127(3) where there are separate sheets of paper involved which may or may not be attached to the piece of paper signed by the debtor.

The judge held in assessing where the prescribed terms are contained in such circumstances, the following principles are relevant:

Finally, the judge held that if it were not established, at trial, that there was a document signed by the debtor containing the prescribed terms, this would not of itself entail and unfair relationship.

Conclusion

Whilst the judgment does not contain too many surprises, it is a helpful one for lenders, as it provides much needed guidance to the lower courts in helping eliminate some of the issues arising out of the many cases that have been issued in the county courts by the hundreds, and which may have been stayed pending the outcome of the judgment in this case.

As well as lenders welcoming the finding that they can satisfy their duty under Section 78 by providing a reconstituted version of the executed agreement, it appears likely that the number of challenges about the failure to provide Section 78 copies will diminish significantly following the judgment given in this case.

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