The landmark decision of HSBC Bank v Carey provided much welcome relief to lenders who in preceding years had been subject to a deluge of requests (pursuant to Section 78 of the CCA) for credit agreements and subsequent court actions seeking declarations of un-enforceability once the 12 working days had elapsed. Together with the “overdraft fee” litigation this brought lenders into the previously unknown territory of hostile litigation with a substantial number of its customers.
For further information on s.61, please contact Jeremy Bouchier, (Solicitor & CLO).
Basing his judgment on the 1983 Regulation (which allows the Bank to provide a reconstituted copy agreement post-execution) His Honour Judge Waksman rejected the use of Section 78 as a gateway for litigation and dismissed the “creative” argument favoured by debtors/claims management companies that an adverse inference could be drawn as to Section 61 (original document) compliance from an inability to subsequently satisfy a Section 78 request (which refers to post execution obligation to provide a copy). Accordingly debtors could no longer argue their debts had been wiped clean just because a lender could not provide a copy of the credit agreement which as the Court noted could have been signed many years ago.
The number of lenders involved in Carey allowed the Judge an opportunity to consider the format/layout of different credit card applications. Section 61 of the Act requires the debtor to have signed “a document ...... containing all the prescribed terms ......”. Acknowledging that the ordinary contractual principles of “cross-referencing” will not suffice, the Judge went on to indicate that the word “document” could be satisfied even though the debtor’s signature appeared on a piece of paper different to the one which contained the prescribed terms – it “is a question of substance and not form”.
Whilst it was felt the previous and unequivocal statement by the Court in Hurstanger v Wilson that prescribed terms had to be “within the four corners of the agreement” was now subject to a slightly more relaxed interpretation, two recent first instance decisions confirm that lenders can still be vulnerable to challenges on “enforceability” in respect of credit agreements executed before April 2007. Product knowledge is therefore vital when a customer alleges that the document he/she signed did not contain the prescribed terms and this particularly applies to agreements signed at a branch where for the most part the relevant paper work is printed out separately before presented to the customer. In Jerome v Nationwide Building Society the Court found there had never been any physical attachment between the form actually signed by the customer and the form containing the terms and conditions and ruled the credit agreement was unenforceable because it had not complied with Section 61. In Santander Cards (UK) Limited v Mayhew a Harrods store card was upgraded/replaced by an unsolicited credit card. Recovery proceedings for the outstanding balance were successfully defended because the Court found neither the original nor subsequent agreement had been set up correctly.
Strictly speaking first instance decisions have little legal effect as they should not bind other Courts. In practice any adverse finding of fact on account set-up procedures/the contents of original documentation could well have serious repercussions on a lender’s ability to recover successfully on accounts forming part of the same portfolio.
Restons were instructed by one of the UK’s leading credit card issuers to successfully defend it against claims of unenforceability. For further information please contact Jeremy Bouchier, Solicitor and Chief Legal Officer.