201504 CM April

more than 40,000 people who had a personal loan with Northern
Rock…are in line for windfalls averaging £6,000 each.’ It stated that ‘none
of them are said to have lost out financially. And the taxpayer will be picking
up the £261 million bill...’
– THE GUARDIAN
Northern Rock had, however, used the
same paperwork for all such unsecured
loans, i.e. including loans of £30,000.
Burton J had to decide whether the rights
and remedies under the 1974 Act applied
to such agreements for amounts greater
than £25,000. There are, for example,
consequences if a creditor fails to provide
periodic statements, and, according to
section 77A(6), these include the loss
of the right to pay interest ‘to the extent
calculated by reference to the period of
non-compliance or to any part of it’ (s77A(6)
(b)).
The Claimant had not complied with the
provisions, but compensated borrowers,
whose agreements were clearly regulated
agreements, i.e. their unsecured loans were
less than £25,000. It declined to do the
same for those people who had borrowed
more than that amount. The cost would
already be around £258 million, but those
not compensated wanted the same benefit.
The agreements, after all, seemed to be
subject to the 1974 Act.
Contract
This raised the question as to whether or
not the parties to an unregulated agreement
could contract into the 1974 legislation.
Toulson J in Brandeis Brokers Ltd v Black
[2001] 2 Lloyd’s Rep 359 had considered
a bill of lading subject to the rules of the
Securities and Futures Authority. Many
of them were inapplicable to a Charter
Party, but Toulson J noted that there were
‘relevant parts which do potentially have
such a bearing.’
Romilly MR had a different point of
view in the case In re Strand Music Hall
Company (Limited) [1865] 35 Beav. 153,
which concerned the powers of directors
to issue bonds. He explained, ‘The proper
mode of construing any written instrument
is to give effect to every part of it, if this be
possible, and not to strike out or nullify one
clause in a deed, unless it be impossible to
reconcile it with another and more express
clause in the same deed.’ Lord Esher
MR in Stewart & Co v Merchants Marine
Insurance Co Ltd [1886] 16 QBD 619 was,
however prepared to strike out ‘immaterial
stipulations which cannot possibly apply to
an insurance of a ship.’
Estoppel
Northern Rock in the NRAM case could
therefore be estopped from denying that
the relevant agreements were governed by
the Consumer Credit Act 1974. Estoppel
was defined by Sir William Blackstone in
the 18th century as happening ‘where a
man hath done some act or executed some
deed which estops or precludes him from
averring anything to the contrary.’
It was an issue in Daejan Properties Ltd
v Mahoney [1996] 28 HLR 498, where the
Rent Act 1977 required the Landlord to
be a party in any agreement between the
statutory tenant and an incoming tenant to
enable the latter to be a statutory tenant
(Sch 1 para (13(2))). The Landlord was not
a party to the agreement, but recognised
both people as joint statutory tenants. Sir
Thomas Bingham MR observed, ‘Parties
cannot contract out of the Rent Act and
therefore cannot be estopped that the
Rent Acts will not apply.’ He added, ‘But in
respect or those matters upon which the
parties are at liberty to agree, there seems
to me no reason why the ordinary doctrine
of estoppel should not prevent a party from
denying that he has so agreed.’ The judges
of the Court of Appeal therefore ruled that
the Landlord was estopped from denying
the position, i.e. that it would treat the
tenants as though they were joint statutory
tenants as if there was an agreement to
do so.
Estoppel, however, is normally
applicable to mistakes of fact, and is also
a shield to defend, not a sword to attack.
The 1966 edition of Snell’s ‘Equity’ states
‘By the nineteenth century, both at law
and in equity the rule was that there would
be an estoppel where there had been a
representation, by words or conduct, of
existing facts, not law, intended to be acted
upon and in fact acted upon to his prejudice
by the person to whom it was made.’
There have been many developments
in the idea since the nineteenth century,
and in The Vistafjord [1988] 2 Lloyd’s Law
Rep 343 the judges of the Court of Appeal
considered estoppel in the context of an
agreement, by which a claimant was to
pay 15 percent commission on gross ticket
sales for cruises on a liner. The defendants
arranged a charter to a company and a
sub-charter, but the claimants objected
to the latter. In addition to that objection
they were unwilling to pay commission,
because, for example, the sub-charter was
outside the passenger sales agreement.
The judges of the Court of Appeal decided
that both parties knew of the sub-charter,
and that the defendants would not have
committed themselves without expectation
of commission. The charter furthermore
was dependent on the sub-charter.
This case incorporated the idea
of estoppel by convention, which is
sometimes known as estoppel by
agreement. The parties in this situation
assume facts, and will be precluded from
denying that assumption, if it would be
unjust or unconscionable to allow them to
go back on it.
Bingham LJ set out a three-stage
test. ‘It applies where (1) the parties have
established by their construction of their
agreement or their apprehension of its
legal effect a conventional basis, (2) on that
basis they have regulated their subsequent
dealings, to which I would add (3) it would
be unjust or unconscionable if one of the
parties resiled from that convention.’ There
is furthermore a course of conduct after
the contract, which results in a common
understanding. Bingham LJ made another
observation about estoppel by convention.
He said that it ‘need not be of facts but may
be of law.’
Conclusion with a proviso
That and other rulings were reviewed in
Burton J’s judgment in the NRAM case. The
claimant, i.e. NRAM, wanted him to declare,
for example, that the rights and remedies
under section 77A of the Consumer Credit
Act 1974 were not incorporated into the
agreement. The claimant also wanted a
declaration that it was not in breach of
its obligations by its failure to provide
statements as required, and, where they
did not comply, it did not have to repay
or re-credit default sums or interest to the
defendants.
Burton J was unsympathetic, and was
‘satisfied that the rights and remedies
in relation to section 77A were imported
into the Agreement.’ The claimants were
therefore in breach of it.
There were resulting headlines in
newspapers such as ‘The Guardian’, which
on 10 December 2014 reported that ‘more
than 40,000 people who had a personal
loan with Northern Rock…are in line for
windfalls averaging £6,000 each.’ It stated
that ‘none of them are said to have lost out
financially. And the taxpayer will be picking
up the £261 million bill.’
The case, however, may go to appeal, so
perhaps other judges will have a different
point of view. The cases nonetheless
emphasise the importance of complying
with the provisions with the Consumer
Credit Act 1974. Credit Managers will rarely
deal with situations like those of Northern
Rock: very fortunate for all of us!
The recognised standard in credit management
www.cicm.com April 2015 45