The High Court considers the Consumer Credit Act and the issue of de facto borrower

The High Court  (slightly) demystifies one of the many vague provisions of the Consumer Credit Act (CCA) in Barclays Bank plc v L. Londell McMillan [2015] EWHC 1596 (Comm) (the Case).  In particular, the Court considered when a relationship between a credit and debtor in a consumer lend will be deemed unfair and also sheds further light on who is the de facto recipient of a loan in the provision of consumer credit.

S.140A of the CCA

S.140A gives the Court the power to consider a consumer credit agreement between a debtor and creditor and determine whether the relationship between the two parties is an unfair one. Should that agreement be deemed unfair the Court may make an Order concluding the same. In its assessment the Court (amongst other things) will have regard to all matters it thinks relevant and seek to take into consideration terms of the agreement under question, the way the creditor has enforced its rights and any actions done (not done) by the creditor during the life of the credit agreement. The onus is on the creditor to prove that the relationship is not unfair and rather unhelpfully, what is to be considered “unfair” is not clearly defined.

The case

Mr McMillan entered into a loan agreement with Barclays Bank Plc (the Bank) for $540,000 to fund his capital contribution for a firm law firm he was a partner with. He entered into the loan in his capacity as a partner of said firm. The firm filed for Chapter 11 bankruptcy and was found to be insolvent. The bank looked to recover the loan relating to Mr McMillan. Mr McMillan invoked his right under s.140A/B claiming that athe loan agreement gave rise to an unfair debtor creditor relationship and that it should be made unenforceable by the Court. Mr McMillan also argued that the loan had been made to the firm rather than him as an individual.

The High Court found that the Bank had discharged its burden in proving that the relationship in the case was not unfair and that the loan was made to Mr. McMillan and not the law firm. In reaching its decision, the court considered the observations made by the Supreme Court in Plevin v Paragon Personal Finance Ltd [2014] UKSC 61 – a s.140 case raised in respect of a PPI mis-selling claim.

It considered that the relationship had not been unfair for various factors. One important factor was that the terms of the loan agreement were clearly outlined to Mr McMillan who had a clear understanding of the implications of entering into it. The Bank had acted in accordance with how a “reasonable” lender should act and did not mislead and/or provide Mr McMillan with unsuitable or inappropriate guidance/ advice on the loan; there was no reason for the Bank to assume Mr McMillan would either not be able to comply with the terms of the loan agreement or create unreasonable restrictions for him  to do so.  Therefore, the Bank complied with its own creditworthiness assessment obligations in the circumstances. Importantly, Mr McMillan freely, of his own volition, sought a loan from the Bank and was under no compulsory obligation to obtain finance from it – no coercion was involved.

In determining whether the loan was made to Mr McMillan or the firm of lawyers , the High Court applied established principles of construction, it was held that the contractual documents made it clear that it was Mr McMillan who was the borrower and liable for the repayments which extended to events of insolvency.

Conclusion

This case is yet another example of the Court looking to the wider circumstances surrounding the relationship between a debtor and creditor in determining whether reliance upon s.140 is possible. What can be taken away from the ruling here is that the relationship is dependent on the relative positions of both parties with consumer legislation protecting those that genuinely deserve it.