Westminster Bank PLC v Anthony John Story and
Since the above article
was published in Release 49 the Court of Appeal
has given judgment in the case of National Westminster
Bank PLC v Anthony John Story and Mary Pallister, which
is reported at  CCLR 70. This is the first
case on section 18 of the Consumer Credit Act 1974
to reach the Court of Appeal. The above article
should be read subject to the following comments
on the case, which is referred to as Story.
an agreement between the bank and the appellants
made in November 1986 by which the bank agreed to
advance a total of £35,000 by three separate
credit facilities: an overdraft of £15,000
to Mr Story and two separate loans, of £5,000
and £15,000, to the appellants jointly. By
subsequent agreements the permitted overdraft rose
to £61,572.78 and the loans to a total between
them of £456,012.16. The appeal concerned
the latter sum only, and the question was whether
or not, under section 18 of the 1974 Act, the November
1986 agreement, so far as it related to the two
loans, should be treated for the purposes of the
Act as two separate agreements, one for each loan.
If the answer was in the affirmative they would
on the facts be regulated agreements which were
improperly executed, and therefore subject to section
65(1) of the Act (consequences of improper execution).
The only ground on
which it was alleged by the appellants that the
two loans should be so treated was that the loan
for £5,000 was a restricted-use credit agreement
as defined by section 11(1) while the other loan
was an unrestricted-use credit agreement as defined
by section 11(2). It was held by His Honour Judge
Jack in the Bristol Mercantile Court that in fact
both loans were for unrestricted-use credit and
that the November 1986 agreement was a single agreement
that therefore did not fall within section 18. Both
these findings were upheld on appeal. They involved
a finding that the only reason the appellants had
for treating the loans as two credit facilities
rather than one was to provide what Auld LJ at 4E
described as ‘simple accounting for what was
believed to be their entitlement to mortgage [tax]
relief of £5,000’. This would not be
a relevant factor for the purposes of section 18.
The decision in Story
has some bearing on the legal meaning of section
11 of the 1974 Act, but that is not our present
concern. So far as concerns section 18 the only
interest of the decision lies in certain obiter
dicta which reveal an uncertain judicial grasp of
the intended working of the section. The purpose
of the following notes is to resolve any doubts
thus created. References are to the transcript of
the Court of Appeal judgment.
1. Judge Jack, as quoted
by Auld LJ at 3B and 8G, said ‘it would be
artificial to break [the transaction] down into
three separate agreements and contrary to the way
it was made’. This is an inadmissible argument.
Section 18(2) clearly and peremptorily says that,
where a part of an agreement falls within section
18(1), that part shall be treated for the
purposes of the Act as a separate agreement. Section
18(2) is necessarily artificial because ex hypothesi the
parties themselves made only one agreement.
2. Auld LJ at 6E repeats,
without refuting it, a suggestion by counsel that
section 18 could have been got round if the parties
had negatived its application by an express stipulation
in their agreement. This overlooks the fact that
section 173(1) of the Act forbids contracting out.
3. Auld LJ at 14A-D
appears to give support to the suggestion in paragraph
4.5 of the Office of Fair Trading’s discussion
paper of June 1995 ‘Multiple Agreements and
section 18 of the Consumer Credit Act 1974’ that
an agreement is not in parts if the categories are
so interwoven that they cannot be separated without
affecting the nature of the agreement as a whole.
This suggestion runs contrary to the plain wording
of section 18 and is without any foundation.
4. Auld LJ at 14F supports
Professor Goode’s suggestion mentioned above
in this article (page 3) that the phrase ‘category
of agreement mentioned in this Act’ should
be construed as if it said ‘category of agreement
mentioned in Part II of this Act’. For the
reason I give there, this view is untenable. Auld
LJ goes on to say: ‘On that approach . . .
restricted-use and unrestricted-use credit agreements
. . . are separate ‘categories’’.
They are undoubtedly separate categories on either
5. Judge Jack and Auld
LJ overlooked the effect of section 18(1)(a) in
rendering the overall agreement a multiple agreement
by reason of two distinct facts. The first (Case
A) is that one part of it (the £15,000 overdraft)
is a running-account agreement while the other part
(the £20,000 loan) is a fixed-sum credit agreement.
The second (Case B) is that one part of it (covering £12,000
of the credit advanced) is, as argued in the Comment
appended to the CCLR report of the case, a restricted-use
credit agreement (being a refinancing agreement
falling within section 11(1)(c)), whereas the remainder
is an unrestricted-use credit agreement. Section
18(2) then requires each part to be treated as a
In Case A this means
that the £15,000 overdraft is a separate running-account
agreement while the remainder is a separate fixed-sum
credit agreement for £20,000. This is of no
significance since overdraft facilities are excepted
from having to comply with the documentation requirements
of the Act.
In Case B section 18(2)
means that one deemed agreement is a £12,000
restricted-use credit agreement while the other
is an unrestricted-use credit agreement for £23,000.
This is significant, because the first agreement
is within the Act’s £15,000 limit. However
it is not clear on the facts whether the refinancing
was intended to be effected by way of the first
or the second agreement in Case A (or through a
mixture of the two). Section 18(4) is then brought
into play in relation Case B. It runs as follows-
under subsection (2) a part of a multiple agreement
is to be treated as a separate agreement, the multiple
agreement shall (with any necessary modifications)
be construed accordingly; and any sum payable under
the multiple agreement, if not apportioned by the
parties, shall for the purposes of proceedings in
any court relating to the multiple agreement be
apportioned by the court as may be requisite.’
This means that the
overall agreement must be treated with any necessary
modifications as if it were two agreements,
one a £12,000 refinancing agreement and the
other an agreement for £23,000 which is not
refinancing. Any sum payable under the overall agreement
(by the debtors or the creditor) was required to
be apportioned by the court as may be requisite.
By the time the case came to court it would have
been clear (though it is not clear from the judgment
of Auld LJ) exactly how the £12,000 had in
fact been handled by the bank. It would certainly
have been held back from the £35,000 borrowing.
It would have been held back from drawings under
the overdraft, or from drawings on the loan, or
partly as to one and partly as to the other. It
is submitted that the court’s apportionment
under section 18(4) should have been made accordingly.
If the entire holdback was from the overdraft then
the documentation requirements of the Act would
not bite because the £12,000 refinancing agreement
would have been entirely by an overdraft excepted
from those requirements. If the entire holdback
was from the £20,000 loan then the loan agreement
would fall to be treated as two regulated agreements,
one a restricted-use credit agreement for £12,000
and one an unrestricted use credit agreement for £8,000.
If it was partly the one and partly the other the
result would depend on how it was divided.
[Published in Consumer Credit Control via
1 Current Issues in Consumer Credit 1 - These articles are comprised
in the looseleaf work CONSUMER CREDIT CONTROL by Francis Bennion, published
Sweet & Maxwell
(ISBN 0 85120 239X).