The Court of Appeal has ruled in Nelmes v NRAM plc on an unfair relationships claim relating to a loan made by Northern Rock (NR) to refinance a portfolio of buy to let properties. It found the relationship to be unfair under Section 140A Consumer Credit Act 1974 because of an undisclosed arrangement between NR and the borrower's broker under which a procuration fee was paid.


The borrower, Mr Nelmes, had a portfolio of 25 buy to let properties; he wanted to refinance his borrowing and so engaged a broker. The broker approached NR. NR was initially willing to lend at an 80% LTV, but lowered the LTV to 70% after discovering two County Court judgments against the borrower. (The borrower had misled NR by claiming that the properties were let to private tenants, not tenants on housing benefit, and one of the properties was his own home.) The borrower went into arrears a year after the loan was made. NR commissioned a revaluation, which found that the LTV was 148% and the properties were in disrepair (contrary to the terms of the loan). NR invited the borrower to put forward a proposal to resolve the situation and then appointed receivers when no proposal was made. The borrower argued that the relationship was unfair because it had been doomed economically from the start because the original valuer had overvalued the properties.

At first instance, the Judge considered that the relationship was fair; the only unfair aspect was that NR had appointed the receivers six days before the date which it had specified for enforcement, but he did not award any remedy in relation to this. Mr Nelmes appealed.

Court of Appeal decision

The Court of Appeal disagreed with the Judge at first instance in only one respect – which related to the arrangement between NR and Mr Nelmes' broker, under which a procuration fee was paid, which was concealed from Mr Nelmes. The Court of Appeal agreed with the Judge at first instance that the payment of procuration fees is common as is the non-disclosure thereof. Lord Justice Christopher Clarke, giving the leading judgment, stated that in his view the Judge was entitled to find that NR and the broker were not cooperating to mislead Mr Nelmes about the loan offer issued to the broker. NR was entitled to assume that the broker, who was acting for Mr Nelmes, would pass the information contained in the offer to him.

He went on to find, however, that the situation with the procuration fee was different. The broker was acting for Mr Nelmes in his dealings with NR and Mr Nelmes was entitled to his undivided loyalty. The payment of the procuration fee was kept secret from him and its acceptance by the broker was a breach of the duty owed by him to Mr Nelmes, which was brought about by NR's payment of it. The Court of Appeal found that the relationship between NR and Mr Nelmes was unfair on account of:

  • the terms of the credit agreement that Mr Nelmes should pay NR an arrangement fee;
  • the related agreement that NR should pay commission of half that amount to the broker;
  • the payment of that commission; and
  • the failure of NR to tell Mr Nelmes about the payment.Lord Justice Christopher Clarke stated that: "a relationship between lender and borrower which involves such a payment deprives the borrower of the disinterested advice of his broker and is, for that reason, unfair".

Although the Court of Appeal acknowledged that, on classic principles following Wilson v Hurstanger (2007), the borrower would be able to recover the amount of commission paid by NR to the broker from either NR or the broker, the relief being sought was on the basis of the unfair nature of the relationship. The Court of Appeal considered the relationship to be unfair because it divided the broker's loyalty. However, the appropriate remedy was for NR to account to the borrower for the fee paid to the broker, plus interest (the same relief which would apply under Hurstanger). It was not appropriate to grant further relief because the borrower was in a position to assess whether the loan on offer was value for money, and could have approached other lenders.


In the light of Plevin v Paragon Personal Finance Limited (2014) and Hurstanger, this case does not appear to represent significant change. However, the fact that the court found that there was an unfair relationship created by the payment of the procuration fee could lead to more significant remedies in other cases, depending on the facts.