Introduction

The Court of Appeal handed down judgment earlier today in HSBC Bank plc v Patrick Brophy [2011] EWCA Civ 67 on two issues under the Consumer Credit Act 1974 (the “CCA 1974”) and the Consumer Credit (Agreements) Regulations 1983 (the “CCAR 1983”). Firstly, whether an application form for a credit card amounted to an invitation to treat or fell within Section 59(1). Secondly, whether the agreement included the terms prescribed by Schedule 6 to the CCAR 1983. This emphatic and unanimous decision is further justification for the robust approaches taken by lenders defending unmeritorious enforceability challenges.  

Facts

Mr Brophy received a pack of documents from HFC Bank Limited (“HFC”). This pack included a document headed ‘Priority Application Form’ which asked him to provide personal information if he wanted to apply for a credit card with HFC. Mr Brophy wished to do so. He therefore completed the application form. This form included a statutory heading saying that it was a “Credit Agreement regulated by the Consumer Credit Act 1974” and included the statutory signature box. Clause 3 of the terms also said that the “credit limit will be determined by us from time to time and notified to you”.

Because the agreement pre-dated the repeal of Section 127(3) of the CCA 1974, Mr Brophy argued that the agreement was irredeemably unenforceable because:

  • Firstly, there was no agreement in writing which satisfied the requirements of the CCA 1974 because the application form completed by Mr Brophy was no more than an invitation to treat or, alternatively, an agreement to enter into a prospective regulated agreement which was void by Section 59(1) of the CCA 1974; and  
  • Secondly, the agreement did not include a term stating the credit limit or the manner in which it will be determined or that there was no credit limit contrary to Paragraph 3 of Schedule 6 to the CCAR 1983.

The Application Form

Mr Brophy argued that completing and sending the application form back to HFC was, at most, an invitation to treat. The offer came when HFC sent Mr Brophy the credit card and he accepted the offer by using it to buy goods and services. The contract between the parties was therefore made by conduct and did not satisfy the requirements of Section 61 of the CCA 1974 or the CCAR 1983. Alternatively, Mr Brophy argued that the application form was an agreement which purported to bind him to enter into a prospective regulated agreement and was therefore void under Section 59(1) of the CCA 1974.

After hearing these submissions, Lord Justice Moore-Bick (who delivered the leading judgment) decided that:

  • he had “some difficulty in understanding” this argument;
  • it was “clear from the document read as a whole that it contains nothing more or less than an application for running account credit in the form of a credit card”;
  • by signing the application form and sending it to HFC, Mr Brophy applied for credit and offered to be bound by the terms and conditions set out in the form;
  • the form “made it clear that it contained a request for credit and that the applicant should not sign it unless he was willing to be bound”;
  • the application form was not, therefore, an invitation to treat; and
  • it did not contain an agreement of any kind unless and until it was signed by HFC meaning Section 59 of the CCA 1974 was not engaged.  

The appeal on this issue was therefore dismissed.

Prescribed Terms

Mr Brophy also argued that saying the “credit limit will be determined by us from time to time and notified to you” did not comply with Paragraph 3 of Schedule 6 to the CCAR 1983. He argued that clause 3 plainly complied with the prescribed information requirement in Paragraph 8(b) of Schedule 1 to the CCAR 1983 but the prescribed terms requirement in Paragraph 3 of Schedule 6 required HFC to state the manner in which the credit limit would be determined. Because HFC had not spelled out the factors it would take into account, or the manner in which they would be evaluated, the agreement failed to include a term prescribed by Schedule 6 making the agreement irredeemably unenforceable.

After hearing these submissions, Lord Justice Moore-Bick decided that:  

  • the purpose of the prescribed terms under Schedule 6 was different from that of the prescribed information under Schedule 1;  
  • the different objectives between Schedule 6 and Schedule 1 had been correctly set out by Mr Recorder Michael Douglas QC in Hurstanger Limited v Wilson (2006) (which was approved by the Court of Appeal in Wilson v Hurstanger Limited [2007] CCLR 2). In particular, Schedule 6 sets out “certain basic minimum terms … which the parties (with the benefit of legal advice if necessary) and/or the court can indentify within the four corners of the agreement”;  
  • the prescribed information under Schedule 1 must, however, be set out in a particular order by virtue of Regulation 2(4) of the CCAR 1983;  
  • there was “no reason in principle why the same clause should not satisfy both requirements”;  
  • Paragraph 3 of Schedule 6 was “deliberately worded in broad terms in order to encompass the whole range of terms that might be employed to fix the credit limit”;  
  • there was nothing in the wording of Paragraph 3 of Schedule 6 to support the conclusion that it should require the creditor to spell out the factors it would take into account, or the manner in which they would be evaluated;  
  • the expression “the manner in which it will be determined” was deliberately broad and could cover situations where the parties may agree the credit limit where there is neither a fixed credit limit nor the absence of any credit limit;  
  • the wording of clause 3 was “clear” and “provides for [HFC] to determine the credit limit from time to time at its discretion by notifying the debtor of its amount”;  
  • how HFC decided the credit limit was “entirely a matter for itself”; and  
  • there was no requirement on HFC to explain, at the time the debtor signs the agreement, the amount of credit or the formula that will be used to determine it.  

The appeal on this issue was also therefore dismissed.

Comment

The Court of Appeal’s stern approach to the debtor’s allegations of unenforceability is extremely welcome. It was (and still is) common for many creditors to offer running-account credit to prospective debtors by an application form. If the debtor wishes to apply for credit, she simply completes the forms and sends them to the creditor who then decides whether to accept or reject the application. To argue the debtor’s completion of the form, which included the statutory wording and complied with the CCAR 1983, was only an invitation to treat must be wrong. The debtor clearly knows what she is doing, and what she is agreeing to, when the form is completed. The debtor’s reliance on Section 59(1) is also rather odd: this only applies when the agreement purports to bind a debtor into a prospective regulated agreement. The application form was the debtor’s offer to enter into an agreement.

It is also a very useful reminder to everyone that the purpose of Schedule 6 is to (as the Court of Appeal noted) set out “certain basic minimum terms … which the parties (with the benefit of legal advice if necessary) and/or the court can indentify within the four corners of the agreement”. It is not, and should not, be used as a loophole by debtors wanting to avoid their debts. Whilst this part of the judgment deals with running-account credit, in our view it also applies by analogy to other types of credit. We have seen a number of cases arguing irredeemable unenforceability where the creditor says that the date of the first payment will be notified to the debtor upon completion of the agreement. Paragraph 5 and 6 of Schedule 6 allows the creditor or owner to state how the debtor must make repayments by referring to (amongst other things) the manner in which the date of repayment may be determined. His Honour Judge Tetlow recently decided in Brooks v Northern Rock (Asset Management) plc (formerly Northern Rock plc) [2009] GCCR 9901 that it was perfectly acceptable for a creditor to take this approach. Given the Court of Appeal’s decision in this case, this must plainly be right.