ARTICLE...
Clarifying Enforcement
On 6th October 2009, the commercial Court gave its judgement in the case of Phillip McGuffick vs The Royal Bank of Scotland Plc.
It was a case referred from Judge Halbert in Chester County Court, with the aim of providing guidance on issues surrounding the meaning of enforcement in the context of the Consumer Credit Act (1974).
Mr Justice Flaux reached the conclusion that unenforceability does not mean the rights of the parties under a credit management agreement are never acquired or that they are extinguished. The rights under an agreement continue but cannot be enforced.
It was also determined that bringing a legal proceeding is only a step towards enforcement and not enforcement itself. As a result, any steps taken prior to proceedings – including demanding payment and threatening legal action – cannot be themselves enforcement.
Therefore the court decided reporting credit reference agencies or passing on information about credit agreements or the conduct of accounts does not 'come anywhere near amounting to enforcement'. Consequently, the Court decided the following activities were NOT enforcement:
- reporting or threatening to report information about the conduct of a credit agreement to a credit reference agency
- passing on or threatening to pass on personal data in respect of a credit agreement
- demanding payment from a debtor
- issuing a default notice
- threatening legal action
- bringing legal proceedings
In addition, the court was asked to consider whether the passing of information to a credit reference agency was a breach of the Data Protection Act 1998. As the referral of information was to credit reference was both legitimate and lawful, the court ruled that "there is simply no basis for the contention that data is not being processed fairly and lawfully" and the processing of data is obviously in the legitimate interest of promoting responsible lending.
Therefore, the Court ruled there was no basis in this case to prevent referral of information under the Data Protection Act.
Mr McGuffick tried to rely on the Consumer protection from Unfair Trading Regulations 2008 to challenge the rights of lenders to pass information on to credit reference agencies and other third parties. The Court held that individuals have no standing to bring claims that enforce these regulations. This may be important to other areas where these regulations might be invoked by debtors, such as allegations of harassment and other unfair commercial practices.
In addition, Mr Justice Flaux held that in this case there was no reason to compel the bank to comply with its outstanding obligations under the CCA. However, it was made clear that the availability of injunctive relief will depend upon the facts of the individual case and the evidence presented to the Court. It would seem that Mr Justice Flaux looked at the consequences and prejudice caused to the debtor by non compliance to determine whether an injunction would be appropriate.
The decision by the High Court is binding on all judges at County court level, to the extent that it relates to directly to passing on information to credit reference agencies – which was the issue before the Court on this matter.
The remaining elements were, technically, beyond what was necessary for the Court and, although persuasive, will not provide a binding precedent. Nonetheless, it would be expected that the decisions to be followed by County Courts. And, although other High Court Judges are not legally bound by the judgement, it will influence them and their own conclusions on other similar cases would not be expected to deviate too greatly. An Appellate Court may overrule the decision although it is not known whether Mr Gufflick will seek permission to appeal.
It is worth noting that the Court considered the Wilson vs First County Trust case when deciding the case and reached the conclusion with full consideration of the opinions provided by the House of Lords.
Currently, there are a large number of other cases in the county courts relating to similar issues determined in this case. The solicitors acting for the claimants need to consider discontinuing part or all of the claims in the light of this decision or face strike out applications from lenders. Significant ramifications with regard to legals costs are expected, with lenders looking to recover costs where claims are abandoned – placing significant pressure on the solicitors' business models.
This decision also undermines the practice of CMCs selling services based on identifying unenforceable credit agreements. They should now be warning customers that running these arguments and ceasing their repayments will have an adverse impact on their credit rating. It may also result in otherwise lenient payment plans being withdrawn and will not lead to recovery activity ceasing in relation to the loan.
For more information on this alert simply contact Claire Aynsley on 0191 286 5656 or by email at claire@csa-uk.com.
Original article, prepared by Eversheds, courtesy of DBSG.
