Nelmes v NRAM Plc

Factual and Procedural Background

The Appellant, born in 1955, was a former professional rugby league player who, after an injury ended his career, invested in a portfolio of 25 buy-to-let residential properties in The City. He occupied a particular property ("the Property") as his home. Seeking to consolidate his borrowings and obtain additional funds without further charging properties, the Appellant entered into loan and security arrangements with Company A, the Respondent. In July 2013, Company A sought to enforce its security over the portfolio and the Property. The Appellant initiated proceedings in the County Court alleging the relationship arising from the loan agreements was unfair under section 140A of the Consumer Credit Act 1974, seeking relief.

The claim was heard over five days in April 2015 before Judge Cadwallader, who found no unfairness except in one respect, declined relief, and ordered the Appellant to surrender possession of the Property. The Appellant appealed with permission granted by Judge Vos LJ.

Legal Issues Presented

1. Whether the relationship between the creditor (Company A) and the debtor (Appellant) arising from the loan agreements was unfair under section 140A of the Consumer Credit Act 1974.
2. Whether the undisclosed payment of a procuration fee by the creditor to the broker constituted unfairness in the relationship.
3. Whether the enforcement actions taken by Company A, including the appointment of receivers, were unfair.
4. The validity and fairness of the loan terms, including loan-to-value ratios and the use of conditional credit facilities.
5. The adequacy of disclosures and whether the Appellant was misled regarding the loan offers and valuations.

Arguments of the Parties

Appellant's Arguments

• The Appellant contended the relationship was unfair due to the undisclosed procuration fee paid by Company A to the broker, breaching the broker’s duty of loyalty.
• He argued the loan offer was misleading, particularly regarding the conditional credit facility (CCF) and its terms.
• The Appellant claimed he was unaware that the Property was included in the security and had not consented to this inclusion.
• He asserted that valuations were significantly overstated, resulting in an economically doomed transaction.
• The Appellant alleged unfairness in the timing and manner of formal demands and the premature appointment of receivers.

Respondent's Arguments

• Company A maintained that the loan terms and security arrangements were standard commercial practice and not unfair.
• They argued the broker acted as the Appellant’s agent and that the undisclosed procuration fee did not amount to unfairness in the relationship.
• Company A contended the Appellant was aware of and consented to the inclusion of the Property in the security.
• They denied misleading the Appellant about the loan offers or the nature of the CCF.
• Company A asserted that enforcement actions, including demands and appointment of receivers, were justified due to breaches of loan conditions and arrears.

Table of Precedents Cited

Court's Reasoning and Analysis

The court undertook a detailed factual and legal analysis, relying heavily on the findings of the trial judge. It examined the relationship under section 140A of the Consumer Credit Act 1974, considering the fairness of the loan terms, creditor conduct before, during, and after contract formation, and enforcement actions.

The court found the loan terms, including the 70% loan-to-value ratio and the use of conditional credit facilities, to be commonplace, commercially justified, and proportionate to protect the lender’s interests. The Appellant was experienced in property dealings and had access to advice, reducing vulnerability.

The creditor did not apply pressure to execute the agreements and had reasonable grounds to believe the Appellant understood the terms. The court rejected claims of misleading conduct or conspiracy between the creditor and the broker to withhold information. It accepted the broker acted as the Appellant’s agent, and the arrangement whereby loan offers were sent first to the broker was not unfair.

The court agreed the undisclosed procuration fee paid by the creditor to the broker breached the broker’s duty of loyalty and rendered the relationship unfair in that particular aspect. It ordered Company A to account for the commission paid plus interest.

Regarding valuations, the court found that the valuer was selected by the Appellant and that the Appellant was aware of valuation shortcomings and overvaluations. The court rejected allegations that Company A knew or should have known of valuer incompetence or deliberately withheld information.

On enforcement, the court found that although the appointment of receivers was premature by a few days, it did not cause substantial prejudice, and no relief under section 140B was warranted. The creditor was entitled to enforce on grounds of breaches, arrears, and excessive LTV.

Holding and Implications

The court ALLOWED THE APPEAL IN PART solely to the extent of awarding the Appellant recovery of the undisclosed procuration fee paid by the creditor to the broker plus interest. In all other respects, the appeal was dismissed.

The decision confirms that undisclosed commissions paid by a creditor to a broker acting as the borrower's agent can render the creditor-borrower relationship unfair under section 140A, entitling the borrower to recover the amount. However, standard commercial loan terms, including conditional credit facilities and loan-to-value ratios, are not inherently unfair where the borrower is experienced and had access to advice.

The ruling also affirms that enforcement actions taken in accordance with loan terms, even if slightly premature, do not necessarily constitute unfairness warranting relief where the borrower has breached obligations and failed to cooperate.

No new precedent was established beyond the application of established principles to the facts. The direct effect is a financial remedy limited to the undisclosed procuration fee, without altering the validity of the loan or security arrangements.