The operation of the connected lender liability provision and deemed agency provision in Sections 56 & 75 of the Consumer Credit Act 1974

The operation of the connected lender liability provision and deemed agency provision in Sections 56 & 75 of the Consumer Credit Act 1974

The operation of the connected lender liability provision and deemed agency provision in Sections 56 & 75 of the Consumer Credit Act 1974.

        To buy something and take time to pay for it later is called a credit. People always make use of credit. The person from whom we take or buy on credit could charge an interest for that. The Consumer Credit Act(CCA) 1974 was enacted so as to provide better protection to those who avail credit from the persons who are engaged in the business of providing credit facility to the consumer. The   CCA 1974 was enacted as per the recommendations of Lord Crowther committee on consumer credit, which started its working in 1968. The CCA 1974 came into force with such a big bang as one of the most modern and sophisticated enactment on credit or money lending system, however it took more than a decade to implement all its provision into force. A creditor is responsible for the acts or negotiation of the dealer or supplier who acts on his behalf in a regulated agreement. The creditor is equally responsible to the supplier or the dealer for any misrepresentation or breach of contract if there is a regulated credit agreement and the credit is granted under an agreement between the creditor and the supplier, in case of commercial transaction in which the amount ranges from £100 to £ 30000.

        Credit includes a cash loan and any other form of financial accommodations as defined under section 9 (1) of CCA 1974. In a credit transaction a creditor grants a right to debtor to defer payment of debt. Every form of agreement involving credit and loans had been brought into the parlance of the CCA 1974.

        An agreement between the debtor and the creditor, based upon which the creditor provides the debtor with credit of any amount is termed as a ‘consumer credit agreement’ as per section 8 (1) of CCA 1974. A consumer credit agreement, or consumer hire agreement, other than an exempt agreement, and “regulated” and “unregulated” agreements will come within the meaning of “regulated agreement.

         A “debtor-creditor-supplier agreement” is a regulated consumer credit agreement a restricted-use credit agreement, or a restricted-use credit agreement which falls made by the creditor under pre-existing arrangements, or in contemplation of future arrangements, between himself and the supplier, or an unrestricted-use credit agreement which is made by the creditor under pre-existing arrangements between himself and the supplier other than the debtor in the knowledge that the credit is to be used to finance a transaction between the debtor and the supplier, as envisaged under Section 12 of CCA 1974. The funding agreement was not a credit agreement for the purposes of the Consumer Credit Act 1974 , nor was the relationship arising out of the agreement unfair and the creditors were not consumers for the purposes of the Unfair Terms in Consumer Contracts Regulations 1999 as held by Justice Andrew Smith of QB in Maple Leaf M VM Fund v. Rouvroy reported in [2009] EWHC 257 (Comm).

        There are four types of credits, running-account credit, fixed sum credit, restricted use credit and unrestricted use credit. A restricted-use credit agreement is a regulated consumer credit agreement, to finance a transaction between the debtor and the creditor, whether forming part of that agreement or not, or to finance a transaction between the debtor and   the supplier other than the creditor, or to refinance any existing indebtedness of the debtor’s, whether to the creditor or another person. An unrestricted-use credit agreement is a regulated consumer credit agreement in which the credit is in fact provided in such a way as to leave the debtor free to use it as he chooses, even though, certain uses would contravene that or any other agreement. A running-account credit is a facility under a consumer credit agreement whereby the debtor is enabled to receive from time to time from the creditor or a third party cash, goods and services to an amount or value such that, taking into account payments made by or to the credit of the debtor, the credit limit is not at any time exceeded. A

          Fixed-sum credit is any other facility under a consumer credit agreement whereby the debtor is enabled to receive credit in a single transaction or in instalments.

           The creditor undertakes while giving a credit token which includes a card, voucher, stamp, form, booklet or other documents, that he will supply cash , goods and services on credit and the third parties who supply goods or render services to the debtor shall be paid by the creditor.

         A creditor should be a person who holds a licence as per section 21 of CCA 1974. By virtue of a licence the creditor is authorised to carryon business in giving credit to consumer and he shall be a person fit to carryon such business. He is liable to keep books or other records in the course of business along with the record that contains the details of persons with whom he does the business and those people who seeks to do business with him. A licence held by the creditor shall be terminated either by operation of law or if the Office of Fair Trading suspend the licence. The debtor is not liable to repay the credit if the person who gives a credit is disguised that he holds a licence or the existing licence had been terminated. The creditor shall   canvass or advertise regarding an offer of credit only in accordance with the regulations promulgated by the Office of Fair Trading from time to time, and the same should be with in the trade premises of the creditor. A credit token shall only be given who request for that. A duty is cast upon the creditor to display regarding the information about the business consumer credit in the premises in which he carryon the business of consumer credit as per section 53 of CCA 1974.

      While entering in to a credit or hire agreements the creditor should disclose the specified information in the prescribed manner as regulated by the consumer credit laws with regard to the regulated agreement prior to the execution to the same as per section 55 of CCA 1974.

        A negotiator is deemed to be an agent of the creditor and is acting in such a capacity as an agent of the creditor with respect to the communication and transactions in an antecedent negotiation. A  creditor or any person who negotiate for and on behalf of him with the debtor or hirer prior to the execution of the regulated agreement is termed as a negotiator and such negotiation is termed as an antecedent negotiation  as per section 56 (1) of CCA 1974. A negotiator other than the creditor or owner in relation to the making of the agreement is deemed  to be conducted such negotiation as an agent of the creditor and negotiated for and on behalf of the creditor as per section 56 (2) of CCA 1974. If in a regulated agreement or in a prospective regulated agreement the negotiator who acts for and behalf of creditor is named as an agent of the debtor or hirer the agreement will become void as per section 56 (3) of CCA 1974. The antecedent negotiation start right from the first communication includes a communication by advertisement or any representation made by the negotiator to the hirer as per section 56 (4) of CCA 1974.

  In Forthright Finance Ltd v Ingate, the Court of Appeal (Civil Division),

[1997] 4 All E.R. 99, held while allowing the appeal, “ …..that the mere fact that the agreed value for the first car cancelled out the amount still outstanding upon it did not mean that there had been two transactions. Where goods which would be the subject of a debtor, creditor, supplier agreement, were sold or proposed to be sold by a broker, then any negotiations relating to those goods would be deemed to have been made by the negotiator on behalf of the creditor”.

  A creditor had a connected lender liability for the conduct of the supplier in case the supplier had violated the terms of the contract or mislead the debtor in any respect with regard to the debtor- creditor supplier agreement. A jointly and severally liability is cast upon the creditor, to the debtor for any misrepresentation or breach of contract done by the supplier in connection with a debtor- creditor- supplier agreement, with respect to a commercial transaction, even if the debtor had contravened any terms of the contract, says section 75 of CCA 1974.

 In Jarrett and another v Barclays Bank plc [1999] QB, CA, 1 and another, the appellants / plaintiffs  in said cases alleged misrepresentation and breach of contract against the bank, creditor and violation of debtor-creditor supplier agreements. The appellants / plaintiffs filed a suit against the creditors in pursuant to section 56 (2) and 75 of CCA 1974. The court held that the a cause of action will arose in UK, in the applicability of debtor- creditor supplier agreement, even if the subject matter is situated outside the territorial jurisdiction of UK courts.

 Lord Justice Morritt in Jarrett and another v Barclays Bank plc held that “I can see no reason at all for supposing that parliament intended to enact in relation to the statutory cause of action conferred by section 75 (or section 56) any jurisdictional requirement to be observed in proceeding against the supplier. But I do not think that the answer to the question lies in the principles established by the European court of justice in the interpretation of the words “proceedings which have as their object”.      

 Under section 75 (1) of CCA 1974 the debtor who had a claim for misrepresentation or breach of contract against the supplier had a remedy against the card issuer (creditor) as well, if the agreement was a debtor-creditor supplier agreement. The Office of Fair Trading brought proceedings seeking declarations in relation to certain issues concerning connected lender liability arising under section 75 (1) of CCA 1974, against a creditor,  in  Office of Faire Trading v Lloyds TSB Bank plc and others [2006] All ER (2) , 821. 

          To conclude with, Section 75 CCA 1974 guarantees that a purchaser of goods and services or a debtor could have another choice or additional course of action against the creditor if their purchase was substandard and the supplier/retailer was either unaccommodating or not available due to insolvency. The creditor had to bring its commercial power to bear on the recalcitrant supplier to fulfil the debtor’s right in circumstances where the supplier was still in a position to provide a remedy. Section.75 of CCA 1974 provide useful security to debtors who would otherwise have suffered when namesake companies and paper companies went out of business, having failed to fulfil their commitments but having already grabbed the debtors money.

 The negotiator who had initiated the negotiation with the debtor became the deemed agent of the creditor under Section 56(1) (c) of the 1974 Act.  Section 56(1)(c) refers to negotiations conducted by the dealer/ supplier, and relates to a transaction financed by creditor /third party finance. The dealer who sold the goods to the creditor under Section 56(1)(b) could be termed as  a credit-broker. However negotiations which are “antecedent” to the conclusion of the relevant agreement which apply to statutory agencies under section 56(1) (b) and (c). Section 69(6) provides that the dealer is the deemed agent and section 102 deals with notice of rescission where again the dealer is the deemed agent. Section 56(1) establishes a statutory agency for negotiations that are antecedent to the conclusion of the relevant agreement.

 Thus section 56 and 75 of CCA shields the debtor / consumer from being mislead and infringe their legal right by causing unlawful loss to them.