Purchase power

The provisions in the Consumer Credit Act 1974 relating to multiple agreements are the subject of much academic controversy and varying judicial opinion. As the Consumer Credit Act 2006 does not attempt to clarify the law relating to such agreements, the position of the practitioner who finds himself faced with the task of considering the relevant sections is left somewhat unsatisfactory.

That the uncertainty in the existing law poses a real problem for those concerned with consumer credit can be illustrated in the fairly common case of the provision of credit conditional upon a pre-existing debt being repaid from the sums loaned. The amount of credit required to discharge the current debt amounts to 'restricted-use credit' with the remaining credit for use by the debtor as he wishes being 'unrestricted-use credit'. Pursuant to s 18 of the Consumer Credit Act 1974 if the terms of the agreement are such as to place a part of it within one category and another part within a different category, each part shall be treated as a separate agreement: s 18(2). Alternatively, if the terms of the agreement place it within two or more categories, it shall be treated as one agreement in each of the respective categories: s 18(3). The astute creditor will be aware of the requirement for a regulated agreement to state the amount of credit and the terms of the agreement. If an agreement such as the above example is to be considered as two separate agreements, the documentation must state the amount of credit and the terms for each separate part, failing which the agreement will be irredeemably unenforceable. The significance of an unenforceable agreement has been curtailed to an extent by s 15 of the Consumer Credit Act 2006 which repeals

s 127(3) of the 1974 Consumer Credit Act (the section preventing the court from making an enforcement order in a case where 'the prescribed terms' are not contained in the agreement) but s 15 is not yet in force and will only apply to prospective improperly executed agreements.

It is thus imperative to determine when an agreement will comprise separate parts, as opposed to merely falling within different categories. On the one hand it can be argued that an agreement will comprise separate parts where different categories are engaged for different terms of the agreement thus rendering the agreement a multiple agreement in different parts with each part being considered as a separate agreement, a category being a category referred to in the Consumer Credit Act; a class of agreement accorded distinct legal treatment in the Act. An alternative view is that an agreement will not fall into separate parts unless it can truly be said to comprise separate agreements and an agreement falling into separate categories is not, without more, an agreement in separate parts. An agreement which is essentially indivisible in character albeit falling within different categories is thus one agreement in one part and accordingly governed by s 18(3), the scenario above being a common example.

Overdraft and loans

The cases replicate the varying interpretations of s 18. In NWB v Story ([2000] GCCR 2381) the Court of Appeal was faced with an agreement for a loan of £35,000 on three separate facilities, one overdraft and two loan facilities. The argument that there were in fact three separate agreements found favour with neither the judge at first instance nor the Court of Appeal. Likewise the argument that the agreement, notwithstanding its standing as one agreement, should properly be considered as an agreement in parts pursuant to s 18(1)(a), each of the three facilities being provided under distinct 'parts' did not attract support. Auld LJ without formally deciding the point, inclined to the view that 'part' in the context of s 18 'includes, but is not restricted to, a facility that is different as to some of its terms from another facility granted under the same agreement or one that can stand on its own as a separate contract or bargain' and that 'an agreement is not in parts if the categories are so interwoven that they cannot be separated without affecting the nature of the agreement as a whole.' No reference was made to the earlier first instance decision of National Home Loans v Hannah ([1997] CCLR 7) in which it was held that an agreement which was an integrated package which could not be split up without altering its essential character was not a multiple agreement. Dimond v Lovell ([2002] 1 AC 384) concerned an agreement for the hire of a vehicle as a result of the lessee's vehicle being damaged in an accident, the hire company pursuing the lessee's claim in the accident. It was argued that the agreement was a multiple agreement as part of the agreement dealt with the hiring of the car, with the remainder dealing with the provisions for the pursuit of the claim. Lord Hoffmann was unable to accept this argument, because 'it seems to sever the provisions that create the debt (hiring the car) from the provisions that allow credit for payment of the debt. Whatever a multiple agreement may be, one cannot divide up a contract in that way.' A similar view was taken by the Court of Appeal in Burdis v Liversey ([2003] QB 36).

In Ocwen v Coxall ([2004] CCLR 7), a case concerning a loan facility incorporating the repayment of existing indebtedness and a payment protection premium, the judge accepted the argument that the agreement was a multiple agreement in separate parts, as 'this accords with the clear meaning used by Parliament.' The judge's reasoning was agreed with and followed in a subsequent unreported county court decision, London North Securities v Williams (2005) [unreported].

Approaching s 18

So which is the right approach to the interpretation of s 18? Should an agreement that falls into separate categories be deemed to comprise separate parts, and thus be treated as separate agreements? If so an agreement which falls into separate categories automatically becomes an agreement in separate parts and

s 18(1)(b) and s 18(3) become apparently redundant. Alternatively, given that s.18 is concerned with the credit provided, it is necessary to consider the agreement in the round, and only to compartmentalise it into separate parts where there are truly separate credit agreements as opposed to one credit agreement made up of various terms and conditions. In the absence of authoritative indication either way the position remains very much arguable from both sides of the court.