The Consumer Credit Act 1974 to the rescue?

Our clients issued a claim against their former accountant, friend and trusted confidante.

The clients ran a restaurant from a property (“the Property”) which was mortgaged to a bank (“the Bank”). The Bank took possession of the Property and wanted the sum secured by the mortgage paid in full (£221,372). Our clients tried to resolve the issues directly with the Bank but attempts failed. The Claimant contacted the Defendant and advised of the repossession. The Defendant stated that he would pay the money due under the mortgage to the Bank as a loan from the Defendant to the Claimant (“the Loan”). The Claimant agreed to the proposal but wanted to retain ownership and control of the property.

The dispute between the parties related to the terms of that lending. These terms were notrecorded in writing at the time and the only terms agreed were after the Defendant paid thebank.

Our client asserted that the terms were:

1. They would make repayments in whatever sums they could reasonably afford on whatever date they could reasonably manage;
2. The Defendant would recover interest on the loan in the total amount of 15% of the Loan sum (flat rate);
3. The Defendant could retain the rental income from the Property and apply it to the repayment of the Loan; and
4. The Property would be transferred to a company purely for tax efficiency at the suggestion of the Defendant and that the clients would be the sole directors and shareholders of the company.

Whilst the Defendant asserted that:

1. The Claimants signed the relevant documents and knew what they were signing;
2. That the agreement was that ownership and control of the Property would pass from our clients to the Defendant until the Loan was repaid;
3. That the terms of the Loan were as set out in a document dated 3 February 2012 and included, inter alia, payment of rent at the rate of 15% per annum; and
4. He would transfer ownership of the Property to a company of which he is director and shareholder as security for the Loan made by him.

The client’s position was that they had discharged and overpaid the indebtedness under them oan including the agreed interest thereon at 15% and that when they would ask for confirmation from the Defendant of the same, or for a redemption statement showing what remains, the Defendant refused to provide it. They sought an account of what money, if any, was owed and a transfer of title to the Property back to them.

After a dispute relating to the terms of the lending, our client challenged the terms of the Loan on the basis of the unfair relationship under the provisions of section 140A and 140B of the Consumer Credit Act 1974. This allows the Court to change the terms of a consumer credit agreement to assist debtors if it finds that the relationship between the creditor and debtor is unfair as a result of one or more of three factors:

1) Any terms of the agreement (or any “related agreement”);

2) The way in which the creditor has exercised or enforced any of their rights under the agreement (or any “related agreement”); or

3) Any other thing done or not done by, or on behalf of the creditor.

Although the client’s case relating to the terms of the lending was rejected, the Court did agree to vary the terms of the lending i.e. reducing the interest rate for a period and the length of the term over which it was to be paid.

This variation of the terms allowed the matter to finally conclude and the Property is now to be transferred back to the clients.

If you believe you are in a similar situation and would like advice on how you can resolve a dispute where a debt is owed to you or by you, please contact our Property Litigation department or call the team on 02074858811. Alternatively, you can make an online enquiry.