NRAM test case considered by the Court the Court of Appeal

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The question raised in this case was whether this statement had contractual or any other legal force and if so, what effect it had. This was relevant in particular as from 1 October 2008, if periodic statements in a form set out in section 77A of the Consumer Credit (Information Requirements etc.) Regulations 2007 were not given to the borrower, the borrower would be under no liability to pay any interest or default sums during the period of non-compliance.

The facts

Jeffrey McAdam and Ann Hartley ("the Borrowers") were Defendants to an action bought by NRAM who borrowed the maximum £30,000 on the basis of an unsecured loan. NRAM did not implement the requirements of section 77A to provide periodic statements in compliance with the 2007 Regulations. NRAM has provided redress to borrowers who had regulated agreements and who had been receiving non-compliant statements since 2008 but have not provided any redress to borrowers who entered into agreements before 6 April 2008 under which the amount of credit exceeded £25,000 on the basis that such agreements were not regulated by the Act and therefore such borrowers did not have any rights under section 77A. The documentation used by NRAM between 31 May 2005 and when this product was removed in March 2008 was the same, whether the borrowing of the unsecured amount was more than £25,000 or less than £25,000.

The Court of Appeal decided that there were 5 issues which needed to be addressed:

1. The Act and whether it is possible to "contract in" to its provisions

It is forbidden for parties to contract out of the Act. Further, on the face of it the Court accepted that the Act has no application to unregulated agreements such as loan agreements for sums in excess of £25,000 made before 6 April 2008. The Court found that it would require very clear words before it could be concluded that the parties agreed to give the Court power to enforce an agreement in the limited circumstances given by the Act and in no other circumstances. As a result, the Court would need to decide whether the borrowers and the lender have agreed either expressly or impliedly to incorporate the provision of the Act into the contract or to give the borrowers the protection afforded by the Act.

2. Whether on the true construction of the loan agreement the provisions of the Act were incorporated

The Court established that the provisions as to enforcement were fundamental to the regulatory regime envisaged by the Act so that if the provisions about enforcement only by an order of the Court were disregarded, what would be the point of incorporating the Act at all as it would mean that the contract would be enforceable without an order of the Court despite the fact that it has not been properly executed, so that one of the main purposes of the Act would be frustrated at the same time as the parties are stating that it is intended to apply. In addition, the Court found that the language of the express references to the Act in the relevant statements was not consistent with an intention of the lender and the borrower to incorporate some, but not all, of the provisions of the Act and that the language could not be clearer; the rights arise under the Act by virtue of the regulated status of the agreement, not by virtue of a term of the contract. Accordingly, the Court was satisfied that the parties could not have intended to incorporate the provisions of the Act into the loan agreement.

3. Whether NRAM expressly or impliedly agreed that the borrower was to have some or all of the protections of the Act as if it applied to an unregulated agreement, irrespective of whether it did or not

The Court did not accept that the agreement should be construed as including any such term, whether express or implied, that NRAM would treat the borrowers as if they had the protections of the Act, irrespective of whether such protections applied or not. The Court found that the language used in the agreement amounted to a contractual representation or warranty that the agreement was regulated by the Act but that if, as was the case in relation to loan agreements over £25,000, that statement was untrue, it would entitle borrowers to claim damages for misrepresentation under the Misrepresentation Act 1967 and/or for breach of contractual warranty.

The Court therefore found that the judge at first instance had been wrong to conclude that it was a contractual term of the agreement that the Borrowers would be treated as if they had the benefit of certain, but not all of the protections of the Act conferred upon borrowers under a regulated agreement and that in particular, he was wrong to conclude that the Borrowers had no obligation to pay interest during periods when NRAM had failed to give statements which complied with section 77A.

4. If the statutory wording did not constitute a contractual term, was it nonetheless capable of giving rise to an estoppel binding on NRAM which prevented it from denying that the Borrowers had the rights conferred by some or all of the provisions of the Act upon borrowers under regulated agreements.

The Court found that whilst the loan agreement did contain a representation that it was an agreement regulated by the Act and that a borrower had the benefit of all the rights and protections contained in the Act, such a statement was incapable of constituting an estoppel by representation here. The Court commented that NRAM could not be estopped from asserting that the loan agreement was not in fact regulated or that the borrowers did not enjoy the rights conferred by the Act; the loan agreement was not regulated and the Borrowers did not enjoy the protections afforded by the Act, save for the rights conferred by the Act that had been set out in the agreement itself so that the scope of any estoppel could not extend wider. Accordingly, the Court of Appeal held that the trial judge had been wrong to conclude that if no relevant contractual term had been incorporated into the loan agreement, NRAM was nonetheless estopped on the basis of some sort of contractual estoppel, estoppel by convention or estoppel by representation from denying that the Borrowers had the benefit of some, but not all, of the protections contained in the Act and in particular those contained within section 77A.

5. Whether there was a representation or warranty that the loan agreement was a regulated agreement when it was not.

In the view of the Court of Appeal, the relevant statements in the loan documentation amounted to a representation by NRAM that the loan agreement was regulated by the Act and the Borrowers were entitled to the protections afforded by the Act to borrowers under such regulated agreements. That representation had legal effect in that if it was false, the Borrowers would be entitled to sue for misrepresentation under the Misrepresentation Act 1967. Furthermore, the Court found that the statements were not merely representations but also contractual warranties and that the Borrowers would have been entitled to sue for breach of contractual warranty, although limitation defences may be available to bar any claims for representation or breach of contractual warranty.      


As many lenders used documentation similar to that referred to in this case, the judgment will be welcomed by lenders and in particular NRAM, as the cost for NRAM of redressing sums to borrowers in the same position as the Borrowers was estimated to be around £258 million. The finding that the Borrowers could be entitled to issue proceedings for misrepresentation and breach of contractual warranty is a potential concern, although due to the age of the agreements concerned, such claims are unlikely to succeed due to being time barred.     

Should you require any further assistance in relation to this or similar scenarios, please contact Dominic Pinder, contact details below.