Office of Fair Trading v Lloyds TSB Bank Plc & Ors [2006] EWCA Civ 268

Case No A3/2004/2720

[2006] EWCA Civ 268

IN THE SUPREME COURT OF JUDICATURE

COURT OF APPEAL (CIVIL DIVISION)

ON APPEAL FROM THE HIGH COURT OF JUSTICE

QUEEN’S BENCH DIVISION (COMMERCIAL COURT)

Mrs Justice Gloster

2003 Folio 687

Venue Royal Courts of Justice, Strand, London, WC2A 2LL

Date Wednesday, 22 nd March 2006

Before

LORD JUSTICE WALLER

LADY JUSTICE SMITH

LORD JUSTICE MOORE-BICK

Between

The Office of Fair TradingAppellant

Lloyds TSB Bank plcRespondents

Tesco Personal Finance LimitedRespondent

American Express Services Europe LimitedRespondent

(Transcript of the Handed Down Judgment of

Smith Bernal WordWave Limited

190 Fleet Street, London EC4A 2AG

Tel No: 020 7421 4040 Fax No: 020 7831 8838

Official Shorthand Writers to the Court)

Mr Michael Briggs QC and Mr William Hibbert and Mr Josh Holmes (instructed by the Treasury Solicitor) for Appellant

Mr Mark Hapgood QC and Miss Maya Lester (instructed by Lovells and SJ Berwin) for First and Second Respondents

Mr Mark Howard QC and Mr Iain Macdonald (instructed by CMS Cameron McKenna) for Third Respondent

Judgment

[1]This is the judgment of the court. 1. The background to the appeal

[2]The Consumer Credit Act 1974 established a new regulatory framework governing the provision to consumers of credit of all kinds. It was passed following the publication of the report of the Committee on Consumer Credit under the chairmanship of Lord Crowther (“the Crowther Committee”) which criticised the previous state of the law and made detailed recommendations for a new code embodying a comprehensive regime that would be fair to lenders while at the same time providing consumers with an appropriate degree of protection. It is no coincidence that the protection of consumers is given prominence in the long title to the Act.

[3]The Act applies to consumer credit agreements of all kinds, such agreements being defined in section 8(2) as personal credit agreements by which the creditor provides the debtor with credit currently not exceeding £25,000. All consumer credit agreements are regulated agreements within the meaning of the Act and thus subject to its provisions unless exempted. By section 9(1) the term “credit” includes a cash loan and any other form of financial accommodation. The effect of these provisions is that all forms of consumer lending within the statutory limit fall within the scope of the Act. This is an important matter to bear in mind in this case which raises issues relating to the construction of the Act that are of great significance to the credit card industry but which may be of less significance to other familiar and widely used kinds of consumer credit agreements.

[4]This is an appeal from the judgment of Gloster J delivered on 12th November 2004. The background to that judgment is a long-standing disagreement between the Director General of Fair Trading, now the Office of Fair Trading (“the OFT”), and the issuers of credit cards relating to what is called “connected lender liability” under section 75(1) of the Act. The Crowther Committee considered that in cases where a lender provides credit for the purchase of goods or services pursuant to arrangements between himself and the supplier the two of them can be considered in commercial terms as joint venturers since the arrangements operate to their mutual benefit in the promotion of their businesses. The Committee therefore recommended that in such cases the debtor who has a claim for misrepresentation or breach of contract against the supplier should have a remedy against the lender as well. This recommendation to create connected lender liability eventually found expression in section 75(1) of the Act. If credit card issuers in the United Kingdom incur a liability of this kind in relation to transactions entered into by their cardholders in this country, that is no doubt a significant matter; if they incur a similar liability in relation to transactions entered into by their cardholders abroad, it is obviously very much more so.

[5]The agreements under which banks and other financial institutions issue credit cards represent a form of consumer credit agreement falling within the scope of the Act. Originally credit cards were issued within the framework of what we shall call for convenience a “three-party” structure. This involves(i) an agreement between the card issuer and the cardholder to extend credit by paying for goods or services purchased by the cardholder from suppliers who have agreed to honour the card;

(ii) an agreement between the card issuer and the supplier under which the supplier agrees to accept the card in payment and the card issuer agrees to pay the supplier promptly;

(iii) an agreement between the cardholder and the supplier for the purchase of goods or services. However, as the industry has grown there have been three significant developments which together have given rise to the present dispute.

[6]The first is the development of what may be called the “four-party” structure. This developed out of the use by card issuers of what are called “merchant acquirers” to recruit new suppliers willing to accept the issuer’s card. In the classic four-party structure there is interposed between the card issuer and the supplier the merchant acquirer acting as an independent party. There is an agreement between the merchant acquirer and the supplier, under which the supplier undertakes to honour the card and the merchant acquirer undertakes to pay the supplier, and an agreement between the merchant acquirer and the card issuer, under which the merchant acquirer agrees to pay the supplier and the card issuer undertakes to reimburse the merchant acquirer. There is, however, no direct contractual link between the card issuer and the supplier.

[7]The second development has been the increasing ability to use credit cards abroad. Originally the number of suppliers willing to accept credit cards in this country was limited and the number of suppliers in foreign countries willing to accept credit cards issued by financial institutions in this country even more limited. However, over the course of time it has become possible to use credit cards in many different countries around the world, so that there are now millions of suppliers worldwide who will accept cards issued by the major institutions.

[8]The third development has been the creation of large international credit card operating networks. At least two of these, Visa and MasterCard, are established as independent organisations operating under what are in substance four-party structures with the addition of a sophisticated clearing house system. Under the rules of the network the card issuer enters into an agreement with its customer to extend credit in connection with the purchase of goods or services from any supplier who has agreed to honour the network card. The merchant acquirers recruit suppliers to the network rather than to any individual card issuer and the supplier undertakes to honour the network card regardless of the identity of the issuer and in most cases without having any clear idea who the issuer may be. The card issuer undertakes to reimburse the merchant acquirer, though he may previously have been unaware of his identity or existence and is likely to have been wholly unaware of the existence or identity of the supplier. The arrangements are all underpinned by a complex agreement between the card issuers and the merchant acquirers, all of whom are members of the network.

[9]It is against this regulatory and commercial background that the following two questions raised by this appeal have to be decided:(i) does connected lender liability under section 75(1) of the Consumer Credit Act 1974 attach to transactions entered into by means of credit cards where a four-party structure exists?

(ii) does connected lender liability under section 75(1) attach to transactions entered into outside the United Kingdom by cardholders using credit cards issued under credit agreements to which the Act applies, whether the transaction is entered into under a three-party or four-party structure? Credit card issuers have always recognised, and still recognise, that transactions entered into with suppliers in this country under a three-party structure attract connected lender liability. Until recently they have also been willing to operate on the basis that connected lender liability attaches to transactions entered into under a four-party structure, but without accepting that it does so as a matter of law. In neither case, however have they been willing to accept that such liability attaches to transactions entered into abroad.

[10]The OFT contends that connected lender liability under section 75(1) arises in relation to any transaction financed by a credit card issued in the United Kingdom, whether the transaction is entered into under a three- or four-party structure and whether the transaction was entered into in this country or abroad. Credit card issuers dispute that construction of the Act and that has led those who operate mainly under a four-party structure to assert that section 75(1) does not apply in that situation, whether the transaction financed by the use of the card was entered into in this country or abroad. This construction, however, is for obvious commercial reasons resisted by credit card issuers who operate mainly or entirely under a three-party structure.

[11]The respondents to this appeal and (save for the Third Respondent) also the cross-appellants, Lloyds TSB Bank plc (“Lloyds TSB”), Tesco Personal Finance Ltd (“Tesco”) and American Express Services Europe Ltd (“Amex”) are card issuers who between them represent the range of business practices to which the appeal and cross-appeal relate. Their individual positions can be summarised in the following way:(i) Amex employs associate companies as its merchant acquirers in relation to the bulk of its suppliers. By virtue of sections 184 and 187 of the Act associates are treated as being Amex itself for these purposes and thus most of the transactions with which it is concerned are entered into under a three-party structure;

(ii) As well as being a card issuer Lloyds TSB operates as a merchant acquirer, both for its own benefit and for the benefit of other card issuers. It accepts that transactions with suppliers whom it has recruited itself are entered into under a three-party structure. However, the majority of transactions with which Lloyds TSB is concerned are entered into under a four-party structure and it contends that those transactions do not fall within section 75(1), whether they are entered into in this country or abroad.

(iii) Tesco is only a card issuer and does not act as a merchant acquirer at all. It is a member of a network which utilises independent merchant acquirers and is thus always a party to transactions entered into under a four-party structure. Its position in relation to such transactions is the same as that of Lloyds TSB. 2. The proceedings

[12]The OFT under its obligation to superintend the working and enforcement of the Consumer Credit Act brought proceedings against Lloyds TSB and Tesco as representatives of credit card issuers operating under the four-party structure seeking declarations that they are subject to connected lender liability in respect of all transactions financed by credit cards issued by them under consumer credit agreements regulated by the Act. Amex intervened in the proceedings with the permission of the court in order to ensure that its own position was considered. Amex supported the OFT in arguing that connected lender liability attaches to credit card issuers operating under a four-party structure in relation to transactions entered into in this country, but joined forces with Lloyds TSB and Tesco in opposing the OFT’s argument that connected lender liability attaches to any transactions entered into abroad.

[13]Gloster J. granted the OFT a declaration that credit card transactions entered into under a four-party structure attract connected lender liability, but dismissed its application for a declaration that a similar liability attaches in respect of transactions entered into abroad, whether under a three- or four-party structure. Lloyds TSB and Tesco have appealed against the first of the judge’s decisions and the OFT has appealed against the second. Amex has appeared on the appeal in support of the arguments it advanced below.

[14]Mr Michael Briggs Q.C. and Mr. William Hibbert and Josh Holmes appeared before us on behalf of the OFT. Mr Mark Hapgood Q.C. and Miss Maya Lester represented Lloyds TSB and Tesco. Amex was represented by Mr Mark Howard Q.C. and Mr. Iain MacDonald. We can say at the outset that the oral arguments were of the highest quality, supported by formidable written submissions. They left no stone unturned, reflecting the importance of the issues to all concerned. Their detailed analyses of the relevant legislation and the way in which modern card networks operate have made our task in identifying the key issues much easier. 3. The Consumer Credit Act 1974

[15]Despite the formidable amount of documentation with which we and the judge were supplied, the points we have to decide ultimately turn on the construction of the relevant sections of the Consumer Credit Act. Where the correct interpretation of the statute is in doubt it may be appropriate to have regard to the effect of preferring one construction rather than another, but in most cases that is likely to be of only marginal significance. Evidence of the background to the legislation derived from the Crowther Report and of the way in which the credit card industry operated at the time of its publication may be more relevant, but is unlikely to be determinative. The starting point must be the legislation itself.

[16]In order to put the issues of construction in context it is convenient to start with an overview of the Act. The following summary has been taken mainly from the helpful annexe to Mr Briggs’s supplemental skeleton argument which Mr Hapgood and Mr Howard agreed was accurate.

[17]This appeal is primarily concerned with section 75 of the Act which provides:- 75. Liability of creditor for breaches by supplier(1) If the debtor under a debtor-creditor-supplier agreement falling within section 12(b) or (c) has, in relation to a transaction financed by the agreement, any claim against the supplier in respect of a misrepresentation or breach of contract, he shall have a like claim against the creditor, who, with the supplier, shall accordingly be jointly and severally liable to the debtor.

(2) Subject to any agreement between them, the creditor shall be entitled to be indemnified by the supplier for loss suffered by the creditor in satisfying his liability under subsection (1), including costs reasonably incurred by him in defending proceedings instituted by the debtor.

(3) Subsection (1) does not apply to a claim: (a) under a non-commercial agreement, or (b) so far as the claim relates to any single item to which the supplier has attached a cash price not exceeding [£100] or more than [£30,000].

(4) This section applies notwithstanding that the debtor, in entering into the transaction, exceeded the credit limit or otherwise contravened any term of the agreement.

(5) In an action brought against the creditor under subsection (1) he shall be entitled, in accordance with rules of court, to have the supplier made a party to the proceedings.

[18]The context in which that section must be construed includes the long title to the Act which is in the following terms: An Act to establish for the protection of consumers a new system, administered by the Director General of Fair Trading, of licensing and other control of traders concerned with the provision of credit, or the supply of goods on hire or hire-purchase, and their transactions, in place of the present enactments regulating moneylenders, pawnbrokers and hire-purchase traders and their transactions; and for related matters.

[19]The Act regulates a wide range of credit, hire and hire-purchase agreements and for that purpose creates different categories and sub-categories of agreements to which different provisions in the Act and Regulations made under it apply. Section 75(1) which gives rise to connected lender liability applies to “debtor-creditor-supplier agreements falling within section 12(b) or (c) of the Act”. This category is in part defined by reference to a number of wider categories in the Act.

[20]The starting point is a “personal credit agreement” under section 8(1), which provides as follows: 8. Consumer credit agreements (1) A personal credit agreement is an agreement between an individual (‘the debtor’) and any other person (‘the creditor’) by which the creditor provides the debtor with credit of any amount.

[21]Section 8(2) defines a “consumer credit agreement” as follows: 8(2) A consumer credit agreement is a personal credit agreement by which the creditor provides the debtor with credit not exceeding [£25,000].

[22]Section 8 (3) defines a “regulated agreement” as follows: 8(3) A consumer credit agreement is a regulated agreement within the meaning of this Act if it is not an agreement (an ‘exempt agreement’) specified in or under section 16.

[23]“Credit” is defined by section 9: 9. Meaning of credit (1) In this Act ‘credit’ includes a cash loan, and any other form of financial accommodation. (2) Where credit is provided otherwise than in sterling, it shall be treated for the purposes of this Act as provided in sterling of an equivalent amount. (3) Without prejudice to the generality of subsection (1), the person by whom goods are bailed . . . to an individual under a hire-purchase agreement shall be taken to provide him with fixed-sum credit to finance the transaction of an amount equal to the total price of the goods less the aggregate of the deposit (if any) and the total charge for credit.

[24]Regulated consumer credit agreements (i.e. non-exempt personal credit agreements for less than £25,000) are divided into “restricted-use credit” agreements and “unrestricted-use credit” agreements. Section 11 provides as follows: 11. Restricted-use credit and unrestricted-use credit(1) A restricted-use credit agreement is a regulated consumer credit agreement: (a) to finance a transaction between the debtor and the creditor, whether forming part of that agreement or not, or (b) to finance a transaction between the debtor and a person (the ‘supplier’) other than the creditor, or (c) to refinance any existing indebtedness of the debtor’s, whether to the creditor or another person, and ‘restricted-use credit’ shall be construed accordingly.

(2) An unrestricted-use credit agreement is a regulated consumer credit agreement not falling within subsection (1), and ‘unrestricted-use credit’ shall be construed accordingly.

(3) An agreement does not fall within subsection (1) if 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.

(4) An agreement may fall within subsection (1)(b) although the identity of the supplier is unknown at the time the agreement is made.

[25]As to the meaning of finance, section 189(1) provides that “finance” means to finance wholly or partly and that “financed” and “refinanced” shall be construed accordingly.

[26]Based on the two categories of restricted-use and unrestricted-use credit, sections 12 and 13 create two further categories, “debtor-creditor-supplier” agreements and “debtor-creditor” agreements (commonly referred to as “DCS” and “DC” agreements respectively). Section 12 defines a DCS agreement as follows: 12. Debtor-creditor-supplier agreements A debtor-creditor-supplier agreement is a regulated consumer credit agreement being:(a) a restricted-use credit agreement which falls within section 11(1)(a), or

(b) a restricted-use credit agreement which falls within section 11(1)(b) and is made by the creditor under pre-existing arrangements, or in contemplation of future arrangements, between himself and the supplier, or

(c) an unrestricted-use credit agreement which is made by the creditor under pre-existing arrangements between himself and a person (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.

[27]Section 13 defines a DC agreement as follows. 13. Debtor-creditor agreements A debtor-creditor agreement is a regulated consumer credit agreement being:(a) a restricted-use credit agreement which falls within section 11(1)(b) but is not made by the creditor under pre-existing arrangements, or in contemplation of future arrangements, between himself and the supplier, or

(b) a restricted-use credit agreement which falls within section 11(1)(c), or

(c) an unrestricted-use credit agreement which is not made by the creditor under pre-existing arrangements between himself and a person (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.

[28]All regulated consumer credit agreements are either restricted-use or unrestricted-use and either DCS or DC.

[29]As for the definition of “supplier”, section 189(1) provides: ‘supplier’ has the meaning given by section 11(1)(b) or 12(c) or 13(c) or, in relation to an agreement falling within section 11(1)(a), means the creditor, and includes a person to whom the rights and duties of a supplier (as so defined) have passed by assignment or operation of law, or (in relation to a prospective agreement) the prospective supplier.

[30]By virtue of sections 11(1)(a) and 12(a) an agreement may be a DCS agreement even though the supplier and the creditor are the same person (see also the definition of supplier referred to above), but connected lender liability under section 75(1) is irrelevant in those circumstances. Connected lender liability under section 75(1), therefore, only arises where a regulated credit agreement: a) is a DCS agreement for restricted-use credit under sections 11(1)(b) and 12(b); or b) is a DCS agreement for unrestricted-use credit under sections 11(2) and 12(c).

[31]Section 173(1) prevents parties to regulated credit agreements from contracting out of provisions in the Act for the protection of debtors which include the provision for connected lender liability in section 75(1). It provides as follows: 173. Contracting-out forbidden (1) A term contained in a regulated agreement or linked transaction, or in any other agreement relating to an actual or prospective regulated agreement or linked transaction, is void if, and to the extent that, it is inconsistent with a provision for the protection of the debtor or hirer or his relative or any surety contained in this Act or in any regulation made under this Act.

[32]By the terms of sections 12(b) and (c) connected lender liability under section 75(1) will only arise if the credit agreement was made under pre-existing arrangements, or in contemplation of future arrangements, between the creditor and the supplier. Section 189(1) provides that “pre-existing arrangements” and “future arrangements” are to be construed in accordance with section 187 which provides as follows: 187. Arrangements between creditor and supplier(1) A consumer credit agreement shall be treated as entered into under pre-existing arrangements between a creditor and a supplier if it is entered into in accordance with, or in furtherance of, arrangements previously made between persons mentioned in subsection (4)(a), (b) or (c).

(2) A consumer credit agreement shall be treated as entered into in contemplation of future arrangements between a creditor and a supplier if it is entered into in the expectation that arrangements will subsequently be made between persons mentioned in subsection (4)(a), (b) or (c) for the supply of cash, goods and services (or any of them) to be financed by the consumer credit agreement.

[33]Section 187(4) provides that: (4) The persons referred to in subsections (1) and (2) are:(a) the creditor and the supplier;

(b) one of them and an associate of the other’s;

(c) an associate of one and an associate of the other’s. (a) the creditor and the supplier; (b) one of them and an associate of the other’s; (c) an associate of one and an associate of the other’s.

[34]Section 189(1) provides that “associate” shall be construed in accordance with section 184 which provides as follows: 184. Associates(1) A person is an associate of an individual if that person is (a) the individual’s husband or wife or civil partner, or (b) a relative of (i) the individual, or (ii) the individual’s husband and wife or civil partner, or (c) the husband or wife or civil partner of a relative of (i) the individual, or (ii) the individual’s husband or wife or civil partner.

(2) A person is an associate of any person with whom he is in partnership, and of the husband or wife (or civil partner) or a relative of any individual with whom he is in partnership.

(3) A body corporate is an associate of another body corporate: (a) if the same person is a controller of both, or a person is a controller of one and persons who are his associates, or he and persons who are his associates, are the controllers of the other; or (b) if a group of two or more persons is a controller of each company, and the groups either consist of the same persons or could be regarded as consisting of the same persons by treating (in one or more cases) a member of either group as replaced by a person of whom he is an associate.

(4) A body corporate is an associate of another person if that person is a controller of it or if that person and persons who are his associates together are controllers of it.

(5) In this section ‘relative’ means brother, sister, uncle, aunt, nephew, niece, lineal ancestor or lineal descendants, and references to a husband or wife, and references to a civil partner include a former civil partner and a reputed civil partner; and for the purposes of this subsection a relationship shall be established as if any illegitimate child, step-child or adopted child of a person where the legitimate child of the relationship in question had been a child born to him in wedlock.

[35]Subsections (3) and (3A) of section 187 provide that arrangements are to be disregarded in certain circumstances, as follows: (3) Arrangements shall be disregarded for the purposes of subsection (1) or (2) if:(a) they are arrangements for the making, in specified circumstances, of payments to the supplier by the creditor, and

(b) the creditor holds himself out as willing to make, in such circumstances, payments of the kind to suppliers generally, (3A) Arrangements shall also be disregarded for the purposes of subsections (1) and (2) if they are arrangements for the electronic transfer of funds from a current account at a bank within the meaning of the Bankers’ Books Evidence Act 1879.

[36]Section 187(5) provides: (5) Where the creditor is an associate of the supplier’s, the consumer credit agreement shall be treated, unless the contrary is proved, as entered into under pre-existing arrangements between the creditor and the supplier.

[37]Within the categories set out above, the Act also creates the sub-categories of “running-account” and “fixed-sum” credit as follows: 10. Running-account credit and fixed-sum credit (1) For the purposes of this Act: (a) running-account credit is a facility under a personal credit agreement whereby the debtor is enabled to receive from time to time (whether in his own person, or by another person) from the creditor or a third party cash, goods and services (or any of them) to an amount or value such that, taking into account payments made by or to the credit of the debtor, the credit limit (if any) is not at any time exceeded; and (b) fixed-sum credit is any other facility under a personal credit agreement whereby the debtor is enabled to receive credit (whether in one amount or by instalments). Credit card agreements are running-account credit agreements.

[38]A category of “credit-token agreements” is created (an example of a credit token would be a plastic credit card). Section 14 provides: 14. Credit-token agreements(1) A credit-token is a card, check, voucher, coupon, stamp, form, booklet or other document or thing given to an individual by a person carrying on a consumer credit business, who undertakes: (a) that on the production of it (whether or not some other action is also required) he will supply cash, goods and services (or any of them) on credit, or (b) that where, on the production of it to a third party (whether or not any other action is also required), the third party supplies cash, goods and services (or any of them), he will pay the third party for them (whether or not deducting any discount or commission), in return for payment to him by the individual.

(2) A credit-token agreement is a regulated agreement for the provision of credit in connection with the use of a credit-token.

(3) Without prejudice to the generality of section 9(1), the person who gives to an individual an undertaking falling within subsection (1)(b) shall be taken to provide him with credit drawn on whenever a third party supplies him with cash, goods or services.

(4) For the purposes of subsection (1), use of an object to operate a machine provided by the person giving the object or a third party shall be treated as the production of the object to him.

[39]Where an agreement contains parts which fall within different categories, or the agreement (or a part of it) falls within two or more categories, it is a “multiple agreement”. Section 18, in so far as relevant, provides: 18. Multiple agreements(1) This section applies to an agreement (a ‘multiple agreement’) if its terms are such as: (a) to place a part of it within one category of agreement mentioned in this Act, and another part of it within a different category of agreement so mentioned, or within a category of agreement not so mentioned, or (b) to place it, or a part of it, within two or more categories of agreement so mentioned.

(2) Where a part of an agreement falls within subsection (1), that part shall be treated for the purposes of this Act as a separate agreement.

(3) Where an agreement falls within subsection (1)(b), it shall be treated as an agreement in each of the categories in question, and this Act shall apply to it accordingly.

[40]In addition to the definition section (section 189(1)) provision is made to assist with the understanding of the terminology used in the Act. Section 188 provides: 188. Examples of use of new terminology(1) Schedule 2 shall have effect for illustrating the use of terminology employed in this Act.

(2) The examples given in Schedule 2 are not exhaustive.

(3) In the case of conflict between Schedule 2 and any other provision of this Act, that other provision shall prevail.

(4) The Secretary of State may by order amend Schedule 2 by adding further examples or in any other way.

[41]In schedule 2 one finds the following Example: EXAMPLE 16 Facts. Under an unsecured agreement, A (Credit), an associate of the A Bank, issues to B (an individual) a credit-card for use in obtaining cash on credit from A (Credit), to be paid by branches of the A Bank (acting as agent of A (Credit)), or goods or cash from suppliers or banks who have agreed to honour credit-cards issued by A (Credit). The credit limit is £30. Analysis. This is a credit-token agreement falling within section 14(1)(a) and (b). It is a regulated consumer credit agreement for running-account credit. Since the credit limit does not exceed £30, the agreement is a small agreement. So far as the agreement relates to goods it is a debtor-creditor-supplier agreement within section 12(b), since it provides restricted-use credit under section 11(1)(b). So far as it relates to cash it is a debtor-creditor agreement within section 13(c) and the credit it provides is unrestricted-use credit. This is therefore a multiple agreement. In that the whole agreement falls within several of the categories of agreement mentioned in this Act, it is, by section 18(3), to be treated as an agreement in each of those categories. So far as it is a debtor-creditor-supplier agreement providing restricted-use credit it is, by section 18(2), to be treated as a separate agreement; and similarly so far as it is a debtor-creditor agreement providing unrestricted-use credit. (See also Example 22).

[42]The effect of an agreement being a DCS agreement falling within section 12(b) or 12(c) is not confined to section 75(1). By section 56(1)(c) and (2) a creditor who enters into a DCS agreement falling within those sections is deemed to be the supplier’s principal in respect of any antecedent negotiations conducted by the supplier. Section 56 provides as follows: 56. Antecedent negotiations(1) In this Act ‘antecedent negotiations’ means any negotiations with the debtor or hirer: (a) conducted by the creditor or owner in relation to the making of any regulated agreement, or (b) conducted by a credit-broker in relation to goods sold or proposed to be sold by the credit-broker to the creditor before forming the subject-matter of a debtor-creditor-supplier agreement within section 12(a), or (c) conducted by the supplier in relation to a transaction financed or proposed to be financed by a debtor-creditor-supplier agreement within section 12(b) or (c). and ‘negotiator’ means the person by whom negotiations are so conducted with the debtor or hirer.

(2) Negotiations with the debtor in a case falling within subsection (1)(b) or (c) shall be deemed to be conducted by the negotiator in the capacity of agent of the creditor as well as in his actual capacity.

[43]Where there are such “antecedent negotiations” with a “negotiator” which are face-to-face, oral and take place off trade premises, the credit agreement will be cancellable under section 67 which provides as follows: 67. Cancellable agreements A regulated agreement may be cancelled by the debtor or hirer in accordance with this Part if the antecedent negotiations included oral representations made when in the presence of the debtor or hirer by an individual acting as, or on behalf of, the negotiator, unless:(a) the agreement is secured on land, or is a restricted-use credit agreement to finance the purchase of land or is an agreement for a bridging loan in connection with the purchase of land, or

(b) the unexecuted agreement is signed by the debtor or hirer at premises at which any of the following is carrying on any business (whether on a permanent or temporary basis): (i) the creditor or owner; (ii) any party to a linked transaction (other than the debtor or hirer or a relative of his); (iii) the negotiator in any antecedent negotiations. A 5 day cooling-off period is given under section 68 for cancellable agreements.

[44]By virtue of section 69 a notice of cancellation served within time operates to cancel the agreement and any linked transaction. The section provides as follows: 69.— Notice of cancellation. (1) If within the period specified in section 68 the debtor or hirer under a cancellable agreement serves on— (a) the creditor or owner, or (b) the person specified in the notice under section 64(1), or (c) a person who (whether by virtue of subsection (6) or otherwise) is the agent of the creditor or owner, a notice (a “notice of cancellation”) which, however expressed and whether or not conforming to the notice given under section 64(1), indicates the intention of the debtor or hirer to withdraw from the agreement, the notice shall operate— (i) to cancel the agreement, and any linked transaction, and (ii) to withdraw any offer by the debtor or hirer, or his relative, to enter into a linked transaction.

[45]On cancellation, money paid becomes repayable and in the case of a DCS agreement falling within section 12(b) sums paid by the creditor on the debtor’s behalf to the supplier become repayable by the supplier. Section 70 provides as follows: 70. Cancellation: recovery of money paid by debtor or hirer. (1) On the cancellation of a regulated agreement, and of any linked transaction,— (a) any sum paid by the debtor or hirer, or his relative, under or in contemplation of the agreement or transaction, including any item in the total charge for credit, shall become repayable, and (b) any sum, including any item in the total charge for credit, which but for the cancellation is, or would or might become, payable by the debtor or hirer, or his relative, under the agreement or transaction shall cease to be, or shall not become, so payable, and (c) in the case of a debtor-creditor-supplier agreement falling within section 12(b), any sum paid on the debtor's behalf by the creditor to the supplier shall become repayable to the creditor.

[46]By section 61(1)(a) of the Act and the provisions of the Consumer Credit (Agreements) Regulations 1983 and the Consumer Credit (Cancellation Notices and Copies of Documents) Regulations 1983 a regulated agreement is required to comply with certain provisions as to form and content. Different provisions apply to different categories of agreements. Specific information and notices have to be included in an agreement falling within section 12(b) or (c) of the Act.

[47]In the context of the arguments concerning the application of section 75(1) to transactions entered into abroad section 16, and particularly subsection (5)(c), is of some importance. It provides as follows: 16 Exempt Agreements (5) The Secretary of State may by order provide that this Act shall not regulate other consumer credit agreements where—(a) the number of payments to be made by the debtor does not exceed the number specified for that purpose in the order, or

(b) the rate of the total charge for credit does not exceed the rate so specified, or

[48]By Article 5(a) of the Consumer Credit (Exempt Agreements) Order 1989 the Secretary of State has exempted credit agreements where the credit is provided to the debtor in the course of a business carried on by him and the credit agreement is made in connection with trade in goods or services between the United Kingdom and another country or between countries outside the United Kingdom. There is also an exemption under Article 5(b) of credit agreements between a member of the US forces and his family and certain specific institutions (currently a US Federal Credit Union, American Book Distributors Inc. or the Nations Bank of Texas NA). 4. Does connected lender liability attach to transactions carried out under a four-party structure?

[49]Having referred to those parts of the Act that are of particular importance in this case we can now turn to the first of the two main questions that arise on this appeal, namely, whether connected lender liability attaches to transactions entered into under four-party structures. By the conclusion of the hearing before us this had resolved itself into two issues:(i) Where credit is provided by a credit card issuer to enable the customer to enter into a transaction under a four-party structure, is the credit agreement a “restricted-use credit agreement” within the meaning of section 11(1)(b) of the Act?

(ii) If it is, is the agreement made by the creditor“under pre-existing arrangements, or in contemplation of future arrangements, between himself and the supplier” within the meaning of section 12(b)?

[50]As we observed earlier, these both involve questions of statutory construction. Mr. Hapgood submitted that the way in which credit card networks now function is so different from the way in which credit card issuers operated at the time the Act was passed that its provisions cannot sensibly be applied to them. As has already been explained, since 1974 there have been some notable changes in the credit card industry affecting both the way in which most credit card issuers in the United Kingdom operate and the number and range of transactions involved. The first matter to be considered, therefore, is the approach that should be adopted to the interpretation of statutory provisions where there has been a change in circumstances since the legislation was passed.

(a) The approach to construction

[51]All sides accepted that the court’s task is to discern the proper construction of the relevant sections of the Act and it is therefore necessary to begin by dealing with submissions as to how the court should approach the construction of this Act in the circumstances which have now arisen. Mr Hapgood submitted that the four-party structure involving independent merchant acquirers was practically unknown at the time of the Crowther Report which gave birth to the Act and that as a result the court finds itself dealing with a new state of affairs. He reminded us of the principles set out in the dissenting speech of Lord Wilberforce in Royal College of Nursing v Department of Health and Social Security [1981] A.C. 800 at page 822 which were later adopted by the House in R (Quintavalle) v Secretary of State for Health

[2003] UKHL 13

, [2003] 2 A.C. 687 (see in particular the speech of Lord Bingham at paragraph 10 and the speech of Lord Steyn at paragraph 24). He suggested that those principles could be broken down into the following propositions:-(1) When a new state of affairs, or a fresh set of facts bearing on policy, comes into existence, the courts have to consider whether they fall within the parliamentary intention.

(2) They may be held to do so, if they fall within the same “genus of facts” as those to which the expressed policy has been formulated.

(3) They may also be held to do so if there can be detected a clear purpose in the legislation which can only be fulfilled if the extension is made.

(4) How liberally these principles may be applied must depend upon the nature of the enactment and the strictness or otherwise of the words in which it has been expressed. The courts should be less willing to extend the expressed meaning if it is clear that the Act in question was designed to be restrictive or circumscribed in its operation rather than liberal or permissive. They will be much less willing to do so where the subject matter is different in kind or dimension from that for which the legislation was passed.

(5) The courts cannot fill gaps; they cannot by asking the question ‘What would Parliament have done in this current case – not being one in contemplation – if the facts had been before it?’ attempt to supply the answer, if the answer is not to be found in the terms of the Act itself.

[52]Mr Briggs did not dispute these principles as such, but he drew attention to what Lord Hoffman said in Quintavalle v Human Ferlilisation and Embryology Authority

[2005] UKHL 28

in a speech with which the rest of their Lordships agreed at paragraph 33:- “. . . like all guidance on construction, Lord Wilberforce’s remarks are more appropriate to some cases than others. This is not a case in which one starts with the presumption that Parliament’s intention was directed to the state of affairs existing at the time of the Act. It obviously intended to regulate research and treatment which were not possible at the time. Nor is it a case, like the first Quintavalle case, in which the statutory language needs to be extended beyond the “expressed meaning”. The word “suitable” is an empty vessel which is filled with meaning by context and background. Nor is it helpful in this case to ask whether some new state of affairs falls within “the same genus” as those to which the expressed policy has been formulated. That would beg the question because the dispute is precisely over what the genus is. If “suitability” has the meaning for which the authority contends, then plainly PGD and HLA typing fall within it. If not, then not.”

[53]He also relied on the evidence that the four-party structure was known to exist at the time of the Crowther Report and that there was some use of credit cards abroad at that time. More importantly, however, he drew attention to the fact that the Report clearly contemplated that any legislative code should be capable of applying to future but unknown developments: see paragraph 5.2.6 of the report. Credit cards came in for particular mention in this context, as one can see from the following passages in paragraphs 9.1.2 – 4):

“It is reasonable to suppose that we are at present only in the early stages of revolutionary changes in the whole mechanism of transmitting money and granting credit . . . The impelling force behind this change is the ever increasing cost of clerical hand labour . . . The means of change are the availability of sophisticated data processing machines and the development of methods of instant communications with them from multiple terminals . . . [The historical] change, of which we stand at the beginning, will be the development of electronic transference of purchasing power, without the need for documentation . . . Cash in any form may be on its way out, and the cheque may, in due course follow. The granting of credit is inextricably tied up with the process of making payment, and there is no doubt that there will be changes here too . . . What new forms of credit would then come to the fore it is too early to say . . . Competition among the credit granting institutions will, we think lead to increasing pressure for swift and simple ways of obtaining credit – which is all the more reason for the legal framework to concern itself with general principles rather than with specific forms . . . The more enthusiastic advocates of the credit card see it as not only the universal means of payment but also as a general method of securing credit.”

[54]A great many paragraphs in the skeleton arguments were taken up by both sides in dealing with this principle of construction and its bearing on the question whether transactions under a four-party structure are covered by the Act. We hope we may be forgiven for dealing with this aspect quite shortly, first, because the judge’s conclusion in paragraph 33 of her judgment that “ . . . while so called four-party transactions were not common at the time of the report as regards United Kingdom consumers, they did exist. In the United States they were already standard” was not challenged on the appeal by either side, and second, because it seems to us that the view that the Crowther Committee would have taken of the four-party structure, if that is relevant to the question of construction, is quite clear.

[55]The impression we have gained from reading those parts of the Crowther Reportto which we were referred is that the Committee did not have the four-party structure very much in mind, if it had it in mind at all. However, we have little doubt that it would not have considered a four-party structure as completely different from a three-party structure for these purposes, or, in Lord Wilberforce’s terms, as a different “genus”. Moreover, (if it be relevant to construction) we are equally clear that the authors of the report would have thought that consumers were just as deserving of protection in relation to transactions entered into under a four-party structure as those entered into under a three-party structure. In most cases they will have no way of knowing whether a merchant acquirer is involved or not and it is not suggested that the transaction between the customer and the supplier is affected whichever is the case. From the customer’s point of view, therefore, it is difficult to see any justification for drawing a distinction between the different situations. Indeed, in the case of those card issuers such as Lloyds TSB, who operate under both three- and four-party structures, the customer has no means of knowing whether any given transaction is conducted under one or other arrangement. Similarly, from the point of view of the card issuer and the supplier the commercial nature of the relationship is essentially the same: each benefits from the involvement of the other in a way that makes it possible to regard them as involved in something akin to a joint venture, just as much as in the case of the three-party structure. In these circumstances it seems to us overwhelmingly likely that the Crowther Committee would have recommended that legislation protecting the consumer in the three-party context should apply in the four-party context as well. However, the important point for present purposes is that, despite the change in structure, there has been no significant change in the state of affairs to which the legislation was originally directed. The fact that the volume of business has increased dramatically has no bearing on the matter. In our view, therefore, Mr Hapgood can derive no support from the principles enunciated by Lord Wilberforce. On the contrary, we think they support the case of the OFT. (b) A restricted-use credit agreement?

[56]In order to be a restricted-use credit agreement the agreement must be one to “finance” a transaction. Before the judge Mr Hapgood argued that a supply transaction entered into under a four-party structure was not “financed” by the credit agreement because the finance needed to pay the supplier was provided by the merchant acquirer, not by the card issuer. The judge rejected that argument in paragraphs 15 to 17 of her judgment on the grounds that the purpose of the credit agreement in these cases is to provide the customer with credit to enable him to obtain goods or services from the supplier which amounts to financing the transaction. Before us Mr Hapgood abandoned that argument, recognising that from the customer’s point of view, at any rate, there really could not be any argument but that the transaction is financed by the card issuer. In our view, however, the Act requires one to look at the position not simply from the point of view of the customer but by reference to the function of the credit agreement itself. It is clear that, whether the transaction is entered into under a three- or four-party structure, the purpose of the credit agreement is to provide the customer with the means to pay for goods or services. It follows that in both cases the card issuer finances the transaction between the customer and the supplier by making credit available at the point of purchase in accordance with the credit agreement. The fact that it does so through the medium of an agreement with the merchant acquirer does not detract from that because it is the card issuer’s agreement to provide credit to the customer that provides the financial basis for the transaction with the supplier.

[57]Section 11(3) of the Act excludes from the definition of a restricted-use credit agreement an agreement under which the credit is in fact provided in such a way as to leave the debtor free to use it as he chooses. Before us Mr Hapgood argued that, in the case of a transaction entered into under a four-party structure, the credit agreement does not fall within section 11(1)(b) because the customer is under no restriction as to the use of the card and is therefore free to use the credit as he chooses. This point was not dealt with by the judge because the argument was not advanced before her. It is the only issue on the applicability of 11(1)(b). As he developed his argument Mr Hapgood seemed to appreciate that it was not his best point. We agree and propose to deal with it quite shortly.

[58]Mr Hapgood accepted that in the case of an agreement to provide credit only in connection with transactions entered into under a three-party structure the cardholder is not free to use the credit as he chooses: his use of the credit is restricted by the fact that he can only use it as payment for goods and services by presenting the card to a supplier with whom the card issuer himself has made the necessary arrangements. He submitted, however, that where the credit is issued for use in relation to transactions entered into under a four-party structure there is no similar restriction because the card issuer has not himself made any arrangements with the supplier. In such cases the arrangements have been made by the merchant acquirer.

[59]The difficulty for Mr Hapgood is that if the card can only be used to purchase goods or services from those suppliers who have agreed to accept the card, it cannot make any difference who has made the arrangements with them. The note on section 11 of the Consumer Credit Act at page 1252 of Part 2 of Civil Procedure 2005 provides an example of a restricted-use agreement by reference to the use of credit cards. The way in which the note expresses the position is of interest because it is just as apposite to the four-party structure as to the three-party structure, the identity of the person making any arrangement with the supplier being irrelevant. The note says:- “A s.11(1)(b) situation arises where the creditor and the supplier are two different persons, e.g. where the customer uses his regulated credit card to pay for goods or services. The credit card issuer (the creditor) provides credit to the customer to enable the customer to buy from the retailer. The customer’s contract of purchase is with the retailer; his credit card agreement with the card issuer is a restricted-use credit agreement within s.11(1)(b). It is “restricted” use because, although the card can no doubt be used at many retail outlets, it is not available for use absolutely anywhere. If the card-holder (the debtor) is able to draw cash on his credit card account, he is, of course, free to use that cash as he chooses. In that case the credit card agreement is a “multiple agreement” (within s.18(1)(a); when the debtor uses the card to pay for goods or services, the agreement is one for restricted-use credit within s.11(1)(b); when the debtor uses it to draw cash, it is an unrestricted-use credit agreement (see Sched. II, Pt II, Example 16).”

[60]Looked at from the point of view of the cardholder, a similar restriction exists in the case of both the four-party and three-party structures. The card can only be used to buy goods or services from suppliers who have agreed to accept cards carrying the mark or logo in question, however their agreement is obtained. Mr. Hapgood submitted that the number of suppliers willing to accept major credit cards such as Visa and MasterCard is so vast that in practical terms cardholders can use them wherever they like, but the fact that the number of places at which these (and no doubt other) cards can be presented is very extensive cannot disguise the fact that, in contrast to cash, they can only be used at places where the relevant sign is displayed. (c) Arrangements between himself and the supplier?

[61]Mr Hapgood’s most formidable argument on this limb of the case was that section 187 of the Act defines in exclusive terms the circumstances under which arrangements can be considered to exist between a creditor (the card issuer) and a supplier for the purposes of section 12 and does so in a way that enables this requirement to be met only in cases where arrangements are made directly between one or other of the persons referred to in subsection (4), i.e., between(a) the creditor and the supplier,

(b) one of them and an associate of the other’s, or

(c) an associate of one and an associate of the other’s. He submitted that in the case of a transaction entered into under a four-party structure no “arrangements” are made between the creditor and the supplier because the merchant acquirer, not the creditor, enters into arrangements with the supplier. Thus the agreement does not fall within section 12(b). (The OFT did not contend, as it had before the judge, that merchant acquirers are necessarily associates of the card issuers who employ them. The judge decided that point in favour of the banks and there has been no appeal against that part of her decision.)

[62]At first sight the submission that under a four-party structure there are no arrangements between the card issuer and the supplier is surprising. Indeed, in the course of argument Mr. Hapgood found it difficult to resist the conclusion that there are or will be, at least in some senses, arrangements between the card issuer and the supplier on the existence of which the cardholder relies when he enters into his agreement with the card issuer. After all, the card is useless unless there are arrangements of some kind in place to ensure that it will be accepted by a reasonable number of suppliers who will advertise their willingness to do so by exhibiting the logo of the relevant operator, whether it be Visa, MasterCard or whoever. Moreover, Mr Hapgood had to accept that section 12(b) does not require the arrangements to be made directly by or between the creditor and supplier, merely that arrangements should exist between them. He pointed out, however, that section 187(1) states that “a consumer credit agreement shall be treated as entered into under pre-existing arrangements between a creditor and a supplier if it is entered into in accordance with, or in furtherance of, arrangements previously made between persons mentioned in subsection (4)(a), (b) or (c)” and submitted that the section is not simply intended to prevent avoidance of the provisions of section 12(b). He submitted that although the words “treated as” in the opening part of section 187(1) were apt when read in the context of paragraphs (b) and (c) of section 187(4) to prevent parties from contracting out of the Act, that could not have been their purpose in relation to paragraph (a) which refers only to the creditor and the supplier. The inclusion of that paragraph pointed clearly, in his submission, to the conclusion that section 187(1) was intended to provide a definitive statement of those who could be parties to any relevant arrangements. Indeed, he submitted that if the very wide construction of the word “arrangements” which was adopted by the judge was correct, it would have been unnecessary to include paragraphs (b) and (c) at all.

[63]The contrary argument put forward by Mr Briggs and Mr Howard was that the word “arrangements” was carefully chosen for its breadth. There is nothing, they submitted, in section 12 to indicate that it contemplates only arrangements made directly between the creditor and the supplier and it is impossible to describe the networks to which most credit card issuers now belong, and whose cards most suppliers now accept, as involving anything other than a set of arrangements which enable the cardholder to present his card as payment for goods or services and in so doing to obtain credit from the card issuer. They submitted that the words “treated as” in the opening part of section 187(1) indicate that the section was designed to extend the scope of the operation of section 12(b) in order to prevent avoidance of its provisions and that the inclusion of the creditor and supplier in subsection 187(4)(a) can be explained by the fact that one purpose of the wording in subsection (1) was to extend the meaning of the word “under” in Section 12(b) to include cases where the agreement is made “in accordance with or in furtherance of” pre-existing arrangements. Similarly, one purpose of section 187(2) was to extend the words “in contemplation of” in section 12(b) to cases where the agreement is made “in expectation of” future arrangements with suppliers as yet unidentified. Mr. Briggs also produced examples of situations in which paragraphs (b) and (c) would operate to ensure that arrangements which did not directly involve either the card issuer or the supplier itself would be covered.

[64]The word “arrangements” is capable of carrying a broad meaning and in a statute which elsewhere displays a high degree of precision in its choice of language must have been deliberately chosen by Parliament with a view to embracing a wide range of different commercial structures having substantially the same effect. The judge relied on Re British Slag Ltd’s Application

[1963] 1 WLR 727

,particularly the comment of Wilmer L.J. at 739 that, “Everybody knows what is meant by an arrangement”. As she recognised, that case was concerned with very different circumstances under different legislation, so one must be careful not to place too much reliance on it. Nonetheless, as we said earlier, Mr Hapgood had difficulty in resisting the conclusion that even where merchant acquirers are involved there are arrangements in existence between the credit card issuer and suppliers who have agreed to accept its card. Moreover, we find it difficult to accept that Parliament would have been willing to allow some consumers to be disadvantaged by the existence of indirect arrangements when other consumers were protected because the relevant arrangements were direct.

[65]In the end Mr. Hapgood’s argument had to be that by enacting section 187(1) Parliament had cut down what would otherwise be encompassed by the broad wording of section 12(b). However, we are satisfied that the expression “treated as” was used to extend, rather than restrict, the scope of that section; in other words, we accept that it was part of a provision intended to prevent avoidance of its provisions. We think that the natural meaning of those words is to bring within the scope of section 12(b) arrangements that might otherwise fall outside it. If sections 187(1) and (2) had been intended to define the only kind of arrangements that were capable of falling within section 12(b) we think that the draftsman would have used the word “is” rather than the expression “shall be treated as”. Our conclusion is reinforced by the evidence elsewhere in the Act that the draftsman has been careful and precise in his choice of language: for example, where “means” is intended the statute says “means”, and where “includes” is meant it says “includes” (see the definitions in section 189). We therefore reject Mr. Hapgood’s argument and, like the judge, take comfort from the fact that many distinguished commentators on the Act support that view: see, for example, Goode, Consumer Credit Law and Practice at IC 25.63(a) and IC 33.148; Guest and Lloyd, Encyclopaedia of Consumer Credit Law pages 2074/2; 2074/6; Brindle and Cox, Law of Bank Payments 3rd ed: paragraphs 4-066, 5-027 and 5-029.

[66]For all these reasons we are satisfied that an agreement under which a card issuer makes credit available to the cardholder for use in connection with transactions occurring under a four-party structure falls within section 12(b) of the Act with the result that connected lender liability attaches to transactions entered into by the cardholder pursuant to it. 5. Does connected lender liability attach to transactions entered into abroad?

[67]On the face of it section 75 imposes connected lender liability on the creditor in relation to any transaction financed by a DCS agreement falling within the terms of section 12(b) without regard to the place where the transaction was entered into. Unless the section is to be construed restrictively, therefore, it applies to transactions entered into abroad just as much as to transactions entered into in this country. Three main reasons were put forward for construing the section as having no application to transactions entered into abroad. The first was that the ability to use credit cards abroad did not exist to any significant degree at the time when the Act was passed and that Parliament therefore cannot have intended section 75 to apply to such transactions. This raises the question of the proper approach to the construction of legislation when new circumstances have arisen which we considered earlier. The second was that there is a presumption that Parliament did not intend to legislate in a way that would affect persons or acts done outside the territory of this country, the so-called “territoriality principle”. The third, which is related to the second, is that the terms of the Act as a whole, and of section 75 in particular, make it clear that Parliament did not intend that connected lender liability should attach to transactions entered into abroad. To some extent the submissions relating to these three arguments overlap, but it is convenient to consider them separately. Before doing so it is convenient to summarise the judge’s conclusions.

(a) The judge’s conclusions

[68]The judge held that the reference in section 75(1) to a “transaction” financed by a DCS agreement falling within section 12(b) does not refer to what she described as an “overseas transaction”. Her reasons were:(i) that the section had to be construed in the context of the Crowther Report’s focus on domestic transactions;

(ii) that the territoriality principle supported the conclusion that some limitation must be placed on the words “ . . . any claim against the supplier”;

(iii) that to construe section 75(2) as subjecting a foreign supplier to a statutory liability to indemnify a creditor carrying on business in the United Kingdom would give it an extra-territorial effect;

(iv) that the whole premise of section 75 was “that the UK court has an enforceable and effective jurisdiction over the supply transaction and over the supplier” and that “the supplier must be amenable to the jurisdiction of the English court”. In this context she relied on the difficulties the creditor would be likely to encounter in serving the supplier out of the jurisdiction and the problems it would face defending a claim in the absence of the supplier;

(v) that she was assisted by the absence from Section 75 of a provision similar to that contained in Section 1(6) of the Civil Liability (Contribution) Act 1978 (“the 1978 Act”);

(vi) that section 9(2) and section 16(5)(c) of the Act, coupled with the absence of corresponding provisions in section 75, pointed to an intention on the part of Parliament that section 75 should extend only to transactions in this country;

(vii) that the decision in Jarrett v Barclays Bank [1999] Q.B. 1 did not provide any assistance and that she was unable to agree with the view expressed by His Honour Judge Behar in Grove v American Express (unreported, 28 April 2003) who held in the context of the trial of a preliminary issue that section 75(1) does apply to foreign supply transactions and that Mr Grove therefore had a like claim against Amex to that which he had against his hotel in St Tropez;

(viii) that little assistance was to be gained from the academic writers since, apart from expressing conflicting views, the level of analysis they offered was not sufficiently deep;

(ix) that such submissions as were addressed to her on the basis of Articles 28 and 29 of the EC Treaty (and they seem to have been limited) should be rejected.

(b) Construction - the effect of a change in circumstances

[69]We have already discussed the principles that apply when considering whether a statutory provision applies to circumstances that did not exist when the legislation was passed. Mr. Hapgood submitted that the Crowther Committee did not have in mind the use of credit to support transactions abroad, particularly the extensive use abroad of credit cards issued in the United Kingdom, and the judge seems to have had the relevant principles in mind when saying at paragraph 44:- “there is absolutely nothing in the Crowther Report or the record of the proceedings in Parliament to suggest that the members of the Crowther committee or the sponsors of the Consumer Credit Bill ever applied their minds to the territorial scope of section 75. The context in which their report was produced was vastly different from the modern market place.”

[70]She further accepted Mr Hapgood’s submission that evidence that a Barclaycard could be used in some foreign countries in 1974, although to exactly what extent was unknown, was irrelevant. We are not quite sure why such evidence should have been irrelevant, but in any event at the end of paragraph 44 she said:- “Subject to the point I have just made [which related to the importance of the indemnity in section 75(2)], it was effectively common ground that the process of construction involves ascertaining the intention of Parliament on the basis of:(i) the rules of statutory construction in relation to the extra-territorial application of English statutes;

(ii) what is in the Act itself; and

(iii) just as importantly, what is not in the Act.” This seems to be putting the principle presently under consideration somewhat low in the scale on this aspect of the case.

[71]We would accept that in this context it is of some relevance that the Crowther Report appears to have been dealing primarily with domestic matters. That is not surprising seeing that it had been asked to consider the whole range of consumer credit agreements in this country and to make recommendations for reform of the law in that area. In those circumstances domestic transactions supported by consumer credit were naturally the focus of attention and it may well be that the widespread use of credit to support transactions abroad had not then developed. That might lend support to a submission made particularly by Mr Howard that the Act itself appears to be directed, at least in the main, to credit agreements and transactions entered into in this country. However, the question we have to consider is whether the Act can properly be held to apply when the only change in circumstances is that a consumer, who has entered into a regulated credit agreement in this country which allows him to use it in connection with transactions abroad, wishes to take advantage of that facility.

[72]We find it difficult to accept that the changes brought about by the increase in foreign travel since 1974 combined with the widespread ability to use credit cards abroad gives rise to a wholly new situation. Certainly the increase in the number of suppliers willing to accept the major credit cards does not do so and we do not think that the ability to use them abroad does either because the basic elements of the credit agreement remain the same. Moreover, if section 75 is to apply to transactions entered into abroad, its effect will not be limited to transactions carried out with credit cards. It would therefore have to be said that the use of any form of credit to support a transaction abroad gave rise to a wholly new situation. However, to suggest that developments which have resulted in more transactions abroad being supported by credit have also resulted in a fundamental change in the nature of the credit agreements supporting them, so as to bring about what Lord Wilberforce might have described as “a different genus of facts”, is in our view rather far-fetched. We do not think, therefore, that this principle of construction has a significant part to play in this context.

(c) Construction - the territoriality principle

[73]What then of the territoriality principle? The basic rules on territoriality are set out in Bennion, Statutory Interpretation, 4th edition as follows :- “Section 102 Basic rule as to extent of an Act a) Although an enactment may be expressed in general terms, the area for which it is law must exclude territories over which Parliament lacks jurisdiction. It also excludes territories for which Parliament did not in that enactment intend to legislate. b) . . . . . . . . . . Section 128 General principles as to application Unless the contrary intention appears, and subject to any privilege, immunity or disability arising under the law of the territory to which an enactment extends (that is within which it is law), and to any rule of private international law, an enactment applies to all persons and matters within the territory to which it extends, but not to any other persons and matters.”

Section 128 General principles as to application

[74]As Bennion points out, one obvious reason for restricting the literal meaning of an Act is “a principle of comity which confines its operation within the territorial jurisdiction of the enacting state” (per Viscount Simonds in A-G v Prince Ernest Augustus of Hanover [1957] A.C. 436 at page 462), but the rule is nonetheless one of construction, as Lord Wilberforce pointed out in the famous passage from his speech in Clark (Inspector of Taxes) v Oceanic Contractors Inc [1983] 2 A.C. 130 at page 152 where he said:

“The respondent company contends, and the Court of Appeal has held, that the provisions regarding collection of tax by deduction from wages can never have been intended to apply to a foreign company, non-resident in the United Kingdom, which makes payments outside the United Kingdom. In my opinion this contention is erroneous, because it is based upon a mistaken application or understanding of the “territorial principle”

. That principle, which is really a rule of construction of statutes expressed in general terms, and which as James LJ said a “broad principle”, requires an inquiry to be made as to the person with respect to whom Parliament is presumed, in the particular case, to be legislating. Who, it is to be asked, is within the legislative grasp, or intendment, of the statute under consideration? The contention being that, as regards companies, the statute cannot have been intended to apply to them if they are non-resident, one asks immediately – why not?”

[75]That case concerned a company resident outside the United Kingdom which had an establishment within the United Kingdom and carried on business here. In response to the submission that the statute in question did not apply to a non-resident company Lord Wilberforce posed the question “why not?”, and having done so, reached the conclusion there was no reason “why not”.

[76]The principles described by Bennion were not themselves in dispute, but their application in the context of this appeal was hotly debated. Mr Briggs submitted that it was important to analyse where the territoriality principle led one in relation to this Act generally and section 75(1) in particular. The Act’s aim, as the long title indicated, was to protect consumers and control traders concerned with the provision of credit. The territoriality principle, he submitted, restricts the operation of the Act to credit agreements made in the United Kingdom. Accordingly, when the Act refers to “debtors” it means debtors within the territorial jurisdiction of the United Kingdom and when it refers to “traders concerned with the provision of credit” it means traders providing credit within the territorial jurisdiction of the United Kingdom. When considering section 75 the relevant question, he submitted, is whether the Act was purporting to extend its grasp beyond its territorial jurisdiction by legislating in relation to persons or activities outside that jurisdiction. Looking at Section 75(1) alone, it was clear that Parliament was intending to give a consumer (that is, a United Kingdom consumer) certain rights under a credit agreement of the kind falling within section 12(b), i.e. a credit agreement entered into with a trader providing credit within the United Kingdom. He submitted that section 75(1) does not in any way purport to affect a foreign supplier or a foreign supply contract and therefore cannot be said to offend the territoriality principle.

[77]Since section 75(1) does not purport to affect foreign transactions or foreign suppliers in any way, there is obviously much force in that argument. Indeed, Mr Hapgood recognised that if section 75(2) had not been enacted it would have been much more difficult for him to invoke the principle of territoriality at all. His argument, however, derives its strength mainly from the presence of subsection (2) which, at least on one view, creates a statutory cause of action in favour of the creditor against the supplier. He submitted that subsection (2) is an integral part of the statutory scheme relating to connected lender liability and that the true scope of subsection (1) cannot be determined without also taking account of subsection (2). If subsection (1) applied to transactions entered into abroad, the effect of subsection (2) would be to impose a statutory liability on the foreign supplier. That would be contrary to the territoriality principle and cannot have been the intention of Parliament. Accordingly, section 75 is to be construed as having no application to transactions entered into anywhere outside the United Kingdom.

[78]Mr Briggs’s response was that section 75(2) took the matter no further. He submitted that any rational system of law would allow a person who had been compelled to discharge the liability of another to recover from him on the basis of unjust enrichment, though the particular formulation of the claim would no doubt vary between different jurisdictions. On that basis he argued that section 75(2) was intended to be merely declaratory and that there was therefore no question of infringing the territoriality principle. However, he submitted that even if section 75(2) were to be construed as providing a cause of action against the supplier, Mr Hapgood was relying on the territoriality principle not to restrict the scope of subsection (2) but to restrict the scope of subsection (1). That, he submitted, amounted to turning the principle on its head.

[79]In support of the submission that it was not the intention of Parliament to impose connected lender liability in relation to transactions abroad both Mr Hapgood and Mr. Howard pointed to the practical difficulties that a card issuer would often encounter in enforcing his rights against a foreign supplier. These were said to arise mainly out of the problems associated with service out of the jurisdiction and the enforcement of any judgment abroad if the supplier did not submit to the jurisdiction of the English court. Mr. Briggs, however, submitted that the difficulties were much exaggerated by the banks and that Parliament had not concerned itself with whether the creditor’s remedy against the supplier was effective in practical terms, as it might not be, for example, in relation to a supplier in this country who became insolvent. He argued that United Kingdom credit card issuers could choose whether to allow cardholders to use their cards abroad and therefore whether to run the risk of incurring connected lender liability in relation to foreign transactions. The same could be said of banks which are prepared to finance the purchase of holiday properties abroad.

[80]Mr Howard supported Mr Hapgood’s submissions on section 75. He also relied on the language of section 75(1) which speaks of the debtor having a “like” claim against the creditor as he has against the supplier and submitted that the provision would not work well if the English court had no jurisdiction over the claim against the supplier which might arise under a different system of law altogether. He submitted that the Act contemplated that the English court would have jurisdiction over both the original claim and the claim against the supplier and that the latter would be justiciable in the English court. He also relied on the provision in section 75(5) allowing the creditor to join the supplier in proceedings brought against it by the debtor.

[81]It is convenient to consider all these arguments together. Although it is possible to construct arguments based on the language of section 75, we do not think that any of them is ultimately decisive of the issue. Since the effect of subsection (1) is to create a statutory cause of action sui generis in nature, the reference to a “like” claim is capable of embracing claims based on misrepresentation or breach of contract whatever their precise juridical basis. We are unable to accept, therefore, that the use of these words points clearly to the conclusion that 75(1) relates only to transactions entered into in the United Kingdom. Similarly, the fact that the draftsman used the expression “jointly and severally liable” (an expression well-known to the law of England, but perhaps not used in other systems of law) is not in our view of great significance; it simply describes the relationship that the statute brings into being between the debtor and the creditor. It does not point clearly to the conclusion that foreign transactions fall outside section 75(1).

[82]Similarly, little, if anything, can in our view be gleaned from section 75(5). It has for a long time been possible to join additional parties to English proceedings in circumstances where the same issues of fact or law arise between the claimant or the defendant and the third party as arise in the action between the claimant and the defendant, whether the third party is within the jurisdiction or abroad. In our view subsection (5) simply gives the creditor an additional statutory right to take that step.

[83]Mr. Howard’s submission that section 75(5) contemplates that the claim against the supplier will be justiciable in England is in our view answered by the decision of this court in Jarrett v Barclays Bank. In that case the court was concerned with three appeals relating to the purchase of timeshare apartments abroad (one in Portugal and two in Spain). In Jarrett v Barclays Bank the purchase had been financed in part by a payment made using a credit card issued under a credit agreement made in England and in part by a loan said to be a DCS agreement falling within section 12(b) of the Act. In each of the other two cases the purchase had been financed by loans obtained from a bank in this country which were also said to be DCS agreements within section 12(b). It seems likely from the summary of the facts given in the judgment that in Jarrett v Barclays Bank the agreement between the claimant and the timeshare operator had been entered into abroad. That may also have been the case as regards the other two claimants, but the position is not clear.

[84]Each of the claimants brought a claim in this country against the lender under section 75(1) of the Act seeking damages for misrepresentation and breach of contract on the part of the timeshare operator. The banks argued that the claims related to an interest in land and that the relevant foreign court therefore had exclusive jurisdiction to determine the claim by virtue of Article 16(1) of the Brussels Convention. This court held that the agreement between the claimant and the timeshare operator was for the acquisition of a tenancy of land so that the foreign court had exclusive jurisdiction to determine any issue arising under it, but that since the claims against the banks were based on the existence of DCS agreements within section 12(b) of the Act, Article 16(1) did not apply to them.

[85]The very thing that Jarrett v Barclays Bank decided, therefore, was that, on the assumption that section 75(1) applied in such a case, the fact that the underlying claim might not be justiciable in England was nothing to the point. As Morritt L.J. put it:- “The reference to the like claim in section 75 of the Consumer Credit Act 1974 must refer to the like cause of action. Plainly the remedies cannot be the same, for the remedies available to the debtor against the supplier may include injunctions or orders for specific performance which could not lie against the creditor. Further the use of the words “the like” presupposes some differences. 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 proceedings against the supplier. But I do not think that the answer to the question lies in a consideration of the statute rather than the Brussels Convention and in the principles established by the European Court of Justice in the interpretation of the words “proceedings which have as their object. . . . . .”.”

[86]Since the only issue before the court in Jarrett v Barclays Bank was whether the foreign courts had exclusive jurisdiction to determine the claims against the banks, it cannot be said that the court was required to, or did, decide that the claimants were in fact entitled to make a claim under section 75(1), although it appears to have been assumed that they could. We agree with the judge, therefore, that the case does not ultimately provide any assistance in relation to the question we have to decide. What can be said, however, is that there is nothing in the case to suggest that a claim could not be made against the lender in those circumstances. Moreover, it might be thought to be anomalous and unfortunate if in a case of this kind the existence of connected lender liability should depend on whether the agreement between the claimant and the timeshare operator happened to be made in this country or abroad.

[87]The argument that creditors will often face practical difficulties in seeking to enforce claims against foreign suppliers is one that must be taken seriously, but the problems are not in our view so great that Parliament can be presumed to have intended to exclude foreign transactions from the scope of section 75(1). In most cases it should not prove difficult to obtain permission to serve the foreign supplier out of the jurisdiction since the claim against him will inevitably turn on the same facts as those on which the primary claim is based. It is, of course, possible that the supplier will ignore any proceedings in this country and that may result in a judgment against him being unenforceable in his own country. However, there is a strong likelihood that a creditor who has been required to satisfy a judgment obtained by the debtor in this country will have strong claim against the supplier under local law. There is undoubtedly plenty of room for procedural manoeuvres and mishaps and, in cases where the supplier does not co-operate, the defence of the cardholder’s claim and the claim against the supplier will require careful co-ordination. However, there is no evidence to suggest that these problems are unmanageable and in our view they are part of the price card issuers have to pay for the benefits obtained through allowing cards to be used abroad.

[88]The argument based on section 75(2) is more formidable, however. Despite Mr Briggs’s submissions, we are unable to accept that the subsection is intended to be nothing more than declaratory of the existing law. Section 75(1) clearly creates a statutory cause of action in favour of the debtor against the creditor and the language and structure of section 75 as a whole indicates that section 75(2) was intended to create a corresponding statutory cause of action in favour of the creditor against the supplier. The fact that English law already gave the creditor such a remedy does not in our view detract from that. However, this does mean that, if section 75 applies to transactions entered into abroad, the effect of subsection (2) is to impose a liability under a United Kingdom statute on a foreign supplier. The fact that the creditor will probably also have a corresponding claim under the local law and that the foreign court would almost certainly not give effect to the creditor’s statutory right under English law does not affect that position. If the OFT’s case is to succeed, therefore, it must be on the basis that the presumption that Parliament did not intend to legislate in a way that would affect persons outside this country can be displaced.

[89]Both Mr. Hapgood and Mr. Howard sought to derive further support for their argument from section 75(3)(b) of the Act which excludes from the operation of section 75(1) claims relating to single items to which the supplier has attached a cash price of not more than £100 or more than £30,000. They submitted that the absence of any provision for a sterling equivalent in cases where the item in question was supplied abroad is a further indication that the section was not intended to apply to transactions of that kind. Mr. Briggs suggested that the answer to this point was to be found in section 9(2), but Mr. Howard contended that there was an important distinction to be drawn between a provision that deals with the currency in which the credit is made available and one that regulates the range of supply transactions to which connected lender liability attaches.

[90]We are unable to attach the same degree of significance to this distinction. Although sections 9(2) and 75(3) are dealing with different subject matters, they are closely related because the card issuer provides credit to the cardholder each time he uses his card to pay for goods or services. When a cardholder uses his card abroad the card issuer provides him with credit in a foreign currency, although in due course it is converted into sterling for the purpose of maintaining the running account between them. By virtue of section 9(2) the credit (which usually reflects the cash price of the goods or services in question) is to be treated for the purposes of the Act as having been provided in sterling of an equivalent amount. It must be accepted that there is a distinction between determining the amount of the credit and identifying the cash price attached to any single item by the supplier, but we think that this section can and should be construed as referring to the sterling equivalent whenever the cash price is denominated in a foreign currency.

[91]However, before reaching any final conclusion on the meaning of section 75 it is necessary to examine other parts of the Act in order to see whether they disclose any intention as to the scope of the Act as a whole.

(d) Sections 9(2) and 16(5)(c)

[92]Mr. Briggs submitted that sections 9(2) and 16(5)(c) pointed strongly in his favour. Section 9 deals with the meaning of “credit” and section 9(2), to which we have already referred, expressly contemplates that credit may be provided in a currency other than sterling. Where a credit card issued in this country is used abroad the card issuer provides credit in foreign currency at the time of each transaction, even if the debt is later converted into sterling for the purposes of the account between them. The significance for present purposes of section 9(2) is that it tends to support the view that the Act contemplates transactions abroad. That would be so, even if the Act were concerned only with the provision of credit by the issue of credit cards, but in fact it is concerned with credit agreements, including DCS agreements, of all kinds. Jarrett v Barclays Bank provides a useful example of the kind of situation in which credit may be made available in this country for the purchase of property or services abroad. In such cases it may be a matter of chance whether the transaction which the credit was intended to finance was entered into in this country or abroad. However, the likelihood must be that in many cases where credit is provided in a foreign currency its purpose will be to finance a transaction taking place abroad. The presence of this subsection does, therefore, lend some support to the conclusion that the Act contemplates foreign transactions.

[93]A similar inference can be drawn from section 16(5)(c) which allows the Secretary of State to exclude from the operation of the Act agreements having a connection with a country outside the United Kingdom. The nature of the connection that Parliament had in mind is not expressly stated, but Mr. Briggs submitted that this section strongly supported the conclusion that credit card transactions entered into abroad do fall within the scope of the Act.

[94]It should be noted that the section permits the Secretary of State to exclude from the operation of the Act agreements, not individual transactions, but the section does in our view provide further support for the conclusion that the Act contemplated that regulated credit agreements might be used to finance foreign transactions. As we have already pointed out, one obvious example is an agreement to provide credit for the purchase of property abroad. In our view the presence in the Act of section 16(5)(c) does provide quite powerful support for the OFT’s case.

(e) Cancellable agreements

[95]Section 67 of the Act provides that in certain circumstances a debtor may cancel a regulated credit agreement even after he has made use of it to finance a transaction. Sections 68 and 69 provide respectively for a “cooling off period” and for the means by which notice may be given to the creditor; sections 70 to 72 make consequential provisions for the recovery of any money paid by the debtor to the supplier, for the repayment of credit and for the return of the goods. The principle underlying this group of sections is that, if the debtor serves a valid notice of cancellation, both the credit agreement and any related transactions are rescinded. Mr Hapgood submitted that the existence of these provisions supports the conclusion that the Act as a whole was not intended to affect transactions entered into abroad.

[96]At one time we were inclined to think that these sections provided considerable support for Mr Hapgood’s and Mr Howard’s arguments, although they did not stand at the forefront of their submissions. However, on reflection we think that the assistance to be gained from them is limited.

[97]It is first necessary to consider in what circumstances a credit agreement is cancellable. By virtue of section 67 a right of cancellation arises only in cases where there were antecedent negotiations which included oral representations made in the presence of the debtor by the creditor, the supplier or someone acting on his behalf, but it does not arise even in those circumstances if the unexecuted agreement was signed by the debtor at the creditor’s or supplier’s business premises or those of their agent. It is clear, therefore, that these sections are aimed at those who are persuaded to sign credit agreements at home following a personal encounter with someone who has an interest in the business. In practical terms, therefore, these provisions are unlikely to apply to an agreement to provide credit in the form of a credit card account. This does not meet the point of principle, of course, but it does suggest that these sections of the Act were not principally aimed at credit card agreements which provide an easy way of drawing on the credit to obtain goods and services once the card has actually been issued.

[98]Since the effect of cancellation is to rescind any related supply transactions, it can be said that if any of those transactions have been entered into abroad the Act purports to affect them and to that extent it would, unless construed in a more limited manner, have extra-territorial effect. However, the fact that it is quite difficult to imagine circumstances in which this problem is likely to arise in practice suggests that the possibility that a related transaction might have been entered into abroad should not be given undue weight when construing these sections. It also suggests that this somewhat remote possibility should not be used as a ground for arguing that the Act as a whole was not intended to apply in any case where a relevant transaction occurred abroad.

[99]The effect of these sections can be tested in the following way. It is possible, again in theory, for several related transactions to be carried out in different countries on the same day using a credit card. For example, the cardholder on a day trip to Calais might buy a coat in England on his way out and a hat in France before returning home. As in the case of section 75, there is nothing in the language of section 69 to distinguish between transactions entered into in this country and those entered into abroad or to support the conclusion that the Act operates so as to rescind the former but not the latter.

[100]If, in the example given above, the customer were to cancel the credit agreement the day after his trip to Calais that would automatically rescind the contract for the purchase of the coat (in the eyes of English law), which he would have to return. However, we doubt very much whether cancellation of the credit agreement would be effective in the eyes of the French courts to rescind the contract for the purchase of the hat, which would not only have been made in France but would also be governed by French law. Moreover, cancellation is not expressed to have any effect on the agreement between the supplier and the creditor or any other person who has agreed to pay him for the goods or services he has supplied. The supplier of the hat could therefore still expect to recover the price from the card issuer or the merchant acquirer. Having agreed to accept payment from the card issuer or merchant acquirer, it must be doubtful whether the French supplier could make any claim against the purchaser. However, if for some reason he tried to make such a claim in England, the court would be obliged to apply section 69(1) as a mandatory rule of law. In those somewhat far-fetched circumstances the section would have extra-territorial effect.

[101]It is also possible to imagine a situation in which a DCS agreement made in support of a specific foreign transaction could give rise to a similar problem -an agreement to provide credit for the purchase of a foreign timeshare is an obvious example - but again we doubt whether in practice it is one that is likely to arise very often given the very restricted circumstances in which an agreement is cancellable. These sections of the Act are aimed primarily at those who visit people at home with a view to persuading them to buy goods of one kind or another on credit. In such cases the supply transaction is usually entered into at the same time as the credit agreement and there is no question of any transaction being entered into abroad. Although it is possible to construct situations in which the requirements of section 69 are satisfied in relation to a credit agreement supporting a transaction abroad (for example, a consumer in the United Kingdom is persuaded by a salesman who visits him at home to enter into a credit agreement to finance the purchase of a car from a specific dealer in Germany who has an arrangement with the credit provider), it is likely that in practice such cases, if they exist at all, will be few and far between.

[102]All this only serves to reinforce the conclusion that the potential for these sections to have extra-territorial effect is so limited that it is not a factor that points with any force to the conclusion that they were not intended to apply to any credit agreement capable of being used to finance transactions abroad. Accordingly, we do not think that they can be taken as providing any support for the conclusion that the Act as a whole extends only to credit agreements capable of financing transactions entered into in this country.

(f) Commentaries

[103]Unlike the judge we have derived some assistance from the commentaries of the academic writers in this area of the law, in particular that of Professor Roy Goode Q.C. whose work Consumer Credit Law and Practice, although not reaching any firm conclusion on this question, does debate the issues in some detail. In paragraph 56 of her judgment the judge quoted from Prof. Goode’s work (with emphasis added) as follows:- “The fact that the supply contract is governed by foreign law would not appear to affect the creditor’s liability under s. 75 of the Act, assuming that the credit agreement is itself within the Act and is not exempt . . . . Thus, a bank issuing a credit card under a regulated consumer credit agreement will be liable under s. 75 if the cardholder uses the card abroad to purchase goods or obtain services and the supplier commits a misrepresentation or breach of contract. This may seem hard; but it has to be remembered that liability is imposed on the creditor only as the result of the credit being extended pursuant to or in contemplation of arrangements between him and the supplier, and it is therefore for the creditor to exercise care in selecting overseas suppliers with whom to conclude arrangements. Indeed, it can be argued that the consumer needs even greater protection in dealings with a foreign supplier than with a trader in his own country, for the problems of litigating abroad are formidable.”

[104]We assume that the judge emphasised the words in italics to make the point that, although Prof. Goode appears to have assumed that card issuers are responsible for making arrangements with suppliers, in fact those who are parties to one of the major networks rely almost entirely on merchant acquirers to recruit the suppliers who accept their cards. However, the decision to join a network which selects suppliers in that way is a commercial decision on the part of the card issuer and the recruitment of suppliers by merchant acquirers to whom that function is delegated is essentially no different for these purposes from the direct selection and recruitment by the card issuers themselves in cases where a three-party structure is involved.

(g) The comparison with section 1 of the 1978 Act

[105]The judge obtained some assistance from a comparison between section 75 of the Act and section 1 of the 1978 Act and in particular from the omission from section 75 of any provision comparable to section 1(6) which provides as follows:- “References in this section to a person’s liability in respect of any damage are references to any such liability which has been or could be established in an action brought against him in England and Wales by or on behalf of the person who suffered the damage; but it is immaterial whether any issue arising in any such action was or would be determined (in accordance with the rules of private international law) by reference to the law of a country outside England and Wales.”

[106]Mr. Hapgood submitted that, by including this subsection in the 1978 Act which was passed only four years after the Consumer Credit Act, Parliament had demonstrated its awareness of the possibility that claims might arise abroad to which foreign law would apply and of the need to make express provision for that possibility. By failing to make similar provision in section 75, he submitted, Parliament had demonstrated that it did not intend the section to be concerned with claims arising under transactions entered into abroad.

[107]Mr Briggs submitted that section 1(6) was necessary in the context of legislation dealing with claims for contribution if Parliament wished to make it clear that a liability in relation to which a contribution claim could be brought in this country had to be one recognised by English law, even if some of the issues on which liability depended were to be determined by reference to foreign law. The right of indemnity provided by section 75(2), on the other hand, was one created by the statute itself and therefore it was unnecessary to include in that section a provision comparable to that contained in section 1(6) of the 1978 Act.

[108]We do not gain any assistance from the absence from section 75 of a provision comparable to that found in section 1(6) of the 1978 Act. The two statutes are dealing with different matters arising in different contexts. Since proceedings for contribution under the 1978 Act might be taken in this country in respect of liabilities incurred abroad, it was obviously desirable for Parliament to make it clear that a contribution can only be recovered in respect of foreign liabilities that would be recognised by English law. A failure to do so would have left open the possibility that a claim that could not have been enforced directly against the defendant in England could be enforced against him indirectly by means of an action for contribution. That, as we see it, was the purpose of enacting the first half of section 1(6). Having done that, however, it was desirable, if perhaps not strictly necessary, to make it clear that it was no bar to a claim that some or all of the issues bearing on the existence of the underlying liability might be governed by the law of another country.

[109]Under section 75 the existence of the transaction, wherever it was entered into, is sufficient to provide the basis for connected lender liability if it was financed by a DCS agreement. The creditor’s right to make a claim against the supplier is one created by statute which depends on nothing more than his having been compelled to satisfy the debtor’s claim, but before the debtor can succeed against the creditor he must establish (in an English court, if necessary) that he had a claim against the supplier. In those circumstances there is no risk of the creditor being held liable, even indirectly, in respect of a claim that would not be recognised in England. We therefore agree with Mr. Briggs that it was unnecessary to include in section 75 any provision comparable to section 1(6) of the 1978 Act dealing specifically with the liability of a foreign supplier.

(h) The relevance of EU law

[110]Mr Briggs’s final point was to expand on the submissions that had been made to the judge on the relevance to the interpretation of section 75 of the United Kingdom’s obligations under the Treaty establishing the European Community. He put forward two arguments:(a) that, if connected lender liability were restricted to transactions entered into in the United Kingdom, it would tend to affect competition between Member States and thus contravene Articles 28 and 29 of the treaty;

(b) that if section 75 were interpreted as not extending to any transactions entered into abroad, the United Kingdom would have failed in its duty to implement article 11 of Council Directive 87/102/EEC (“the Consumer Credit Directive”) which among other things provides for the introduction of a limited measure of connected lender liability throughout the European Union. He submitted that the Act should be construed, if possible, in a way that gives effect to those treaty obligations. (1) Effect on competition – Articles 28 and 29

[111]In support of his first argument Mr Briggs gave the example of a United Kingdom resident who wants to fly from Paris to Nice. He can do that by purchasing a ticket from an office in London or Paris by telephone or on the internet using his credit card. It is obvious, Mr Briggs submitted, that the purchaser would prefer to buy the ticket in London if that would enable him to obtain the benefit of connected lender liability and that would give the supplier in London a competitive advantage.

[112]Articles 28 and 29 of the European Treaty prohibit quantitative restrictions on imports and exports and all measures having equivalent effect. In Procureur du Roi v Benoit and Gustave Dassonville [1974] ECR 837 the European Court held that all trading rules enacted by Member States which are capable of hindering, directly or indirectly, actually or potentially, intra-Community trade are to be considered as measures having an effect equivalent to quantitative restrictions. Mr. Hapgood did not challenge that principle, but he did submit that since the decision in the Dassonville case there has been an increasing willingness on the part of the European Court to recognise that in some cases the effect of national legislation on cross-border trade may be too tenuous, speculative or remote to involve a contravention of Articles 28 or 29. In support of that proposition he drew our attention to the decision in BASF AG v Praesident des Deutschen Patentamts

[1999] ECR I-6269

in which the Court recognised that, although there would probably be differences in the movement of goods between member states depending on whether inventions were protected or not, the effect on intra-Community trade of any competition in the non-protected markets would depend above all on the actual unforeseeable decisions taken by each operator in the light of the economic conditions existing in the various markets, which it considered to be too uncertain to involve an infringement of Article 28. He submitted that, insofar as the existence in one jurisdiction of a remedy in the form of connected lender liability was capable of having any effect on cross-border trade, it was too tenuous, speculative and remote to involve an infringement of Articles 28 or 29.

[113]Whether limiting connected lender liability to transactions entered into in this country would infringe Articles 28 or 29 of the Treaty is not a question that is capable of being answered on the basis of the materials before us. We can see some force in the suggestion that it might be held to do so, but that is as far as it goes. In the end, however, the argument is put forward merely as an aid to construction and the fact is that, although the Act was passed some two years after the United Kingdom became a party to the Treaty of Rome, it is not at all clear that Parliament must be taken to have had in mind the possibility that legislation designed to provide a completely new legal framework for all consumer credit agreements entered into in this country might in some circumstances have an effect on the free movement of goods and services within the common market. In the circumstances we do not derive a great deal of assistance from this quarter, although we would accept that, all other things being equal, the Act should, if possible, be construed in a way consistent with the United Kingdom’s treaty obligations. To that extent it can be said that this slightly favours the OFT’s position. (2) The Consumer Credit Directive

[114]Both Mr. Briggs and Mr. Hapgood placed some reliance on the Consumer Credit Directive, the purpose of which was to approximate to a limited degree the laws of member states in order to remove some of the distortions of competition between lenders within the common market which were in turn influencing the free movement of goods and services obtainable on credit. The only parts that are material for present purposes are the penultimate paragraph of the preamble, Article 11 and Article 15.

[115]The penultimate paragraph of the preamble provides as follows:

“Whereas, since this Directive provides for a certain degree of approximation of the laws, regulations and administrative provisions of the Member States concerning consumer credit and for a certain level of consumer protection, Member States should not be prevented from retaining or adopting more stringent measures to protect the consumer, with due regard for their obligations under the Treaty;”

[116]It is unnecessary to quote at length from Article 11. The important part for present purposes is paragraph 2 which provides for connected lender liability in cases where the consumer has obtained credit from a lender pursuant to a pre-existing agreement between the lender and the supplier under which the lender has the exclusive right to make credit available for the purchase of goods or services from that supplier. The need for there to be an exclusive arrangement between the supplier and the lender for the provision of credit means that this provision does not apply to transactions financed by credit cards.

[117]Article 15 mirrors the paragraph of the preamble to which we referred earlier. It provides as follows:

“This Directive shall not preclude member states from retaining or adopting more stringent provisions to protect consumers consistent with their obligations under the Treaty.”

The right of member states to retain or adopt more stringent measures is thus expressly limited by their obligations under the Treaty.

[118]In our view the Consumer Credit Directive does not provide any additional support for the case being advanced by Mr. Briggs. It was issued in December 1986, long after the passing of the Consumer Credit Act and one cannot therefore make the assumption that, when passing the Act, Parliament must have intended to implement its provisions. It might even be said to provide some small support for Mr. Hapgood’s case inasmuch as it permits member states to retain or adopt more stringent measures to protect consumers and might thus be taken to suggest that national legislation which provides for connected lender liability in a wider range of circumstances than those for which the Directive itself provides should not be regarded as affecting the free movement of goods and services within the Community. However, it must be recognised that since the Consumer Credit Act only applies to credit agreements made in the United Kingdom, it does not benefit consumers from other member states who enter into transactions in this country, so the potential for distorting competition does exist. Having regard to the terms of Article 15, we do not think that the Directive can be relied on to justify what would otherwise amount to a contravention of the Treaty.

[119]In the end we do not think that a great deal of assistance can be derived from the European legislation and case law.

(i) Conclusion

[120]Taking into account all these arguments we have reached the conclusion that section 75(1) does apply in cases where the supply transaction was entered into abroad. In our view the primary purpose of the section is to provide additional protection for debtors under credit agreements of the kinds to which it relates. One of the difficulties in the way of the banks’ argument is that although under modern conditions card issuers do not, and for commercial reasons cannot, restrict the provision of credit to transactions entered into in this country, there is nothing in section 75(1) or (2) that provides for a distinction to be drawn between transactions entered into in this country and transactions entered into abroad, to say nothing of transactions entered into on the internet, the place of which may be quite difficult to determine. In our view the creditor’s right under section 75(2) to recover against the supplier is ancillary to the primary purpose of the section which is to be found in section 75(1). To allow section 75(2) to control the meaning and effect of section 75(1) would, we think, be contrary to the intention of Parliament.

[121]We are unable to find, either in section 75(2) or in other parts of the Act, any indication that the Act as a whole, or section 75 in particular, is intended to be confined in the way suggested by the banks. In some respects it would be productive of great uncertainty and inconvenience if it were, since it would then become necessary to determine precisely where the transaction in question had been entered into. Moreover, the policy behind the Act, as discerned from its provisions and from the recommendations of the Crowther Committee on which it was based, tends to reinforce that conclusion. The fact that some of its provisions may in certain circumstances impose liabilities on foreign suppliers of goods and services enforceable by action in this country (though not abroad) does not in our view provide a sufficient reason for construing section 75 in the manner proposed by the banks. 6. Summary

[122]For these reasons we have reached the conclusion that connected lender liability under section 75 of the Act attaches to all transactions entered into using credit cards issued under consumer credit agreements regulated by the Consumer Credit Act 1974, whether they take place within a three- or four-party structure and whether they are entered into in the United Kingdom or elsewhere. We therefore allow the appeal and dismiss the cross-appeal.