There is no precise or universal test to determine an unfair relationship under s140A of the Consumer Credit Act 1974 (CCA). Whether the relationship is unfair, and if so what remedies that will be available, will depend on the court’s assessment of all the relevant facts.

In Nelmes v NRAM PLC, Nelmes obtained a loan of over £2m from the bank secured on 26 properties. Nelmes’ broker’s fee was 0.75% of the sum advanced (£16,112) and the bank’s arrangement fee was 1% (£21,483). In turn the bank paid half of the arrangement fee to the broker as a procuration fee by way of commission. The payment of the procuration fee was not disclosed to Nelmes.

Nelmes defaulted and the bank sought to enforce its security. Nelmes brought proceedings alleging that the relationship between himself and the bank was unfair, as the broker and bank had colluded to ensure the bank got his business.
He also alleged he had been misled as to the terms of the loan, which he had been unaware of and that non-disclosure of the procuration fee deprived him of the disinterested advice of his broker. Nelmes sought various remedies under s140B CCA.

At first instance, the High Court held the non-disclosure of the procuration fee payment did not mean the bank and broker had mislead Nelmes. It found the offer was clear, not very long and Nelmes should have read it. There had been no unfairness. Nelmes appealed.

The Court of Appeal allowed the appeal but only in relation to the procuration fee. The broker was Nelmes’ agent and Nelmes was entitled to the broker’s undivided loyalty.

Acceptance by the broker of the procuration fee was a breach of the duty owed by the broker to Nelmes and was brought about by the bank. The relationship between the bank and Nelmes was unfair due to that non-disclosure which had deprived Nelmes of the disinterested advice of his broker.

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With the exception of the payment of the procuration fee, the Court of Appeal found there was no other unfairness in the relationship between Nelmes and the bank or concealment of terms. It was not necessary for the bank to draw attention to and explain each particular respect in which the offer differed from the application. It was for Nelmes to satisfy himself as to the acceptability of the offer once he had read it and taken the advice he considered appropriate.

Nelmes remained in a position to be able to assess the value for money offered by the proposed deal regardless of the non-disclosure of the procuration fee.

Nelmes was entitled to some damages, being payment of the procuration fee plus interest thereon from the date of payment but to no other damages or remedy under s140B CCA.

Things to consider

This case is a reminder that the unfair relationship regime applies to non-regulated commercial transactions involving experienced business people and is not confined to regulated consumer lending.

It also sees a new twist on ‘secret commission’ cases.

Greg Standing is a partner at Gowling WLG