Clear the way

One thing can be said with certainty about multiple agreements, the concept introduced by section 18 of the Consumer Credit Act 1974. Nobody understands them. Not even Francis Bennion who drafted the Act in the first place. In Southern Pacific Mortgage Ltd v Heath [2009] EWCA Civ 1135, the Court of Appeal politely but firmly held that Bennion's own interpretation of the section was wrong. The court preferred the approach to the section of Professors Goode and Guest but stopped well short of providing the credit industry and practitioners with any definitive statement of what section 18 means. The best that can be said of the judgment is that it amounts to: 'We can't define an elephant but we know one when we see one.'

The problem lies in the definition of 'multiple agreement' in section 18(1). An agreement is a multiple agreement 'if its terms'¦ 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'¦ place it, or a part of it, within two or more categories of agreement so mentioned'. The fatal flaw is that the Act does not go on to define 'category' or 'part' for this (or indeed any) purpose. Practitioners and credit providers have struggled to understand what the Act means by 'category' and 'part' and the courts have gone to considerable lengths to side-step the issue.

The court in Heath is in good company. In Dimond v Lovell [2002] 1 AC 384, even Lord Hoffman was unprepared to define a multiple agreement, though he was prepared to say that a credit-hire agreement wasn't one. If Lord Hoffman fears to treat, what fool will rush in? The Court of Appeal also neatly avoided the issue in National Westminster Bank v Storey [1999] CCLR 70 (CA), and in London North Securities Limited v Meadows [2005] EWCA Civ 956.

No satisfactory result

These are not bored or lazy judges who cannot be bothered to get to grips with a piece of tiresome legal arcana. They avoid defining 'category' and 'part' for the very simple reason that there is no definition of these terms which will produce a satisfactory or workable result. In Heath, the debtor had borrowed around £29,000 from the creditor, secured by a first legal mortgage on her house. Some £19,000 of the loan was granted to discharge an existing mortgage, but the remainder of the loan could be used as the debtor pleased. On its face, therefore, this was a loan of a single sum in excess of the then statutory ceiling for regulation under the CCA. When the debtor defaulted and the creditor sought a possession order, however, she argued that the transaction was a multiple agreement, being a restricted-use credit agreement for £19,000 plus an unrestricted-use credit agreement for the balance (each 'part' being, in isolation, within the financial limits for regulation). The necessary CCA documentation not being in place, therefore, neither 'part' of the agreement was enforceable.

The Court of Appeal had no difficulty in rejecting this argument, taking the view that this was, to use Professor Goode's useful term, a 'unitary' agreement and that it would be unrealistic and artificial to divide it into 'parts' in the manner suggested by the debtor. The court held that the correct approach was to ask first whether the agreement was truly a single agreement or an agreement which should be regarded as divided into 'parts' and if, but only if, the latter situation arose, to ask secondly whether the parts came into different 'categories'.

Continuing problems

Whereas the court's decision is plainly right and a contrary decision would have had nonsensical results, Heath does, once again, highlight the insuperable problems with section 18. And those problems will continue. Raising arguments about multiple agreements has become a staple of the debt-cancellation industry. Most of the arguments are nonsense and fail accordingly, but the very intractability of section 18 makes it a rich seam of potential defences.

The time has surely come to scrap section 18. The only justification for its existence was the fear (which never materialised) that unscrupulous creditors would aggregate disparate agreements to exceed the financial ceilings on regulation. As long ago as 1995, the then DTI conducted a consultation on section 18. The response of the Bar contained a detailed critique of section 18 and concluded: 'The Bar's preferred solution would be to repeal section 18 in its entirety but to achieve its objectives by different means.' This submission was adopted by the main trade association as its own response. It is hard to believe that anyone (except possibly Bennion himself) could have argued in favour of total retention of the status quo. But that is what happened.

The entire rationale of section 18 has now been swept away. The removal of all financial limits to regulation under the CCA since 6 April 2008 has rendered obsolete the perceived (but illusory) threat of aggregation in order to avoid regulation. Section 18 should be repealed before more judicial time and litigants' money is wasted on trying to fathom what, if anything, it means.

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