Key Facts
- •TSB Bank PLC inherited a portfolio of Northern Rock mortgages ('Whistletree mortgages') with interest rates based on a Standard Variable Rate (SVR).
- •Claimants, former Northern Rock customers, allege TSB charged excessive interest, breaching express and implied terms and MCOBS rules.
- •The case involved preliminary issues concerning express terms, implied terms, and the application of section 140A(5) of the Consumer Credit Act 1974 (CCA 1974).
- •Some claimants had 'Together' offers, combining mortgages with unsecured loans, raising issues under the CCA 1974 unfair relationship provisions.
Legal Principles
Contractual interpretation requires considering the contract as a whole, giving weight to context and commercial consequences.
Wood v Capita Insurance Services Ltd [2017] AC 1173
Implied term in mortgage contracts: discretion to vary interest rates should not be exercised dishonestly, for improper purpose, capriciously, or arbitrarily.
Paragon Finance v Nash [2002] 1 WLR 94
Ambiguous contractual terms are interpreted contra proferentem (against the party who drafted them), and most favorably to the consumer.
UTCCRs, contra proferentem principle
Statutory interpretation starts with the ordinary linguistic meaning of the words, considering context and purpose.
R v Secretary of State for the Environment, Transport and the Regions, Ex parte Spath Holme Ltd [2001] 2 AC 349; Kostal UK Ltd v Dunkley [2022] IRLR 66
CCA 1974 unfair relationship provisions aim to broadly protect consumers from unfair creditor-debtor relationships.
Smith v Royal Bank of Scotland [2023] UKSC 34
Section 140A(5) CCA 1974 excludes regulated mortgage contracts from the unfair relationship provisions.
CCA 1974, s.140A(5)
Outcomes
TSB did not breach the express terms of the mortgage contracts by using the Whistletree SVR.
The Whistletree SVR was a continuation of Northern Rock's SVR, not a new rate. The court interpreted the contract to allow TSB to continue using the existing SVR after acquiring the mortgage portfolio.
An implied term was accepted that the discretion to vary interest rates should not be exercised dishonestly, for improper purpose, capriciously, or arbitrarily.
The parties agreed on this implied term, aligning with Paragon Finance v Nash.
Section 140A(5) CCA 1974 prevents orders directly affecting regulated mortgages (post-31 October 2004) but allows consideration of such mortgages when assessing unfairness in related credit agreements.
The court balanced the broad consumer protection aims of the CCA unfair relationship provisions with the specific exemption for regulated mortgages. Remedies can address unfairness stemming from a combination of loans, but cannot directly impact the regulated mortgage itself.