Banking lawBy Simon Sugar, 36 Bedford Row, London

Enforcement of credit agreementsEnforcement of improperly executed Consumer Credit Act regulated agreements - incompatibility with human rights - wider implicationsWilson v The First County Trust Limited [2001] EWCA Civ 633In this case the Court of Appeal held that because the amount of credit had been misstated on the face of a loan agreement, the agreement was not a properly executed regulated agreement.

Section 65(1) of the Consumer Credit Act 1974 (the Act) provides that an improperly executed regulated agreement is enforceable against a debtor only by an order of the court.

Section 127 of the Act sets out the powers of the court on an application under section 65(1).

Section 127(3) of the Act states that the court shall not make an enforcement order in a case where there is no document signed by the debtor - or no document signed by the debtor which contains all the prescribed terms of the agreement.

The Court of Appeal held that the present case fell within section 127(3) because in the absence of a term correctly stating the amount of credit the document signed by the debtor did not include all the prescribed terms of the agreement.

It followed that the agreement was not enforceable against the debtor and the security that the debtor provided by way of pledge was likewise not prima facie enforceable.The court held that by preventing the enforcement of contractual and security rights section 127(3) infringed article 6(1) and/or article 1 of the first protocol set out in schedule 1 to the Human Rights Act 1998.

The prohibition against enforcement engaged article 6(1) because the guarantee, in relation to the determination of a party's civil rights, of a fair and public hearing is of no substance if the outcome is determined by a statutory inhibition preventing enforcement.

Article 1 of the first protocol was engaged because section 127(3) prevented the defendant from enjoying his contractual and security rights.

The rights granted under both articles could be curtailed if they pursued a legitimate aim and the means used were proportionate to achieve that aim.

The policy aim of the section was to ensure that particular attention is paid to the inclusion in a document to be signed by the debtor of certain prescribed terms.

The court held that the blanket prohibition of enforcement in circumstances where the document signed by the debtor does not include all the prescribed terms was disproportionate to the policy aim sought to be achieved.

There was no reason why the policy aim should not be achieved through judicial control; by empowering the court to do what is just in the circumstances of the case.If the Secretary of State for Trade and Industry does not appeal the decision, the 1974 Act will have to be amended so as to comply with the Human Rights Act.

This ought to make the provisions of the 1974 Act fairer in their application to the enforcement of agreements containing honest, minor and non-prejudicial mistakes.This case serves to reinforce the need, even in a commercial context, for lawyers to be aware of the significance of the Human Rights Act.

For example, the reasoning in this decision may have an impact in relation to the law on guarantees.

Section 4 of the Statute of Frauds 1677 renders a guarantee unenforcable unless the agreement or a note or memorandum thereof is in writing and signed by the guarantor.

The inability to enforce the contract of guarantee would appear to engage article 6(1) and article 1 of the first protocol.

It may also be that the blanket restriction preventing enforcement of an oral guarantee may be disproportionate to the policy aims sought to be achieved by the Statute of Frauds.

Reliance by bank on legal advisers in O'Brien cases - departure from Royal Bank of Scotland v EtridgeBarclays Bank PLC v Varenka Goff (unreported) CA 3 May 2001In this case the Court of Appeal found that the charge given by the wife over her home had been obtained as a consequence of her husband's misrepresentations and undue influence.

The main question for the court was whether the bank had avoided being fixed with constructive notice of the wife's equity.

As a matter of law a bank will avoid constructive notice of a wife's equity if it made reasonable inquiry and the results of the inquiry were such as would reasonably allay suspicion that the charge was obtained by improper means.In this case the bank had instructed a solicitor to give the wife independent legal advice and then to confirm that the advice had been given.

Following Royal Bank of Scotland v Etridge (No.

2) [1998] 4 ALL ER 705 the Court of Appeal held that in so doing the bank would in the ordinary case have done enough to relieve itself of constructive notice.

By way of exception to this general rule the Court of Appeal in Etridge held that 'if the transaction is one into which no competent solicitor could properly advise the wife to enter, the availability of legal advice is insufficient to avoid the bank being fixed with constructive notice'.

In this case the Court of Appeal confessed to 'some little unease' in applying this test and preferred to regard the exception to the general rule as arising where any competent solicitor would advise the wife against entering into the transaction.

Irrespective of the divergence from Etridge, the court held that the facts of the case were commonplace and the ordinary rule was not displaced.

Consequently the bank was not fixed with constructive knowledge and the charge would not be set aside.In departing from the judgment in Etridge this case has created potential uncertainty in the law.

This uncertainty ought to be cleared up in the near future when the House of Lords hears the appeal which is due to take place in the Etridge case.

Until then the best that can be said is that the difference between the tests proposed in the two decisions may, on a practical application, be more apparent than real.