Credit card protection is extra-territorial

House of Lords
Published November 12, 2007
Office of Fair Trading v Lloyds TSB Bank plc and Others

Before Lord Hoffmann, Lord Hope of Craighead, Lord Walker of Gestingthorpe, Lord Brown of Eaton under Heywood and Lord Mance Speeches October 31, 2007

The right of consumers to hold United Kingdom credit card companies liable for a breach of contract by the retailer from whom they made a credit card purchase extended to transactions made overseas.

The House of Lords so held in dismissing an appeal by Lloyds TSB Bank plc and Tesco Personal Finance Ltd from the Court of Appeal (Lord Justice Waller, Lady Justice Smith and Lord Justice Moore Bick) ( The Times April 7, 2006; [2007] QB 1) who allowed an appeal by the Office of Fair Trading from part of the order of Mrs Justice Gloster ([2005] 1 All ER 843) refusing the OFT’s application for a declaration to that effect.

Mr Mark Hapgood, QC and Miss Sonia Tolaney for Lloyds and Tesco; Mr Jonathan Sumption, QC and Mr William Hibbert for the OFT; Mr Iain MacDonald for American Express Services Europe Ltd, who did not address the House.

LORD HOFFMANN, agreeing with Lord Mance in dismissing the appeal, said that said that section 75(1) of the Consumer Credit Act 1974 made a creditor under a debtor-creditor-supplier agreement jointly and severally liable with the supplier in respect of any misrepresentation or breach of contract by the latter in relation to a transaction financed by the agreement.

The question was whether a transaction within the meaning of that Act included a transaction which took place and was performed abroad and was governed by a foreign law.

There was nothing in the language of section 75(1) to exclude foreign transactions. But the banks, who were creditors for the purposes of section 75(1), submitted that, for two main reasons, such a limitation should be implied.

The first was the presumption that legislation was not intended to have extraterritorial effect. But extraterritorial effect meant seeking to regulate the conduct or affect the liabilities of people over whom the United Kingdom had no jurisdiction.

In this case, the OFT accepted that section 75(1) applied only to agreements with a creditor carrying on business in the United Kingdom. The effect of the section was equivalent to the statutory implication of a term in the contract between a United Kingdom creditor and the debtor by which the former accepted joint and several liability with the supplier.

If the supplier was a foreigner, the Act did not purport to regulate his conduct or impose liabilities upon him. It was only the United Kingdom creditor who was affected. To construe it as applying to such cases did not therefore conflict with the presumption against extraterritoriality.

The second reason was based upon section 75(2), which provided that, subject to contrary agreement, the creditor was entitled to be indemnified by the supplier against loss suffered by reason of claims against him under section 75(1), and also upon section 75(5), which said that a creditor sued under section 75(1) was entitled, in accordance with rules of court, to have the supplier made a party to the proceedings.

For the reasons already stated, section 75(2) and (5) did not apply to foreign suppliers. Parliament was to be presumed not to have intended to impose a statutory liability upon foreigners.

The creditor, in his agreement with the supplier, if there was one, might have expressly contracted for a right of indemnity or he might have one under the foreign law. But he could not invoke the statutory remedy under section 75(2).

The appellants submitted that section 75(1) should be construed as limited to cases in which the supplier would have a right of indemnity under section 75(2). The two subsections should be treated as indissolubly linked.

However, if Parliament had wanted to limit the application of section 75(1) by reference to the enforceability of section 75(2), it would have said so. It was not obvious why there should be such a link.

Section 75(1) was consumer-protection legislation for the benefit of the customers of United Kingdom creditors. It could not be excluded by agreement between debtor and creditor.

Section 75(2) was a default provision to regulate relations between creditor and supplier. It applied only in the absence of contrary agreement and could be supplemented by the terms of the contract or, if foreign, the governing law.

If card issuers chose to authorise the use of their cards by foreign suppliers or join four-party schemes under which their cards might be so used, they could be expected either to make their own arrangements about indemnity against liability under section 75(1) or accept that the commercial advantages of allowing foreign use outweighed the absence of a right of indemnity.

Lord Hope delivered a concurring speech. Lord Walker and Lord Brown agreed.

Solicitors: Lovells and S. J. Berwin; General Counsel’s Office; CMS Cameron McKenna.