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Office of Fair Trading v Lloyds TSB Bank plc and others (appellants) and others (respondents)
(House of Lords 31 October 2007)

OFT originally wrote to a large number of credit card companies threatening "Stop Now" Orders if they did not agree to allow claims under Section 75 for overeas transactions . A number agreed to abide by OFT's views and to honour the claims, but two refused - Lloyds TSB plc and Tesco Personal Finance Ltd. It is believed that their original defence was that Stop Now powers only applied to European legislation, and that Section 75 was not within the EU's credit directive. However, this point became academic once the "Stop Now" controls were absorbed into the Enterprise Act powers, which covered all UK legislation.
The case came up in the Commercial Court division of the High Court for a week's hearing in July 2004 (with American Express Europe Ltd now included as defendant), with judgment being reserved until the Autumn. The court finally pronounced on 12 November 2004.
The court considered two main issues during the hearing:

1. Where there is a regulated credit card agreement, whether there are arrangements in place between supplier and creditor, when the transaction is a four-party transaction;

2. Whether s.75(1) applies so as to make a creditor potentially liable for a claim in respect of a foreign transaction.

The court found in favour of the OFT in respect of point 1, but against them on point 2. The judge’s reasoning was based on two main points:

1. that UK legislation can only have an overseas control if it specifically states that fact;

2. that s.75 allows a creditor to have an indemnity against a supplier (subs.2) and for the supplier to be brought to court (subs.5), not possible if it is an overseas supplier.

OFT appealed against point 2, and the credit card companies counter-appealed on point 1, and judgement was delivered on the 22 March 2006 in the OFT's favour. 

In particular, on the first point, the court considered that three-party and four-party transactions were not dissimilar, and a consumer's payment to his issuer goes to pay the transaction, regardless of whether issuer and merchant acquirer were different; also, a  consumer could not be expected to know when a four-party transaction was taking place. Indeed, amongst the defendants, American Express makes all its retailers its associates, so considers all transactions to be three-party; Tesco recruits no retailers so all its transactions are four-party, while Lloyds TSB does a mixture. Under the Act though, since cards can only be used where there are "pre-existing arrangements", there must a be a debtor-creditor-supplier agreement within Section 12.

On the second point, the court accepted that the Crowther Commission (which advised on the Consumer Credit Act's contents) did not consider overseas transactions at all, but did not consider that overseas use was dissimilar to the sort of domestic transactions that would occur; anyway, there was nothing in Section 75 to suggest that overseas transactions were not covered. The court also thought that the companies protest too much - it is within their power to stop their credit cards being used abroad, or not to finance foreign properties. The companies argued that they cannot claim an indemnity from foreign suppliers, but their problems are not insurmountable, and that is a price the card issuers have to pay for the benefit they gain from the use of their facilities abroad. The full judgment (pdf) is here.

Lloyds and Tesco were given leave to appeal on the overseas use of credit cards but leave was refused in relation to the four-party transactions point.  Judgment was given by the House of Lords on 31 October 2007, and a summary follows.

1. There was nothing in the Act which excluded foreign transactions, and this was consistent with consumer protection aims; further, Section 75(1) might be more necessary in respect of foreign transactions than domestic ones.

2. While overseas use of credit cards was rare in the 1970s, Parliament did envisage such possibilities - s.16(5) gave the Secretary of State the power to exclude transactions from the coverage of the Act and s.9(2) allowed for credit in currencies other than sterling.

3. Sections 75(1) and 75(2) are not linked - if they had been intended to be so, Parliament would have legislated appropriately. (1) is for consumer protection, (2) is a default indemnity provision.

4. In (2) Parliament envisaged contractual arrangements between banks and suppliers, and it cannot be considered that (2) was the only indemnity provision.

The Law Lords therefore found conclusively in favour of OFT. A full copy is attached.

(c) Bob Imrie 28/04/2008