In 2016, the Court of Appeal ruled in favour of claimant Thomas Nelmes on an unfair relationship claim. The complaint was raised by Nelmes against lender Northern Rock Asset Management Plc (NRAM). Here is an overview of the Nelmes vs NRAM Plc case, and what it means for claimants.
Nelmes case background
Mr Nelmes was the owner of a portfolio of residential properties. In 2007, he hired broken Ian Blair of ASC West Yorkshire (AWC) to consolidate all of his property-related lending, and refinance for equity release.
A loan of £2.1m was secured with a maximum loan-to-value ratio (LTV) of 70%. An arrangement fee of £21,483 was paid by Nelmes to NRAM. A broker fee of £16,112 was paid by Nelmes to AWC. However, half of the arrangement fee was paid by NRAM to the broker, AWC by way of commission. This commission was paid without Nelmes’ knowledge.
In the following year, the payments due on the loan fell into arrears. In 2011, NRAM requested a revaluation of the property portfolio.
In 2013, NRAM carried out valuations on the portfolio, resulting in the LTV ratio rising to 148%. NRAM then demanded payment of the entire debt, within one week. Enforcement action was threatened if the loan was not paid in full. Before the seven-day deadline had expired, NRAM appointed receivers.
Unfair relationship
Nelmes took NRAM to court. He argued that the lending relationship was unfair and the court should grant him relief. This claim was made under the Consumer Credit Act 1974, section 140A, which covers unfair relationships.
Under section 140A, the scope of grounds for unfairness is extremely wide. It can include:
- Any contract terms
- The way in which a creditor has exercised its rights
- Any other thing done (or not done) by, or on behalf of, the creditor
All but one of Nelmes’ arguments were rejected by the court. Nelmes was experienced in the buy-to-let field and the terms brought into question were commonplace. He was also not under any pressure to refinance and could have gone elsewhere following the proposal.
Secret commission
However, the secret commission was found to be unfair. This was because the undisclosed procurement fee by NRAM to AWC rendered the relationship unfair.
The court stated that, as the one who paid the broker’s fee, Nelmes expected the broker to act solely in his best interests. The payment of the fee meant he was entitled to AWC’s undivided loyalty.
The receipt of the secret commission paid by the lender was seen as a breach of the duty the broker owed to Nelmes. With the commission payment, NRAM also procured the duty of the broker that should have solely been for Nelmes.
The Court of Appeal ruled that the secret commission amounted to an unfair relationship. The judge ordered that the commission paid plus interest should be returned to the customer by NRAM in order to rectify the unfairness.
If you believe your lender or broker could have treated you unfairly, get in touch with our team of financial mis-selling experts today.