Case No: HCO4CO3393
Neutral Citation Number: [2005] EWHC 2906 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION

Royal Courts of Justice
Strand, London, WC2A 2LL

Date: 14/12/2005

Before :

SIR FRANCIS FERRIS
- - - - - - - - - - - - - - - - - - - - -
Between :

	Goshawk Dedicated (No 2) Limited
	Claimant	
	- and -		
	  
The Governor and Company of the Bank of Scotland   	Defendant	

- - - - - - - - - - - - - - - - - - - - -
- - - - - - - - - - - - - - - - - - - - -

Mr. Mark Howard QC, Mr. William Hibbert and Mr. Jasbir Dhillon instructed by Reynolds Porter Chamberlain of 38 Leadenhall Street, London EC3A 1AT appeared for the Claimant

Mr. Christopher Butcher QC, Mr. Frederick Philpott and Mr. David Bailey instructed by Eversheds LLP of Eversheds House, 70 Great Bridgwater Street, Manchester M1 5ES appeared for the Defendant

Hearing dates: 26th -28th and 31st October and 1st-3rd November 2005

- - - - - - - - - - - - - - - - - - - - -
Judgment

Sir Francis Ferris : 
Introductory

1.	These proceedings arise out of a claims management scheme marketed between 2001 and 2003 by The Accident Group Limited (“TAG”).  The purpose of the scheme was to enable persons who had suffered injury and considered that they had a claim for compensation against another party to prosecute that claim in court under “no win no fee” arrangements, free of financial risk to the injured party.
2.	Later on it will be necessary for me to examine these arrangements in some detail, but for the present it will suffice to say that the main elements of the scheme were the following:
(1)  	An agreement between the person desiring to bring the claim (whom I will refer to as “the client”) and TAG, providing for the other elements to be put in place;
(2)	A conditional fee agreement (“CFA”) between the client and a solicitor nominated by TAG, under which the solicitor agreed to conduct the client’s case on a no win no fee basis;
(3)	A credit agreement between a funder and the client under which the funder agreed to provide the funds necessary to meet the fee payable to Accident Investigations Limited (“AIL”), an associated company of TAG, which was to investigate the claim, the premium payable under the insurance policy mentioned below and the disbursements expected to be incurred on behalf of the client in litigating the claim;
(4)	A legal expenses insurance policy providing, in the event of the claim being unsuccessful, for the payment by the insurers of the AIL fee, the amount advanced by the funder under the credit agreement together with the interest charged by the funder and the premium paid for the insurance.
(5)	An assignment to the funder of the benefit of the legal expenses insurance, which was clearly intended to give the funder a direct claim against the insurers in the event of the failure of the client’s claim.
3.	One of the funders used by TAG for the purposes of the scheme was The Bank of Scotland (“the Bank”) which is the defendant in this case.  One of the insurers was a group of Lloyd’s syndicates represented by the claimant, Goshawk Dedicated (No 2) Limited (“Goshawk”).  While the scheme was operating a very large number of credit agreements and policies of insurance were entered into by these parties.  I was told that it was in excess of 60,000.  Although the amount advanced under each credit agreement was modest, seldom if ever in excess of £3000, the total amount advanced by the Bank runs into many millions of pounds.
4.	TAG itself became insolvent and was put into administration in May 2003.                         This fact is not of direct relevance in the present proceedings.  A more significant fact is that an exceptionally large number of claims brought by clients of TAG have been dismissed or have had to be discontinued.  These clients have therefore received no money from the parties they sued out of which to repay the amount due to the Bank under their credit agreements.  In these circumstances the Bank could, no doubt, seek payment from the clients, leaving it to the clients to claim under the insurance policies.  I understand that in some cases the Bank has taken this course.  But the Bank has also asserted that it is entitled to claim direct against the insurers.  Although it has not yet commenced proceedings in order to enforce this claim it has threatened to do so.  It was said that at the time of the hearing the sum outstanding on the loans advanced by it under the TAG  scheme was of the order of £140 million.
5.	The insurers, represented by Goshawk, have rejected liability.  It is common ground between the parties that each credit agreement is a credit agreement regulated by the Consumer Credit Act 1974 (“the CCA”).  The insurers assert that credit agreements in the form used by the Bank do not comply with the requirements of the CCA and that accordingly they are unenforceable. A further consequence, according to the insurers, is that the insurance policies cannot be resorted to in order to obtain payment of unenforceable debts.  Goshawk has brought these proceedings in order to test the validity of these assertions and, it hopes, to obtain declarations from the court vindicating the insurers’ position.
6.	The Bank has an alternative claim against the insurers under a separate arrangement known as “the Lender’s Clause”.  This arrangement is contained in a separate contract between the Bank and the insurers which does not involve TAG or the clients.  The validity or otherwise of this claim is not directly affected by the CCA and it is thus entirely separate from the other issues with which these proceedings are concerned.  Although Goshawk has, in these proceedings, claimed declaratory relief in relation to the Lender’s Clause, I doubt whether it will be possible to appraise justly the issues between the parties in proceedings constituted, as these proceedings are, under Part 8 of the Civil Procedure Rules.  I have not, therefore, heard full argument on the matter, but I have given the parties leave to mention it again when this judgment is handed down and I myself shall mention it again at the end of this judgment.
The TAG Scheme in more detail
7.	Before it was in a position to market its scheme TAG needed to make arrangements with a number of other parties, notably solicitors willing to carry out vetting operations in connection with individual claims, solicitors willing to conduct approved cases under CFAs, funders willing to provide finance for individual clients and insurers willing to issue the necessary policies.  All this was done.  It is appropriate to note that the Bank was not the only funder and that Goshawk and its fellow underwriters were not the only insurers, but I am not concerned with the arrangements between TAG and these other parties. 
8.	The arrangement between TAG and Goshawk and its fellow underwriters consisted of two Master Policies dated respectively 1st February 2001 and 25th November 2002.  The second policy superseded the first.  Under each policy TAG, described as the coverholder, was enabled to issue a certificate to individual clients providing them with legal expenses insurance cover on terms which I mention later.
9.	Central to the TAG scheme was the Operating Manual produced by TAG.  This was described as a source of guidance and information concerning the methods of operation of the TAG scheme.  It was made available to all the professional participants in the scheme, including solicitors, funders and insurers.  All these parties were obliged to act in accordance with the Operating Manual .
10.	One section of the Operating Manual describes the step by step procedures to be followed from the first contact between TAG and a client until the retainer of the solicitor who was to act for the client in the intended litigation.  I will follow the numbering of the steps as set out in this section.  I will concentrate on those matters which appear to relate to the points in issue in this action and in doing so I will, in some instances, add explanations which are not to be found in the Operating Manual itself.
(1)	A potential client, identified as the result of the marketing of the scheme by TAG, provided information concerning his case and completed an application form.  What was described as the application form included a document describing the scheme and another document headed “TAG Service Agreement and Declaration” which the client was required to sign.  This set out a number of detailed terms including
(a)  	an acknowledgment that the application is not accepted by TAG until the client has received confirmation in writing from TAG and a certificate of insurance;
(b)  	an acknowledgment by the client that if TAG accepts the application TAG will recommend a solicitor to act on his behalf and arrange for the claim to be investigated by AIL for a fixed fee of £376 inclusive of VAT;
(c)  	an agreement by the client, doubtless to be operative only after acceptance of the application by TAG, to be bound by and comply with the terms of the policy and to pay the premium of £997.50 for the policy;  (It seems that this premium, and also the AIL fee, were the same in all cases).
(2)	TAG carried out an initial vetting process to decide whether or not further investigations were needed.  If the case appeared to be acceptable the client was sent an acknowledgment letter.
(3)	Acceptable cases were then passed to AIL for investigation.
(4)	AIL contacted the client and completed a questionnaire with more detailed information and passed the file back to TAG with its recommendation.
(5)	TAG then passed the application form and questionnaire to vetting solicitors chosen by it, whose role is set out in the Operating Manual. 
(6)	The vetting solicitors then appraised the case in accordance with the criteria set out in the Operating Manual. 
{7)	TAG then contacted “the Appointed Representative” (i.e. .a solicitor selected by TAG from its panel of solicitors willing to act in TAG cases) to ask him either to accept or reject the case.
(8)	If the Appointed Representative accepted the case he was deemed to be retained subject to receipt of the client’s instructions.  He was required to send to TAG an unsigned Client Care letter and CFA, the AIL questionnaire and a Fact Find and Oral Explanation Sheet.  The form of all these documents was prescribed by the Operating Manual.  A copy of the Client Care Letter and CFA terms and conditions was also to be sent to the client.
(9)	A member of TAG’s instructions team then arranged to meet the client at his home.  As agent for the Appointed Representative (i.e. the solicitor) he was to explain the CFA orally to the client and to complete prescribed documents described as the Fact Find and Oral Explanation sheets.  He was to get the client to sign the Client Care Letter and both he and the client were to sign the Fact Find and Oral Explanation Sheet.
(10)	Where the Bank was to be the funder the TAG representative was, at the home visit, to complete the Bank’s form of credit agreement and give various explanations.  Amongst other things he was required “fully [to] explain the [CCA]”.  He was to get the client to sign the credit agreement, the CFA and the AIL questionnaire.  The Bank’s form of credit agreement included three pages coloured respectively white, yellow and pink, the contents of which I shall describe later.  The pink page, sometimes referred to as the first statutory copy, was to be handed to the client.  At that stage the agreement would be an unexecuted agreement, for it would not have been signed on behalf of the Bank.  The giving of the pink page to the client at that stage was required in order to comply with Section 62 CCA, to which I shall come in due course.  (Henceforth in this judgment references to “Section …” are references to the Section so numbered in the CCA.)
(11)	All the executed documents were to be passed to TAG’s head office.
(12)	At this point TAG, in its capacity as coverholder, was to issue a certificate of insurance to the client.  This put the insurers on risk as regards the claim of that client.
(13)	The certificate of insurance was to be forwarded to the client and a copy of it was to be sent to the solicitor.  TAG awaited the expiration of the cooling-off period applicable to the credit agreement.  If the credit agreement was not cancelled by the client TAG marked the case as accepted.
(14)	All the documentation, including the CFA, was to be sent to the solicitor, who was to sign the CFA and send it to the client.
(15) and (16)	Certain administrative steps were then to be carried out by TAG and the solicitor.
(17)	When the certificate of insurance was issued the credit agreement and the second statutory copy of the credit agreement (the white and yellow pages in the case of the Bank’s form of agreement) were to be forwarded by TAG to the Bank, which was to sign the credit agreement.  The yellow page was then sent by the Bank to the client, thus starting the ten-day cooling-off period prescribed by the CCA.  (It will be noted that this step is mentioned last in the step by step guide although the credit agreement would have been signed by the client at stage (10) and the agreement so signed would have been passed to TAG’s head office at step (11).  No doubt these actions were intended to be carried out immediately after step (11)). 
11.	A document included in the Operating Manual, which I understand to be a promotional leaflet issued by TAG, is headed “Administering Second Aid”.  This contains  a description of the TAG scheme which includes the following paragraphs:

“ACCESS TO JUSTICE
[TAG] offers clients true access to justice by providing an insurance policy which will help to protect them from the legal costs and expenses of pursuing a case.
The cost of the policy and the ongoing expenses needed to run the case may be funded by a simple loan agreement
HOW DOES IT WORK
The insurance cover works in two ways depending on the outcome of your case.
If your case is unsuccessful you will pay nothing, but you must co-operate fully with both the solicitors and ourselves when required and comply fully with the terms of the policy.
If your case is successful your loan (which will be made up of the amount of the insurance premium and other expenses incurred during your case) plus any interest and documentation fee that has accrued will be deducted from your damages.  However, solicitors who have been instructed to act on your behalf will endeavour to recover the policy premium and  ongoing expenses incurred (which may have been met out of the loan) from the other party.  You should be aware however there is no guarantee that the premium or expenses can be recovered in whole or in part and in any event any interest accrued and any document fee will not be recoverable
WHEN AND HOW DO I PAY THE PREMIUM FOR THE POLICY AND ONGOING EXPENSES?
Legal costs for these types of cases can run into many thousands of pounds.  The premium must reflect the very realistic risk of those costs being incurred.  To assist, the payment of the premium and ongoing expenses may be funded.  This involves a simple loan agreement.”
12.	I turn next to the principal documents brought into existence in the course of this step by step process.

The TAG Service Agreement

13.	I have already mentioned the TAG Service Agreement when summarising step (1) of the step by step procedure, but I now propose to set out certain of its terms in greater detail.
14.	The document begins with the following statements:
“This document is designed to ensure that you understand the proposals [TAG] are providing under this arrangement and is also intended as a guide for future reference.  Your signature below confirms that you have carefully read and understood this form and have retained a copy.”

15.	Certain understandings on the part of the client are then recorded which, so far as they are material, are in the following terms:
“I understand that
1.	The application is not accepted  by TAG until such time as I have received confirmation in writing from TAG and have received a Certificate of Insurance.
2.	TAG will undertake whatever action is necessary to ascertain whether or not I have a case that, in their opinion, has reasonable prospects of success.
3.	... 
4.	...
5.	If TAG accept my application I understand that they will (and I hereby confirm that I have instructed them so to do):
(a)  recommend a solicitor to act on my behalf;
(b)  arrange for my claim to  be investigated by [AIL] for a fixed fee (the “Investigation Fee”) of £376.00 (inclusive of VAT) to provide sufficient information to enable my solicitor to present a claim to my opponent and arrange for my claim to be funded by a suitable bank or other financial institution (“the Funder”)
6.	If my claim is successful the solicitor recommended by TAG to act on my behalf will attempt to recover from my opponent (in addition to my compensation) the premium I have paid to purchase the TagProtect legal expenses insurance policy, any disbursements that have been incurred on my behalf and the Investigation Fee from my opponent.  I understand that I will still have to pay the loan interest, which will be deducted from my compensation.
7.	If my case is successful but the solicitor recommended to act on my behalf fails to recover all or any part of  the balance outstanding on my loan, then the money I receive for my compensation will first be used to discharge my obligations under the loan.  If the compensation I receive is less than the balance outstanding on my loan, then my liability to repay such outstanding balance will be indemnified, in so far as provided by, and subject to, the terms of my legal expenses insurance policy (“the Policy”).
8.	If my case is successful the Policy, subject to compliance with its  terms and conditions, provides “deficiency of damages” cover which means that I will receive a minimum sum of £500 after deduction of the monies due under the loan provided my damages originally exceeded this amount.
9.	If my case is not successful I will be indemnified, subject to compliance with the terms and conditions of the Policy against my liability to pay my own Disbursements and Counsel’s fees (as defined in the Policy) my opponents legal costs and the outstanding balance on the loan made available to me to purchase the Policy and disbursements (if applicable).”

16.	The TAG Service Agreement then contains a “declaration” of which the following provisions appear to be material:
“I agree that I will be bound by and will comply with the terms and conditions of the policy.  I agree that I will pay the premium of £997.50 (including insurance premium tax) for the Policy a copy of which is available upon request.
  ...
If TAG accepts the case I further understand and agree that
1.	If I borrow the money to pay the premium and disbursements (if applicable) from the Funder I hereby irrevocably and unconditionally authorise any solicitor recommended to me by TAG to act on my behalf to 
(a) 	pay any monies received by me as a result of the legal action being pursued by me and insured by the Policy to the Funder and that the Funder will then deduct and keep the amount outstanding under my loan agreement with them and deal with any balance (and interest on that balance) according to my instructions.
(b)	the loan includes the premium, investigation fee of £376.00(inclusive of VAT), interest, and any other expenses incurred by my solicitor on my behalf
(c)	 ...
(d)	 … ”
The Client Care Letter
17.	The solicitor’s first contact with the client was by means of a client care letter in a prescribed form.  This begins with a reference to the fact that the solicitor understands from TAG that the client would like the solicitor to act on his behalf.  It encloses the form of CFA which, with the client care letter itself, forms the basis of the agreement between solicitor and client.  The client is asked to sign and return the client care letter and to give certain other information.
18.	The letter refers to the financial arrangements as follows:
“We have been advised by [TAG] that you have agreed to purchase a legal expenses insurance policy (“the Policy”), the cost of which is funded as agreed between you and [TAG].   In due course [TAG] will advise you of the Insurer/Underwriter ... and the lender ... who may also provide you with additional funding in relation to the disbursements incurred in pursuing your claim ...”
The letter goes on to explain that by signing the client is authorising the solicitor to pay any money received in respect of the claim to the funder, which will retain the amount outstanding to it.
The Conditional Fee Agreement
18.	I do not consider it necessary to say much about the CFA.  It begins with a statement that the agreement is formed when the client returns a signed copy of the client care letter to the solicitor.  It gives the solicitor the right to end the agreement before the conclusion of the client’s case if the client does not keep to his responsibilities (see the last sentence of clause E and para 7(b) of schedule 1).  The client’s responsibilities are set out in paragraph 2 of schedule 1.  They include compliance with the terms of the policy.
The Policy
19.	As I have mentioned there were two forms of policy, the second of which was used in place of the first after 25th November 2002.  Both forms provided substantially the same cover under the following heads
(1)  Costs ordered to be paid to the defendant in the proceedings;
(2)  The client’s own disbursements;
(3)  The premium paid for the policy;
(4)  Loan interest payable to the funder;
(5)  A sum sufficient to ensure that, in the event of success, the client would be left with £500 out of his damages after paying the premium, the loan and loan interest, so far as not recovered from the defendant.
Heads (1) to (4) were only applicable in the event of the client’s case being unsuccessful.
20.	The provisions of the policies which are relevant to the issues in this case are those which are said to tie the policies into the CFA or the credit agreement.  So far as the first policy is concerned these are:
(1)	Exclusion 4, under which the underwriters are not liable for any claim if the client has not entered into a CFA or if the certificate of insurance issued to the client by TAG as coverholder is revoked;
(2)	Condition 3(b), which provides that the certificate of insurance will become void if the client’s agreement with TAG or the CFA is terminated or otherwise unenforceable;
(3)	Condition 5, under which it is a condition precedent to the underwriters’ liability that the CFA in relation to the client’s proceedings is in force during the course of the proceedings and is not terminated for any reason whatsoever;
(4)	The period of insurance defined in the certificate which runs from the inception date, which is the date of the certificate, until ‘Termination’ which means the conclusion of the client’s proceedings or the termination of the client’s agreement with TAG or the termination of the CFA.
21.	The relevant provisions of the second policy are the opening words which state
“We will cover you under the terms of this policy if all the following conditions are satisfied
•	the premium has been paid to us
•	You have entered into a  [CFA] with your appointed representative
•	You have entered into an agreement for the conduct of your case with [TAG] ”.
22.	The client was provided with insurance cover under the applicable policy by means of a certificate of insurance issued by TAG.  This was sent to the client under cover of a standard letter saying, amongst other things, “You now have the benefit of a legal expenses policy”.
The Credit Agreement
23.	The credit agreement is, of course, central to the present case.   I must examine it in some detail because the case depends to a large extent upon whether the requirements of the CCA in respect of formality were complied with.  
24.	As I have already mentioned, the form of credit agreement used by the Bank consisted, when first seen by the client, of three pages coloured respectively white yellow and pink.  At that stage they were fastened loosely together so that the pages could readily be separated.  They were printed on paper which was so treated that what was written in blank spaces on the first (white) page would be reproduced on the second (yellow) and third (pink) pages.  On the back of each page there is a set of printed conditions which are the same on each page.  I will come to these in a moment.  The printed material on the front of each page differed slightly.  I will therefore consider these pages separately, starting with the pink page, which was the version of the credit  agreement given to the client when he signed the agreement at step (10).
25.	The page contains at the top a bold heading stating

“Credit Agreement regulated by the Consumer Credit Act 1974”
There are then four parts, each in a separate box, in which details have to be inserted in the blank areas.  Part 1 is to contain details of the borrower (i.e. the client).  Part 2 is to contain details of the ‘Claim Management Company’, which is TAG.   Part 3 is headed ‘Credit Limit and Account Details’.  It begins as follows:
“The initial credit limit will be £...... 
We shall notify you from time to time of your Credit Limit and shall send you notice of any revised limit.  On or shortly after the Payment Trigger Date, we shall advise you of the amount required to repay the Account and you shall pay such amount to us within 7 days of the date of such advice.  ‘Payment Trigger Date’ means the date on which the first of the following occurs:
1.  your Claim is first settled or determined whether by the court or by virtue of a settlement between you and your opponent;
2.  your solicitor or the Claim Management Company advises you to withdraw your claim;
3.   the Policy is cancelled or we are notified that it is void”
Part 3 concludes with provisions relating to the rate of interest payable which, although of great commercial importance, are not relevant to the issues in this case.  Part 4 then identifies the Policy.
26.	Beneath the boxes dealing with Parts 1 to 4 there is another box setting out provisions concerning the Data Protection Act which are not material to the present case.  There are then boxes in which the agreement is to be signed and dated by the client and the Bank respectively.  In practice, of course, the pink page never will be signed by the Bank, because it will have been handed over to the client at stage (10) without having been signed on behalf of the Bank.
27.	Lastly there is a box containing a printed notice of the client’s right to cancel.  This is in the following terms:
“YOUR RIGHT TO CANCEL
Once you have signed you will have for a short time a right to cancel this agreement.  You can do this by sending or taking a Written notice of cancellation to [the Bank, whose address is stated].  If you cancel this agreement, any money you have paid, goods given in part exchange (or their value) and property given as security must be returned to you.  You will not have to make any further payment.
Note:  Your notice of cancellation will not affect your contract for insurance”
Below this there is a box stating in bold type
“This is a copy of your agreement for you to keep.  It includes a notice about your cancellation rights which you should read”.
28.	The yellow page is identical to the pink page down to the end of the box setting out the Data Protection Act material.  There is then a box setting out the client’s right to cancel.  This is slightly differently expressed from the equivalent box on the pink page.  It reads:
“YOUR RIGHT TO CANCEL
You have a right to cancel this agreement.  You can do this by  sending or taking a Written notice of cancellation to [the Bank, whose address is stated].  You have five days starting with the day after you receive this copy.  You can use the form provided. If you cancel this agreement, any money you have paid, goods given in part exchange (or their value) and property given as security must be returned to you.  You will not have to make any further payment.
Note:  Your notice of cancellation will not affect your contract for insurance”.
29.	In the next box there is a Cancellation Form for the client to use if he wishes to cancel the credit agreement.  Nothing turns on the wording of this, so I do not set it out.  The page concludes, like the pink page, with a note stating “This is a copy of your agreement for you to keep.  It includes a notice about your cancellation rights which you should read”.
30.	Finally there is the white page.  This is exactly the same as the pink sheet down to the end of the boxes for signature and dating by the client and the Bank.  It differs from the pink page only in respect of what is said in the box headed ‘Your Right to Cancel’.  On the white page this is stated as follows:
“Once you have signed this agreement you will have for a short time a right to cancel it.  Exact details of how and when you can do this will be sent to you by post by us.”
31.	The explanation of the differences between the three pages is as follows.  The pink page is for the purposes of the CCA a statutory copy of the “unexecuted agreement”, because the credit agreement will have been signed only by the client at the time this copy is delivered to the client.  It is delivered pursuant to Section 62 to the client immediately after he signs the credit agreement (the white page). The yellow and white pages are returned by TAG to the Bank and the white page is signed by or on behalf of the Bank..  The agreement then becomes an executed agreement.  The Bank then sends the yellow page by post to the client, in pursuance of Section 63(2).  The yellow page is used to give the client  notice of his right of cancellation in accordance with Section 64(1).
32.	I turn now to the terms and conditions printed on the reverse of each of the pages I have described.  A number of these are particularly material to the issues in this case.
33.	The terms and conditions begin with a number of definitions.  Most of these are self explanatory, but some of them need to be set out.  First, references to “We” “Our” or “Us” are references to the Bank and references to “You” or “Your” are references to the borrower whose name appears on the front of each page, namely the client.  “Account” means 
“the account opened by us in your name to record all Advances made under this agreement and interest and charges pursuant to Clause 5”
“Account Balance” means, as one would expect, the balance outstanding on the account from time to time.  “Advance” means
“an advance of money made by us to you under this Agreement”
“Policy” means the insurance policy described on the front of each page.
34.	Clause 4 deals with debits to the account in the following terms

“4.  DEBITS TO THE ACCOUNT
4.1	We will debit the amount of each Advance to your Account on the day we issue the funds ...
4.2	Interest will accrue on the Account Balance on a daily basis at the Interest Rate and will be debited to the Account on the Statement Date in each month.
4.3	... ”
35.	Clause 5 is, so far as material, in the following terms:

“5.  PAYMENTS DUE FROM YOU
5.1	The Account Balance will be due and payable immediately following the Payment Trigger Date and we shall use any funds we may receive from the proceeds of the Policy or from your damages claim to repay the Account Balance.  If no such funds are received, or if such funds are insufficient to repay the Account Balance we shall tell you in writing of the amount required to  repay the Account Balance and you agree to pay such amount to us within 7 days of our writing to  you.  Interest will continue to be charged until we receive payment in full
5.2	...
5.3	You may, but shall not be obliged to, make one or more payments to us to fully or partly repay the Account Balance”
36.	Finally I note clause 6 which is in the following terms:

“SECURITY
6.1	You will take out and maintain the Policy.
6.2	You hereby assign to  us  the benefits of the Policy by way of security for your obligations to us under this Agreement.
6.3	You agree that you will not do, or omit to do, or permit to be done or omitted any act or thing which might cause the Policy to be declared void or to become voidable.”
Goshawk’s claim in these proceedings
37.	As I have said, in the events which have happened, a high proportion of the actions commenced by clients of TAG have been dismissed by the court or have been discontinued.  I am not required in these proceedings to rule whether or not the insurers have become liable to make payments on the footing that insured risks have materialised, and I do not do so.  But the context in which the proceedings are brought is that the Bank has contended that the insurers are so liable and that the Bank is entitled, as assignee of the policies, to receive the money which the insurers are liable to pay.
38.	On behalf of the insurers Goshawk resists this contention.  It seeks the determination, pursuant to Part 8 of the CPRs, of the question whether the credit agreements entered into by the Bank in pursuance of the TAG scheme fail to comply with the provisions of the CCA and the regulations made thereunder.  Certain ancillary questions which will arise if it is held that there was non-compliance are also raised, as is the question of liability under the Lender’s Clause which, as I have said, I am not going to determine at this stage.
39.	The witness statements made in the course of the proceedings and the skeleton arguments of Goshawk’s counsel allege a number of respects in which the CCA and regulations have not been complied with.  Ultimately, however, assertions of non-compliance have been made under two heads only.  The first of these is non-compliance with the formal requirements concerning the client’s right of cancellation.  The second is non-compliance with the requirements of the CCA concerning what the Act calls “multiple agreements”.  I will deal separately with each of these heads.
Non-compliance with formalities relating to the client’s right of cancellation
40.	Goshawk’s case under this head proceeds by way of the following propositions (which I express in my own words although I believe that they accurately summarise the case):
(1)	The credit agreement will usually have been signed in the client’s home.  It is not such an agreement as is mentioned in Section 67(a) of the CCA and, not having been signed in business premises of the kind mentioned in Section 67(b), the client will have a right to cancel it pursuant to Section 67 within the period prescribed by Section 68.  It is therefore a cancellable agreement within the definition of that expression in Section 189(1) of the CCA.
(2)	Accordingly notice in the prescribed form indicating to the debtor the existence of the right, how and when that right is exercisable and the name and address of a person to whom notice of cancellation may be given has to be included in every copy of the agreement given to the debtor under Section 62. 
(3)	The prescribed forms of notice are contained in  the Consumer Credit (Cancellation Notices and Copies of Documents) Regulations 1983 (SI 1983/1557) (“the Cancellation Regulations.”)  These have been amended from time to time.  I shall quote from them in the form in which they stood in 2002 and 2003.
(4)	Regulation 2(2) of the Cancellation Regulations imposes strict requirements in respect of the wording of notices, including in particular the following
“2.  (1)	...
(2)	The wording of any Form prescribed by these Regulations shall be reproduced in copies of unexecuted or executed agreements or in Notices of Cancellation Rights sent by post under section 64(1)(b) .. of the Act without any alteration or addition, except that
(a) [not material to this case]; and
(b) every Form shall be completed in accordance with any footnote
(3) Where any such footnote requires any words to be omitted, those words shall be omitted or deleted.”
(5)	The credit agreement between the Bank and the client is a debtor-creditor-supplier agreement within the definition contained in Section 12(b).  Accordingly the prescribed form of cancellation notice was, in the case of the copy supplied to the client under Section 62 (the pink page), form 5 in Part II of the Schedule to the Cancellation Regulations (see paragraph 5(1) of those regulations).  In the case of the copy supplied to the client under Section 63(2) (the yellow page) the prescribed form was Form 11 in Part III of the same Schedule (see paragraph 5(2) of the Cancellation Regulations).
(6)	Although the Bank has for the most part adopted Forms 5 and 11 respectively it has not done so with the exactitude which the legislation required.  Specifically it has included at the end of each notice the words
“Note:  Your notice of cancellation will not affect your contract for insurance”.
(7)	These words are to be found in Forms 5 and 11 respectively, but there is a direction in a footnote to each Form requiring the creditor to omit them “if not applicable”.
(8)	In the circumstances in which the credit agreements in this case were entered into these words were not applicable because, contrary to the statement contained in them, service of a notice of cancellation would affect the legal expenses policy.  It was thus a mandatory requirement of the legislation that the words should be omitted.
(9)	The result of submissions (6) to (8) is that the requirements of  Section 64(1) have not been observed, in that the notices are not in the prescribed form.
(10)	Accordingly the credit agreement is not properly executed (see Section 64(5)).
(11)	As the credit agreement is improperly executed it is enforceable against the debtor “on an order of the court only” (see Section 65 (1)).  The court does not, however, have a full discretion in the matter.  Section 127 imposes a number of restrictions on the court.  One of these is that the court is not to make an enforcement order if Section 64(1) was not complied with (see Section 127(4)(b)).  This prohibition will therefore apply in the present case.
(12)	The result is that the credit agreements in issue in this case are irremediably unenforceable against the debtors (the clients).
(13)	Under Section 113 (1) of the CCA, where a security is provided in relation to an actual or potential regulated agreement, the security is not to be enforced so as to benefit the creditor to an extent greater than would be the case if the security were not provided and any obligations of the debtor under or in relation to the agreement were carried out to the extent (if any) to which they would be enforced under the Act.
(14)	The assignment of the policy which is contained in the credit agreement constitutes the giving of a security for the performance of the obligations of the debtor under the credit agreement.
(15)	Accordingly a consequence of the result arrived at in proposition (12) is that any security given by a client for the performance of his obligations under the credit agreement is not enforceable to any extent at all and the Bank cannot require the insurers to make payments under the policy to it.
41.	Many of the propositions which I have set out above are not disputed on behalf of the Bank, but there are serious challenges to propositions (8) and (14).  If either of these challenges succeeds then propositions which depend on the acceptance of proposition (8) or (14) will, of course, be rejected as well.
42.	Although some of the propositions I have set out above are somewhat cryptic and in some cases I have done no more than give the reference to statutory provisions of some complexity, I do not propose in this judgment to examine further those propositions which are not in dispute.  I will concentrate my attention on the matters which are in dispute.
The Prescribed Forms
43.	The starting point in relation to proposition (8) must be the exact terms of prescribed forms 5 and 11.
44.	I propose to set out form 5 and the footnotes to it in full, although some of its provisions are not directly relevant.  As I have indicated, it is (subject to certain irrelevant exceptions) to be included in every Section 62(1) copy of a debtor-creditor-supplier agreement (the pink page in this case)  The form is as follows:

“YOUR RIGHT TO CANCEL
Once you have signed, you will have for a short time a right to cancel this agreement.  You can do this by  sending or taking a Written notice of cancellation to 
1
    If you cancel this agreement, any money you have paid [, goods given in part exchange (or their value) and property given as security]]2 must be returned to you.  You will not have to make any further payment.
    [If you already have any goods under the agreement, you should not use them and should keep them safe.  (Legal action may be taken against you if you do not take proper care of them.)  You can wait for them to be collected from you and you need not hand them over unless you receive a written request.  [If you wish, however, you may return the goods yourself.]3 ] 2
    [You will not, however, be required to hand back any goods supplied to meet an emergency or which have already been incorporated, for example in your home.  But you will still be liable to pay for emergency goods or services or for any goods which have been incorporated by you or one of your relatives.]2
    [Note:  Your notice of cancellation will not affect [your contract for life assurance] [your contract for insurance] [your contract of guarantee] [your contract to open a current account] [your contract to open a deposit account].4  [The place where your financial obligations consequent upon cancellation of this agreement are shown is                                  		5.]6]4
Notes:
1.	Creditor to insert name and address of person to whom notice may be given, or an indication of the person to whom notice may be given with a clear reference to the place in the document where his name and address appear.
2.	Creditor may omit words in square brackets where not applicable.
3	Creditor to include the words in the first set of square brackets unless the words in the second set of square brackets are applicable, i.e. in a case where the subject matter of the agreement is a liquefied petroleum gas  vessel of greater than 150 litres water capacity.
4.	Creditor to omit words in square brackets where not applicable.
5.	Creditor to insert a clear reference to the place where these obligations appear.
6	Creditor may include words in square brackets where applicable.”
45.	I can deal with Form 11 more briefly.  The body of the notice is in somewhat different terms to the body of the Form 5 notice, although it contains a similarly bewildering array of passages in square brackets which are to be included or excluded in accordance with the footnotes.  I need not set these out as, down to the prefatory word “Note”, the Bank appears to have got the notice right in the copy for service under Section 63(2) (the yellow copy).  The part which follows this prefatory word is identical to the part which follows the same prefatory word in the Form 5 notice.  The footnotes to Form 11, including the vital footnote 4, are identical to the footnotes to Form 5.
46.	If it is thought that these complex and confusing forms represent a thoroughly unsatisfactory mode of legislation, especially when non-compliance produces adverse consequences of the most severe nature, I can only agree.  But the fact that the CCA can operate in an extremely harsh manner has been recognised and accepted at the highest judicial level. In Wilson v First County Trust Ltd (No 2) [2004] 1 AC 816 the House of Lords rejected the contention, which had found favour in the Court of Appeal, that the absolute bar on the enforcement of improperly executed credit agreements imposed by Section 127(3) is contrary to Article 1 of the First Protocol to the Convention on Human Rights.  Lord Nicholls said (at pages 844-5):
 “74.  …  The [CCA] contains many requirements about the form and contents of regulated agreements.  Parliament has singled out some obligations as having such importance that non-compliance leads automatically and inflexibly to a ban on the making of an enforcement order whatever the circumstances.  These obligations are specified in sections 127(3) and (4).  In these two subsections Parliament has chosen, deliberately, to exclude consideration of what is just and equitable in the particular case.  The latter approach, enabling the court to consider the circumstances of the particular case, was adopted as the general rule in section 127(1).  Section 127(3) and (4) are, expressly, exceptions to the general rule.  In prescribing these two exceptions Parliament must be taken to have considered that the sanction generally attaching to non-compliance with the statutory requirements was not sufficient to achieve compliance with the duty to include all the prescribed terms in the agreement … or the duties to provide copies and notice of cancellation rights (sections 62 to 64).  Something more drastic was needed in order to focus attention on the need for lenders to comply strictly with those particular obligations.
72.  Undoubtedly, as illustrated by the facts of the present case, section 127(3) may be drastic, even harsh, in its adverse consequences for a lender.  He loses all his rights under the agreement, including his rights to any security which has been lodged.  Conversely the borrower acquires what can only be described as a windfall.  He keeps the money and recovers his security.  These consequences apply just as much where the lender was acting in good faith throughout and the error was due to a mistaken reading of the complex statutory requirements as in cases of deliberate non-compliance.  These consequences also apply where, as in the present case, the borrower suffered no prejudice as a result of the non-compliance as they do where the borrower was misled.  Parliament was painting here with a broad brush.
73.  The unattractive feature of this approach is that it will sometimes involve punishing the blameless pour encourager les autres.  On its face, considered in the context of one particular case,  a sanction having this effect is difficult to justify.  The Moneylenders Act 1927 adopted a similarly severe approach …”
Lord Nicholls went on to mention other instances and also the condemnation of this approach in the Crowther report, which preceded the CCA.  He concluded
“74.  Despite this criticism I have no difficulty in accepting that in suitable instances it is open to Parliament, when Parliament considers the public interest so requires, to decide that compliance with certain formalities is an essential prerequisite to enforcement of certain types of agreements.”
47.	The rest of their Lordships gave similar reasons for reaching the same conclusion on this issue (c.f. Wilson v Howard Pawnbrokers [2005] CCLR 2, at para 18, where Sedley LJ said that Lord Nicholls’ reasoning “reflects that of the Appellate Committee as a whole”).
48.	I should, perhaps mention the last paragraph in Lord Nicholls’ speech, where he said
 “80.  As a footnote I should add that in stating this conclusion I am not to be taken as expressing a view on what would be the position if, as is now under consideration, the current limit of £25,000 were removed and the Consumer Credit Act were to apply to loans regardless of their amount.  An adverse consequence, acceptable for a loan of £25,000, may not be acceptable when applied to a loan of £250,000.” (see [2004] 1 AC at page 847).
49.	As if in echo of this observation Mr. Butcher, on behalf of the Bank, pointed out that, while the purpose of the CCA is to protect vulnerable persons in credit transactions of small or modest size, the present dispute is one between substantial commercial organisations and the strict provisions of the Act are relied upon in order to prevent the Bank recovering some £140 million and allow the insurers to retain the premiums they have received, which are said to be in excess of £50 million.  This is a striking appeal to the supposed merits, but it does not avail the Bank, as Mr. Butcher had to accept.  Lord Nicholls was directing his observation to a possible change in the law which has not happened.  Moreover the staggering total of £140 million is arrived at by aggregating the small amounts, each of them well below the limit of £25,000, advanced under a very large number of separate agreements.  The CCA applies to this case not because a commercial party like Goshawk was perceived as requiring protection but because the multitude of parties of slender means who were the likely participants in the TAG scheme are within a class considered to require protection.
50.	In the case before me I do not have to consider any submission that inability to enforce the credit agreement would contravene the Bank’s Convention rights.  Such a submission would, of course, be doomed to failure in the light of the decision of the House of Lords.  But the reasoning which led the House of Lords to the conclusion it reached on the human rights issue shows that the harsh consequences prescribed by the CCA cannot justify a construction of that Act which seeks to avoid the fair meaning of the language used by Parliament.
51.	I have earlier set out a fairly full summary of the propositions advanced on behalf of Goshawk.  I propose now to examine in greater detail proposition (8) which, putting it in an abbreviated form, is that the note stating that a notice of cancellation would not affect the insurance policy (to which I shall henceforth refer simply as “the relevant note”) should have been omitted because it is not applicable.  As the argument has developed this involves two principal issues.  The first is what factors are relevant in deciding whether the relevant note is applicable.  The second is whether, on the facts of the TAG cases, a notice of cancellation would “affect” the insurance policy.  I shall consider these in turn.
What factors are relevant in deciding whether the note is applicable?
52.	On behalf of Goshawk Mr. Howard contended that the answer to this is simple.  In deciding whether the relevant note is applicable the only issue is whether the notice of cancellation would affect the policy.  If it would the note must be omitted.  If it would not it must be included.
53.	On behalf of the Bank Mr. Butcher said that the matter is not as straightforward as that.  The footnote relating to omission of the relevant note has to be considered in the context of other provisions of the statute and subordinate legislation relating to cancellation.
54.	The first of these is Section 69 which states the consequences of serving a notice of cancellation in relation to a cancellable agreement.  The material part for present purposes is Section 69(1)(i), under which service of a notice of cancellation is to operate
“to cancel the agreement, and any linked transaction”.
55.	Linked transactions are defined in Section 19.  For the purpose of the present argument it will suffice to note Section 19(1)(a) under which a transaction is linked to a regulated agreement (referred to as “the principal agreement”) if 
“(b)  the principal agreement is a debtor-creditor-supplier agreement and the transaction is financed, or to be financed, by the principal agreement”
It is common ground in this case that the credit agreement is a debtor-creditor-supplier agreement, so I will not set out the statutory provisions which establish that this is so.  The premium for the policy was to be debited to the loan account, so that the policy was to be financed by the credit agreement.  Hence, looking only at Section 19(1) the credit agreement and the policy are linked transactions.
56.	However Section 69(5) conferred power on the Secretary of State to make regulations excluding linked transactions of the prescribed description from subsection (1)(i) or (ii) of Section 69.  This power was exercised by the Consumer Credit (Linked Transactions) (Exemptions) Regulations 1983, SI 1983/1560 (“the Exemption Regulations”).  The Exemption Regulations were part of a substantial batch of statutory instruments relating to consumer credit, all of which came into effect on 19th May 1985.  The Cancellation Notices Regulations were part of the same batch of statutory instruments.
57.	By regulation 2(1) of the Exemption Regulations linked transactions of the description in regulation 2(2) were excluded from, inter alia, Section 69 (1) (i) and (ii).  Regulation 2(2) needs to be set out practically in full, although I can omit some words at the end of sub-paragraph (c)(ii).  It states 
“(2)  The linked transactions referred to in paragraph (1) above are as follows
(a) 	contracts of  insurance;
(b)	other contracts in so far as they contain a guarantee of goods;
(c)	transactions comprising or effected under:
(i)	any agreement for the operation of any account (including any savings account) for the deposit of money;
(ii)	any agreement for the operation of a current account …”
58.	A comparison of the language of this provision and that of the parts of Forms 5 and 11 to which footnote 4 relates (see paragraph 44 above) shows that the descriptions of the transactions referred to in regulation 2(2) of the Exemption Regulations match the transactions referred to in what I shall call “the footnote 4 provisions”.  Although there are some differences of language these are immaterial.  Nothing which is mentioned in regulation 2(2) of the Exemption Regulations is omitted from the footnote 4 provisions, and vice versa.
59.	Mr. Butcher argued that this shows that the purpose of the items introduced by the word “Note” in the Form 5 or 11 notice was to communicate to the debtor in relatively straightforward terms the effect of Section 69(1) when read in conjunction with Section 19(1) and paragraph 2(2)  of the Exemption Regulations.  Accordingly in deciding whether any part of the footnote 4 provisions is or is not applicable the creditor has only to consider (i) whether a transaction of the kind to which that part refers is a linked transaction in relation to the credit agreement and if it is (ii) whether it is excluded from Section 69 (1)(i) by the Exemption Regulations.  In the case of the insurance policies in issue in these proceedings it is clear that they are linked but exempt agreements not affected by Section 69(1)(i).  It was therefore correct for the Bank to include the relevant note.
60.	Mr. Butcher relied on the following matters and submissions:
(1)	The correspondence between the exemptions and the footnote 4 provisions.
(2)	The Cancellation Regulations and the Exemption Regulations are parts of a single scheme of subordinate legislation.  The nature of the items introduced by the word “Note” shows that attention was being directed to the effect of cancellation on transactions distinct from but connected with the transaction being cancelled.  It would therefore be natural  to construe the footnote 4 provisions as requiring consideration only of the question whether transactions which are linked to the regulated agreement  either are or are not exempted from Section 69(1)(i) by the Exemption Regulations.
(3)	The CCA and its subordinate legislation are not directed exclusively or even primarily to transactions of the kind entered into as part of the TAG scheme.  On the contrary they are of universal application to all types of credit transactions, including new types devised subsequent to the coming into effect of the legislation.  Some of these transactions may be of considerable complexity involving insurance policies and a range of other documents, in addition to a credit agreement.  Footnote 4 requires a creditor to form a view whether or not the notice of cancellation, which is not the same thing as the cancellation itself, will “affect” the insurance policy.  The legislature cannot have intended to place the creditor under an obligation, on pain of losing all his rights, to reach an accurate view whether one part of a complex transaction will indirectly “affect” a policy which is not itself cancelled by the legislation.
(4)	The impact of the preceding factor is emphasised by the need, if Goshawk is right, to consider in the present case difficult issues concerning the terms of the policy, the CFA and the TAG Service Agreement read in conjunction with each other.  The nature of these issues will appear when I come to the next main topic.
(5)	The provisions relating to prescribed forms and footnote 4 require the creditor either to include or exclude the relevant note.  The creditor has no other course available to him.  He cannot, for example, express doubt whether a notice of cancellation will or will not affect the insurance policy.  Nor, if he excludes the relevant note, can he include words explaining how the policy will be affected.  It is not to be supposed that the legislature intended, by means of provisions which are intended to explain to the debtor in relatively simple terms the effect of cancellation of a credit agreement, to put the debtor in a position where the creditor concludes that cancellation will affect the linked but exempt insurance policy but is precluded from informing the debtor of this fact and is required to remain silent.  Yet this would sometimes be the case if, in order to decide whether cancellation will affect an insurance policy, the creditor is required to look beyond the statutory provisions relating to linked transactions and exemptions.
61.	Mr. Howard described the construction of the legislation contended for by Mr. Butcher as “bizarre and paradoxical”.  He said in his written opening submissions that it required the court 
“to accept that Parliament has not only provided that cancellation notices which are misleading can be served but has actually gone even further and, on the Bank’s case, required service of misleading notices.”
The latter part of this contention assumes, of course, that the court accepts the submission that in this case service of a notice of cancellation would affect the policy, which is a matter which I have yet to consider.  But the first part represents an inevitable consequence of acceptance of the Bank’s contention.  It is the conflict between this consequence and the dilemma posed for creditors in the position of the Bank if Goshawk’s submission is correct which makes the issue a difficult one.
62.	Mr. Howard’s submissions were based upon the policy of the Act, the perceived need to impose draconian consequences in order to secure compliance and what he submitted was the plain language of the relevant note and footnote 4.  He claimed that the Bank’s submissions failed to give any proper meaning to the words “affect” in the relevant note and “applicable” in footnote 4.  
63.	Mr Howard said that the Bank’s submissions were based on the false premise that the Cancellation Regulations were made under Section 60, whereas they were in fact made under Section 180.  Section 60 provides for the making of regulations concerning the form and content of documents embodying regulated agreements.  Section 180 provides for the making of regulations concerning the form and content of documents issued as copies of any executed agreement.  Those regulations may in particular
“require specific information to be included in the prescribed  manner in any copy, and contain requirements to ensure that such information is clearly brought to the attention of a reader of the copy”
(see Section 180(1)(a)).
64.	Mr. Howard’s argument was that the statutory basis of the Cancellation Regulations was important.  Forms 5 and 11 did not themselves confer the right to cancel and they were not terms of the agreement itself.  Their purpose was to give the debtor information about  the right to cancel which was conferred by Section 67.  While all this is true, I do not consider that it undermines the Bank’s argument.  Regulations made under Section 60 (The Consumer Credit (Agreements) Regulations 1983, SI 1983/1553, another one of the batch of regulations coming into effect on 19th May 1983) prescribe what is to be contained in the agreement itself, while the Cancellation Regulations prescribe what is to be contained in copies of the agreement.  Each of them lays down a form of words the use of which is compulsory.  Together with the CCA and other relevant Regulations they provide a code governing regulated agreements.  The question is what is the true meaning of the part of that code which governs the form of notice which gives information about the statutory right of cancellation.  I cannot see that the answer to this question of construction is affected by the fact that the purpose of the notice was to give information, not to set out a contractual term.
65.	Mr. Howard made detailed submissions concerning the meaning of the words “if not applicable” and “affect” in the context in which they appear in Forms 5 and 11.  He complained that the Bank’s submissions attributed to “if not applicable” an unjustifiably limited meaning equivalent to “if linked but not exempt by virtue of the Exemption Regulations” and then proceeded to construe “affect” in a way consistent with this limited meaning.  The true approach, he said, is to attribute to the ordinary words “if not applicable” and “affect” their ordinary meaning in the context in which they appear.  The question which has to be answered by the creditor in deciding whether to include or omit  the relevant note is whether cancellation will produce an effect on the policy.  If it will the relevant note will not be applicable and it must be omitted.  It will be applicable, and should therefore be included, only where cancellation will have no effect at all on the policy.
66.	Mr. Howard also sought to minimise the practical difficulties which would face the Bank if Goshawk’s arguments are correct.  He said that the Bank was aware of the terms of all the documents which are included in the TAG scheme and was in a position to require changes to be made in them in order to avoid doubt whether cancellation of the credit agreement would have an effect on the policy.  This may be so on the facts of the present case, although I doubt whether the burden on the Bank could be reduced to the full extent suggested on behalf of Goshawk.  But it would be wrong to construe the legislation exclusively by reference to the facts of the present case.  As both counsel pointed out at various stages of their arguments, the CCA and its subordinate legislation are applicable to all types of consumer credit arrangements.  Even if Goshawk were right to say that its construction of “affect” would not present the Bank with insuperable difficulties in the TAG scheme, that construction might, I think put the creditor in a very difficult position in other cases of regulated credit agreements entered into as part of a wider transaction.
67.	Beyond the points on which I have expressed a view I have found the arguments on each side finely balanced and I confess that my mind has fluctuated.  In the end, however, I have reached the conclusion that the Bank’s contentions are to be preferred.  While I find no single argument to be conclusive, there is one which I have found to be particularly impressive.  Mr. Howard’s submission that parliament cannot have intended the Bank to make a misleading statement appeared at first sight to be a telling point.  But if Goshawk were right in saying that the creditor is obliged, when considering whether or not he is required to include the relevant note, to form a view whether cancellation of part of what may be (and in this case is) a complex transaction involving a number of separate elements will in any manner at all “affect” an insurance policy which is another of those elements, the means adopted  by the legislature for the communication of that view to the debtor would be wholly inadequate.  The creditor is not enabled to give advice to the debtor.  If he concludes that the cancellation will “affect” the policy (in the sense of “affect” contended for by Goshawk) all the creditor can do is to omit the relevant note.  He cannot add words of explanation as to what sort of effect he envisages.  Still less can he indicate any element of doubt.  If a statement that the notice of cancellation of the credit agreement will not affect an insurance policy is to be taken as meaning that the cancellation will not have any kind of effect, direct or indirect, then the silence which would result from the creditor concluding that the notice would affect the policy would be no less misleading than an erroneous statement will not affect the policy.  These problems will not arise if the legislative provisions are construed in the more limited sense contended for by Mr. Butcher.  In my judgment this represents the correct view.
Would cancellation of the credit agreement “affect” the insurance policy in the TAG scheme?
68.	 Accepting, as I do, the restricted construction of “affect” advanced on behalf of the Bank, the answer to this question is clear.  Cancellation would not affect the policy because, as a result of the Exemption Regulations, the policy would not itself be cancelled by virtue of the legislative provisions concerning cancellation.  The relevant note was therefore applicable and the Bank was correct to append it to its notice concerning cancellation rights.
69.	I must, however, consider what the position would be if I were wrong on this point of construction and the Bank was obliged to consider whether cancellation of the credit agreement would have any kind of effect on the policy.
70.	Mr. Howard did not claim that there was any provision in either the first or the second policy providing for automatic termination of the cover in the event of the cancellation of the credit agreement.  But he argued that such termination was an inevitable consequence of cancellation.  He referred to the statement concerning cancellation which was made in the Customer Care Pack issued by TAG to clients after acceptance of their cases by TAG.  After drawing attention to the existence of a right to cancel the credit agreement by means of a notice given to the Bank TAG stated
“The bank will inform [TAG] of your decision to cancel.  The policy will be cancelled automatically and your claim will be withdrawn.” (emphasis added).
Mr. Howard submitted that this statement was perfectly correct.
71.	Mr. Howard put his argument in two ways.  The first way of putting it was based on the TAG scheme as a whole and depended on a detailed consideration of the documents.  The second was based on the contention that the CFA and the TAG Service Agreement, or one of them, was a linked transaction in relation to the credit agreement which, not being exempt, was itself cancelled under Section 69.  The consequence of this, Mr. Howard argued, was to bring down the insurance cover.  I will consider these two arguments separately.
72.	On the first argument Mr. Howard referred to the provisions of the documents which I have set out or summarised earlier in this judgment.  He submitted that the TAG scheme was a single package and that rejection of any part of it would involve exclusion from the scheme as a whole.  It was an essential part of Mr. Howard’s argument that participation in the scheme was possible only if the insurance premium, the AIL fee and the disbursements were financed by means of a credit agreement with the Bank or the other funder used by TAG.  He said that there was no acceptable evidence that participation was possible on any other basis.  The one specific case of this kind mentioned in the evidence proved, on examination, to be a case where the client decided not to participate in the TAG scheme at all.
73.	Mr. Butcher challenged this argument.  He pointed out that cover under the policy commenced when the client was sent a certificate of insurance (see step (13) in the sequence referred to in paragraph 10 above) which was while the cooling-off period was still running.  He said that the CFA was also entered into before the cooling-off period had expired.  It was to have effect when the client delivered a signed copy of the client care letter to the solicitor.  This, Mr. Butcher argued, was at the home visit (step (9)), when the client signed the letter and left it with the TAG representative.  This was delivery to the solicitor because the TAG representative was the agent of the solicitor as well as TAG at such visit.  The insurance policy and the CFA were thus in place at a very early stage.  The question thus becomes one of whether, and if so how and when, these agreements were terminated in the event of cancellation of the credit agreement.
74.	Mr. Butcher accepted that if the premium due under the policy was not paid the insurers would sooner or later terminate the cover provided by the policy.  Likewise the solicitor might well terminate the CFA if effective provision was not made for financing disbursements, although such termination would not be inevitable.  But he argued that termination in this way would not be an effect produced by the notice of cancellation of the credit agreement.  Immediately after cancellation the policy and the CFA would remain on foot to exactly the same extent as before cancellation.  The likelihood that the policy would be terminated if the premium was not paid and the CFA might well be terminated if new funding arrangements were not put in place are not effects of service of notice of cancellation of the credit agreement.  They are the results of non-payment of what is due from the client.
75.	As part of his argument Mr. Butcher claimed that, while it was essential to the TAG scheme that there should be insurance cover and a CFA, nothing in the scheme required that these should be paid for by means of a loan under the credit agreement.  He relied upon the statements in the “Second Aid” document (see paragraph 11 above) that
 “The cost of the policy and the ongoing expenses needed to run the case may be funded by a simple loan agreement” and
“To assist, the payment of the premium and ongoing expenses may be funded.  This involves a simple loan agreement.” 
Likewise the declaration by the client in the TAG Service Agreement says
“If I borrow the money to pay the premium and disbursements (if applicable) …”
The emphasis in each of these quotations is mine.  These statements indicate that a client could continue within the TAG scheme without proceeding with a credit agreement.
76.	Mr. Butcher relied also upon evidence to the effect that if a client did cancel the credit agreement TAG would not immediately treat the client’s participation as being at an end.  Rather a TAG representative would contact the client and endeavour to persuade him to enter into a new credit agreement.  If he did so the client’s participation in the scheme would continue.  No new certificate of insurance would be issued.  Cover would continue under the policy number originally notified to the client.
77.	Mr. Butcher’s arguments had considerable force and I am not convinced that it was an essential part of the TAG scheme that there should be a credit agreement to finance the premium, the AIL fee and the disbursements.  I do not accept that cancellation of the credit agreement would lead automatically to cancellation of the policy.  I think that the “Second Aid” statement that there would be automatic cancellation was incorrect, although cancellation would, no doubt, be the indirect consequence in many, perhaps most, cases.  But it appears to me that Mr. Butcher’s arguments essentially depend on the proposition that effects which flow indirectly from the service of the notice of cancellation are not such as to “affect” the policy within the meaning of footnote 4.  I cannot accept that, if (contrary to my earlier conclusion) the meaning of “affect” advanced by Mr. Butcher is rejected, indirect effects, in the form of non-payment of the premium or the need to resort to other funds in order to pay the premium, are to be disregarded.
78.	That conclusion means that Mr. Howard does not need to rely on his second argument, but I think I should nevertheless consider it.  The first essential step in this argument is to conclude that each of the CFA and the TAG Service Agreement was a linked transaction in relation to the credit agreement
79.	This necessitates a detailed consideration of Section 19 which I have hitherto referred to only briefly.  Its terms, so far as material, are as follows:
“19.	(1) A transaction entered into by the debtor … with any other person (“the other party”), except one for the provision of security, is a linked transaction in relation to an actual or prospective regulated agreement (“the principal agreement”) of which it does not form part if
(a) the transaction is entered into in compliance with a term of the principal agreement; or
(b) the principal agreement is a debtor-creditor-supplier agreement and the transaction is financed, or to be financed, by the principal agreement; or
(c) The other party is a person mentioned in subsection (2), and a person so mentioned initiated the transaction by suggesting it to the debtor … who enters into it
(i) to induce the creditor or owner to enter into the principal agreement, or
(ii)  for another purpose related to the principal agreement, or
(iii)  … 
(2)  The persons referred to in subsection (1)(c) are
(a)  …
(b)  …
(c)  a person who, at the time the transaction is initiated, knows that the principal agreement has been made, or contemplates that it might be made.”
80.	It is necessary to consider the CFA and the TAG Service Agreement separately in deciding whether either of them is a linked transaction in relation to the credit agreement.  So far as the CFA is concerned Mr. Howard contended that it is a linked transaction by virtue of either paragraph (b) or paragraph (c) of Section 19(1) and that the TAG Service Agreement is a linked transaction by virtue of Section 19(1)(c).  These contentions were disputed by Mr. Butcher.
81.	Taking first the CFA, Mr. Butcher argued that it is not a linked transaction by virtue of Section 19(1)(a) because it was not financed by the credit agreement.  He said that the credit agreement financed only the cost of the disbursements incurred by the solicitor and not the profit costs of the solicitor’s professional services, which were provided for by the CFA.  I accept that the solicitor’s profit costs were not financed by the credit agreement.  But I do not accept that the disbursements, which were admittedly so financed, can be ignored for the purposes of Section 19(1)(b).  The terms of the CFA in respect of disbursements were an important part of the CFA from the point of view of both the solicitor and the client.  The fulfilment of these terms required finance which came from the credit agreement.  I regard it as correct to say that the CFA was, in this respect, financed by the credit agreement.
82.	There is greater difficulty so far a Section 19(1)(c) is concerned.  The essential question is whether the CFA was initiated by a person mentioned in Section 19(3).  It was not, as I understood it, disputed that both the solicitor and TAG were such  persons.   TAG is not “the other party” in relation to the CFA.  The solicitor is “the other party”, but is the CFA “initiated” by the solicitor?  This is essentially a question of fact.  I was referred to Citibank International v Schleider [1999] GCCR 2281, where it was held that the transaction which was alleged to be a linked transaction did not come within Section 19(1)(b) because, on the pleaded facts, it had been initiated by Mr. Schleider, not by Citibank which was “the other party” in that case.  In the present case the facts, so far as they suggest who it was that initiated the CFA in a particular instance, indicate that it was TAG or the client himself, neither of whom is “the other party”.  I accept Mr. Butcher’s submissions in this respect and find that, subject to the possibility that the contrary may be proved if the facts of a particular case are explored the CFA was not a linked transaction by virtue of Section 19(1)(c).
83.	Turning to the TAG Service Agreement, it was not suggested that this was financed by the credit agreement, so the question is whether it was a linked transaction by virtue of Section 19(1)(c).  This in turn becomes a question whether it was initiated by TAG or by the client.  On the material before the court it is simply not possible to know whether, in any particular case, the first approach was made by one or the other.  I do not think it can be said that in a case where the client made the first approach the TAG Service Agreement was nevertheless initiated by TAG because the TAG Service Agreement is in the form required by TAG.  In the result, as the present proceedings are formulated, I do not find it possible to say, as a generality, that the TAG Service Agreement was initiated by TAG, although as in the case of the CFA the contrary may be proved in a particular case.  Accordingly I am unable to find that the TAG Service Agreement was a linked transaction in relation to the credit agreement.
84.	This leaves the question whether, the CFA being a linked transaction by virtue of Section 19(1)(b) as I find that it was, the automatic cancellation of the CFA brought down the insurance policy or otherwise “affected” the policy.  On this Mr. Howard relied on Section 69(4) under which, subject to certain exceptions which are not relevant, an agreement or transaction cancelled under Section 69(1) is to be treated as if it had never been entered into.  The impact of this provision can be seen most clearly in relation to the second policy under which it was a condition precedent to the existence of cover that the client should have entered into a CFA with his solicitor.  But the impact on the first policy was similar because of Exclusion 4 under which the underwriters are not liable for any claim if the client has not entered into a CFA (see paragraph 20(1)) above).  On this question I consider that Mr, Howard’s argument was correct.
85.	The foregoing arguments lead me back to an aspect of Mr. Butcher’s argument which I have already mentioned.  It must be kept in mind that the underlying issue in relation to this aspect of alleged non-compliance with the requirements of the CCA is whether the Bank was or was not right in deciding to include the relevant note on the ground that it was “applicable”.  The contentions on the issue whether cancellation of the credit agreement would “affect” the insurance policy are elaborate and detailed and require some difficult decisions to be made.  This is particularly so in relation to the argument that the CFA or the TAG Service Agreement or one of them is a linked transaction, where questions of fact arise in relation to reliance upon Section 19(1)(c).  If Goshawk is correct, the Bank had to answer all these questions at the outset, before it prepared its standard form of credit agreement and if it got any of the answers wrong the result would be irremediable non-compliance leading to inability to enforce the credit agreement.  Mr. Butcher asked rhetorically “Does the CCA really require the Bank to do all this in order to have an enforceable agreement?”.  He said it does not, because the true interpretation of the statutory requirements is that “applicable” and “affect” are to be construed in the more limited sense I have discussed earlier.  But if this construction is not correct a creditor such as the Bank is in an almost impossible position.  This consideration is, in my view, relevant to the task of ascertaining the meaning of the language used by the legislature and it has been a factor in my reaching the conclusion on the meaning of “affect” which I have already stated.
Conclusion as to the first alleged non-compliance
86.	The result of the reasoning which I have found it necessary to set out at some length is that I reject the contention that the Bank was in breach of the legislative requirements by reason of its inclusion of the relevant note.  This is because I find that, in deciding whether or not the relevant note was applicable, the Bank was not obliged to look beyond the effect of Section 69 in conjunction with the Exemption Regulations.  But if I were wrong about that, there would, in my judgment, have been non-compliance because, although cancellation of the credit agreement would not automatically cancel the policy, it would “affect” the policy if “affect” has to be construed in the wider sense contended for by Goshawk.
87.	There remains the question of the effect of non-compliance if I were wrong in my view that there has been no non-compliance.  I think I ought to consider the arguments advanced on this issue, even though in my judgment it does not arise.  But as the same arguments arise in respect of the second alleged non-compliance I will deal with that matter first.
The Second Alleged Non-Compliance
88.	The arguments in relation to the second alleged non-compliance are, like those in relation to the first, of considerable complexity.  The foundation of them is Section 18 which provides (so far as material)
“18.  Multiple agreements
(1)  This section applies to an agreement (a “multiple agreement”) if its terms are such as
(a)	to place a part of it within one category of agreement mentioned in this Act and another part of it within a different category of agreement so mentioned, or within a category of agreement not so mentioned, or
(b)	to place it, or a part of it, within two or more categories of agreement so mentioned.
(2)	Where a part of an agreement falls within subsection (1), that part shall be treated for the purposes of this Act as a separate agreement.
(3)	Where an agreement falls within subsection (1)(b), it shall be treated as an agreement in each of the categories in question, and this Act shall apply to it accordingly.
(4)	Where under subsection (2) a part of a multiple agreement is to be treated as a separate agreement, the multiple agreement shall (with any necessary modifications) be construed accordingly …
(5)	In the case of an agreement for a running-account credit, a term of the agreement allowing the credit limit to be exceeded merely temporarily shall not be treated as a separate agreement or as providing fixed-sum credit in respect of the excess.
(6)	… “
89.	This section has generated acute controversy amongst lawyers practising in the field of consumer credit law.  One of the main problems is the meaning of the terms “part” and “category”.  For my part I fully appreciate why there should be such controversy.  The main steps in the argument advanced on behalf of Goshawk on this part of the case can, however, be stated without embarking on this controversy.  I summarise them as follows:
(1)	The Consumer Credit (Agreements) Regulations 1983, SI 1983/1553 (“the Agreements Regulations”) lay down strict requirements in respect of the contents of various types of regulated agreement.
(2)	In particular, but without attempting to set out the requirements in full, an agreement for a fixed-sum credit (save for certain exempted agreements not relevant here) must set out the amount of the credit; and an agreement for a running-account credit must state the credit limit (see paragraphs 1 and 2 of Schedule 6 to the Agreements Regulations).
(3)	An agreement which does not contain the prescribed statements is not properly executed.  This results in the same unenforceability as that already mentioned in relation to the first alleged non-compliance save that the relevant statutory provisions are Sections 61(1)(a) and 127(3) in place of Sections 64(1) and 127(4).`
(4)	The credit agreement used by the Bank in the TAG scheme provides both a fixed-sum credit and a running-account credit.
(5)	The credit agreement is thus a multiple agreement within Section 18.  In particular it is a multiple agreement in parts, each of which is to be treated for the purposes of the CCA as a separate agreement, with the result that the requirements concerning the documentation of a fixed-sum credit agreement must be complied with in respect of the fixed-sum part and the requirements concerning a running-account credit agreement must be complied with in respect of the running-account part.
(6)	The Bank’s credit agreement has been documented as a running-account credit agreement only.  Thus it contains no statement of the amount of the credit limit and other matters appropriate to a running-account credit, but no statement of the total charge for credit and other matters appropriate to a fixed-sum credit.
(7)	The credit agreement is thus unenforceable against the debtor and the Bank’s security in respect of the policy is likewise unenforceable against the insurers.
90.	As in the case of the propositions underlying Goshawk’s case on the first alleged non-compliance, some of these propositions are not disputed, so I will not discuss them further.  But propositions (4) (5) and (7) are strongly disputed.
Does the credit agreement provide for a fixed-sum credit as well as a running-account credit?
91.	An essential part of Goshawk’s argument is that the credit agreement provides for both a fixed-sum credit and a running-account credit and that each of these is a separate category of agreement mentioned in the CCA.  Given the premise that both a fixed-sum credit and a running-account credit are provided it was not seriously disputed that the credit agreement would be a multiple agreement for the purposes of Section 18.  The premise is, however, strongly disputed.
92.	Fixed-sum and running-account credits are defined in Section 10(1), which states
“(1)  For the purposes of this Act
(a) 	running-account credit is a facility under a personal credit agreement whereby the debtor is enabled to receive from time to time (whether in his own person or by another person) from the creditor or a third party cash goods and services (or any of them) to an amount or value such that, taking into account payments made by or to the credit of the debtor, the credit agreement (if any) is not at any time exceeded; and
(b)  fixed-sum credit is any other facility under a personal credit agreement whereby the debtor is enabled to receive credit (whether in one amount or by instalments).”
93.	There is no dispute that, insofar as the credit agreement provides for the funding of disbursements or other outgoings the amount of which was not known at the time the credit agreement was entered into, it was an agreement for a running-account credit.  But Goshawk argued that, insofar as it provided for the funding of the insurance premium and the AIL fee, the amounts of which were fixed and known at the time the credit agreement was entered into and stated in the TAG Service Agreement, the credit was a fixed-sum credit.  As every facility under a personal credit agreement which is not a running-account credit is, by the terms of Section 10, a fixed-sum credit, the question becomes one of whether the debits to the credit account in respect of the insurance premium and the AIL fee were made as part of a running-account facility.
94.	The nature of fixed-sum and running-account credits in the context of the statutory definitions is discussed in Goode: Consumer Law and Practice at Section 1C, paragraph 25.20 and the following paragraphs.  In paragraph 25.22 Professor Goode states:
“[R]unning account credit is synonymous with revolving credit. except that the statutory definition is confined to credit provided under a personal credit agreement.  The debtor is given a facility, a line of credit which is taken up by drawings but pro tanto restored by repayments, the debtor being free to draw as and when he chooses so long as he does not exceed any credit limit and observes any other constraints … and the facility continuing indefinitely unless and until terminated by either party.  The most common examples are the bank overdraft, the credit card, the budget account and the option account.”
95.	 On behalf of Goshawk considerable reliance was placed on paragraph 25.22b, where Professor Goode says
 “Drawing Facility  An integral part of the statutory definition of running-account credit is that the debtor ‘is enabled to receive from time to time’ cash goods and services or any of (them) within any agreed credit limit.  It is thus inherent in the definition that the debtor has a facility on which he can draw, within the credit limit, at pleasure or subject to conditions imposed by the creditor.  If an account is opened for a debtor with a specified credit limit but the debtor is not given any genuine drawing facility because the total amount of the credit is earmarked by the creditor for discharge of the debtor’s liabilities on a separate account and is provided by automatic transfer from the one account to the other, the transaction will almost certainly be characterised by the court as a fixed-sum agreement … , not an agreement for running-account credit; and where part of the credit limit is so earmarked, the transaction will be a fixed-sum credit agreement … as to that part and an agreement for running-account credit only as to the remainder of the credit limit genuinely at the debtor’s disposal.”
96.	On behalf of Goshawk it was argued that the insurance premium (£997.50) and the AIL fee (£376) were fixed amounts established before the credit agreement was entered into and required to be paid out of the money made available by the credit agreement.  This requirement was imposed not only by TAG but also by the Bank, in that Clause 6.1 of the terms and conditions on the back of the credit agreement required the debtor to take out and maintain the policy.  It was submitted that, in these circumstances, the credit is, to the extent of the policy premium and the AIL fee, earmarked for the payment of these sums, which are debited to the account and paid away to the insurers and AIL respectively without further reference to the debtor.  The debtor therefore has no real drawing facility in respect of these sums, which must therefore be characterised as a fixed-sum credit. 
97.	On behalf of the Bank it was argued that Professor Goode’s concept of earmarking as a distinguishing feature between a fixed-sum credit and a running-account credit was either unhelpful, not being justified by any words in the statute, or at best something to be applied with caution.
98.	Mr. Butcher advanced two analogies based upon common commercial practices.  The first is where a person applies for a credit card from a new provider, attracted by the provider’s offer of a low (or nil) rate of interest on “balance transfers”.  In such a case the first sum debited to the new credit card will be the amount, established at the time when the new credit card account is opened, required to discharge the debit balance on the old credit card account.  It would be ridiculous, said Mr. Butcher, to treat the transaction as a fixed-sum credit to the extent of this amount with the result that if, as is likely to be the case, the new credit card account is documented only as a running-account credit, then that agreement is unenforceable against the cardholder.  Yet Goshawk’s argument, if correct, would inevitably produce this result.
99.	The second analogy is where a consumer applies to have a store credit card because it is offered at the time the consumer decides to make a purchase at the store in question.  Both parties know and intend that the first debit to the account will be the price of the item which is to be purchased.  Here again this debit is merely the first drawing against a running-account facility, not a fixed-sum credit.
100.	The store card analogy is referred to in a note in the Encyclopaedia of Consumer Credit Law, prepared under the general editorship of Professor A.G.Guest, at page 2018/5, where, in a commentary on Section 10 it is stated
 “A further problem arises when the opening of a running-account credit facility is preceded by an agreement that the facility be used to finance a sale or supply agreement already made.  For example, having agreed to make a purchase from a retailer, the debtor may be offered a store card with which to finance that and future purchases.  Although the initial transaction, viewed in isolation, may appear to give rise to a fixed-sum credit, if it is treated as the first of a number of drawings on the store card account and – in particular – the credit provided is to be “refreshed” by subsequent payments into the account, that drawing is merely the first use of the running-account credit facility.”
101.	It would seem that Professor Goode himself would not apply an “earmarking” test to the store card example, on which he would agree with Professor Guest.  At Section IIB, paragraph 5.10 of Consumer Credit Law and Practice Professor Goode says:
“There may be more difficult cases.  For example a creditor may open an account with a credit limit and immediately debit it with the agreed first advance.  Although this advance may appear to be fixed-sum credit, it is not; for the debit has been incurred on an account whose use is determined by the debtor, and repayment of the first advance will not operate to terminate the account.”
102.	 Mr. Butcher emphasised the fact that the credit agreement used by the Bank in the TAG cases does not differentiate between the parts of the facility which are to be used to pay the premium and the AIL fee and the parts which are to be used to meet disbursements or other outgoings.  Indeed none of these items is identified in the credit agreement.  The insurance policy is, of course, referred to but the Bank imposes no requirement that the premium is to be met out of the facility.  The Bank merely requires the debtor to effect and keep up the policy, without saying what funds are to be used for that purpose.  Mr. Butcher pointed out that the same terms apply to all advances under the credit agreement and that the expression “Account Balance” is defined in a way which includes all debits to the account, without differentiation between them.  Moreover, although payments in reduction of the Account Balance were permitted (see clause 5.3 of the terms and conditions on the reverse of the credit agreement) there was no machinery for the apportionment of these payments between separate parts of the Account Balance.
103.	In my judgment Mr. Butcher’s arguments were well founded.  I find the store card analogy to be an apt one and I consider both Professor Guest’s and Professor Goode’s comments on this example to be correct.  I do not dissent from the use of the earmarking concept in the other passage from Professor Goode’s work which I have quoted, where this concept is appropriate, as it clearly is in the example cited by Professor Goode, where part of a facility is  required by the creditor to be used to discharge a liability on a separate account.  But I think that the concept has to be applied with some care and that it is not of assistance where, as I find in this case, the creditor has not imposed a requirement as to the use of the facility to pay the premium and the AIL fee.  The fact that the Bank knew in advance that the debtor would be requiring these payments to be made is not, in my judgment, enough to make the credit agreement one which is in part a fixed-sum credit.
104.	I therefore conclude that the credit agreement in issue in this case is not a multiple agreement.  It was not disputed that if that is so it was properly documented as a running-account credit.  It follows that, on the view which I take concerning the fixed-sum/running-account issue Goshawk’s case in respect of the second alleged non-compliance fails.
What would the position be if, contrary to this conclusion, the credit agreement is a multiple agreement?
105.	My earlier conclusion makes it unnecessary for me to address proposition (5) in the summary previously set out.  This proposition depends on matters which are the subject of the acute controversy referred to earlier.  It is one in which the main academic commentators, Professors Goode and Guest, are to be found on one side and Mr. Francis Bennion, the draftsman of the CCA, on the other (see Goode: Consumer Credit Law and Practice, Section 1C, paragraphs 25.105 to 1C [25.125];  Guest and Lloyd’s Encyclopaedia of Consumer Credit Law, pages 2022/7 to 2024/5; Chitty on Contracts 29th edition, Vol 1, paragraphs 38-044 to 38-048; Bennion, Multiple Agreements under the Consumer Credit Act 1974).  There is virtually no reported judicial consideration.  In National Westminster Bank v Story [2000] GCCR 2381 at pages 2388 to 2390 Auld LJ made certain observations which suggest that “category” in Section 18 has  a restricted meaning, but these observations were both obiter and tentative.  
106.	I have given careful consideration to whether or not I should enter into this controversy, particularly having regard to the fact that the issue was fully argued before me.  But to do so would inevitably add considerably to the length of this judgment and the questions raised are of great difficulty.  In the light of what I have said on the fixed-sum/running-account issue, whatever I might say would not be decisive of this case.  In the end, therefore, I have decided to say nothing more on this issue.
What would the position be if the Bank has failed to comply with the CCA?
107.	I have referred earlier to Sections 61(1), 64(1), 65(1) and 127 (3) and (4) under which (or some of which, depending on the type of non-compliance) non-compliance results, on the face of it, in irremediable unenforceability.  On behalf of the Bank Mr. Butcher argued that it would be ridiculous if this drastic consequence was to flow from the trivial errors alleged by Goshawk.  He referred to a passage in Bennion, Statutory Interpretation, 4th edition at page 35, where the author observes
“If the court were to hold that the most trivial breach of an apparently absolute requirement is to be treated as vitiating the relevant transaction, the consequences would be out of all proportion to the lapse,”
Bennion shows that in some cases this result can be avoided by treating the requirement as directory rather than mandatory.  Mr. Butcher submitted that the present is such a case.  He cited as examples Bellamy v Saul (1863) 32 LJ QB 366, where non-compliance with a requirement for production of a stamped original of a bill of sale was not fatal; and Vita Food Products Inc v Unus Shipping Co Ltd [1939] AC 277, where a requirement that a bill of lading should contain a statement that the Hague Rules apply was treated as directory only.
108.	Although this approach may be said to produce a fair result I find it quite impossible to apply it to the statutory provisions which are relied on in this case.  The requirements imposed by regulation 2(2) of the Cancellation Regulations and the consequences laid down by Sections 65 and 127(3) and (4) are absolutely clear and explicit and the House of Lords has recognised, in Wilson v First County Trust (No 2), that the drastic sanction which the legislation imposes was deliberately intended by parliament.
109.	Mr. Butcher submitted next that, even on the footing that non-compliance in either of the respects alleged by Goshawk would render the credit agreement unenforceable this does not affect the Bank because it is not seeking to enforce the credit agreement as such.  The case which the Bank seeks to make is that, in the events which have happened, each unsuccessful client has a claim under the insurance policy under which the client is entitled to recover the amount due under his credit agreement, that this claim is not affected by the unenforceability of the credit agreement and that the Bank, as assignee of the policy, is entitled to step into the shoes of the client, and recover from Goshawk the sum which, in the absence of an assignment, the client could recover from the insurers.
110.	Goshawk’s answer to this is that the assignment of the policy constituted a security which is unenforceable by reason of Section 113(1).  That subsection provides
“(1)  Where a security is provided in relation to an actual or prospective regulated agreement, the security shall not be enforced so as to benefit the creditor or owner, directly or indirectly, to an extent greater … than would be the case if the security were not provided … ”
111.	Mr. Butcher submitted that the assignment of the policy does not constitute “security” for the purposes of Section 113(1).  Security is defined in Section 189(1) as follows
“security” in relation to an actual or prospective consumer credit agreement … means a mortgage, charge, pledge, bond, debenture, indemnity, guarantee, bill, note or other right provided by the debtor … to secure the carrying out of the obligations of the debtor … under the agreement.”
112.	While Mr. Butcher was reluctant to admit that the assignment of the policy constituted a mortgage, charge or pledge, he accepted that it must be within the words “other right”.  But he contended that the policy was not assigned to secure the carrying out of the obligations of the debtor under the credit agreement.  The basis of this contention was an analysis of Clause 5.1 of the terms and conditions on the reverse of the credit agreement.  For convenience I set this out again.  It provides
“5.1	The Account Balance will be due and payable immediately following the Payment Trigger Date and we shall use any funds we may receive from the proceeds of the Policy or from your damages claim to repay the Account Balance.  If no such funds are received, or if such funds are insufficient to repay the Account Balance we shall tell you in writing of the amount required to repay the Account Balance and you agree to pay such amount to us within 7 days of our writing to you.  Interest will continue to be charged until we receive payment in full”
113.	Mr. Butcher argued that this provision shows that the obligation of the debtor was to repay the amount notified by the Bank as being necessary to repay the Account Balance after the proceeds of the claim and the policy proceeds had been used to reduce the Account Balance.  The policy would thus have been exhausted before the debtor could be required to pay anything and the policy could not be said to secure the debtor’s obligation.
114.	I reject this argument.  It is wholly inconsistent with clause 6.2 of the terms and conditions which states
“6.2	You hereby assign to  us  the benefits of the Policy by way of security for your obligations to us under this Agreement.”
The credit agreement thus proceeds on the basis that the whole purpose of the assignment was to secure obligations of the debtor which must include payment of the loan and interest.  If the policy became void, or if the insured events did not happen (for example because the debtor’s claim was successful) it is clear that the obligation to pay the whole of the loan and interest thereon would fall upon the debtor.  The assignment of the policy did not, in my judgment, alter this liability.  The policy itself was intended, in certain events, to provide the debtor with a fund out of which he could discharge his obligation.  The assignment of the policy to the Bank merely put the Bank in the position where it is entitled to receive the policy proceeds on behalf of the debtor and apply them in discharge of the debtor’s liability.  The only proper characterisation of this arrangement, in my view, is that the assignment of the policy was. was stated in clause 6.2, by way of security for the debtor’s obligations.
115.	If, therefore, I had found that the Bank failed to comply with the CCA in either of the respects alleged by Goshawk I would have held that the Bank’s rights in respect of the policy were by way of security and that that security is unenforceable by reason of Section 113.
Overall Conclusion
116.	Notwithstanding that I would have resolved in favour of Goshawk a number of the points which have been argued, my rejection of the allegations of non-compliance is fatal to Goshawk’s claim in these proceedings.  I refuse to grant any of the declarations sought by Goshawk in paragraphs (1) to (3) of the claim for relief at the end of its details of claim.  I will hear counsel on the issue of what, if any, alternative declarations I should make.  My present impression is that it would be inappropriate, in Part 8 proceedings relating to many thousands of individual cases, to make a declaration of liability.  It may be that I should simply reject the claim in respect of paragraphs (1) to (3).
117.	There remain paragraphs (4) and (5), by which Goshawk seeks declarations relating to the Lender’s Clause.  As I have said I will hear counsel on this.  My provisional view is that, in the light of my conclusions on the CCA aspects of the case, no useful purpose would be served by considering the Lender’s Clause further in these proceedings.  I am inclined to think that the best course will be to decline to determine the issues raised in paragraphs (4) and (5), leaving the Bank to assert its rights under the Lender’s Clause in any individual case where this is thought to be relevant.