Consumer contracts, choice of law and time bar
Insolvency briefing: does a choice of law clause in a regulated consumer credit contract determine which time bar rules should apply? A recent sheriff court case raised the issue]
It is common for regulated consumer credit contracts to state that they are governed by the laws of England & Wales. If such a contract is litigated in Scotland, the question can arise as to which time bar rules apply. The “prescriptive” period in Scotland is five years, whereas the equivalent English “limitation” period is six years.
PRA Group (UK) Ltd v Reilly  SC GLA 59 (published on 1 November, albeit dated 30 January 2018), concerned a credit card debt assigned to the pursuer. Two primary issues were raised:
- Where a regulated consumer credit agreement bears to be governed by the laws of England & Wales, but the customer resides in Scotland, which rules relating to time bar apply?
- If the Scottish rules apply, from what date will the time bar period run?
The defender argued that the Rome Convention, given effect by the Contracts (Applicable Law) Act 1990, entailed that a consumer could not be deprived of the “mandatory rules” of the country of their domicile. Such rules included the Scottish prescription rules. A choice of law clause could not deprive the consumer of the protection of the five-year period.
If the Scottish rules applied, the five-year period should begin from the date of the first missed payment to the credit card, in which case the action had prescribed.
The pursuer argued that it was clear that under s 23A of the Prescription and Limitation (Scotland) Act 1973, where the law of another jurisdiction applied to a contract, that included its applicable laws in relation to time bar. There was no exception for agreements falling under the Rome Convention and the 1990 Act. The English six-year rule therefore applied.
If Scottish rules did apply, the relevant starting date ought to be the date of termination of the credit card agreement, at which the right under the Consumer Credit Act 1974 to demand payment in full first arose.
The court’s judgment
Sheriff Reid preferred the pursuer’s position on both points (albeit his view on the starting date was stated to be a preliminary one, pending proof).
He held that s 23A “provides a complete answer” to the defender’s position on choice of law, and the English rules must apply. The argument that the rules on prescription were “mandatory rules” for the purposes of the Rome Convention was rejected: the rules were “just not important enough” to justify the non-application of English law to this aspect.
Further, the Convention applied only to “certain” consumer contracts, as set out in article 5(2); the defender had failed to aver that the contract in question fell within these categories.
With regard to the starting point for the time bar, it was noted that the “factual position is rather murky”. Nevertheless, the pursuer had a case sufficient to proceed to proof and the court took the view that the clock requires to run from a specific date, not the occurrence of a specific event. The defender in effect argued that the clock would start to run on the occurrence of an event that might occur at any time or not at all. As a preliminary view, the court preferred the certainty of a specific date, which in terms of the 1974 Act would crystallise on the service of a termination notice demanding payment in writing.
As this case dealt with the Rome Convention and not the Rome I Regulation (Regulation EC 593/2008), the question arises whether the Regulation would have led to a different conclusion. Section 23A specifically does not apply to cases governed by the Regulation.
The defender’s central argument was that the law of prescription was included in the “mandatory rules” under article 5 of the Convention, from which a party cannot derogate through a choice of law clause under article 3. Article 9 of Rome I speaks in terms of “overriding mandatory provisions”. While it is arguable that this wording is in stronger terms than the Convention (specific reference is made to “public interests, such as… economic organisation”, and article 6 appears to go beyond the “mandatory” concept in the case of consumer contracts), it is notable that the sheriff rejected the suggestion that the rules on prescription were “important” enough to constitute mandatory rules under the Convention. It is difficult to see a different view being reached under Rome I.
Moreover, while article 6 states that a consumer cannot be deprived of protections “which cannot be derogated from by agreement” under the local law, there is academic comment that this can only be assessed by examining the totality of the protections available in each jurisdiction. If that is correct, it is far from certain that Scots law would override the choice of law in relation to time bar. For one thing, it would have to be established that the local law constituted a “protection” of which the consumer was being deprived. That will not be easy, and goes beyond the question of five versus six years. The English limitation period may be longer, but may (for example) run from an earlier date than the Scots rules.
Finally, article 9 speaks in terms of mandatory rules that are “applicable to any situation falling within their scope”. However, article 12 makes clear that the applicable law shall govern “the various ways of extinguishing obligations, and prescription and limitation of actions”. It would seem difficult to view prescription as a “mandatory” rule, where the regulation later specifically sets out that prescription is capable of being governed by the law of the contract.
The case offers welcome clarity to those who deal with consumer credit contracts on a regular basis, although it applies only to cases covered by the Rome Convention (i.e. contracts entered into prior to 17 December 2009). However, it is suggested that defenders would struggle to reach a different outcome with contracts entered into after that date and governed by the Rome I Regulation.
Andrew Foyle, solicitor advocate and partner, Shoosmiths