ABSTRACT

It is not in dispute that the Regulations apply to the bank’s consumer credit agreements containing the relevant term and that such agreements are not individually negotiated for the purpose of reg 3(1). It is trite law in England that once a judgment is obtained under a loan agreement for a principal sum and judgment is entered, the contract merges in the judgment and the principal becomes owed under the judgment and not under the contract. If, under the contract, interest on any principal sum is due, absent special provisions the contract is considered ancillary to the covenant to pay the principal, with the result that if judgment is obtained

for the principal, the covenant to pay interest merges in the judgment. Parties to a contract may agree that a covenant to pay interest will not merge in any judgment for the principal sum due, and in that event interest may be charged under the contract on the principal sum due even after judgment for that sum. This is so notwithstanding that judgment interest prescribed by statute is at a lower rate (see Economic Life Assurance Society v Usborne [1902] AC 147, applying Re Sneyd ex p Fewings (1883) 25 Ch D 338). (For the sake of completeness, we should record that Lord Goodhart QC for the bank reserved the right to challenge these decisions if this case goes further.) Merger does not apply where there is an independent covenant to pay interest (Ealing London Borough Council v EI Isaac [1980] 1 WLR 932, 937). Thus, on the face of the bank’s regulated assessments, the effect of the relevant term is to prevent the independent obligation to pay interest merging in the judgment, the provision for interest at the contractual rate continuing to apply after judgment.