Paragon Finance Plc v Nash and Another; Same v Staunton and Another
| Jurisdiction | England & Wales |
| Judge | Lord Justice Dyson,Lord Justice Thorpe |
| Judgment Date | 15 October 2001 |
| Neutral Citation | [2001] EWCA Civ 1466 |
| Docket Number | Case No: B2/2001/0456 CCRT1 |
| Court | Court of Appeal (Civil Division) |
| Date | 15 October 2001 |
[2001] EWCA Civ 1466
Lord Justice Thorpe
Lord Justice Dyson
Mr. Justice Astil
Case No: B2/2001/0456 CCRT1
B2/2001/0524 CCRT1
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM CENTRAL LONDON COUNTY COURT
(Mr Recorder Havelock-Allan QC)
Royal Courts of Justice
Strand, London, WC2A 2LL
Mr E. Bannister QC and Mr D. Broatch (instructed by Joseph Aaron & Co for Mrs Nash)Mr Nash in person.
Mr D. Falkowski (instructed by Joseph Aaron & Co) for Mr and Mrs Staunton.
Mr A. Malek QC and Mr P. Wulwik (instructed by Wragge and Co) for the Respondents in both appeals
Introduction
These appeals raise a number of points of general importance in relation to sections 137–139 of the Consumer Credit Act 1974 ("the 1974 Act"). Paragon Finance PLC ("the Claimant") claims possession as mortgagee from Mr and Mrs Nash in the first action and from Mr and Mrs Staunton in the second action on the grounds that they are in arrears with their mortgage interest repayments. Both mortgages contain variable interest clauses. The mortgagors admit the arrears of interest, but assert that, by reason of the rates of interest that they were required to pay, the loan agreements are extortionate credit bargains within the meaning of section 138 of the 1974 Act. No complaint is made that the loan agreements were extortionate credit bargains at the outset. The mortgagors say, however, that the loan agreements became extortionate at a later date when, by reason of the Claimant's failure to adjust the charging rates in line with Bank of England or prevailing market rates, the interest payable so far exceeded those rates as to be exorbitant. By their counterclaims, the mortgagors seek orders that the loan agreements be reopened under section 139 of the 1974 Act. The Claimant applied for an order that the defence and counterclaims be struck out on the grounds that they had no real prospects of succeeding at trial. In a careful and comprehensive judgment handed down on 4 September 2000, Mr Recorder Havelock-Allan QC struck out the mortgagors' pleadings in both actions, and refused applications for permission to amend to which I shall come in due course. The mortgagors appeal against the Recorder's decisions. Before I identify the issues that have been raised in these appeals, I need to set out the relevant facts.
The facts
Until April 1997, the Claimant was called "The National Home Loans Corporation PLC". It first entered the mortgage market in the mid-1970s. The attraction of the Claimant to would-be borrowers was that it was willing to make self-certification loans, ie loans to borrowers who vouched for their income. The company was badly affected by rising interest rates in the late 1980s, and got into serious financial difficulties. It was forced to withdraw from further lending in 1991. It was re-financed by a consortium of banks in 1992, and re-entered the market in 1994 via a new subsidiary company, Home Loans Direct Ltd, which in 1997 changed its name to Paragon Mortgages Ltd ("Paragon"). At the heart of both actions is the complaint that the Claimant has consistently charged interest rates which are significantly higher than those of other mortgage lenders, and has done so in order to cover the cost of its refinancing or to retrieve its financial position.
Mr and Mrs Nash live at 75 Clifton Road, South Norwood, London SE25. On 5 February 1987, they received an Offer of Loan from the Claimant in a sum of £45,000 by way of re-mortgage of their property. The Offer specified that the loan was to be for 25 years. The capital was to be secured by an endowment policy. The interest was to be payable monthly at a variable rate. The starting rate was stated to be 12.75%. The Offer of Loan incorporated certain Special Conditions as well as the printed General Conditions of the Claimant then current. These latter incorporated the Claimant's Mortgage Conditions (1986 edition).
On 30 March 1987, Mr and Mrs Nash entered into a Loan Agreement on the terms of the Offer and the loan was secured by a Legal Charge on their property. They paid the interest as required. In December 1992, they surrendered the endowment policy. They paid the surrender value to the Claimant, and converted the loan to a repayment basis, so that each monthly payment covered both interest and capital. Their financial circumstances took a turn for the worse, and they fell into arrears. By March 1999, the arrears exceeded £5000. The Claimant started proceedings on 5 May 1999.
Mr and Mrs Staunton live at 12 Valentines Road, Ilford, Essex. The Claimant made an Offer of Loan to them on 11 October 1990. The proposed loan was for £70,145 for a period of 25 years, with interest payable monthly at a variable rate, and repayment of capital secured by an endowment policy. The Offer also included a fee for incorporating into the Loan Agreement the provisions of the Claimant's Stabilised Rate Facility. By this Facility, the borrower was able to cap the amount of interest payable each month. Payment of interest at the variable rate ("the charging rate") in excess of the cap ("the stabilised rate") would be deferred by converting the excess into part of the capital amount of the loan. When in any month, the charging rate exceeded the stabilised rate, the difference would be credited to the borrower's mortgage account as a "monthly credit" up to a maximum figure specified in the Offer of Loan. In the case of Mr and Mrs Staunton, this figure ("the maximum deferred interest to be capitalised") was £10,500. The Offer of Loan made to them described the maximum approved loan as being £80,645 (£70,145 plus 10,500), and provided that the stabilised rate of interest was to be 10.49%.
On 21 December 1990, Mr and Mrs Staunton entered into a Loan Agreement on the terms of the Offer of Loan from the Claimant, including the Stabilised Rate Facility. The loan was secured by a legal charge on the property. The Loan Agreement incorporated a set of printed General conditions and the Claimant's Mortgage Conditions (1990 edition). In September 1996, they repaid some capital, and thereafter the repayments included both interest and capital. Mr and Mrs Staunton discharged all their interest liabilities under the Loan Agreement until August 1998, when, the monthly instalments due increased from £548.13 to £928.75. The Recorder said that there was no evidence as to the reason for this sudden jump, but he inferred that it was due, at least in part, to the fact that the maximum deferred interest had been exceeded, so that the Stabilised Rate Period had come to an end. Mr and Mrs Staunton fell into arrears. The Claimant started proceedings on 15 June 1999 asserting that by now the arrears amounted to approximately £6700.
The Claimant's standard Conditions
"General Conditions (1986) edition
"6. INTEREST
Interest will be charged from the date on which the loan is completed. The rate current at the date of this Offer of Loan is as specified in the Offer of Loan. If the rate of interest should change before the Loan is completed, the Company may give the Applicant notice of the change by any method permitted under the Company's Mortgage Conditions for the giving of notice of such change to existing Borrowers…"
MONTHLY PAYMENTS
The Monthly Payment specified in the Offer of Loan is calculated on the applicable rate of interest current at the date of this offer… However, the rate of interest may change before (as well as after) the loan is completed and other factors such as insurance premiums or tax rates may affect the amount of the Monthly Payment."
Mortgage Conditions (1986 edition)
"1. DEFINITIONS
1.5 "Interest" means interest at the rate applicable to the Mortgage from time to time.
1.12 "Payment" means the monthly payment notified to the Borrower as constituting the Payment for the time being by notice given by the Company whether by any offer of loan or revision thereof prior to or at the time of the Mortgage or under these Conditions thereafter.
2. PAYMENTS
2.1 The Borrower covenants that he will pay to the Company
2.1.2 The Payment …
2.2 The Payment may be calculated so as to include all or any part of capital, interest and such costs, expenses, liabilities and moneys recoverable or payable and premiums, sums expended and costs and expenses incurred as aforesaid and may be varied to take account from time to time of any increase or decrease in any of the same or any change in the rate or incidence of any tax.
INTEREST
3.3 Interest shall be charged at such rate as the Company shall from time to time apply to the category of business to which the Company shall consider the Mortgage belongs and may accordingly be increased or decreased by the Company at any time and with effect from such date or dates as the Company shall determine provided that the Company will take such steps as it considers to be reasonable and appropriate to bring any such increase or decrease to the attention of the Borrower and further provided that without prejudice to the generality of the foregoing either written notice given in accordance with the provisions in that behalf hereinafter contained or publication of such notice in at least two national daily newspapers shall constitute reasonable and appropriate notice for the purposes of this clause.
COMPANY'S REMEDIES
If the Borrower
7.3.1 is in default of the payment of any two Payments in whole or in part or for two Months in the payment of any sums …
then in any such case...
To continue reading
Request your trial
- Swift 1st Ltd v McCourt and another
-
Grant v The County Registrar from the County of Laois
...term that it will not be exercised ‘dishonestly’, for an improper purpose, capriciously or arbitrarily ( Paragon Finance plc v. Nash [2002] 1 WLR 685). 112 Furthermore, while acknowledging that the examination of the variable interest clause for unfairness, if it fell within the scope of t......
-
British Telecommunications Plc v Telefónica O2 UK Ltd and Others
...Company Ltd v Tai Ping Insurance Company Ltd (No 2) [2001] 2 All ER (Comm) 299, para 67 (Mance LJ); Paragon Finance Plc v Nash [2002] 1 WLR 685, paras 39–41 (Dyson LJ). This will normally mean that it must be exercised consistently with its contractual purpose: Ludgate Insurance Company L......
-
MSC Mediterranean Shipping Company SA v Cottonex Anstalt
...see e.g. Abu Dhabi National Tanker Co v Product Star Shipping Ltd (The "Product Star") (No 2) [1993] 1 Lloyd's Rep 397, 404; Paragon Finance Plc v Nash [2002] 1 WLR 685, paras 39–41; Socimer International Bank Ltd v Standard Bank London Ltd [2008] 1 Lloyd's Rep 558, 575–577; British Telecom......
-
Are Variable Interest Rates Variable? Mortgage Loans And Variations To Lenders' Terms, Fees And Charges
...on whether the change is reasonable. How can this reasonableness be assessed? In a UK case Nash & Ors v Paragon Finance Plc [2001] EWCA Civ 1466 (15 October 2001) (click here to read), the borrower argued that there should be implied into a loan contract for a variable rate loan a provi......
-
NEC3ECC Clause 10.1: An Enforceable Contractual Duty of Trust and Co-operation in the Construction Industry?
...Lloyd’s LR 397 404; Ludgate Insuran ce Company Limited v Cit ibank NA1998 Lloyd’s Rep IR 221 paras 35-36; Pa ragon Finance PLC v Nash 20 01 EWCA Civ 1466 paras 37-42; Gan Insura nce Co Ltd v Tai Ping Insurance Co Ltd 2001 EWCA Civ 1047 paras 67-76; Socimer Internation al Bank Limited (in li......
-
BONUSES (AND OTHER PAYMENTS) IN EMPLOYMENT
...805, although the case related to a variation of salary rather than a bonus. 9[2010] IRLR 370. See also Paragon Finance plc v Staunton[2002] 1 WLR 685; [2002] 2 All ER 248. 10 As to the implied term of trust and confidence, see para 10 below. 11(2000) 177 ALR 193 at 223. 12[2010] IRLR 715. ......
-
The Duty to Perform in Good Faith
...specifically noted in an English decision concerning the exercise of a contractual discretion — see Paragon Finance Plc v Staunton , [2002] 2 All ER 248 (CA) [ Paragon ]. See also J Beatson, “Public Law Influences in Contract Law” in J Beatson & D Friedman, eds, Good Faith in Contract Law......
-
The future of contract law: Three conversations at the Cape
...e xercised their discret ion under the ar ticles of as sociation i n relation to bonus p ayments); and Paragon Financ e plc v Nash [2001] EWCA Civ 1466.56 See Browns word (n 53). © Juta and Company (Pty) 22 THE FUT URE OF THE LAW OF CONTR ACThttps://doi.org/10.47348/ACTA/2021/a1cooperation ......