Paragon Finance Plc v Pender and Another

JurisdictionEngland & Wales
JudgeLord Justice Jonathan Parker,Lord Justice Carnwath,Lord Justice Ward
Judgment Date27 June 2005
Neutral Citation[2005] EWCA Civ 760
Docket NumberCase No: B2/2003/2609
CourtCourt of Appeal (Civil Division)
Date27 June 2005
Paragon Finance PLC (Formerly the National Home Loans Corporation Plc)
(1) Richard Joseph Pender
(2) Kathleen Pauline Pender

[2005] EWCA Civ 760


Lord Justice Ward

Lord Justice Jonathan Parker and

Lord Justice Carnwath

Case No: B2/2003/2609




Peter Smith J


Royal Courts of Justice

Strand, London, WC2A 2LL

Mr Hugo Page QC and Mr Donald Broatch (instructed by Messrs Simons) for the Appellant

Mr Ali Malek QC and Mr Ian Wilson (instructed by Messrs Wragg & Co) for the Respondents

Lord Justice Jonathan Parker



This is an appeal by Mr and Mrs Pender, the defendants in a possession action brought against them by Paragon Finance plc ("Paragon") as chargee under a Legal Charge ("the Legal Charge") dated 1 August 1989 of a freehold property at 29 Knightswood Close, Broadfields Estate, Edgeware, Middlesex HA9 8FR ("the Property").


Mr and Mrs Pender have been the registered proprietors of the Property since 1985; Paragon has been the registered proprietor of the Legal Charge since its registration 16 August 1989.


On 5 January 1995 Paragon obtained a possession order in respect of the Property. For reasons which are not material to the present appeal the possession order was not enforced, and on 21 January 2002 (some seven years later) Mr and Mrs Pender applied to set it aside. They also sought permission to appeal against the possession order out of time. On 25 November 2003 HHJ Mayer, in the Barnet County Court, dismissed both applications. Mr and Mrs Pender applied to the High Court for permission to appeal against Judge Mayer's dismissal of the application to set aside the possession order (no appeal lay from the judge's dismissal of the application for permission to appeal against the possession order).


The application for permission to appeal against Judge Mayer's dismissal of the application to set aside the possession order was listed before Peter Smith J, with the substantive appeal to follow were permission to be granted. Peter Smith J accordingly heard full argument. In the event, by his order dated 25 November 2003 he granted limited permission to appeal but went on to dismiss the substantive appeal.


Mr and Mrs Pender sought permission to appeal to this court against Peter Smith J's order. Permission for a second appeal was refused on paper by Arden LJ but limited permission was granted by Jacob LJ at an oral hearing on 29 July 2004.


The factual history up to the hearing before Judge Mayer


The Property was formerly a Council house, of which Mr and Mrs Pender were tenants. They bought the Property in 1985 for £29,000 under the 'right to buy' scheme. The purchase was financed by a loan of £17,500 from the Halifax Building Society ("the Halifax") secured by a first charge on the Property ("the Halifax Charge"). In May 1989 they applied to Paragon (under its then name The National Home Loans Corporation plc) for a loan of £75,000 to enable them to carry out works of repair and renovation to the Property.


Paragon offered Mr and Mrs Pender a loan of £75,000 repayable over 25 years on an interest only basis, to be secured by a legal charge (the Legal Charge). The offer was based on a valuation of the Property at £100,000, and was expressed to be subject to the special conditions set out in the offer and to Paragon's standard general conditions. The standard general conditions then current were Paragon's Mortgage Conditions 1988 ("the 1998 Conditions").


The offer stated that the rate of interest was variable, and that the current rate was 12.99 per cent. Special condition 7 provided that the rate of interest would be fixed for the first three years, and provision was also made for a three-year deferral of part of the monthly interest payments. Condition 8.1 of the 1988 Conditions provided that the interest rate was variable from time to time in accordance with the relevant conditions.


The loan transaction was completed (subject to registration of the Legal Charge) on 1 August 1989. Part of the loan was applied in redeeming the Halifax charge; the balance was paid directly to Mr and Mrs Pender. The Legal Charge was registered on 16 August 1989, with Paragon as its proprietor.


The Legal Charge incorporated the 1998 Conditions, but by a Deed of Variation dated 11 July 1990 it was varied by substituting Paragon's 1990 Mortgage Conditions ("the 1990 Conditions") for the 1988 Conditions.


Condition 3.3 of the 1990 Conditions is in the following terms (so far as material):

"Interest on any Loan shall be charged at such rate as the Company shall from time to time determine …. 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 …."


Condition 7 of the 1990 Conditions provides that the secured debt is to become due, and that the power of sale is to arise, 28 days after the date of the Legal Charge. Condition 7.3 of the 1990 Conditions provides that the whole of the secured debt shall become due and payable if (among other things) the borrower fails to make two monthly payments in whole or in part. Condition 9.6 of the 1990 Conditions contains a power for Paragon, at its absolute discretion and without the consent of or notice to Mr and Mrs Pender, to transfer the Legal Charge to any third party: it is in the following terms (so far as material):

"Without prejudice to any rights of the Company whether at common law by statute or otherwise the Company may at its absolute discretion without the consent of or notice to the Borrower… assign or transfer all or any of its rights and benefits and/or transfer all or any of its obligations embodied in the Mortgage together with any securities of other property of the Borrower charged to or held by the Company in support thereof to any person or persons whatsoever. The Borrower… agree[s] that to the extent that the Company agrees to assign or transfer (whether at common law or in equity) its rights and benefits to any person they shall be bound to any such assignee in like manner and to like extent as they are bound to the Company under the mortgage and to the extent that the Company shall be released from further obligations towards them which differ from such released obligations only so far as such assumed obligations are owed by and constituted by claims against such transferee assignee and not the Company. The Borrower… hereby irrevocably consents to any such assignment or transfer."


Since early 1987 Paragon has been party to what are known as 'securitisation' arrangements. Such arrangements typically involve (and the instant case is a typical case) the transfer by way of sale of a portfolio of mortgages (I use the word mortgages to include charges) to a 'special purpose vehicle' (SPV) in consideration of a sum which is funded by the issue by the SPV of listed bonds carrying an entitlement to interest at a floating rate. In order to attract investors the bonds must carry a credit-rating which is acceptable to the market, for example a rating from a well-known credit agency such as Standard & Poor's. Interest payable on the bonds is in turn funded from the income generated by the mortgages transferred. The sale is non-recourse, in that the transferor is not liable for losses incurred by holders of the bonds. The transfer of the mortgages may or may not be completed by the vesting of the legal title in the SPV. In the case of a mortgage of registered land, vesting of the legal title will occur on the registration of the SPV as proprietor of the mortgage; in the case of a mortgage of unregistered land, vesting of the legal title will occur on the execution of an appropriate deed of transfer.


As Dr Eilis Ferran MA (presently Reader in Corporate Law and Financial Regulation at Cambridge University) points out in a book entitled 'Mortgage Securitisation—Legal Aspects' (Butterworths, 1992) to which we were helpfully referred by Mr Ali Malek QC (for Paragon) in the course of argument, if the transfer of the mortgages is not completed by registration, the SPV acquires an equitable title to the mortgage but the transferor retains the legal title, albeit as trustee for the SPV (assuming, as will usually be the case, that the full consideration has been paid). Dr Ferran goes on to point out that, for reasons essentially of administrative convenience and cost, transfers by way of securitisation are usually left uncompleted, but with provision being made for completion in certain specified circumstances, e.g. if the transferor persistently defaults on its obligations under the securitisation arrangements. Typically, such obligations will be contained in an 'administration agreement' between the transferor and the SPV. These general observations about securitisation (for which I am indebted principally to Dr Ferran's book) are not the subject of dispute in the instant case.


I return, then, to the instant case. Three administration agreements have been disclosed by Paragon, as being the administration agreements which relate to the Legal Charge. The first such agreement is dated 9 March 1990. This was the agreement which was in force at the date of the possession order. The later administration agreements are dated 30 June 1997 and 29 May 2002 respectively; thus they post-date the possession order. It has not been suggested that, for the purposes of the present appeal, there is any difference of substance between the three agreements. For reasons which will appear, I shall have to revert to...

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