Southern Pacific Mortgage Ltd v Heath
| Jurisdiction | England & Wales |
| Judge | Lord Justice Lloyd,Lord Justice Dyson,Lord Justice Waller |
| Judgment Date | 05 November 2009 |
| Neutral Citation | [2009] EWCA Civ 1135 |
| Date | 05 November 2009 |
| Court | Court of Appeal (Civil Division) |
| Docket Number | Case No: A3 2009/0356 |
[2009] EWCA Civ 1135
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
BIRMINGHAM DISTRICT REGISTRY
HIS HONOUR JUDGE PURLE Q.C.
Before: Lord Justice Waller, Vice-President of the Court of Appeal Civil Division
Lord Justice Dyson and
Lord Justice Lloyd
Case No: A3 2009/0356
Bradley Say (instructed by Burton & Co LLP) for the Appellant
Malcolm Waters Q.C. and Jonathan Hough (instructed by Glenisters) for the Respondent
Hearing date: 13 October 2009
Lord Justice Lloyd:
Introduction
This appeal raises for decision a question as to the correct interpretation of section 18 of the Consumer Credit Act 1974 which has serious consequences for transactions of a commonplace nature, and which has been the subject of strongly divergent academic comment.
The Act seeks to protect consumers by imposing a number of distinct requirements as regards the documentation of transactions to which it applies. Some of these prescribe the content of the document to be provided to the consumer, for example that the amount of the credit (a term defined by the Act) must be specified. Others require the consumer to have the opportunity to think about the terms of the agreement, or proposed agreement, and to change his mind. What requirements apply to any given transaction or proposed transaction depends on the nature of the transaction. For that purpose the Act has a number of definitions of different types of transaction, some of which are or may be cumulative while others are mutually exclusive.
The particular problem with which this case is concerned is a transaction which falls within more than one “category of agreement”, at least one of those categories being one mentioned in the Act. Such a transaction would give rise to several concerns, as regards consumer protection. One is to ensure that all appropriate formalities are observed, having regard to the nature of the transaction. Another is to avoid the possibility of evasion of the statutory regime, by the aggregation or combination into one transaction of what are really two or more separate transactions, if, taken separately, they would be subject to the Act's controls whereas as one larger transaction they would escape it, for example because the amount of the credit exceeds the monetary limits relevant under the Act. One would also expect the legislation to be framed in a way which makes it clear, both for consumers and for providers of credit, what is the regulatory regime and when and how it applies to any given transaction. Otherwise it would be unfair and inappropriate as regards one or both parties.
The facts
The appellant owns a house in Worksop, Nottinghamshire. She had the benefit of a mortgage advance from Halifax, on which some £19,000 was outstanding. She wished to obtain further credit on the security of the house. In January 2002 she obtained an offer from a different lender of a loan of almost £29,000 gross (just over £28,000 net after payment of various fees and costs) to be secured on a first legal mortgage of the house. In order to ensure that the new lender obtained a first legal mortgage, the previous mortgage to Halifax would have to be redeemed, and it was a term of the offer that this should happen. On 7 March 2002 the transaction was completed, the Halifax mortgage was redeemed, and about £9,000 was released to the appellant. Shortly thereafter the benefit of the mortgage was assigned by the lender to the present respondent. Nothing turns on that.
At the time of the transaction, an agreement providing for credit of more than £25,000 was not regulated by the Act. On that footing, the formal requirements of the Act as regards the content of the documents and as regards procedures for execution were not followed. On behalf of the appellant it is now argued that the agreement has to be treated for the purposes of the Act as if it comprised two separate agreements, one relating to the amount which was used to repay the previous mortgage, and the other for the rest. If that were correct, the Act would have applied to each agreement, and, because it had not been complied with, no part of the agreement would be enforceable.
The appellant fell into arrears under the new mortgage, and the respondent took proceedings for possession. It obtained a first possession order suspended on terms, in 2004, and another, suspended on different terms, in 2006. In 2007, when the appellant faced a warrant for possession, she obtained advice which for the first time suggested the defence which is now raised to the possession claim. The warrant was suspended pending her appeal.
The appeal eventually came on before His Honour Judge Purle Q.C. in Birmingham, sitting as a High Court Judge. He gave judgment on 29 January 2009, extending time for the appeal but dismissing it. I granted permission for this second appeal. The point is important and has not previously arisen for decision in the Court of Appeal.
I say at once that I would dismiss the appeal, largely for the same reasons as were expressed by Judge Purle in his clear and admirable judgment.
The legislation
A consumer credit agreement was defined (at the relevant time) by section 8(2) as a personal credit agreement by which the creditor provides the debtor with credit not exceeding £25,000. It is a personal credit agreement if the debtor is an individual: section 8(1). A consumer credit agreement is a regulated agreement unless it is an exempt agreement as provided for in or under section 16.
Sections 10 to 13 set out categories of agreement under the Act. First, in section 10, we meet running-account credit and fixed-sum credit. A facility under a personal credit agreement must be for one or for the other. Section 11 is concerned with restricted-use and unrestricted-use credit. Any particular credit provided under a credit agreement must be one or the other and cannot be both. Section 12 defines debtor-creditor-supplier agreements and section 13 defines debtor-creditor agreements, in a mutually exclusive way.
Section 18 is the provision with which this appeal is principally concerned. The first four subsections are as follows:
“(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; and any sum payable under the multiple agreement, if not apportioned by the parties, shall for the purposes of proceedings in any court relating to the multiple agreement be apportioned by the court as may be requisite.”
Because the agreement between the parties in this case was secured by a mortgage of land, the procedural requirements of the Act do not allow the borrower a specified period after execution of the agreement for second thoughts, but rather require that an advance copy of the unexecuted agreement be sent to the prospective borrower, containing a notice indicating the borrower's right to withdraw from the prospective agreement: section 58. By virtue of section 61(2), this must be sent at least 7 days before the execution copy is sent to the borrower, and the lender must not contact the borrower either during that period or for 7 days after the execution copy has been sent (unless within those 7 days the agreement is returned executed by the borrower) except in response to a specific request. The substantive provisions of the advance copy must match the execution copy precisely, so that, by the time when the advance copy is prepared, it has to be known exactly what the terms of the eventual agreement will be.
Under section 61 the agreement is not properly executed unless a document in the prescribed form and containing all the prescribed terms and conforming with the regulations is signed by or for both parties, and section 58 has been complied with as described above. An improperly executed agreement is enforceable against the debtor only on an order of the court. Unless there is a document which contains all the prescribed terms of the agreement signed by the debtor, the court could not make an order for the enforcement of the agreement: section 127(3). This provision has been repealed but not so as to affect its application to previous transactions.
Under the regulations, if the agreement between the present parties was a regulated agreement, the document should have set out the amount of the credit to be provided under it, and the rate of interest on the credit.
The Act adopted a novel technique of setting out examples with notes, “for illustrating the use of terminology” used in the Act: section 188, but in the event of inconsistency between an example and some other provision in...
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