Watchtower Investments Ltd v Payne and another
| Jurisdiction | England & Wales |
| Judge | PETER GIBSON L.J.,LORD JUSTICE CLARKE,MR. JUSTICE MAURICE KAY,LORD JUSTICE PETER GIBSON,MR JUSTICE MAURICE KAY |
| Judgment Date | 20 July 2001 |
| Neutral Citation | [2001] EWCA Civ 1261,[2001] EWCA Civ 1159 |
| Docket Number | Case No: B2/2000/2346/PTA,B2/2000/2346 |
| Court | Court of Appeal (Civil Division) |
| Date | 20 July 2001 |
[2001] EWCA Civ 1159
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM WOOLWICH COUNTY COURT
His Honour Judge Welchman
Royal Courts of Justice
Strand, London, WC2A 2LL
Lord Justice Peter Gibson
Lord Justice Clarke and
Mr Justice Maurice Kay
Case No: B2/2000/2346/PTA
Mr. Frederick Philpott and Mr. David Giles (instructed by Messrs. Sherringtons of Edgware for the Appellant)
Mr. Tristram Hodgkinson (instructed by Messrs Hudgell and Partners of Woolwich for the Respondents)
This matter comes before this court as an application for permission to appeal, with the appeal to follow if permission is granted. It gives rise to some points of general interest on the consumer credit legislation. The central question is whether a payment, made contemporaneously with the completion of a consumer credit agreement requiring the payment of arrears under a prior mortgage, of such arrears out of the monies borrowed is part of the credit or a charge for the credit. The conclusion reached by the Judge in this case that the payment was a charge for the credit has not been followed by two other Judges. That inconsistency of decisions in the County Court would in itself justify the granting of permission to appeal, as the respondents to this application readily and properly acknowledge.
The applicant is the Claimant, Watchtower Investments Ltd. ("Watchtower"), a lender under a consumer credit agreement, secured by a legal charge, made with the Defendants Jack Payne and his wife Stella ("the Paynes") from the order made by His Honour Judge Welchman on 19 May 2000 in Woolwich County Court. Thereby the Judge (1) declared that (i) the credit agreement and the legal charge were unenforceable; (ii) applications made by the Paynes to reopen the credit agreement and the legal charge were not time-barred; (iii) the Paynes were deemed to have delivered a defence in proceedings commenced by Watchtower against the Paynes in 1995 and 1998 respectively; (iv) the Paynes' defences and claims within all the proceedings were not an abuse of process; and (v) the Paynes were entitled to pursue pleaded claims in proceedings commenced by Watchtower against the Paynes in 1990 and in the 1995 and 1998 proceedings, and (2) set aside orders for possession and other orders made in proceedings to enforce the credit agreement and the legal charge.
Watchtower is a non-status mortgage lender, specialising in lending to borrowers who are unable to obtain finance from primary lending sources. The Paynes have owned 9 Leylang Road, London SE14 ("the Property") since 1974. On several occasions prior to 1989 they have borrowed money on the security of the Property. In March 1989 they remortgaged the Property to the Leeds Permanent Building Society ("the Leeds"). The Paynes soon fell into arrears on that first mortgage. They answered an advertisement for loans which they had seen in a newspaper and completed an application form supplied by brokers, Freshfields Finance Ltd. ("FFL"), the information in which they confirmed to be correct to the best of their knowledge and belief. In it they said that they required a loan of £11,300. They stated the purpose of the loan as being "to clear arrears". The arrears were said to be £1,500 owed to the Leeds. On 21 November 1989 Watchtower sent the Paynes the drafts of the proposed credit agreement and legal charge which the credit agreement was expressed to incorporate. The amount of credit to be provided was said to be £11,300 and the annual percentage rate ("APR") for the proposed 10-year loan of £11,300 was said to be 38%, with monthly payments of £320.17. Cl. 5 was expressed to allow Watchtower on one month's notice to vary the rate of interest at will. Cl. 7(b) stated "Where this credit agreement is secured by a second mortgage, any first mortgage arrears . must be discharged on or before completion of the loan." The draft legal charge was to be a second mortgage on the Property and was to take effect on the same date as the credit agreement. By cl. 8:
"If this or any other mortgage is in arrears [Watchtower] may repay any prior mortgage in part or in its entirety . All money spent in doing so (including all costs and disbursements on an indemnity basis) shall be added to the loan to which this Legal Charge relates ."
On 30 November 1989 the Paynes signed a letter headed "Application for Finance". In it they confirmed that the gross amount of the advance was £11,300 and stated that they understood that from that amount an insurance premium of £1,420 to cover payment protection would be payable to FFL on satisfactory completion of the loan and that that was in accordance with the Paynes' wishes. They confirmed that they could afford the monthly payments on the proposed loan. They also signed an undated and uncompleted letter addressed to "the lenders" in which they said: "I confirm that once my first mortgage arrears have been cleared, I will be able to afford monthly payments of £ in addition to my first mortgage payments of £ per month." That was returned to Watchtower.
The credit agreement and the legal charge in the form of the drafts supplied to the Paynes were signed by them and on 14 December 1989 they were completed by solicitors for Watchtower. The same day Watchtower's solicitors sent to the Leeds a cheque for £1,776.89 to clear the arrears on the first mortgage and they wrote to the Paynes, confirming the completion and saying that in accordance with the Paynes' instructions they had made deductions of £1,776.89 for the Leeds and £1,420 for FFL from the loan and sent the balance of £8,104.11 to the Paynes. Despite the attempts by Mr. Newman of Watchtower's solicitors in his affidavit of 2 December 1999 to justify what was done, it does not appear that the Paynes had given instructions or other authority for the payment to the Leeds. However no objection was taken by the Paynes to what was done.
Before long the Paynes fell into arrears with the payments to Watchtower. On 17 May 1990 Watchtower served default notices on the Paynes. When the default was not remedied, Watchtower on 13 June 1990 commenced proceedings against the Paynes in Bromley County Court, seeking possession of the Property. A suspended order for possession was made on 3 August 1990. The arrears were paid off. The proceedings were transferred to Woolwich County Court in 1991.
On 30 March 1992 after the Paynes fell into arrears again further proceedings were commenced by Watchtower in Bromley County Court. But they were not pursued because the arrears were cleared.
Again the Paynes fell into arrears and on 15 March 1993 further proceedings were issued in Woolwich County Court. On 11 May 1994 a possession order was made. Again it was suspended while the arrears were paid off. The arrears were cleared by November 1994.
Thereafter the Paynes fell into arrears yet again. In July 1995 Watchtower commenced the fourth proceedings against the Paynes. The Paynes filled in Form N11M, the Form of Reply (Mortgaged Property), which had been introduced in 1993. Question 10, which was to be answered only if the loan secured by the mortgage (or part of it) was a regulated consumer credit agreement, was: "Do you want the Court to consider whether or not the terms of your original loan agreement are fair?" The Paynes ticked the "Yes" box.
But despite that, there is no indication that the court did consider whether the credit agreement was fair before it made a possession order on 6 September 1995. The Paynes cleared the arrears in November 1996.
Again the Paynes fell into arrears after that. On 13 January 1998 Watchtower for the fifth time commenced proceedings against the Paynes. Again the Paynes when completing Form N11M ticked the "Yes" box in answer to question 10. On 11 March 1998 Deputy District Judge Pithouse adjourned the case to enable the Paynes to make representations to the Department of Social Security. On 22 April 1998 District Judge Lee, again, it appears, without considering whether the credit agreement was fair, made a possession order suspended for two months. The arrears by then were over £3,500. Thereafter Watchtower agreed with the Paynes that it would not enforce the warrant of execution while the arrears were paid by instalments. £3,000 arrears had been paid and only the balance of £664.09 was outstanding when Watchtower by letters dated 7 October and 3 November threatened to enforce the warrant of execution.
Only then did the Paynes consult solicitors. On 10 November 1998 those solicitors wrote to Watchtower, seeking information. On 8 January 1999 they told Watchtower's solicitors that the point was being taken that the credit agreement was an extortionate credit bargain and could not be enforced. They applied to the court, seeking relief out of time. They said that there should be a retrial of the 1998 proceedings under CCR O.37 r.1. They also sought to appeal against the order made by District Judge Lee on 22 April 1998. On 4 June 1999 District Judge Lee dismissed the application. The Paynes appealed, and that and an application for leave to appeal out of time from District Judge Lee's order of 22 April 1998 came before Judge Welchman.
As precautionary measures, prior to the hearing the Paynes made applications in the 1990, 1995 and 1998 proceedings taking similar points that the credit agreement was unenforceable. They also on 10 December 1999 issued proceedings of their own to the same end.
Before I recount what the judge decided, it is convenient to refer to the relevant statutory provisions.
The Consumer...
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