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Consumer Credit Act 1974

This page has material dealing with two points: Extortionate credit bargains and multiple agreements.

Extortionate credit bargain

Limitation

Nolan v Wright
[2009] EWHC 305 (Ch)

Summary

The High Court was bound by the decision of the Court of Appeal in Rahman v Sterling Credit [2001] 1 WLR 496 and held that a claim to re-open a credit agreement as an extortionate credit bargain is an action upon a specialty for the purposes of s8 Limitation Act 1980 and was subject to a limitation period of 12 years.

Facts

In 2007, the claimant, a moneylender, commenced proceedings against the defendant to enforce a credit agreement entered into in 1994, and secured by way of legal mortgage. The defendant raised a number of defences principally involving allegations of fraud against the claimant, but also included a claim to re-open the credit agreement as an extortionate credit bargain under ss137-140 Consumer Credit Act 1974 and/or that the running of time was postponed by reason of deliberate concealment under s32(1)(b) Limitation Act 1980.

The claimant applied for summary judgment. The defendant successfully defeated the claim on all issues, including the issue of limitation. The claimant appealed. The court directed that the issue of limitation should be determined as a preliminary issue.

The arguments

It was common ground that s5 of the Limitation Act 1980 did not apply, because the claim was not founded on a simple contract debt. It was argued that s9 (action to recover a sum recoverable by virtue of an enactment) did not apply either since the defendant’s counterclaim extended to non-pecuniary relief.

The claimant relied on Rahman v Sterling Credit and argued that it was an action on a specialty (an action based on an Act of Parliament to which the Royal Seal was attached, making it a specialty). The defendant argued that Rahman was wrongly decided – that as was noted by Dyson LJ in Paragon Finance v Nash and Staunton [2002] 1 WLR 685 at 709H, the decision may have proceeded on a concession. On analysis, the reasoning of Mummery LJ in Rahman was questionable since the case involved no real analysis of the meaning of an action upon a specialty. It was argued that no statutory limitation period applied. The court was exercising what in effect was a supervisory jurisdiction and that it had an inherent power to intervene, as per Dillon LJ in First National Bank Plc v Syed [1991] 2 All ER 250 at 252e.

Held

The court was bound by the decision of the Court of Appeal in Rahman which, despite the suggestion that it may have proceeded on a concession, contained a sufficiently reasoned judgment. His Honour Judge Hodge QC sitting as a High Court judge at para 14:
    “In my judgment, it was an integral part of the Court of Appeal’s reasoning and decision in Rahman (by which I am bound) that a claim to reopen an extortionate credit bargain constitutes a statutory cause of action within the meaning, and for the purposes of section 8 of the 1980 Act. As such, a 12 year limitation period applies unless the claim expressly extends to the repayment of money previously paid under the credit bargain, in which event the application will be governed by section 9 and subject to a 6 year limitation period accordingly”.
The court was not assisted by the comments of Dillon LJ in the First National case. Since the 12-year limitation period ran from the date of entry into the credit agreement (1994) it was accordingly statute-barred, and the preliminary issue was therefore determined in the claimant’s favour, save that it remained open to the defendant, on the facts, to contend that the limitation period should be postponed pending deliberate concealment of material facts by the claimant for the purposes of s32(1)(b) Limitation Act 1980.

Summary judgment was refused and directions given for trial; split order for costs in the defendant’s favour.

Comment

There are compelling arguments against applying a statutory limitation period to a claim to re-open a credit agreement as an extortionate credit bargain. For a detailed appraisal of the application of the statutory limitation periods, see the article by David Oughton in the Civil Justice Quarterly [2001] CJQ 150 (Westlaw).

Although the claimant has indicated an intention to seek permission to appeal, which may mean that the issue comes back before the Court of Appeal, the issue will ultimately need to be reconsidered by the House of Lords.


Multiple agreements

Enforceability

Southern Pacific Mortgage Ltd v Heath
[2009] EWCA Civ 1135

Summary

A term of a mortgage advance which required any existing mortgage to be paid off did not mean that there were separate agreements – one for restricted use, and another for unrestricted use. It was not therefore necessary for the various statutory requirement of the Consumer Credit Act 1974 (as to form, content and execution etc) to be complied with.

Facts

The defendant ("D") owned a dwelling-house subject to mortgage with Halifax Plc of which £19,000 was outstanding. In 2002 she obtained an offer of advance of (net) £28,000 from a different lender to be secured by a first legal mortgage. The transaction completed; the Halifax mortgage was discharged, and the balance net of costs etc of about £9,000 was paid to D. The lender subsequently assigned the mortgage to the claimant ("C").

D fell into arrears and C commenced proceedings for possession. It obtained suspended orders for possession in 2004 and 2006, but it was only in response to a warrant of possession obtained in 2007 that D obtained legal advice and sought to defend the proceedings.

At the time of the transaction, an agreement providing for credit of more than £25,000 was not regulated under the Consumer Credit Act 1974; and it was common ground that the lender had not complied with any statutory requirements as regards the content of the documents and the procedures for execution.

D argued that the agreement was to be treated for the purposes of s18(1) of the Act as if it comprised two separate agreements – one, a restricted-use credit agreement (s11(1)(c)) relating to the amount required to discharge the previous mortgage £19,000), and the other, an unrestricted-use credit agreement (s11(2)) relating to the balance (£9,000). In default of compliance with the various statutory requirements, the agreements were unenforceable without a court order.

The trial judge held that the mortgage was not a multiple agreement within s18(1)(a) and was therefore enforceable. D appealed.

Held

The appeal was dismissed.

In order to see whether the agreement is one under which there are two or more parts, in different categories; or whether part of it falls into two or more categories the starting point is to look at the terms of the agreement. It is not correct to start from the proposition that more than one disparate category is concerned, and to conclude from this that the agreement must fall into two or more parts. Furthermore, it is the agreement which is to be placed in one or more categories, not the credit provided under the agreement.

D was offered a single facility which could only be drawn down as a whole. It was a single agreement which could not be dissected into separate parts.

The agreement was one whose terms placed the whole of the agreement in two relevant and disparate categories under the Act so that s 18(1)(b) applied. It was not one whose terms placed part of the agreement in one category and part in another. The agreement could not be taken apart in that way. It was a unitary agreement. Accordingly, because the amount of credit provided exceeded £25,000 it was not a regulated agreement.

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