COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM HIGH COURT CHANCERY DIVISION
Peter Smith J
Strand, London, WC2A 2LL
B e f o r e :
LORD JUSTICE JONATHAN PARKER
LORD JUSTICE CARNWATH
| PARAGON FINANCE PLC (formerly THE NATIONAL HOME LOANS CORPORATION PLC)
|- and -
|RICHARD JOSEPH PENDER
KATHLEEN PAULINE PENDER
Smith Bernal Wordwave Limited, 190 Fleet Street
London EC4A 2AG
Tel No: 020 7421 4040, Fax No: 020 7831 8838
Official Shorthand Writers to the Court)
Mr Ali Malek QC and Mr Ian Wilson (instructed by Messrs Wragg & Co) for the Respondents
Crown Copyright ©
Lord Justice Jonathan Parker :
The factual history up to the hearing before Judge Mayer
"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 ."
"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."
The hearing before HHJ Mayer
Mr Aaron's witness statement
THE ADMINISTRATION AGREEMENTS
"2.1 the Issuer, HLJ, PFPLC and the Trustee each hereby appoints the Administrator as its lawful agent in its name and on its behalf to exercise their respective rights, powers and discretions, and to perform their respective duties under the Mortgages."
" the Administrator shall not be obliged to and shall not, but thereafter shall forthwith upon demand by the Issuer (i) execute and deliver Transfers of the Mortgages to the Issuer, (ii) submit for registration at HM Land Registry the relevant Transfers and (iv) give notice to each relevant Borrower .. of (1) the transfer of his or her Mortgage to the Issuer "
"5.1 HLJ, the Issuer and the Trustee grant the Administrator full right, liberty and authority from time to time, in accordance with the relevant Mortgage Conditions, to determine and set the rate or rates of interest chargeable to Borrowers HLJ, the Issuer and the Trustee shall be bound by any rate or rates of interest set in accordance with this Agreement."
"The Administrator covenants with and undertakes to the Issuer and the Trustee that until all the Notes have been redeemed in full and all interest thereon has been paid, it will not set such rate or rates of interest chargeable to Borrowers in respect of the Mortgages or permit them to remain in effect at any time at such a level as would result in the weighted average yield on the Mortgages being less than the then current Minimum Mortgage Rate "
"(b) it is acknowledged by the Issuer and the Trustee that mortgage lenders generally exercise discretion in pursuing their respective enforcement procedures and that [in relation to the enforcement of the mortgages] the Administrator may exercise such discretion as would be exercised by a reasonably prudent lender "
MR HIGGINS' REPORT
"15. In the annual review by the Chief Executive dated 12th December 1995, [Paragon] admits to charging pre-1991 borrowers in 'the old book' higher rates, claiming reasons of arrears, negative equity, cost of administration and 'the risk of the portfolio'. I cannot think of any other home loans lender attempting to operate such unreasonable, non-contractual and retrospective conditions. [Paragon's] charging policy vis-ΰ-vis these existing borrowers is neither fair, nor honest nor in good faith. Indeed it is arbitrary and unreasonable unless it had express powers in its deed and mortgage conditions which is extremely doubtful.
15.1 [Paragon] borrowers between 1985 and 1991 became an underclass in 1994/5 when 'Homeloans Direct' (HLD) became [Paragon's] new mortgage lending arm and were discriminated against with higher interest rates on similar loans in 'the residential first mortgage market', made by HLD."
"I believe that my evidence supports, that in certain of the [administration agreements] [Paragon] voluntarily, knowingly and recklessly entered into contractual obligations with its investors, disregarding vital terms of its originating contract with all the [Paragon] borrowers affected. No other [member of the Council of Mortgage Lenders], so far as I can tell, so deliberately destroyed the credit worthiness of its own borrowers."
" to drastically foreshorten the agreed contractual 30 year term of his mortgage, in order that [Paragon] could repay its creditors/funders in accordance with the much shorter contractual terms set out in a succession of [securitisation agreements]".
MR BLOOMFIELD'S REPORT
" . one that a centralised lender, such as [Paragon], would be more prepared to consider bearing in mind the streamlined level of checking and investigation they undertook, and the higher risk profile they were prepared to accept."
"In my view and experience this attractive, relatively inexpensive and sound method of funding was part of the fabric of [Paragon] and a basic operational procedure and opportunity for a modern lending institution such as [Paragon]."
" [Paragon] accepts that it set interest rates with regard to its own financial situation and its own commercial interests and having regard to the performance of its loans and the cost of managing them and the underlying risk of loss arising from shortfalls on them."
"[Paragon] was affected more than most others by the recession of the early 1990s because all their loans were vulnerable as they were written in the 1980s. It was inevitable [that] their arrears and repossessions would be a higher proportion of their book than others who also had older and safer loans."
"8.6 [Paragon] entered into securitisation arrangements. In my view this was a sensible course of action and resulted in [Paragon] obtaining lower matched funding with acceptable covenants. The terms and conditions of the mortgage they had granted to Mr Bradshaw remained totally unaffected. [Paragon] maintained the right (and indeed the obligation) to set interest rates as they wished and saw fit, apart from one requirement which was to set rates to cover a minimum 'threshold rate' to be paid to investors of [sic] the loan notes. The 'threshold rate' was never triggered and to in the context of the dispute between [Paragon] and Mr Bradshaw it is irrelevant.
8.7 In my opinion the claim is simply incorrect that [Paragon] transferred to others the right to set or materially influence their interest rate setting decisions."
THE HEARING BEFORE PETER SMITH J
(1) the title to sue issue;
(2) the implied obligation issue; and
(3) the extortionate credit bargain issue;
(4) issues as to misrepresentation and breach of contract which had been argued before Judge Mayer; and
(5) a human rights issue.
PETER SMITH J'S JUDGMENT
"If the party's need to be joined is purely technical i.e. the arrangements mean that the Claimants are not the correct parties to sue for the debt, it is proper that the correctly constituted party is joined to ensure that there is debt recovery provided the Defendants suffer no disadvantage by that. No actual disadvantage so far as I can see has been suffered, even if the Defendants' case on Title to Sue is correct."
"114 Transfers of mortgages
(1). A deed executed by a mortgagee purporting to transfer his mortgage or the benefit thereof shall, unless a contrary intention is therein expressed, and subject to any provisions therein contained, operate to transfer to the transferee-
(a) the right to demand, sue for, recover, and give receipts for, the mortgage money or the unpaid part thereof, and the interest then due, if any, and thenceforth to become due thereon; and
(b) the benefit of all securities for the same, and the benefit of and the right to sue on all covenants with the mortgagee, and the right to exercise all powers of the mortgagee; and
(c) all the estate and interest in the mortgaged property then vested in the mortgagee subject to redemption or cesser, but as to such estate and interest subject to the right of redemption then subsisting."
"33 Transfer of charges
(1) The proprietor of any registered charge may, in the prescribed manner, transfer the charge to another person as proprietor
(2) The transfer shall be completed by the registrar entering on the register the transferee as proprietor of the charge transferred, but the transferor shall be deemed to remain proprietor of the charge until the name of the transferee is entered on the register in respect thereof.
(3) A registered transferee for valuable consideration of a charge and his successors in title shall not be affected by any irregularity or invalidity in the original charge itself of which the transferee did not have notice when it was transferred to him.
(4) On registration of any transfer of a charge, the term or subterm (if any) granted expressly or by implication by the charge or any deed of alteration shall, without any conveyance or assignment and notwithstanding anything to the contrary in the transfer or any other instrument, vest in the proprietor for the time being of the charge.
(5) Subject to any entry to the contrary on the register, the vesting of any term or subterm in accordance with this section in the proprietor of a charge shall, subject to the right of redemption, have the same effect as if such proprietor had been registered as the transferee for valuable consideration of the term or subterm.
34 Powers of proprietor of charge
(1) Subject to any entry on the register to the contrary, the proprietor of a charge shall have and may exercise all the powers conferred by law on the owner of a legal mortgage.
"that the power to vary interest rates should not be exercised dishonestly, for an improper purpose, capriciously, arbitrarily, or in a way in which no reasonable mortgagee acting reasonably would do".
"30. I cannot accept the submission of Mr Malek that the power given to the Claimant by these loan agreements to set the interest rates from time to time is completely unfettered. If that were so, it would mean that the Claimant would be completely free, in theory at least, to specify interest rates at the most exorbitant level. It is true that in the case of the Nash agreement, clause 3.3 provides that the rate charged is that which applies to the category of business to which the Claimant considers the mortgage belongs. That prevents the Claimant from treating the Nashes differently from other borrowers in the same category. But it does not protect borrowers in that category from being treated in a capricious manner, or, for example, being subjected to very high rates of interest in order to force them into arrears with a view to obtaining possession of their properties.
31. The Stauntons do not even have the limited protection that is afforded by clause 3.3 of the Nash agreement. In the absence of an implied term, there would be nothing to prevent the Claimant from raising the rate demanded of the Stauntons to exorbitant levels, or raising the rate to a level higher than that required of other similar borrowers for some improper purpose or capricious reason. An example of an improper purpose would be where the lender decided that the borrower was a nuisance (but had not been in breach of the terms of the agreement) and, wishing to get rid of him, raised the rate of interest to a level that it knew he could not afford to pay. An example of a capricious reason would be where the lender decided to raise the rate of interest because its manager did not like the colour of the borrower's hair.
32. It seems to me that the commercial considerations relied on by Mr Malek are not sufficient to exclude an implied term that the discretion to vary interest rates should not be exercised dishonestly, for an improper purpose, capriciously or arbitrarily. I shall come shortly to the question whether the discretion should also not be exercised unreasonably. But before doing so, I should explain in a little more detail why I would reject Mr Malek's submission that there is no need for an implied term at all."
"But it seems to me to be obvious that there may be circumstances in which the lender will act capriciously towards an individual borrower knowing that it might compel the borrower to redeem the mortgage and go elsewhere. Indeed, the lender may have decided to increase the rate of interest for that very reason. But why should the lender be able capriciously to compel the borrower to find another lender with impunity?"
"37. I come, therefore, to the question whether the implied term should also extend to "unreasonably". The first difficulty is to define what one means by "unreasonably". Mr Bannister was at pains to emphasise that he was not saying that the rates of interest had to be reasonable rates in the sense of closely and consistently tracking LIBOR or the rates charged by the Halifax Building Society. He said that what he meant by the unreasonable exercise of the discretionary power to set the rate of interest was something very close to the capricious or arbitrary exercise of that power.
38. As we have seen, in Abu Dhabi National Tanker Co v Product Star Shipping Ltd (No 2)  1 Lloyd's Rep 397 Leggatt LJ said that where A and B contract with each other to confer a discretion on A, the discretion must be exercised honestly and in good faith, and not "arbitrarily, capriciously or unreasonably". In that case, the judge held the owner acted unreasonably in the sense that there was no material on which a reasonable owner could reasonably have exercised the discretion in the way that he did. Leggatt LJ (with whom the other two members of the court agreed) found that various factors called into question the owners' good faith and strongly suggested that their decision was arbitrary. He also upheld the judge's approach to the question of reasonableness. Thus the word "unreasonably" in the passage at page 404 must be understood in a sense analogous to unreasonably in the Wednesbury sense: Associated Provincial Picture Houses Ltd v Wednesbury Corporation  1 KB 223.
39. This question whether an apparently unfettered discretion is subject to an implied limitation that it must be exercised reasonably has been considered in other contexts. They were helpfully reviewed by Mance LJ in Gan Insurance Co Ltd v Tai Ping Insurance Co Ltd  All ER (D) 33. That case concerned a reinsurance contract which contained a clause which provided that no settlement or compromise of a claim could be made or liability admitted by the insured without the prior approval of the reinsurers. One of the questions that arose was whether the right to withhold approval was subject to any (and if so what) restriction. The judge held that the reinsurers could not withhold approval unless there were reasonable grounds for doing so. Mance LJ (with whom Latham LJ agreed) decided that the right to withold consent was less restricted. Having reviewed a number of previous authorities, Mance LJ said (paragraph 64) that what was proscribed in all of them was "unreasonableness in the sense of conduct or a decision to which no reasonable person having the relevant discretion could have subscribed". He said, at p 324, para 67:
"I would therefore accept as a general qualification that any withholding of approval by reinsurers should take place in good faith after consideration of and on the basis of the facts giving rise to the particular claim and not with reference to considerations wholly extraneous to the subject-matter of the particular reinsurance."
40. After a detailed consideration of what considerations could properly be take into account, he said, at p 326, para 73:
"If there is any further implication, it is along the lines that the reinsurer will not withhold approval arbitrarily, or (to use what I see as no more than an expanded expression of the same concept) will not do so in circumstances so extreme that no reasonable company in its position could possibly withhold approval. This will not ordinarily add materially to the requirement that the reinsurer should form a genuine view as to the appropriateness of settlement or compromise without taking into account considerations extraneous to the subject-matter of the reinsurance."
41. So here too, we find a somewhat reluctant extension of the implied term to include unreasonableness that is analogous to Wednesbury unreasonableness. I entirely accept that the scope of an implied term will depend on the circumstances of the particular contract. But I find the analogy of Gan Insurance and the cases considered in the judgment of Mance LJ helpful. It is one thing to imply a term that a lender will not exercise his discretion in a way that no reasonable lender, acting reasonably, would do. It is unlikely that a lender who was acting in that way would not also be acting either dishonestly, for an improper purpose, capriciously or arbitrarily. It is quite another matter to imply a term that the lender would not impose unreasonable rates. It could be said that as soon as the difference between the Claimant's standard rates and the Halifax rates started to exceed about two percentage points, the Claimant was charging unreasonable rates. From the appellants' point of view, that was undoubtedly true. But from the Claimant's point of view, it charged these rates because it was commercially necessary, and therefore reasonable, for it to do so.
42. I conclude therefore that there was an implied term of both agreements that the Claimant would not set rates of interest unreasonably in the limited sense that I have described. Such an implied term is necessary in order to give effect to the reasonable expectations of the parties."
"46. In my judgment, the mere fact that the rates charged were made "without reference to the prevailing rates" is not evidence from which it can be inferred that, in fixing them, the Claimant acted in breach of the implied term. It is not said by Mr Bannister that the rates set by the Claimant had to match those of the Halifax. As Mr Rosenberg points out in his report (paragraph 4.3.7), the Claimant was not regarded as a sub-prime lender; it was a centralised lender with no branch network; and relied on self-certification by borrowers. It was not in the same category of lenders as the Halifax. The real complaint is that the gap between the Claimant's rates and those charged by the Halifax widened from 1995 onwards. It widened from about 2 percentage points to 4-5 points. One of the reasons for this according to counsel for the Claimant (if not the only reason) was that the Claimant was in serious financial difficulties because many of its borrowers had defaulted, the money markets charged higher rates for lending to the Claimant because it was perceived to be a greater risk than other mortgage lenders, and these higher costs had been passed on to borrowers. It is the fact that the Claimant took this into account in deciding at what level to fix its rates that forms the basis of the second way in which the case of breach of the implied term is put. In my view, if it was the case that the rates were increased because the Claimant was in financial difficulties for reasons of that kind, that would not be a breach of the implied term. If a lender is in financial difficulty, for example, because it is obliged to pay higher rates on interest to the money market, then it is likely to have to pass those increased costs on to its borrowers. If in such circumstances the rate of interest charged to a borrower is increased, it is impossible to say that the discretion to set the rate of interest is being exercised for an improper purpose, capriciously, arbitrarily or in a way in which no reasonable lender would reasonably do.
47. On the material placed before this court, there is no evidence to suggest that the decision to widen the gap between the rates of interest charged by the Claimant to the appellants and the standard rates charged by the Halifax Building Society to its borrowers was motivated by other than purely commercial considerations. The Claimant is not a charitable institution. Its aim is to make a profit by lending money. It follows that if it encounters financial difficulties, it may feel obliged to raise the interest rates paid by its borrowers. In deciding whether to raise interest rates, it will have to make fine commercial judgments. But if it decides to take that course in order to overcome financial difficulties, it is not acting dishonestly, capriciously or in an arbitrary manner. It is not taking into account an irrelevant consideration. Nor is it acting in a way which is so unreasonable that it can be said of it that no reasonable lender would take that course if placed in that situation."
"67. It might be said that, if variations in rates of interest are not to be taken into account in deciding whether a credit bargain is extortionate, then there is a glaring lacuna in the protection provided by the 1974 Act. Mr Malek was unable to suggest any policy reason why the protection should be limited in this way. But if I am right in holding that the discretion to set variable interest rates is subject to an implied restriction that it will be exercised in the way that I have described, then the lacuna is less considerable than it might appear. Moreover, the measure of the protection that is undoubtedly afforded by the 1974 Act should not be overstated. At paragraph 47.26 of Consumer Credit Law and Practice, Professor Goode says:
"Nevertheless, it seems clear that the concepts of extortion and unconscionability are very similar. 'Extortionate', like 'harsh and unconscionable', signifies not merely that the terms of the bargain are stiff, or even unreasonable, but that they are so unfair as to be oppressive. This carries with it the notion of morally reprehensible conduct on the part of the creditor in taking grossly unfair advantage of the debtor's circumstances. This element of moral culpability, in the form of abuse of power or bargaining position, is well brought out in the judgment of Sir John Donaldson MR in Wills v Wood  CCLR 7: 'It is, of course, clear that the Consumer credit Act 1974 gives and is intended to give the widest possible control over credit bargains which, for a variety of reasons, might be considered "extortionate". But the word is "extortionate", not "unwise". The jurisdiction seems to me to contemplate at least a substantial imbalance in bargaining power of which one party has taken advantage'."
68. In practice, there are unlikely to be many situations in which an allegation of breach of the term that I have held should be implied would fail where the same allegation, expressed as a complaint that the rate of interest is "grossly exorbitant" so as to render the transaction "extortionate", would succeed. "
"162. Mr Page QC submits that there are four indications of improper purposes:-
(a) To satisfy the financial needs of the Claimant, which is not the mortgagee.
(b) To encourage borrowers to redeem their mortgages, thus releasing capital (such a purpose being recognised in the Paragon case as being an improper purpose (paragraph 35)).
(c) To force old book borrowers to finance the new.
(d) Increase of interest rate because of default.
163. There is no evidence to show that (d) has ever been applied.
164. I see nothing in item (a) I have already analysed the interrelation between the Claimants and the SPV and the mere fact that it is a bare trustee is irrelevant. Under the terms of the AA it is given the power to vary the interest rates and I do not accept that there is any evidence, which shows that the Claimant has no interest in the recovery of monies under the mortgage for reasons, which I have already set out in this judgment.
165. There is no evidence to show that the Claimants have embarked on a policy of forcing people to redeem their mortgages (item (b)). Further it appears from paragraph 35 of the Nash judgment that what the court of appeal is contemplating is a particular policy addressed to a particular borrower. There is nowhere any suggestion in Mr Higgins's report (for self evident reasons) to suggest that the Defendants have been singled out. His report was not prepared for their case. Even if the judgment is interpreted, as on the basis of being a general policy, there is no evidence provided by Higgins's report that that was the Claimant's policy. Indeed, as I have already observed, if that was their policy they would not have been so tolerant of the Defendants' failure to pay the mortgage arrears over many years. It does not make sense for them to allow the arrears to accumulate if they were motivated by a desire to raise interest rates to force the Defendants to redeem (or sell the property over their head because of default).
166. If I accept that the old borrowers have financed the new borrowers that seems to me a perfectly legitimate commercial reason, which the Claimants could enter into to help recover itself from the losses that it has sustained over a period of time.
167. Raising the interest rates may well be necessary for its financial survival. That might have the consequential result that the borrowers move elsewhere because they can obtain lower rates of interest elsewhere. It does not follow that the Claimants' policy is motivated by a desire to force them to remortgage, it is a consequence of their raising higher rates, because of the financial circumstances in which they find themselves. Mr Higgins in paragraph 13.1 of his report makes assumptions , which to my mind are completely unreal and not sustainable by any evidence. I have no evidence to show, for example, there has been an aggressive possessions policy in this case (quite the opposite). I have no evidence to show that in this case they were attempting to drive the Defendants away and force them to remortgage.
168. Mr Higgins' report and summary in paragraph 15 is strong on assertion and totally lacking in evidence.
169. It is to be contrasted with Mr Bloomfield's report and in particular his extensive and compelling criticism in section 7 of Mr Higgins own report. I have already accepted that I should not weigh competing reports against each other ordinarily, but I am afraid to say that I find Mr Bradshaw's report totally lacking in substance so that it cannot be said with any credibility that the matters he raises have any real protect of being successful at the trial. The position appears to me to be relatively straightforward. The Claimants, because of the nature of their mortgage book, suffered more than most lenders when the recession came in the late 1980's early 1990's. They were not in the market long as established institutions. They were therefore not protected by the cushion of such longer-term borrowers. Thus when borrowers went into default and properties were repossessed the margins were much less and there were greater instances of negative equity which left the Claimants with losses. They addressed these losses by organising their affairs and charging the interest rates so as to enable them first to survive, and second to begin to move the profit. All of this is entirely credible.
170. One has to contrast that with borrowers who borrow on a self-certified basis which either is not true or which changes and who then find themselves unable to pay the mortgages, which they took out in more stable financial times. It is a popular practice nowadays to believe that merely because circumstances have changed adversely that someone else is to blame. I have had no explanation, for example, as to why the Defendants have not paid any mortgage payments for many years. I have had no explanation as to why they fell into arrears in the first place. They had the benefit of a three year cap at 12.9% (when NHL's rates were actually higher during that period) and thereafter the rates have fallen below the initial agreed rate at 12.9%. It follows therefore, that they ought to have been in a better position over the passage of time to service the loan. Their failure to service the loan (massively after 1995) is completely unexplained. There have been clearly some difficulties, but I do not see it can be said that those difficulties have been visited upon them by reason of the breach of this implied term. I do not see that Mr Higgins's report has any real prospect of persuading a trial judge that that would be the case.
I therefore do not accept that item (c) raises any matters, which should lead me to allow the Defendant's appeal."
"138 When bargains are extortionate
(1) A credit bargain is extortionate if it-
(a) requires the debtor or a relative of his to make payments (whether unconditionally, or on certain contingencies) which are grossly exorbitant, or
(b) otherwise grossly contravenes ordinary principles of fair dealing.
(2) In determining whether a credit bargain is extortionate, regard shall be had to such evidence as is adduced concerning-
(a) interest rates prevalling at the time it was made,
(b) the factors mentioned in subsections (3) to (5), and
(c) any other relevant considerations.
(3) Factors applicable under subsection (2) in relation to the debtor include-
(a) his age, experience, business capacity and state of health; and
(b) the degree to which, at the time of making the credit bargain, he was under financial pressure, and the nature of that pressure.
(4) Factors applicable under subsection (2) in relation to the creditor include-
(a) the degree of risk accepted by him, having regard to the value of any security provided;
(b) his relationship to the debtor; and
(c) whether or not a colourable cash price was quoted for any goods or services included in the credit bargain.
(5) Factors applicable under subsection (2) in relation to a linked transaction include the question how far the transaction was reasonably required for the protection of debtor or creditor, or was in the interest of the debtor"
" the statutory test of 'extortionate' is a high one: the payments required to be made must be grossly exorbitant, and/or the bargain must otherwise grossly contravene the ordinary principles of fair dealing".
"The cap imposed by the administrative agreements has not operated in an extortionate way, because the margins between the Halifax rate, for example, and the Claimants are not so wide as to be capable of being categorised as harsh and oppressive within the ambit of Section 138."
PERMISSION TO APPEAL TO THIS COURT
THE ARGUMENTS ON THIS APPEAL
A. The arguments presented on behalf of Mr and Mrs Pender
(i) The title to sue issue
" the philosophy behind both the Land Registration Act 1925 and the Law of Property Act 1925 was that they should operate in parallel, and it would, therefore, be surprising if it were found that the two systems were not constructed so as to dovetail into one another."
(ii) The implied obligation issue
- to encourage borrowers to redeem their mortgages, thereby releasing capital to finance capital repayments to bondholders;
- to force the 'old book' borrowers to finance more recent loans, thus discriminating unfairly against the 'old book' borrowers; and
- to satisfy the financial needs of Paragon, which no longer has any beneficial interest in the Legal Charge.
(iii) The extortionate credit bargain issue
"Accordingly, subject to the qualification I am about to express, I remain of the view that the way in which a discretionary variation of rate clause is operated in fact is not a factor to be taken into account in determining whether a credit bargain is extortionate. But it does not follow that the existence of such a clause can never be relevant to the question whether a credit bargain is extortionate. Such a clause has the potential to make the bargain extremely burdensome for the borrower if a wide gap opens up between the interest rates payable under the bargain and market rates prevailing from time to time. If the lender has a policy of operating the clause in a certain way, or (as in the present case) of not operating the clause at all whether market rates go up or down, then it seems to me that ordinary principles of fair dealing require the lender to inform the borrower of that policy before the bargain is made. Failure to inform the borrower may, therefore, be a factor to be taken into account in determining whether there has been a gross contravention of ordinary principles of fair dealing, and therefore whether the credit bargain is extortionate."
B. The arguments presented on behalf of Paragon
(i) The title to sue issue
"49. Before the recorder some reference was made to section 114(1) of the LPA, which provides:
"A deed executed by a mortgagee purporting to transfer his mortgage or the benefit thereof shall, unless a contrary intention is therein expressed, and subject to any provision therein contained, operate to transfer to the transferee (a) the right to demand, sue for, recover, and give receipts for, the mortgage money or the unpaid part thereof, and the interest then due, if any, and thenceforth to become due thereon; and (b) the benefit of all securities for the same, and the benefit of and the right to sue on all covenants with the mortgagee, and the right to exercise all powers of the mortgage; and (c) all the estate and interest in the mortgaged property then vested in the mortgagee subject to redemption or cesser, but as to such estate and interest subject to the right of redemption then subsisting. "
In a recent case, Paragon Finance Plc v Pender  EWHC 2834 (Ch), it was held by Peter Smith J that section 114 has no application to registered land.
50. We have no reason to doubt Peter Smith J's conclusions but in any event, as he observed, section 114 provides for a transfer "unless a contrary intention is expressed" in the mortgage. Thus if section 114 applies, all depends upon the true construction of the mortgage and, in our judgment, for the reasons given earlier, on the true construction of the sub-charge, there was no such transfer in this case.
51. In any event any such transfer would be governed by section 33 of the LRA 1925, which provides so far as relevant:
"(1) The proprietor of any registered charge may, in the prescribed manner, transfer the charge to another person as proprietor.
(2) The transfer shall be completed by the registrar entering on the register the transferee as proprietor of the charge transferred, but the transferor shall be deemed to remain proprietor of the charge until the name of the transferee is entered on the register in respect thereof."
In the instant case, as already indicated, the respondent was entered and remains on the register as proprietor of the principal charge and the sub-chargee was entered and remains on the register as the proprietor of the sub-charge. It follows that the effect of section 33(2) is that no transfer has been completed on the facts of this case.
52. Moreover, there was no transfer "in the prescribed manner". The true position is that already stated, namely that there was no transfer to the sub-chargee of the respondent's rights against the appellant under the principal charge, either under the terms of the sub-charge (or any of the other contractual documents) or by reason of the provisions of any relevant statute.
53. Nor, as we see it, is there any other basis on which it could be held that the respondent was divested of its right to claim possession of the property. In the course of his judgment the recorder analysed the provisions of the LRA 1925 and of the Land Registration Rules 1925 as amended (the Rules") in order to identify the powers of a sub-chargee. Thus, in addition to section 27 of the LRA 1925 referred to above he referred to rule 163 of the Rules. Rule 163(1) provides:
"The proprietor of a charge or encumbrance may at any time charge the mortgaged debt with the payment of money in the same manner as the proprietor of land charged and such charges are in these rules referred to as sub-charges."
Rule 163(2) provides that the proprietor of a sub-charge shall, subject to any entry to the contrary in the register, have the same powers of disposition in relation to the land as if he had been registered as proprietor of the principal charge. The recorder observed that that rule is concerned with powers of disposition whereas this case is concerned with the power to take possession. That is so, although we have no reason to doubt that, subject to the terms of the particular sub-mortgage, a sub-mortgagee in principle has a right of possession.
54. However, let it be supposed, contrary to our view of the true position under the sub-charge in this case, that the sub-chargee has a present right to possession of the property, that would not as we see it affect the respondent's right of possession under the principal charge as between the respondent and the appellant. As Miss Olley was in our view correctly, constrained to accept in the course of the argument, there is no reason in principle why both a mortgagee and a sub-mortgagee should not have rights of possession."
(ii) The implied obligation issue
(iii) The extortionate credit bargain issue
The title to sue issue
The implied obligation issue
" the lender decided that the borrower was a nuisance (but had not been in breach of the terms of the agreement) and, wishing to get rid of him, raised the rate of interest to a level that it knew he could not afford to pay."
"The claimant is not a charitable institution. Its aim is to make a profit by lending money. It follows that if it encounters financial difficulties, it may feel obliged to raise the interest rates paid by its borrowers. In deciding whether to raise interest rates, it will have to make fine commercial judgments. But if it decides to take that course in order to overcome financial difficulties, it is not acting dishonestly, capriciously or in an arbitrary manner."
"If I accept that the old borrowers have financed the new borrowers that seems to me a perfectly legitimate commercial reason, which the Claimants could enter into to help recover itself from the losses that it has sustained over a period of time." (Emphasis supplied)
The extortionate credit bargain issue
" a factor to be taken into account in determining whether there has been a gross contravention of ordinary principles of fair dealing".
Lord Justice Carnwath:
Lord Justice Ward: