COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM WANDSWORTH COUNTY COURT
HH JUDGE WALKER
Strand, London, WC2A 2LL
B e f o r e :
LORD JUSTICE MOSES
| PENELOPE WILSON
|- and -
|ROBERTSONS (LONDON) LTD
MATTHEW COOK (instructed by Messrs. Lester Aldridge) for the RESPONDENT
Hearing date : 11th July, 2006
Crown Copyright ©
Carnwath LJ :
i) The agreement having been found to be unenforceable, what sums, both as to principal and interest, are to be repaid by the defendant to the claimant;
ii) The amount of damages to be paid by the defendant as a result of the destruction of the gold ring pawned under an unenforceable agreement;
iii) The amount of interest to be added to sums in paragraphs 1 and 2 as compensation for the delay caused by the stay of the claim;
iv) The costs of the whole claim.
"… a novation, the new advance … being applied to discharge the indebtness on the earlier agreement"
Mr Michaels said that the purpose of the renewal -
"… was to ensure that the item pledged was retained by us. No additional sums of money were paid to her. Mrs Wilson's liability to pay the principal on the first agreement was removed and replaced by the liability to pay the same amount on the subsequent agreement. "
Mr Hall said:
"It was often the case that when someone came in to redeem the pledge they in fact wanted to keep the loan outstanding. In those circumstances they would pay the interest off and the capital would be rolled over into a new contract and the pledge returned to the office safe. When this occurred, I would normally endorse the old agreement number on the top of the new agreement so that it could be seen instantly that it was a roll over."
"I (Mrs Wilson) have deposited with the pawnbroker and the pawnbroker has taken in pawn, the property as stated in the Schedule above (i.e. the watch) as security for a loan of £400.00 together with interest at the monthly rate of £18 (4.5%)"
The period of the loan was given as six months, and the "redemption date" was given as 21st November 1995. Clause 2 provided:
"2.1 When the property becomes realisable under this Act the pawnbroker may sell the property either by public auction or by private treaty;
2.2 For the purpose of section 121(6) of the Act it is agreed between the pawnbroker and the debtor that the true value of the property shall have been obtained if the property is sold by the pawnbroker at public auction."
As explained by Mr Hall, the only indication on its face of a renewal agreement was the addition at the top of a manuscript note of the number of the original agreement in that series.
"The relevant facts in this case may be illustrated by reference to two agreements entered into by Mrs Wilson under which she pawned to the Respondent the same Lady's Cartier Wristwatch. The first is contract No. 61360. It is dated 22 May 1995 and it sets a monthly interest rate of 4.5%. It sets a full period of redemption of 6 months, that is until 21 November 1995. In fact the watch was not redeemed within that period but the Respondent had not disposed of it when the second agreement, No 66330, was entered into. The latter was signed by Mrs Wilson on 22 March 1996. However it was antedated by three months to 21 December 1995. The 6 month redemption period was fixed as 20 June 1996, that is to say 6 months from the antedated date, not from the actual date of signing. From the latter date, the redemption period was only 3 months. Under the new agreement the monthly rate of interest was 5%."
"106 Ineffective securities
Where, under any provision of this Act, this section is applied to any security provided in relation to a regulated agreement, then, …
(a) the security, so far as it is so provided, shall be treated as never having effect;
(b) any property lodged with the creditor or owner solely for the purposes of the security as so provided shall be returned by him forthwith;
(c) the creditor or owner shall take any necessary action to remove or cancel an entry in any register, so far as the entry relates to the security as so provided; and
(d) any amount received by the creditor or owner on realisation of the security shall, so far as it is referable to the agreement, be repaid to the surety."
"Security" in relation to an actual or prospective consumer credit agreement or consumer hire agreement, or any linked transaction, means a mortgage, charge, pledge, bond, debenture, indemnity, guarantee, bill, note or other right provided by the debtor or hirer, or at his request (express or implied), to secure the carrying out of the obligations of the debtor or hirer under the agreement;
"Surety" means the person by whom any security is provided, or the person to whom his rights and duties in relation to the security have passed by assignment or operation of law.
"A breach of any requirement made (otherwise than by any court) by or under this Act shall incur no civil or criminal sanction as being such a breach except to the extent (if any) expressly provided by or under this Act."
Payments for closed agreements
i) Mrs Wilson enters into agreement 1 under which she pawns the watch for £400, and receives a loan of £400.
ii) At the end of the period, she enters into agreement 2 under which the same item is stated to be pawned for the same £400 amount. She pays the interest due on agreement 1. No further money changes hands, but her liability to pay the sum of £400 is treated as a liability under agreement 2.
iii) This process is repeated with agreement 3 replacing agreement 2, and then agreement 4 replacing agreement 3. Again she pays interest due on each agreement, but no money changes hands in respect of principal, her liability being transferred to the new agreement.
"In my judgment, whether or not one characterises these fresh agreements as novations, as they may well be, the fact is that Mrs Wilson did not pay any money to Robertsons on each such novation, but each such agreement was intended to be a successor to and linked with the earlier agreement in respect of the same item pledged. Thus, it cannot be said that any amount was received by Robertsons on the realisation of the security beyond the interest payments and the document fees."
"The learned judge was [wrong] in law, in accepting the accounts in respect of giving credits for the loan to the claimant and accepting that the loan was deemed to have been paid. This creates an unjust enrichment by profit for the claimant, and an injustice to the creditor."
In this court, both parties appeared in person. The appeal was dismissed.
"… a series of pawnbrokers' agreements entered into between the parties from June 1995 to July 1999… , 67 in all, (by which) Mrs Wilson, the claimant, successively pawned 13 groups of objects, periodically paying off the capital and interest purportedly due on each one and thereupon re-pledging the goods under a fresh agreement."
"A feature of the defendant's system was that he would charge a full month's interest for a period short of a month - sometimes a single day - calculated as often as not from a foreshortened redemption date. The use of fresh agreements then enabled him to set off against the principal advanced under each one the debt supposedly owed under its predecessor. "
He noted that there was no appeal in respect of the bulk of the judge's findings:
"We are concerned only with whether the adoption of an account which re-credits the same principal to the claimant at each renewal is wrong in law or, if discretionary, wrong in principle."
"13. As to these, the claimant submits that section 106 of the Consumer Credit Act 1974 is unequivocal. It provides that in circumstances such as obtained here "the security ... shall be treated as never having effect"; property lodged as security shall be returned; and "any amount received by the creditor ... on realisation of the security..." is to be repaid. Realisation in Mrs Wilson's submission includes receipt of payment from the debtor as well as sale by the creditor. The word is not defined in the Act but it seems to me that the submission must be correct. If it were not, a diligent debtor would be worse protected than a dilatory one. Professor Goode's annotation of the section takes a similar view.
As I have said, there is no dispute before us that, as there stated, "realisation… includes receipt of payment from the debtor as well as sale by the creditor".
14. The defendant, Mr Howard, contends that this is an injustice to him and an unjust enrichment of Mrs Wilson. He submits that the judge was not obliged to enforce the account on such a basis and was therefore wrong in principle to do so. The error, he submits, lies in the judge's treatment of each successive unenforceable contract as attracting fresh relief under the statute, when in reality the same loan was being carried forward.
15. The difficulty which this argument encounters is not only that it has been unappealably decided that these were indeed novations - that is fresh contracts - but that this scheme was consciously adopted by the defendant for his own profit, enabling him, had the contracts been enforceable, to charge interest (at a rate held to be grossly exorbitant) by lending on the novated agreements the amounts outstanding on the old ones, and on the fresh pledges of further goods by lending at interest amounts of already outstanding interest.
16. It is nevertheless true to say that where, say, two in a series of loan agreement for £100 on a particular security have been held to be unenforceable, if the judge is right, the claimant will now retain the goods, will retain the initial advance and will secure a repayment in addition of the two further loans - a clear profit, so Mr Howard submits, of £300."
Sedley LJ then referred to the House of Lords decision cited above, noting its acceptance that the effects of the Act might be "drastic" for a lender. He said:
"18. In the light of this reasoning, which reflects that of the Appellate Committee as a whole, I find it much less difficult than it might otherwise have been to see the legitimacy of the outcome to which in this appeal Mr Howard objects. It is true, as it is in other fields of law, that the penalty justly suffered by the wrongdoer goes with less obvious justice into the pocket of the victim. This is probably an inevitable by-product of a legislative scheme which grafts public-interest regulation on to private law remedies. It is equally possible in a regulatory system to make the wrongdoer answerable, in part or in whole, to a public authority; but the legislative choice here has been to leave the remedies within the framework of the law of debtor and creditor.
19. One might add to this two points stressed by Mrs Wilson. One is that in pawn transactions the debtor is particularly at risk because there is nothing to stop the pawnbroker selling the security in order to realise the amounts owed without resort to the courts, leaving it to the debtor to go to court if anybody is going to do so. The other is that the unenforceability of these contracts derives in large part from far from technical breaches. They include Mr Howard's entry into the agreements under a name in which he was not licensed to trade and the omission in other contracts of the identity of the lender.
20. In this situation, given the provisions of section 106, it seems to me that the judge was justified in adopting the claimant's account of the parties' mutual indebtedness, and that in all probability he was obliged to do so. The moral for a pawnbroker such as Mr Howard is that if he wants the rewards of his trade he must operate strictly by the book, and that the result of failing to do so may be not merely to unravel agreements, but to reverse the indebtedness that they have purportedly created."
Application to the present case
"… a refinancing transaction under which the parties agree not merely to vary the original agreement by rescheduling the terms but to apply the credit under the new agreement to settle the indebtedness under the old agreement will constitute a novation, the earlier agreement being terminated and not merely varied."
"… what effect each one has upon its successor and what effect it has upon all the circumstances of the case." (para 26B)
There follows the first passage on which Mrs Wilson relies (para 26B), in which he considered the relationship between the successive agreements, holding that -
"… the parties intended to enter into a new Agreement on each occasion. The successor Agreements were not modifying Agreements which varied the earlier Agreement. They were free-standing Agreements… I find that each of these Agreements stands alone and is not affected in its terms, particularly as to the stated amount of the credit and of interest, by the predecessor Agreement…." (para 26B)
He held therefore that it was necessary to look at each agreement separately, for the purpose of determining the nature of its defects, and whether it would be just to enforce it. He accepted the argument of Mrs Wilson, which he described as "ingenious" to the effect that –
"… the pawnbroker must be taken to know the law and be required to return the amount of the loan and interest forthwith to her"
"It was ambiguous because I had not appreciated initially that the loan was not re-paid by the Claimant on each occasion upon which she renewed the Agreements, and therefore, the one loan sum was that which was advanced by the defendant…" (para 36)
It appears from the manuscript notes at the end of the judgment that there was a further post-judgment exchange between Mrs Wilson and the judge, as to whether the claimant had renewed her pledge "by paying the loan and interest" as apparently stated in the original judgment (para 3), rather than simply "by paying the interest" as in the version before us. The judge stated that he "accepted her submission" based on the form of the original pleadings.
Value of the ring
"… is that of the ring as it is rather than the cost of replacing it with a new one of similar characteristics".
He referred to Mrs Wilson's own evidence, which consisted of two letters giving estimates of replacement cost "in the region of £1,000 to £1,100"; he commented:
"Mrs Wilson did not even have any letters of instruction to these jewellers that might have enabled me, and more importantly the defendant, to examine the brief given to the writers of these letters. Mrs Wilson told me that she had orally described her grandmother's ring to them. On their own, I consider these letters to be of little persuasive value to me."
He noted, however, that the respondents had made an offer, based on an estimate obtained by them which gave an estimate of £550 to £600 plus VAT as the trade price for a replacement figure. They had offered to provide a replacement themselves, or pay £750 in full settlement of the claim. That offer had been withdrawn in September 2004, but the judge regarded it as suggesting that the figures quoted in Mrs Wilson's estimates were "not unreasonable". He concluded:
"Bearing in mind that she is not entitled to the replacement value, but the value of the old ring, I assess the value, doing the best I can, at £450, and this is the sum that I would have awarded to her on this aspect of the claim but for the terms of section 170(1)."
"(Section 170(1)) merely restricts sanctions (or remedies) in respect of the breach of a requirement made by or under this Act. In so far as an act or omission is also wrongful in some other respect, eg it is a breach of contract, or a tort, nothing in this section operates so as to prevent an action lying in respect of that civil wrong…"
"Nor… may a breach of the Act be treated as a breach of contract or as giving rise to any liability to make restitution of property or money. The intention of the section is, therefore, not merely to limit civil or criminal proceedings arising from a breach of the Act but… to deprive such a breach of any legal consequences other than those provided by the Act itself."
That is dealing simply with the consequences of a breach of the Act; it says nothing about remedies for common law wrongs outside the Act. Mr Cook also referred to us to the notes on section 65 ("Consequences of improper execution"), to the effect that "unenforceability" under section 65 "is normally the only direct sanction" against a creditor where an agreement is not properly executed:
"There is no question of the agreement being void against the debtor, or of his being released from his liabilities by reason of improper execution of the agreement without a court order."
Again that passage is not dealing with common law wrongs, and it says nothing about the consequences of the security becoming ineffective under section 106.
"In negligence, where a bailor complains of loss, destruction or damage, the compensatory rule will normally be satisfied by awarding him the cost of repair or replacement in the market; but where the chattel cannot be replaced by resort to the market, the bailor may recover the cost of having a substitute made, provided that is a reasonable course to adopt."
The principal authority cited is J & E Hall Ltd v Barclay  3 All ER 620. It is sufficient to quote the short headnote:
"The respondent company did work for the appellant in erecting and testing a pair of experimental davits. The davits and testing apparatus were then dismantled and kept by the respondent company for several years. A dispute arose over the non-payment of part of the appellant's account for work done, and a writ was issued. The appellant counter-claimed for damages for detinue or conversion of his davits and testing apparatus, which it transpired that the respondent company had sold as scrap. The judge awarded the appellant the scrap value of these articles as damages. On appeal:—
Held – the appellant was entitled to the value of the articles converted, which was ordinarily the price of similar articles in the market. As there was no market in the articles concerned, the measure of damages was the cost of replacement."
"Interest is payable in equity on the surplus proceeds of pawned goods from the date of their sale to the date of payment."
The judge ordered an enquiry –
"… as to what use was made by the defendant of the proceeds of sale and what return was obtained by him on those monies in order to determine the rate of interest to be applied."
"Mrs Wilson… said quite frankly that she was not really in a position to argue this point properly."
Before us, the argument had not advanced beyond generalities. It is now too late for her to pursue this point.