England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE CCRT1 95/1842/G

(HIS HONOUR JUDGE BARBER )

Royal Courts of Justice

Strand

London WC2

Wednesday 23 October 1996

B e f o r e:

LORD JUSTICE ALDOUS

LORD JUSTICE BROOKE

- - - - - -

HUMBERCLYDE FINANCE LIMITED

Plaintiff/Respondent

- v -

ANTHONY GRANVILLE THOMPSON

EILEEN MARJORIE THOMPSON

(t/a A.G. THOMPSON a firm)

Defendants/Appellants

- - - - - -

(Computer Aided Transcript of the Palantype Notes of

Smith Bernal Reporting Limited, 180 Fleet Street,

London EC4A 2HD

Tel: 0171 831 3183

Official Shorthand Writers to the Court)

- - - - - -

MR J HORAN (Instructed by Drivers, York, Y01 2LB) appeared on behalf of the Appellants.

MR H JORY (Instructed by Eversheds, Leeds LS1 2JB) appeared on behalf of the Respondent

- - - - - -

J U D G M E N T

(As approved by the Court )

- - - - - -

©Crown Copyright

JUDGMENT

LORD JUSTICE ALDOUS: This is an appeal against the order of 22 november 1995 of His Honour Judge Barber, sitting in the Bridlington County Court, dismissing an appeal against the order of District Judge Hill of 2 March 1995. That order dismissed the application of Mr and Mrs Thompson, the appellants, to set aside the judgment in default of 31 August 1993 in the sum of £4,982.85 in favour of the respondent, Humberclyde Finance Limited.

To succeed in this appeal the appellants must establish that they have a defence which had a reasonable prospect of success, (see Alpine Bulk Transport Co Inc v Saudi Eagle Shipping Co Inc [1986] 2 LL R 221) and that this is a proper case for the court's discretion to be exercised in their favour.

The background facts are not in dispute. On 20 July 1989 the appellants purchased a Ford Sierra 4 x 4 with the aid of finance supplied by the respondent. After taking account of the sum allowed for part exchange, the balance of the total cash price of the car was £14,497.35. The appellants fell behind in their repayments and on 9 September 1992 the respondent repossessed the Sierra car without a court order and, according to the appellants, without their consent. The respondent accept that no court order was obtained, but contend that consent was given. On 26 April 1993 the respondent issued a summons for the amount due under the agreement. Taking into account the £7,200 that had been paid by the appellants, the amount claimed was £4,825.92. That summons was properly served, but the appellants failed to serve a defence, although they said they instructed solicitors to do so. As a result judgment in default was entered for £4,982.85, being the money due, the court fee and costs. It is not in dispute that that was a regular judgment.

On 12 September 1994 the appellants applied for the judgment to be set aside. After the filing of evidence the application came before District Judge Hill. The main issue before him concerned the construction of the Consumer Credit Act l974 and in particular whether the agreement was a regulated agreement within the Act. If it was, then the Sierra was protected from seizure without a court order or consent of the appellants. Further, if the appellants' evidence is accepted that consent was not given, section 91 of that Act applied with the result that the appellants were relieved of liability under the agreement and would be able to recover any money paid.

The District Judge refused to set aside the judgment. He concluded that the appellants' defence did not have a reasonable prospect of success. He decided that the agreement was not a regulated agreement within the Act as the credit given exceeded £15,000. In so doing, he accepted the respondent's argument that the agreement related to a provision of financial assistance of £14,497.35 for the car, and £796.05 for the payment waiver insurance premium, giving a total of £15,293.40, thereby exceeding the limit for a regulated agreement. He rejected the submission to the contrary, namely, that the £796.05 for payment of waiver insurance was not part of the credit provided.

The appellants appealed to His Honour Judge Barber who upheld the judgment of the District Judge. In his judgment of 22 November he concluded that the £796.05 was not a credit charge for the purposes of the Act and that the agreement was not regulated. He said at page 7D of the transcript:

"At the end of the day I have to exercise my common sense and I have come to the conclusion that the learned District Judge was quite right. I take the view that this £796.05 was indeed a totally ancillary matter, it did not constitute a charge for credit payable under the transaction. It is an entirely separate matter, it seems to me. And to be somewhat homely, perhaps, it can be looked upon, at least I think, as being analogous to somebody who takes an insurance option having purchased an item of electrical equipment, such as a fridge, to make sure that it gets repaired free of charge for the next five years. It is a totally ancillary matter, in my judgment at least.

It, therefore, does not become covered in the definition of charge for credit as being a charge payable under the transaction. It is a separate matter and therefore the sums added together indeed do come to £15,293.40 and therefore, this is, in my judgment at least, an Unregulated Agreement and I agree with the Judgment of the District Judge."

Mr Horan, who appeared for the appellants, submitted that the issues should be decided on the construction of the relevant legislation and not on common sense, as it appeared that the judge had done. Even so, the issues before this court are the same as were before the county court judge. They are: first, does the appellants' case have sufficient merit; secondly, if it does, should the court exercise its discretion in favour of the appellants?

1. MERIT:

A. Was the agreement a regulated agreement within the Consumer Credit Act ?

Section 8 of the Act defines regulated agreement in this way:

"(1) A personal credit agreement is an agreement between an individual (´the debtor´) and any other person (´the creditor´) by which the creditor provides the debtor with credit of any amount.

(2) A consumer credit agreement is a personal credit agreement by which the creditor provides the debtor with credit not exceeding [£15,000].

(3) A consumer credit agreement is a regulated agreement within the meaning of this Act if it is not an agreement (an ´exempt agreement´) specified in or under section 16."

It is not suggested that this agreement is an exempt agreement. Thus it was a regulated agreement if the respondent provided the appellants with credit not exceeding £15,000. Credit is defined in section 9(1) and (4) as follows:

"(1) In this Act ´credit´ includes a cash loan, and any other form of financial accommodation.

....

(4) For the purposes of this Act, an item entering into the total charge for credit shall not be treated as credit even though time is allowed for its payment."

Sections 90 and 91 provide for restriction of remedies for default. The relevant parts of those sections are as follows:

"(1) At any time when-

(a) the debtor is in breach of a regulated hire-purchase or a regulated conditional sale agreement relating to goods, and

(b) the debtor has paid to the creditor one-third or more of the total price of the goods, and

(c) the property in the goods remains in the creditor,

the creditor is not entitled to recover possession of the goods from the debtor except on an order of the court.

91. Consequences of breach of s 90

If goods are recovered by the creditor in contravention of section 90-

(a) the regulated agreement, if not previously terminated, shall terminate, and

(b) the debtor shall be released from all liability under the agreement, and shall be entitled to recover from the creditor all sums paid by the debtor under the agreement."

Section 20 is also relevant because it enabled the Secretary of State to make regulations containing provision for what items are to be treated as entering into the total charge for credit and the method of its calculation as referred to in section 9(4). The relevant regulations are the Consumer Credit (Total Charge for Credit) Regulations 1980. Regulation 3 provides that:

"For the purposes of the Act, the total charge for the credit....shall be that total of the amounts determined as at the date of the making of the agreement of such of the charges specified in regulation 4 below as apply in relation to the agreement, but excluding the amount of the charges specified in regulation 5."

Regulation 4 is in these terms:

"Items included in total charge for credit (1) Except as provided in regulation 5 below, the amounts of the following charges are included in the total charge for credit in relation to an agreement:-

(a) the total of the interest on the credit which may be provided under the agreement; and

(b) other charges at any time payable under the transaction by or on behalf of the debtor or a relative of his whether to the creditor or any other person,

notwithstanding that the whole or part of the charge may be repayable at any time or that the consideration therefor may include matters not within the transaction or subsisting at a time not within the duration of the agreement."

I need not read regulation 5 as it was agreed between the parties that the relevant items, namely the cost of the waiver option, did not fall within any of the items specified in that regulation. However this definition of "transaction" in regulation 1(2) is relevant:

"´transaction´, except in regulation 5(1)(c) below, means an agreement."

In the present case there is a dispute as to whether or not the car was repossessed with the appellants' consent but, for the purpose of this part of my judgment, I will assume that consent was not given. It follows that, if the agreement was a regulated agreement, the conditions set out in section 90(1) appear to have been complied with, with the result that section 91 applies.

The question for decision is whether under the agreement the respondent provided the appellants with credit exceeding £15,000. The word "credit" includes any form of financial accommodation. It excludes items included in the total charge for credit. That, according to the appellant, means that the waiver option payment was excluded as it was a charge "payable under the transaction" and, therefore, within regulation 4(1)(b).

Mr Horan submitted that the judge was wrong to conclude that there was more than one transaction. He submitted, not only was it clear from the Act and the regulations that the £796 odd was part of the total charge for credit, but also it was clear from the agreement that it was a regulated agreement. He drew attention to the heading of the agreement which was:

"Conditional sale agreement regulated by the Consumer Credit Act l974."

Lower down in a box, these words appeared:

"Repossession: Your rights

If you fail to keep to your side of this agreement but you have paid at least one third of the total amount payable under this agreement, that is £8,342.55, we may not take back the goods against your wishes unless we get a court order. (In Scotland we may need to get a court order at any time). If we do take them without your consent or a court order, you have the right to get back all the money you have paid under the agreement."

Underneath that there was another box in this form:

"This is a Conditional Sale Agreement regulated by the Consumer Credit Act 1974. Sign it only if you want to be legally bound by its terms."

Thereafter there was the signature of Mrs Thompson. At the bottom appeared these words:

"Payment Waiver Option

The customer elects to receive the benefit of the waiver set out in clause 9 overleaf. the Customer confirms that the Customer has read and accepts the terms thereof and understands that in the event of the Customer's declaration set out therein being found to be untrue the waiver shall not apply to this Agreement."

There appears the nominated name, which is that of Mr Thompson. Clause 9(a) is in this form:

"Payment Waiver

(a) If you have so elected if a Waiver Event occurs after the date of this Agreement the repayment of the balance of the Balance Payable remaining due under this Agreement (excluding any instalments in arrear at the date of the Waiver Event) will be waived by us subject to the terms set out below."

Mr Horan also drew to our attention the terms of the Particulars of Claim. Paragraph 2 of those particulars alleged that the agreement was regulated by the Consumer Credit Act 1974. Mr Horan submitted that upon that material there could be no doubt that the payment waiver option referred to in paragraph 9 of the agreement was part of the total charge for the credit as defined in regulation 4 as it was another charge payable under the transaction. It was not part of the credit as defined by sections 8 and 9 of the Act.

Mr Jory, who appeared for the respondent submitted to the contrary. He submitted that the words "Payable under the transaction in regulation 4(b)" meant that payment had to be made as a condition of entry into the agreement. Thus it followed that, because the payment was optional, the regulation did not apply. He therefore supported the judge's conclusion that there were two transactions giving credit of over £15,000.

Mr Jory also supported the judge who referred to the fact that interest was payable on both the loan to buy the car and the cost of the waiver option. He said that that supported his view and that of the District Judge. That submission I cannot understand. The fact that interest was paid on those sums does not throw light on whether the waiver option was a charge payable under the transaction and therefore formed part of the total credit charge, or was part of the credit provided.

To resolve this dispute, it is convenient to go back to the definition of "regulated agreement" in sections 8 and 9 of the Act, as the crucial question is "was the agreement a regulated agreement?". Such an agreement is an agreement between an individual and a creditor which provides the individual debtor with credit not exceeding £15,000. That credit has to be distinguished from the total costs for the credit as defined in the regulations. The words "Charges at any time payable under the day of transaction" in regulation 4(b) mean charges that the debtor is liable to pay under the agreement. In this case there was one agreement. As drafted, it was in a form to be completed so as to regulate the rights of the parties. It provided terms upon which the debtor could obtain waiver of the payments upon death of the nominated person. As signed, the agreement provided an advance of money to buy the car and agreement to the waiver of the repayments upon the death of Mr Thompson. There was one agreement with the result that the £769 odd paid for the waiver option was part of the total charge for credit. That being so, the agreement was a regulated agreement as defined in the Act.

I am comforted in the conclusion that I have reached from the support given in paragraph 1131 of The Consumer Credit Legislation by Professor Goode, which states:

"´Payable´ Does this word denote charges which the debtor is legally committed to pay, or does it signify all charges that are payable on the assumption that the debtor chooses to avail himself of the options, services or facilities to which they relate? It is thought that the latter is the correct interpretation of the regulations.....More generally, all charges for which the transaction provides, even if relating to services or facilities that are purely optional, fall within reg 4 and thus form part of the total charge for credit unless excluded by reg 5."

B. Was the car repossessed with the consent of the appellants?

On this there is a conflict of evidence which cannot be resolved at this stage of the proceedings. However, the evidence of the appellants is such as to give them a real prospect of success on this issue. I therefore conclude that the appellants have a real prospect of success which is sufficient to enable this court to set aside the default judgment.

2. DISCRETION

Mr Jory submitted that even if the court concluded that the appellants had a reasonable prospect of success in the action, the court should not exercise its discretion to set aside the judgment. He referred us to Savil v Southend Health Authority [1995] 1 WLR 1254 for the proposition that before a judgment would be set aside it was necessary for the person seeking the indulgence to give an adequate explanation for the delay. I accept that it is encumbent upon the person seeking the indulgence to explain in full the reasons for the delay and why the required action was not taken. However, each case has to be considered upon its facts.

The relevance of delay in a case which has been dismissed for want of prosecution, as was the case in Savil v Southend Health Authority , is very different to the case before us where a judgment was entered in default of defence. In such a case the overriding consideration is still that expressed by Bramwell LJ in Atwood v Chichester [1878] 3 QB 722 at 723:

"When sitting at chambers I have often heard it argued that when irreparable mischief would be done by acceding to a tardy application, it being a departure from the ordinary practice, the person who has failed to act within the proper time ought to be the sufferer, but that in other cases the objection of lateness ought not to be listened to, and any injury caused by the delay may be compensated for by the payment of costs. This I think a correct view."

The appellants carried on a farming business which was in receivership about the time of these proceedings. A failure to enter a defence, and the subsequent delay in seeking to set aside the judgment, was due, according to Mrs Thompson, to the negligence of her former solicitors and the difficulties that she and her husband had in sorting out the farming business.

It is unfortunate that 14 months passed before an application was made to set aside the judgment. However, that does not in my view prevent the court exercising its discretion to set aside the judgment in the circumstances of this case. Failure to do so could result in injustice. Further setting aside the judgment would not result in any prejudice to the respondent. In my view, justice requires that this default judgment shall be set aside so the dispute between the parties can be given proper consideration.

I would allow this appeal and make the appropriate order.

LORD JUSTICE BROOKE: The effect of exercising the payment waiver option meant that if the nominated person, Mr Thompson, died within the five year term of the conditional sale agreement, Mrs Thompson would not be liable to repay to the respondent the balance of the balance payable remaining due under the agreement, excluding any instalment in arrear on the date of his death.

We have been told by counsel that the concept of a payment waiver option is a relatively recent one and that there have been decided cases in courts in the United States, which academic writers in this country consider should be followed by English courts, to the effect that the exercise of such an option does not give rise to a contract of insurance, apparently because no benefit is paid to the customer if the fortuity occurs.

This point was not argued by counsel before us. Mr Jory had conceded it before the judge and did not seek to rely on the terms of regulation 5(1)(j), which exclude a premium under a contract of insurance, the making or maintenance of which is not required by the creditor as a condition of the making of the agreement, from the embrace of regulation 4, which is headed "Items Included in Total Charge for Credit".

It is difficult to see as a matter of policy why a premium waiver fee, which is not required by the creditor as a condition of the making of the agreement, should be treated as an item included in the total charge for credit and not excluded in the same way as the items in regulation 5(1) are excluded. It may well be that those responsible for these regulations may wish to consider, or reconsider, the appropriate status of a premium waiver fee as a consequence of this judgment. However that may be, we have to interpret the regulations as we find them and I agree with my Lord for the reasons he has given that the premium waiver fee was a charge payable under the transaction within the meaning of regulation 4(1)(b) and must therefore be treated as an item included in the total charge for credit.

Order: Appeal allowed. Appellants pay two thirds of respondent's costs of hearing before the District Judge on 2.3.1995. The Respondent to pay the costs of the appeal and those before His Honour Judge Barber. Order of District Judge to be set aside. Judgment entered on 31 August 1993 to be set aside. Liberty to defend. Defence to be filed within 21 days. £1400 to be returned to Appellants' solicitors and £1,837.50 the sum paid for security for costs.