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England and Wales Court of Appeal (Civil Division) Decisions
You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> Rahman v Sterling Credit Ltd [2000] EWCA Civ 222 (20 July 2000)
URL: http://www.bailii.org/ew/cases/EWCA/Civ/2000/222.html
Cite as: [2001] 1 WLR 496, (2001) 33 HLR 63, [2001] WLR 496, (2001) 81 P & CR DG4, [2000] EWCA Civ 222, [2000] NPC 84
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Case No: B3 /1999/1282
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM BOW COUNTY COURT
HIS HONOUR JUDGE BRADBURY
Royal Courts of Justice
Strand, London, WC2A 2LL
Date: 20th July, 2000
LORD JUSTICE SIMON BROWN
LORD JUSTICE MUMMERY
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SAIF RAHMAN |
Appellant | |
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STERLING CREDIT LIMITED |
Respondent |
(Transcript of the Handed Down Judgment of
Smith Bernal Reporting Limited, 190 Fleet Street
London EC4A 2AD
Tel No: 0171 421 4040, Fax No: 0171 831 8838
Official Shorthand Writers to the Court)
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Mr John McDonnell QC & Mr Colin Ishmael (instructed by Messrs Jay Vadher & Co, DX 52196, Forest Gate for the Appellant)
Mr S J Neville (instructed by Messrs JW Godfrey & Co, DX 80862, Berkhampstead for the Respondent)
Judgment
As Approved by the Court
Crown Copyright ©
LORD JUSTICE MUMMERY:
The Appeal
This is an appeal from an order made by HHJ Bradbury in the Bow County Court on 11 October 1999. He upheld the order of District Judge Naqvi on 23 December 1998. By that order the District Judge dismissed Mr Saif Rahman's application to set aside an order for the possession of 26 Lawrence Road, London E6 (the Property), which is jointly owned by Mr Rahman and his wife. The possession order was made as long ago as 19 November 1990 on the application of Greyhound Credit Limited (Greyhound), as mortgagees of the Property. The District Judge also dismissed Mr Rahman's application for leave to serve a counterclaim seeking to re-open a loan transaction with Greyhound as an extortionate credit bargain under section 139 of the Consumer Credit Act 1974. The District Judge gave leave for the issue of a warrant of execution.
The Issues
The main questions on the appeal are
1. What is the limitation period (if any) applicable to an application to the court under section 139 ?
Under section 137 of the 1974 Act a court which finds a credit bargain extortionate may reopen it to do justice between the parties. Under section 139 (1) (b) the court may exercise that power at the instance of the debtor in any proceedings to which the debtor and creditor are parties, "being proceedings to enforce the credit agreement, any security relating to it, or any linked transaction." In reopening the transaction the court may, for the purpose of relieving the debtor from payment of any sum in excess of that fairly due and reasonable, direct accounts to be taken, set aside the whole or any part of any obligation imposed on the debtor by the credit bargain, require the creditor to repay the whole or part of any sum paid under the credit bargain and alter the terms of the credit agreement or any security instrument: section 139 (2). Subsection (4) provides that
"An order under subsection (2) shall not alter the effect of any judgment."
According to a long line of reported decisions of District Judges the relevant period of limitation for such an application is six years from the date of the credit bargain. This is challenged by Mr John McDonnell QC, on behalf of Mr Rahman. He contends that the correct period for a counterclaim making this application is twelve years from the date of the credit bargain sought to be re-opened.
2. What is the effect of a possession order, which remains unexecuted, on the ability of the borrower, Mr Rahman, to make a counterclaim invoking the court's powers under section 139 ?
Mr Neville, on behalf of the lenders, contends that it is not legally possible to make such a counterclaim after the possession order has been made, because the action has come to an end on the making of the order, the lenders have ceased to be claimants and there is no longer any claim by the lenders to which Mr Rahman can respond by way of counterclaim under CPR Part 20.
3. If it is permissible to make a counterclaim, notwithstanding the prior making of the possession order, ought the court to exercise its discretion to grant permission under CPR Part 20 to Mr Rahman to serve a counterclaim in this action ?
This is opposed by the lenders on the grounds of estoppel (in its extended Henderson v. Henderson form), culpable delay by Mr Rahman and substantial prejudice to them.
The Facts
On 5 October 1989 Greyhound made an agreement in writing with Mr Rahman and his wife to advance the sum of £5,000 to be repaid over 5 years by 60 monthly instalments of £156.30 capital and interest. The rate of interest on the outstanding balance was 32.1% . The loan was secured by a Legal Charge on the Property on the same day to secure all moneys owing to Greyhound under the Loan Agreement. On 28 April 1995 Greyhound assigned the Legal Charge to the Respondent, Sterling Credit Limited (Sterling), which has been substituted as a party to the proceedings.
The Rahmans fell into arrears with the monthly payments. Default notices were served. A letter before action was sent. A summons for possession was issued on 2 October 1990 and served. There was no claim for a money judgment. On 12 November 1990 an order was made for delivery up of possession of the Property by 10 December 1990. There was no adjudication by the court on the issue of the amount of the monies owing to Greyhound. The Rahmans did not attend the hearing.
The Rahmans are still in possession of the Property. Appointments to enforce warrants for possession have been met by last minute payments. On 1 March 1993 Mr Rahman applied to suspend a warrant for possession. His application was dismissed. When an attempt was made to enforce the warrant on 2 March Mr Rahman paid the bailiff £750, the warrant was withdrawn and enforcement was not proceeded with. Monthly instalments continue to be paid and accepted. A total of about £14,000 has been paid, but it is estimated that £13,000 is still owing to Sterling.
The Proceedings
On 24 April 1998 Mr Rahman applied to the County Court to set aside the possession order and the warrant for possession and for leave to file a defence and counterclaim alleging for the first time that the 1989 loan was an extortionate credit bargain and seeking an order under section 139 of the 1974 Act.
District Judge Naqvi dismissed that application on the grounds that any order under section 139 could not affect a judgment, such as the possession order, by reason of section 139 (4); that after such a length of time it was not appropriate to set aside the order under CCR 37 (judgment given in absence of a party); and that the 8 years delay in raising the section 139 point was fatal to the possibility of a fair trial of an application to re-open the loan agreement. The District Judge referred to authority on the question of limitation, but added that he did not have to consider that question. He also mentioned the question of issue estoppel, but did not express any conclusion on the point.
On the unsuccessful appeal to HHJ Bradbury it was accepted on behalf of Mr Rahman that there was no longer a challenge to the possession order or to the warrant for possession. Permission to file a defence was no longer sought by Mr Rahman. It was and is accepted that section 139 (4) prevents the court from disturbing the possession order at present, but it was and is asserted that neither the subsection nor the possession order itself is an impediment to the seeking of relief under section 139 (2) and then, if successful, seeking to set aside the possession order.
The only question on the appeal to HHJ Bradbury was a preliminary issue of law as to whether the extortionate credit bargain point could be raised by counterclaim in these proceedings or whether there would have to be a separate action in which Sterling would be entitled to raise the Limitation Act 1980.
The Judge found in favour of Sterling on that point. He dismissed the appeal. He based his decision solely on a preliminary point taken by counsel for Sterling on the authority of CSI International Co Ltd v. Archway Personnel [1980] 1 WLR 1069 that, as judgment had been obtained and the warrant for possession had been issued and could be enforced, the reality of the matter was that the case was concluded and that there was "nothing left to argue about" in the action. There was, in other words, no extant claim by Sterling to which Mr Rahman was entitled to respond by way of counterclaim in the action. The action had for all practical purposes come to an end. It was unnecessary in those circumstances for the judge to deal with arguments on limitation, estoppel, delay or discretion. He added that it was a matter for Mr Rahman whether he sought relief under section 139 by separate action.
Submissions on this Appeal
On this appeal Mr Rahman seeks permission to serve the proposed counterclaim on the ground that the possession action against him has not come to an end; that Sterling have not received satisfaction in that action, as he and his wife are still in possession of the Property; that they are entitled to reopen the 1989 agreement under section 139 by way of counterclaim in these proceedings, as they are "proceedings to enforce" the credit bargain and "a security relating to it" within section 139 (1) (b); and that he is not estopped in law or barred by the provisions of the Limitation Act 1980 from making an application under the 1974 Act .
Sterling's response is that a counterclaim in these proceedings is not permissible on the grounds that there is no longer any challenge to the possession order made nearly 10 years ago or to the warrant of execution; that it is now sought to raise the section 139 point for the first time in a counterclaim after judgment in the action has been obtained and after the action is over; that Sterling has thereby ceased to be a claimant,so that it is no longer possible for Mr Rahman to make a Part 20 Claim against Sterling; that there has been delay significantly prejudicial to Sterling in raising the extortionate credit bargain point; that the matter is res judicata (in the extended sense), as the point was relevant to the claim that there are arrears giving rise to a claim for possession and it should have been raised in the proceedings before the possession order was made; that the attempt to set aside the judgment has now been abandoned ; and that the section 139 application should be made, if at all, by separate action in which the limitation point can be raised and argued by Sterling on a strike out application.
The Legal Position
In my judgment this appeal should be allowed.
1. The Limitation Point
The limitation point was not decided by the District Judge. It was not even argued before the County Court Judge on appeal. Yet I would regard it as central to this appeal. If the application under section 139 is statute barred, that is the end of the matter, whether the application is sought to be made by counterclaim or by separate action.
No limitation period is stipulated in the 1974 Act. If there is a limitation period, it must be contained in the Limitation Act 1980.
Section 5 sets the time limit for actions founded on a simple contract.
"An action founded on a simple contract shall not be brought after the expiration of six years from the date on which the cause of action accrued."
Section 8 sets the time limit for actions on a specialty.
"(1) An action upon a specialty shall not be brought after the expiration of twelve years from the date on which the cause of action accrued.
(2) Subsection (1) above shall not affect any action for which a shorter period of limitation is prescribed by any other provision of this Act."
Section 9 sets the time limit for actions for sums recoverable by statute.
" (1) An action to recover any sum recoverable by virtue of any enactment shall not be brought after the expiration of six years from the date on which the cause of action accrued.
(2) ........"
The relevance of these provisions to applications under the 1974 Act has been the subject of a number of reported decisions of District Judges
On 25 January 1996 District Judge Skerratt decided the case of First National Bank plc v. Ann in the Colchester County Court. It is reported in [1999] Goode Consumer Credit Reports (CCR) at 2061. He held that section 8 of the Limitation Act did not apply to a counterclaim seeking relief under section 139, as the counterclaim was not an action on a specialty, and that section 9 did apply, as it was an action to recover a sum recoverable by virtue of the 1974 Act and the action in that case was brought (by way of counterclaim) more than six years from the date of the agreement. He accordingly struck out the defence and counterclaim.
That decision has been followed in the following cases: District Judge Arnold at the Aldershot and Farnham County Court in Ricketts v. Hurstanger Ltd [1999] Goode CCR 2223; District Judge Jenkins at the Caerphilly County Court in Heron v. First National Bank [1998] CLY 2495; Judge Phipps at the Oldham County Court in London North Securities Ltd v. Salt [1999] 3 CL 209; District Judge Coward at the Hitchin County Court in Hurstanger Ltd v. Wood [1999] 6 CL 288; and District Judge Taylor at the Bradford County Court in J & J Securities v. Khan [1999] 6 CL 496.
The decision in Ann was not followed by District Judge Buchan at the Dewsbury County Court in Homestead Finance Ltd v. Warriner [1997] CLY 961. He pointed out that in the case before him the debtors were not seeking only a sum of money from the creditor. They were seeking a whole range of alternative heads of relief available under section 139 (2). The later reported decisions have followed Ann in preference to Warriner, though with an expression of hope from one District Judge (District Judge Coward in the case of Wood) that a higher court might eventually settle the limitation question affecting claims under section 139.
This is the occasion for fulfilling that hope. The decisions cited are, with the exception of Warriner, incorrect to the extent that they hold that all claims under section 139 (2) are subject to a 6 year limitation period.
In a perceptive comment at the foot of the report of the decision in Ann Professor JL Yelland wrote
" .....there may well be cases in which the defendant has paid such a small part of the debt that a claim for repayment will not arise and the appropriate order will be to reduce the debtor's remaining liability. In such a case, section 9 would appear to be inapplicable, in which case section 8 would come into play. An action upon a specialty includes an action upon a statute (Collin v. Duke of Westminster [1985] QB 581) and the time allowed is twelve years from accrual of the cause of action. If the defendants in the present case had limited their application to relief in the form of discharge or reduction of the indebtedness they could have secured the benefits of the longer period allowed by section 8 and would not have been statute barred."
In Collin, which was concerned with the exercise by a tenant of the statutory right of enfranchisement under the Leasehold Reform Act 1967, the Court of Appeal held that the cause of action which the tenant had under the Act derived only from statute and as such was a claim upon a specialty for which the appropriate limitation period was that of twelve years provided by section 8 of the Limitation Act 1980. Mr McDonnell QC cited Oliver LJ at 601 G-H where he said
"The obvious and most common case of an action upon a specialty is an action on a contract under seal, but it is clear that "specialty" was not originally confined to such contracts but extended also to obligations imposed by statute."
Oliver LJ continued at 602 D-F
"It seems to me to be quite clear that in the instant case any cause of action which the applicant has derived from the statute and from the statute alone. Apart from the statutory provisions he could have no claim and it is only by virtue of the statute and the regulations made thereunder that there can be ascertained the amount of the purchase price to be paid under the statutory contract the terms of which can be gathered only from the sections of the Act and the Schedules."
That reasoning applies to the statutory right of a borrower to make application to the court under section 139. The cause of action arises out of and only out of those provisions of the 1974 Act. Apart from those provisions, Mr Rahman would have no right to have the loan agreement reopened in that manner.
It follows that, in so far as Mr Rahman seeks, whether by counterclaim or by separate action, to make a claim to reopen the loan agreement under section 139, that claim is not barred by limitation: that cause of action arose in 1989, less than twelve years ago. If he is successful in his claim the court may make an order relieving him in whole or in part from the obligation to make future payments. That in turn would make it necessary for the court to reconsider whether it was appropriate to leave the 1990 possession order in place.
If, however, Mr Rahman were to claim repayment of sums of money already paid by him under the credit bargain, an objection could be raised that section 9 applies. The limitation period would be 6 years. Mr McDonnell QC stated that the counter claim would be amended to exclude any claims for repayment of monies.
Sterling is not entitled to object to the counterclaim to re-open the credit bargain on the ground that it will give to Mr Rahman an advantage on limitation which he would not have if he had to make the application under section 139 by separate action. Mr Neville initially submitted that permission to serve a counterclaim should be refused since otherwise Sterling would be deprived of the right to argue the limitation point against Mr Rahman on an application to strike out any new action. But he came to recognise that that right is worthless, if the particular claim made under section 139 (2) is not statute barred . Sterling would lose nothing worth having, if I am right in the view that an application to reopen the transaction and to relieve Mr Rahman from the obligation to make future payments is not statute barred.
2. The Possession Order Point
In my judgment the fact that the possession order has been made and that there is no present claim to have it set aside does not affect the power of the court to permit Mr Rahman to make a counterclaim for relief under section 139.
In CSI (supra) it was held that the defendants were unable to serve a counterclaim on the plaintiffs after the plaintiffs had obtained summary judgment in respect of a dishonoured cheque and had been paid in full the amount of the judgment debt, with interest and costs. Roskill LJ said at 1075 C-E that he rested his decision on "this simple point"-
"...where a counterclaim, even if it has previously been raised, has not been the subject of a summons for directions or when required of a formal pleading before the time when the plaintiff has received full satisfaction of the judgment which he has obtained against the defendants, I do not think there is still extant any action by the plaintiffs in which the defendants could properly counterclaim against them. The action had, for all practical purposes, come to an end when satisfaction of the judgment had been obtained."
Mr Neville attempted to distinguish CSI as a decision on the special provisions on summary judgment in RSC O 14 rule 3 (2) and contended that, in any event, on the facts of this case the judgment had been satisfied.
I do not accept those submissions. The real question is whether the action is at an end, so that there are no longer any proceedings by the claimant to which defendant can respond with a counterclaim. This action is not at an end. Mr Rahman and his wife are still living in the Property. Sterling continue to accept monthly instalments. Sterling have not yet obtained possession of the Property. They cannot do so without a further application to the court for a warrant of execution, the existing one having expired at the end of twelve months and more than six years has elapsed since the possession order was made: CCR O 26 rule 5 (i) (a) and Hackney LBC v. White 28 HLR 219. Although judgment for possession has been obtained, it has not been satisfied and it cannot be satisfied without a further application to the court for a warrant of execution. Such an application would be proceedings to enforce the security relating to the credit bargain within the meaning of section 139 (1) (b).
Mr Neville drew the court's attention to section 139(4) and submitted that, whatever order was made under section 139(2), it could not alter the effect of the judgment for possession. That provision reflects the decision of Finlay J in Cohen v. Jonesco [1925] 1 KB 119 that the statutory jurisdiction to reopen a transaction between parties does not enable the court to reopen a transaction which has been the subject of a judgment between the parties. It is accepted that Mr Rahman is not at present entitled to seek an order under section 139 to set aside the possession order. But the subsection does not prevent him from obtaining relief of a kind which is not the subject of a judgment which has already been given in the action e.g. relief from future liability to make payments under the impugned credit bargain.
3. The Discretion Point.
Although the judgment of the District Judge was given before the Civil Procedure Rules came into effect, the judgment of the County Court Judge was given after the 26 April 1999 and the CPR apply to the determination of the appeal in this court: Biguzzi v. Rank Leisure plc [1999] 1 WLR 1926. Mr Rahman requires the permission of the court to make his counterclaim under Part 20:CPR 20.4. In deciding whether that claim should be dealt with in separate proceedings the court may have regard to the matters specified in CPR 20.9 These provisions are subject to the overriding objective in CPR Part 1. In my judgment, this is a case in which it is appropriate to grant permission to make a counterclaim rather than to direct that the issue of the section 139 application be made by separate action. There is a connection between the claim for the enforcement of the charge taken to secure the money advanced under the credit bargain in respect of which Mr Rahman seeks relief. The credit bargain, which is the subject matter of the proposed counterclaim, is also part of the subject matter of the mortgagees' claim for enforcement of their security rights in order to secure payment of the sums due under that agreement. The counterclaim under Part 20 will be more effective than a separate action in enabling the court to deal with the case justly in the interests of both parties, having regard to saving expense and ensuring expeditious and fair dealing with the case. As the limitation point has been decided against Sterling, a separate action would only involve further expense and delay without conferring any legal or practical benefit on Sterling.
As for delay in raising the counterclaim I would not regard that alone as a reason for refusing permission to seek to reopen the credit bargain for the future. It would, however, be open to the court on the trial of the counterclaim to have regard to the delay in deciding whether it was possible to do justice between the parties by reopening the credit transaction and in deciding whether it was just to set aside the whole or part of any obligation imposed on Mr Rahman.
In my judgment permission under Part 20 should not be refused on the ground of issue estoppel. The issue of the extortionate credit bargain has not in fact been in determined in this action. It was not raised for decision in the claim for possession which Greyhound and Sterling were always entitled to as legal chargees. It is true that the counterclaim to reopen the transaction could have been raised earlier in this action, but, as already explained, the action is still extant. This is not one of those cases where a party seeks to raise in a new action an issue which could and should have been properly raise for decision in an earlier action which has already been tried.
I would therefore allow the appeal and grant permission for the service of a counterclaim applying for the reopening of the credit bargain of 1989. I would invite submissions from counsel on the precise wording of the order and on directions for the future conduct of the proceedings, as well as on the question of payments of instalments pending the trial of the counterclaim.
Lord Justice Simon Brown
- I agree
Order: appeal allowed. Permission granted for service of counter claim applying for the re-opening of the credit bargain of 1989. Counter claim to be served by 3rd August. Defence to counter claim 14 days. Reply to defence to counter claim, if any, 14 days. Case management conference first open date thereafter. In respect of costs before the district judge and the circuit judge, no order for costs. Appellant to have costs of appeal. Respondents are not to recover any part of their costs in respect if any of the proceedings in respect of this issue before all three counts under the contractual provisions. Agreed minute of order to be lodged with the court.
(Order does not form part of approved judgment.)