COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM WOOLWICH COUNTY COURT
His Honour Judge Welchman
Strand, London, WC2A 2LL Friday 20th July 2001 |
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B e f o r e :
LORD JUSTICE CLARKE
and
MR. JUSTICE MAURICE KAY
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WATCHTOWER INVESTMENTS LTD. |
Appellant |
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- and - |
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PAYNE AND ANOTHER |
Respondents |
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Smith Bernal Reporting Limited, 190 Fleet Street
London EC4A 2AG
Tel No: 020 7421 4040, Fax No: 020 7831 8838
Official Shorthand Writers to the Court)
Mr. Tristram Hodgkinson (instructed by Messrs Hudgell and Partners of Woolwich for the Respondents)
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Crown Copyright ©
PETER GIBSON L.J.:
"If this or any other mortgage is in arrears [Watchtower] may repay any prior mortgage in part or in its entirety .... All money spent in doing so (including all costs and disbursements on an indemnity basis) shall be added to the loan to which this Legal Charge relates...."
"(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]."
"(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."
"(1) A transaction entered into by the debtor .... with any other person ("the other party"), except one for the provision of security, is a linked transaction in relation to an actual or prospective regulated agreement (the "principal agreement") of which it does not form part if -
(a) the transaction is entered into in compliance with a term of the principal agreement ...."
"(1) The Secretary of State shall make regulations containing such provisions as appear to him appropriate for determining the true cost to the debtor of the credit provided or to be provided under an actual or prospective consumer credit agreement (the "total charge for credit") and regulations so made shall provide -
(a) what items are to be treated as entering into the total charge for credit, and how that amount is to be ascertained;
(b) the method of calculating the rate of the total charge for credit.
(2) Regulations under subsection (1) may provide for the whole or part of the amount payable by the debtor or his relative under any linked transaction to be included in the total charge for credit, whether or not the creditor is a party to the transaction or derives benefit from it."
I will come to the Regulations made thereunder shortly.
"(1) A regulated agreement is not properly executed unless -
(a) a document in the prescribed form itself containing all the prescribed terms and conforming to regulations under section 60 (1) is signed in the prescribed manner both by the debtor .... and by or on behalf of the creditor ..., and
(b) the document embodies all the terms of the agreement, other than implied terms ...."
"An improperly-executed regulated agreement is enforceable against the debtor ... on an order of the court only."
""transaction", except in regulation 5 (1)(c) below, means an agreement, any transaction which is a linked transaction by virtue of section 19 (1)(a) of the Act, .... any credit brokerage contract relating to the agreement and any other contract to which the debtor or a relative of his is a party and which the creditor requires to be made or maintained as a condition of the making of the agreement ...."
"For the purposes of the Act, the total charge for the credit which may be provided under an actual or prospective agreement shall be the 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 below."
"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;
(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."
"If either of these transactions were [sic] linked transactions then the APR was not 38% but considerably more and other consequences follow."
Thus the Judge was indicating that in his view the answer to the question whether each payment was a linked transaction also answered the question whether that payment fell within the total charge for credit.
"The conclusion I reach is that the repayment of the arrears on the first charge was a linked transaction. There was a requirement that the arrears be discharged and the means by which Watchtower could do that on the Paynes' behalf. There may be an element of doubt about the exact mechanism by which they were discharged. However, having regard to the clear purpose of this legislation, the terms of the legal charge and the credit agreement and the way in which the Paynes were effectively compelled to repay the arrears I come to the conclusion that this was a linked transaction within section 19 (1) and also a transaction within the meaning of the TCC regulations. It follows that the agreement is wholly unenforceable and that the possession and other orders made against the defendants must be set aside as of right."
(1) the payment of arrears was neither a linked transaction nor a charge for credit;
(2) the limitation period for a claim that a credit bargain is extortionate is 6 years;
(3) the ticking of the "Yes" box in answer to question 10 in Form N11M was not the entering of a Defence and there was no duty thereby placed on the court to be proactive and discover whether there was a serious issue to be tried; and
(4) it was an abuse of process for the Paynes to raise points which were not put forward in the previous possession proceedings which resulted in possession orders against them.
"'Other charges'" By 'other' is meant charges other than interest under the credit agreement .... 'Other charges' thus covers non-interest charges payable under the credit agreement itself (eg a finance charge on a hire-purchase agreement or a charge unrelated to the time-value of money, such as a commitment fee, a documentation fee or a redemption fee) and interest or charges payable under any other contract forming part of the transaction. 'Charges' is not defined, but in the context of the TCC [Regulations] 1980 would appear to denote as its natural meaning payments enacted for the provision of services or the grant or use of facilities related to the subject matter of the credit agreement, as opposed to the purchase price of land or goods under that agreement or amounts under some other agreement forming part of the transaction which relate solely to what is to be provided under that other agreement and are unrelated to what is being provided under the credit agreement. So if the debtor is required to pay survey fees, land registry fees, legal costs, stamp duties, or installation charges, or is required to enter into ancillary contracts for the installation, maintenance or insurance of the subject matter of the credit agreement involving servicing charges or insurance premiums, all these are encompassed within the term 'charges' and have to be brought into the computation of the total charge for credit if payable 'under the transaction', unless excluded by reg 5. On the other hand, where the debtor buys goods on credit or borrows money to be applied to a particular purchase, it is obvious that the purchase price does not constitute 'charges' but represents the amount of the credit itself, for to treat the purchase price as forming part of the total charge for credit would lead to the absurdity of a credit agreement in which no credit was provided at all! Again, where the debtor is required, as a term of the credit agreement, to buy goods which the creditor does not finance (eg a safe in which to keep jewellery financed by the credit) or to mortgage or charge a lease of the debtor's property to the creditor as security, neither the purchase price of the goods nor the rent or service charges payable under the lease form part of the total charge for credit, for they are not liabilities incurred in connection with anything provided by the credit agreement but are sums payable exclusively in respect of a different subject matter."
"(5) Any first mortgage and/or second or subsequent charges subsisting upon completion must be discharged out of the advance."
The loan agreement contained as one of the "Conditions of Loan"
"The Borrower hereby authorizes and directs the Lender forthwith to make on the Borrower's behalf out of the Principal Sum the payments set out in paragraph J above."
Those payments were sums totalling nearly £11,000 in discharge of the first and second mortgages, £4,500 to brokers, nearly £3,000 interest on the loan and a balance to the borrowers of merely £65.49. The borrowers at a time when the loan was expected to be £25,000 had agreed by a separate agreement to pay the brokers £5,000 as an arrangement and service fee. £4,500 represented the reduced fee payable in respect of the reduced loan.
"The brokerage fee was in truth payable under the credit brokerage contract between the borrowers and the brokers, which was not an 'agreement' within the meaning of regulation 1 (2). The lenders acceded to the borrowers' request simply as a matter of convenience for the borrowers."
Sir Christopher noted subsequent changes to regs. 1 (2) and 5 (1)(d) which has has the effect of including brokerage fees in reg. 4 (b).
"(a) Charges payable to the creditor under the credit agreement which are not payable for use of the financial accommodation as such but are merely designed to reimburse to the creditor expenses he incurs in connection with the transaction, eg survey fees, legal fees, stamp duties.
(b) Charges payable, whether to the creditor himself or to a third party, under a transaction separate from the credit agreement, being a transaction entered into by the debtor or a relative of his and required by the credit agreement to be entered into or maintained as a condition of making of the credit agreement. Into this category (subject to reg 5) would fall charges payable to the creditor or a third party under contracts for the installation, maintenance or insurance of the property or the goods the subject of the credit agreement, whether those contracts are entered into in compliance with the credit agreement or existed at the time when the credit agreement was made and are continued in compliance with it.
(c) Charges payable under any contract entered into by the debtor or a relative of his for the provision of security relating to the credit agreement – eg survey or valuation fees or legal costs payable under a charge on property given by the debtor's father as collateral security."
LORD JUSTICE CLARKE:
i) By section 60(1) of the Act the Secretary of State was required to make regulations as to the form and content of documents embodying regulated agreements. By the combined effect of section 60(1) and the Consumer Credit agreements Regulations 1983 a regulated agreement must state the amount of the credit and the rate of the APR.ii) By section 61(1)(a) a regulated agreement is not properly executed unless a document in the prescribed form itself containing all the prescribed terms and conforming to regulations under section 60(1) is signed in the prescribed manner both by the debtor and by or on behalf of the creditor.
iii) By section 65(1) an improperly executed agreement is enforceable only by an order of the court.
iv) Section 127 regulates the powers of the court to make enforcement orders under section 65(1) and by section 127(3) prohibits the making of such an order if section 61(1)(a) is not complied with unless a document itself complying with all the prescribed terms of the agreement was signed by the debtor.
v) For this purpose the prescribed terms of the agreement are those prescribed by reg 6(1) of the Consumer Credit (Agreements) Regulations 1983, which for this type of credit provides that the prescribed terms are those set out in column 2 of schedule 6. They include a term setting out the amount of the credit.
vi) It follows that unless either the agreement itself or some other document signed by the debtor correctly sets out the amount of the credit the court cannot make an enforcement order under section 65(1) and the agreement is unenforceable.
vii) By section 9(4) an item entering into the total charge for credit shall not be treated as credit. It follows that, if the amount paid to discharge the arrears on the first mortgage was part of the total charge for credit, it should not have been included in the amount of credit in the document signed by the debtor. The amount of the credit should have been shown net of the total charge for credit.
viii) The amount of the credit was in fact simply shown as £11,300, which it is common ground included the sum paid to discharge the arrears because the arrears were discharged out of the £11,300. The amount of the credit was thus not shown net of the amount paid by way of arrears. It follows that the agreement is unenforceable if the amount so paid is part of the total charge for credit.
ix) Section 20(1) provides:
"The Secretary of State shall make regulations containing such provisions containing such provisions as appear to him appropriate for determining the true cost to the debtor of the credit provided or to be provided under an actual or prospective consumer credit agreement (the "total charge for credit") and regulations so made shall provide –(a) what items are to be treated as entering into the total charge for credit, and how that amount is to be ascertained;
(b) the method of calculating the rate of the total charge for credit."x) By reg 3 of the TCC Regulations the total charge for credit is defined as the total of the amounts determined as at the date of the making of the agreement of such of the charges specified in reg 4 as apply in relation to the agreement but excluding the amount of the charges specified in reg 5.
xi) By reg 4 the "total charge for credit" includes:
"(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."xii) It follows that if the part of the credit used to discharge the arrears on the first mortgage was a charge payable under the transaction by or on behalf of the debtor to the creditor or any other person the agreement is not enforceable and the court has no discretion to make an enforcement order.
"On the other hand, where the debtor buys goods on credit or borrows money to be applied to a particular purchase, it is obvious that the purchase price does not constitute 'charges' but represents the amount of the credit itself, for to treat the purchase price as forming part of the total charge for credit would lead to the absurdity of a credit agreement in which no credit was provided at all."
I agree.
MR. JUSTICE MAURICE KAY: