COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM CARDIFF DISTRICT REGISTRY
HIS HONOUR JUDGE CHAMBERS QC
Strand, London, WC2A 2LL
B e f o r e :
LORD JUSTICE LAWS
LORD JUSTICE LAWRENCE COLLINS
| CONISTER TRUST LIMITED
|- and -
|JOHN HARDMAN & CO
|- and -
|McCLURE NAISMITH (a firm)
WordWave International Limited
A Merrill Communications Company
190 Fleet Street, London EC4A 2AG
Tel No: 020 7404 1400, Fax No: 020 7831 8838
Official Shorthand Writers to the Court)
Mr Richard Mawrey QC and Mr Toby Riley-Smith (instructed by New Law Solicitors) for the First Respondent/Claimant
Mr Neil Hext (instructed by Herbert Smith LLP) for the Second Respondent/Second Defendant
Hearing date : June 17, 2008
Crown Copyright ©
Lord Justice Lawrence Collins:
II The agreements
"The Borrower shall repay the aggregate of the Advances drawn down and outstanding with all interest due under this Agreement on the Repayment Date. Time of payment is of the essence of this Agreement."
"The Borrower unconditionally and irrevocably authorises the Lender to instruct Ultra Insurance to pay all sums due to the Borrower under the terms of the Insurance Policy taken out by the Borrower with Ultra Insurance to the Lender in reduction or discharge of the Borrower's indebtedness under this Agreement."
"The Borrower hereby unconditionally and irrevocably authorises the Lender to accept payment from the Panel Solicitor on behalf of the Borrower out of damages or costs in respect of the Claim and hereby authorises and instructs the Panel Solicitor to make such payments to the Lender out of such moneys."
Panel Solicitor Agreement
"2.1 The Lender irrevocably authorises the Panel Solicitor to notify Ultra (and the Panel Solicitor undertakes to Ultra and the Lender that it shall notify Ultra) forthwith on the occurrence of any of the [six named events set out therein relating to the claim and relevant to the policy];
2.2 the Panel Solicitor shall ensure that each Borrower enters into a Conditional Fee Agreement with the Panel Solicitor;
2.4 the Panel Solicitor shall promptly submit a claim under the Insurance Policy on behalf of the Borrower."
"4. Repayment of the Advance
4.1 Forthwith upon recovery by the Panel Solicitor of any sums due to the Borrower in the Claim the subject of the Advance the Panel Solicitor shall pay all such sums received into the Solicitor's Client Account.
4.2 Forthwith upon receipt by the Panel Solicitor of costs and damages in the Claim the Panel Solicitor shall forthwith upon receipt of such costs and damages apply the moneys so received (including, without limitation, the Panel Solicitor's Basic Charges, Success Fee or other Disbursements) in discharge of the liability of that Borrower under the Consumer Credit Agreement and in priority to making any other payment to, or on behalf of, the Borrower, including any payments that may be due from the Borrower to the Panel Solicitor.
4.3 In the event that the Claim is an Unsuccessful Claim (as defined in the Insurance Policy), the Panel Solicitor will cause a claim to be made to the Insurance Company for payment of the Borrower's indebtedness under the Consumer Credit Agreement.
4.4 The Panel Solicitor on behalf of the Borrower irrevocably authorises the Lender to instruct Ultra to pay all sums due to a Borrower under the terms of the Insurance Policy to the Lender in reduction or discharge of the Borrower's indebtedness under the Consumer Credit Agreement.
4.5 In the event that after having concluded the Claim, having pursued any claim under the Insurance Policy and having received all monies due there remains any liability on a Borrower under that Borrower's Consumer Credit Agreement, then the Panel Solicitor undertakes with the Lender to forthwith discharge that Borrower's remaining liability to the Lender."
"The Panel Solicitor hereby warrants and represents to the Lender that:
5.1.4 the Conditional Fee Agreement contains an express provision whereby the Borrower irrevocably authorises the Panel Solicitor to repay any loans taken out by the Borrower in pursuit of the Claim either, in the event of a successful outcome, from the costs and damages awarded or, in the event of an unsuccessful outcome, from moneys paid under the terms of the Insurance Policy for the benefit of the Borrower."
III Consumer Credit Act 1974 ("the 1974 Act")
"An improperly-executed regulated agreement is enforceable against the debtor or hirer on an order of the court only."
"Where a security is provided in relation to an actual or prospective regulated agreement, the security shall not be enforced so as to benefit the creditor or owner, directly or indirectly, to an extent greater (whether as respects the amount of any payment or the time or manner of its being made) than would be the case if the security were not provided and any obligations of the debtor or hirer, or his relative, under or in relation to the agreement were carried out to the extent (if any) to which they would be enforced under this Act."
"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;"
"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."
IV The claim
V The judge's decision
1) Clauses 3 and 4 of the panel solicitor agreement were posited on the assumption that the credit agreement, as drafted, was compliant with the legislation, but that did not mean that its operation was agreed to be dependent upon the validity of the assumption (para 19);
2) The words "indebtedness" and "liability" carried no necessary implication of legal obligation but were simply a means of identifying sums of money in order that they could find a place in the ledger of account which was the product of the formula (para 20);
3) It had been decided in Wilson that the effect of the legislation was that the rights of the lender were extinguished in favour of the borrower; a liability could not exist without there being a corresponding right, and Wilson was binding authority to the effect that Conister had no rights under an unenforceable consumer credit agreement, and it followed that the borrower had no corresponding liability; and since Wilson was dispositive of the question of the legal definition of the word "liability" in the present context, for Conister to succeed it had to on a general construction point (paras 28, 30 and 31);
4) The effectiveness of the authorities granted by the client and to be operated by Hardmans had no bearing upon the proper construction of clause 4.5 (para 44);
5) It would be odd if clause 4.5 were to be read so as to deprive Conister of the recovery of a shortfall from Hardmans where the agreement was unenforceable because of conduct attributable to Hardmans (para 47);
6) Whatever the correct description of clause 4.5, it was not an obligation which stood or fell with the validity of the third party's obligation to the party seeking to enforce it (para 51);
7) Although it was arguable that it was an indemnity, it was not obvious that the discharge of the relevant indebtedness would have had the automatic effect of conferring upon Hardmans any rights held by Conister, and it was therefore difficult to argue that Hardmans were surrendering a valuable right in the event that the credit agreement was unenforceable (para 53);
8) Claims over by Hardmans against the client did not feature in anyone's approach to the scheme (para 54);
9) The credit agreement was clearly identified in the panel solicitor agreement, and its enforceability or lack of enforceability did nothing to change that identification; and the word "liability" in clause 4.5 was of the same colloquial convenience as was the employment of the words "debtor" and "creditor" in Lord Nicholls' speech (at ) in Wilson, and an incorrect assumption that the consumer credit agreement was compliant with the legislation did not alter the meaning of the words (para 55);
10) The obligation under clause 4.5 was not an unenforceable security for the purposes of section 113 of the 1974 Act (para 59).
VI Arguments on the appeal
Approach to construction
Assistance from the case law?
(1) Inability of solicitor to recover against client
(2) Conflict of interest
(3) Unenforceability caused by solicitor's conduct
Two points of law on the 1974 Act
(1) Section 113
(2) Section 170(1)
VIII Overall conclusions
Lord Justice Laws:
Lord Justice Waller: