Mortgage – Consumer Protection Act 1974 – Agreement in parts – Mortgage advanced to appellant on condition that existing mortgage paid off out of advance – Appellant defaulting on payments – County court making possession orders – Whether mortgage failing to comply with requirements of section 127(3) of 1974 Act – Whether amount of advance within statutory threshold – Whether agreement consisting of separate parts required to be considered as separate agreements – Appeal dismissed
In 2002, the respondent’s predecessor granted the appellant a mortgage advance of £28,932 to be secured by a first legal charge on her home. It was a condition of the mortgage that part of the loan would be used to discharge the appellant’s existing mortgage of £19,000. The appellant fell into arrears under the new mortgage and possession orders were made.
The appellant appealed. She contended that the court had no power to enforce the mortgage because it had not been properly executed in accordance with section 127(3) of the Consumer Protection Act 1974; although this provision was repealed in 2007, it continued to apply to mortgages made before that date. The nature of the transaction would determine which requirements would apply. The Act contained a number of definitions of different types of transaction, some of which were cumulative while others were mutually exclusive. The instant case concerned a transaction that fell within more than one “category of agreement”.
The appellant submitted that although the mortgage appeared, prima facie, to escape the consumer protection provisions of the Act, since it exceeded the then limit of £25,000, it amounted to a “multiple agreement” in two parts, each of which fell below that limit, namely: (i) an advance of £19,000 in the category of restricted-use credit within section 11(1)(c), which was to be used to redeem the existing mortgage; and (ii) the remainder, as unrestricted-use credit within section 11(2). She contended that each of those parts was to be treated, pursuant to section 18(2), as a separate consumer credit agreement regulated by the Act.
The High Court dismissed the appellant’s appeal, holding that the 2002 mortgage was not a multiple agreement of a type falling within section 18(1)(a) and was therefore enforceable. It held that although examples 16 and 18 in Schedule 2 to the Act conflicted with that construction of section 18, the latter prevailed and those examples were to be regarded as incorrect: [2009] EWHC 103 (Ch); [2009] 05 EG 107 (CS). The appellant appealed.
Held: The appeal was dismissed.
The purpose of section 18(1)(a) and (b) was to deal with disparate categories, not with compatible categories. The difference between them depended on whether the agreement, by its terms, fell to be treated as being in separate parts. If it did, it was right to treat the different parts separately and to apply the Act separately to each. If it did not, assuming that the Act applied, all its relevant provisions would have to apply cumulatively. Any agreement that came within section 18(1)(a), and therefore fell to be treated as two or more separate agreements, would also fall within section 18(1)(b) because each separate part would itself fall into two or more compatible categories.
In the instant case, the respondent had offered the appellant a single facility. It was to be secured by a first mortgage on the property, which was at the time subject to a mortgage in favour of a third party. It was a term of the loan agreement that any existing mortgage was to be redeemed out of the loan. Assuming, in the appellant’s favour, that the part of the credit that would be used to redeem the existing mortgage was restricted-use credit, nevertheless the agreement did not allow a conclusion that part of the agreement should be placed in one category (restricted use) and part in another (unrestricted use). It was a single agreement and could not be divided in that way.
The agreement was one whose terms placed the entire agreement in two relevant and disparate categories under the Act, so that section 18(1)(b) applied. It was not to be treated as two separate agreements and, because the amount of the credit provided exceeded £25,000, it was not a regulated agreement.
To the extent that examples 16 and 18 in Schedule 2 to the Act were inconsistent with that construction of section 18, the latter prevailed.
Bradley Say (instructed by Burton & Co LLP, of Lincoln) appeared for the appellant; Malcolm Waters QC and Jonathan Hough (instructed by Glenisters) appeared for the respondent.
Eileen O’Grady, barrister