Mortgage – Equity release – Consumer credit – Defendant company making equity release mortgage loans to individual borrowers – Defendant being required to provide statements in relation to fixed-sum credit agreements – Defendant providing non-compliant statements – Issue arising as to when non-compliant statement effective – Whether period of compliance beginning when non-compliant statement provided – Ruling in favour of defendant
The defendant company made equity release mortgage loans to individual borrowers all of which were fixed-sum agreements regulated by the Consumer Credit Act 1974 and were made before 1 October 2008. On 10 January 2008 the claimant and defendant entered into a mortgage sale agreement by which the defendant transferred the beneficial interest in the borrowers’ agreements to the Claimant; a servicing agreement under which the defendant continued to administer the borrowers’ agreements. By section 77A of the Act, creditors were required to provide debtors with statements in relation to regulated fixed-sum credit agreements, as prescribed by the Consumer Credit (Information Requirements and Duration of Licences and Charges) Regulations 2007.
For agreements made on or after 1 October 2008, the first statement had to cover a period of no more than one year beginning either with the day the agreement was made or with the day the first movement occurred on the debtor’s account. For agreements made before 1 October 2008, the first statement had to cover a period beginning no later than 1 October 2008 and ending no later than 30 September 2009. Subsequent statements had to relate to consecutive periods not exceeding one year. Both the first statement and each subsequent statement had to be given to the debtor within 30 days beginning with the day after the end of the period to which the statement related. If a creditor failed to give a statement, a “period of non-compliance” commenced, during which the creditor could not enforce the agreement, the debtor had no liability to pay interest calculated by reference to the period of non-compliance and the debtor had no liability to pay any default sum payable during the period of non-compliance or after the period ended in connection with any breach of the agreement during the period.
The defendant provided statements which failed to comply with the Regulations. It subsequently sought to bring the non-compliance to an end. New statements were prepared on the basis that the non-compliant statements had not been statements under section 77A so that the period of non-compliance began as if no statement had been given. The claimant disagreed about the start date for the non-compliance period and claimed that the statements, while non-compliant, had commenced on an earlier date, namely 31 days after the end of the period covered by the non-compliant statement. The claimant claimed that the period of non-compliance was still running and could only be brought to an end by the defendant serving further compliant corrective statements which correctly recalculated the figures. The court was asked to determine when the period of non-compliance commenced.
Held: A ruling was made in favour of the defendant.
Section 77A and the Regulations came into force on 1 October 2008 and section 77A was further amended by the Legislative Reform (Consumer Credit) Order 2008 and by virtue of the transitional provisions in article 5(1) applied to agreements “whenever made”. On the true construction of the Order, article 5(2)(b) only applied to the first period because of the words “as if” preceding art 5(a) and (b) of the Order. The use of those words seemed to mean, as a matter of construction, that (a) and (b) only applied for the first period. Thus, although the first statement for an old agreement could cover more than one year, subsequent statements would be governed by s 77A(1C) of the Act and had to cover a period of no more than one year.
A non-compliant statement was not a statement under section 77A at all and the defendant’s construction was correct. The requirement under section 77A(1) was that the debtor “must give the creditor statements under this section”. The Regulations set out what such a statement had to contain and provided by regulation 41 that where a notice or statement contained an error or omission which did not affect the substance of the information or forms of wording which it was required by the Regulations to contain, that notice or statement should not breach those Regulations on that ground alone. Thus any statement which could not be saved by regulation 41, and which breached the Regulations in a material way, was ineffective as a statement. A non-compliant statement was an invalid one. The words “statements under this section” should be given their natural and common sense meaning. That meaning was that “statements under this section” had to be statements which complied with the requirements of the section. They had to include the information required by the Regulations. In other words, the phrase “statements under this section” meant “section 77A statements”: Woodchester Lease Management Services Ltd v Swain & Co [1999] 1 WLR 263 and Ruddy v Oakfern Properties Ltd [2006] 3 EGLR 30; [2006] 49 EG 96 considered.
Fred Philpott (instructed by Allen & Overy LLP) appeared for the claimant; Malcolm Waters QC (instructed by Ashurst LLP) appeared for the defendant.
Eileen O’Grady, barrister
