Goldhill Finance Ltd v Berry

Mortgage – Possession – Unfair relationship – Claimant seeking repayment of moneys due from defendant under loan facility –Claimant taking possession despite court order suspending warrant of possession– Claimant bringing claim for balance of monies owed –Claimant applying for summary judgment –Whether unfair relationship between parties under Consumer Credit Act 1974 arising out of way security enforced – Claim allowed In May 2015, the claimant offered the defendant a loan of £170,827.03, repayable in full by 25 September 2015. The defendant executed a legal charge over Flat 8, 10 The Grange, London SE1 as security for the loan. In default, interest was payable on the outstanding amount at 5% per month compounded. The loan was not repaid. The claimant imposed the default rate of interest from 25 September 2015. The claimant issued proceedings for possession of the flat and repayment of the total outstanding amount. On 3 February 2016, it obtained an order for possession of the flat, with the money claim being adjourned. Before the warrant of possession was due to be executed, a tenant of the flat applied for time to find alternative accommodation. That application was dismissed but the claimant agreed to the warrant of possession being executed on 23 August 2016. The defendant applied for a stay of the warrant of possession on the basis that contracts had been exchanged for the sale of the property with completion to take place in four weeks. The district judge made an order staying the warrant of possession until 19 September 2016. The property was vacated on 22 August and, despite the order suspending the warrant, took possession of the flat the next day purportedly under its common-law right. The defendant applied to the court to re-enter the flat on the grounds that the claimant had taken possession despite the court order. That application was dismissed. The claimant sold the flat for £525,000 and applied the net proceeds of sale to the loan. The money claim was reinstated and the claimant applied for summary judgment and an interim payment. The court was asked to decide whether there was an unfair relationship between the parties due to the circumstances in which the claimant took possession and, if so, determine the appropriate order. Held: The claim was allowed. (1) Section 140A of the Consumer Credit 1974 dealt with unfair relationships between creditors and debtors and was deliberately framed in wide terms. It was not possible to state a precise or universal test for its application, which depended on the court’s judgment of all the relevant facts. What had to be unfair was the relationship between the debtor and the creditor. Although the court was concerned with hardship to the debtor, section 140A(2) envisaged that matters relating to the creditor or the debtor might also be relevant. There might be features of the transaction which operated harshly against the debtor but it did not necessarily follow that the relationship was unfair. Those features might be required to protect a legitimate interest of the creditor. The alleged unfairness had to arise from one of the three categories listed at sub-paragraphs (a) to (c). The great majority of relationships between commercial lenders and private borrowers were probably characterised by large differences of financial knowledge and expertise. It was an inherently unequal relationship. But it could not have been Parliament’s intention that the generality of such relationships should be liable to be reopened for that reason alone:Plevin v Paragon Personal Finance Ltd[2014] UKSC 61, [2014] 1 WLR 4222 considered. (2) If a mortgagee decided to attempt possession without a court order, but discovered that it could not do so, it could not be prevented from proceeding through the courts. However, the position was different if a mortgagee decided to seek possession via the courts and an order pursuant to section 36 of the Administration of Justice Act 1970 was made. Once a mortgagee had started court proceedings, the court might regulate the existence of the right to possession (under section 36), and whilst the common law right was not extinguished, it could not be enforced. Whether the district judge was right or not to have suspended the warrant of possession was immaterial. The order suspending the warrant was made and it was not in those circumstances open to the claimant to take possession the following day purportedly exercising its common-law right. Once court proceedings had started and an order under section 36 had been made suspending the warrant, it was no longer open to the mortgagee to exercise its common law right to possession. It was anomalous and undesirable to protect mortgagors against eviction by court process yet leave them open to eviction by self-help, particularly if the mortgagee’s right to use self-help continued notwithstanding that he had applied to the court for immediate possession and been refused. Section 36 had no application where a mortgagee took possession under its common law rights having chosen not to pursue possession in the court. In all the circumstances, the taking of possession by the claimant created an unfair relationship: Ropaigealach v Barclays Bank PLC[1998] PLSCS 331; [2000] 1 QB 263 distinguished. (3) Section 140B gave the court wide powers in relation to unfair relationships. They included varying the agreement, discharging any obligation under it, ordering the repayment of money to the debtor, cancelling or reducing interest and requiring the creditor to do anything else that the court considered necessary. Under section 140A(2), the court had to take account of all relevant matters. In the present case, the correct order should be based on the assumption that the sale would have completed on 16 September, and to award the claimant the amount which would have been due on that date, less the sale proceeds and less the amount of £9000 which had been paid by the defendant to the claimant. There was no reason to impose an order depriving the claimant of interest to which it was entitled simply because it acted wrongly, on advice, in circumstances in which it had remained out of pocket for some considerable time. On the other hand, the claimant was not entitled to interest until January 2017, when the sale completed, having acted as it did in August 2016 and deprived the defendant of the chance to complete a sale which would have completed on 16 September 2016. There would be judgment for the claimant in the sum of £40,100.52 plus contractual interest. Anthony Pavlovich (instructed by Sydney Mitchell LLP, of Birmingham) appeared for the claimant, Stephen Boyd (instructed by Direct Access) appeared for the defendant. Eileen O’Grady, barrister Click here to read transcript: Goldhill Finance Ltd v Berry