Mortgage – Consumer Protection Act 1974 – Agreement in parts – Mortgage loan to appellant on condition that existing mortgage paid off out of advance – Appellant defaulting on payments – Possession orders made – Whether mortgage unenforceable for failure to comply with requirements of section 127(3) of 1974 Act – Whether amount of advance within threshold for application of Act – Whether an agreement in parts within section 18(1)(a) such that each part to be considered as separate agreement – Appeal dismissed
In 2002, the respondent’s predecessor made a mortgage advance of £28,932 to the appellant that was secured on her home. It was a condition of the mortgage that the appellant’s existing mortgage of £19,000 should be “paid off out of the Loan”. The appellant fell into arrears with her repayments under the 2002 mortgage and possession orders were made.
On appeal against those orders, the appellant contended that the court had no power to enforce the mortgage since it had not been properly executed in accordance with the requirements of section 127(3) of the Consumer Protection Act 1974; although this provision had been repealed in 2007, it continued to apply to mortgages that had been made prior to that date. She 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 in fact 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 refinance the appellant’s existing mortgage; and (ii) the remainder, as unrestricted-use credit within section 11(2). She argued that, pursuant to section 18(2), each part was to be regarded as a separate consumer credit agreement regulated by the Act.
Held: The appeal was dismissed.
Not all agreements that fell into two or more different categories would necessarily constitute an agreement in parts. Section 18 distinguished between an agreement that was in parts, within section 18(1)(a), and an agreement that, as a whole, fell into two or more different categories, within section 18(1)(b). The requirement to treat the categories as separate agreements under subsection (2), or to apportion the advance under subsection (4), arose only where the agreement was in parts. Where the agreement as a whole fell into two or more categories, it would instead be regarded as falling within each of those categories pursuant to subsection (3), and would be governed by the provisions of the Act only if the advance as a whole fell below the £25,000 limit. The Act required that the terms of the agreement should be addressed in order to determine whether it was in parts and, if so, whether those parts were in different categories. The terms of the agreement had to be construed objectively in the light of the admissible circumstances, without regard to the parties’ subjective intentions.
In the instant case, the loan under the 2002 mortgage had meant the total advance. There was one loan; the condition required only that the existing mortgage should be paid off out of that advance and not from a particular part. Moreover, had the appellant paid off the existing mortgage from another source, the total advance under the 2002 mortgage would have been the same. Although the 2002 mortgage could be regarded as falling within more than one category, no part of the agreement (as opposed to the agreement as a whole) could be identified as falling within one category rather than another. It was difficult to see from its terms how it could be split into parts: Dimond v Lovell [2002] 1 AC 384, NationalWestminster Bank plc v Story [1999] CCLR 70 and National Home Loans Corporation plc v Hannah [1997] CCLR 7 applied; Owen v Coxall [2004] CCLR 7 not followed. Consequently, the 2002 mortgage was not a multiple agreement of a type falling within section 18(1)(a) and was enforceable.
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 being incorrect.
Bradley Say (instructed by Burton & Co LLP) appeared for the appellant; Clifford Payton (instructed by Glenisters) appeared for the respondent.
Sally Dobson, barrister
