Wilson v Robertsons (London) Ltd

The Respondent is a jeweller and pawnbroker. Mrs Wilson was a customer between April 1995 and April 1999. Her claim related to 27 pawn broking agreements entered into during this period. It was common ground between the parties that all 27 agreements were regulated agreements for the purposes of the Consumer Credit Act 1974. She claimed that the agreements were defective under the Act, and therefore unenforceable or only enforceable by order of the court. She also claimed that, in particular because of the rate of interest payable, the agreements were exorbitant and contravened ordinary principles of fair dealing.

Her claim was issued in April 2001. It was stayed by the court pending the outcome of an appeal to the House of Lords in another of her cases: Wilson v First County Trust Ltd [2003] UKHL 40. In their decision dated 10^th July 2003, the House of Lords held that the statutory regime of the 1974 Act, albeit in some respects “drastic, even harsh, in its adverse consequences for a lender” (para 72), was not incompatible with the European Convention of Human Rights.

Following that decision, the stay on the present proceedings was lifted in November 2003, and the case came for hearing on April 2005 before HH Judge Rose. His judgment in turn was subject to an appeal before Laddie J in June 2005. The combined effect of those decisions was that the agreements were held to be both defective and extortionate. There was no dispute that Mrs Wilson was entitled in principle not only to retain the amount of the loans to her, but also to return of the pawned goods, and to repayment of interest previously paid by her. The Respondent had returned the goods under six of the open agreements in September, 2003. However, in respect of the seventh agreement (contract 81523), the pawned item – a gold signet ring engraved with her grandmother’s crest - had already been sold for its gold value (£19) in February 2000 and could not be returned.

The matter came before HH Judge Walker in December 2006 to determine the outstanding issues as agreed (para 14):

The agreement having been found to be unenforceable, what sums, both as to principal and interest, are to be repaid by the defendant to the claimant;

The amount of damages to be paid by the defendant as a result of the destruction of the gold ring pawned under an unenforceable agreement;

The amount of interest to be added to sums in paragraphs 1 and 2 as compensation for the delay caused by the stay of the claim;

The costs of the whole claim.

He determined both substantive issues (i) and (ii) in favour of the Respondent, and made orders in respect of interest and costs. Permission to appeal was granted by Hallett LJ on issues (i) and (ii). She did not grant permission on issue (iii), but indicated that the application could be renewed before us. We refused the application for reasons which I will explain later in the judgment. It was agreed that discussion of issue (iv) would await the decision on the substantive issues.

Seven items, or groups of items, were initially pawned in return for seven loans. But at the expiry of the period set by each initial agreement the loan was “renewed”, a word which I use at this stage purely by way of description. It is the correct characterisation of these “renewal” transactions which is at the heart of the main issue in the case.

As to the nature of the renewal arrangements, the judge referred to the evidence of Mrs Wilson herself, and of Mr Michaels and Mr Hall, respectively director and employee of the Respondent. He treated them as “incorporated” into the judgment. Mrs Wilson’s evidence was that she understood each renewal agreement as –

The agreements themselves were in standard form. There was no material difference between the initial agreement and the renewals. For example, agreement no. 61360, dated 22^nd May 1995 related to a loan of £400, secured by deposit of a Cartier watch. The agreement stated:

It should also be noted that in some of the cases the renewal arrangements were backdated. This was at the heart of one of the issues before Laddie J, and one of the reasons for declaring the agreements defective. He gave an illustration:

At the heart of the case is the interpretation of section 106(d) of the 1974 Act to the facts of the case. That section provides:

In relation to closed agreements, section 139 gives the court power, if it “thinks just”, to “reopen” an agreement which is “extortionate” (as defined by s 138). The court may make various forms of order, including directing “accounts to be taken”, for the purpose of “relieving the debtor or a surety from payment of any sum in excess of that fairly due and reasonable.”

Reference must also be made to the definitions of “security” and “surety” (s 189):

Also relevant are the provisions indicating when a security becomes “realisable”. Section 116 provides a minimum period of 6 months within which the pawn is redeemable. If the pawn has not been redeemed by the end of the redemption period, it “becomes realisable” (s 120). Where the pawn has become realisable, the pawnee may sell it having given notice as required by s 121.

Finally, in relation to the claim for the signet ring, the Respondent relies on section 170(1):

Mrs Wilson claims that, on its true legal analysis, each renewal was a “novation”, involving repayment of the original loan followed by the making of a new agreement for a loan of the same amount, secured by the redeposit of the same item.

The consequence, according to her argument, can be best seen from an example:

Mrs Wilson enters into agreement 1 under which she pawns the watch for £400, and receives a loan of £400.

At the end of the period, she enters into agreement 2 under which the same item is stated to be pawned for the same £400 amount. She pays the interest due on agreement 1. No further money changes hands, but her liability to pay the sum of £400 is treated as a liability under agreement 2.

This process is repeated with agreement 3 replacing agreement 2, and then agreement 4 replacing agreement 3. Again she pays interest due on each agreement, but no money changes hands in respect of principal, her liability being transferred to the new agreement.

At the end of this process, because the agreements were unenforceable under the Act, it is not in dispute that she is able to retain the £400 loan, to recover the watch, and to receive back all the interest payments actually made. However, in addition, she claims that she is entitled to payment (in this example) of a further sum of £1200 (£400 x 3), on the footing that, even though no new money changed hands, on a true legal analysis she had paid £400 to discharge each of the agreements. This, she argues, was “an amount received by the creditor… on realisation of the security…” within the meaning of section 106(d) of the Act, and therefore is repayable to her.

There is no dispute that in this case section 106 applies. Equally, there is no dispute that, by virtue of the wide definitions of “security” and “surety”, to the extent that she had repaid the loan by a payment of money, that would have been an amount received by the broker “on realisation of the security” and would be repayable to her as “surety”. The issue is whether, as Mrs Wilson contends, the same applies to the renewal agreements, even though no new money changed hands.

The judge thought not. He said:

Apart from authority, my initial reaction was that on this issue he was clearly right. Nothing was “realised” under the renewal agreements; their whole purpose was to defer realisation for a further period. Even accepting the “drastic” effects of the 1974 Act, it would be contrary to all reason, or any legitimate statutory purpose, for Mrs Wilson to be able to recover, on top of her actual outlay, a windfall of three times the amount of the original loan. However, this is said to be the effect of this court’s decision in another of Mrs Wilson’s cases, Wilson v Howard (Pawnbrokers) Ltd [2005] EWCA Civ 147, to which I must now turn.

The Howard (Pawnbrokers) case concerned a series of pawn agreements, similar to those in the present case.

The judge in that case (HH Judge Rylands) had held the agreements “grossly contravened the principles of fair dealing”, and breached the Act in a number of respects; the result was that they were unenforceable, the goods had to be returned and “justice required him to re-open the superseded agreements”. For the latter purpose he had initially intended to direct the taking of an account by an independent person. In the event, however, he had felt able to arrive at a final determination himself on the basis of submissions by the parties, resulting in an award of almost £1,500 in Mrs Wilson’s favour.

Permission to appeal to this court was given on a single ground:

Sedley LJ (with whom Potter LJ agreed) adopted the findings of the judge, which he summarised:

He added

He noted that Mrs Wilson had made clear that the order which she was defending related only to the eight held by the judge in law to be unenforceable. He continued:

Sedley LJ continued:

The judge in the present case distinguished that decision on the facts. He held that on the evidence Mrs Wilson did not pay off the capital sum on any of the closed pawn-broking agreements, but instead only paid the interest, the capital sum being transferred from the old agreement to the new agreement. Howard’s case, had proceeded on a different factual basis, that is that under the relevant agreements (as stated by Sedley LJ) Mrs Wilson had been “periodically paying off the capital and interest” on each renewal (see para 24 above). That, the judge considered, was not a possible interpretation of the evidence before him, which was that no capital was repaid at the time of renewal.

Mrs Wilson submits that this is not a valid basis of distinction. The facts, she says, were for practical purposes the same as in the present cases, and Sedley LJ had made clear that the renewal agreements were “novations – that is, fresh contracts”. She cites a passage from Goode “Consumer Credit Law and Practice” IC [35.13]:

Like the judge, I do not think that the categorisation of the renewals as “novations” assists the present argument. A “novation” simply means the substitution of a new agreement for an old one (see Halsbury’s Laws Vol 9(1) Contract para 1036). The word carries no specific implication as to the terms on which the substitution is made. In that passage Professor Goode refers to the old indebtedness being “settled” by a credit under the new agreement. That is not, as I understand it, implying an actual payment of money. I see nothing there which is inconsistent with the judge’s interpretation of the agreements in the present case. Nor is Mrs Wilson’s case helped by reference to the special statutory provisions for “linked agreements” or “modifying agreements”. The issue is not what definition is to be applied to the agreements, or whether they complied with particular statutory requirements, but simply what happened in practical terms.

She submits further that the judge had failed to take account of the terms of Judge Ryland’s judgment in the Howard case. I have not found the passages on which she relies easy to follow, or to relate to the arguments in the present case. Judge Ryland had held that it was necessary to reopen the closed agreements in order to do justice, because they were all “inextricably interwoven with each other”, so that it “would create serious injustice” if they were not to be re-opened, and that it was necessary to determine –

The second passage relied on by Mrs Wilson (para 36) appears to have been added by the judge subsequently, because he refers to an ambiguity in the “original judgment”. (At the end of the judgment there is a reference to it being “redated”). The ambiguity related to the return of the loan monies:

None of this seems to me to help Mrs Wilson’s argument in this appeal. I confess to being left in some uncertainty as to what Judge Ryland finally decided on this point. There seems to have been some confusion in his mind as to whether on each renewal the loan was in fact repaid, or was at least to be treated under the pleadings as having been repaid. But, whatever he decided on this point, it is not binding on us, except to the extent that it was an issue in the appeal before this court, and subject to decision. However, as we have seen this court proceeded on the basis that there was no appeal against the judge’s interpretation of the agreements. Given the limited basis of the appeal, it is not surprising that it was not thought necessary to probe further into the facts.

In conclusion I see nothing in the Howard case, at either level, which precludes us from giving effect to the true facts. As the judge found, and as was clear on the evidence, the loans were not paid off at the time of the renewals. No money changed hands. There was simply an agreement to transfer the indebtedness to the new agreement. On this issue, I would uphold the judge’s decision and dismiss the appeal.

This issue concerns only the seventh agreement, under which, as I have said, the pawned item (a gold signet ring) was not returned because it had already been sold. It realised only £19 representing its meltdown value. It was accepted that she was entitled to payment of this amount under section 106(d), as a sum received “on realisation of the security”. However, she claimed damages representing the cost of a replacement, which she put at not less than £1,020.

The judge rejected the claim, with some reluctance, because he thought it was precluded by section 170 of the Act which I have already quoted. This, he held, had the effect that Mrs Wilson’s remedies were limited to recovery under the Act. In case he should be found wrong on this point, he considered what he would have awarded by way of damages had been free to do so. He refused to allow Mrs Wilson to raise a new point (based on s 121(6)), that the burden was on the respondent to show that the ring had been sold at reasonable market value. He held that it was for her to prove the value of the ring, which –

Before this court Mrs Wilson argues that the judge was wrong to hold that her claim was precluded by section 170(1); and that he was also wrong not to award her the full replacement value. For the respondent, Mr Cook supports the judge’s decision on liability. He also challenges the judge’s figure of £450 as “plucked from the air”; the only true evidence of value was the actual sale for £19.

Surprisingly, both parties claim the support of Professor Goode’s commentary on section 170, in his great work on the Act (Consumer Credit Law and Practice). The judge understood, from extracts to which he had been referred by Mrs Wilson, that his decision “presumptuously” was flying in the face of the opinion of the Professor that there could be an action in tort; but he found it impossible to reconcile that opinion with “the absolute and sweeping terms” of the section. Mr Cook submits that he had misunderstood the relevant commentary.

Referring simply to the section, I do not read it as precluding Mrs Wilson’s claim. A breach of “any requirement of the Act” will incur no civil sanction “as being such a breach”. Mrs Wilson’ claim is not for a breach of the Act. It is a simple common law claim for conversion of her property. The only right which the respondents had to sell her ring was by way of realising its security under the pawn agreement. That security having become ineffective under the Act, there is nothing to prevent her relying on her ordinary property right. The specific requirements imposed by section 106 to return the security, or to repay any amounts realised, are not inconsistent with a parallel common law claim for damages if the property is sold without any right to do so.

That view seems to be supported by a passage in the commentary on section 170 (Goode para 5.330-340), under the heading “As being such a breach”:

Mr Cook relies on an earlier passage in the notes on section 170 (under “General effect”):

In my view, therefore, the judge was right to think that the claim was supported by Professor Goode, but wrong not to follow him.

A claim for damages having been established, the remaining issue is the amount. The judge would have awarded £450, on the basis that there was no right to claim the cost of replacing it as new. Mrs Wilson challenges that view. She refers to a passage in what I think must be the previous edition of Halsbury’s Laws Vol 3(1) on Bailment para 79, referring to damages recovered by a bailor in negligence:

Subject to any question of reasonableness, that seems to provide direct support for Mrs Wilson’s approach, in relation to a ring which had a special engraving, and for which a replacement could not be obtained in the ordinary market. The judge cited no authority to the contrary, and none was cited by Mr Cook. The judge did not suggest that there was anything unreasonable in her wish to replace the ring, merely that he was precluded by law from making an award on that basis. Indeed the respondents had themselves initially offered to pay for such a replacement, without any suggestion that it was an unreasonable demand.

As to the figures, notwithstanding his criticisms of Mrs Wilson’s evidence, the judge found that her estimates were “not unreasonable” in the light of the respondents’ own estimate. In principle, therefore, I would award her the lower of the estimates, that is £1,020. I say “in principle”, first, because we have heard no submissions as to the period for which interest if any should be paid or to how, if at all, we should take account of the age of the estimate (made in November 2004) and secondly because, in the light of our judgment, the respondents may find it cheaper to renew their offer to secure a replacement themselves at the trade price. I would hope that these issues can be resolved by agreement.

Finally I must explain my reasons for refusing permission to appeal on issue (iii) relating to interest. This was intended to represent compensation for the delay caused by the stay of the claim. The judge awarded interest at 7%. As far as appears from his judgment, there was some dispute about the precise method of calculation, but not about either the general approach or the rate. Mrs Wilson now seeks to argue for a different approach, which she takes from the judgment of Chadwick J in Mathew v T.M.Sutton Ltd [1999] GCCR 1865. According to the headnote, it was held that –

I am far from satisfied that such an approach is applicable to the limited issue in this case, relating to the delay caused by the stay of the claim. In any event, although Mrs Wilson says that she mentioned the Mathew case to the judge, there is no indication that she developed the issue in any depth, nor that she explained how such an enquiry would work in practice on the facts of the present case. Even at the time of the permission application in this court, Hallett LJ noted:

For these reasons, I would dismiss the appeal on the amount of the repayments, but allow the appeal in relation to damages for the loss of the ring. I would refuse permission to appeal on the interest point. We will need to hear further submissions as to the form of order in relation to the ring, unless (as I would hope) the parties are able to agree (see para 45 above).

I agree.