Evans & Anor v Finance-U-Ltd

This is a renewed application for permission to appeal, permission having been refused on the papers by Sir Richard Buxton. The dispute relates to the purchase by the respondents of a Ford Fiesta motorcar in April 2007. The price of the car was £7,290. Of that, a deposit of £1,400 was paid to the applicant, which is a finance company, and the balance of £5,890 was borrowed from it by the borrowers, who are the respondents, Mr and Mrs Evans, under the terms of a loan agreement regulated under the Consumer Credit Act 1974. That agreement provided that the borrowed sum, plus interest of £3,500-odd, and a documentation fee of £100, would be repaid by making one payment of £296 and a further 47 monthly payments of £196 (I omit the pence). The finance provided by the applicant to the respondents was secured by a bill of sale dated 20 April 2007, to which the respondents were jointly party.

In a nutshell, what has occurred is this. On 1 October 2007 the first claimant, the husband, was declared bankrupt. He was discharged from bankruptcy a year later. The applicant submitted a proof of debt in the first respondent husband’s bankruptcy estate. The total amount due at the time the bankruptcy order was made was over £8,600, and the balance outstanding on the account when the claim was submitted was £4,490.26. As I understand it, one reason why the amount had reduced was that notwithstanding the bankruptcy of the husband, the wife continued to pay the monthly instalments due, albeit she in due course also became bankrupt, or was declared bankrupt on 31 January 2008. But as I understand it, the payments continued through the bankruptcy until June 2010, after which they stopped.

The proof of debt in the bankruptcy proceedings indicated that the vehicle was pledged as the security under a bill of sale, but as I understand it no value was placed upon the vehicle. In due course, the applicant received a distribution of three pence in the pound in the first respondent’s bankruptcy, which resulted in a payment of £155 odd in respect of the debt scheduled in the proof of debt.

The question which arose at trial was whether, having proved in the bankruptcy of the first respondent for the full amount then due, the appellant finance company was thereafter precluded from exercising its right to take possession of the car upon the failure of the second respondent to continue to make the monthly instalments due. HHJ Chambers QC in the Cardiff County Court concluded that the defendant was no longer entitled to exercise the rights which it would otherwise have had under the bill of sale. At paragraph 19 the judge said this:

“It seems to me to be clear that when the first claimant became bankrupt there was a default under the bill of sale, and the defendant became entitled to seize the car.

20.

I cannot see how it could be argued that, in the event of the defendant seizing the car, the agreement and rights under the bill of sale continue against the second claimant. Furthermore I cannot see how it could be argued that, in the event of the defendant not seizing the car, the agreement and the rights under the bill of sale continued against the second claimant. This is because, when the first claimant became bankrupt, there automatically became due and owing the sums calculated in the way set out in the bill of sale. That was the end of it. Both of the claimants were ‘the grantor’. Both became liable for the sum due on bankruptcy. There could not be a different sum due from one claimant and another from the other.”

Mr Levy submits very succinctly that the bill of sale contains no term, whether express or implied, that any of the applicant’s rights would be lost on the bankruptcy of one or both of the two joint debtors, and he furthermore submits that there is no principle of law that contractual rights under a joint loan agreement or bill of sale are lost on the bankruptcy of one or both of two joint debtors. He also submits that a claim to enforce security is unaffected a fortiori where there has been a declaration to the effect that the security exists. In that regard, he refers to various sections of the Insolvency Act, in particular sections 281, 285 and 345, and he refers also to a decision of David Clarke J in C & W Berry Ltd. v Armstrong-Moakes [2007] EWHC 2101. It seems to me that Mr Levy there raises important points of principle, to which the answer given by the learned judge is not entirely clear.

The resolution of these issues is a matter of some importance to the applicant company, because I am told that they have of the order of 3,300 similar loan agreements currently outstanding, with a total amount outstanding under those agreements of some £22.6 million, all of which are supported by bills of sale, to many of which the borrowers are jointly party, whether as husband and wife or partners. Sadly, in the current economic conditions, the applicant is experiencing quite a high level of bankruptcies each month, and it is obviously of some importance to the applicant to ascertain whether in circumstances such as the present, its security remains available to it.

I am satisfied that the applicant has a real prospect of success in demonstrating the validity of the points put forward by Mr Levy, and I would grant permission to appeal without condition were it not for the really very small amount which is at stake, since I am told that the value of the motor car which is in issue cannot really be much more than something of the order of £1,500 or something of that sort. In those circumstances, were it not for an undertaking in relation to costs given by the applicant, I would have been minded to exercise my discretion against the grant of permission to appeal. But having regard to the importance of the matter to the applicants, and having regard to the fact that the applicant has felt able to give an undertaking that it will not seek an order for costs in this court if successful on the appeal, I am persuaded that it is appropriate that I should grant permission to appeal.

In those circumstances, I do not consider that it is necessary that I should also recommend the case for mediation. If that course were followed, it would involve some further expenditure and costs, which would be in no way governed by the undertaking that has been given, and bearing in mind that the respondents will have the opportunity to take a view as to whether or not they wish to defend the proceedings further, having regard to the protection that they have so far as concerns their opponent’s costs as opposed to their own, I do not think it appropriate to recommend the matter for mediation.

For all those reasons, therefore, I give permission to appeal, and the order which I shall invite Mr Levy to draw up will recite that the applicant has given an undertaking not to seek an order for costs in the event that it is successful on the appeal. For the avoidance of doubt, I do not think that there is any doubt, my intention is that there should simply be no application for any order for costs; not the costs incurred in this court, nor the costs below. It is, I am afraid, to that extent a free ride.