Paragon Finance Plc v Pender & Anor

This is the Defendants application for permission to appeal and if permission is granted, an appeal against the order of Her Honour Judge Mayer sitting in the Barnet County Court, when she dismissed the Defendants application dated 21 ^st January 2002 to set aside an order for possession dated 5 ^th January 1995. She further dismissed the Defendants oral application made at the hearing on 9 ^th January 2003 for permission to appeal out of time against the order for possession. In addition, she granted the Claimants permission to enforce the order for possession and to issue a warrant of possession not to be enforced before 27 ^th February 2003 and finally she permitted the Claimant to add the costs of the proceedings to the Security under the terms of clause 16 of the Claimants Mortgage Conditions 1990 Edition.

On 17 ^th February 2003 Neuberger J granted a stay of execution on terms that the Defendants pursue their application for permission to appeal and if granted permission to appeal, they appeal with reasonable dispatch. On 28 ^th July 2003, Patten J ordered that the application for permission to appeal be stood over to a date to be fixed, with a time estimate of two days and that the stay of execution continue.

The Defendants attached a detailed argument in support of the grounds of appeal to their Application Notice.

Following the issue of the application for permission to appeal, the Defendants changed solicitors. Joseph Aaron of Joseph Aaron & Co. the new solicitors, served a witness statement dated 23 ^rd July 2003. In that witness statement he sought to raise on behalf of the Defendants three further arguments, which had not been raised before. The first of those was an argument asserting that the Claimant no longer had any title to sue (the "Title to Sue issue"). The second is an allegation that there was an implied term in the mortgage agreement between the Claimant and the Defendants, which conferred a discretion to vary the interest rate in favour of the Claimant to the effect that the discretion so conferred was one which the Claimant was bound to exercise fairly, honestly and in good faith as between both parties to the contract and not for an improper purpose or purposes and not in an arbitrary, capricious or unreasonable way.

Finally, they wanted to raise an alternative argument under the Consumer Credit Act 1974, to the effect that the agreement between the parties was an extortionate credit bargain.

As Mr Aaron indicated in his witness statement these points have been raised in other actions, brought by the Claimant against different borrowers where Mr Aaron’s firm were representing the Defendants. All of those decisions await in effect my ruling. Although Mr Aaron, in paragraph 11 of his witness statement suggests that it would be fair, convenient and cost effective and avoid inconsistent decisions if the matters could be decided by me, one has to bear in mind the clients that are represented on an individual case basis.

Nevertheless, I permitted the arguments to be deployed in full (as the Claimant answered them in full).

The Defendants are the registered proprietors of property (the "Property") known as 29, Knightswood Close, Broadfields, Edgware, Middlesex HA8 8FR, under title number NGL520302. The Property includes a dwelling house within the meaning of section 21 of the County Courts Act 1984. They charged the property in favour of the Claimant by a legal charge (the "Charge") dated 1 ^st August 1989 and made between the Defendants (1) and the Claimant (2).

The Claimant ultimately became the registered proprietors of that Charge at HM Land Registry.

The loan secured by the Charge is not a regulated consumer credit agreement.

The loan was made following a mortgage offer (the "Mortgage Offer") dated 6 ^th July 1989, whereby the Claimant (then known as National Home Loans) offered to lend £75,522.54 to be repaid over 25 years on an interest only basis with an initial variable interest rate of 12.99%. The monthly payments were stated to be gross £817.53 per month and net £736.34 (taking into account what was then the MIRAS relief available at that time).

By clause 7 of the special conditions, the offer of loan incorporated a 3 year fixed rate and a provision for 3 years to defer (but not ultimately reduce) part of the monthly payments.

At the time of the loan the Defendants stated that the Property had a current value of £109,000.00 with an existing mortgage in favour of the Halifax Building Society. The Defendants self certified their income. The First Defendant stated that he was a supervisor signalman with a gross annual income of £20,760.00 and the Second Defendant stated that she was a care assistant with a gross annual income of £10,200.00. The value of the property reflected a valuation made 4 years earlier, which valued it at £100,000.00.

The final offer of loan of 7 ^th June 1989 was expressed to be subject to the Claimants Mortgage Conditions (1988 Edition). However, by a Deed of Variation dated 11 ^th July 1990 the Defendants agreed that the Charge should be amended so that the Claimants Mortgage Conditions (1990 Edition) should apply instead.

The form of the Charge follows a standard form and is a one page document referring to the conditions to which I have already made reference. Under clause 7 of the 1990 conditions, it is provided that for the purposes of section 101 Law of Property Act 1925 ("LPA 1925") the sum secured by the Mortgage should become due 28 days after the date of the Mortgage and in particular in favour of the purchaser, the power of sale should arise 28 days after the date of the Mortgage. It is further provided that the restrictions contained in section 103 of the LPA 1925 should not apply to the power of sale and finally, by clause 7.3 provided that if (amongst other things) two payments were not made then all monies secured by the Charge including interest should immediately become due and payable so that all powers should immediately become exercisable by the Claimant at any time thereafter.

Condition 9.6 is important for the purposes of the dispute between the parties. It provides:-

It will be seen therefore that the Defendants acknowledged that the Claimant at any time might assign or transfer the Mortgage and upon such assignment the Defendants agreed that to the extent that the Claimant agreed to assign or transfer (whether at common law or in equity) its rights and benefits to any person they should be bound to any such assignee in the like manner and the like extent as they were bound to the Claimant under the Charge. In addition they agreed to the extent that the Claimant should be released from further obligations to them under the Charge, and such transferee should assume obligations towards them, which differ from such released obligations only so far as such assumed obligations are owed by and constituted by claims against such transferee/assignee and not the Claimant. The Defendants irrevocably consented to any assignment or transfer.

Under clause 3.3 the interest on the loan, chargeable by the Claimant was variable from time to time as it should determine and might be increased or decreased at any time and with effect from such date or dates as it shall determine.

By 1994 the Defendants had fallen into arrears and the Claimant issued an undated claim for possession of the Property. A Particulars of Claim was served on 7 ^th April 1994, claiming possession of the Property. The arrears at that time were stated to be £2,419.65 as at 19 ^th May 1994. The payment schedule showed that between 1992 and 1993 the payments became irregular.

The Defendants prepared a draft affidavit in November 1994. Judge Mayer commented (and I agree with her) that there had been professional input in the preparation of this affidavit.

Although this was not revealed to Her Honour Judge Mayer, the Defendants’ witness statement dated 27 ^th October 2003 (paragraphs 3 and 4) showed that a Mr McPherson, who actually arranged their mortgage with the Claimant helped them prepare the affidavit in November 1994 and he attended to give assistance at the hearing of 5 ^th January 1995. I will say something more about that hearing in due course. Mr McPherson’s evidence is relied upon by the Defendants in support of their appeal on one of their major grounds. Neither Her Honour Judge Mayer nor I were provided with any explanation as to why Mr McPherson’s evidence (which is set out in a witness statement dated 2 ^nd May 2002) was produced so late. Nor has any explanation been given as to why the details set out in Mr McPherson’s witness statement did not find their way into the Defendants’ draft affidavit in November 1994, which he had a role in preparing.

On the second page the Defendants’ affidavit said this:-

In the next paragraph it is said:-

This evidence contains in layman’s language all the ingredients of the main defences raised by the Defendants save the Title to Sue issue.

Their evidence has been refined as appears later in this judgment, but nevertheless the main in thrust is there to be found.

I remind myself, that it is not appropriate to try cases on affidavits and where affidavits raise issues, provided that the issues raised have a real prospect of success a matter should go for trial. However, that is to be tempered by the fact that merely because something is said in an affidavit the court is not required to accept it in an unquestioning way. It is a matter of balancing the arguments raised at that stage of the proceedings.

The evidence of Mr McPherson should be read in the light of what the Defendants said about him when they wrote to the Claimants on 16 ^th December 1999. This letter was written in the context of the Defendants again complaining about the high rates of interest, but they said this (about Mr McPherson):-

The hearing took place apparently before District Judge Morris. He made an order for possession on 2 ^nd March 1995. By paragraph 2 of the Order it was provided that " no application by Plaintiff’s to enforce without leave of the court ".

No monetary judgment was entered. Whilst there was much debate before me about the passing of the Title to Sue on the covenant, it seems to me that is irrelevant because there is no judgment on that. I accept the Claimants sought it, but it was not granted. If the Claimants obtained possession, they will sell the Property and become under the statutory duty to apply the proceeds of sale in accordance with section 103 LPA 1925. That will operate as between the Claimants and those entitled to the benefit of the proceeds of sale, without need to have an action on the covenant.

There was no evidence before Her Honour Judge Mayer about that hearing. It is clear from the order of the court dated 10 ^th June 1994, that it was to be a full hearing of at least 3 hours.

After the hearing before Her Honour Judge Mayer, the Defendants in paragraph 3 and 4 of their witness statement of 27 ^th October 2003 gave evidence as to the hearing. They said (as I have already observed) that both they and Mr McPherson were present. They say that the hearing only lasted 5 minutes and that they were not asked to make any comment and did not speak. They recalled the District Judge holding his arms out to his side and saying words to the effect that there was nothing he could do, because they did not owe that much money. No explanation was apparently given as to the outcome of the hearing. They understood the Claimants solicitor to be disappointed, because they heard him saying " they could not get justice in this court ". They gave him a lift back to Oxford Circus, there was no discussion about a possession order having been made.

The Claimants produced a computer-generated note of the hearing after the hearing before Her Honour Judge Mayer. Part of the note says:-

The order was never appealed. That is unfortunate, because it does seem to me that with respect to the learned District Judge there appears to have been no investigation of what was behind the Defendants’ draft affidavit. The reality is that the Claimants accepted irregular payments for at least 5 years longer and did not seek to enforce the order for possession until 2000.

According to the judgment of Her Honour Judge Mayer, the Defendants’ representatives before her made an application for permission to appeal out of time, which she rejected. That is disputed by the Defendants before me, but it is also recorded in her judgment, which stands uncorrected. Those now representing the Defendants did not of course appear before Her Honour Judge Mayer. Mr Wulwik who was there on behalf of the Claimants said such an application was made. On the evidence before me I accept an application for permission to appeal out of time was heard by Her Honour Judge Mayer and dismissed. Although the application was apparently made "tentatively" she nevertheless dealt with it in the alternative to the other basis put forward and in paragraph 52 she refused the application for permission to appeal out of time for the same reasons that she refused to set aside the order earlier in the judgment had she thought that she had power to set it aside, namely that there was no real prospect of succeeding on appeal. She also refused permission to appeal.

Mr Wulwik contends that there is no power in this court to review the decision as there is no appeal from a decision of an appeal court to refuse permission to appeal to that court; see section 54 (4) of the Access to Justice Act 1999, CPR 52 PD 4.8 and Civil Procedure (White Book) volume 1 paragraph 52.3.6 at page 1263. Mr Page QC accepts that submission as being correct. It follows that is the end of any appeal against the order of 5 ^th January 1995.

The schedule attached to the first statement of Roy McCordall the Claimants litigation officer dated 30 ^th October 2002, shows that from the hearing of 5 ^th January 1995 the Defendants never made the expected monthly payments. The arrears continued to climb so that for example, by December 1997 the total arrears as at that time were £18,639.88. During the period the Claimants had only received payments amounting to 50% approximately of the mortgage payments. There was a slight revival in 1999, but no payments whatsoever (save one sum of £500.00) have been received by the Claimants since May 2000. This means as at 31 ^st December 2002, shortly before the hearing before Her Honour Judge Mayer, the total amount outstanding under the Mortgage was £148,074.15 excluding unbilled litigation costs with arrears of £78,057.38. By 5 ^th November 2003, assuming no payment had been made (and none was made) the amount outstanding under the Mortgage is £200,484.19 (excluding again unbilled litigation costs) with arrears of £99,643.97.

The Property is believed to have a value of approximately £160,000.00, with the result that if the Claimants figures cannot be challenged they will suffer a shortfall of a significant amount. This is a factor in favour of the Claimant, which militates against allowing the appeal, but only one factor.

No offer has been made by the Defendants to resume payments on a without prejudice basis, although Mr Page QC acknowledged that if the appeal was allowed I could make a conditional order and he would take instructions on the ability of his clients to make such a payment as was appropriate. Of course this further causes deterioration of the Claimants position.

The Defendants’ case in financial terms is that the interest rate that they have paid on the Mortgage over its duration has been too high and out of line with comparable lenders. Thus whilst they are forced to acknowledge of course that they had received the capital and that they were liable to pay some interest rates, they disputed their liability to pay interest at the rates claimed by the Claimant. The actual interest rates are shown on a table, again attached to Mr McCordall’s second witness statement. The initial rate started at 9.90% and rises to a maximum (for five months only) of 13.090% falling down to December 2002 at 10.44% between January and October 2003 the rates are 10.44% down to August 2003 when it falls to 10.34%.

Attached to Mr Aaron’s witness statement is a report by Francis Higgins who has an extensive career in the management of a Building Society. That report was not prepared for this litigation, but was prepared for another action bought by the Claimant against another borrower Adrian Bradshaw.

The Defendants’ Solicitors and junior Counsel also represent Mr Bradshaw. The Claimants have served a report in those other proceedings in response to that of Mr Higgins by Adrian Francis Bloomfield dated 29 ^th May 2003.

Neither report has been tested in court, nor has there been any adjudication yet in the Bradshaw case in the light of the issues raised by those reports or any other matters.

It is not appropriate for me at the appeals stage to attempt to evaluate by comparison expert reports, unless a report is clearly flawed. The Defendants in reality only have to show an argument or arguments, which have a real prospect of success in order for the appeal to succeed. If any of their arguments are of that calibre the appeal will be allowed and the case remitted back to the County Court for a full contested hearing. I must therefore take Mr Higgins report at face value unless there are any clear indications, which shows it has no credibility. Mr Higgins report is to support the pleaded implied term and/or the reopening under the Consumer Credit Act 1974 on the basis that the loan was an extortionate credit bargain. I will deal with the report when I come on to deal with the substantive allegations of breach.

One point that caused me concern was that there had been no calculation of the amount of the claim for overpayment. When I raised this it transpired that someone had done the calculation, but it was not put in evidence before me. As at the date when the Defendants ceased to make any payments in May 2000, the maximum amount of their claim for reimbursement of overpaid interest according to their case was approximately £24,000.00. By the time the matter came before me (given the non-existent payments thereafter) the difference was £10,000.00. I expressed concern about the modest nature of these figures in the context of the claim and in the context of the risks faced by the Defendants of losing their home and their only substantial asset. I urged the parties to attempt a negotiation and I rose for a short period to allow that to happen. The parties were unable to agree any settlement. The difficulty it seems to me, arises out of the fact that the Claimants face a number of claims and wish to have a resolution of the issues at High Court level. Equally, the Defendants’ Solicitors were involved in all the other actions (and had been involved in previous actions involving the Claimants) and similarly regard it as a test case. I regret to say that the stance taken by both parties means that the Defendants are being used for the purposes of determining issues, but at the risk of them losing their home, because no sensible compromise can be achieved.

On the above figures it will be seen that the Claimants have been seriously affected by the delay in the Defendants raising the claim. It cannot win this litigation in financial terms.

Equally, the way out of the impasse for the Defendants was to remortgage the property. In 1995 the arrears were relatively modest. In 1999 they threatened a remortgage. In the course of submissions Mr Page QC indicated (when dealing with the Defendants Counterclaim for rescission) that if the amount owed was the £75,000.00 plus £10,000.00 interest they would be in a position to remortgage. I have not had any satisfactory explanation as to why the Defendants have not remortgaged in the period between 1995 and 2003. During this period, as I have said the interest arrears have risen and the Claimants position has worsened considerably. It is now faced with a late raising of issues, which if raised will have a substantial effect on its financial recovery in this action, even if it wins. This is a factor which it seems to me is appropriate also to take into account in deciding whether or not to allow the Defendants to challenge a court order made over 8 years ago.

I have already set out above that during the period 1995 to May 2000 the Defendants made no challenge to the order, made sporadic payments under the charge and allowed the interest arrears to accrue. The only complaint was that addressed in respect of Mr McPherson in 1999.

The Claimants therefore showed considerable patience in not seeking possession of the Property for 5 years despite those factors. This to my mind is a major factor, which affects the credibility of Mr Higgins the Defendants’ expert. The thrust of his report is that the Claimants charged an unfairly high and oppressive rate of interest and the reason for this was to drive the Defendants (along with all other borrowers who had entered into loans before 1991) to redeem their mortgages. I posed to Mr Page QC that if that was indeed the policy, the Claimants would have been somewhat more vigorous in seeking possession of the Property as they had ample opportunity so to do with the mounting arrears and would thus be in a position of selling the Property and enforcing redemption of the loan. In this case of course there was no question of negative equity during this period. The negative equity (if any) has arisen since 2000, when the Defendants ceased to make any payments whatsoever.

The best Mr Page QC could say, was that the Claimants had (since 2000 at any rate) been actively seeking possession. However, that does not explain the 5 year period before that, which strongly militates against the Defendants’ case on the implied terms as I shall set out further in this Judgment.

I have already set out the unsuccessful application to appeal this judgment out of time.

On 21 ^st January 2002 the Defendants’ then solicitors issued an application for an order that the possession order be set aside. The grounds were the Defendants had good prospects of defending the claim because there was a claim for (a) misrepresentation and/or breach of an express or implied term in the mortgage agreement as to the variation of interest rates (b) the Claimants failed to provide the Mortgage protection policy (c) any arrears would be substantially affected if the true amount under the Mortgage Agreement was determined. This was supported by a witness statement of the Defendants of 15 ^th January 2001 and a witness statement of Mr McPherson. The First Defendant’s statement did not do anything beyond recounting the chronology and refer to Mr McPherson’s witness statement.

It also appended a draft Defence and Counterclaim, which included a claim for rescission.

The misrepresentation alleged was made by Mr McPherson who was stated to be the agent of the Claimant. The misrepresentation was stated to be

That of course does not rest easily with the 1999 letter Mr Pender wrote where he said no interest rates were discussed between him and Mr McPherson.

The Defence was later amended and signed by the Defendants abandoning any claim for a rescission. This document is dated 20 ^th March 2002. It was of course served long out of time, so that the Defendants needed permission of the court to serve the Defence and Counterclaim see Coll –v- Tattum [Neuberger J] 21-11-01 . As that judgment shows the rules are meant to be observed and merely serving a Defence and Counterclaim out of time will not avoid the consequence of the initial failure. Of course in the present case it is more serious because there has been a judgment for possession which also needs to be set aside. As that judgment indicates the question of an extension of time in many cases will be a matter of formality; that could hardly be said to be the situation in this case. At the time of the application, I do not think Mr McPherson’s witness statement had been prepared. He did sign one dated 2 ^nd May 2002.

In that witness statement he showed that he was the Managing Director of Paramount House Limited, which had two operating subsidiaries and was a mortgage brokerage company and acted as an intermediary for lenders. The clients were referred to him by recommendation from an existing client and required a mortgage of approximately £80,000.00 although this was also to cover some non-household expenses. As paragraph 9 of this witness statement shows there was no prospect of the Defendants obtaining an increased borrowing from the Halifax because the first Defendant no longer satisfied their criteria as he had by then become a self employed black cab driver. Significantly, Paramount House (one of the operating subsidiaries) no longer has the Defendants’ mortgage file (hardly surprising given that events took place in 1989).

Mr McPherson in paragraph 11 through to 14 recounts a meeting which he says took place somewhere between January and June 1989 at the Wembley Conference Centre. He recalls meeting a Mr Lacey who he believed was the Managing Director of NHL. He recalls Mr Lacey giving a presentation on stage and recalls Mr Lacey stating that NHL was and would continue to be competitive as any " High Street " lender if not cheaper in the long term because they did not have the same overheads as " High Street " lenders and obtained money at favourable rates through the money markets.

Mr McPherson then recalls the following representations by Mr Lacey, making a particular impression on him: -

What is totally lacking in the witness statement is any explanation as how Mr McPherson recalls these events in 2002, but failed to recall them for the benefit of his clients in 1995. It is of course also the first time that the Claimants are given an indication as to the evidence that the Defendants will bring against them. Mr McPherson has produced no documentation in respect of this meeting and as I have already observed the mortgage file of the Defendants is apparently no longer in existence. He says also in paragraph 17 that he picked up some promotional material and would repeat to the Defendants the same information. I note again that this is inconsistent with the Defendants letter of 1999.

On 22 ^nd January 2002 District Judge Karet stayed execution of the possession order until further order and set a timetable for service of evidence. That timetable was extended by consent and ultimately Deputy District Judge Hatvany on 19 ^th June 2002 referred the matter to be heard before a circuit judge with an estimate of 1 day. This lead to the hearing before Her Honour Judge Mayer.

In response the Claimant served witness statements of Roy McCordall on 30 ^th October 2002 and 31 ^st December 2002.

In Mr McCordall’s first witness statement he set out the details of the Defendants’ application to which I have already made reference. There is somewhat of a difference as to what Mr McPherson says (black cab driver) with a self certified statement in the Defendants’ application form. No challenge is made to Mr McPherson’s evidence in respect of Mr Lacey; although it is said (correctly) that he was the Defendants’ agent and not the Claimants. Comments are made about the implied term and I will refer to this more when I deal with that particular head of contention raised by the Defendants.

It was on that material that the Defendants’ application came before Her Honour Judge Mayer. It will have been noted that the application did not state the grounds upon which the application was made. It transpired that the application was made initially under the provisions of CPR 13.3. The difficulty with the application being made under that rule is that it only applies to setting aside a judgment in default. The order of 5 ^th January 1995 was an order after a trial (however brief that trial might have been). This was drawn to the attention of the Court by virtue of Mr Wulwik’s skeleton argument for the Claimant. Mr Wulwik also in paragraph 17 of his skeleton made reference to CCR order 37 (application for rehearing). As he pointed out CPR order 37 was revoked from 2 ^nd December 2002.

In addition to the oral applications for permission to appeal the hearing before Her Honour Judge Mayer clearly proceeded on the basis that the application by the Defendants was to be treated as an application under order CPR 13.2 and an application under CCR 37. She gave judgment addressing both possibilities. If it was that rule there were a number of oddities. First, the application generally has to be made to the judge by whom the proceedings were tried. Second, the application has to be made to the District Judge where he exercises a trial jurisdiction (see CPR 37 rule 1(4)) and an application has to be made on notice and served not more than 14 days after the trial. It follows that it was necessary for an application for an extension of time also to be applied for by the Defendants.

The court appears to have transferred the case to be heard by a Circuit Judge. I cannot see that can be a matter of procedural irregularity. There are instances where it is not practicable for an application to be made to the original Judge and in those circumstances, an application can be made to a Judge of co-extensive jurisdiction see RSM Engineering Co. Ltd. [1999] 2 BCLC 485 C.A.

In passing I note that the power to appeal was formerly under CCR order 37 rule 6.

The power to order a new trial is an exceptional one. One example is that referred to in the notes to the 1998 Green Book where " a vital matter was concealed from the court ". Mr Page QC relies upon this and asserts that the fact of securitisation was a vital piece of evidence concealed from the court. In addition Mr Page QC relies upon the note in respect of fresh evidence where it is set out that in special and exceptional circumstances a new trial might be granted, because new evidence has been discovered, but it is equally essential that as a preliminary step a party asking for a new trial on this ground, should show that there was nothing remiss on his part in adducing all possible evidence. Reference is made to the well known case of Ladd –v- Marshall [1954] 3 All ER 745 at 748 per Lord Denning MR.

Now it seems to me that it is impossible to say that Mr McPherson’s evidence is fresh evidence that was not available in 1995. He was at court. He participated in the preparation of the witness statement. I have had no explanation in his evidence or otherwise as to why he omitted to mention his evidence, in respect of the discussions with Mr Lacey at that time.

The securitisation issue was not revealed by the Claimant. Mr Page QC said it was suppressed, but equally he did not criticise them for that or allege any wrongdoing on the part of the Claimants. They he said made a decision that it was not relevant, but that decision was wrong.

Mr Wulwik had a fundamental objection to an application under CCR Order 37, namely that the provision had been repealed under Civil Procedure (Amendment) Rules 2002 SI2002/2058. At that time of course the Defendants application was already out although it was not " adopted " as being an application under CCR order 37 until treated as being such in the hearing in January 2003 before Her Honour Judge Mayer.

Mr Page QC relied upon the provisions of sections 16 and 22 of the Interpretation Act 1978, which provides that a repeal of a statute (and a rule made in the statutory instrument) shall not unless the contra intention appears affect any right, privilege obligation or liability acquired accrued or incurred and those rights can be continued not withstanding the repeal of the Act or the Rule. He referred to the Privy Council decision of The Colonial Sugar Refining Co. –v- Irving [1905] A C 369 . Against that there is a Court of Appeal decision Theo. Conway Ltd. –v- Henwood [1934] 50 TLR . In that case the Court of Appeal construing a relevant provision of the Administration of Justice Act 1932, held that an existing right of appeal was removed.

I find no assistance from that decision as it turns entirely on that particular Act. The statutory instrument does not expressly take away the accrued provision set out in the Interpretation Act accordingly, if the Defendants application can be interpreted as having been made under CCR order 37, the subsequent repeal of that rule has no impact. I appreciate that under CPR 51, the new procedures under the Civil Procedure Rules were applied to existing proceedings from the date of their commencement. However, CCR order 37 was not revoked by that statutory instrument; it survived for another 4 years.

I entertain great doubts as to whether or not the Defendants’ application can be truly considered as being an application under CCR order 37, as it never occurred to the Defendants’ legal advisers until the hearing before Her Honour Judge Mayer, in the light of Mr Wulwik’s skeleton argument. Nevertheless, it was considered as an application under that rule by her and that means that it has to my mind been treated as having always been made under that rule or she effectively allowed it to be argued on that basis and that would mean the amendment would operate back to the date of the issue of the proceedings.

Her Honour Judge Mayer (paragraph 33) accepted Mr Wulwik’s submissions that she had no jurisdiction to entertain an application under order 37. Nevertheless, she quite properly went on to consider the merits in case she was wrong. Regrettably, I have come to the conclusion that she was wrong in respect of CCR order 37. I suspect that this does not actually matter, because it seems to me that the court had a power to revoke the order under CPR 3.1(7) " A power of the court under these rules to make an order includes a power to vary or revoke the order ". In my judgment this gives the court an exceptional power to revoke an order. It is not limited as to the type of particular orders and it is strongly analogous to judgments of the Court of Appeal in re RS and M Engineering to which I have already made reference above. It should not generally be used as a back door appeal. However, it does confer on the court a power in appropriate circumstances to revoke an order.

I conclude therefore, that Her Honour Judge Mayer had a power under CPR order 37 and CPR 3.1(7) to consider revoking the possession order 5 ^th January 1995.

In that regard, regretfully she fell into error, although she did give reasons as to why she would not have exercised her discretionary power in any event.

She rejected the argument that Mr McPherson was the Claimant’s agent. This the Defendants through Mr Page QC accept. However, with a swift shuffling of the feet he simply submits that the representation was made to Mr McPherson who received it in the capacity as agent for the Defendants.

She found that Mr McPherson’s evidence was vague. She recalled that it happened thirteen years ago and is inconsistent with the express written terms and the totality of the evidence in her view was unsatisfactory.

She also observed that because of section 35 of the Limitation Act 1980 the Defendants can pursue the misrepresentation action as a counterclaim, although they could not have proceeded with it substantively as an action, as any counterclaim is deemed to have commenced on the date of the commencement of the originating proceedings to which it is a counterclaim, i.e. 1994, which is within 6 years of the date of the misrepresentation and the breach of contract, if there is an implied term.

It was accordingly, a very stale allegation. Although the Claimants do not in terms allege that they are disadvantaged by the lateness, it is to my mind self evident that the raising of this issue thirteen years after the event is bound to be severely disadvantageous to the Claimants. I was told that Mr Lacey has left their employment. Whether or not he can actually recall the events is extremely doubtful. Mr Page QC submitted that the Claimants would have kept their advertising material from 1989, a proposition that I find extremely dubious. Further, as Mr McPherson has indicated, the Defendants’ mortgage file has been lost by his company.

Any permission to serve the Counterclaim will mean that the Counterclaim will be retrospective in effect to the commencement of the proceedings. This is unfair to the Claimants, as they are faced with a retrospective claim seeking to reopen matters, which have not previously been challenged. In the intervening period, the arrears have increased and they face a shortfall now. However, if they had faced this challenge earlier, they could have reorganised their affairs differently, and might well have pursued the question of the possession with more vigour. In that eventuality they would have sold the Property, realised their security many years ago, and been out of the conflict with the Defendants.

Finally, there is the fact that the Defendants need to seek the indulgence of the court to serve the Counterclaim, and the serving of that Counterclaim now will enable them to bring a claim many years after the event, which would otherwise be statute barred.

I referred the parties to the Court of Appeal decision of Lynch –v- James Lynch and Sons (Transport) Limited 8/3/2000 . That was a claim setting aside various share transactions in a private company. The cause of action in relation to the first claim arose thirty-seven years after it was intimated, the second nineteen years and the third, twenty-six years. The judge at first instance, nevertheless, upheld the first two claims. Parties to the disputes had died (namely the solicitor and the accountant who were executors of the will of the testator, the subject matter of the dispute). Equally however, the Defendants’ witnesses were faced with claims made in respect of events many years before they were first intimated. I refer to paragraph 37 of the Judgment of Peter Gibson LJ:-

Further in paragraph 43 he said this:-

I accept of course that that is at the extreme end of these principles, but I agree with Her Honour Judge Mayer’s analysis of Mr McPherson’s evidence. It is weak, and it is inconsistent with (for example) the Defendants’ letter of 1999. It is inconsistent as to the occupation, which the First Defendant gave when he applied for the loan. No explanation has been produced as to why this evidence was not put in many years earlier and I have great difficulty in seeing how, even if it is established at a meeting, as alleged by Mr McPherson, the statements made at that meeting can be said to be misrepresentations, which induced the Defendants to take a mortgage from the Claimant. Equally, I have great difficulty seeing how they can amount to a collateral contract or implied term of that sort to be contended for by the Defendants.

I have already set out the other features, which affect the Claimants ability to deal with this claim.

Accordingly, I am firmly of the view that the original pleaded allegations of misrepresentation and breach of contract have no real prospect of success and in any event ought not to be allowed to be pursued by the Defendants because of the delay in intimating the claims.

To that extent, I would not grant the Defendants permission to appeal the order of Her Honour Judge Mayer, because on the evidence and material before her, I am of the opinion that she came to the right conclusion, even if she incorrectly concluded she had technically no jurisdiction to entertain the appeal. I stress, that my view is based on my view of the evidence giving therefore the Defendants the full credit of a rehearing as opposed to a review under CPR 52. Her conclusion was in my opinion, absolutely correct.

Accordingly, the Defendants application for permission to appeal fails in respect of the matters before Her Honour Judge Mayer.

That is enough to dispose of a substantial part of the appeal, but in case I am wrong, I will in the next part of my Judgment go on to deal with the fresh grounds of appeal raised by the Defendants.

In that context I indicated to Mr Page QC in his reply that I was satisfied that I would entertain the fresh matters raised by the Defendants as the Claimants were not disadvantaged in dealing with those, like they were in respect of the previous allegations. They raise matters which had not previously been raised, but they are largely a question of law, as to an implied term and whether or not the Defendants have adduced evidence which shows they have any real prospect of success, in respect of such implied term and whether or not there is any real prospect of success in obtaining a reopening of the bargain under section 137 CCA 1974. To the forefront of Mr Page QC’s argument is an argument based on Title to Sue, which arises solely out of documentation provided by the Claimants after the hearing before Her Honour Judge Mayer. It is self evident that the material could not have been used by the Defendants earlier.

If I conclude any of the matters raised by the Defendants show a real prospect of success, then the proper order to make would be to set aside the possession order and remit the case for a fresh trial to the County Court. These new claims relate entirely to securitisation arrangements the Claimants entered into in respect of all of the mortgage debts due to it. Equally, as this was not perceived to be an issue before, it seems to me that the evidence of the expert ought to be admitted under CPR 52.11(2) applying Hertfordshire Investments Limited –v- Bubb [2000] 1 WLR 2318 . I accept the Defendants have not issued an application to the court to receive further evidence, but I am nevertheless minded to receive the evidence and consider it and am anxious not to bar out a Defendant on the merits because of that procedural irregularity, which can if need be be addressed by an undertaking to issue the appropriate application.

As this is fundamental to the Defendants’ raised defences, I should say a little bit about this practice.

It is a procedure now widely used in the UK and internationally for funding mortgage lending. As Mr Bloomfield the Claimant’s expert says in paragraph 7.3 of his report, " it is a vast market tapped by the largest lenders in the UK including Halifax, Bank of Scotland and Abbey National. It was a practice, which started in the United States. The Claimants first started using it in around 1987. I also refer to paragraph 10.5 of Mr Higgins report on behalf of the Defendants. The Claimant assigns (sells) a pool of its mortgages to a new company (referred to as a Special Purchase Vehicle "SPV" or issuer). The issuer then borrows money from investors using the mortgage as a collateral for the investors loans. Securitisations issue structured notes (Floating Rate Notes "FRN"). These notes have different risk return profiles and different maturities and are rated by a rating agency such as Standard and Poor and are marketable. The non-recourse sale by the Claimant for example means that it is not liable directly for any losses by note holders.

This is to be contrasted with what were the formerly more traditional methods of lending, namely that the lending institutions obtained deposits and funds from investors, which they then used to provide loans by way of mortgage. Difficulties have attended this traditional method, because mortgages tended to be lent long term, whereas deposits have been increasingly lent on short term (even on on demand basis).

The essence of the Defendants complaint is that the securitisation loan notes set a minimum rate of interest which inhibited the Claimants from reducing the interest rates following (for example) the collapse of interest rates consequent upon Black September 1992. It is said by Mr Page QC that the restricted ability of the Claimants to reduce its interest rates is the " most undesirable aspect from the mortgagor’s point of view " (his skeleton paragraph 13). I will address this when dealing with the particular alleged breach below.

There remain four issues of principle raised by the Defendants namely:-

There remains a residual question namely the challenge of the right of the Claimants to seek permission to issue a warrant for possession. In reality that stands or falls with the merits of the appeal. If the appeal is allowed, there will be a stay (indeed the judgment of 5 ^th January 1995 will be set aside). If the appeal is dismissed there is no question of the Claimants being deprived of a an order for possession.

The other issues referred to in paragraph 35 of Mr Page QC’s skeleton are procedural matters, which I have already dealt with.

This defence is both technical and unmeritorious. Apart from inflicting a costs order against the Claimants in the event that it is successful, it will not assist the Defendants at all in relation to their liability under the mortgage. It will not disappear. I posed this to Mr Page QC and he was unable to provide any satisfactory answer. At best if successful it would lead to a dismissal of the present action, as I cannot see that subsequent proceedings issued by what would then be the allegedly correct Claimant could have themselves been struck out as being an abuse of the process of the court.

Equally, I cannot see why the present proceedings could not be amended, by joining the correct Claimant under CPR 19.2(2)(a). Mr Page QC submitted that that rule could not be used if the action was wrongly constituted because the Claimants had no Title to Sue. I do not accept that. Under the CPR the overriding objective requires the court to consider cases to be dealt with justly, with a view to saving expense and dealing with the case in ways which are proportionate, and ensuring that it is dealt with expeditiously and allotting an appropriate share of the courts resources.

If the party’s need to be joined is purely technical i.e. the arrangements mean that the Claimants are not the correct parties to sue for the debt, it is proper that the correctly constituted party is joined to ensure that there is debt recovery provided the Defendants suffer no disadvantage by that. No actual disadvantage so far as I can see has been suffered, even if the Defendants’ case on Title to Sue is correct.

Notwithstanding the pyrrhic nature of this submission, both parties were anxious for me to adjudicate on it, because of the presence of other cases where this has been raised. All of those are decisions of District Judges or Circuit Judges and the parties (or rather the Claimant’s and the Defendants’ solicitors) wanted a High Court decision. None of those judgments is binding on me of course, but I have considered them. The decision of Paragon Finance PLC -v- Shead in Bournemouth County Court by District Judge Dancey, I found particularly helpful, as that addressed all the issues raised before me. I should say that they were all decided in favour of the Claimants.

The issue arises out of administration agreements whereby the Claimant sold some of the mortgage debt due to it in order to securitise the loans. The Defendants have been provided with copies of the administration arrangements, which regulate the operation of the mortgages. The Claimant has refused to provide details of the securitisation agreements themselves. There is an application for disclosure in the event that the Defendants are successful in their appeal.

The securitisation arrangements will of course set out the financial package entered into by the Claimant and the other parties. That does not feature in the administration agreement and that must be born in mind.

If I take the administration agreement ("AA") dated 9 ^th March 1990 for the purpose of this part of my Judgment, there is a recital (recital (B)) whereby the Claimant has agreed to sell certain mortgages to CMS3, which is the relevant SPV. As I have not seen the securitisation arrangements I do not know the price, I do not know whether that price is adjustable to take into account interest rates and I do not know whether certain of the mortgages for example can be retransferred back to the Claimants. This is important because this fact is to my mind overlooked in the Defendants’ submissions. The AA regulates the administration of the mortgages as between the Claimant and the SPV. It does not follow from this agreement that it can be said that the Claimant has no interest in the financial aspects of the charges after that sale.

Under clause 2.1 CMS3 and the trustee appoint the Claimant as administrator being its lawful agent in its name and on its behalf to manage the business of the assets of CMS3 and in the case of CMS3 and the trustee their respective rights powers and discretions and to perform their respective duties under the mortgages and any collateral security therefore and any related rights and the Administrator hereby accepts such appointment on the terms and subject to the conditions of this Agreement.

Clause 4.4.1 and following headed " Notices Etc. " provides a mechanism whereby the Claimant before the closing date will give notice of its intention to transfer the original mortgages to CMS3 and its intention to transfer the original mortgage to the trustee as trustee for itself, the note holders, the administrator, the reserve facility provider, RBS and NHL. In addition under clause 4.4.2 the administrator is obliged within 10 days of the closing date to give notice in accordance with the mortgage conditions to each borrower of the transfer of the mortgage, the legal assignment of any life policies and the assignment of the charges to CMS3. Under 4.4.3 the administrator is prevented from before the occurrence of five events set out in that sub paragraph, but thereafter shall forthwith upon demand by the trustee submit for registration at HM Land Registry the relevant transfers deeds and documents and necessary notices forms and requests and the applications in respect of the transfer and the sub charges referred to in clause 4.4.2(a) and (b) in respect of all of the mortgages which comprised registered land or land which is subject to an application for first registration. Under clause 4.4.4 it is required forthwith on demand to submit for registration at HM Land Registry the relevant transfer deeds and documents and necessary notices in respect of the transfer sub charges referred to in 4.4.2(a) and (b) where there is an obligation to make a mandatory further advance or a further mandatory advance is made in circumstances where the Administrator or NHL has had notice that they have been in breach of mortgage conditions.

Thus it is not contemplated that there be any registration of the transfer of the charge until default has occurred as set out in clause 4.4.3, and prior to that the Claimant remains (as is the case) the registered chargee.

Under clause 5.1, subject to the sub provisions of that clause 5, the administrator is given full rights, liberty and authority from time to time in accordance with the terms of the mortgage to determine and set the rate or rates chargeable to the borrowers and thus the mortgage rate. However, under clause 5.3, the Claimant covenants that it will not until the notes have been redeemed set such rate or rates of interest or permit them to remain in effect at any time at such level as results in the mortgage rate being set or permitted to remain in effect at less than the current Threshold Rate. The Threshold Rate is defined in the definition clause as being " the rate applicable to the Mortgages other than the Blue Chip Mortgages and the Fixed Rate Mortgages determined from time to time in accordance with clause 13.5 and schedule 3 ".

It is this clause upon which the Defendants base their primary case.

All sums received by the Claimant have to be accounted for under 7.5.1 to the Transaction Account, such sums being received on behalf of the Trustee or CMS3.

Under clause 11, the Claimant is entitled to remuneration assessed as a percentage (0.17% per annum) on the aggregate interest charging balance of the mortgages.

Under clause 15.3, the Claimant is obliged to deliver all mortgage deeds to or to the order of the Trustee upon written request and it acknowledges that the mortgage deeds in its possession, custody or control will be after the execution of the deed of charge held to the order of CMS3 and the Trustee and that it has no beneficial interest therein whatsoever and irrevocably waives any rights or lien which it might have therein or to which it might from time to time be entitled.

The Claimant is and remains the registered proprietor of the registered charge, registered against the Property. This is in accordance with the terms of the AA, namely that until requested the Claimant remains the registered proprietor.

Notwithstanding that, the Defendants contend, that by virtue of the AA all rights to enforce the mortgage (whether by suing on the covenant or by taking possession) have passed to CMS3 and it ought to be the proper Claimant.

This argument is based on the effect of section 114 LPA 1925.

That section provides as follows:-

It is important to appreciate that under section 114 it does not have an absolute operative effect. It is subject to any contrary intention expressed and subject to any provisions therein contained. Further, the transfer of mortgage may be in the form contained in the third schedule to the Law of Property Act (section 114(3)) with such variations and additions as the circumstances might require. The form of transfer there is for a transfer of unregistered land .

The Defendants therefore contend under the AA CMS3 therefore became an equitable mortgagee and has all the powers and rights of the mortgagee, which it can exercise by virtue of section 37 Land Registration Act 1925 ("LRA"). The authority for this explanation is stated to be E S Schwab –v- McCarthy [1975] 31 P&CR 196 at 201. The decision is not authority for the proposition at all. The Judge there was referring to the powers of a registered proprietor being registered to dispose of the land or charge the land before becoming registered. As the judgment on page 201 shows, whilst that is possible the effect will be the same as a transfer or disposition under sections 21 and 22

Section 114 as regards registered land therefore only tells a part of the story. The effect of the AA may be an assignment in equity of the benefit of the registered charge. It may also be a transfer in equity. That may give the transferee rights (a point which I will refer to later). However, in contrast to unregistered land the effect of the transfer operates in equity only. It cannot transfer the legal title. That would of course occur if the title was unregistered. The deed of transfer duly executed transfers the benefit of the charge and the rights to sue. It also has the effect of transferring the estate created in favour of the chargee under section 85-87 LPA 1925. In other words for section 114 to be fully operative, the transferee needs to become registered as chargee.

It is instructive to recall what the major purpose of the 1925 property legislation was. The primary object was to free real property from the fetters of the investigation of title that appertained before 1925. The legislation achieved this primarily by reducing as far as possible the need to investigate equitable titles as well as legal title. Generally speaking provided a party dealt with the holder of the legal estate there was no need to go beyond that title. Thus for example section 113 LPA 1925 provides protection for a person dealing in good faith with a mortgagee. Such person is not concerned with any trust at any time affecting the mortgage property, the mortgage money or the income there from.

Further support for this can be found from a number of decisions. First, Lever Finance Ltd. –v- Needleman’s Trustee [1956] Ch 375 concerned the exercise of powers by a mortgagee of a registered title. The plaintiff took a transfer of the legal charge from the original mortgagees and purported to appoint a receiver before it itself had been registered as a proprietor of the charge. It was held that the plaintiff was not entitled to possession and that until registration as registered proprietor of the charge it had no power to exercise statutory powers under section 101 of the LPA 1925. Harman J at page 382 accepted that submission on behalf of the Defendant. His judgment was based under section 33 and 34 LPA 1925. His attention was not drawn to section 37 LRA 1925, to which I have already made reference.

I should refer to the provisions of sections 33 and 34 LRA 1925. Section 33 provides:-

Section 34 provides:-

It is instructive to remember what is the consequence of registration. Under section 25 LRA 1925 a proprietor is given a power to create charges. Under section 27 a registered charge, unless made or taken effect by demise or sub-demise and subject to any provisions to the contrary, shall take effect as a charge by way of legal mortgage.

This relates back to section 87 LPA 1925, which creates the estate where there is a charge by way of legal mortgage. It is that estate in unregistered land, which creates the deemed term of years, which enables a mortgagee to have a legal right to immediate possession. However, section 27 only confers that right on the registered chargee. Under section 33 the proprietor who registered chargee therefore has the following rights. First, he has a right to take possession by virtue of the term of years deemed to be vested in him. Second, he has the power of transfer under section 33 in the prescribed form . I note in passing that the AA is not a transfer in the prescribed form. Third, he has the powers of the owner of the legal mortgagee under section 34.

It is important to note that under section 33 (2) the transferor shall be deemed to remain proprietor of the charge until the name of the transferee is entered into the register in respect thereof.

Thus this accords with the scheme of land registration. Whilst the legislation has been described as " the Cinderella " of the 1925 legislation, the purpose behind the system of registration was to ensure that persons primarily need only deal with the registered proprietor. The conveyancing documents i.e. a transfer (subject to exceptions not relevant) do not transfer the legal estate. It is the act of registration by the land registry pursuant to an appropriate application, which transfers the legal estate. This has a consequence (sometimes called " statutory magic ") of enabling the act of registration to confer a legal title on a person who would not ordinarily be entitled to that legal estate, see for example Norwich and Peterborough Building Society –v- Steed [1993] Ch 116 . The differing effect in the case of registered land and unregistered land in this regard is adverted to expressly in Fisher & Lightwood "Mortgages" (11 ^th Edition) paragraph 14.21 . Section 34 is the converse, namely that where a person is registered proprietor he is deemed to be registered proprietor unless and until he is removed. As long as he is the registered proprietor he is entitled to exercise all the rights and powers as such registered proprietor to which I have made reference.

Thus in registered land, section 114 LPA 1925 does not have the immediate effect which it would have in the case of unregistered land. This point was referred to in Fisher & Lightwood paragraph 4.19, note 7, where the authors say this:-

In my opinion, section 114 LPA 1925, either has no impact in the case of a transfer of a registered charge under registered land or its effects are subject to the need for the transferee to become registered proprietor under the LRA regime.

The prescribed form is TR3. The operative part of the transfer (paragraph 8) is commendably succinct " the transferor transfers the charge mentioned to the transferee ". The AA is clearly not a transfer in the prescribed form.

In my judgment although s. 114 LPA does not say so it is not intended to apply to transfers of registered charges under the LRA 1925. The regime for transferring those charges is the statutory regime to which I have made reference above.

That does not mean that section 114 will have no effect. Any document, (such as the AA), which purports to assign a charge or transfer a charge in unregistered land operates in equity only. The E S Schwab case referred to above established that and further support is found for that proposition in Barclays Bank –v- Zaroovabli [1997] 2 WLR 729 at page 734. Sir Richard Scott V-C (as he then was) said this:-

Now there is an interesting academic argument about whether or not a transfer of registered land actually transfers any interest at all as opposed to a right merely to seek registration see generally Barnsley "Conveyancing Law and Practice" 4 ^th Edition page 478 . It clearly passed no legal estate and if for example it is preceded by a contract for sale or and agreement for charge it is difficult to see how it can transfer an equitable interest. Whatever the position it is quite clear that until registration a registered proprietor who has effected an absolute disposition of his interests by a transfer still holds the legal estate until it is divested from him by registration of the new transferee. Although such a proprietor ought not to create interests adverse to the rights that he has given up by transfer he can do so. As the dictum of Scott V-C shows a transferees rights subsist only in equity until completed by registration. They are thus precarious. Thus a transferor can transfer property to A and execute a transfer in favour of B of the same property. If B is successful in becoming registered first, B obtains the legal title although in equity his interests were subsequent to that of A. This cannot of course happen in unregistered land, because the transfer to B in unregistered land would be of no effect, because the transfer to A would have transferred all the equitable interest.

This is the question I posed to Mr Page QC in argument. Even if the AA creates an equitable chargee, the registered chargee i.e. the Claimant, by section 33 is deemed to be the registered chargee until it is deregistered. It still retains all the powers of enforcement disposition and taking possession, even if as between it and CMS3 it ought not to exercise those powers. This is a result of the statutory magic of retaining in its favour the legal estate pending divesting by subsequent registration of a transferee. No such transferee has yet been registered as substituted proprietor. It follows that the Claimant remains entitled to all the rights attendant upon the legal charge. It has the right to take possession. It has the right to exercise the powers of registered proprietor and that includes the right to sell the property conferred on it by virtue of section 101 LPA 1925.

I am only concerned of course with the taking of possession, because there was no monetary judgment. I do not see that either section 114 LPA 1925 nor the provisions of the LRA 1925 have impact on the enforcement of the mortgage debt. For there to be a legal assignment of that it seems to me self evident that it must be completed by notice under section 136 LPA 1925 and until so done, even by virtue of section 114, it will remain an equitable assignment only.

Now this all makes sense. It means that the Defendants need only deal with the registered chargee and no one else. Anything else would be a nonsense.

That does not mean that the AA (or for that matter an unregistered transfer) is of no effect. Such transfers have an operation in equity. If the transfer documents are by deed, it would confer on the transferees the powers of equitable chargees under section 101 of the Law of Property Act 1925. This was referred to in Fisher & Lightwood again (paragraph 4.6).

It must be appreciated however, that whilst an equitable chargee can be regarded as being good for all purposes as a legal chargee, it is not absolutely so. An equitable chargee in my opinion has no right to take immediate possession, see for example the observations of Harman J in Barclays Bank –v- Bird [1954] 1 Ch 274 at page 280. A legal mortgagee is entitled to possession as soon as the ink is dry on the mortgage. That right has not been taken away by the statutory restrictions imposed by, for example, the Administration of Justice Act 1970 for dwelling houses. That right can be exercised peaceably by taking physical possession or by bringing an action for possession, subject to the statutory restrictions in respect of dwelling houses.

An equitable mortgagee has no legal estate and no legal right to the mortgaged land. As such he has no inherent right to possession, although that can be varied by the deeds or by permission of the mortgagor or the appointed receiver or by court order; see generally Fisher & Lightwood paragraph 19.6.

Equally, as Fisher & Lightwood shows again in relation to the mortgage debt, an equitable assignee of the covenant to sue needs to give notice under section 136, otherwise he needs to sue in the name of the original mortgagee or join him; see paragraph 17.3.

Finally, in this context, an equitable mortgagee, even if it has the powers of sale under section 101, cannot in my opinion deliver a legal estate by virtue of the exercise of those powers alone. In order for a sale by an equitable mortgagee to be effective he must execute the charge either in the mortgagors name pursuant to a power of attorney or he must procure the mortgagor to execute a legal charge. Otherwise the dealings are regarded only as dealing in the equity of redemption; see Megarry & Wade "Law of Real Property" paragraph 19-086 and Re White Rose Cottage [1965] Ch 940 . Thus a sale by an equitable mortgagee unless those conveyancing devices are resorted to are of little value.

Finally, as I have set out above section 114 is subject to any terms to the contrary. It is quite clear under the terms of the AA that the Claimant is intended to retain the power to enforce the charges and control them. It follows that the AA has modified the effect of section 114 LPA 1925 even if it has the effect contended for by Mr Page QC.

For all of those reasons, it seems to me to be quite clear that the enforcement of the charge remains in the Claimant as registered proprietor by virtue of it remaining as registered proprietor and by virtue of the provisions of the AA itself which intended the same to happen.

Accordingly, even if the AA confers an equitable interest on CMS3, or constitutes it an equitable chargee it does not matter. They intended, and the LRA provisions confirm, that the Claimant remains the registered proprietor for all purposes.

Accordingly, there is nothing in the Defendants claim based on Title to Sue. I now go on to deal with the next head Misrepresentation/Collateral Contract.

The representation is a representation by Mr Lacey at the meeting referred to by Mr McPherson, that " NHL was and would continue to be as competitive as any High Street lender ".

Alternatively, it is alleged that amounted to a collateral warranty.

I have already observed that I agree with Her Honour Judge Mayer’s analysis of the weakness of this plea. It has to my mind no real prospect of success on the material which the Defendant has adduced before her.

I cannot see that any statement made by Mr Lacey can be said to have provided contractual force vis-à-vis these Defendants or been a misrepresentation inducing them to make the loan, especially in the vague way in which it is couched. For example, there are many different types of High Street lender. Building Societies are very different from centralised lenders. Both of those are themselves very different from other forms of lenders who could still be called "High Street lenders". The representation is so vague, that even if established to my mind, it cannot be said to be a material misrepresentation intending to operate as a guarentee as to mortgage rates whatever the circumstances of the Claimant over the period of the mortgage.

Mr Page QC in his skeleton argument suggested under section 2(1) Misrepresentation Act 1967 ("MA 1967"), that the Defendants are not obliged to show a cause or connection, although he submitted the cause or connection was obvious. I have already observed about the difficulties of communication that apparently existed between Mr McPherson and the Defendants. I do not accept that that is a correct analysis of section 2(1) MA 1967. That section provides that a misrepresentor is liable for a misrepresentation, which is untrue unless the misrepresentor can show it had reasonable grounds for making it.

Thus to succeed, the Defendants have to show a statement was made and false. They also need to show that the statement was material and they relied upon it. There must be a cause or connection in that sense. There cannot be, for example, an actual misrepresentation if they did not know the representation was made and did not rely upon it: see the illuminating judgment in Strover –v- Harrington [1988] 1 Ch 390 . Although as Mr Page QC showed, Mr Bloomfield acknowledged in appendix C to his report, that for the period from February 1996 to June 1999, the difference between the Claimant’s rate and the Halifax rate widened beyond 3%, this cannot be relied upon by Mr Page QC as an acknowledgement by Mr Bloomfield that the rates were not competitive. What Mr Bloomfield actually said is " in my view therefore when comparing like for like the rates charged by NHL were not out of line with the market " (paragraph 6.4.19). This is because Mr Bloomfield does not accept a comparison as between Halifax rates and the Claimants rates is valid. They are different animals.

It is true that he says in paragraph 6.4.20 that the margins raised, but one has to look at that in the context of the questions that he is answering. He is not answering the questions in respect of the implied terms, the subject of this part of the Judgment, but rather on the implied term that arises out of the case of Paragon Finance –v- Nash and Staunton [2002] 1 WLR 685 , which is an entirely different implied term, namely, " the rates should not be set dishonestly, for an improper purpose, arbitrarily, capriciously, or in a limited sense unreasonably ". He is answering Mr Higgins’ report based on that implied term.

It follows that in my opinion there is no evidence of any credible nature that suggests that the Defendants have any real prospect of succeeding on this implied term and/or misrepresentation.

This was raised by the Defendants in their Amended Appeal Notice when the Defendants changed their representation. It arises as I have said out of the Paragon case referred to above.

The implied term is, as I have said " an implied term that the power to vary interest rates should not be exercised dishonestly, for an improper purpose, capriciously, arbitrarily or in a way in which no reasonable mortgagee acting reasonably would do; that it was not a breach by the lender of the implied term if, as a commercial organisation, it raised interest rates paid by the mortgagors in order to overcome financial difficulties it had encountered ".

The mortgage conditions to which I have already made reference make it quite clear that not only did the Claimant reserve a right to vary the interest rate, but it also reserved a right to securitise any mortgages.

The major difficulty facing the Defendants is that this argument failed in Paragon Finance (another name for the Claimants).

It should be noted what Dyson LJ said in his judgment about the Claimants in relation to the Halifax rate, for example, he said this:-

The Defendants case at the moment is based on the expert report of Mr Higgins, prepared for the other proceedings. I have already cautioned my self not to treat this hearing as a trial, and if there is any material in Mr Higgins’ report, which shows that there is a real prospect of the Defendants succeeding I should allow the appeal.

Mr Page QC submits that there are four indications of improper purposes:-

There is no evidence to show that (d) has ever been applied.

I see nothing in item (a) I have already analysed the interrelation between the Claimants and the SPV and the mere fact that it is a bare trustee is irrelevant. Under the terms of the AA it is given the power to vary the interest rates and I do not accept that there is any evidence, which shows that the Claimant has no interest in the recovery of monies under the mortgage for reasons, which I have already set out in this judgment.

There is no evidence to show that the Claimants have embarked on a policy of forcing people to redeem their mortgages (item (b)). Further it appears from paragraph 35 of the Nash judgment that what the court of appeal is contemplating is a particular policy addressed to a particular borrower. There is nowhere any suggestion in Mr Higgins’s report (for self evident reasons) to suggest that the Defendants have been singled out. His report was not prepared for their case. Even if the judgment is interpreted, as on the basis of being a general policy, there is no evidence provided by Mr Higgins’s report that that was the Claimants’ policy. Indeed, as I have already observed, if that was their policy they would not have been so tolerant of the Defendants’ failure to pay the mortgage arrears over many years. It does not make sense for them to allow the arrears to accumulate if they were motivated by a desire to raise interest rates to force the Defendants to redeem (or sell the property over their head because of default).

If I accept that the old borrowers have financed the new borrowers that seems to me a perfectly legitimate commercial reason, which the Claimants could enter into to help recover itself from the losses that it has sustained over a period of time.

Raising the interest rates may well be necessary for its financial survival. That might have the consequential result that the borrowers move elsewhere because they can obtain lower rates of interest elsewhere. It does not follow that the Claimants’ policy is motivated by a desire to force them to remortgage, it is a consequence of their raising higher rates, because of the financial circumstances in which they find themselves. Mr Higgins in paragraph 13.1 of his report makes assumptions, which to my mind are completely unreal and not sustainable by any evidence. I have no evidence to show, for example, there has been an aggressive possessions policy in this case (quite the opposite). I have no evidence to show that in this case they were attempting to drive the Defendants away and force them to remortgage.

Mr Higgins’ report and summary in paragraph 15 is strong on assertion and totally lacking in evidence.

It is to be contrasted with Mr Bloomfield’s report and in particular his extensive and compelling criticisms in section 7 of Mr Higgins own report. I have already accepted that I should not weigh competing reports against each other ordinarily, but I am afraid to say that I find Mr Bradshaw’s report totally lacking in substance so that it cannot be said with any credibility that the matters he raises have any real prospect of being successful at the trial. The position appears to me to be relatively straightforward. The Claimants, because of the nature of their mortgage book, suffered more than most lenders when the recession came in the late 1980’s early 1990’s. They were not in the market as long as established institutions. They were therefore not protected by the cushion of such longer-term borrowers. Thus when borrowers went into default and properties were repossessed the margins were much less and there were greater instances of negative equity which left the Claimants with losses. They addressed these losses by organising their affairs and charging the interest rates so as to enable them first to survive, and second to begin to move into profit. All of this is entirely credible.

One has to contrast that with borrowers who borrow on a self-certified basis which either is not true or which changes and who then find themselves unable to pay the mortgages, which they took out in more stable financial times. It is a popular practice nowadays to believe that merely because circumstances have changed adversely that someone else is to blame. I have had no explanation, for example, as to why the Defendants have not paid any mortgage payments for many years. I have had no explanation as to why they fell into arrears in the first place. They had the benefit of a three year cap at 12.9% (when NHL’s rates were actually higher during that period) and thereafter the rates have fallen below the initial agreed rate at 12.9%. It follows therefore, that they ought to have been in a better position over the passage of time to service the loan. Their failure to service the loan (massively after 1995) is completely unexplained. There have been clearly some difficulties, but I do not see it can be said that those difficulties have been visited upon them by reason of the breach of this implied term. I do not see that Mr Higgins’s report has any real prospect of persuading a trial judge that that would be the case.

I therefore do not accept that item (c) raises any matters, which should lead me to allow the Defendants’ appeal.

The test to invoke the reopening powers under the CCCA 1974 is very high. A credit bargain is extortionate if it:-

The Nash case establishes that the test must be made at the time when the agreement is entered into and not afterwards.

Subsection 2 sets out the matters that must be had regard to, namely prevailing interest rates, the factors in subsections (3) to (5) and any other relevant considerations. The factors in subsections (3) to (5) are the age experience business capacity and state of health of the debtor, the degree as to which he was under financial pressure and the nature of that pressure and the degree of risk in relation to the creditor having regard to the value of any security provided, his relationship to the debtor and whether or not a colourable cash price was quoted for any goods. Subsection (5) refers to a linked transaction.

I have no evidence to show that the age experience, capacity and state of health of the Defendants had any significance in this borrowing. Equally, I have no evidence to show that the Defendants were under financial pressure. The opposite appears to be the case as they simply borrowed more monies from the Claimants to use the surplus to improve their house and even to pay for their daughters wedding. In Nash the court of appeal rejected an argument that the loan was an extortionate credit bargain.

In so rejecting the argument Dyson LJ said this:-

He rejected the comparison with the Halifax Building Society rates in paragraph 69 of his judgment as being a basis for being grossly exorbitant. I do not accept the point raised by the Defendants namely that the policy of securitisation means that the bargain they entered into at the start was an extortionate credit bargain. I accept Mr Wulwik’s submission that the Defendants are simply using that to try and argue around the adverse decision in Nash .

In Broadwick Financial Services Ltd. –v- Spencer [2002] EWCA Civ 35 Dyson LJ confirmed his view as to extortionate credit bargain in Nash with some modification. It is that modification which the Defendants fasten upon. What Dyson LJ says in Broadwick (paragraph 56) is that if there is a clause, which includes a discretionary variation, it might have the potential to make the bargain extremely burdensome if a wide gap opens up between the interest rates. If the lender has a policy of operating the clause a certain way or (as in that case) of not operating the clause at all, whether market rates go up or down then on the ordinary principles of fair dealing he was of the view that the lender was required to inform them the borrower of that policy before the bargain was made. Failure to inform the borrower may be a factor taken into account in determining whether or not there has been a gross contravention of the ordinary principles of fair dealing and therefore whether the credit bargain is extortionate.

He concluded that the Claimants should have told the Defendants of its policy not to reduce rates at all, but the claim still failed because there was no evidence that they would not have proceeded with the transaction on the same terms if they had been given the information and nobody could have foreseen what change in interest rates would occur.

He therefore concluded where failure to communicate was not a serious contravention of the ordinary principles of fair dealings still less a gross contravention.

I do not see that the fact of securitisation by the Claimants is significant. There are two reasons for that. First, mere securitisation does not necessarily have an adverse impact on the interest rates. Second, I am of the opinion that under the mortgage conditions the securitisations were reserved by virtue of clause 9.6 of the mortgage conditions. Further, the Claimants have not made any secret of securitisation as their public documentation shows.

What was not disclosed however, was the minimum level set by the AA. That, as Dyson LJ has pointed out could have a possible extortionate credit bargain impact. However, there is no evidence that it did so in the present case. The rate of interest charged in the Broadwick case were far higher (APR 29.78%). I do not accept Mr Page QC’s submission that the Defendants were worse off than in the Broadwick case, because their interest rates could not fall below a certain level. One must remember that in the Nash case, the Court of Appeal compared Paragon’s rates with that of the Halifax Building Society. That comparison is the most favourable comparison vis-à-vis the Defendants. If one ignores the Nash decision where it says that it is not a fair comparison because it is not comparing like with like (as Mr Bloomfield expressed in his report) the Court of Appeal there still concluded there was no extortionate bargain. The cap imposed by the AA has not operated in an extortionate way, because the margins between the Halifax rate, for example, and the Claimants are not so wide as to be capable of being categorised as harsh and oppressive within the ambit of section 138.

I therefore conclude that this Defence also has no real prospect of success.

Mr Page QC did not press this as an issue in the written and oral submission and I did not understand him to be pressing this point. If I am wrong it seems to me that there is no Human Rights infringement by ordering possession and its enforcement now because:-

It follows from all of the above that the Defendants have not raised anything whether in their original case or in the later case that has any real prospect of success. I accept that I am in a position to rehear the appeal, if necessary, because of the misinterpretation of the revocation of CCR order 37 by Her Honour Judge Mayer. I refuse permission to appeal in respect of the matters argued before Her Honour Judge Mayer on matters of principle, but grant permission to appeal the application to set aside the possession order and the new points raised by the Defendants. However, they too, for the reasons set out in this Judgment have no prospect of success, so I dismiss the appeal based on these grounds also.

Giving the Defendants the best possible leeway, namely a rehearing on the merits my conclusion is that they have no merits of any nature that have any real prospect of success and I will therefore dismiss the appeal.

It remains stayed pending the appeal. That stay should now be lifted, but I will hear representations as to when the stay should be lifted.