I Group Loans Ltd v Bradshaw

MR. JUSTICE UNDERHILL: Under a loan agreement dated 5^th March 2004 the applicant borrowed the sum of £21,840 from the respondent and mortgaged his home at 79 Thorpefield Drive, Thurmaston by way of security for repayment. He fell into arrears and the respondent issued the present proceedings in the Leicester County Court, claiming possession.

On his defence form lodged on 4^th November 2005 the applicant acknowledged liability for the amount of the arrears claimed and sought an order for payment by instalments. No point was taken by him as to the enforceability of the agreement. It does not appear that at that stage he had received legal advice.

On 29^th November 2005 the lender’s claim for possession was heard before District Judge Stameniuwicz and an order was made for the possession of the property on 10^th January 2006. The applicant appeared in person. It is not clear whether in practice he sought to resist the making of the order, but it is certainly not framed as having been made by consent.

The applicant then apparently sought legal advice, and on 12^th January 2006 his solicitors, Messrs Stephensons, issued an application for an order that the possession order made on 29^th November 2005 be set aside and for permission to file and serve a defence and counterclaim. The relief claimed in the draft defence and counterclaim was a declaration that the original agreement and charge were “irredeemably unenforceable” under the Consumer Credit Act 1974. In short, his case is that the agreement was a registered agreement within the meaning of the Act; that it was improperly executed within the meaning of section 61 for reasons into which I need not go; that it could accordingly only be enforced if the court so ordered under section 65; and, finally, that the court could not make an order under section 65 because no document containing all the printed terms of the agreement had ever been signed by the applicant (see section 127(3)).

On 30^th January 2006 His Honour Judge Mayor QC of his own motion struck out the application to set aside. His order was in the following terms:

“(1)

application struck out as being wrongly brought under e.g. part 13 or part 23. Both parties were heard by the learned district judge. Any application should be under and comply with part 52 and is out of time unless the court grants an extension; (2) the applicant may apply on five days notice to the designated civil judge to vary or rescind this order and will be heard for up to 15 minutes. Total time estimate 30 minutes; (3) the respondent need not attend any such application, which will be an application only to vary or rescind this order and not an application for permission to appeal the order of 29^th November 2005.”

The issue as argued before me is purely procedural. I am not being asked to decide the substantive question of whether the agreement did indeed comply with the requirements of the 1974 Act. All that I am being asked to decide is whether the applicant was entitled to raise that issue by an application to set aside the order of 29^th November 2005 or whether, if he wished to do so, he was obliged to proceed by way of appeal. Although the point is entirely procedural, it is important and not straightforward. Mr Say was, I think, a little aggrieved that it received shorter shrift from Judge Mayor than on the merits he believed that it deserved, but that is water under the bridge.

Mr Say’s submission on behalf of the applicant is as follows. Section 65(1) of the 1974 Act provides that “an improperly executed agreement is enforceable against the debtor or hirer on an order of the court only”. Section 127(3) of the Act provides that in circumstances where the debtor has not signed a document containing the prescribed terms “the court shall not make” an order under section 65(1). On the assumption, which I must make for present purposes, that no such document had been signed in the present case, the agreement was, in the jargon, “irredeemably unenforceable”. It follows, Mr Say submits, that the order of 29^th November 2005 was made without jurisdiction, and it further follows as a matter of principle that it is liable to be set aside ex debito justitiae.

Mr Say relies principally on the decision of the Court of Appeal in Munks -v-Munks [1985] FLR 576. That decision concerned the power of the High Court to make orders for ancillary relief under sections 23 and 24 of the Matrimonial Causes Act 1973. The statute provides for such a power to be exercised, “on granting of a decree of divorce… or at any time thereafter… and not otherwise”. The Registrar had purported to make an order by consent on such an application before the making of the decree nisi. Dealing with the effect of that order Sir Roger Ormrod, giving the judgment of the court, said this:

“There can be no doubt that on 9 February 1983 the Registrar had no jurisdiction to make the consent order because it was made before decree nisi… However, it is well established that an order of a court of competent jurisdiction which is good on its face must be treated as a valid order until it has been set aside (see the observations of Lord Diplock in Isaacs -v- Robertson [1984] 3 WLR 705, the report of which, unfortunately, only became available after the conclusion of the argument in this court). Consequently the wife should have applied to the court to set aside the order as the first step. Had she done so the court would have been obliged to set it aside ex debito justitiae. Counsel for the husband was right in his submission that until set aside the consent order was an effective bar to his wife’s subsequent application for financial provision, but wrong in his contention that the only remedy was by way of appeal or judicial review…

The order for trial of a preliminary issue was itself misconceived and in the result led Ewbank J into error. An order made without jurisdiction which one party is entitled ex debito justitiae to have set aside cannot possibly be saved by the slip rule or by the inherent jurisdiction. Once the court’s attention is brought to the fact that the order was made without jurisdiction there is no alternative but to set it aside. Counsel for the husband submitted that the order had been acted on to the extent of handing over the car and that the wife was estopped from challenging the validity of an order. It is, however, well settled that jurisdiction cannot be conferred by consent or estoppel. Moreover, any person who might be affected by such an order is entitled as of right to have it set aside.”

Mr Say submits that the present case is analogous. If the agreement was irredeemably unenforceable the court had no jurisdiction to make a possession order and the applicant was entitled to have it set aside. It was unnecessary for him to use the mechanism of an appeal.

There is no appellate authority in which the decision in Munks has been applied to cases of possession orders enforcing agreements which are said to require an enforcement order under the 1974 Act and/or are irredeemably unenforceable, but several county court judges have accepted that the analogy argued for by Mr Say is good. I have been referred to the decisions, taking them in date order, in Lamb -v- J & J Securities (Judge Swanson), Grangewood Securities Limited -v- McGinn (Judge Langan), Reunion Finance Limited -v- Armstrong (Judge Taylor), Ocwen-v- Coxall (Judge Holt)and London North Securities -v- Williams (Mr Recorder Flather). In the Grangewood and Reunion cases in particular the judgments contain careful consideration of the issue which is raised before me on this appeal. There is a sixth case in which the point was also decided in favour of the argument now advanced by Mr Say, by Judge Welshman, that is Watchtower -v- Payne (Judge Welchman) but I do not have the judgment in that case. Both Grangewood and Watchtower went to the Court of Appeal, but in neither case was any point taken before the Court of Appeal on whether it was right for the substantive order to be challenged by way of an application to set aside rather than by way of appeal.

Mr Say acknowledges that there is no provision in the Civil Procedure Rules explicitly providing for the setting aside of an order ex debito justitiae. The order in Munks was apparently made under the inherent jurisdiction of the court, but he says that such a power can be derived from section 76 of the County Courts Act 1984 or, alternatively, from CPR 3.1(7), which provides that a power of the court under the rules to make an order “includes a power to vary or revoke the order”.

Although I have been impressed by Mr Say’s exposition of his submissions and treat with respect the careful judgments in the county court to which I have referred, I cannot accept those submissions. Munks establishes that there is indeed a class of case where an order made “without jurisdiction” can be set aside ex debito justitiae without the need for an appeal, but I do not believe that the present case falls into that class. It is true that if the agreement was indeed irredeemably unenforceable then the district judge should not have made the possession order, or at least should not have done so had the point been taken, but in my view that was no more than an error of law of the type which courts regularly make and which are correctable on, but only on, appeal. I do not believe that in making her order in the circumstances of the present case the district judge was acting outside her “jurisdiction” in the particular sense used by the Court of Appeal in Munks. It is important to bear in mind the many warnings in the authorities about the protean nature of the concept of “jurisdiction”, and the dangers of treating it as a simple touchstone in particular cases. The district judge was making an order of a kind which county courts make every day and unquestionably have the jurisdiction to make, namely an order in favour of a mortgagee for possession of a charged property. As I have acknowledged, the order was wrongly made, just as it might have been if she had misconstrued a provision in the charge or made some other error of law which vitiated her conclusion that the charge was good or that the sum was due; but I do not see that the fact that the form which her error took was the overlooking of a particular statutory restriction on the making of the order thereby transforms its character. In particular I do not think that the fact that section 127(3) uses the words “the court shall not make an order” is determinative of the question of whether the district judge had jurisdiction in the necessary sense - quite apart from the fact that arguably the key words are not so much those of section 127(3) as those of section 65(1), which are somewhat less explicit. In Munks the error concerned the existence of a necessary precondition for the court to be making any order at all. The power to grant ancillary relief is a statutory power exercisable when and only when the parties have been effectively divorced. An order made where there has been no decree of divorce is made “without jurisdiction” in a far more radical sense than the order in the present case - though even then, interestingly, it is not according to the Court of Appeal a nullity. What is more, whether or not there has been a decree nisi is an objective fact capable of being established from the court’s own record: it is not a matter which itself requires determination by the court, as do the issues which would arise under section 65(1) or section 127(3) of the 1974 Act.

That is my principal reason for holding that Judge Mayor was correct to take the view that the order of the district judge could only be challenged by way of appeal. There are, however, four supporting reasons, which I take in descending order of weight.

First, Mr Say conceded that he could not have proceeded by way of an application to set aside if the district judge had in fact considered the application of sections 65(1) and 127(3) and had, ex hypothesi, wrongly concluded that the agreement was enforceable. In those circumstances he accepted that he would have had to proceed by way of appeal: otherwise the applicant could in principle have made as many attempts to challenge the order as he chose. But this seems to me an unprincipled distinction: if Mr Say’s basic point is good, it must depend on the “fact” (once established) that the agreement was indeed irredeemably unenforceable and not on whether the district judge considered that it was.

Secondly, the power which Mr Say asserts to exist is subject to no procedural fetters at all. An application could be made, and would have to be entertained, however long after the original order which was being challenged, even if it were many years later (as was indeed the case in two of the county court decisions to which I have referred), and even if the debtor had consented to the making of the order. That seems to me unsatisfactory and difficult to reconcile with the overriding objective. If a litigant has to proceed by way of appeal, the process is subject to the control of the court - including, of course, its power to allow an appeal out of time. I accept that this point may have less substance than might at first appear since it seems to be established that even where a possession order has been made and has not been revoked a debtor can, at least in some circumstances, assert “irredeemable unenforceability” at any point prior to the actual execution of the warrant, and specifically as a ground why execution should not be issued (see Rahman -v- Sterling Credit [2001] 1 WLR 496 and Southern and District Finance plc -v- Turner [2003] EWCA Civil 1574), but even in such cases the question remains of what should be done about the original possession order, and I believe that the correct route should be one which allows the court to retain control of the process under the ordinary rules.

Thirdly, I am wary of the ramifications of the principle argued for Mr Say in the case of other statutory courts and tribunals. There are other statutory provisions which use not dissimilar language to that employed in the 1974 Act, providing that a court or tribunal should not act in such and such a manner unless such-and-such conditions are satisfied. One example floated in argument was the provision of section 111 of the Employment Rights Act 1996 that employment tribunals should not entertain claims for unfair dismissal unless brought within the specified time limits. That requirement is often described as going to jurisdiction, for example in the sense that the limit cannot be waived; but I am not aware of it ever being argued or held that it follows from that categorisation that if a tribunal reached a decision as a result of overlooking or misapplying the statutory time limit that decision could be revoked at any time by the tribunal itself ex debito justitiae without employing either the statutory right of appeal or the statutory power of review, both of which are subject to time limits. The particular example may be largely academic, since it is probable that in any case where a time limit was indeed frankly overlooked any necessary extension to allow the decision to be appealed or reviewed would be granted, but it does in my view illustrate the fact that if Mr Say’s argument were correct it might have broader applications in ways which it is not easy to predict and which could give rise to real problems.

Fourthly, there are the difficulties alluded to above about the absence of an express power in the county court to set aside its own judgments ex debito justitiae. This difficulty is real and it weighed heavily with Judge Mayor, but, while I need express no concluded view, if this had been the only difficulty I should have been very tempted to hold that such a power could be found by one or other of the two routes suggested by Mr Say. Miss Kelly referred me to the recent decision of the Court of Appeal in Collier -v- Williams - Neutral Citation Number [2006] EWCA Civil 20 in which the court suggested a restrictive approach to CPR 3.1(7) (see paras 39 and 40) but the court was not concerned with a case of the present kind and might have expressed itself somewhat differently if it had been. That point, however, is very much a footnote.

For the reasons given I dismiss the appeal.

Since this is a second appeal I understand that any question of permission to appeal to the Court of Appeal must be determined by that court. Mr Say however invites me to express a view to which the Court of Appeal may give as much or as little weight as it chooses, as to whether this would be an appropriate case to be considered by the Court of Appeal. So far as the point is concerned, it does seem to me that the point is one of some difficulty and real practical importance. There are likely to be many such cases, as the number of county court cases to which I have been referred demonstrates; and there is a real difference in the consequences of allowing challenges only by way of appeal as opposed to by way of an application to set aside. Since my view differs from that of a number of county court judges, some of whom at least have considered the point with care, it is apparent that the point is not, as indeed I have already conceded in the text of the judgment, straightforward. I know almost nothing at this point about the underlying facts of this particular claim and express no view, therefore, as to whether there are reasons peculiar to the case which militate either for or against permission being granted.

Mr Say has made it plain that, whether or not he decides to try to pursue an appeal to the Court of Appeal against this decision, he wishes now to seek to challenge the decision of the district judge by way of appeal under part 52, as indeed Judge Mayor encouraged him to do at an earlier stage. I have been concerned to see whether I can minimise the number of procedural steps and/or hearings that may be necessary in that regard. Both counsel are agreed that it would be open to me to make any procedural orders I thought fit, and indeed in principle to grant permission to appeal and hear the substantive appeal. However, it is not possible in the time available for me to hear the appeal – nor, realistically, in view of the complexity of the points and the time now available to me, to reach a conclusion on whether there is an arguable point.

In these circumstances the most that I think I can usefully do is to direct that Mr Say lodge within five days an application for permission to appeal coupled, as it will have to be, with an application for an extension of time for appealing; and to direct that that application should be heard by a county court judge with the substantive appeal to follow directly if permission be granted. That course may be said to run the risk of involving the claimant in unnecessary trouble and expense if it turns out that the judge takes the view that there is no arguable point, but that risk seems to me to be outweighed by the risk of having two substantive hearings, one for permission and another, if this were the outcome, to determine the appeal itself. The sooner the real issues in this case are considered by a judge the better.

Mr Say informs me that on other occasions where these points have been argued they have taken a minimum of two days and in some cases considerably more. I do not think it is for me to make a definitive ruling as to what time should be set aside. The court may think it prudent, subject to other commitments, to set aside three days for argument, but I am bound to say that I would be disappointed if the issues, difficult as they may be or complex as they may be, could not be effectively argued in two days. I will leave it to the good sense of the parties to agree directions as to such matters as skeleton arguments and bundles. In the unlikely event that there is any disagreement on these points they can apply to the court for further directions.

I do not wish to prejudge any point that the judge below will have to consider, but it is perhaps right that I should say at least that, given the consistent trend of the decisions of a number of county court judges in recent years, I do not think that those advising the claimant could be criticised for initially seeking to challenge the order of the district judge by way of an application to set aside rather than by way of appeal. That may not be dispositive of all issues that arise in connection with the appeal being out of time, but it is an observation which I think it right to make having had the chance to consider the procedural point now with some care.

Ordinarily I would have made at this stage an order for costs. Since the appeal is the defendant’s appeal and he has lost, I would have ordered him to pay the costs, and I see no reason why that should not be the case. Issues might have arisen as to timing of payment and quantum. However, Mr Say tells me that he is publicly funded so that he would not normally expect to have to make any positive payment of costs. Miss Kelly tells me that no notice of such funding has been served on those instructing her, but Mr Say is unable to confirm whether that is in fact so. Neither counsel, the point taking them both by surprise for different reasons, is in a position to help me with the relevant statutory provisions. In these circumstances and with apologies to the judge I propose to remit the question of the costs of this hearing to be considered by the judge. If, as seems likely, the applicant proceeds with the proposed application for permission to appeal to which I have just referred, the matter can conveniently be dealt with at the conclusion of that hearing alongside any order for costs that may be made in that regard. I do not believe that there is anything unusual about this appeal which will make it difficult for the judge on that occasion to deal with the question of costs. I have already indicated what the outcome would have been likely to be had I been in a position to deal with the question today.