On 7 February 2013, Mr Justice Males (sitting as a judge in the High Court) handed down judgment following the borrowers’ application for permission to appeal in Santander UK plc v Harrison & Harrison  EWHC 199 (QB). The borrowers’ appeal relied on two technical points under the Consumer Credit Act 1974 (“CCA 1974”): (a) whether the capitalisation of arrears due under a mortgage secured on residential property was regulated by the CCA 1974 meaning the debt was “irrecoverable and the mortgage security worthless” (“Capitalisation Issue”) and (b) following a securitisation agreement with Holmes Trustees Limited (i) Santander UK plc (“Santander”) had no right to bring the claim and (ii) there was an unfair relationship within Section 140A of the CCA 1974 because Santander failed to comply with the borrowers’ reasonable requests for further time to pay (“Securitisation Issue”). Lenders will be pleased to know that in a sensible and pragmatic judgment, the appeal was refused.
By an offer of loan dated 26 June 2006, Santander offered to loan £500,000 (plus fees of £499) to Mr & Mrs Harrison. The loan would be secured by a first legal charge on their property at Bigadon Home Farm, Buckfastleigh, Devon (“Property”). Because Mr Harrison’s mother was a joint proprietor with Mr & Mrs Harrison, they all signed the mortgage deed (“Deed”). Mr & Mrs Harrison fell into arrears and Santander issued proceedings for repossession of the Property and the balance under the Deed, which was £541,288.71 at 29 July 2010. The Property’s estimated value was in the region of £900,000. Santander applied to strike-out the Re-Re-Amended Defence & Counterclaim arguing that the two key issues failed to disclose a real prospect of success. The hearing of this application was listed on 11 June 2012 before His Honour Judge Salomonsen. By a written judgment handed down on 16 August 2012, both the Capitalisation Issue and the Securitisation Issue were decided in Santander’s favour.
Mortgage Regulation: Background
A new system of mortgage regulation was introduced in the UK on 31 October 2004 by HM Treasury. Broadly, first charge mortgages on residential property were regulated by the Financial Services Authority (“FSA”) under the Financial Services and Markets Act 2000, with second (and later) charge lending regulated by the Office of Fair Trading under the CCA 1974. At that time, only loans under the financial limit of £25,000 were regulated by the CCA 1974 but that financial limit was abolished from 6 April 2008. It was intended by HM Treasury that the FSA and OFT regimes would be mutually exclusive and that there would be no overlap.
The Arguments on Appeal
At the appeal hearing before Mr Justice Males, Mr & Mrs Harrison argued that:
- the mutual decision in June 2008 to capitalise the arrears (the “capitalisation agreement”) was not an agreement regulated by the Financial Services and Markets Act 2000 but was regulated by the CCA 1974 because the financial limit of £25,000 was removed from Section 8(2) of the CCA 1974 on 6 April 2008 by Section 2 of the Consumer Credit Act 2006;
- the capitalisation agreement was regulated by the CCA 1974. This is because it was a modifying agreement within Section 82(2) of the CCA 1974. The removal of the financial limit of £25,000 did not apply (by virtue of transitional provisions) to the modification of existing agreements unless “credit in the form of a cash loan was provided” and the capitalisation agreement provided a cash loan;
After hearing submissions, Mr Justice Males decided:
- the capitalisation agreement “varied or supplemented the earlier 2006 agreement” so therefore qualified as a modifying agreement under Section 82(2) of the CCA 1974;
- the effect of the capitalisation agreement being a modifying agreement was that the Deed was treated (in accordance with Section 82(2)) as revoked and replaced by the capitalisation agreement (which would incorporate the combined effect of both agreements);
- by Article 4(1) of the Consumer Credit Act 2006 (Commencement No. 4 and Transitional Provisions) Order 2008 (“Transitional Order”), the removal of the financial limit of £25,000 had no effect for the purposes of Section 82(2) where an agreement (a) varies or supplements an existing agreement and (b) would not, apart from Section 82(2), be treated as an agreement under which credit in the form of a cash loan is provided. Put another way, the capitalisation agreement must provide “credit in the form of a cash loan” or it would not be regulated by the CCA 1974;
- while the capitalisation agreement did provide credit (because the time for paying arrears of £8,968.92 was deferred), Mr & Mrs Harrison were not provided credit by way of a cash loan;
- the explanatory notes to the Transitional Order, which stated that the removal of the financial limit for an agreement which “varies or supplements an agreement made before 6 April 2008 for the provision of credit exceeding £25,000, and either does not itself provide for further credit to be advanced or is itself an exempt agreement”, were wrong as Article 4(1) could not be read “in this way”;
- the specific mention of a “cash loan” was a limiting factor and the capitalisation agreement could not be seen as providing a cash loan for two reasons: (a) the result “accords with the natural meaning of the words” and (b) the consequence of Mr & Mrs Harrison’s contention would (if right) “be startling” because a routine deferral of an instalment due under an unregulated credit agreement could cause the whole agreement to become unenforceable and would “represent a trap”;
- because no cash loan was provided to Mr & Mrs Harrison, their defences which depend on the capitalisation agreement being regulated by the CCA 1974 fell away;
- he “could not see that title to sue makes any difference to the outcome of this action”: if the capitalisation agreement was regulated then a default notice should have been served before a possession order could be obtained (and Santander accepted it had served no notice because it took the view the capitlisation agreement was not regulated);
- even if there had been “absolute assignment by writing under the hand of the assignor (not purporting to be by way of charge only)” no notice was given to Mr & Mrs Harrison: reference to a third party in the documents provided in response to Mr & Mrs Harrison’s subject access request was not “express notice in writing … given to the debtor” meaning the Court of Appeal’s test in Van Lynn Developments Limited v Pelias Construction Company Limited  1 QB 607 was not satisfied;
- it was incorrect that only the assignee can serve a default notice under section 87 of the CCA 1974: the analysis of Mr Justice Hamblin in Jones v Link Financial Limited  EWHC 2402 (QB) that “when notice of a legal assignment has been given, it is the assignee to whom the debtor is thenceforth liable for the debt and that the assignee can only enforce the debt if the applicable statutory duties laid down in the [CCA 1974] have been performed” was right. The question of whether such an assignee would be able to rely on notices served or information provided by the assignor would be “left open”;
- it seems “unlikely in the extreme that the fact of securitisation will add anything” to Mr & Mrs Harrison’s claim alleging unfairness;
- while the burden of proving the relationship is not unfair was on Santander (by Section 140B(9) of the CCA 1974 and following Mr Justice Peter Smith’s decision in Bevin v Datum Finance Limited  EWHC 3542 (Ch)), once the issue was raised by Mr & Mrs Harrison, it was “unnecessary to consider whether the borrowers have done sufficient to raise the issue of unfair relationship generally, because ... bank accepts that they have”. It was, however, open for Mr & Mrs Harrison to argue those issues at trial;
- HHJ Salmonson’s decision to strike-out those paragraphs which were “both speculative and unnecessary and are part of a pleading which is already inordinately prolix” was “a sensible case management decision”.
Permission was therefore granted on the capitalisation issue but the appeal was dismissed. On the securitisation issue, permission to appeal was refused.
This is an extremely sensible (and binding) decision from the High Court. It now makes it clear that the explanatory note to the Transitional Order is wrong. It is also another lesson for borrowers to read what the legislative provisions say: it was necessary for a “cash loan” to be provided at the time of making the capitalisation agreement. It cannot be said, on any version of events, that the capitlisation of arrears (where no money changes hands) could ever be classed as a “cash loan”. The situation may, however, have been different if Santander had offered to capitalise arrears on, say, a second charge to a third party lender which ranked behind its first charge. It also acts as a warning for lenders who offer to accommodate their customers. Under the terms of the Deed, Santander was contractually entitled to capitalise any arrears and did not need Mr & Mrs Harrison’s consent. Because it tried to agree this course of action with Mr & Mrs Harrison, it had to rely on the wording of the Transitional Order. As Mr Justice Males noted: “No doubt there were good commercial reasons for acting in that way, not least that new arrangements entered into consensually might have a better prospect of being followed, even if that hope was disappointed in this case”.
The decision on the securitisation issue is also sensible. It is difficult to see how any securitisation can, on its own, create unfairness in the relationship. The evidence produced by Mr & Mrs Harrison did not appear to sufficiently support their position. Santander remained the legal owner of the debt and it would have taken a clear notice (either under Section 136 of the Law of Property Act 1925 or, for an agreement regulated by the CCA 1974, under Section 82A of the CCA 1974) rather than a note on a document produced in response to a subject access request. The Court’s approval of Jones v Link Financial Limited  EWHC 2402 (QB) is also welcome. However, it appears that the Court was not referred to Mr Recorder Stauss QC’s decision (sitting as a deputy judge in the High Court) in Smith v 1st Credit (Finance) Limited & Another  EWHC 2600 (Ch) which rightly makes it clear that a notice of assignment can be given by the assignor or the assignee.
The unfair relationship claim was not argued with any considerable vigor (given Santander’s acceptance that these points could be argued at trial). Mr & Mrs Harrison’s reliance on the burden of proof does, however, appear to be misconceived. It is submitted that Section 140B(9) of the CCA 1974 refers to the legal burden of proof and not the evidential burden of proof. This distinction is not artificial: it is one which happens in a number of other statues (both criminal and civil). This means that Mr & Mrs Harrison must prove the facts which theyallege create unfairness and, once proven, the burden of proof then moves onto Santander to prove that the relationship (given those proven facts) is not unfair. This was, of course, accepted by His Honour Judge Waksman QC in Carey & Others v HSBC Bank plc & Others  EWHC 3417 (QB). It was also the position under the extortionate credit bargain provisions (which the unfair relationship provisions replaced). From the judgment in Bevin, it seems clear that Mr Justice Peter Smith was not referred to the earlier (and now conflicting) decisions in Carey and Re M  EWHC 2324 (Admin) (where permission to amend to include a claim under Section 140A was refused because no supporting evidence was provided). When considering the burden of proof under the extortionate credit bargain provisions in Coldunell v Gallon  QB 1184, Lord Justice Oliver said that the creditor’s burden “is sufficiently discharged by showing that the bargain was on its face a proper and not an extortionate credit bargain and that the [creditor] acted in a way that an ordinary commercial lender would be expected to act”. It seems this argument, and a definitive statement of the law, must wait for another day.
Re: Hoist Portfolio Holdings 2 Ltd
by Getoutofdebt1000 » Thu Jan 22, 2015 4:54 pm
As this situation is slightly different to the usual circumstances, please can someone read my potential letter, I don’t feel it is worth asking them to provide documents as it is blatantly clear that the default has been applied unlawfully if the company name on the default is a company that is not registered with companies house. Please can you let me know if that assumption is true or if you think I should still ask Robinson Way for the documents? Also whether my letter is good enough to send with the fact it mentions straight away that it’s been placed unlawfully. Thanks in advance….
RE: Bank Default from Hoist Portfolio Holding 2 Limited (I) / XXXX123456
I am writing to you with regards to a default notice which has been applied to the credit file of MY NAME. The default notice has been applied by a company called Hoist Portfolio Holding 2 Ltd. Even though there is no such company registered within England, Scotland or Wales.
I have not received any correspondence from Hoist Portfolio Holding 2 Ltd or any other company with regards to a bank default, as a result I am not aware whether Hoist Portfolio Holding 2 Ltd would be acting as an agent or have been assigned the alleged debt.
I have not received the said Default Notice, Deed of Assignment or Deed of Novation, thus the default entry has been added unlawfully and without merit, the fact that the company does not exist is also proof that the default has been added unlawfully.
A letter requesting the unlawful default be removed was sent to Hoist Finance UK at the same address as Robinson Way, however Hoist Finance have denied all knowledge of the said default (please see copy of their reply). As a result it has come to light that all Hoist Portfolio Holding 2 Ltd correspondence is to be sent to Robinson Way and that Hoist Portfolio Holding 2 Ltd are not a registered company thus cannot be a creditor and thus cannot add any bank default to any credit file.
This action has put you liable to a breach of the Consumers Credit Act 1974, in particular s.87(1) of said Act; Section 87(1) of the 1974 Act allows the creditor to send an alleged debtor a default notice. The default notice must contain all of the necessary information under the Consumer Credit (Enforcement, Default and Termination Notices) Regulations 1983 ('the 1983 Regulations') which includes;
1. A statement saying the notice is a default notice served under section 87(1)
of the CCA1974
2. A description of the agreement
3. The name and address of both the debtor and the creditor
4. Details of the breach (i.e. late payment) and, if the breach can be remedied, the date by which it must be remedied or, if the breach is not capable of remedy, the amount required to be paid after the expiry of the specified date;
I have not received a notice and as a result I contest the accuracy of the default and until such time, that you can provide proof that you complied with the above Act, you must remove all derogatory data from the files of any credit reference agency.
Without sight of said default notice, I cannot argue the authenticity, enforceability or execution and therefore will use this as my claim if I am forced into taking legal action, all costs will also be claimed.
It would, however, be in both our interests to simply agree to remove the default, being that there are many inconsistencies with the alleged default notice, concerning the execution, the enforceability and the legal compliance. Surely there is no other alternative but to remove it, least of all as a gesture of goodwill.
I am not in receipt of any of the statutory documents (Notice of Termination of Contract; Notice of Assignment or Default Notices) thus the actual default notice that is shown on my credit file is unlawful and should be removed immediately.
I do not wish to take this through the courts but will enforce removal by judgement if necessary, Hoist Portfolio Holding 2 Ltd have acted unlawfully by not issuing fully compliant and correctly executed legal documents.
In fact I have not been sent anything at all or even sure which company to contact with regards to the alleged default. As a result I must insist that the following requests be carried out;
a) The Default Notice will be removed
b) The Status of the account will change from “Defaulted” to “Settled”
c) The Current Balance will appear as £0.00
d) The Default / Delinquent Balance will be set to £0.00
e) There will be no date in the “Defaulted Date” field (as it will be removed)
f) There will be no date in the “Date Last Delinquent” field on the report
g) This will apply to all 3 Credit Reference Agencies, namely Experian, Equifax & Call Credit.
A company that doesn't exist cannot place a default, failure to remove said default will result in reporting Robinson Way/Hoist Finance UK to the Financial Ombudsman Service, the Financial Conduct Authority for their records, the Information Commissioner’s Office and Action Fraud.
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