Wilson v First County Trust Ltd (No 2)

The absolute prohibition in section 127(3) of the Consumer Credit Act 1974 on enforcing an agreement whose signed document omits prescribed terms was incompatible with the creditor’s rights of access to a court and peaceful enjoyment of possessions. The prohibition disregarded prejudice, culpability and the possibility of proportionate judicial control. Improper execution restricted enforcement rather than extinguishing contractual and security rights.

The Human Rights Act 1998 applied to the appellate court’s prospective order, although the agreement pre-dated commencement. Compatible interpretation required a legally possible meaning. Where the statutory prohibition admitted no such interpretation, the court had to give effect to it and could declare its incompatibility without affecting its validity or operation.

Mrs Penelope Wilson borrowed money from First County Trust Ltd, a pawnbroker, and pledged her BMW car as security. The signed agreement stated the loan amount as £5,250, including a £250 document fee. Judge Hull QC, sitting in Kingston upon Thames County Court, rejected her contention that the amount of credit had been misstated.

In interim judgments reported at [2001] QB 407, the Court of Appeal reversed that conclusion. The fee formed part of the charge for credit, so the credit advanced was £5,000. The signed agreement therefore omitted a correctly stated prescribed term and fell within section 127(3) of the Consumer Credit Act 1974. The court adjourned the appeal to consider a declaration of incompatibility and directed notice to the Crown.

The Secretary of State for Trade and Industry intervened to oppose a declaration, and an amicus curiae assisted the court. The further hearing addressed the application of the Human Rights Act 1998 to an earlier agreement, the compatibility of the enforcement prohibition with Convention rights, the possibility of compatible interpretation and the discretion to make a declaration.

The appeal was allowed and a declaration of incompatibility was made. The Vice-Chancellor, Chadwick LJ and Rix LJ delivered a single judgment of the Court.

1. Sections 3, 4 and 6 of the Human Rights Act 1998 applied to the order the appellate court would make after commencement. The relevant event was that prospective judicial act, rather than the earlier agreement. Section 22(4) regulated remedies concerning earlier acts of public authorities. It did not exempt a court’s present order from its Convention obligations.

2. Improper execution under the Consumer Credit Act 1974 restricted enforcement without preventing contractual rights from arising. Delivery of pledged goods likewise conferred possessory rights. Those rights engaged article 6(1) of the Convention and article 1 of the First Protocol. Treating the advance as a voluntary gift misconceived the statutory scheme.

3. Restrictions on access to a court required a legitimate aim and a reasonable relationship of proportionality. Interference with possessions required a fair balance, taking account of the circumstances, including the owner’s fault or care. Although consumer credit legislation concerned social policy deserving judicial deference, deference required consideration of the policy and its justification. Preparatory materials and parliamentary debates could assist that inquiry.

4. The requirements of formality, disclosure and judicial control pursued legitimate objectives. Requiring particular attention to prescribed terms was also legitimate. However, section 127(3) imposed an inflexible prohibition irrespective of prejudice, culpability or compensating conditions. No justification established why ordinary judicial control could not achieve the same objective. The prohibition was therefore disproportionate and incompatible with both Convention rights.

5. Section 3(1) required the court to adopt a compatible interpretation wherever legally possible, including a meaning different from the ordinary interpretation. It did not authorise a meaning the words could not bear. Section 127(3) irreducibly required a signed document containing all prescribed terms, and the regulations unequivocally identified those terms. Compatible interpretation could not remove that requirement.

6. A creditor could not retain property lodged as security where enforcement of that security was prohibited. The court left open whether refusal of enforcement under section 127(3) could be characterised as dismissal on technical grounds for section 106.

7. The incompatibility lay in the primary legislation’s absolute prohibition, rather than the existence or content of prescribed terms. A declaration was appropriate because the issue had been fully argued, the statutory basis for the court’s order should be formally recorded, and a declaration enabled consideration of remedial legislation. Possible unjust enrichment proceedings did not affect that conclusion. Their prospects remained undecided.

The appeal was allowed for the reasons in the interim judgments. The recorded order declared incompatibility, awarded the claimant £6,900 and refused permission to appeal to the House of Lords. That order was expressly stated to form no part of the approved judgment.

• Court of Appeal: In [2001] EWCA Civ 633 , the court allowed the appeal against the county court’s order and declared section 127(3) of the Consumer Credit Act 1974 incompatible with the creditor’s Convention rights. The recorded order refused permission to appeal to the House of Lords.
• Court of Appeal: Interim judgments delivered on 23 November 2000, reported at [2001] QB 407 , reversed the judge’s conclusion concerning the amount of credit. The appeal was adjourned for further argument about incompatibility after notice to the Crown.
• Kingston upon Thames County Court: Judge Hull QC made the order under appeal on 24 September 1999. The Court of Appeal reversed his conclusion concerning inclusion of the document fee in the amount of credit. No citation for that decision is supplied.