Heath v Southern Pacific Mortgage Ltd

Section 18 of the Consumer Credit Act 1974 distinguishes an agreement made up of separate parts from one agreement falling within more than one statutory category. The court must construe the agreement’s terms objectively, in light of admissible surrounding circumstances. A single advance does not become separate agreements merely because some of it is used to refinance existing debt and the balance is available for unrestricted purposes. Where the agreement is not divisible into parts, section 18(3) does not require apportionment. The mortgage was enforceable and the appeal was dismissed.

The appellant’s mortgage advance exceeded £25,000. Part was required to discharge an earlier mortgage and the balance was available for her own purposes. After possession orders were made in the Worksop County Court, she sought permission and an extension of time to argue that the mortgage was a multiple agreement under section 18 of the Consumer Credit Act 1974.

The central issue was whether the refinancing element and the balance constituted separate parts, each below the statutory limit, or one indivisible advance falling, if at all, within more than one statutory category.

1. Permission and extension. Permission to appeal and an extension of time were granted. The issue was properly arguable, the delay was explained by the legal complexity of the point, the appeal had been pursued promptly once identified, and the respondent suffered no significant forensic prejudice. The checklist in CPR 3.9, as considered in Sayers v Clarke Walker [2002] 3 All ER 490, supported that conclusion.
2. Construction of section 18. The court construed the mortgage objectively by reference to its terms and admissible surrounding circumstances. Section 18(1)(a) and (2) apply where an agreement contains separate parts which are themselves in different statutory categories. The mere fact that an agreement falls within more than one category does not make it an agreement in parts.
3. The mortgage provided one fixed advance. The condition requiring the existing mortgage to be paid from the loan did not allocate a distinct part of the advance to that purpose. The agreement could not be divided without changing its essential character. It was therefore not a multiple agreement within section 18(1)(a).
4. If the mortgage fell within more than one category, section 18(1)(b) and (3), rather than section 18(2) and (4), would apply. The agreement would be treated in the relevant categories, but there would be no resulting apportionment. Since the advance exceeded £25,000, the Act did not make it enforceable only by treating it as two smaller agreements.
5. The court agreed with the integrated-package approach in The National Home Loans Corporation v Hannah [1997] C.C.L.R. 7, and was unable to follow Ocwen v Coxall and Coxall [2004] C.C.L.R. 7 or London North Securities Ltd v Williams and Williams because their construction of section 18 was wrong.
6. The mortgage was enforceable. The appeal from the possession orders was dismissed. The court left open whether the proceedings should be retransferred to Worksop for enforcement.

The court also noted, without deciding, that section 11(3) might characterise the whole advance as unrestricted-use credit.

High Court (Chancery Division): On appeal from possession orders made in the Worksop County Court, permission to appeal and an extension of time were granted. The appeal was dismissed because the mortgage was enforceable.