Jones v Link Financial Ltd [2012] EWHC 2402 (QB)

Case No U20120398

Case No OXO67125

[2012] EWHC 2402 (QB)

IN THE HIGH COURT OF JUSTICE

QUEEN'S BENCH DIVISION

Venue MANCHESTER DISTRICT REGISTRY, Royal Courts of Justice, Rolls Building, Fetter Lane

Date 22/08/2012

London EC4A 1NL

Before

MR JUSTICE HAMBLEN

Between

Mrs Patricia JonesAppellant

Link Financial LtdRespondent

Mr R Roberts (instructed under Bar Direct Access Scheme) for Appellant

Mr J Neville (instructed by Kearns & Co) for Respondent

Hearing Hearing dates: 26 July 2012

Judgment

Mr Justice Hamblen :

Introduction

[1]This is an appeal from the decision of His Honour Judge Butler in the Blackpool County Court given on 6 June 2011. The appeal raises issues as to the proper interpretation and application of the Consumer Credit Act 1974 (“the 1974 Act”) in relation to contractual assignments.

Factual Background

[2]The appellant is Mrs Jones and the Respondent is Link Financial Ltd (“Link”). Link claims as assignee of sums due under a regulated consumer credit agreement (“the credit agreement”) entered into between the appellant and GE Money Consumer Lending Ltd (“GE Money”).

[3]The credit agreement was entered into on or about 1 December 2006. The appellant fell into arrears and on 16 January 2009 a default notice was issued to her claiming arrears of some £1,390.30. The appellant was thereby notified that she was in breach of the agreement, that action to remedy the breach was required to pay the arrears by 7 February 2009 and that if that was not done further action would be taken, namely a demand for full payment of all indebtedness under the credit agreement followed by the commencement of court proceedings.

[4]The appellant did not clear those arrears and on 8 February 2009 a further notice was sent to her. She was told that she had failed to comply with the default notice and that unless the arrears were paid up within 7 days then the full balance would become payable. There was a statement that the amount due on 14 February 2009 would be £11,798.87.

[5]Those demands and those default notices led to a finding by the judge that the creditor GE Money had complied with its obligations under the 1974 Act and under the contract and that as from 14 February 2009 it was entitled to bring proceedings for the full amount due in respect of principal and interest and that the appellant had been adequately notified.

[6]The credit agreement provided by clauses 1(1) and 1(2) that:

“GE Money may assign, transfer or otherwise dispose of this agreement, and any amounts owed to GE Money under this agreement to any person without the consent of the Customer, but not in such a way as to reduce any of the Customer’s rights against GE Money under this agreement or the law. Accordingly, in this agreement references to GE Money or GE Money Consumer Lending Limited and any company mean person(s) who become owners of its business or any of its rights or duties under this agreement.”

[7]On 15 June 2009 GE Money assigned to Link “all right, title, interest and benefit of the Assignor to or in the Inventory Debts”, which included the debt owed under the credit agreement.

[8]Notice of assignment was given by Link to the appellant by written notice dated 6 July 2009.

[9]The judge found that the assignment was a valid legal assignment under section 136 of the Law of Property Act 1925. He found that the three conditions for the validity of such an assignment were satisfied, namely: that the assignment was absolute and not by way of charge; that it was in writing under the hand of the assignor, and that express notice in writing had been given to the debtor.

[10]He concluded at paragraph 20 of the judgment as follows:

“Therefore that means that under section 136 of the Law of Property Act 1925 ostensibily the claimants had in their possession a valid assignment of which they had given notice and upon the terms of section 136 of the 1925 Act they thereby acquired, it being effectual in law, the legal right to the debt and the legal right to take all legal remedies for the same. Under section 136 of the 1925 Act accordingly, absent any other restriction, Link Financial Ltd became entitled to pursue by private proceedings as assignee the debt in question and the section refers to “any debt”.”

[11]The judge also pointed out that in his experience it was common for claims of this kind under consumer credit agreements to be brought by assignee companies.

The issues

[12]Section 189 of the 1974 Act provides as follows:

“189 Definitions (1) In this Act, unless the context otherwise requires: … “creditor” means the person providing credit under a consumer credit agreement or the person to whom his rights and duties under the agreement have passed by assignment or operation of law, and in relation to a prospective consumer credit agreement, includes the prospective creditor.”

[13]The appellant’s case is that:(1) Only a creditor as defined under the 1974 Act can enforce a regulated consumer credit agreement (Ground 1); and

(2) An assignee is not a creditor as defined in the 1974 Act as only rights and not duties pass by assignment (Ground 2).

The judge rejected Ground 1 but found for the appellant on Ground 2.

[15]Before addressing these issues it should be noted that if the appellant’s argument is correct it has remarkable consequences.

[16]The effect of the legal assignment of GE Money’s rights under the credit agreement was to vest those rights in Link. It was Link not GE Money that thereafter had the legal right to the debt owed under the credit agreement.

[17]If the appellant’s argument is correct then the legal right to that debt falls into a black hole. Link cannot enforce it because it is said it is not a “creditor” under the credit agreement. GE Money cannot enforce it because it is no longer the owner of the right to the debt. Such an absurd result cannot have been the intended effect of the 1974 Act.

Ground 2

[18]I propose to consider Ground 2 first as it directly impacts on the resolution of Ground 1.

[19]Section 189 clearly contemplates that an assignee may become a creditor under the 1974 Act. That can be the only reason why assignment is specifically referred to in it. However on the appellant’s argument the assignee would never do so since an assignment transfers contractual rights not contractual duties.

[20]There are other provisions of the Act which expressly contemplate the assignment of rights under a regulated credit agreement, an obvious example being the recently added section 82A. That section provides that an assignee “must arrange for notice of the assignment to be given to the debtor”.

[21]The ambiguity of the language in section 189 has been the subject of academic comment.

[22]In the Encyclopaedia of Consumer Credit Law edited by Professor Guest it is stated as follows at p2178/2-3:

“…The first problem with this definition is that, as a matter of contract law, an assignment transfers rights but does not relieve the assignor of his duties to the other contracting party without his consent. Hence the reference to the assignment of “duties” needs further consideration. … The rights of a creditor under a credit agreement are frequently assigned to a third party, e.g under a block discounting agreement or securitisation. Does the assignee then become the “creditor” for the purposes of the Act? It is suggested that the answer to this question will vary accordingly to the policy underlying the particular provision of the Act. Where, for example, certain obligations are imposed on the “creditor” towards the debtor, as under ss.77, 78 (duty to give information to the debtor),ss.76,87, 98 (duty to serve enforcement, default and termination notices), s.97 (duty to supply settlement figure), or s.103 (duty to provide termination statement), it is submitted that an equitable assignment, where no notice of the assignment is given to the debtor, would not pass such obligations to the assignee. (And see the OFT’s Guidance on sections 77, 78 and 79 of the Consumer Credit Act 1974 (OFT 1272, October 2010), para 2.4, note 5 which states that (in OFT’s view, adopting a “purposive” construction) only legal (and not equitable) assignees are “creditors” for the purpose of ss.77, 78 and 79.) As between assignor and assignee the assignment is effective; but vis-à-vis the debtor, the assignment has no effect until the debtor receives notice of the assignment. Moreover, in practical terms, the assignor will continue to collect the payments (albeit as agent of or trustee for the assignee) and will retain the information necessary to comply with those sections. On the other hand, if the assignment is a statutory assignment under s.136 of the Property Act 1925 with notice of the assignment being given to the debtor, there is a strong argument that the assignee would become the “creditor” (whether by virtue of a “slip” in s.189(1) or by necessary intendment). The assignor will cease to have any interest, legal or equitable, in the debt, and only the assignee will be entitled to claim or enforce the debt. The same considerations will also probably apply in the case of an equitable assignment of which notice has been given by the assignee. Although the legal title to the debt still remains in the assignor, the debtor must pay the assignee and the assignee is entitled to enforce payment of and sue for the debt. See the General Note to s.22 where it is submitted than an equitable assignee who has not given notice ( and a, fortiori, the beneficiary under a trust, see below) does not require a licence.”

[23]The editors therefore suggest that where notice of the assignment has been given the assignee may be a “creditor” for the purposes of the 1974 Act.

[24]In Goode: Consumer Credit Law and Practice it is stated as follows at 45A.61:

“Although the definition of ‘creditor’ and ‘owner’ in the original CCA 1974, s 189(1) did admit some ambiguity, as reworded following the CCA 2006, it now admits of none. As has been seen above, the definition of these terms has deliberately been made wide enough to encompass assignees of regulated agreements. Unfortunately the opportunity was not taken to remove the infelicity on which the General Editor of this work has been commenting since the Act was passed. Section 189(1) defines ‘creditor’ as ‘the person providing credit under a consumer credit agreement or the person to whom his rights and duties under the agreement have passed by assignment or operation of law …’ and defines ‘owner’ in similar terms. As Professor Goode has pointed out, the general law of assignment does not permit the passing by assignment of ‘duties’ under an agreement and it is only to a very limited extent that duties pass by operation of law. The reality is, of course, that the CCA 1974, while nodding respectfully to the common law of assignment, is providing special rules for the assignment of regulated agreements. Under the CCA 1974, the assignment of a regulated agreement puts the assignee willy-nilly into precisely the same position as the original creditor or owner – there are no limitations on the obligations transferred with the agreement – once the assignment is completed by notice being given to the debtor or hirer, the assignee becomes the creditor or owner for all purposes.”

[25]The editors of that text therefore also consider that an assignee may be a “creditor” once notice has been given and that there is no longer any ambiguity about the matter.

[26]Rosenthal in Consumer Credit Law and Practice – A Guide states at 6.7:

“It is submitted that Parliament may have intended to extend the meaning of ‘creditor’ to include persons to whom the creditor’s statutory duties have passed, if only to prevent the assignee evading duties imposed upon the creditor under the Act and in order to facilitate assignments.”

[27]He too therefore considers that an assignee may be a “creditor”, at least where the creditor assignor’s statutory duties have passed to the assignee.

[28]I essentially accept the analysis in Professor Guest’s Encyclopedia.

[29]In my judgment the reason for the reference to “duties” in section 189 is that an assignee only becomes the “creditor” where the statutory duties relevant to the enforcement of the creditor’s rights have passed to the assignee. This will not be the case where there has been an equitable assignment of which no notice has been given. In such a case the debtor will remain legally liable to the assignor and the assignor will remain responsible for the performance of the statutory duties relating to enforcement, such as duties to provide information and notices.

[30]Where, however, there is a legal assignment the debtor’s liability will be owed to the assignee and it is the assignee who will have to perform the statutory duties relating to enforcement. This is not because he becomes under a contractual obligation to perform those duties, but rather because he cannot assert his rights under the regulated credit agreement without accepting the statutory obligation to perform duties under the 1974 Act relating to enforcement of those rights.

[31]The legal assignee stands in the shoes of the assignor. The enforcement of the assignor’s rights under the regulated credit agreement was subject to performance of the statutory duties laid down in the 1974 Act, and the legal assignee’s rights are similarly so subject.

[32]The position is analogous to the assignment of a contract containing an arbitration clause. It is well established that an assignee of such a contract is bound to arbitrate in accordance with such a clause because it cannot assert its right inconsistently with the terms of the assigned contract. As stated by Hobhouse J in The Jordan Nicolev [1990] 2 Lloyd’s Rep. 11 at p15: “The assignee is bound by the arbitration clause in the sense that it cannot assert the assigned right without also accepting the obligation to arbitrate” – see also DVA v Voest Alpine [1997] 2 Lloyd’s Rep. 279 at p285-6.

[33]I agree with Professor Guest that this would apply to the statutory duties under ss.77, 78 (duty to give information to the debtor), ss.76, 87, 98 (duty to serve enforcement, default and termination notices), s.97 (duty to supply settlement figure), s.103 (duty to provide termination statement), and the restrictions on enforcement imposed by ss. 90 and 92. I also agree with him that different considerations may well apply to a pre-assignment liability such as that as may be imposed under ss75, 75A.

[34]In my judgment the “duties” referred to in section 189 are therefore those statutory duties under the 1974 Act which the assignee has to perform in order to enforce his assigned rights. These duties have “passed by assignment” in the sense that it is by reason of the assignment that the assignee becomes obliged to fulfil them.

[35]It is not necessary to add to or change the language of section 189 in order to interpret it in the manner suggested. Even if it was, there would be no difficulty in so doing in order to avoid the obviously absurd consequence of rights under a credit agreement not being effectively assignable. That could be done, as has been suggested, by interpreting “rights and duties” as meaning “rights and/or duties”. The section applies to both transfers of rights (by assignment or operation of law) and to transfers of rights and duties (by operation of law) as the case may be.

[36]For all these reasons I disagree with the judge’s conclusion on Ground 2 and hold that a legal assignee may be a “creditor” as defined in the 1974 Act.

Ground 1

[37]In the light of that conclusion Ground 1 does not arise since Link, as legal assignee, is a creditor under the 1974 Act. As such, the main points made by the Appellant on this issue fall away. It was suggested, for example, that it would undermine the intended scheme of the Act if proceedings in relation to a regulated agreement could be brought otherwise than in accordance with s.141. It was also pointed out that difficulties would arise if a party who is not a creditor is entitled to sue for the debt because it is the creditor who is required to give the requisite notices. Neither of these issues arise if the legal assignee is a “creditor”.

[38]However, if I was wrong on Ground 2 and a legal assignee is not a creditor under the 1974 Act I would agree with the judge that section 141 would not preclude the assignee from bringing legal proceedings.

[39]Section 141 provides that:

“Miscellaneous 141 Jurisdiction and parties (1) In England and Wales, the county court shall have jurisdiction to hear and determine— (a) any action by the creditor or owner to enforce a regulated agreement or any security relating to it; (b) any action to enforce any linked transaction against the debtor or hirer or his relative; and such an action shall not be brought in any other court. (2) Where an action or application is brought in the High Court which, by virtue of this Act, ought to have been brought in the county court it shall not be treated as improperly brought, but shall be transferred to the county court. (3)–(3B) . . . (4) In Northern Ireland the county court shall have jurisdiction to hear and determine any action or application falling within subsection (1). (5) Except as may be provided by rules of court, all the parties to a regulated agreement, and any surety, shall be made parties to any proceedings relating to the agreement.”

[40]If an assignee is not a “creditor” then he does not fall within section 141 and is not subject to the requirements as to before which court proceedings must be brought. In such circumstances there would be no reason why the assignee could not bring a claim under the section 136 of the Law of Property Act 1925 county court jurisdiction or the courts’ general jurisdiction.

[41]The legal assignee has a substantive right to the debt by virtue of the assignment to him. If section 141 does not apply to the assignee he is entitled to enforce his substantive right by bringing legal proceedings in the ordinary way. The consequence would simply be that he does not do so pursuant or subject to section 141 of the 1974 Act.

[42]I therefore agree with the judge that if the legal assignee is not a creditor under the 1974 Act then neither the 1974 Act in general nor section 141 in particular is intended to or does deprive the legal assignee of his substantive right to bring an action for the assigned debt.

Conclusion

[43]For all the reasons outlined above the appeal is dismissed.