Notting Hill Finance Ltd v Sheikh (2019) EWCA Civ 1337
The court of appeal looks at circumstances in which new points can be raised on appeal, where a possession order has been made on a summary basis under CPR Part 55, concluding that there is no test that the case is ‘exceptional’.
Mr Sheikh had borrowed £50,000 from Notting Hill Finance in January 2018. The loan, plus £21,000 in contractual interest (30.4% pa) and charges was to be repaid in 6 months. The loan was secured as a third mortgage on Mr S’s property. The loan was not repaid in July 218, and in August 2018, NHF brought possession proceedings on the loan, the term interest and a contractual interest rate on default of 12% compounding monthly (289.6% pa).
The claim was heard on 20 September 2018 at Derby County Court. Mr S had not filed a defence form but attended in person and was represented by the duty solicitor. Mr S’s request for more time was rejected and following a 7 minute hearing, a possession order was made with a money judgment for £99,749, not be enforced without permission of the court.
Ms S then instructed solicitors. An application for permission to appeal was promptly made, on the basis that the term providing for default interest of 289.6% per annum in clause 7(e) of the loan agreement was a penalty and unenforceable. A further application to set aside the order, on the basis of the ‘penalty’ argument and “an additional argument that the relationship between the Claimant and the Defendant was unfair within the meaning of section 140A(1) of the Consumer Credit Act 1974 (the “CCA”), and that the court was entitled to delete the term as to default interest under section 140B of the CCA” was also made and heard at the same time.
At the first appeal, Mr S argued that there was a defence to the interest on default provision. This had not been addressed by the District Judge and this made his decision “unjust because of a serious procedural or other irregularity” so that the appeal should be allowed under CPR 52.21(3)(b).
NHF accepted that if the issue of the interest on default provision had been raised before the District Judge
it would have amounted to a genuine dispute on grounds which appeared to be substantial, and the District Judge would probably not have granted a monetary judgment for that amount, but would have given case management directions for the issue to be determined under CPR 55.8(1)(b). However, the Claimant contended that because such a challenge had not been raised before the District Judge, it was too late for the Defendant to raise it on appeal.
The appeal was allowed, with the Circuit Judge relying on the dictum of May LJ in Jones v MBNA International Bank Ltd (2000) EWCA Civ 314 at (52) that there may be exceptional cases in which the principle of finality would not be applied such that new arguments could be raised on appeal.
The Circuit Judge identified the following as making the situation ‘exceptional’:
i) the hearing before the District Judge under CPR 55 was a summary hearing, not a full trial;
ii) little time is spent on such hearings;
iii) the Defendant was, in effect, a litigant in person;
iv) the Defendant attended the hearing;
v) there is a need for finality in litigation which should be weighed heavily in any application to set aside any final order of the court;
vi) the order of the District Judge was challenged very quickly after the hearing; and
vii) the Claimant acknowledged that if the enforceability of the default interest rate had been raised before the District Judge, then it was probable that the District Judge would have given case management directions for that issue to be determined.
The summary nature of the hearing in a busy possession list was crucial to the decision.(38-40)
The summary nature of the hearing and the lack of opportunity for either duty solicitor or District Judge to consider whether there might be a defence to the money claim advanced indicate that this is not the sort of hearing contemplated by May LJ.
I also bear in mind the reality of what District Judges in particular face on a day-to-day basis. Litigants in person are a dominant feature of judicial life in the civil courts. Most have little or no legal knowledge. Whereas judges are entitled to expect that litigants provide a concise factual narrative of their case, it increasingly lies with judges to identify what areas of law are engaged. In a dispute between parties a judge may identify a legal principle which is fatal to one side or the other, albeit unknown to both. In this case (the Defendant) was a litigant in person with no idea about penal contract clauses, section 140A CCA or similar. He acquired last-minute representation at court but a duty solicitor is in no position to probe the detail of the case.
This is a case where the District Judge made an order which might have the effect of providing an unlawful windfall to the Claimant. I have no doubt that had this possibility been drawn to his attention he would not have made the order that he did. The Defendant did not have the knowledge to raise the point; in a busy possession list the District Judge had precious little opportunity to identify the point for himself.
NHF appealed to the Court of Appeal.
NHF argued that the principle of finality was of general application, whether or not there had been a trial. The present case was not exceptional, as it was not unusual for a summary hearing to go ahead without a defence having been filed.
Further, “the reference in CPR 52.21(3)(b) to a “serious procedural or other irregularity in the proceedings” referred to some obvious injustice in the way that the process had been conducted by the lower court, such as a refusal by the judge to hear argument from one party”. The District Judge had done nothing wrong in this case and could not be faulted for not having taken the ‘penalty’ point of his own motion.
Mr S sought to uphold the Circuit Judge’s reasoning.
there is no general rule that a case needs to be “exceptional” before a new point will be allowed to be taken on appeal. Whilst an appellate court will always be cautious before allowing a new point to be taken, the decision whether it is just to permit the new point will depend upon an analysis of all the relevant factors. These will include, in particular, the nature of the proceedings which have taken place in the lower court, the nature of the new point, and any prejudice that would be caused to the opposing party if the new point is allowed to be taken.
It was noted that, “surprisingly”, the notes to the White Book at at paragraph 52.17.3 did not refer to these authorities.
It was far more likely that the new argument would be allowed in cases where the point was of pure law and could be run on the factual basis found by the court below, provided the othr party has time to meet the new case.
It was also significant that the Claimant accepted that had the penalty point been raised, the District Judge would have adjourned with directions.
The Defendant had acted quickly after the hearing, and the failure to raise the penalty point did not mean that the hearing was wasted, as there was no challenge to the possession order or the principal amount of the mortgage debt.
In such a case as this, there was no need to reliance on CPR 52.21(3)(b) – that there was “a serious procedural or other irregularity in the proceedings”. CPR 52.21(3)(a) allows an appeal where the decision of the lower court was “wrong”.
In my view, the appeal in such a case would be allowed simply because, admittedly with the benefit of the new argument, the appeal court can see that the decision of the lower court was not the decision that should have been made, and hence that it was the “wrong” decision within the meaning of CPR 52.21(3)(a).
The Court of Appeal declined to address the question raised in the appeal of “whether, and if so, to what extent, district judges hearing possession cases are under any duty to unrepresented litigants to identify points in their favour”, leaving that for a case where it needed to be decided. However, the Court did note:
In the instant case, the default interest rate of 289.6% per annum was, on any view, remarkably high for a secured loan. That rate was clearly stated in the particulars of claim. It was also apparent that the mortgage debt on a scheduled payment on maturity of £71,000 was claimed to have risen by over £20,000 in the space of a little over six weeks between the issue of proceedings and the hearing. Those numbers are sufficiently striking that I would have expected them to have rung alarm-bells for the District Judge, even given his busy list. Whilst I do not express any view as to whether the District Judge was under any positive duty to do so, in my view he could not possibly have been criticised if he had raised the issue of whether such a term was penal or unfair to the Defendant of his own motion.
While this is clearly not carte blanche for new issues to be raised on appeal, it is a helpful clarification. It is also clear that the circumstances of a CPR 55 first hearing are relevant to whether new issues may be raised on appeal.