B2/2004/1825 (B); B2/2004/1825 
Neutral Citation Number: [2005] EWCA Civ 147
IN THE SUPREME COURT OF JUDICATURE 
IN THE COURT OF APPEAL (CIVIL DIVISION) 
ON APPEAL FROM CENTRAL LONDON CIVIL JUSTICE CENTRE
(HIS HONOUR JUDGE RYLAND)
Royal Courts of Justice 
Strand 
London, WC2 

Friday, 4 February 2005
 
B E F O R E:

LORD JUSTICE POTTER 
 
LORD JUSTICE SEDLEY 

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PENELOPE WILSON
Claimant/Respondent
-v-
 
HOWARD PAWNBROKERS 
Defendant/Appellant 
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(Computer-Aided Transcript of the Stenograph Notes of
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 - - - - - - -
The Appellant appeared in person
The Respondent appeared in person
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J U D G M E N T
Friday, 4 February 2005

1.	LORD JUSTICE POTTER:  I will ask Sedley LJ to deliver the first judgment.
2.	LORD JUSTICE SEDLEY:  This appeal, a second appeal brought with permission granted by Jonathan Parker LJ, concerns a single aspect of a judgment by which His Honour Judge Ryland QC on 12 December 2003 at the Central London Civil Justice Centre held unenforceable a series of pawnbrokers' agreements entered into between the parties from June 1995 to July 1999.  By these agreements, 67 in all, Mrs Wilson, the claimant, successively pawned 13 groups of objects, periodically paying off the capital and interest purportedly due on each one and thereupon re-pledging the goods under a fresh agreement.
3.	The judge held, in short, that each successive agreement was a novation, not a variation, of its predecessor; that the agreements from the start grossly contravened the principles of fair dealing; that the rate of interest on all but the initial agreements was grossly exorbitant; that these and other defects rendered certain of the agreements unenforceable, requiring the return of the goods purportedly pledged under them; that justice required him to re-open the superseded agreements, and that a reasonable rate of interest on them would be 36 per cent per annum.   
4.	In the course of his judgment the judge indicated that he proposed to order the taking of an account between the parties by someone either agreed by them or appointed by the court.  He also gave directions in the judgment for the exchange of draft accounts, and in his final paragraph, which was added after circulation to the parties of a draft of the judgment, he set out more of the principles on which the account was to be struck.  
5.	The court's order, however, contains a final judgment in Mrs Wilson's favour upon the claim in the sum of £1,478.95.  This reproduces a figure which has been entered in manuscript on the typed account submitted by Mrs Wilson and dated 3 November 2003 - that is prior to judgment.  A manuscript addition to the judgment records that this is because by the time the judge sat to deliver it the parties had submitted their respective draft accounts and the judge had adjudicated in favour of that submitted by the claimant.  The order goes on to show that the counterclaim stands dismissed and that the judge has ordered the return to Mrs Wilson of the goods pledged.  
6.	The draft accounts submitted by the parties showed no sign of any meeting of minds.  The claimant's account gave her a net entitlement of £1,481.45 (differing therefore by only £1.50 from the amount for which judgment was given in the court's order).  The defendant's account gave him a net entitlement to £8,330.  Some at least of the difference depends on the issue now before us.
7.	The judge also, as the court's order shows, gave the parties until 5 March 2004 to "make representations as to the judgment", and to apply for permission to appeal.  It is not clear to me - we have not explored this - what representations other than by way of applying for permission to appeal could properly be made at that stage, and in the event the judge refused permission to appeal.  
8.	The paragraph of the appellant's notice on which Jonathan Parker LJ gave the defendant permission to appeal reads: 
"(3) The learned judge was [wrong] in law, in accepting the accounts in respect of giving credits for the loan to the claimant and accepting that the loan was deemed to have been paid.  This creates an unjust enrichment by profit for the claimant, and an injustice to the creditor." 
9.	Today Mr Howard has appeared in person, the court having earlier refused an adjournment on account of the absence abroad of his stepmother, who has so far been permitted to act as his advocate.  The claimant, Mrs Wilson, also appears before us in person.
10.	The way the renewals worked is described by the judge in paragraph 22 of his judgment.  A feature of the defendant's system was that he would charge a full month's interest for a period short of a month - sometimes a single day - calculated as often as not from a foreshortened redemption date.  The use of fresh agreements then enabled him to set off against the principal advanced under each one the debt supposedly owed under its predecessor. 
11.	It is unnecessary for the purposes of this judgment to recount more of the judges' decision in detail.  It is carefully explained in the written judgment and no appeal now lies in respect of the greater part of it.  We are concerned only with whether the adoption of an account which re-credits the same principal to the claimant at each renewal is wrong in law or, if discretionary, wrong in principle.
12.	In her respondent's notice Mrs Wilson expresses concern that Mrs Howard, the defendant's stepmother, may have given Jonathan Parker LJ the impression that the loan capital was to be repaid on all the novated agreements.  In fact the judge made no such order in respect of those agreements which were enforceable: he did so only in respect of the eight agreements held by him in law to be unenforceable.
13.	As to these, the claimant submits that section 106 of the Consumer Credit Act 1974 is unequivocal.  It provides that in circumstances such as obtained here "the security ... shall be treated as never having effect"; property lodged as security shall be returned; and "any amount received by the creditor ... on realisation of the security..." is to be repaid.  Realisation in Mrs Wilson's submission includes receipt of payment from the debtor as well as sale by the creditor.  The word is not defined in the Act but it seems to me that the submission must be correct.  If it were not, a diligent debtor would be worse protected than a dilatory one.  Professor Goode's annotation of the section takes a similar view.
14.	The defendant, Mr Howard, contends that this is an injustice to him and an unjust enrichment of Mrs Wilson.  He submits that the judge was not obliged to enforce the account on such a basis and was therefore wrong in principle to do so.  The error, he submits, lies in the judge's treatment of each successive unenforceable contract as attracting fresh relief under the statute, when in reality the same loan was being carried forward.
15.	The difficulty which this argument encounters is not only that it has been unappealably decided that these were indeed novations - that is fresh contracts - but that this scheme was consciously adopted by the defendant for his own profit, enabling him, had the contracts been enforceable, to charge interest (at a rate held to be grossly exorbitant) by lending on the novated agreements the amounts outstanding on the old ones, and on the fresh pledges of further goods by lending at interest amounts of already outstanding interest.  
16.	It is nevertheless true to say that where, say, two in a series of loan agreement for £100 on a particular security have been held to be unenforceable, if the judge is right, the claimant will now retain the goods, will retain the initial advance and will secure a repayment in addition of the two further loans - a clear profit, so Mr Howard submits, of £300.  
17.	In Wilson v First County Trust Limited [2003] UKHL 40; 4 All ER 97, the House of Lords made it clear that the draconic effects of the Consumer Credit Act 1974 where loan agreements were struck down by the courts as unenforceable were (assuming that the courts had jurisdiction to consider the Convention compatibility of the Act) a legitimate exercise of Parliament's powers in this field.  Lord Nicholls said:   
"72.  Undoubtedly, as illustrated by the facts of the present case, s 127(3) may be drastic, even harsh, in its adverse consequences for a lender.  He loses all his rights under the agreement, including his rights to any security which has been lodged.  Conversely, the borrower acquires what can only be described as a windfall.  He keeps the money and recovers his security.  These consequences apply just as much where the lender was acting in good faith throughout and the error was due to a mistaken reading of the complex statutory requirements as in cases of deliberate non-compliance.  These consequences also apply where, as in the present case, the borrower suffered no prejudice as a result of the non-compliance as they do where the borrower was misled.  Parliament was painting here with a broad brush.  
73.  The unattractive feature of this approach is that it will sometimes involve punishing the blameless pour encourager les autres.  On its face considered in the context of one particular case, a sanction having this effect is difficult to justify.  The Moneylenders Act 1927 adopted a similarly severe approach.  Infringement of statutory requirements rendered the loan and any security unenforceable.  So did the Hire-Purchase Act 1965, although to a lesser extent.  This approach was roundly condemned in the Crowther report ...  
 
'It offends every notion of justice or fairness that because of some technical slip which in no way prejudices him, a borrower, having received a substantial sum of money, should be entitled to retain or spend it without any obligation to repay a single penny.'.  
74.  Despite this criticism I have no difficulty in accepting that in suitable instances it is open to Parliament, when Parliament considers the public interest so requires, to decide that compliance with certain formalities is an essential prerequisite to enforcement of certain types of agreements.  This course is open to Parliament even though this will sometimes yield a seemingly unreasonable result in a particular case.  Considered overall, this course may well be a proportionate response in practice to a perceived social problem.  Parliament may consider the response should be a uniform solution across the board.  A tailor-made response, fitting the facts of each case as decided in an application to the court, may not be appropriate.  This may be considered an insufficient incentive and insufficient deterrent.  And it may fail to protect consumers adequately.  Persons most in need of protection are perhaps the least likely to participate in court proceedings.  They may well let proceedings go by default.  
75.  Nor do I have any difficulty in accepting that moneylending transactions as a class give rise to significant social problems.  Bargaining power lies with the lender, and the social evils flowing from this are notorious.  The activities of some lenders have long given the business of money lending a bad reputation.  Nor, becoming more specific, I do have any difficulty in accepting, in principle, that Parliament may properly make compliance with the formalities required by the 1974 Act regarding 'prescribed terms' an essential prerequisite to enforcement.  In principle that course must be open to Parliament.  It must be open to Parliament to decide that, severe though this sanction may be, it is an appropriate way of protecting consumers as a matter of social policy.  In making its decision in the present case Parliament had the benefit of experience gained over many years in the working of the 1927 Act and the hire-purchase legislation, and also the views of the Crowther Committee.  Further, it must be open to Parliament so to decide even though the lender's inability to enforce an agreement will not assist a borrower who consents to the enforcement of the agreement in ignorance of the true legal position."   
18.	In the light of this reasoning, which reflects that of the Appellate Committee as a whole, I find it much less difficult than it might otherwise have been to see the legitimacy of the outcome to which in this appeal Mr Howard objects.  It is true, as it is in other fields of law, that the penalty justly suffered by the wrongdoer goes with less obvious justice into the pocket of the victim.  This is probably an inevitable by-product of a legislative scheme which grafts public-interest regulation on to private law remedies.  It is equally possible in a regulatory system to make the wrongdoer answerable, in part or in whole, to a public authority; but the legislative choice here has been to leave the remedies within the framework of the law of debtor and creditor.  
19.	One might add to this two points stressed by Mrs Wilson.  One is that in pawn transactions the debtor is particularly at risk because there is nothing to stop the pawnbroker selling the security in order to realise the amounts owed without resort to the courts, leaving it to the debtor to go to court if anybody is going to do so.  The other is that the unenforceability of these contracts derives in large part from far from technical breaches.  They include Mr Howard's entry into the agreements under a name in which he was not licensed to trade and the omission in other contracts of the identity of the lender.  
20.	In this situation, given the provisions of section 106, it seems to me that the judge was justified in adopting the claimant's account of the parties' mutual indebtedness, and that in all probability he was obliged to do so.  The moral for a pawnbroker such as Mr Howard is that if he wants the rewards of his trade he must operate strictly by the book, and that the result of failing to do so may be not merely to unravel agreements, but to reverse the indebtedness that they have purportedly created.  
21.	I would therefore dismiss this appeal.
22.	LORD JUSTICE POTTER:  I agree.  
 (Appeal dismissed; application to file respondent's notice out of time granted; Claimant’s costs summarily assessed in the sum of £1,055).