Consumer credit—Extortionate credit bargain— Limitation period

Chancery Division, Manchester District Registry, 26 Feb 2009, Judge Hodge QC sitting as a judge of the High Court

Where a debtor seeks, whether by counterclaim or by separate action, to reopen a credit agreement under s 139 of the Consumer Credit Act 1974 (CCA 1974), his claim is an action upon a specialty, for which the appropriate limitation period under s 8 of the Limitation Act 1980 (LA 1980) is 12 years. 

Clive Freedman QC and Pepin Aslett (instructed by Bishop & Co) for the claimant. Lesley Anderson QC and Nigel Clayton (instructed by Blacks) for the defendant.

The proceedings concerned a claim brought in February 2007 by the claimant for the recovery of almost £1m from the defendant pursuant to an unregulated credit agreement of November 1994, and a legal charge on a property also dated November 1994.  By his defence and counterclaim the defendant sought to have the loan documentation reopened as an extortionate credit bargain pursuant to s 139 of the CCA 1974. The claimant applied for summary judgment. The district judge dismissed the application, holding that the entire issue should be determined at trial. On appeal it was directed that the court should determine as a preliminary issue whether the claim by the defendant to reopen the credit agreement as an extortionate bargain was statute-barred pursuant to LA 1980, s 8. 
 

Judge Hodge QC:
 

It might have been thought that the issue of whether an attempt to reopen a credit agreement as an extortionate credit bargain was an action upon a specialty for which the relevant limitation period was 12 years had been decided, at least up to the level of the House of Lords, by the decision of the Court of Appeal in the case of Rahman v Sterling Credit Ltd [2000] All ER (D) 1016. But in the later case of Paragon Finance Plc v Nash [2002] 2 All ER 248 it was submitted that the Rahman decision had proceeded on the basis of a concession by counsel, and that the case was wrongly decided insofar as it held that LA 1980 had any application at all to a claim to reopen an extortionate credit bargain. It was found unnecessary to decide the point in Paragon, but the submission was revived in the instant case. The defendant argued that a claim to reopen an extortionate credit bargain was not a claim for substantive relief to which any period of limitation applied. The claimant argued that Rahman was determinative of the issue.

In Re Priory Garage (Walthamstow) Ltd [2001] BPIR 144 it was held that applications to set aside transactions under ss 238 to 241 of the Insolvency Act 1986 (IA 1986) (relating to transactions at an undervalue and voidable preferences) were generally actions on a specialty within the meaning of  LA 1980, s 8 and subject to a 12 year limitation period accordingly; but where the substance of the claim was not to set aside a transaction, but to recover a sum of money, such applications would be governed by s 9, and thus subject to a six-year limitation period. That approach was effectively endorsed by the Court of Appeal, and applied to claims under s 423 of IA 1986 (relating to transactions defrauding creditors), in the later case of Hill v Spread Trustee Co Ltd [2007] 1 All ER 1106.

More pertinently, in the earlier case of Rahman, the Court of Appeal held that where a debtor sought, whether by counterclaim or by separate action, to reopen a credit agreement under of CCA 1974, s 139 as an extortionate credit bargain, his claim was an action upon a specialty, for which the appropriate limitation period under LA 1980, s 8 was 12 years.
 

Concession
 

The defendant argued that to the extent that Rahman proceeded on the basis of a concession that every claim under s 139 was an action based on a specialty, it was wrongly decided. 

His lordship held that it did not follow from the fact that counsel in Rahman did not seek to argue that no period of limitation applied to a claim to reopen an extortionate credit bargain that his lordship could effectively treat the Court of Appeal’s decision in that case that s 8 applied a 12-year limitation period to such a claim as having been reached per incuriam and decline to follow it accordingly.

In his lordship’s view, it was an integral part of the reasoning in Rahman that a claim to reopen an extortionate credit bargain constituted a statutory cause of action within the meaning, and for the purposes, of LA 1980, s 8. As such, a 12-year limitation period applied unless the claim expressly extended to the repayment of money previously paid under the credit bargain, in which event the application would be governed by s 9 and subject to a 6 year limitation period accordingly. There was little difficulty in understanding why a shorter period of limitation might be appropriate where the relief sought was the repayment of sums previously paid by the debtor to the creditor rather than the future regulation of the loan relationship between them.

In the instant case, the defendant’s claim to reopen the credit agreement as an extortionate credit bargain was therefore statute-barred. His lordship held on the facts, however, that the case should proceed to trial.