Wilson v First County Trust
Last week was notable for two landmark decisions under the Human Rights Act 1998 (HRA). In the first, Wilson v First County Trust Ltd  EWCA Civ 633, the Court of Appeal made a declaration that Section 127(3) of the Consumer Credit Act 1974 (CCA), which makes a loan agreement unenforceable where there has been a failure to comply with certain formal requirements, was incompatible with the rights of the creditor under Article 6(1) of the European Convention on Human Rights (right to a fair trial) and Article 1 of the First Protocol to the Convention (right to property). In the second, R v Secretary of State for the Environment, Transport and the Regions, ex parte Alconbury Developments Ltd  UKHL 23, the House of Lords overturned a decision of the Divisional Court that the variety of hats worn by the Secretary of State in planning procedures involved a breach of convention rights.
The Wilson case is likely to be of more direct concern to commercial lawyers, but the speeches in Alconbury are also worthy of close attention. We shall surely hear more of Lord Hoffmann's apophthegm (para 129) that the HRA “was no doubt intended to strengthen the rule of law but not to inaugurate the rule of lawyers”.
In January 1999, First County Trust, a pawnbroker, agreed to lend Penelope Wilson £5,000 for six months on the security of her J-reg BMW convertible. It also charged a £250 document fee, which it was agreed could be added to the amount of the loan.
The agreement was regulated by the CCA. The amount of the loan was stated to be £5,250. Wilson did not repay the loan on the due date and First County sought payment of the full amount due (£7,381.50), in default of which the BMW would be sold.
Wilson then brought proceedings in the County Court, claiming that the agreement was unenforceable under the CCA because the relevant prescribed term misstated the amount of credit. Judge Hull QC rejected this argument but gave Wilson permission to appeal. She subsequently redeemed her car on payment to First County of the amount due.
The original Court of Appeal decision
The Court of Appeal allowed Wilson's appeal and held that the agreement was indeed unenforceable ( QB 407). First County was therefore ordered to repay Wilson the money which she had paid it.
The basis of the decision was that the agreement wrongly showed the amount of the credit to be £5,250, rather than £5,000: the document fee should not have been treated as part of the amount of credit. As a result, the agreement did not contain the prescribed term stating the amount of credit and it was improperly executed under Section 61(1)(a). The court could not grant an enforcement order in this case because Section 127(3) prohibited it from doing so where the prescribed term as to the amount of credit was not accurately stated. First County's security, the BMW, was also invalidated.
The result was that Wilson was permitted both to retain her car and to recover the payment which she had made. To those familiar with the arcane workings of the CCA, this result may not be surprising; but the Court of Appeal was troubled by it and raised of its own motion the argument that Section 127(3) was incompatible with First County's convention rights. The hearing was adjourned so that notice could be given to the Crown to oppose the making of a declaration of incompatibility.
The HRA decision
The Court of Appeal on the adjourned hearing declared that Section 127(3) was indeed incompatible with the human rights of First County, both to a fair trial and to peaceful enjoyment of its property. In most circumstances of a failure to comply with one of the formal requirements of the CCA, it was open to the court to nevertheless make an enforcement order, taking into account general questions of justice, prejudice and fault, and its power to reduce the amount payable to compensate for any prejudice. But Section 127(3) created an absolute prohibition. The exclusion of any judicial remedy, or even any meaningful consideration by the court of the creditor's rights in the circumstances, was regarded as illegitimate and contrary to the fundamental right of access to a court. Moreover, while it was necessary to strike a balance between the property rights of the creditor and the general public interest, Section 127(3) did so in a way that was disproportionate and unfair to the creditor because it gave no regard to prejudice or culpability. The court investigated the legislative and Parliamentary materials for any evidence of a policy reason why Section 127(3) was in such absolute terms. None could be discerned.
In accordance with section 3(1) of the HRA, the Court of Appeal considered whether it was possible to read Section 127(3) in a way that was compatible with the relevant convention rights, but it concluded that it was not and the declaration of incompatibility was made accordingly.
The declaration had no effect on the outcome of the dispute between Wilson and First County. Section 4(6) of the HRA provides that a declaration of incompatibility does not affect the validity, continuing operation or enforcement of the provision in respect of which it is given and that it is not binding on the parties to the proceedings in which it is made. Its only effect is to enable remedial action to be taken by the Government under Section 10 of the HRA. Thus, Wilson remains free to have her cake and eat it; but in future, other debtors may not be so lucky.
The opening of the floodgates?
Will there now be a flood of claims that similar penal consequences of non-compliance with formalistic statutory requirements, not mitigated by the possibility of review by a court, are incompatible with convention rights?
The closest analogy will be with cases where a party has a pre-existing contractual right that they are prevented from enforcing by reason of such a statutory bar. Such cases are rare but do exist. One example is Section 25(4) of the Employment Rights Act 1996, which provides that where an employer has made an unlawful deduction from an employee's wages, in respect of a loan to the employee for example, that the employer is able to to so as it was prevented from recovering the debt by any other means – a provision described by Lord Browne-Wilkinson in Delaney v Staples  1 AC 687 as “penal”. Another is Section 4 of the Statute of Frauds 1677, which prevents a creditor recovering under a guarantee of which there is no written and signed memorandum: in such a case the creditor will have given value to the debtor on the basis of the guarantee, and although the policy behind the statute may be hallowed by antiquity, a 21st century court might be prepared to question whether it was right that it should have no relieving power against the consequences of what might be a purely formal failure.
There is a less close analogy with cases where dispositions are rendered void or executory contracts are rendered unenforceable by non-compliance with statutory requirements. Examples would include Section 2 of the Law of Property (Miscellaneous Provisions) Act 1989 (dispositions of interests in land), and Section 203 of the Employment Rights Act 1996 (compromise agreements). It remains to be seen whether the reasoning in Wilson will be extended to such cases. n
Nicholas Underhill QC is a barrister at Fountain Court