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SHERIFFDOM OF SOUTH STRATHCYLDE, DUMFRIES AND GALLOWAY AT
HAMILTON
HAM-SE15-24
JUDGMENT OF SHERIFF J SPEIR
in the cause
BLACK HORSE LIMITED
Pursuer
against
D
Defender
Pursuer: R. Mitchell, Esq.,Advocate ; Eversheds Sutherland (International) LLP, solicitors,
Edinburgh
Defender: J. Bird, CAB Hamilton
HAMILTON, 4 February 2025
Introduction
[1]
In what circumstances should a court make a time order under and in terms of
section 129 of the Consumer Credit Act 1974? That is the issue raised in the present case in
circumstances where the debtor seeks such an order to prevent the creditor from enforcing a
credit agreement by way of an action for delivery of a motor vehicle following non-payment
of the contractually agreed repayment of a loan by instalments.
Background
[2]
On 2 October 2021 the
parties entered into a Hire Purchase Agreement ("the
Agreement") in respect of a Peugeot motor vehicle ("the vehicle"). The Agreement is
2
regulated by the Consumer Credit Act 1974 ("the 1974 Act"). The purchase price of the
vehicle was £21,568.00. The defender paid a deposit of £1084.15 towards said purchase price
with balance of £20,483.85 being paid by the pursuer. This is the amount of credit provided
under the Agreement. Allowing for hire purchase charges and interest, the repayable
balance, payable by the defender to the pursuer, was £26,332.75. The applicable interest rate
was 8.55% with an APR of 8.9%. The contract stipulated payment of said sum in equal
monthly instalments of £420.81 for a period of 60 months. On payment of the final monthly
instalment title in the vehicle would pass to the defender. The defender paid 20 instalments
totalling £8416.20 after which she defaulted on the payment schedule. On 19 December
2023, the pursuer issued to the defender a Default Notice under section 87 (1) of the
1974 Act. At that time the arrears stood at £2,524.86, being 6 months missed payments, not
including interest. The Default Notice gave warning inter alia that unless the arrears were
paid the pursuer was entitled to end the agreement and recover the vehicle. No such
payment was made and on 17 April 2024, the pursuer issued to the defender a Notice of
Termination. On 9 May 2024 the pursuer presented a summons craving an order for
delivery of the vehicle failing which for warrant for officers of court to take possession of it.
In response the defender completed and lodged a pro forma statement of defence. That did
not disclose a defence as such but indicated and intention to attend court and offer a
monthly payment plan. Subsequently and after sundry procedure the defender lodged an
application for a time order under section 129 of the 1974 Act. That application admitted the
arrears but sought an extension of the agreement with an increase in the monthly payments
to £438 and to refuse the order for delivery sine die. That application was accompanied by a
spreadsheet purporting to show the defender's income and expenditure. No vouching
whatsoever was lodged in support of it. Thereafter a hearing on the application for a time
3
order was assigned, parties having agreed that there was otherwise no defence on the merits
of the action and that a proof was unnecessary.
Submissions
Pursuer's submissions
[3]
For the pursuer it was submitted that the application for a time order should be
refused and decree de plano granted as craved. The appropriate test for determining the
application was whether it was "just" to grant a time order on the facts and circumstances of
the present case. Reference was made to the English Court of Appeal (two bench) decision
First National Bank plc v Syed [1991] 2 All E.R. 250 and in particular the dicta of Dillon L.J. at
page 250 where he stated (referring to section 129):
"Under this section, then, the Court is empowered to order payment by
instalments which are reasonable having regard to the means of the debtor.
But the Court can only exercise the power if it appears, or is considered, just
to do so. But consideration of what is just does not exclude consideration of
the creditor's position; it is not limited to the debtor's position. I cannot think
that it is just, in the circumstances of this case, and in the light in particular of
the fairly long history of default and merely sporadic payments on the
Defendants' part, and of the absence of any realistic, as opposed to merely
speculative, prospect of improvement in the Defendants' finances, to require
the Plaintiff to accept the instalments the Defendants can afford, when those
will be too little even to keep down the accruing interest on the Defendants'
account"
[4]
Accordingly when considering whether or not a time order should be granted the
court should take into consideration: the position of the debtor, the position of the creditor
and whether the proposed payment is reasonable and affordable given the circumstances.
In the present case a time order would not be just because the defender had a long history of
missed payments; and it would significantly extend the contract period to the prejudice of
the pursuer. In relation to the first point counsel for the pursuer advised the current total
4
outstanding was £23,632.65 made up as follows: (a) a current balance of £15,592.40,
(b) arrears of £5,072.15 and (c) a termination figure of £2,968.10. The Agreement had
21 months remaining that being the period within which the defender was obliged to repay
the amount owed to the Pursuer. If a time order was granted in the terms sought this would
require an extension of the remaining term to 44 months which would not be just. Even if
the proposed monthly amount was £500 then counsel estimated that the term would still be
in the region of 37 months which was still significantly in excess of the contractual term. As
the defender had defaulted on the agreed contractual monthly payments of £420.81 it was
not credible based on the information provided that she would now be able to afford to pay
in excess of that as she proposed. There had been no payments made for over a year. The
current market value of the vehicle was estimated to be £9,325. If the pursuer was able to
recover and sell it now at that price that would cover almost half of the amount owed to the
Pursuer and by corollary reduce the balance that the defender still owed under the
Agreement. The vehicle will however continue to depreciate and if there was a further
default in any time order made both parties would accordingly be prejudiced thereby.
Defender's submissions
[5]
On behalf of the defender her representative accepted that she was in default. He
did not challenge the figures put forward by counsel for the pursuer. He also accepted that
the vehicle was a depreciating asset. The defender was nonetheless seeking a time order so
that she could retain the vehicle. She required it in order to commute to and from her work
as a carer for a local authority. She had a health condition for which she receives adult
disability payments. She was married and had three children to support. Her husband had
only recently returned to work after having been off for 6 months due to health issues.
5
Reference was made to the schedule of income and expenditure prepared and lodged by the
defender. This showed a surplus of £438 per month which was where the proposed figure
in the time order application came from. He was instructed to increase this sum to £500 per
month as the defender no longer required to pay for childcare. The defender's
representative confirmed that she was repaying other debts as disclosed in the schedule but
he did not have the details of how much was outstanding in respect of those. It might be
however that the defender was eligible to receive additional benefits and was currently
seeking assistance to apply for those. Under reference to section 129 of the 1974 Act it was
submitted that in determining an application for a time order the court required to consider
whether it was reasonable and would it remedy the breach by the defender of the hire
purchase contract. It was submitted that this test had been met in the present case and
accordingly it was in the interests of justice to grant the time order being sought and the case
should be continued sine die for that to be given effect to.
Decision and reasons
[6]
So far as material section 129 of the 1974 Act inter alia provides:
"(1) ... if it appears to the court just to do so -...
(b) on an application made by a debtor or hirer under this paragraph after
service on him of
(i)
a default notice
(c)
in an action brought by a creditor or owner... recover possession of any
goods or land to which a regulated agreement relates, the court may make
an order under this section (a `time order').
(2)
A time order shall provide for one or both of the following, as the court
considers just-
(a)
the payment by the debtor or hirer or any surety of any sum owed under
a regulated agreement or a security by such instalments, payable at such
times, as the court, having regard to the means of the debtor or hirer and
any surety, considers reasonable ..."
6
[7]
Thereafter section 136 ("Power to vary agreements and securities") states: "The court
may in an order made by it under this Act include such provision as it considers just for
amending any agreement or security in consequence of a term of the order."
[8]
Thus, it follows that, in an action such as the present, before a court grants decree in
favour of a lender for the possession of property subject to a regulated agreement it requires
to consider whether it would be just, as an alternative thereto, to grant the application for a
time order. In the event that the court makes such an order it has wide powers to amend the
Agreement between the parties to give effect to that order. Typically that would be to
extend the contractual term for payment of the loan but the wording of the provision does
not suggest that the power is restricted to just that.
[9]
The Agreement in the present case contain what are common provisions in hire
purchase agreements including:
·
that ownership of the vehicle remains with the lender until all sums due under
the vehicle have been paid;
·
that if any loan instalment is not paid on its due date, interest may be charged
on it from then until the date of payment at the rate of interest applicable to the
loan;
·
that failure to pay instalments when due would entitle the lender to repossess
the vehicle if necessary by way of court order.
[10]
Prior to hearing parties' submissions I had identified an English Court of Appeal
case in point and decided after the case of
Syed, supra, namely the three bench decision in the
joined cases of Southern and District Finance plc v Barnes, J & J Securities v Ewart and Equity
Home Loans Ltd v Lewis (1995) 27 H.L.R. 691(hereafter for brevity Barnes, supra). In giving the
7
leading judgment in this case Leggatt LJ, determined that the correct approach in
determining applications for time orders was as follows:
"(1)
When a time order is applied for, or a possession order sought of land to which
a regulated agreement applies, the court must first consider whether it is just to
make a time order. That will involve consideration of all the circumstances of
the case, and of the position of the creditor as well as the debtor.
(2)
When a time order is made, it should normally be made for a stipulated period
on account of temporary financial difficulty. If, despite the giving of time, the
debtor is unlikely to be able to resume repayment of the total indebtedness by
at least the amount of the contractual instalments, no time order should be
made. In such circumstances it will be more equitable to allow the regulated
agreement to be enforced.
(3)
When a time order is made relating to the non-payment of money:
(a)
The `sum owed' means every sum which is due and owing under the
agreement, but where possession proceedings have been brought by the
creditor that will normally comprise the total indebtedness; and
(b) The court must consider what instalments would be reasonable both as to
amount and timing, having regard to the debtor's means.
(4)
The court may include in a time order any amendment of the agreement, which
it considers just to both parties, and which is a consequence of a term of the
order. If the rate of interest is amended, it is relevant that smaller instalments
will result both in a liability to pay interest on accumulated arrears and, on the
other hand, in an extended period of repayment. But to some extent the high
rate of interest usually payable under regulated agreements already takes
account of the risk that difficulties in repayment may occur.
(5)
If a time order is made when the sum owed is the whole of the outstanding
balance due under the loan, there will inevitably be consequences for the term
of the loan or for the rate of interest or both.
(6)
If justice requires the making of a time order, the court should suspend any
possession order that it also makes, so long as the terms of the time order are
complied with."
[11]
In the apparent absence of relevant authoritative Scottish case law I am content to
accept and adopt this as the correct approach. I indicated to both counsel for the pursuer
and the representative for the defender that this was my view and gave them each the
opportunity to make supplementary written submissions. They declined to do so each
8
contending that the foregoing dicta was consistent with both of their original submissions.
Specifically I was not addressed on what change if any would be required to the term of the
loan or the rate of interest in the event that I was satisfied that it was appropriate to make a
time order. These are the matters adumbrated in paragraphs (3) to (6) of the guidance set
out by Leggatt LJ. Only the likely length of an extension to the term was addressed by
counsel for the pursuer without demur from the defender's representative. Even then I am
not persuaded that his calculations are correct. On the basis that the outstanding balance
figure of £23,632.65 is accurate, and as I have indicated this was not challenged on behalf of
the defender, then if this is to be repaid in instalments of £500 per month that gives a period
of over 47 months before any additional accrued interest on arrears is applied.
[12]
In the event, as I have decided for the reasons after explained that it is not just to
make a time order, these issues of term extension and variation to the contractual interest
rate do not require to be addressed further. But, in my view, in opposed time order
applications, parties should be in a position to address the court on them in detail with clear
and accurate calculations. In this regard, I regrettably find myself in disagreement with the
sheriff who decided the case of Murie McDougall Ltd v Sinclair 1994 SLT (Sh Ct) 74 who
determined inter alia that neither singly nor in combination did section 129 or section 136
give the court power to vary the contractual interest rate. He did so under reference to an
unreported English county court case from 30 October 1989 the dicta from which he quotes
at length (at page 80H-L of the report). The sheriff indicated that he was in agreement with
the reasoning in that case which in turn rests on the proposition that as the 1974 Act contains
specific provisions to allow for variation of extortionate credit agreements it would be
wrong to allow for variations by the "back door" of applications under sections 129 and 136.
This issue and the foregoing rationale was also submitted in argument in the case of
Barnes,
9
supra
but was rejected by the Court of Appeal who held that the court did have power to
vary a term relation to interest in the context of determining a time order application but
that the power was of limited scope and could only be used where it was truly required to
give content to a time order and the making of it was just (per Leggatt LJ at page 698). I
respectfully agree with that analysis.
[13]
Turning to the present application, I am not satisfied that in all the circumstances of
the case, including the parties' respective positions, that it is just to make a time order. The
information available does not disclose the sort of "temporary financial difficulty" which
Leggatt LJ identified as a basis for the relief that a time order would provide. Indeed, on the
defender's own account the financial difficulty that would doubtlessly have resulted from
her husband's absence from employment had arisen around June 2024. That is some
considerable time after she began to default on the payments, being around April 2023. The
schedule also discloses that the defender has a number of other creditors most of whom
appear to be commercial lenders. From what I can glean, those debts appear to being
servicing rather than being cleared. In the absence of any supporting vouching I am inclined
to the view that the schedule is somewhat speculative. Further, I agree with counsel for the
pursuer that the necessary extension that would be required to the Agreement to give effect
to the time order would be excessive. When entered into the Agreement was due to
terminate around November 2026. Based on the simple arithmetical calculation I have set
out above, the estimated extension that would be required if payments were now to resume
at £500 per month would move that termination date to around February 2029 at the earliest.
While I accept that having to return the car to the lenders will present transport difficulties
for the defender there was no indication that these were insurmountable by the use of public
transport. On the other hand on a return of the vehicle now means it can be sold for its
10
present value rather than a depreciated one down the line if a time order was made and then
further defaulted on, which on the information presented to me I have consider to more
likely than not. In this scenario a sale for the present valued could potentially be to the
benefit of both parties. Accordingly, I shall grant decree in the terms sought by the pursuer
and refuse the application for a time order.
Expenses
[14]
Parties were at odds on the question of expenses. Counsel for the pursuer submitted
that they should follow success in terms of the usual rule. Further the pursuer had been left
with no option but to raise these proceedings and if the defender had intended to seek a
time order she could have made an application for that before the action was raised. The
representative for the defender submitted that there should be no expenses due to or by. He
submitted that the possibility of obtaining a time order prior to recovery proceedings being
initiated was not well known. I prefer the submissions for the pursuer and shall make a
finding of expenses against the defender.
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