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You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> Wilson v First County Trust Ltd [2001] EWCA Civ 633 (2 May 2001)
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Cite as: [2001] 3 WLR 42, [2001] HRLR 44, [2001] ECC 37, [2001] EWCA Civ 633, [2002] QB 74, [2001] 2 All ER (Comm) 134, [2001] UKHRR 1175, [2001] 3 All ER 229

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Neutral Citation Number: [2001] EWCA Civ 633
Case No: B2/1999/1073

IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM KINGSTON UPON THAMES COUNTY COURT
(His Honour Judge Hull QC)

Royal Courts of Justice
Strand, London, WC2A 2LL
Wednesday 2nd May 2001

B e f o r e :

THE VICE-CHANCELLOR
LORD JUSTICE CHADWICK
and
LORD JUSTICE RIX

____________________

WILSON
Appellant
- and -

THE FIRST COUNTY TRUST LIMITED
Respondent

____________________

(Transcript of the Handed Down Judgment of
Smith Bernal Reporting Limited, 190 Fleet Street
London EC4A 2AG
Tel No: 020 7421 4040, Fax No: 020 7831 8838
Official Shorthand Writers to the Court)

____________________

Mr Richard Salter QC and Mr Martin Young (instructed Pro Bono) for the Appellant
Mr Philip Havers QC and Mr William Hibbert (instructed by Messrs Park Nelson) for the Respondent
Mr Jonathan Crow (instructed by the Treasury Solicitor) for the Secretary of State as Intervenor
Miss Monica Carss-Fisk QC (instructed by the Treasury Solicitor) as Amicus Curiae

____________________

HTML VERSION OF JUDGMENT
____________________

Crown Copyright ©

  1. We handed down interim judgments in this appeal on 23 November 2000. We indicated, in those judgments [2001] QB 407, that we were considering whether to make a declaration, under section 4(2) of the Human Rights Act 1998, that a provision of primary legislation section 127(3) of the Consumer Credit Act 1974 was incompatible with a Convention right. In those circumstances we directed that notice should be given to the Crown under section 5 of the Act of 1998 and we adjourned the appeal for further hearing. This is the judgment of the Court following the further hearing of the appeal.
  2. The application of the 1974 Act to the facts in this case

  3. The appeal is from an order made on 24 September 1999 by His Honour Judge Hull QC, sitting in the Kingston upon Thames County Court at Epsom, in proceedings brought by Mrs Penelope Wilson against The First County Trust Limited, a pawnbroker. The underlying facts are set out in the earlier judgment of the Vice-Chancellor. It is unnecessary to rehearse them at any length. It is sufficient to recall that the principal issue was whether the inclusion of an amount (250), described as a document fee, in the amount (5,250) stated on the face of a loan agreement signed by Mrs Wilson on 22 January 1999 to be the amount of the loan had the effect that "the amount of the credit" was mis-stated. We held, reversing the judge, that the document fee being an item which entered into the total charge for credit could not, itself, be treated as credit. Accordingly, on a true analysis of the position, "the amount of credit" was 5,000, not 5,250.
  4. It was common ground that the agreement of 22 January 1999 was a regulated agreement for the purposes of the Consumer Credit Act 1974. Section 61(1) of the Act sets out three conditions which must be satisfied if a regulated agreement is to be treated as properly executed. Condition (a) requires that a document in the prescribed form containing all the prescribed terms and conforming to regulations under section 60(1) is signed in the prescribed manner both by the debtor and by or on behalf of the creditor. In the present context "the prescribed terms" for the purposes of section 61(1)(a) of the Act include "a term stating the amount of the credit" see paragraph 2 in schedule 6 to the Consumer Credit (Agreement) Regulations 1983 (S.I. 1983/1553). It followed from the fact that the amount of the credit was mis-stated that the agreement of 22 January 1999 was not a properly executed regulated agreement.
  5. Section 65(1) of the 1974 Act provides that an improperly executed regulated agreement is enforceable against the debtor on an order of the court only. Section 127 of the Act sets out the powers of the court upon an application for an enforcement order under (inter alia) section 65(1). Section 127(1) provides that the court shall dismiss the application if, but only if, it considers it just to do so having regard to (i) prejudice caused to any person by the contravention in question and the degree of culpability for it, and (ii) the powers conferred on the court by section 127(2) and sections 135 and 136 of the Act. Section 127(2) empowers the court (if it appears just to do so) to reduce or discharge any sum payable by the debtor, so as to compensate him for prejudice suffered as a result of the contravention in question. Sections 135 and 136 confer further powers on the court in relation to the terms upon which enforcement orders may be made.
  6. Section 127(1) of the 1974 Act is subject to the restrictions imposed by sections 127(3) and (4). Those subsections set out circumstances in which the court shall not make an enforcement order under section 65(1) of the Act. In particular, section 127(3) is in these terms:
  7. "The court shall not make an enforcement order under section 65(1) if section 61(1)(a) (signing of agreements) was not complied with unless a document (whether or not in the prescribed form and complying with regulations under section 60(1)) itself containing all the prescribed terms of the agreement was signed by the debtor or hirer (whether or not in the prescribed manner)."

    It follows that in a case where there is no document signed by the debtor or no document signed by the debtor which contains all the prescribed terms of the agreement the court has no power to make an enforcement order. In such a case, the effect of sections 65(1) and 127(3) of the Act is that the agreement is not enforceable against the debtor.

  8. Further, at least prima facie, security taken for the loan will also be unenforceable in such a case. Section 113(1) of the Act provides (so far as material) that:
  9. "Where a security is provided in relation to an actual or prospective regulated agreement, the security shall not be enforced so as to benefit the creditor . . . , directly or indirectly, to an extent greater (whether as respects the amount of any payment or the time or manner of its being made) than would be the case if the security were not provided and any obligations of the debtor . . . under . . . the agreement were carried out to the extent (if any) to which they would be enforced under this Act."

    In a case where the agreement itself is not enforceable against the debtor by reason of the provisions in sections 65(1) and 127(3) the creditor could obtain no benefit if "the security were not provided". So, in such a case, notwithstanding that "security is provided", the security cannot be enforced so as to benefit the creditor. The point is reinforced by section 113(2):

    "In accordance with subsection (1), where a regulated agreement is enforceable on an order of the court . . . only, any security provided in relation to the agreement is enforceable (so far as provided in relation to the agreement) where such an order has been made in relation to the agreement, but not otherwise."

    In a case where no enforcement order can be made in relation to the regulated agreement, it must follow that security provided in relation to the agreement is not enforceable either.

  10. We held that the present case fell within section 127(3) of the 1974 Act because (in the absence of a term correctly stating the amount of the credit) the document signed by the debtor on 22 January 1999 did not include all the prescribed terms of the agreement. It followed (i) that the agreement was not enforceable against Mrs Wilson and (ii), at least prima facie, that First County Trust could not rely on the security which she had provided by way of pledge over her BMW car.
  11. The Convention rights

  12. Article 6(1) of the Convention for the Protection of Human Rights and Fundamental Freedoms agreed by the Council of Europe at Rome on 4 November 1950 as it has effect for the time being in relation to the United Kingdom ("the Convention") provides, so far as material, that:
  13. "In the determination of his civil rights and obligations . . . , everyone is entitled to a fair and public hearing within a reasonable time by an independent and impartial tribunal established by law. . . ."

    Article 1 of the First Protocol to the Convention, agreed at Paris on 20 March 1952, provides that:

    "Every natural or legal person is entitled to the peaceful enjoyment of his possessions. No one shall be deprived of his possessions except in the public interest and subject to the conditions provided for by law . .
    The preceding provisions shall not, however, in any way impair the right of a State to enforce such laws as it deems necessary to control the use of property in accordance with the general interest . . ."

  14. We pointed out, in the judgments which we handed down on 23 November 2000, that the effect of sections 65(1) and 127(3) of the 1974 Act in a case to which the latter section applies is to deprive the court of any power to enforce a regulated agreement from which a prescribed term has been omitted; notwithstanding that no prejudice has been caused to anyone by that omission. We queried whether that was a proportionate response, having regard to the creditor's Convention rights. The point was identified by the Vice-Chancellor, at paragraph 27 of his earlier judgment:
  15. "It appears to me that it may be arguable that s.127(3) infringes Article 6(1) and/or Article 1 of the First Protocol set out in Schedule 1 to the Human Rights Act 1998. In the case of Article 6(1) it is arguable that the absolute bar to enforcement in the case of an agreement which does not contain the prescribed terms is a disproportionate restriction on the right of the lender, which exists in all other cases, to have the enforceability of his loan determined by the court. Cf Osman v United Kingdom (1998) 5 BHRC 293. The position is similar in the case of Article 1 of the First Protocol. The money advanced by FCT to Mrs Wilson was in its possession. It lent that money to Mrs Wilson on terms, as it thought, that it should be repaid in six months time. It has been deprived of that possession as provided for by law in the form of s.127(3). But does that law strike a fair balance between the demands of the general community and the fundamental right of the individual? Cf Stran Greek Refineries and Stratis Andreadis v Greece (1994) 19 BHRC 293 para 69."

    The Human Rights Act 1998

  16. Section 6(1) of the Human Rights Act 1998 makes it unlawful for a public authority to act in a way which is incompatible with a Convention right. In that context "public authority" includes a court or tribunal see section 6(3)(a) of the Act. But section 6(2)(b) excludes the application of section 6(1) where, in the case of one or more provisions of, or made under, primary legislation which cannot be read or given effect in a way which is compatible with the Convention rights, the court is acting so as to give effect to or enforce those provisions. That provision must be read in conjunction with section 3(1) of the Act, which requires that, so far as it is possible to do so, primary legislation must be read and given effect in a way which is compatible with the Convention rights. The position, therefore, is that, where a court is faced with a provision in primary legislation which appears to require it to make an order which would be incompatible with a Convention right, the court must consider whether it is possible to read and give effect to that provision in a way which does not lead to that result. If it is possible to do so, then the court must take that course. The court will make an order which is not incompatible with the Convention right. But if it is not possible to read and give effect to the primary legislation in a way which is compatible with the Convention right, then the court must make the order which the primary legislation requires. It will not, then, be acting unlawfully see section 6(2)(b) of the 1998 Act.
  17. It follows that, in any case where the court makes an order which is incompatible with a Convention right, it must, necessarily, first address the question whether it is required to do so by some provision in primary legislation. If satisfied that it is required to do so that is to say, if satisfied that (notwithstanding the obligation imposed on the court by section 3(1) of the Act) the provision in primary legislation cannot be read and given effect in a way which is compatible with the Convention right the court (if a court within section 4(5) of the Act) may make a declaration of that incompatibility see section 4(2) of the Act. It does so, in part at least, in order to explain why it is not, itself, acting unlawfully see sections 6(1) and 6(2)(b) of the Act. But, in so doing, it also enables remedial action to be taken by government, under section 10 of the Act. A declaration of incompatibility does not affect the validity, continuing operation or enforcement of the provision in respect of which it is given, nor is it binding on the parties to the proceedings in which it is made see section 4(6) of the Act.
  18. Section 5(1) of the 1998 Act requires that where a court is considering whether to make a declaration of incompatibility, the Crown is entitled to be given notice; and, in such a case, a Minister of the Crown (or a person nominated by him) is entitled to be joined as a party to the proceedings. In the present case, in response to the notice which we directed to be given under section 5 of the Act, the Secretary of State for Trade and Industry has been joined as a party to the appeal. Counsel instructed on his behalf has appeared at the further hearing to resist the making of a declaration of incompatibility.
  19. The issues for decision on the further hearing of the appeal

  20. The original respondent to the appeal, First County Trust, had not been represented by solicitors or counsel at the earlier hearing of the appeal and (in any event) would seem to have no interest in the question whether or not a declaration of incompatibility should be made. In those circumstances we thought it appropriate to invite the Attorney-General to appoint an amicus curiae to assist the Court. We have had that assistance, for which we are grateful. We have been assisted, also, by counsel now instructed on behalf of First County Trust and by counsel who have accepted instructions pro bono publico on behalf of the appellant, Mrs Wilson.
  21. In the light of the submissions which have been made to us, we identified the following issues for decision: (i) whether the relevant provisions of the 1998 Act have any application in circumstances where the agreement of 22 January 1999 pre-dated 2 October 2000, the date upon which those provisions came into force; if so, (ii) whether the provisions in section 127(3) of the 1974 Act read with those in schedule 6 to the 1983 Regulations would (but for the application of section 3(1) of the 1998 Act) be incompatible with a Convention right guaranteed to First County Trust; if so, (iii) whether it is possible (as required by section 3(1) of the 1998 Act) to read and give effect to the provisions in section 127(3) of the 1974 Act in a way which is compatible with that Convention right; and, if that is not possible, (iv) whether, as a matter of discretion, a declaration of incompatibility should be made. We address those issues in the following paragraphs of this judgment.
  22. Whether the relevant provisions of the 1998 Act have any application in this case.

  23. It was submitted on behalf of the Secretary of State that the court has no power, under section 4(2) of the Human Rights Act 1998, to make a declaration of incompatibility in a case, such as the present, where what is said to be the relevant event the making of the regulated agreement on 22 January 1999 - took place before that section was brought into force (on 2 October 2000) by an order made under section 22(3) of that Act. The Secretary of State does not shrink from the necessary conclusion that, if that submission were well founded, it would follow that, in a case where the relevant event took place before 2 October 2000, a court is not required by section 3(1) of the Act to read and give effect to legislation (so far as it is possible to do so) in a way which is compatible with Convention rights; nor would a court be acting unlawfully under section 6(1) of the Act if (having failed to give effect to section 3(1) of the Act) it were to make an order which is incompatible with a Convention right. We have explained, already, that sections 3, 4 and 6 of the 1998 Act must be read together.
  24. In our view the submission that sections 3, 4 and 6 have no application in the present case is misconceived.
  25. The Human Rights Act 1998 was enacted, as appears from its long title, "to give further effect to rights and freedoms guaranteed under the European Convention on Human Rights". The Convention rights to which the Act gives "further effect" are not, themselves, new rights introduced by the Act; they are existing rights set out in the Convention and its Protocols, to which the United Kingdom is party see section 1(1) of the Act. The object of the Act is to incorporate those rights into domestic law and to give an effective domestic remedy. Section 6 must be read with that object in mind. Section 6(1) in conjunction with section 6(3)(a) - requires a court to refrain from acting in a way which is incompatible with a Convention right. If the court is to comply with that requirement it must ask itself in any case which comes before it after 2 October 2000 - whether the order which it is about to make is or is not compatible with Convention rights. The relevant event, in the present case, is not the making of the agreement on 22 January 1999; the relevant event is the making of an order on this appeal.
  26. To put the point in another way, the relevant question, in the present case, is not whether some Convention right of First County Trust was infringed when it made a loan to Mrs Wilson upon the terms of the agreement dated 22 January 1999; nor whether, before 2 October 2000, there was any domestic remedy in respect of any such infringement. The relevant question is whether in allowing an appeal from the order made by His Honour Judge Hull QC or, more precisely, in making an order after 2 October 2000 which gives effect to a decision to allow the appeal this Court would be acting in a way which is incompatible with an existing Convention right. That is a question which has to be answered on the basis of the facts as they are at the time when the order is made in this Court.
  27. The contrary argument is founded on the provisions of section 22(4) of the 1998 Act, which both extends and limits the retrospective effect of section 7(1). Section 7(1) of the Act is in these terms:
  28. "A person who claims that a public authority has acted (or proposes to act) in a way which is made unlawful by section 6(1) may -
    (a) bring proceedings against the authority under this Act in the appropriate court or tribunal, or
    (b) rely on the Convention right or rights concerned in any legal proceedings,
    but only if he is (or would be) a victim of the unlawful act."

    For the purposes of section 7(1)(b) "legal proceedings" includes (a) proceedings brought by or at the instigation of a public authority, and (b) an appeal against the decision of a court or tribunal see section 7(6) of the Act. That is the context in which section 22(4) of the Act must be read. The section is in these terms:

    "Paragraph (b) of subsection (1) of section 7 applies to proceedings brought by or at the instigation of a public authority whenever the act in question took place; but otherwise that subsection does not apply to an act taking place before the coming into force of that section."

    It is said that the first limb of that section which identifies limited circumstances in which section 7(1)(b) applies to an act (alleged to be unlawful under section 6(1)) which has taken place before 2 October 2000 (when section 7, also, came into force pursuant to section 22(3) of the Act) is the exception which proves the general rule. The general rule, it is said, is that a court is not concerned with alleged infringing acts which took place before 2 October 2000.

  29. We are satisfied that that argument is based on a misunderstanding of the purpose and effect of section 22(4) of the 1998 Act. The effect of section 22(4) is not in doubt. It provides (by the second limb of the section) that, in general, section 7(1) does not apply to an act taking place before 2 October 2000. So, for example, a person who claims that a public authority has acted in a way which is incompatible with a Convention right (contrary to section 6(1) of the Act) cannot bring proceedings against the authority under the Act (pursuant to section 7(1)(a)) if the unlawful act took place before 2 October 2000. Nor, it seems, can a person who claims that a court or tribunal has acted in a way which is incompatible with a Convention right (contrary to section 6(1) of the Act) rely on that as a ground of appeal against the decision of that court or tribunal in a case where the decision complained of was made before 2 October 2000 see section 7(1)(b) and section 7(6)(b) of the Act. If the act which is said to be unlawful under section 6(1) has taken place before 2 October 2000, it is only where the person who claims to be the victim of that act is party to proceedings brought by or at the instigation of a public authority that he can rely on that section.
  30. Once the effect of section 22(4) of the 1998 Act is analysed, it is not difficult to see the purpose for which that section was enacted. Parliament took the view no doubt as a matter of policy that public authorities should not be exposed to proceedings in respect of acts (alleged to be incompatible with Convention rights) which had taken place before sections 6 and 7 had come into force. Nor should the decisions of courts and tribunals made before those sections had come into force be impugned on the ground that the court or tribunal was said to have acted in a way which was incompatible with Convention rights. But, where the public authority was itself the claimant in, or the instigator of, proceedings, there was no policy reason why another party to those proceedings should not rely on an allegation that the authority had acted in a way which section 6 made unlawful, whenever the alleged unlawful act had taken place. The first limb of section 22(4) is required because, without it, an act of a public authority which was incompatible with a Convention right but which had taken place before section 6 had come into force would not be unlawful; with the consequence that the unlawfulness of the act could not be relied upon as an answer to proceedings brought by the public authority. The second limb of section 22(4) is required because, without it, public authorities would be exposed to claims in respect of acts (said to be unlawful under section 6(1)) which had taken place before section 7 had come into force.
  31. So understood, section 22(4) of the 1998 Act provides no support for the submission that section 6(1) or sections 3 and 4 of the Act have no application in the present case. Section 22(4) is directed to the particular problems raised by the decision to give a domestic remedy, under section 7(1) of the Act, against public authorities who act, or have acted, in a way made unlawful by section 6(1). It has no relevance to the quite separate question whether a court, which is now required by section 6(1) to act in a way which is compatible with Convention rights, must have regard to the facts as they are at the time when it makes its order. As we have said, that question requires an affirmative answer.
  32. Whether the provisions in section 127(3) of the 1974 Act would (but for the application of section 3(1) of the 1998 Act) be incompatible with a Convention right

  33. We turn, therefore, to consider the second issue for decision on this further hearing: whether the provisions in section 127(3) of the 1974 Act read with those in schedule 6 to the 1983 Regulations would (but for the application of section 3(1) of the 1998 Act) be incompatible with the rights guaranteed to the pawnbroker by article 6(1) of the Convention and article 1 of the First Protocol.
  34. It is essential to a proper consideration of this issue to appreciate that there is nothing in the 1974 Act which prevents an improperly executed regulated agreement from giving rise to contractual rights. Nor is there anything in the Act which prevents the right to possess goods pledged as security for the borrower's contractual obligations under such a contract passing on delivery of the goods by the pawnor to the pawnee. The effect of the 1974 Act, in the present context, is limited to restricting the ability of the pawnbroker to enforce its contractual rights, or to enforce its security as the person in possession of the goods pledged.
  35. The point is made by sections 65(1) and 113(2) of the Act. Section 65(1) provides for an improperly executed agreement to be enforced on an order of the court. Where the court makes an enforcement order, it enforces the contractual rights under the agreement; subject to the reduction or discharge of any sum payable thereunder (see section 127(2)), the omission of any term omitted in the document signed by the debtor (see section 127(5)), or such variation or modification as it may make under section 136 in consequence of a term imposed under section 135 of the Act. Where, following an enforcement order, security is enforceable under section 113(2) of the Act, it is the security that has been provided in relation to the agreement that is enforced. Sections 65(1) and 113(2) of the Act do not make the rights conferred on the creditor by the agreement or by the delivery of the pawn unenforceable. Rather, those sections recognise that those rights exist and are enforceable; but enforcement against the debtor or pawnor is made subject to judicial control.
  36. The recognition that there is nothing in the 1974 Act which prevents an improperly executed regulated agreement from giving rise to contractual rights, nor which prevents the right to possess goods pawned as security passing on delivery of the goods, provides the answer, as it seems to us, to the principal argument advanced on behalf of the Secretary of State in support of his submission that there is nothing in section 127(3) of the Act which is incompatible with Convention rights. It was said, in effect, in relation to article 1 of the First Protocol, that, where there was no document signed by the debtor or where the document signed by the debtor did not contain all the prescribed terms of the agreement neither the agreement, nor the delivery of the pawn, conferred any enforceable rights on the creditor. So, in the present case, the creditor had no relevant "possessions" to the peaceful enjoyment of which it was entitled, or of which it was deprived by section 127(3) of the 1974 Act. In effect, the creditor by failing to ensure that he obtained a document signed by the debtor which contained all the prescribed terms must (in the light of the provisions in sections 65(1) and 127(3) of the 1974 Act) be taken to have made a voluntary disposition, or gift, of the loan monies to the debtor. The creditor had chosen to part with the monies in circumstances in which it was never entitled to have them repaid; so there is nothing to engage the rights guaranteed by article 1 of the First Protocol. Nor, on that analysis, does the creditor have any civil rights in respect of which it is entitled to a fair and public hearing by an independent and impartial tribunal. Article 6 of the Convention is not in point.
  37. There is, if we may say so, such an obvious unreality in treating the pawnbroker as if it were a voluntary disponor that we do not find it a matter of any surprise that the argument advanced on behalf of the Secretary of State cannot be supported. It cannot be supported because, as we have said, a proper analysis of the 1974 Act does not lead to the conclusion that a creditor under a regulated agreement who fails to obtain a document signed by the debtor which contains all the prescribed terms is without rights. The true analysis is that the agreement, and the delivery of the pawn, do confer rights on the creditor; but those rights are subject to restrictions on enforcement.
  38. It is the restrictions on enforcement which engage article 6(1) of the Convention. The guarantee, in relation to the determination of a party's civil rights, of a fair and public hearing by an independent and impartial tribunal is of no substance if the outcome is determined by a statutory inhibition which not only prevents the court from doing what is just in the circumstances, but does so (a) in the context of a legislative scheme which gives the court a discretion to do what is just in other, very similar, circumstances and (b) for reasons which (if they exist at all) are wholly opaque. If there is some legitimate aim in pursuit of which the guarantee enshrined in article 6(1) needs to be wholly or partially curtailed, then it is necessary to ask whether the statutory inhibition is proportionate to that aim. Is there a proper balance between ends and means?
  39. The contrast between sections 127(1) and 127(3) of the 1974 Act is striking. Section 127(1) provides that, on an application under section 65(1) of the Act for an enforcement order in relation to an improperly executed agreement, the court shall dismiss the application if, but only if, it considers it just to do so. In considering whether it is just to refuse an enforcement order, the court must have regard to questions of prejudice and culpability; and to its own powers to reduce or discharge any sum payable by the debtor or to impose terms and conditions in the order. Section 127(3) provides that the court shall not make an enforcement order on an application under section 65(1) of the Act where the reason why the agreement is not properly executed (for the purposes of section 61(1)) is that there is no document signed by the debtor which contains all the prescribed terms. In such a case the court can have no regard to prejudice or culpability. It is immaterial that the creditor was in no way to blame for the omission; it is immaterial that the omission has caused no prejudice to the debtor; it is immaterial that any prejudice which the omission has caused to the debtor could be the subject of some compensating provision in an enforcement order.
  40. Further, it is not the omission of every term of the agreement which leads to the consequence that the court cannot make an enforcement order. There will be a failure to comply with section 61(1)(a) of the Act if the document which is signed is not in the prescribed form or does not conform to regulations made under section 60(1) of the Act. Regulations made under section 60(1) may and, in the case of the 1983 Regulations, do require a great deal of information (in addition to terms prescribed for the purposes of section 61(1)(a)) to be included. For example, the annual percentage rate of charge for credit (APR) must be included in a regulated consumer credit agreement see regulation 2(1) of, and schedule 1 to, the 1983 Regulations but a statement of the APR is not one of the prescribed terms set out in schedule 6 to those regulations. A court is not prevented from making an enforcement order if the failure to comply with section 61(1)(a) of the Act is the omission of a term which is not a prescribed term see section 127(3). In such a case the court may, if it thinks fit, make an enforcement order which directs that the agreement is to have effect as if it did not include the term which has been omitted from the document signed by the debtor see section 127(5) of the Act.
  41. The question, therefore, is whether the exclusion of any judicial remedy indeed, the exclusion of any meaningful consideration by the court of the creditor's rights under the agreement in a case where the document signed by the debtor does not include all the prescribed terms of the agreement is legitimate, having regard to the fundamental nature of the right guaranteed by article 6(1) of the Convention. The principle was expressed in the majority judgment in the European Court of Human Rights in Osman v United Kingdom (1998) 29 EHRR 245, at page 315, paragraph 147:
  42. "However this right [the right of access to a court under article 6(1) of the Convention] is not absolute, but may be subject to limitations; these are permitted by implication since the right of access by its very nature calls for regulation by the State. In this respect, the Contracting States enjoy a certain margin of appreciation, although the final decision as to the observance of the Convention's requirements rests with the Court. It must be satisfied that the limitations applied do not restrict or reduce the access left to the individual in such a way or to such an extent that the very essence of the right is impaired. Furthermore, a limitation will not be compatible with Article 6(1) if it does not pursue a legitimate aim and if there is not a reasonable relationship of proportionality between the means employed and the aim sought to be achieved." [emphasis added]

    As Lord Steyn pointed out in Reg v Director of Public Prosecutions, Ex parte Kebilene and others [2000] 2 AC 326, at page 380E-H, the doctrine of "the margin of appreciation", while a familiar part of the jurisprudence of the Strasbourg Court, has no place, as such, in a consideration by a national court of a Convention issue arising within its own domestic jurisdiction. But he went on to say this, at pages 380H-381D:

    " . . . in the hands of the national courts also the Convention should be seen as an expression of fundamental principles rather than as a set of mere rules. The questions which the courts will have to decide in the application of those principles will involve questions of balance between competing interests and issues of proportionality.
    In this area difficult choices may have to be made by the executive or the legislature between the rights of the individual and the needs of society. In some circumstances it will be appropriate for the courts to recognise that there is an area of judgment within which the judiciary will defer, on democratic grounds, to the considered opinion of the elected body or person whose decision is said to be incompatible with the Convention. This point is well made at p.74 para. 3.21 of Human Rights Law and Practice (1999), of which Lord Lester of Herne Hill and Mr Pannick are the general editors, where the area in which these choices may arise is conveniently and appropriately described as the "discretionary area of judgment". It will be easier for such an area of judgment to be recognised where the Convention itself requires a balance to be struck, much less so where the right is stated in terms which are unqualified. It will be easier for it to be recognised where the issues involve questions of social or economic policy, much less so where the rights are of high constitutional importance or are of a kind where the courts are especially well placed to assess the need for protection."

  43. For the reasons to which we have already referred, the exclusion of any judicial remedy in a case such as the present engages not only article 6(1) of the Convention but also article 1 of the First Protocol. Put shortly, the effect of sections 65(1) and 127(3) of the Act is to deprive the pawnbroker of its ability to enjoy benefit from the contractual rights arising from the agreement or from the rights arising from the delivery of the pawn. Article 1 of the First Protocol requires, in terms, a balance to be struck between the rights of the individual to enjoy possessions and the public or general interest. And there are a number of decisions of the European Court of Human Rights which emphasise the need to strike that balance. It is enough, we think, to refer to observations of the European Court in Sporrong and Lonnroth v Sweden (1982) 5 EHRR 35, at pages 52 and 53 (paragraphs 69 and 70); James v United Kingdom (1986) 8 EHRR 123, at pages 144-145 (paragraph 50); and Allgemeine Gold-und Silberscheideanstalt v United Kingdom (1986) 9 EHRR 1, at pages 13 and 14 (paragraphs 52-55). The last of those references contains the following passage:
  44. "The striking of a fair balance depends on many factors and the behaviour of the owner of the property, including the degree of fault or care which he has displayed, is one element of the entirety of the circumstances which should be taken into account."

    As we have already observed, it is a feature of section 127(3) of the 1974 Act that, where it has the effect of excluding any judicial consideration of the case, it does so without regard to prejudice or culpability. It excludes all consideration of the circumstances of the particular case in favour of a mechanistic approach: does the document contain all the prescribed terms?

  45. Counsel for the Secretary of State urged, rightly, that the Consumer Credit Act 1974 is concerned with issues of social policy rather than matters of high constitutional importance. The issues fall within an area in which the courts should be ready to defer, on democratic grounds, to "the considered opinion of the elected body or person". We recognise the force of those arguments. But, unless deference is to be equated with unquestioning acceptance, the argument that an issue of social policy falls within a discretionary area of judgment which the courts must respect recognises, as it seems to us, the need for the court to identify the particular issue of social policy which the legislature or the executive thought it necessary to address, and the thinking which led to that issue being dealt with in the way that it was. It is one thing to accept the need to defer to an opinion which can be seen to be the product of reasoned consideration based on policy; it is quite another thing to be required to accept, without question, an opinion for which no reason of policy is advanced.
  46. It was submitted on behalf of the Secretary of State that an attempt to investigate, through examination of preparatory materials and the content of debates in Parliament, what reason of policy led enacted legislation to take the precise form that it does is, itself, illegitimate. It is enough, he submits, that the legislation has been enacted. Because it has been enacted, it must be taken to represent the considered opinion of the elected body. It is not for the courts to question the basis upon which that opinion was reached; nor even, it seems, to seek to understand the basis upon which that opinion was reached. For the reasons which we have already expressed, we reject that submission. We note that the European Court of Human Rights has thought it helpful to look at preparatory material in order to identify the policy aims and justification of social legislation see James v United Kingdom (1986) 8 EHRR 123, at page 143 (paragraphs 47-48) and at page 146 (paragraph 52); Mellacher v Austria (1989) 12 EHRR 391, at page 409 (paragraph 47).
  47. The 1974 Act had a lengthy gestation. It followed the Report of the Crowther Committee (Cmnd. 4596) in March 1971. We were taken through that report in some detail. We were shown the White Paper "Reform of the Law on Consumer Credit" (Cmnd. 5427) presented to Parliament in September 1973. We were referred to the Parliamentary debates on the Bill . The purpose of that exercise was not to aid construction. There is no difficulty in construing section 127(3) of the Act. The question on which we sought assistance was not "what is the meaning of the words which Parliament has enacted?"; rather, the question was "what was the reason which led Parliament to enact a provision in those words?". Why was it thought necessary to deny to the courts the power to do what was just in those cases in which there was no document signed by the debtor which contained terms which would or might, at some future date, be prescribed by the Secretary of State?
  48. The material to which we have been taken provides no answer to that question. Indeed, such references as there are to the point tend to confuse rather than to illuminate. In a debate on 29 January 1974, in standing committee of the House of Commons, the Minister of State (the Right Honourable Michael Heseltine MP), when introducing, as an amendment to what was then clause 118 of the Bill, the provision which was to become enacted as section 127(3) of the 1974 Act, explained its purpose in these terms:
  49. ". . . the Government do not think that Clause 118 clearly sets out their policy with regard to those matters which the court may or may not overlook. Generally speaking, the Government want the court to overlook everything except a complete omission of the signature, absolute failure to supply a second copy of an agreement in a cancellable transaction, and the complete absence of a notice of cancellation rights in any copy of the agreement. The redraft of sub-sections (1) and (2) makes that clear . . ."

    Later, following a change of government, the purpose of the clause (which had become clause 129 of the Bill) was explained by the Minister of State (Lord Shepherd) in a debate in the House of Lords on 6 May 1974:

    "Clause 129 permits the court, in certain circumstances, to allow the enforcement of an agreement against a debtor or hirer, even though the agreement was not properly executed. But the debtor or hirer may have been prejudiced in some way by reason of this fact. For example, the agreement may not have set out the terms properly, so that a debtor may have entered into it without fully realising how much he was going to pay. He may have thought that the total amount he was to pay would be 500, whereas in fact it would be 600. It may be that an error in the agreement was due to some unintentional slip by a shop assistant, so that it would be unfair on the creditor to deprive him of all his rights under the agreement.
    On the other hand, it might be unfair to the debtor in such a case to make him pay the whole sum. In such a case we feel that the court should be able to act justly between the parties, and order the debtor to pay the creditor a substantial part of the 600, but not the whole of it. If the debtor had been misled into thinking that 500 was all he would have to pay, we think the court should be able to order him to pay 500 only."

    It is impossible to find in those passages any indication of the thinking which led the government to propose or which led Parliament to enact provisions which draw such a sharp contrast between the power of the court to enforce an agreement contained in a document which omits a term which is not a prescribed term and the position where the document omits a term which is a prescribed term.

  50. In the present case, therefore, we are left without the assistance which examination of reports, preparatory material and debates in Parliament might have been expected to provide on the question: "why was it thought necessary to deny to the courts the power to do what was just in those cases in which there was no document signed by the debtor which contained terms which would or might, at some future date, be prescribed by the Secretary of State?" Nor has the Secretary of State been able to explain to us, now, why it is thought necessary to deny to the courts the power to do what is just in those cases. We have been shown no material which helps us to understand why the executive thought it necessary to propose, or why Parliament thought it necessary to enact, section 127(3) of the 1974 Act in the form which it takes. Nor is there anything which indicates why the Secretary of State thought it appropriate to prescribe the terms which he did in the 1983 Regulations.
  51. In the absence of extraneous assistance as to the policy aims of the legislation, or as to the justification for the exclusion of any judicial remedy in cases where there is no signed document which contains all the prescribed terms, we must decide the issue on the basis of the legislation as enacted. The policy aims for which sections 60, 61 and 65 of the 1974 Act were enacted are clear enough. Regulated agreements ought to be made with an appropriate degree of formality; that requires that the terms of the agreement should be set out in a document which is signed by the debtor; the document should contain information relevant to the transaction; and, where those requirements are not met, the agreement is not to be enforced against the debtor except through the court. It cannot be suggested that those are not legitimate objectives of social policy. Nor can it be suggested that judicial control, under section 127 and the other sections in Part IX of the Act, is not a legitimate means of pursuing those objectives. Indeed, it might be said that judicial control under which, in the event that the requirements imposed by section 61 are not met, the court has power to do what is just is an obviously legitimate and sensible way of implementing the policy aims.
  52. But section 127(3) of the Act goes beyond that. The policy aim, reflected in that section, is to ensure that particular attention is paid to the inclusion in the document to be signed by the debtor of certain terms which will, or may, be prescribed by the Secretary of State in the future. Again, it cannot be suggested that that is not a legitimate policy objective. But it does not follow that the means by which that policy aim is to be achieved, under the provisions of section 127(3) of the Act are also legitimate. The means will not be legitimate if guaranteed Convention rights are infringed to an extent which is disproportionate to the policy aim. That, in our view, is the effect of the inflexible prohibition imposed by section 127(3) of the Act against the making of an enforcement order in a case where the document signed by the debtor does not include the prescribed terms. There is no reason that we can identify and, as we have said, no reason has been advanced why an inflexible prohibition is necessary in order to achieve the legitimate policy aim. There is no reason why that aim should not be achieved through judicial control; by empowering the court to do what is just in the circumstances of the particular case.
  53. For those reasons we are satisfied that (subject to the application of section 3(1) of the 1998 Act) the provisions in section 127(3) of the 1974 Act are incompatible with the rights guaranteed by article 6(1) of the Convention and article 1 of the First Protocol.
  54. Whether it is possible to read and give effect to the relevant provisions of the 1974 Act in a way which is compatible with that Convention right

  55. We can deal with this issue shortly. Section 3(1) of the 1998 Act requires that, "in so far as it is possible to do so", primary legislation and subordinate legislation must be read and given effect in a way which is compatible with Convention rights. It follows, as we understand that requirement, that, where the court finds that what we may describe as a "non-Convention" interpretation of the words used in legislation would lead to the conclusion that the legislative provision was incompatible with a Convention right, it must consider whether there is some other legitimate interpretation of those words which avoids that conclusion. If there is, then the interpretation which avoids that conclusion must be adopted.
  56. In that context, by "some other legitimate interpretation" we mean some interpretation of the words used which is legally possible. The court is required to go as far as, but not beyond, what is legally possible. The court is not required, or entitled, to give to words a meaning which they cannot bear; although it is required to give to words a meaning which they can bear, if that will avoid incompatibility, notwithstanding that that is not the meaning which they would be given in a "non-Convention" interpretation.
  57. Section 127(3) of the 1974 Act falls into three parts: (i) "The court shall not make an enforcement order under section 65(1)"; (ii) "if section 61(1)(a) (signing of agreements) was not complied with"; (iii) "unless a document ( . . .) itself containing all the prescribed terms of the agreement was signed by the debtor . . ." Section 61(1)(a) requires "a document in the prescribed form itself containing all the prescribed terms and conforming to regulations under section 60(1) . . . signed in the prescribed manner both by the debtor . . . and by or on behalf of the creditor . . ." It is clear that, notwithstanding what we have identified as the second part of section 127(3), the prohibition in the first part of the section does not prevent the making of an enforcement order in all cases where section 61(1)(a) has not been complied with. But the irreducible minimum requirement is that spelt out in the third part of the section. No enforcement order can be made unless there is a document signed by the debtor which contains all the prescribed terms of the agreement. We can see no way in which it is possible to read and give effect to section 127(3) of the 1974 Act which avoids that irreducible minimum requirement; and none has been suggested to us in argument. Nor can we see any way in which it is possible to read and give effect to the 1983 Regulations which avoids the conclusion that the terms set out in schedule 6 to those regulations are "prescribed terms" for the purposes of sections 61(1)(a) and 127(3) of the Act.
  58. In the judgments handed down on 23 November 2000, at paragraph 47, there is raised for consideration the possibility that it might be held (with the encouragement and exhortation which the opening words of section 3(1) of the 1998 Act provide) that dismissal of an application for an enforcement order in the present case was a dismissal 'on technical grounds only' so that section 106 of the 1974 Act was not engaged; and, if so, that the inter-action of sections 113(1), 113(3) and 106 does enable a distinction to be drawn between 'enforcement' of the security which is prohibited by section 113(1), and also, in a case in which no enforcement order can be made, by section 113(2) and the right of the creditor to retain possession of the property 'lodged for the purposes of the security'. Upon further consideration of the point we are satisfied that - whether or not it would be open to the Court to hold (having regard to section 3(1) of the 1998 Act) that dismissal of an application for an enforcement order under section 127(3) of the 1974 Act was a dismissal 'on technical grounds only' (upon which we do not need to express a view) it could not be held that a creditor had the right to retain possession of property lodged for the purposes of the security in a case where enforcement of the security was prohibited.
  59. We conclude that it is not possible to read and give effect to the relevant provisions of the 1974 Act in a way which is compatible with the pawnbroker's Convention rights.
  60. Whether, as a matter of discretion, a declaration of incompatibility should be made

  61. The court has power, if satisfied that a provision of primary legislation is incompatible with a Convention right, to make a declaration of that incompatibility see section 4(2) of the 1998 Act. In the case of subordinate legislation of which the 1983 Regulations are an example the power is circumscribed. The court should not make a declaration of incompatibility in respect of a provision of subordinate legislation unless satisfied both that the provision is incompatible with a Convention right and that (disregarding any possibility of revocation) the primary legislation under which the subordinate legislation has been made prevents the removal of the incompatibility see section 4(4) of the 1998 Act. In the present case, the incompatibility lies in the primary legislation. It is not the fact that there are prescribed terms which infringes Convention rights. Nor is it the content of the prescribed terms which leads to infringement. Rather, it is the fact that, where terms have been prescribed for the purposes of section 127(3) of the 1974 Act, the provisions of section 127(3) of that Act have the effect of excluding the creditor from any judicial remedy in aid of his rights.
  62. The question, therefore, is whether, as a matter of discretion, a declaration of incompatibility should be made in the present case. In our view it is right to do so for three reasons. First, the point has been identified and fully argued at a further hearing appointed for that purpose. Second, in the circumstances that we have held that the order which a non-Convention interpretation of section 127(3) of the 1974 Act requires the court to make on this appeal would be incompatible with Convention rights, we could not lawfully make that order unless satisfied that the section cannot be read or given effect in a way which is compatible with Convention rights; and it is appropriate that that should be formally recorded by a declaration which gives legitimacy to the order. Third, a declaration serves a legislative purpose under the 1998 Act; in that it provides a basis, under section 10(1)(a) of that Act, for a Minister of the Crown to consider whether there are compelling reasons to make amendments to the legislation by remedial order (under schedule 2 to the Act) for the purpose of removing the incompatibility which the court has identified.
  63. It was submitted on behalf of the Secretary of State that it was unnecessary and inappropriate for the Court to make a formal declaration of incompatibility in the circumstances that our conclusion, recorded in this judgment, removed the bar, identified by Lord Hoffmann in Dimond v Lovell [2000] 2 WLR 1121, to the pursuit of remedies based on unjust enrichment. Lord Hoffmann said this, at page 1131:
  64. "The real difficulty, as it seems to me, is that to treat Mrs Dimond as having been unjustly enriched would be inconsistent with the purpose of section 65(1). Parliament intended that if a consumer credit agreement was improperly executed, then subject to the enforcement powers of the court, the debtor should not have to pay. This meant that Parliament contemplated that he might be enriched and I do not see how it is open to the court to say that this consequence is unjust and should be reversed by a remedy at common law: cf Orakpo v Manson Investments Ltd [1977] 3 All ER 1, [1978] AC 95."

    The submission, as we understand it, is that, notwithstanding that Parliament may have intended that the debtor should not have to pay in certain circumstances, a finding that that intention is incompatible with Convention rights would enable the creditor to say that that consequence is unjust.

  65. There is no counter-claim for unjust enrichment in the present proceedings. We express no view on the question whether the prospects of successfully pursuing such a claim which may be taken to have been minimal in the light of Lord Hoffmann's observations in Dimond v Lovell - have been affected, in any way, by anything which we have decided on the present case. It is unnecessary for us to do so. We are satisfied that, whether or not there is any substance in the submission that those prospects have been revived by this judgment, the point is irrelevant to the question whether a declaration of incompatibility should be made in this case.
  66. Conclusion

  67. We invite further submissions from the Secretary of State on the form of the declaration of incompatibility to be made. It may be of assistance, however, if we indicate our present view. We think that it would be appropriate to declare that, having regard to the terms prescribed by regulation 6(1) of, and schedule 6 to, the 1983 Regulations (S.I. 1983/1553), the provisions of section 127(3) of the 1974 Act, in so far as they prevent the court from making an enforcement order under section 65(1) of that Act unless a document containing all the prescribed terms of the agreement has been signed by the debtor or hirer, are incompatible with the rights guaranteed to the creditor or hirer by article 6(1) of the Convention and article 1 of the First Protocol.
  68. We allow the appeal against the order made on 24 September 1999 for the reasons given in our interim judgments of 23 November 2000.
  69. ORDER: Appeal allowed; declaration of incompatibility made; Judgment for claimant in the sum of 6,900.00. Defendant to pay applicants costs assessed at 1,354.36; Appeal to the House of Lords refused.
    (Order does not form part of approved Judgment)


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