Sheriff Decision Throws Light On Effects of Time Orders

Sheriff Decision Throws Light On Effects of Time Orders



Time Orders are a subject I have touched on and returned to on several occasions in this blog over the last year.

In relation to Hire-Purchase agreements for cars and Conditional Sale and Personal Contract Purchase Plans (PCP), Time Orders allow Courts to give consumers time to pay their agreements where they have went into arrears or defaulted on them, whilst also allowing them to retain possession and use of the vehicles.

The question I have been seeking an answer to is what are the effects of Time Orders once granted?

They have not been easy answers to find.

However, in an unreported decision delivered on the 7th February 2019, Sheriff McIntyre in Greenock Sheriff Court has finally provided an answer to one question I have been asking: what happens when a Time Order is granted?

In a case that involved an action for the repossession of a car, that was subject to a Personal Contract Purchase Plan (which for all legal purposes is a Hire-Purchase Agreement regulated by the Consumer Credit Act 1974), Sheriff McIntyre held that a Time Order varies the terms of a regulated agreement and allows the payments to be repaid in a regulated manner.

He also held that it was possible to argue for the action for payment of money and repossession of the car to be dismissed on the awarding of the Time Order, or for it to be continued or sisted (suspended) to monitor the repayments of the agreement.

The case involved was eventually sisted, as it was felt this was fairer to both parties, as it allowed the creditor to bring the case back into court quickly should the consumer default on the agreed repayments again,

Sheriff McIntyre also held that unlike Time to Payment Directions, which are awarded under the Debtors (Scotland) Act 1987 and result in a decree being granted, a Time Order allows the consumer to retain possession and use of the car.

What are the other effects of Time Orders?

Although the case does not definitively answer other questions I have raised in recent months, it may be possible from Sheriff McIntyre’s reasoning to extrapolate some additional understanding of what the effects of a Time Order may be.

If it varies the agreement, is it unreasonable to assume, depending on how the Time Order is framed, that it may do so to allow the consumer time to remedy their default of the agreement; or, to amend certain provisions of the agreement for the remaining duration of the agreement?

So, for example, where the consumer has arrears of £1,000, a Time Order may allow for those arrears to be repaid at £100 per month, in addition to the contractual payments; or for example, it may reschedule how the full amount owing under an agreement is repaid, changing the contractual payment amounts, the interest rates and ultimately the terms of the agreement? It is clear the court has wide discretion in how it grants a Time Order.

In such cases, where the Time Order is just for the arrears, once these are cleared, providing the issue of legal expenses are addressed, could it be argued that the action should be dismissed? Has the consumer not remedied their default and brought the agreement back into good order? Or likewise, where it varies the terms in which the full amount should be repaid, in effect varying the existing agreement, then after a period of court supervision, should the court not consider dismissing the action and allow the new varied agreement to continue as if there had been no default?

This is important as it may answer another question in relation to Time Orders which I have asked (Time Orders: Has Their Time Come?), and that is if they can remedy a default on an agreement, should any termination of the agreement by the lender, not be reversed? This may then allow the consumer to enjoy again the full contractual and statutory rights that accompanied their existing agreement, including the right to terminate the agreement themselves. The logic being as the lenders right to terminate the agreement arises from the debtor being in default, where the default is reversed, so should, where possible, all the consequences of that default?

This is important for the purposes of s99 and S100 of the 1974 Act, which respectively allows a consumer to terminate an agreement after half the amount owing has been paid and limits the borrower’s liability to that amount (subject to certain caveats).

This is important in a consumer finance market where car finance is now believed to be responsible for 90% of all new car purchases and where car debt is on the rise. It is even more important when you consider one of the reasons for this rise, is falling monthly instalments, driven by optional balloon payments at the end of the agreement, which are no longer optional once an agreement is in default or a decree has been granted.

These are still questions that need to be answered.

Either, way, it would appear, from Sheriff McIntyre’s reasoning, the action that is raised in court should not result in decree once a Time Order is granted and its terms are being complied with.

More information about Time Orders can be found here.

Note: the decision of Sheriff McIntyre is not binding on other sheriffs

Old Debts Create Debt Sewers

Old Debts Create Debt Sewers

As the practice of buying and selling old debts has grown, money advisers across Scotland are now witnessing a rise in the number of people being pursued for old debts.
Over the last few years, I have seen many clients in this situation and have heard of similar cases from other advisers. Many of the clients cannot either remember the debts being taken out or long believed they were written off.
When challenged to provide more information, it is not unusual for the new owners of the debt to struggle to provide documentary proof that the debts are even owed.
They often struggle to produce copies of the consumer credit agreements, they don’t have the account statements showing how the sums were accrued and they cannot point to the contractual basis for charges and penalties that have been applied.
There is also no chance they will ever produce the assignation agreements with which they bought the debt, even if it is the only evidence they own it (presumably not wanting anyone to see how little it was sold for in the first place).
To compound matters, when challenged on whether the debt is statue barred (meaning it cannot be recovered) under the Prescription and Limitations (Scotland) Act 1973 (1973 Act), it’s not unusual for them to reference English Law and the Limitations Act 1980 (1980 Act), which gives them longer to pursue the consumer for the debt.
This is no doubt the situation Mike Dailly of Govan Law Centre found himself in recently, and why he was in Glasgow Sheriff Court yesterday (22.01.2018) in front of sheriff Reid.
In his case Mike made an argument that can best be summed up in his own blog (The paper chase: Can an English governing law clause oust Scots law rights in a consumer contract?), but to summarise, it goes along these lines:

An English debt recovery company (DRC) buys an old debt and intimates to their solicitors to raise proceedings in Glasgow Sheriff Court. The debt has not been relevantly acknowledged for the purposes of the 1973 Act in over 5 years, but the DRC claims the debt is still recoverable as it involves a credit card agreement, within which the governing law is stated to be English Law and, therefore, the 1980 Act applies (meaning the debt is not statute barred until after 6 years).
Mike’s argument is the contract is a consumer contract for the purposes of the Rome I Regulation, Regulation (EC) No. 593/2008, and as such should be governed by the law where the consumer habitually resides (Scotland). However, the Rome I Regulation allow the consumer to choose the governing law that shall apply to their contract, meaning English Law can apply.
However, despite that choice, the law that governs cannot deny the consumer the protection they would normally enjoy under Scots Law, where that is greater than it would be under the chosen legal system. Therefore, the 1973 Act still applies, as it provides greater rights, and the debt becomes statute barred after 5 years if there is no relevant acknowledged or claim.

Consumer Credit Act 2015

Not having the benefit of being a solicitor, I have in the past made a different argument, but similar in approach and one that was recently argued successfully against another law firm resulting in them abandoning their claim against a client prior to it going to court. They too had relied on the 1980 Act.

My approach was under S62(1) of the Consumer Rights Act 2015 there is a requirement for the terms of a consumer contract to be fair. Where it is not, it is not binding on the consumer and the govering law clause is void, unless the consumer chooses to be bound by it.

As to what constitutes fair, section 62 states:

(4) A term is unfair if, contrary to the requirement of good faith, it causes a significant imbalance in the parties’ rights and obligations under the contract to the detriment of the consumer.
(5) Whether a term is fair is to be determined—
(a) taking into account the nature of the subject matter of the contract, and
(b) by reference to all the circumstances existing when the term was agreed and to all of the other terms of the contract or of any other contract on which it depends.

My argument is a clause in a consumer contract which states the governing law is English law, when the consumer is habitually resident in Scotland, is unfair where the terms of the contract are not individually negotiated. There being no real choice.

Also, with regards to the resources available to the lender, who is acting in the course of a business, the significant imbalance results from the fact the contract is governed not by the consumer’s legal system, but the one which is preferable to the business, which results in a detriment for the consumer as they lose the protections of their own legal system.

This argument is not without some support. The Consumer Rights Act 2015 superseded the Unfair Terms in Consumer Contract Regulations 1999 (1999 Regs) which was essentially worded along the same lines.

In relation to those regulations the Office of Fair Trading (prior to being superseded by the Financial Conduct Authority) had stated in their guidance on the 1999 Regs:

17.4 It is not fair for the aggrieved consumer to be forced to travel long distances and use unfamiliar procedures. International Conventions lay down rules on this issue [The Rome Convention – Mike’s argument], which are part of UK law.

Terms which conflict with them are likely to be unenforceable for that reason, too.

A similar clause is included in the Competition and Marketing Authority’s Guidance on the Unfair Terms in the Consumer Rights Act 2015 at paragraph 5.29.7:

Consumers should not normally be prevented from starting legal proceedings in their local courts – for example, by a term requiring resort to the courts of England and Wales despite the fact that the contract is being used in another part of the UK having its own laws and courts. It is not fair for the consumer to be forced to travel long distances and use unfamiliar procedures to defend or bring proceedings.

Treating Customer’s Fairly

Considering this, it must now be questioned whether those lenders and debt purchasers who are relying on English Law in Scottish consumer contracts are having due regard to the interests of their customers and treating them fairly, as required under Principle 6 of the Financial Conduct Authority’s Higher Business Principles.

It is also not the first-time concerns have been raised about the lack of evidence creditors and debt buyers can produce when raising actions. In 2009 the Sheriff Courts Rules Council produced an Act of Sederunt that required lenders to produce a copy of the regulated agreements when raising an action, but after last minute lobbying by the credit industry and debt recovery solicitors, the regulations were withdrawn. Their concerns were that many creditors would not be able to produce actual copies of the agreements and would only be able to produce “re-constituted” copies.

It is clearly now time for the Scottish Civil Justice Council to re-examine this area. It is clear Scotland’s lower debt courts are being treated like sewers with claims being raised for debts that are either statute-barred or cannot be proven. The calculation being most consumers lack the knowledge or resources to defend such actions.

For more information on statute barred debts, see here or visit our Forum on statute barred debt.