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Session 2002 - 03
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Judgments - Wilson and others v. Secretary of State for Trade and Industry (Appellant)


SESSION 2002-03
[2003] UKHL 40
on appeal from: [2001] EWCA Civ 633




Wilson and others


Secretary of State for Trade and Industry (Appellant)



The Appellate Committee comprised:

Lord Nicholls of Birkenhead

Lord Hope of Craighead

Lord Hobhouse of Woodborough

Lord Scott of Foscote

Lord Rodger of Earlsferry




Wilson and others v. Secretary of State for Trade and Industry (Appellant)

[2003] UKHL 40


My Lords,

    1. In January 1999 Penelope Wilson borrowed £5,000 from a pawnbroker for a period of six months. The pawned property was her car, a BMW 318 Convertible. She did not repay the loan. The pawnbroker sought repayment, failing which the car would be sold. Mrs Wilson's response was to commence proceedings in the Kingston upon Thames County Court. She claimed the agreement was unenforceable because it did not contain all the prescribed terms. She sought on order for the return of her car. Alternatively she sought to reopen the agreement as grossly exorbitant. At the trial Mrs Wilson appeared in person. The pawnbroker was a two-man company, First County Trust Ltd. The company was represented in court by its finance director.

    2. From these modest beginnings the County Court proceedings burgeoned into a case with wide-ranging implications. Neither Mrs Wilson nor First County Trust appeared before the House. But the Attorney General appeared on behalf of the Secretary of State for Trade and Industry. The Speaker of the House of Commons and the Clerk of the Parliaments intervened. They were represented by leading and junior counsel. The Finance and Leasing Association also intervened, as did four insurance companies which are among the largest providers of motor insurance in this country. And leading and junior counsel also appeared as amicus curi'.

The £250 fee: was it 'credit'?

    3. When Mrs Wilson signed her agreement and pawn receipt she was charged a 'document fee' of £250. This was added to the amount of her loan. In the agreement the amount of the loan was stated as £5,250. The amount payable on redemption was £7,327, made up of £5,250 and interest of £1,827. The annual percentage rate of interest was stated to be 94.78%.

    4. The agreement was a regulated agreement for the purposes of section 8 of the Consumer Credit Act 1974. A regulated agreement is not properly executed unless the document signed contains all the prescribed terms: section 61(1)(a). One of the prescribed terms is the 'amount of the credit': see the Consumer Credit (Agreements) Regulations 1983 (SI 1983/1553), regulation 6 and Schedule 6, para 2. The consequence of failure to state all the prescribed terms of the agreement is that the court is precluded, by section 127(3), from enforcing the agreement. In the absence of enforcement by the court the agreement is altogether unenforceable: section 65(1).

    5. On 24 September 1999 His Honour Judge Hull QC, in a carefully reasoned judgment, held that the fee of £250 was part of the amount of the credit. So the agreement was enforceable. He reopened the agreement as an extortionate credit bargain and reduced the amount of interest payable by one half. Mrs Wilson appealed to the Court of Appeal. Pending the hearing of her appeal she paid First County Trust £6,900 to redeem her car. That was in December 1999.

    6. The appeal was heard in November 2000, shortly after the Human Rights Act 1998 came into force. The Court of Appeal, comprising Sir Andrew Morritt V-C, and Chadwick and Rix LJJ, allowed Mrs Wilson's appeal: see [2001] QB 407. Sir Andrew Morritt V-C recognised there was considerable force in First County Trust's submissions in support of the judge's view. But having analysed the statutory provisions, the court held that the £250 added to the loan to enable Mrs Wilson to pay the document fee was not 'credit' for the purposes of the Consumer Credit Act. So one of the prescribed terms was not correctly stated. In consequence the agreement was unenforceable. So also was the security. First County Trust was ordered to repay the amount of £6,900 Mrs Wilson had paid the company after Judge Hull's judgment together with interest amounting to £662. The overall result was that Mrs Wilson was entitled to keep the amount of her loan, pay no interest and recover her car.

The adjourned hearing

    7. Sir Andrew Morritt V-C expressed concern at this outcome. He considered it might be arguable that section 127(3) of the Consumer Credit Act infringes article 6(1) of the European Convention on Human Rights and article 1 of the First Protocol to the Convention. The court adjourned the further hearing of the appeal for notice to be given to the Crown, pursuant to section 5 of the Human Rights Act, that the court was considering whether to make a declaration of incompatibility. The Secretary of State for Trade and Industry was then added as a party to the proceedings.

    8. On 2 May 2001 the court gave judgment at the adjourned hearing: see [2001] EWCA Civ 633, [2002] QB 74. The court held that the inflexible exclusion of a judicial remedy by section 127(3), preventing the court from doing what is just in the circumstances of the case, is disproportionate to the legitimate policy objective of ensuring that particular attention is paid to the inclusion of certain terms in the document signed by the borrower. It is not possible to read and give effect to section 113 or section 127(3) in a way compatible with First County Trust's Convention rights. The court made a declaration, pursuant to section 4 of the Human Rights Act, that section 127(3), in so far as it prevents the court from making an enforcement order under section 65 of the Consumer Credit Act unless a document containing all the prescribed terms of the agreement has been signed by the debtor, is incompatible with the rights guaranteed to the creditor by article 6(1) of the Convention and article 1 of the First Protocol to the Convention.

    9. The Secretary of State appealed to your Lordships' House. First County Trust did not. The Secretary of State accepted that Mrs Wilson's agreement was not 'properly executed' within the meaning of section 61 of the Consumer Credit Act. She accepted that, in consequence, no enforcement order could be made under section 65 and that the security over the car was unenforceable. The Secretary of State also accepted it is not possible to 'read down' the relevant provisions of the Consumer Credit Act and thereby save them from any Convention rights incompatibility otherwise existing. But she challenged the decision of the Court of Appeal on several grounds. Her primary submission was that the court has no jurisdiction to make a declaration of incompatibility in relation to events occurring before the Human Rights Act came fully into force on 2 October 2000. Here, the agreement was made in January 1999 for a period of six months. Additionally, the parties' rights were determined before the Human Rights Act came into force. The County Court decision was in September 1999.

Retrospectivity and section 4 of the Human Rights Act

    10. As everyone knows, the purpose of the Human Rights Act 1998 was to make the human rights and fundamental freedoms set out in the European Convention on Human Rights directly enforceable in this country as part of its domestic law. The question raised by the Secretary of State's submission is how the Act was intended to operate regarding events occurring before the Act came into force, that is to say, events taking place at a time when these human rights were not as such part of the domestic law of this country.

    11. Section 1 of the Act defines 'Convention rights' and states how the relevant articles of the Convention and its Protocols are to have effect for the purposes of the Act. Section 2 provides that when determining a question arising in connection with a Convention right courts must take into account, among other matters, decisions of the European Court of Human Rights and the European Commission of Human Rights. I can put these two introductory sections on one side. Contrary to the submissions of the Secretary of State, I do not think they assist either way on the point now under consideration. They are neutral.

    12. The Act prescribes two principal means whereby it 'brings human rights home' from Strasbourg: first, by making provision for the interpretation and amendment of legislation and, secondly, by making it unlawful for a public authority to act in a way incompatible with a Convention right. Sections 3 to 5 and 10 are concerned with the former of these objectives, sections 6 to 9 with the latter. I shall consider the latter group of sections first. Sections 6 to 9 are forward looking in their reach. Section 6(1) provides that it 'is unlawful for a public authority to act in a way which is incompatible with a Convention right'. On a natural reading this provision is directed at post-Act conduct. The context powerfully supports this interpretation. One would not expect a statute promoting human rights values to render unlawful acts which were lawful when done. That would be to impose liability where none existed at the time the act was done. Sections 7 to 9 are concerned with conduct outlawed by section 6(1). They prescribe remedial consequences which ensue when a public authority has acted, or proposes to act, in a way 'which is made unlawful by section 6(1)': section 7(1). It follows therefore that, like section 6(1), sections 7 to 9 are concerned with post-Act events.

    13. Section 22(4) is an exception to this scheme. It is a curious provision. Commentators and judges have spilled much ink in discussing it. Its effect is that in response to proceedings brought by a public authority a victim of an unlawful act may rely on a Convention right 'whenever the act in question took place'. So this provision enables a victim to assert and rely on a Convention right in respect of conduct which was not unlawful when it took place. In circumstances where section 22(4) applies the Human Rights Act gives a remedy in respect of pre-Act conduct. What is not apparent is why, in respect of pre-Act violations of human rights, victims are given a domestic remedy in this one respect but not more widely. What is special about this one particular situation is not clear. But there it is.

    14. With these provisions in mind I turn to sections 3 and 4. It can be noted at once that section 4 rides in harness with section 3. Section 4 contains two prerequisites to the court's jurisdiction to make a declaration of incompatibility. First, subsections (2) and (4) of section 4 apply to proceedings in which the court 'determines' whether a legislative provision is compatible with a Convention right. So section 4 does not apply unless the court, in the proceedings in question, actually decides whether the relevant legislation is Convention-compliant. The second prerequisite is that the court must be satisfied the relevant legislative provision is incompatible with a Convention right: section 4(2) and (4). This presupposes that, despite application of the principle of interpretation stated in section 3, the legislation is non-compliant. In other words, interpretation of the legislation in accordance with section 3 is an essential preliminary step to making a declaration of incompatibility. It is an essential preliminary step because the court cannot be satisfied the legislation is incompatible until effect has been given to the interpretative obligation set out in section 3.

    15. This interpretation of section 4 accords with the consequence flowing from a declaration of incompatibility. A declaration of incompatibility triggers the 'fast track' legislative procedures set out in section 10. It would make no sense for these procedures to be set in motion if it remains uncertain whether it is possible to interpret the legislation in a Convention-compliant way.

    16. In the ordinary course this sequential approach goes without saying. Courts will interpret legislation, as they are required to do, in accordance with section 3. Only when they have done this will any question of a declaration of incompatibility arise. But the present case is exceptional because of its transitional nature: the agreement was made pre-Act, and the Court of Appeal was interpreting the legislation post-Act. Hence the all-important question: is section 3 applicable in such a case?

    17. On its face section 3 is of general application. So far as possible legislation must be read and given effect in a way compatible with the Convention rights. Section 3 is retrospective in the sense that, expressly, it applies to legislation whenever enacted. Thus section 3 may have the effect of changing the interpretation and effect of legislation already in force. An interpretation appropriate before the Act came into force may have to be reconsidered and revised in post-Act proceedings. This effect of section 3(1) is implicit in section 3(2)(a). So much is clear.

    18. Considerable difficulties, however, might arise if the new interpretation of legislation, consequent on an application of section 3, were always to apply to pre-Act events. It would mean that parties' rights under existing legislation in respect of a transaction completed before the Act came into force could be changed overnight, to the benefit of one party and the prejudice of the other. This change, moreover, would operate capriciously, with the outcome depending on whether the parties' rights were determined by a court before or after 2 October 2000. The outcome in one case involving pre-Act happenings could differ from the outcome in another comparable case depending solely on when the cases were heard by a court. Parliament cannot have intended section 3(1) should operate in this unfair and arbitrary fashion.

    19. The answer to this difficulty lies in the principle underlying the presumption against retrospective operation and the similar but rather narrower presumption against interference with vested interests. These are established presumptions but they are vague and imprecise. As Lord Mustill pointed out in L'Office Cherifien des Phosphates v Yamashita-Shinnihon Steamship Co Ltd [1994] 1 AC 486, 524-525, the subject matter of statutes is so varied that these generalised maxims are not a reliable guide. As always, therefore, the underlying rationale should be sought. This was well identified by Staughton LJ in Secretary of State for Social Security v Tunnicliffe [1991] 2 All ER 712, 724:

    'the true principle is that Parliament is presumed not to have intended to alter the law applicable to past events and transactions in a manner which is unfair to those concerned in them, unless a contrary intention appears. It is not simply a question of classifying an enactment as retrospective or not retrospective. Rather it may well be a matter of degree - the greater the unfairness, the more it is to be expected that Parliament will make it clear if that is intended.'

    Thus the appropriate approach is to identify the intention of Parliament in respect of the relevant statutory provision in accordance with this statement of principle.

    20. Applying this approach to the Human Rights Act, I agree with Mummery LJ in Wainwright v Home Office [2001] EWCA Civ 2081, [2002] QB 1334, 1352, para 61, that in general the principle of interpretation set out in section 3(1) does not apply to causes of action accruing before the section came into force. The principle does not apply because to apply it in such cases, and thereby change the interpretation and effect of existing legislation, might well produce an unfair result for one party or the other. The Human Rights Act was not intended to have this effect.

    21. I emphasise that this conclusion does not mean that section 3 never applies to pre-Act events. Whether section 3 applies to pre-Act events depends upon the application of the principle identified by Staughton LJ in the context of the particular issue before the court. To give one important instance: different considerations apply to post-Act criminal trials in respect of pre-Act happenings. The prosecution does not have an accrued or vested right in any relevant sense.

    22. In the present case Parliament cannot have intended that application of section 3(1) should have the effect of altering parties' existing rights and obligations under the Consumer Credit Act. For the purpose of identifying the rights of Mrs Wilson and First County Trust under their January 1999 agreement the Consumer Credit Act is to be interpreted without reference to section 3(1).

    23. It follows that, in this transitional type of case concerning the Consumer Credit Act, no question can arise of the court making a declaration of incompatibility. For the reasons already considered, it is only when a court is called upon to interpret legislation in accordance with section 3(1) that the court may proceed, where appropriate, to make a declaration of incompatibility. The court can make a declaration of incompatibility only where section 3 is available as an interpretative tool. That is not this case.

The court as a public authority

    24. The Court of Appeal reached a contrary conclusion on the applicability of Convention rights by a different route. The court held that the relevant event is not the making of the January 1999 agreement. The relevant event is the Court of Appeal's order. The court is a public authority. The court, required by section 6(1) to act in a way compatible with Convention rights, must have regard to the facts as they are at the time when it makes its order: [2002] QB 74, 87-89, paras 17, 18 and 22. The decision of the Court of Appeal, I should note, was given before the decisions of this House in R v Lambert [2001] UKHL 37, [2002] 2 AC 545, and R v Kansal (No 2) [2001] UKHL 62, [2002] 2 AC 69.

    25. As is well known, the application of section 6(1) to judicial decisions on matters of substantive law is a highly controversial topic. It is not necessary to venture onto this quicksand in the present case. One insuperable difficulty with the Court of Appeal's analysis, as it respectfully seems to me, is that it fails to take into account the mandatory nature of the relevant provisions of the Consumer Credit Act. Let it be assumed, but without deciding, that the court's order in these proceedings is an 'act' by a public authority within the meaning of section 6(1). Even so, there can be no question of the court acting unlawfully. The court's decision in these proceeding gives effect to the mandatory provisions of the Consumer Credit Act. An order giving effect to these provisions of primary legislation is excluded from the scope of section 6(1) by section 6(2)(a). Thus, reference to section 6(1) takes the matter no further forward. The question which remains to be answered is whether, in interpreting and giving effect to the provisions of the Consumer Credit Act in this case, section 3(1) of the Human Rights Act applies. That is the crucial question. That is the question I have already considered.

    26. For these reasons the appeal by the Secretary of State must succeed. In this transitional type of case section 3(1) is inapplicable to the interpretation of the Consumer Credit Act. Consequently, the court has no jurisdiction to make a declaration of incompatibility. The declaration made by the Court of Appeal should be set aside.

    27. This conclusion makes it strictly unnecessary for the House to consider the further issues arising out of the judgment of the Court of Appeal. But it would not be satisfactory to leave these other issues unresolved. They have been fully argued by experienced counsel, the House has the benefit of the views of the Court of Appeal, and the issues are of importance to innumerable transactions being entered into every day. I turn, therefore, to consider what the position would be in this case had the Human Rights Act applied.

Whether article 6 of the Convention or article 1 of the First Protocol applies

    28. The first of the further issues is whether article 6 of the Convention or article 1 of the First Protocol applies in the present case. Before turning to these articles I should outline the salient provisions of the Consumer Credit Act 1974. Subject to exemptions, a regulated agreement is an agreement between an individual debtor and another person by which the latter provides the former with a cash loan or other financial accommodation not exceeding a specified amount. Currently the amount is £25,000. Section 61(1) sets out conditions which must be satisfied if a regulated agreement is to be treated as properly executed. One of these conditions, in paragraph (a), is that the agreement must be in a prescribed form containing all the prescribed terms. The prescribed terms are the amount of the credit or the credit limit, rate of interest (in some cases), how the borrower is to discharge his obligations, and any power the creditor may have to vary what is payable: Consumer Credit (Agreements) Regulations 1983, Schedule 6. The consequence of improper execution is that the agreement is not enforceable against the debtor save by an order of the court: section 65(1). Section 127(1) provides what is to happen on an application for an enforcement order under section 65. The court 'shall dismiss' the application if, but only if, the court considers it just to do so having regard to the prejudice caused to any person by the contravention in question and the degree of culpability for it. The court may reduce the amount payable by the debtor so as to compensate him for prejudice suffered as a result of the contravention, or impose conditions, or suspend the operation of any term of the order or make consequential changes in the agreement or security.

    29. The court's powers under section 127(1) are subject to significant qualification in two types of cases. The first type is where section 61(1)(a), regarding signing of agreements, is not complied with. In such cases the court 'shall not make' an enforcement order unless a document, whether or not in the prescribed form, containing all the prescribed terms, was signed by the debtor: section 127(3). Thus, signature of a document containing all the prescribed terms is an essential prerequisite to the court's power to make an enforcement order. The second type of case concerns failure to comply with the duty to supply a copy of an executed or unexecuted agreement pursuant to sections 62 and 63, or failure to comply with the duty to give notice of cancellation rights in accordance with section 64(1). Here again, subject to one exception regarding sections 62 and 63, section 127(4) precludes the court from making an enforcement order.

    30. These restrictions on enforcement of a regulated agreement cannot be side-stepped by recourse to a pledge or other form of security furnished in support of the debtor's obligations under the agreement. The security is not enforceable to a greater extent than the loan: section 113. Where an application for an enforcement order is dismissed, except on technical grounds only, or the court makes a declaration under section 142 that the agreement is not enforceable, any security provided in relation to a regulated agreement 'shall be treated as never having effect': section 106(a). Property lodged with the creditor by way of security has to be returned by him 'forthwith'.

    31. These restrictions on enforcement of a regulated agreement are for the protection of borrowers. They do not deprive a regulated agreement of all legal effect. They do not render a regulated agreement void. A regulated agreement is enforceable by the debtor against the creditor. It seems, for instance, that a borrower may insist on making further drawdowns under a regulated agreement even though the agreement is unenforceable against him. Further, section 173(3) expressly permits consensual enforcement against a borrower. A borrower may consent to the sale of a security or to judgment. Moreover, the creditor is entitled to retain any security lodged until either an application for an enforcement order is dismissed or the court makes a declaration under section 142 that the agreement is not enforceable. That is the effect of sections 113(3) and 106.

    32. Against this background I turn to the relevant Convention rights. Article 6(1) of the Convention guarantees everyone a fair, expeditious and public trial of disputes about his civil rights. This guarantee includes an implied right of access to a court: see Golder v United Kingdom (1975) EHRR 524, 536, para 36. The scope of this guarantee has been considered on many occasions by the European Court of Human Rights. The relevant principles were explored recently by your Lordships' House in Matthews v Ministry of Defence [2003] UKHL 4, [2003] 3 WLR 435: see, for instance, the pithy introductory summary by Lord Bingham of Cornhill, at para 3.

    33. For present purposes it is sufficient to note that the established case law of the European Court of Human Rights is to the effect that article 6(1) does not itself guarantee any particular content for civil rights and obligations in the substantive law of the Contracting States. Section 6(1) applies only to disputes over what, at least arguably, are recognised under domestic law to be 'rights and obligations': see Z v United Kingdom [2001] 2 FLR 612, 634, para 87. Article 6(1) may not be used as a means of creating a substantive civil right having no basis in national law. The content of substantive national law may call for scrutiny under other articles of the Convention or its Protocols, but that is not the target of article 6(1).

    34. The basic principle underlying article 6(1) is that 'civil claims must be capable of being submitted to a judge for adjudication': see Fayed v United Kingdom (1994) 18 EHRR 393, 429, para 65. Thus a typical case within article 6(1) is where a person enjoys under national law what is arguably a civil right but the only forum for deciding a dispute over the existence or enforcement of the right is a tribunal which is not independent and impartial. So procedural bars on bringing claims to court may fall within article 6(1). So also may procedural bars having the effect of preventing claims being decided on their merits. Tinnelly & Sons Ltd v United Kingdom (1998) 27 EHRR 249, 288-292, paras 72 to 79, is an example of the latter. The issue of a 'national security' certificate had the effect of preventing complaints of religious discrimination being considered on their merits by a Fair Employment Tribunal. That was a violation of article 6(1).