When might a summary possession order be vulnerable to appeal?

Louise Power and Justin Coley review a recent Court of Appeal case which considered when a defendant against whom an order for possession has been made summarily might be able to raise additional issues on appeal.

Why is this case of interest?

Lenders frequently find themselves pursuing possession proceedings against debtors who either do not turn up to court hearings or who represent themselves or are represented by duty solicitors. Such proceedings are often disposed of quickly and without a full examination of legal and evidential issues, and possession orders are therefore effectively granted summarily. The recent Court of Appeal case of Notting Hill Finance Ltd v Nadeem Sheikh [1] demonstrates the circumstances in which such orders might be vulnerable to appeal.

What happened in the case?

The claimant lender had loaned £50,000 to the defendant borrower, secured by a mortgage over his home. The mortgage agreement provided for payment on the due date of the principal sum plus £21,000 in interest and charges. The agreement also provided that, in the event of default, additional interest at the rate of 289.6% per annum would be payable. The borrower defaulted and the lender sought possession. The borrower was represented at the hearing by a duty solicitor. No evidence was given; the hearing lasted only seven minutes; and a possession order was granted and money judgment were made in the sum sought. The borrower then instructed solicitors and lodged an appeal which did not challenge the possession order or the money judgment in respect of the principal sum and £21,000 interest/charges. In the appeal he did, however, argue that the default interest was an unenforceable penalty [2] and he raised an argument under the Consumer Credit Act 1974. The appeal was allowed on the basis that the hearing had been a short, summary hearing; the borrower had effectively been a litigant in person; and had the new points been raised initially, the district judge would probably not have made the orders, but would instead have given directions for evidence and a full trial. The lender appealed to the Court of Appeal.

The Court of Appeal held:

• an appellate court has the discretion to allow new points to be taken on appeal and the case does not have to be exceptional for that discretion to be exercised
• the appellate court should be cautious, but its decision should be based on a range of factors, including the nature of the new points, the proceedings in the lower court, and any prejudice which may be caused to the opposing party
• a new point would more likely be permitted if it was a pure point of law and the opposing party had not suffered irremediable damage
• the policy of finality in litigation is important, but has less weight where the litigation process has been short and summary in nature.

As the borrower acted quickly in lodging its appeal and the lender had therefore suffered no prejudice [3], the Court of Appeal decided it was right to permit the borrower to raise his new points on appeal.

What are the practical implications for lenders?

Whilst it may seem like a quick and easy win for lenders when borrowers do not turn up or are insufficiently represented at hearings, such that orders are granted without any full legal and evidential examination, this case demonstrates that that can be deceptive. It is easy to envisage circumstances where a lender has taken steps and incurred costs in reliance on a possession order and/or money judgment that has been granted summarily, only then to find that the order is being challenged, and may even be set aside. That could, of course, leave the lender in a difficult position and potentially out-of-pocket. It is may therefore be prudent in such cases to wait a short time before embarking upon any enforcement process, to ensure that no challenge is forthcoming. Alternatively, if steps to enforce have been taken and/or any significant costs have been incurred, then lenders should rely on those to demonstrate prejudice, which should hopefully prevent any appeal from succeeding.

The case also raises the controversial question of to what extent should district judges in such cases identify legal points in favour of unrepresented (or insufficiently represented) litigants? Whilst the question did not fall to be decided in this particular case, the Court of Appeal did comment that the default interest numbers should have rung alarm bells with the district judge. The Court of Appeal stopped short of saying that the district judge was under a positive duty to raise the issue of whether those provisions were penal, but it did state that the district judge could not have been criticised if he had done so. It is possible that lenders may start to see district judges becoming more actively involved in the raising of legal issues in favour of unrepresented litigants. Lenders would be well-advised, therefore, not to anticipate an easy win, but rather to consider (and if necessary to take specialist advice upon) whether there are any potential legal arguments which could be raised in defence of their possession and debt claims, and to pre-emptively prepare arguments to rebut those, if so.

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[1] [2019] EWCA Civ 1337
[2] For further information and advice on contractual penalties, please see our earlier briefing.
[3] The initial hearing had not been wasted because the possession order and the substantive money judgment still stood.