Tew & Ors v BoS (Shared Appreciation Mortgages) No 1 Plc & Ors

Factual and Procedural Background

This litigation concerns shared appreciation mortgages ("SAMs") offered in 1997 and 1998 by certain lenders, including Company A and Company B. These mortgages are unconventional in that they are repayable not at a fixed time but upon sale or death of the mortgagor. On redemption, the mortgagor pays the principal plus a specified percentage of any increase in the property's value, with the percentage linked to the loan to value ratio and varying by mortgage category. The claimants challenge the fairness of these terms under the Unfair Terms in Consumer Contracts Regulations 1994 and the Consumer Credit Act 1974.

Over 100 actions have been commenced, with potentially several hundred more claimants wishing to join subject to a Group Litigation Order ("GLO"). On 5 October 2009, a GLO was made by the Chief Master under CPR 19, identifying group litigation issues and administrative provisions. Company A sought permission to appeal the GLO, which was granted. The appeal and an application for case management directions, including a proposal to redefine the GLO issues by the claimants, form the matters before the court.

The claimants initially supported a GLO focused on common issues excluding individual circumstances, but later revised their position to a more complex formulation still aiming to limit consideration of individual circumstances. The defendants, particularly Company A, oppose the GLO and advocate for a lead case approach to test the issues.

Legal Issues Presented

1. Whether the fairness of terms under Regulation 4(1) of the 1994 Regulations and the fairness of the lender-borrower relationship under section 140A of the 1974 Act can be determined solely by reference to common circumstances without regard to individual circumstances.
2. Whether the relevant provisions in the SAM Loan Agreements are in plain and intelligible language within the meaning of Regulation 3(2) of the 1994 Regulations.
3. If the provisions are in plain and intelligible language, whether they are exempt from fairness assessment under Regulation 3(2) because they define the main subject matter or concern the adequacy of price/remuneration.
4. Whether the court can and does conclude that the relevant provisions are unfair, considering common circumstances irrespective of individual circumstances.
5. Whether the court can and does conclude that the lender-borrower relationships are unfair under section 140A of the 1974 Act, considering common circumstances irrespective of individual circumstances.
6. Whether appropriate remedies under section 140B of the 1974 Act can be determined by reference to common circumstances alone.
7. What the appropriate remedies under section 140B of the 1974 Act are, if applicable.

Arguments of the Parties

Claimants' Arguments

• The claimants initially sought a GLO focused on common issues excluding individual circumstances, arguing the terms were so unfair that individual factors would not affect the outcome.
• They later revised their position to a more complex set of common issues still aiming to limit the role of individual circumstances, proposing a prima facie finding of unfairness based on common factors followed by potential consideration of individual circumstances if necessary.
• They argued this approach would be more efficient, cheaper, and necessary for access to justice, as many claimants could not afford individual proceedings.
• Claimants sought court guidance on minimum understanding required for fairness without reference to individual case facts.

Defendants' Arguments

• Company A asserted that the GLO was inappropriate and unnecessary, advocating a lead case approach to test the issues.
• They contended that individual circumstances are relevant and cannot be excluded from the fairness inquiry as a matter of law.
• Company B did not strongly oppose a GLO but joined Company A in criticizing the claimants' proposed issues as not properly identifying useful common issues.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Director-General of Fair Trading v First National Bank plc [2002] 1 AC 481	Emphasizes that the fairness inquiry under the 1994 Regulations is fact-sensitive and requires consideration of all circumstances attending the conclusion of the contract.	The court relied on this precedent to underline the necessity of a wide-ranging, fact-sensitive assessment of fairness that includes individual circumstances, rejecting a purely common issues approach.

Court's Reasoning and Analysis

The court examined the nature of the SAMs and the statutory framework under the 1994 Regulations and the 1974 Act, highlighting that both require a broad, fact-sensitive fairness inquiry encompassing individual circumstances of borrowers. The court found that the claimants' original and revised formulations of GLO issues sought to exclude individual circumstances improperly, amounting to a pre-judgment and mischaracterization of the litigation scope.

The judge emphasized that fairness is inherently a one-stage inquiry involving both sides of the transaction, including the borrower's individual context. Hypothetical or abstract assessments without real case facts were rejected as inappropriate.

The court criticized the claimants' proposed GLO issues as overly complex, confusing case management issues with litigation issues, and containing questions not aligned with the statutory tests (e.g., use of "excessive" which is not a statutory standard).

Regarding case management and access to justice, the court acknowledged the claimants' concerns about funding but rejected allowing the shape of the litigation to be dictated by the claimants' unwillingness to pursue individual circumstances. The court warned against "moral blackmail" and stressed the need for litigation to properly reflect the issues raised by the claims and defenses.

On the procedural question of how best to proceed, the court found that lead or test cases are the appropriate mechanism to resolve the central issues, notably the Regulation 3 point, which is a threshold legal question. Findings in lead cases will guide the resolution of other claims.

The court concluded that a GLO remains an appropriate vehicle for case management, providing benefits such as automatic binding of participants on common issues and efficient control of related claims, but the GLO issues must be properly formulated to include individual circumstances and the relevant statutory points.

Holding and Implications

The court REJECTED the claimants' proposed GLO issues and their approach to excluding individual circumstances from the fairness inquiry.

The court UPHELD the principle that fairness assessments under the 1994 Regulations and the 1974 Act require consideration of individual circumstances and that the GLO issues must be framed accordingly.

The court ORDERED that a GLO be maintained with properly defined issues including the Regulation 3 point and that lead cases be directed to resolve the fairness questions.

The decision has the direct effect of shaping the management of this group litigation, ensuring that individual circumstances are not excluded from consideration and that the litigation proceeds efficiently through lead cases within a GLO framework. No new precedent was established beyond the application of existing statutory principles and procedural rules.