Rahman v Sterling Credit Ltd

Factual and Procedural Background

This appeal arises from an order made by His Honour Judge Bradbury in the Bow County Court dismissing the application of the Appellant to set aside a possession order relating to a property jointly owned by the Appellant and his spouse. The possession order was originally granted on 19 November 1990 on the application of Company A as mortgagees. The Appellant sought to serve a counterclaim invoking the court’s power under section 139 of the Consumer Credit Act 1974 to reopen a loan transaction as an extortionate credit bargain. The lower courts dismissed this application and refused permission to serve the counterclaim. The Appellant appealed against these decisions.

The loan in question was made in 1989 by Company A, secured by a legal charge on the property. The Appellant and spouse fell into arrears, leading to possession proceedings and the possession order. Despite the order, the Appellant and spouse remained in possession, continuing monthly payments accepted by the mortgagee. The Appellant's application to set aside the possession order and serve a counterclaim was dismissed at first instance and on appeal to HHJ Bradbury. The present appeal concerns whether the counterclaim under section 139 may be served in these proceedings.

Legal Issues Presented

1. What is the applicable limitation period for an application under section 139 of the Consumer Credit Act 1974 to reopen a credit bargain?
2. What is the effect of an unexecuted possession order on the borrower's ability to serve a counterclaim invoking section 139?
3. If permissible, should the court exercise its discretion to grant permission to serve the counterclaim under CPR Part 20?

Arguments of the Parties

Appellant's Arguments

• The limitation period for a counterclaim under section 139 is twelve years, not six, relying on the Limitation Act 1980 section 8.
• The possession order has not been executed and the Appellant remains in possession; thus, enforcement proceedings continue and the counterclaim is permissible as part of those proceedings.
• The counterclaim should be allowed under CPR Part 20 as it is connected to the enforcement of the credit bargain and will enable just, expeditious, and cost-effective resolution.
• The Appellant denies estoppel and asserts no limitation bar applies to the reopening of the credit bargain for future relief.

Respondent's Arguments

• The limitation period for such claims is six years from the date of the credit bargain.
• After the possession order was made, the action ended; the Respondent ceased to be a claimant, so no counterclaim under CPR Part 20 is possible.
• The application to serve the counterclaim is barred by estoppel, delay, and prejudice to the Respondent.
• The Appellant abandoned the challenge to the possession order, and the section 139 claim should be brought by separate action where limitation can be properly addressed.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
CSI International Co Ltd v. Archway Personnel [1980] 1 WLR 1069	Action considered ended after judgment satisfied; no extant claim for counterclaim.	Distinguished on facts; possession order not satisfied; action still extant.
First National Bank plc v. Ann [1999] Goode CCR 2061	Limitation period for section 139 claims is six years under Limitation Act section 9.	Rejected as binding; court held twelve years applies for reopening credit bargain relief.
Ricketts v. Hurstanger Ltd [1999] Goode CCR 2223	Followed the limitation period of six years for section 139 claims.	Considered incorrect; twelve-year limitation preferable.
Heron v. First National Bank [1998] CLY 2495	Applied six-year limitation period for section 139 claims.	Disapproved in this appeal.
Securities Ltd v. Salt [1999] 3 CL 209	Applied six-year limitation period.	Overruled by this decision.
Hurstanger Ltd v. Wood [1999] 6 CL 288	Applied six-year limitation period.	Expressed hope higher court settles limitation; this appeal fulfils that hope.
J & J Securities v. Khan [1999] 6 CL 496	Applied six-year limitation period.	Disapproved.
Homestead Finance Ltd v. Warriner [1997] CLY 961	Held twelve-year limitation period applies where relief excludes repayment claims.	Supported by this court as correct approach.
Collin v. Duke of Westminster [1985] QB 581	Cause of action derived solely from statute is a specialty with twelve-year limitation.	Applied analogy to section 139 claims under the 1974 Act.
Hackney LBC v. White 28 HLR 219	Possession order not satisfied; warrant expired after 12 months; further application needed.	Supported conclusion that enforcement proceedings continue.
Cohen v. Jonesco [1925] 1 KB 119	Statutory jurisdiction to reopen a transaction does not affect the effect of a judgment.	Accepted that section 139(4) prevents altering possession order but not future relief.
Biguzzi v. Rank Leisure plc [1999] 1 WLR 1926	Application of CPR to appeals and procedural discretion.	Supported granting permission to serve counterclaim under CPR Part 20.

Court's Reasoning and Analysis

The court first addressed the limitation period for applications under section 139 of the Consumer Credit Act 1974. It found no express limitation in the 1974 Act, so the Limitation Act 1980 applies. The court distinguished between claims for repayment of sums already paid (subject to a six-year limitation under section 9) and claims seeking relief from future obligations under the credit bargain (subject to a twelve-year limitation under section 8 as an action upon a specialty). The court concluded the Appellant’s claim to reopen the loan agreement for future relief was not statute-barred as it arose less than twelve years prior.

Regarding the effect of the possession order, the court rejected the Respondent’s argument that the action was at an end. It held that because the possession order had not been executed and the Appellant remained in possession, enforcement proceedings were ongoing. Therefore, the Appellant could make a counterclaim under section 139 within those proceedings. The court acknowledged section 139(4) prevents altering the effect of the possession judgment but does not bar relief affecting future obligations.

On the discretion to grant permission to serve the counterclaim under CPR Part 20, the court emphasized the connection between the enforcement claim and the counterclaim. It found that permitting the counterclaim would promote justice, save expense, and avoid delay. The court rejected estoppel and delay arguments at this stage, noting that the extortionate credit bargain issue had not been previously determined in the possession claim and that the action was still extant.

Holding and Implications

The court ALLOWED THE APPEAL and granted permission for the Appellant to serve the counterclaim seeking to reopen the 1989 credit bargain under section 139 of the Consumer Credit Act 1974.

The direct effect is that the Appellant may pursue relief under section 139 within the existing possession proceedings, avoiding the need for separate litigation and associated costs and delays. The court clarified the limitation period applicable to such claims and confirmed that an unexecuted possession order does not preclude a counterclaim under section 139. No new precedent was set beyond the resolution of these specific points.