Land

Mortgage with variable interest clause - implied term concerning mortgagee's proper exercise of discretion to vary interest rates - no breach - agreement not extortionate credit bargainParagon Finance plc v Nash and another: Paragon Finance plc v Staunton and another: CA (Lords Justice Thorpe and Dyson and Mr Justice Astill): 15 October 2001In two actions, the mortgagee claimed possession against mortgagors in arrears with mortgage repayments.

The mortgagors asserted that the loan agreements containing variable interest clauses were extortionate credit bargains within section 138 of the Consumer Credit Act 1974 because of the increased rates of interest charged during the mortgage term, and sought to reopen their loan agreements under section 139.The mortgagee successfully applied to have the defence and counterclaims struck out on the ground that they had no reasonable prospect of success.

The mortgagors appealed.Edward Bannister QC and Donald Broatch (instructed by Joseph Aaron & Co, Ilford) for Mrs Nash; Mr Nash in person; Damian Falkowski (instructed by Joseph Aaron & Co, Ilford) for Mr and Mrs Staunton; Ali Malek QC and Peter Wulwik (instructed by Wragge & Co, Birmingham) for Paragon Finance.Held, dismissing the appeals, that a mortgagee's discretion to vary interest rates was subject to an implied term that it was not to be exercised for an improper purpose, dishonestly, capriciously, arbitrarily, or unreasonably in the Wednesbury sense; that there was no prospect of establishing breach; that in determining whether a credit bargain was extortionate within section 138 of the Consumer Credit Act 1974 only facts existing at the time of the bargain were relevant, variations in interest rates during the term being excluded from the definition in section 137(2)(b) of the 1974 Act; and that since 'contractual performance' within section 3(2)(b) of the Unfair Contract Terms Act 1977 did not include the setting of interest rates by mortgagees, the mortgagors could not establish a breach of that section.

(WLR)