Court of Appeal rules on long running argument

This little grenade from the Court of Appeal  seems to resolve the long running argument over the legal effect of serving a default notice under section 87 CCA 1974 – is it just a procedural requirement or a fundamental legal precursor to any subsequent action on the part of the funder?

Case study

CHRISTOPHER DOYLE v PRA GROUP (UK) LTD [2019] EWCA Civ 12

Judgment 23^rd January 2019

The case itself raised the question of when a claim becomes time-barred. The answer was that the six year limitation period ran from the date the default notice expired, on the basis that until this had occurred the creditor had no legal right to take steps to terminate the agreement or demand payment of the balance. The reasoning was partly based on the contract terms themselves, but the Court of Appeal stated clearly that this was the statutory position created by section 87

The wider effects of the decision could be substantial for the regulated market (both credit and hire), as the inevitable corollary of the decision is that it is legally invalid for a funder to take any of the steps listed in section 87 until a valid default notice has been served and expired. The same logic would apply to the less commonly used notices under sections 76 and 98.

Of course, funders have processes in place to ensure that such notices are always served, but what happens when the process breaks down; when a notice is missed or contains an error? By the time the issue is spotted, the funder may have repossessed assets, issued proceedings, enforced security or even obtained an insolvency order. If the issue is systemic, numerous customers may have been affected. Since the accelerated balance will at some stage appear in an annual statement or NOSIA, the punitive effects of a breach of sections 77A/86B/86C may be engaged.

Can the genie be put back in the bottle by late service of a valid notice? Can it be argued that service of a defective notice is sufficient for these purposes? The answer to both questions is likely to be ‘probably not’. If that is right, it highlights two things. Firstly, and yet again, the major problem which the binary nature of the current CCA regime creates for funders,  with compensation being due to customers for technical breaches that create no genuine detriment. Secondly, unless and until the FCA ever does anything to ease that issue, the need to keep the form and content of, and processes relating to, default notices under constant review.