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You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> Bristol & West Plc v Bartlett & Anor [2002] EWCA Civ 1181 (31 July 2002) URL: https://www.bailii.org/ew/cases/EWCA/Civ/2002/1181.html Cite as: [2002] 4 All ER 544, [2002] EWCA Civ 1181, [2003] 1 WLR 284, [2002] 2 All ER (Comm) 1105, [2003] HLR 292 |
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2001 2025 B2 2001 0602 B2 |
COURT OF APPEAL (CIVIL DIVISION)ON APPEAL FROM:
THE QUEEN’S BENCH DIVISION, BRISTOL MERCANTILE COURT
(His Honour Judge Havelock-Allan QC) [Bristol & West Plc v Bartlett & anr]:
THE POOLE COUNTY COURT
(His Honour Judge Anthony Thompson QC) [ Paragon Finance Plc v Banks];
and THE LEEDS COUNTY COURT
(His Honour Judge Altman) [Halifax Plc v Grant].
Strand, London, WC2A 2LL | ||
B e f o r e :
LORD JUSTICE BUXTON
and
LORD JUSTICE LONGMORE
____________________
BRISTOL & WEST Plc | Respondent | |
- and - | ||
ROBERT WAYNE BARTLETT & anr | Appellants | |
- - - - - - - - - - - - - - - - - - - - - J Brock Esq QC and P French Esq for the Appellants M Waters Esq QC and M Bowmer Esq for the Respondent | ||
PARAGON FINANCE Plc | Appellant | |
- and - | ||
MARY JOAN BANKS | Appellants | |
- - - - - - - - - - - - - - - - - - - - - A Simmonds Esq QC and P Rolfe Esq for the Appellant T Dutton Esq QC and for the Respondent | ||
HALIFAX Plc | Respondent | |
- and - | ||
ALEXANDER GRANT | Appellants | |
- - - - - - - - - - - - - - - - - - - - - I Leeming Esq QC and D Gilchrist Esq for the Respondent A Grant Esq appeared in person |
____________________
Smith Bernal Reporting Limited, 190 Fleet Street
London EC4A 2AG
Tel No: 020 7421 4040, Fax No: 020 7831 8838
Official Shorthand Writers to the Court)
____________________
AS APPROVED BY THE COURT
Crown Copyright ©
Lord Justice Longmore:
“it is seriously arguable that when a mortgagee has re-possessed and has sold the security and is seeking to recover the shortfall, his claim is in simple contract whatever the nature of the instrument under which the debt was initially secured”.
This expression of view has caused some concern to banks and other lending institutions who have assumed that any claim to such shortfall lies under the mortgage document by which the mortgage was created and is thus governed by the 12 year limitation period specified either in section 20 of the Limitation Act 1980 for money secured by a mortgage or in section 8 of the Act for a document under seal, there referred to as a “specialty”. These 3 appeals have been brought in order to obtain an authoritative determination of the question whether such claims to a shortfall after a sale by a mortgagee have a 12 year limitation period or only the 6 year limitation period applicable to simple contract debts.
(a) a claim for a monthly instalment which is unpaid. Such instalment may be due partly in respect of principal and partly in respect of interest or wholly in respect of one or the other. The cause of action will usually arise on the date when the instalment is due but is not paid;
(b) a claim to recover the full amount of the sum advanced. The entitlement will depend on the terms of the mortgage contract but, typically, the lender will be entitled to call in the whole loan if any instalment remains unpaid for eg two or three months after the date due for payment; the cause of action will usually arise when the specified period has elapsed;
(c) a claim to be entitled to recover any shortfall after the lender has exercised his right to sell the mortgage property in the event of default by the borrower. It may be a question whether this is a separate cause of action from the claim in (b).
“An action founded on simple contract shall not be brought after the expiration of six years from the date on which the cause of action accrued.”
Section 8 provides:-
“(1) An action upon a specialty shall not be brought after the expiration of twelve years from the date on which the cause of action accrued.
(2) Subsection (1) above shall not affect any action for which a shorter period of limitation is prescribed by any other provision of this Act.”
Section 20 provides (so far as is relevant) as follows:
“(1) No action shall be brought to recover
(a) any principal sum of money secured by a mortgage or other charge on property (whether real or personal) . . . .
after the expiration of twelve years from the date on which the right to receive the money accrued.
. . . .
(5) Subject to subsections (6) and (7) below, no action to recover arrears of interest payable in respect of any sum of money secured by a mortgage or other charge or payable in respect of proceeds of the sale of land, or to recover damages in respect of such arrears shall be brought after the expiration of six years from the date on which the interest became due.”
Bristol & West Plc v Bartlett & anr
“1(ii)(h) ‘the Mortgage Debt’ means the whole of the moneys outstanding for the time being on the security of the Mortgage whether due on one or more accounts.
3(a) The Borrower covenants with the Society that he will repay the Mortgage Debt with interest:
(i) by such Monthly Payments made in advance on the first day of each month as the Society shall from time to time require; or
(ii) at once upon its becoming due under Condition 12.
4(c) . . . Interest for any Year shall accrue from day to day but shall be payable . . . in equal instalments as part of the Monthly Payments payable in that Year.
12 The Mortgage Debt shall become payable immediately by the Borrower to the Society upon the happening of any of the following events:
(a) The failure of the Borrower to observe or perform any of the covenants and obligations contained in the Mortgage;
(b) Arrears of money due under the Mortgage exceeding in amount the sum of three Monthly Payments.”
Condition 13 then provided for the statutory powers of sale under the Law of Property Act 1925 to be exercisable “upon the Mortgage Debt having become immediately payable”.
Paragon Finance v Banks
“and all other sums secured to the Company on the security of the Mortgage including interest . . . .”
This obligation was, however, postponed and it was agreed that if no payment was made within 28 days and provided there had been no breach of the Borrower's obligations the company would (condition 2.2)
“accept the payment of the Payment [as defined] and of all other sums secured to the Company on the security of the Mortgage in accordance with the Borrower’s obligations for payment thereof hereunder”
This, it is agreed, meant that Paragon would accept specified monthly payments provided that the Borrower was not in breach of her obligations and the power of sale had not become exercisable. Clause 2.1.3 provided a further covenant to pay:-
“The costs expenses and liabilities and other moneys recoverable from or payable by the Borrower from time to time . . . .”
Clause 7.3 then provided that the lenders’ remedies were exercisable if the Borrower failed to make any two monthly payments.
Halifax Plc v Grant
“If on realisation of its security by the Society the net proceeds shall prove insufficient to discharge the redemption money, then the borrower will immediately pay the amount of the deficiency with interest until payment”.
Condition 12 provided that the redemption money was to become immediately payable:-
“(a) if there is a default in the payment of any two monthly payments.”
The Principal Arguments
(1) that once the legal charge created by the mortgage was discharged (as it had been by Bristol and West when they exercised their power of sale) the covenant to pay in the Mortgage Deed became, on the true construction of the deed, unenforceable; all that was left was an implied obligation to pay the shortfall between the mortgage debt and the sum realised on the sale; that was subject to a six year limit;
(2) that even if, as a matter of construction, the covenant to pay survived the exercise of the power of sale in respect of accrued obligations, there was nevertheless a rule of law in relation to registered land that the discharge of the mortgage discharged the obligations in the covenant contained in the mortgage and, once again, all that remained was an implied obligation to pay the shortfall between the debt and the sale price.
Construction of the Deed
(1) Clause 3(a) and Clause 12 of the deed imposed an obligation to repay “the Mortgage Debt” with interest once 3 monthly instalments became outstanding and unpaid;
(2) The Mortgage Debt was defined by Clause 1(ii)(h) of the Deed as the whole of the moneys outstanding for the time being on the security of the mortgage;
(3) Once the mortgage was discharged, moneys were no longer outstanding on the security of the mortgage and there was thus no longer a mortgage debt within the definition or within the terms of the covenant to pay which incorporated that definition.
Operation of Law
“35 (1) The registrar shall, on the requisition of the proprietor of any charge, or on due proof of the satisfaction (whole or partial) thereof, notify on the register in the prescribed manner, by cancelling or varying the original entry or otherwise the cessation (whole or partial) of the charge, and thereupon the charge shall be deemed to have ceased (in whole or in part) accordingly.”
This sub-section provides merely that the proprietor of the charge can if he wishes arrange for notification on the register of the cessation of the charge by cancellation of the original entry and that, thereafter, the charge shall be deemed to have ceased. That says nothing about the continuation or otherwise of the covenant to pay and there is no reason that we can see for supposing that Parliament intended that accrued rights to sue on the covenant should be cancelled. This is made even clearer by section 34(4) which sets out the powers of the proprietor of the charge when he exercises the power of sale:-
“(4) A sale by the court or under the power of sale shall operate and be completed by registration in the same manner, as nearly as may be (but subject to any alterations on the register affecting the priority of the charge), as a transfer for valuable consideration by the proprietor of the land at the time of the registration of the charge would have operated or been completed, and, as respects the land transferred, the charge and all incumbrances and entries inferior thereto shall be cancelled.”
That expressly provides that the charge is to be cancelled “as respects the land transferred”. Accrued rights arising under the deed of mortgage are not affected.
Paragon Finance v Banks
“all monies then owing and all other sums secured to the Company on the security of the Mortgage including interest”.
The judge held that, if the power of sale had been exercised, sums due were no longer secured on the security of the mortgage. For the reasons we have already given, we do not agree. The cause of action arose once there was a failure to make any two monthly payments. At that time the sums due were secured on the security of the mortgage; that accrued right was not taken away by the lenders’ subsequent exercise of the power of sale.
Halifax v Grant
Section 8 or section 20?
Section 20(5): interest
Summary
Result
We will vary the order of the judge so as to declare that Bristol & West are entitled to judgment for the principal of their loan but so as also to give Mr and Mrs Bartlett permission to advance arguments at trial about any interest element there may be in the claim.
(2) Paragon Finance v Banks
We will set aside the judgment of the judge in favour of the defendants and substitute judgment in the sum claimed against Mrs Banks pursuant to Part 24.
(3) Halifax v Grant
We will vary the order of the judge so as to declare that the Halifax is entitled to judgment for the principal sum claimed but give leave to Mr Grant to advance arguments in relation to the claim for interest.