Bristol and West Plc v Bartlett ; Paragon Finance Plc v Banks ; Halifax Plc v Grant
| Jurisdiction | England & Wales |
| Judge | Lord Justice Longmore |
| Judgment Date | 31 July 2002 |
| Neutral Citation | [2002] EWCA Civ 1181 |
| Docket Number | Case Nos: 2001 2510 B2 2001 0602 B2 |
| Court | Court of Appeal (Civil Division) |
| Date | 31 July 2002 |
[2002] EWCA Civ 1181
Lord Justice Schiemann
Lord Justice Buxton and
Lord Justice Longmore
Case Nos: 2001 2510 B2
2001 2025 B2
2001 0602 B2
IN THE SUPREME COURT OF JUDICATURE
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].
J Brock Esq QC and P French Esq for the Appellants
M Waters Esq QC and M Bowmer Esq for the Respondent
A Simmonds Esq QC and P Rolfe Esq for the Appellant
T Dutton Esq QC and for the Respondent
I Leeming Esq QC and D Gilchrist Esq for the Respondent
A Grant Esq appeared in person
This is the judgment of the court.
On 30th January 1997 this court, in the context of a striking out for want of prosecution application, stated in Hopkinson v Tupper (unreported):—
"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.
Before setting out the detailed facts of the cases it is sensible to remind oneself of the various claims which may be open to a mortgagee of real property in the event of a default by the borrower whose obligation will usually be to make a monthly repayment of any loan advanced. The claims will usually include:—
(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).
The relevant provisions of the Limitation Act 1980 are sections 5, 8 and 20. Section 5 provides:
"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."
It was agreed that the appeal in Bartlett v Bristol & West Plc should be the lead appeal. We set out the facts of that case first, then those in Paragon Finance Plc v Banks, then Halifax Plc v Grant.
Bristol & West Plc v Bartlett & anr
On 21st November 1989 Mr and Mrs Bartlett accepted a written offer of advance made by Bristol & West ("the lenders") to assist in the purchase of a property in Weston-super-Mare. The loan was in the sum of £89,750. On 19th January 1990 the money was sent to the solicitors jointly acting for the parties and on 22nd January a mortgage was signed. This was a document under seal incorporating the lenders' current (1989) mortgage conditions. It provided for payments by way of interest only, while insurance policies covered the principal debt. The conditions relevantly provided:—
"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".
Mr and Mrs Bartlett defaulted in 1993 and the lenders' cause of action for the mortgage debt will, thus, have accrued at latest when, in that year, 3 monthly instalments were due and unpaid. The lenders obtained possession on 16th March 1994 and sold the property on 1st July 1994 for £63,000. On that date the amount of the debt was £123,154.13 (of which £33,404 was in respect of the interest). Once sale expenses were added, the shortfall was £64,961. It was for that sum that proceedings were issued on 2nd May 2001. There was some argument about the amount of the expenses and the District Judge gave summary judgment only for £63,384.88. The case before the Circuit Judge then proceeded on the basis that a cause of action accrued on 1st July 1994 and became time-barred before 12th May 2001 if it was a simple contract debt. His Honour Judge Havelock-Allan QC held, however, that the claim was on the mortgage deed which was a specialty and was, therefore, brought within the requisite 12 year limitation period. Neither party submitted that section 20 of the Limitation Act had any application.
Paragon Finance v Banks
On 20th April 1989 Paragon ("the lenders") advanced £110,000 to Mrs Banks' solicitors to be secured by a mortgage deed over a property in the Parkstone area of Poole. That mortgage was contained in a deed of 21st April 1989 incorporating the Company's 1988 conditions. Those conditions provided by condition 2.1 that the Borrower covenanted to make monthly payments and (by 2.1.2) to pay all moneys "then owing" on the expiry of 28 days from the date of the Mortgage (when the power of sale was agreed to arise)
"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.
The lenders repossessed on 10th September 1991. They sold the property on 17th July 1992 when there was a shortfall of £66,539.28. On 13th September 2000 proceedings were begun for that shortfall, more than 6 years but less than 12 years after the date of sale. It was agreed before us that the lenders' claim related solely to principal. His Honour Judge Anthony Thompson QC held that, once the power of sale had been exercised, the lenders' claim was no...
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