Commercial First Business Ltd v Anthony Henry Atkins
| Jurisdiction | England & Wales |
| Judge | Judge Hodge |
| Judgment Date | 13 July 2012 |
| Neutral Citation | [2012] EWHC 4388 (Ch) |
| Court | Chancery Division |
| Date | 13 July 2012 |
| Docket Number | Case No: HC11C00500 |
[2012] EWHC 4388 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Royal Courts of Justice
Strand, London, WC2A 2LL
His Honour Judge Hodge Q.C.
sitting as a Judge of the High Court
Case No: HC11C00500
Miss Amanda Tipples QC (instructed by MOORE BLATCH) appeared for the Claimant
The Defendant appeared in person
Hearing dates: 26–29 June, 2–5, 9 & 13 July 2012
Friday, 13 th July 2012
Judge Hodge QC:
This claim raises, apparently for the first time, the questions: (1) in what circumstances is a mortgagee of commercial investment property entitled to withhold its consent to a letting of that property, where it is a term of the mortgage that " the Mortgagor will not let or grant a licence or tenancy in respect of the Property, or any part of it (nor agree to do so) without the prior written consent of the Lender"; and (2) what consequences follow if such a mortgagee withholds its consent in circumstances where it is not entitled to do so. Whilst these questions arise in the specific context of a mortgage of commercial investment property, the answers may have a potentially wider application for mortgagors of "buy-to-let" residential properties.
This judgment is divided into five chapters, as follows: (1) The Background; (2) The Evidence and The Hearing; (3) My Conclusions on the Facts; (4) My Conclusions on the Law; and (5) The Result. But I should make it clear at the outset that although this judgment is structured in this way for clarity of exposition, the contents of each separate chapter have informed the contents of the judgment as a whole.
Chapter 1: The Background
This is the trial of a mortgage possession claim issued in the Oxford County Court on 21 st December 2009. Having been allocated to the multi-track, the claim was subsequently transferred to the Chancery Division of the High Court by an order dated 9 th February 2011. The defendant, Dr. Atkins (who is now 68 years of age and undertook his Doctorate in Agricultural Economics at the University of Oxford), is the freehold owner of two intended office investment properties, known as Units 8 and 9 Brookside, at Long Hanborough, near Witney in the County of Oxford. On 4 th April 2007, Dr. Atkins charged the properties to the claimant by way of registered first legal charge to secure loans of (1) £745,784 in respect of Unit 8 and (2) £628,032 in respect of Unit 9. The mortgage was subject to pre-printed General Lending Terms and Conditions which included (as Condition 11.4) a term stating that:
"The Mortgagor will not let or grant a licence or tenancy in respect of the Property, or any part of it (nor agree to do so) without the prior written consent of the Lender."
Dr. Atkins fell into arrears with the payments of interest due under the two loans. It is the claimant's case that the amount now due to it under the mortgage in respect of these loans exceeds £2 million, and that it is entitled to an order for possession of both properties, together with a money judgment for the sums now due.
Dr. Atkins's case is that the claimant is not entitled to possession of the properties, nor is it entitled to payment of the sums alleged to be outstanding under the mortgage. In summary, he maintains:
(1) That he has a counterclaim against the claimant for a sum in excess of £3.2 million (and thus exceeding all sums due under the mortgage). This is founded upon the allegation that the claimant failed, unreasonably and on a timely basis, to consider, and to consent to, applications by Dr. Atkins for permission:
(a) on 1 st August 2007 to let Unit 8 to Axis Intermodal PLC ( Axis) in accordance with an agreement for lease dated 3 rd August 2007, and
(b) on 26 th January 2009, to let Unit 9 to Direct Sales Agency Limited ( DSA) in accordance with an agreement for lease dated 13 th January 2006 (and thus pre-dating the claimant's legal charge).
It is said that had consent to these lettings been given (as it should have been) they would have gone ahead, generating an income from each letting; and Dr. Atkins would not now be in debt to the claimant. He asserts that it was an implied term of the mortgage, taking the form of an independent covenant or undertaking, that:
(i) any request for consent to let the properties made pursuant to Condition 11.4 would be considered and dealt with by the claimant, as mortgagee, promptly and expeditiously;
(ii) the claimant would consent to any reasonable letting proposal put forward by the defendant or any reasonable proposed lease to a suitable tenant at a market rental, or
(iii) that the claimant would not unreasonably withhold its consent to a proposed lease of the properties at market rental.
(2) That, as mortgagee, the claimant owed an equitable duty to act fairly and equitably towards the defendant, as mortgagor, and that, in the circumstance of the case, the claimant was in breach of this equitable duty when it failed to consent to the proposed lettings to Axis and DSA.
(3) That since Condition 11.4 was capable of preventing Dr. Atkins from deriving any income from his business of developing and renting out office space, the restraint of trade doctrine was engaged; and the claimant's unreasonable withholding of its consent to the two proposed lettings thereby constituted an unlawful restraint of trade which rendered the loan agreements unenforceable.
(4) That the relationship between the claimant (as creditor) and Dr. Atkins (as debtor) arising out of the loan agreement and legal charge, was "unfair to the debtor" (within the meaning of Section 140A of the Consumer Credit Act 1974, as introduced by the Consumer Credit Act 2006 which, as is common ground, applies to this mortgage transaction) because of:
(a) the terms of Condition 11.4;
(b) the way in which the claimant has exercised or enforced its rights in relation to thereto; and
(c) the way in which the claimant has failed to consent promptly to the proposed lettings of Units 8 and 9 and has introduced new, and changing, lending criteria or policies without notice and in secret so that the debtor could not know what policy or criteria he had to meet in seeking to find suitable tenants and terms for the properties.
Dr. Atkins seeks appropriate orders under Section 140B to prevent the claimant from recovering possession of the properties.
These allegations are all disputed by the claimant. In short, its case is that:
(1) There is no legal basis to imply an independent covenant into the loan agreements and legal charge, giving rise to a potential claim in damages. To the extent that it is necessary to imply any term into Condition 11.4, this should not involve anything more than the addition of the words " provided that such consent is not to be unreasonably withheld" at the end of the condition (thereby mirroring the provision contained in Section 19(1) of the Landlord and Tenant Act 1927). In any event, there is no basis whatsoever to criticise the way in which the claimant dealt with Dr. Atkins's applications for permission to let the properties. In relation to both Units 8 and 9, the relevant tenant had withdrawn from the proposed letting before the claimant had made any final decision on the application for consent.
(2) Any equitable constraint upon the claimant's discretion, as mortgagee, to determine an application for consent to let the mortgaged property should be limited by concepts of honesty, good faith and genuineness, and the need to avoid any elements of arbitrariness, capriciousness, perversity or irrationality. No such considerations entered into the claimant's decision making in the present case.
(3) The reason Dr. Atkins fell into arrears with interest payments under the loan agreements was because of his own financial difficulties. He did not have enough money to complete the contracted building works to the properties to enable them to be let, and he did not then have the resources to pay the monthly sums due in respect of interest under the loan agreements as and when they fell due. These financial difficulties had nothing whatsoever to do with the claimant's consideration of Dr. Atkins's applications for permission to let Unit 8 to Axis in August 2007 and to let Unit 9 to DSA in January 2009. There is therefore no basis in fact for the defendant's counterclaim.
(4) The doctrine of restraint of trade is not engaged in the present case because Condition 11.4 merely regulates the normal commercial relationship of mortgagor and mortgagee in relation to the mortgage advance and the terms on which the monies were lent. In any event, Condition 11.4 goes no further than is reasonably necessary to protect the interests of the claimant as mortgagor, and it is not contrary to the public interest. Further, even if it were applicable, the application of the restraint of trade doctrine would not operate to render the mortgage and the loan agreements unenforceable, but would merely prevent the claimant from enforcing the terms of Condition 11.4. It would not give rise to any claim for damages against the claimant.
(5) The relationship between Dr. Atkins and the claimant arising out of the mortgage, or the way in which it has been operated, was not "unfair" to Dr. Atkins within the meaning of the 1974 Act; and he is not entitled to any relief under Section 140B.
Chapter 2: The Evidence and the Hearing
By an order dated 12 th April 2011, Chief Master Winegarten ordered the trial both of the claim and of the issue whether the claimant was liable to the defendant by reason of the matters alleged in the counterclaim. My understanding is that issues of quantum on the counterclaim are thereby excluded from the scope of this trial.
The claimant is represented by Miss Amanda Tipples QC, instructed by Moore Blatch. Until 19 th June 2012, Dr. Atkins was...
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