Mark Robert Alexander (as representative of the "Property 118 Action Group") v West Bromwich Mortgage Company Ltd
| Jurisdiction | England & Wales |
| Judge | Mr. Justice Teare |
| Judgment Date | 29 January 2015 |
| Neutral Citation | [2015] EWHC 135 (Comm) |
| Court | Queen's Bench Division (Commercial Court) |
| Docket Number | Case No: 2014 FOLIO 538 |
| Date | 29 January 2015 |
[2015] EWHC 135 (Comm)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Royal Courts of Justice
Rolls Building, 7 Rolls Buildings
Fetter Lane, London EC4A 1NL
Mr. Justice Teare
Case No: 2014 FOLIO 538
Mark Smith (instructed by the Claimant and the members of the Property 118 Action Group by direct access) for the Claimant
Raymond Cox QC and Chloe Carpenter (instructed by Addleshaw Goddard) for the Defendant
Hearing date: 21 January 2015
Approved Judgment
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
This is a dispute as to the extent of a lender's contractual right to vary the interest rate payable by the borrower and to terminate the mortgage on notice. It arises in the context of a "buy to let" mortgage granted by the West Bromwich Mortgage Company Limited to Mark Alexander. Mr. Alexander represents other borrowers as well. The dispute concerns a question of construction of the contractual documents.
The contractual documents
The offer letter dated 6 June 2008 provided as follows:
"We are please to make the attached Offer of Loan, to be secured on the Property to be mortgaged, on the terms set out in this letter. Attached to this letter you will find some important information about your loan. A copy of our booklet "Information you need to know about your Mortgage" is enclosed. It contains important information about your loan, including the Standard Conditions of Offer and the Mortgage Conditions 2006 (Daily Interest) applicable to your loan ……..
Please note that except during the period of any specified fixed rate of interest all rates of interest are liable to change both before and after completion and that monthly payments will vary with the interest rate."
Box 3 of the Offer stated that the loan was to be of £90,299 for 25 years. Box 4 contained a product description: "Buy To Let 6.29% fixed until 30.06.2010 (115% cover)". The repayment method was described as "interest-only" and the interest rate payable was said to be 6.29%. It then added:
"After 30 June 2010 your loan reverts to a variable rate which is the same as the Bank of England Base Rate, currently 5%, with a premium of 1.99%, until the term end, giving a current rate payable of 6.99%. Any applicable change in the Bank of England Base Rate will be applied to your account on the first day of the month following the change, unless the change is made after the 13 th. of the month in which case it will be applied on the 1 st. day of the second month following the change."
Box 6, entitled "What you need to pay each month", provided that the mortgage would start on 1 July 2008 and that there would be 22 payments at a Fixed Rate, currently 6.29%, of £480.68. It then continued:
"After 22 payments, your fixed rate ends and assuming that interest rates do not change your new payment on your loan will be £534.17."
"This new payment will continue for 277 payments at a variable rate which is the same as the Bank of England Base Rate, currently 5%, with a premium of 1.99% until the term end, giving a current rate payable of 6.99%. Any applicable change in the Bank of England Base Rate will be applied to your account on the first day of the month following the change, unless the change is made after the 13 th. of the month in which case it will be applied on the 1 st. day of the second month following the change. "
Box 7 was entitled "Are you comfortable with the risks?" and provided:
"What if interest rates go up?
The Monthly payments shown in this illustration for your loan could be considerably different if interest rates change. After the fixed rate ends on 30 June 2010 then for one per cent increase in the initial variable rate, your Monthly payment would increase by around £76.42.
RATES MAY INCREASE BY MUCH MORE THAN THIS SO MAKE SURE YOU CAN AFFORD THE MONTHLY PAYMENTS."
The document entitled "Information you need to know about your mortgage" to which reference was made in the Offer of Loan (and accompanied it) contained General Information, Standard Conditions of Offer and Mortgage Conditions 2006 (daily interest). The last mentioned conditions stated in clause 1 as follows:
"These Mortgage Conditions incorporate any terms contained in the Offer of Loan. If there are any inconsistencies between the terms in the Mortgage Conditions and those contained in the Offer of Loan then the terms contained in the Offer of Loan will prevail. "
Clause 5 dealt with interest and provided as follows:
"Interest is payable by you …..at the rate or rates specified in your Offer of Loan Letter which, except during any period in which interest is expressed to be at a fixed rate, may be varied by the Company at any time for any of the following reasons:
• If there has been, or we reasonably expect there to be in the near future, a change in the Bank of England Base Rate or in interest levels generally;
• If investment interest rates have increased or decreased;
• To reflect market conditions generally;
• To take account of changes in the law, or any decisions, determinations, precedent, compelling guidance, regulations or instructions issued by a relevant governmental body, ombudsman, regulator or similar person or any code of practice with which we intended to comply;
• At the end of any period during which any fixed rate or concession or alternative rate (such as the Bank of England Base Rate) is in force;
• To reflect a change in the way the property is used or occupied;
• To make sure our business is carried out prudently, efficiently and competitively;
• To make sure we can meet our obligations to third parties.
If any of the above reasons is found to be invalid, we may still vary the interest rate for any of the remaining valid reasons."
Also included with the Offer were "Special Conditions" concerning such matters as insurance on the mortgaged premises and adequate life cover.
On 6 June 2008 Mr. Alexander accepted the Offer. He stated that he acknowledged the lender's right to "vary the rates of interest and monthly payments".
In due course, on 15 th. July 2008 Mr. Alexander signed the mortgage deed. He again accepted the standard conditions of offer (those set out in the booklet which accompanied the Offer), the mortgage conditions (those set out in the booklet) and the special conditions of offer (those which accompanied the Offer).
Variations to the interest rate
In September 2013 the lender informed Mr. Alexander (and other customers who had three or more by-to-let properties and so were not regarded as "consumers") that it had decided to increase the margin over base rate applicable to their mortgage by 2%, so that, in Mr Alexander's case, the margin was to increase from 1.99% to 3.99%. The lender's decision was made in the light of market conditions and in order to carry out its business prudently, efficiently and competitively. The margin has since been reduced in the light of improving market conditions. These changes have given rise to the present dispute.
The dispute as to interest rates
In essence the submission made by Mr. Smith on behalf of Mr. Alexander is that the Offer, which was accepted by Mr. Alexander, provided for rates to vary (after the initial fixed period) in accordance with the Bank of England Base Rate but not otherwise. Clause 5 of the Mortgage Conditions purported to enable the lender to vary the interest rate in other circumstances but that was inconsistent with the Offer and in the event of inconsistency the Mortgage Conditions provided that the terms of the Offer prevailed. The lender was therefore not entitled to increase the margin of 1.99% over Base Rate.
In essence the submission made by Mr. Cox QC on behalf of the lender is that there is no inconsistency between the Offer and the Mortgage Conditions. The Offer provided that after the initial fixed period the rate of interest would be a variable rate as therein defined but clause 5 of the Mortgage Conditions qualified that by stating the circumstances in which that rate could be varied. The Offer did not state that the margin of 1.99% over the Base Rate could not be varied if the circumstances stated in clause 5 of the Mortgage Conditions applied. There is therefore no inconsistency between the Offer and clause 5 of the Mortgage Conditions. The two can and should be read together.
At the heart of this dispute is the question whether there is any inconsistency between the Offer and the Mortgage Conditions. It is therefore essential to have a proper understanding of the circumstances in which different terms of an agreement may be held to be inconsistent with each other. As with many areas of the law the terrain has been covered by Bingham LJ, as he then was. In Pagnan SpA v Tradax Ocean Transportation [1987] 2 Lloyd's Rep. 342 Bingham LJ reviewed the authorities and concluded as follows, at p.350 col.2:
"These cases are only of significance as helping to define inconsistency and illustrating how Courts have approached that question in the past. It is not enough if one term qualifies or modifies the effect of another; to be inconsistent a term must contradict another term or be in conflict with it, such that effect cannot fairly be given to both clauses."
In the same case Dillon LJ said, at p.353 col.2, that there is inconsistency where two clauses cannot sensibly be read together.
Further guidance has been given by Akenhead J. in RWE Npower Renewables Limited v JN Bentley Limited [2013] EWHC (TCC) at paragraph 24:
"What one can not and should not do is to carry...
To continue reading
Request your trial