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March 2010

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Mar 10 Update
Case name Ashcroft v Bradford & Bingley Plc
Neutral citation [2010] EWCA Civ 223
Legal points Mortgages – Shortfall Debt – Limitation – Acknowledgment and Part Payment
Facts In 1990 A bought a house for £95,000 with a mortgage from B of £85,500. A failed to make any repayments and in 1991 B obtained an order for possession and sold the property in 1992 for £57,500 leaving a substantial shortfall. In 1995 B wrote to A asking for proposals for payment. Despite objecting to the delay and that the property had been sold at an undervalue, A made regular payments of £10 a month between 2000 and 2004, then stopped. B finally issued the present proceedings in 2008 with A arguing the claim was statute-barred. The trial judge held that the claim was not statute-barred but gave A permission to appeal. A argued that he had only made the payments because his solicitor had advised him that it was “easier and cheaper…to pay £10 per month and continue to dispute liability rather than deal with the expense of litigation”. He claimed that according to Chitty (13th Ed, para 28-096 etc) part payment is merely a species of acknowledgment and that according to Surrendra Overseas Ltd v Government of Sri Lanka [1977] 2 All ER 481, where it had been made clear that part of the claim is disputed, any acknowledgment relates only to the undisputed balance.
Held Although part payment can be intelligibly regarded as a sub-species of acknowledgment, it was expressly separated from acknowledgment and given equal status to it by s 29(5) Limitation Act 1980. There was therefore no call to re-analyse part payment or to gloss it in terms of acknowledgment: it was a freestanding mechanism for the computation of time. In any event, there had been both part payment and acknowledgment within the 12 years before the issue of the proceedings. The only debt to which the series of monthly payments from 2000 onwards was referable was the mortgage debt to which the present claim related: no evidence was given of any other debt owed by A to B. It did not matter how much the claimed undervalue was because the purpose of s 29(5) was not to fix any particular sum: it was to enlarge the time for bringing proceedings in which that issue could be litigated of the defendant raised it. Sale at an undervalue had not been pursued. If the claimed undervalue had been such as to extinguish the mortgage debt, it might have been factually arguable that the only purpose of the £10 payments was to get B off A’s back; but A never advanced a valuation of his own so the contention had no reality. The appeal would be dismissed.
Comment This case doesn’t really identify when the primary limitation period started running although it acknowledges that under s 20 Limitation Act 1980 it runs from “the date on which the right to receive the money accrued”. The point is probably academic on the facts. The issue was as to the significance of the admitted payments between 2000 and 2004 which on any version started within the primary limitation period, and whether these started time running afresh as part payments or acknowledgments. The court clearly rejected any fine legal argument that the monthly payments could be anything other than part payments of the mortgage debt and therefore inevitably started time running. It is worth noting (since it was a feature of Bradford & Bingley Building Society v Rashid [2006] UKHL 37) that between 1995 and 2000 A had also filled in and returned B’s income and expenditure forms, but interestingly, the court “did not find it helpful to pursue [B’s argument] that filling in the income and expenditure forms was a further acknowledgment of the indebtedness (or [A’s] response that the only purpose was to show [B] it was wasting its time)”. Properly advised, a borrower in this situation should formally dispute liability for the shortfall debt and seek an account on the basis that the property had been sold at an undervalue in breach of the lender’s equitable duty, or come up with some other substantive defence to liability. Otherwise, borrowers can rarely escape liability for a shortfall debt unless there is complete inactivity by the lender for more than 12 years after (in practice) the date of last payment. In this particular case Lord Justice Sedley remarked that had the borrower kept his head down and carried on paying the £10 per month, it would have taken him until 2402 to pay off the debt. By the time he had reached 100 he would have paid off less than £6,000. Although the transcript does not say, one suspects he was ordered to pay the costs of trial and the appeal in addition to the shortfall debt plus interest!
Case name Hewett v First Plus Financial Group Plc
Neutral citation [2010] EWCA Civ 312
Legal points Mortgages – Undue Influence – Non-disclosure by husband of extra-marital affair
Facts Mr & Mrs H were the joint legal and beneficial owners of a property, subject to a mortgage. By 2003 Mr H had run up credit card debts and was unable to service the mortgage. He had also started an affair which he concealed from his wife. Mr H proposed to refinance the credit card debts by obtaining a re-mortgage from FP to which Mrs H reluctantly agreed. The re-mortgage completed in 2004. Mrs H subsequently found out about her husband’s affair which led to their divorce. Mr H also lost his job and was made bankrupt. Although Mrs H was able to purchase Mr H’s interest in the property from his trustee, she was unable to service the mortgage and FP commenced possession proceedings. The trial judge held that FP was on notice that the re-mortgage was required to repay Mr H’s debts but did nothing to comply with the Etridge guidelines and so took with constructive notice of any impropriety by Mr H. However, on the facts, he held that Mr H had been guilty neither of misrepresentation or undue influence. Mrs H appealed, relying principally on Mr H’s deliberate concealment of his affair which she argued was a highly material fact which she needed to know.
Held The appeal would be allowed. Mr H’s concealment of his affair did amount to undue influence, sufficient to vitiate the re-mortgage transaction between them. Mrs H reposed trust and confidence in her husband, sufficient to give rise to an obligation of candour and fairness owed to her (applying Royal Bank of Scotland Plc v Etridge (No.2) [2001] UKHL 44 and Royal Bank of Scotland Plc v Chandra [2010] EWHC 105 (Ch)). The purpose of an obligation of candour is that the wife should be able to make an informed decision (with or without the benefit of independent advice) properly and fairly appraised of the relevant circumstances. Disclosure of Mr H’s affair was plainly a material fact calling for disclosure since Mrs H’s decision to re-mortgage in order to save the family home involved balancing the reliability of her husband’s promise to support the family in the future by making sure he would pay the increased mortgage instalments against the risk of loss of the property. Her decision was based on an assumption that he was committed to the marriage and to preserve the family home. The truth was that since he had already embarked on an affair, it carried a serious risk that it would lead to his departure from the family and the withdrawal of financial support. The question whether Mr H’s affair was a material fact calling for disclosure is to be decided by an objective test rather than by asking the hypothetical question whether disclosure would have made all the difference to his wife’s process of decision making. For example, would a solicitor, consulted by Mrs Hewett for advice about the wisdom of the transaction, have thought it relevant to know that her husband was, while asking for her unqualified trust, at the same time conducting a clandestine affair? The Court of Appeal thought that the answer was obvious! It was unnecessary to decide whether the non-disclosure was innocent or inadvertent, or a deliberate concealment since either way it involved a breach of his duty of fairness and candour. On the facts, he was clearly guilty of deliberate concealment. Although in principle the charge would be set aside, it was common ground that it operated as an equitable charge on Mr H’s share, which Mrs H had acquired from his trustee. The question whether and to what extent FP would be entitled to enforce the equitable charge under s 14 Trusts of Land and Appointment of Trustees Act 1996 would be remitted to the trial judge.
Comment Undue influence claims are on the increase, primarily for the reason given in this case, that in practice many lenders are simply not complying with the Etridge guidelines and are taking the risk of impropriety by the husband. Anecdotally, lenders are simply playing the numbers game. On the facts, the outcome should never really have been in doubt, but what is interesting is that the Court of Appeal nailed the case on undue influence, rather than misrepresentation. This case develops a new strand of argument in undue influence cases – material non-disclosure based on a duty of candour and fairness – something which is likely to start figuring in undue influence claims in the future. However, litigants should bear in mind the effect of the husband’s equitable charge which invariably has to be accounted for in joint ownership cases.
Case name Edwards v Bank of Scotland
Neutral citation [2010] EWHC 652 (Ch)
Legal points Mortgage – Forgery – equitable charge – matters to be taken into account under s 15 TLATA 1996
Facts Mr & Mrs E were the joint legal and beneficial owners of a leasehold residential property. Mrs E forged Mr E’s signature on a joint legal charge to the bank as security for an advance of £637,500. Mr E subsequently commenced proceedings against (1) Mrs E for monies had and received, damages in deceit and misrepresentation and other relief; and (2) the bank for a declaration that he was not liable under the charge and for consequential orders for rectification etc. The bank put in a Part 20 claim for an order for possession and/or sale based on (a) its rights as legal chargee, alternatively (b) its rights as equitable chargee under s 14 Trusts of Land and Appointment of Trustees Act 1996. At trial, the judge made a preliminary ruling that Mrs E had not been properly served with the proceedings and directed that the case proceed only on Mr E’s claim against the bank, and the bank’s Part 20 claim, with permission to restore the claim against Mrs E. The bank conceded that Mr E’s signature on the charge had been forged and that he was entitled to appropriate relief. The issue was whether and upon what terms the court should order possession and sale on the bank’s claim as equitable chargee.
Held The judge directed himself in accordance with the matters in s 15 Trusts of Land and Appointment of Trustees Act 1996 and having regard to cases such as Mortgage Corporation v Shaire [2001] Ch 743 and Bank of Ireland Home Mortgages v Bell [2001] All ER Comm 920. Significantly (1) Mrs E changed the basis on which she held her interest in the property when she alienated it by way of charge to the bank; (2) the interests of the bank as creditor were of “real significance”; (3) there was sufficient equity available to Mr E from the equity in this and other property to enable him to purchase adequate alternative accommodation; (4) the judge also weighed the length of time that the debt had been outstanding and the fact that there had been a number of unpaid costs orders in favour of the bank against Mr E. The court made an order for possession and sale, postponed for 4 months “[this] strikes the right balance between the need to bring matters to a conclusion and the need to give [Mr E] an appropriate opportunity to sell [the property] and purchase a new property”.
Comment There is no new law in this case. It recognises that the effect of a forged [joint] legal mortgage is to leave the lender with an equitable charge over the [forger’s] beneficial interest which it is entitled to enforce by applying for an order for sale under the Trusts of Land and Appointment of Trustees Act 1996. However, the case is a useful reminder of the matters to which the court is to have regard under section 15 of the Act and notably the exercise of discretion in postponing the making of an order for sale for a reasonable period – in this case to give the [innocent] co-owner time to sell himself.
Item Money Made Clear – New Government money advice service
Details On 11 March 2010 the Chancellor of the Exchequer launched a new free money advice service to be rolled out around the country. The Moneymadeclear service includes a helpline (0300 500 5000) and website at http://www.moneymadeclear.fsa.gov.uk/ together with a face to face advice service to be delivered through a range of partners including Citizens Advice Bureaux and Age Concern. Launching the service, Chancellor Alistair Darling said “Moneymadeclear is free, impartial advice for all, whether you are unsure about the small print in a mortgageform; want advice about opening a savings account for your children or grand-children or you want some help dealing with repayments before they get out of hand”. The Moneymadeclear website offers advice and assistance, and all relevant links, across a whole range of financial matters. There is a section on ‘Mortgages and Homes’ which offers advice and explanations about a range of different mortgage products; tools and calculators; insurances and payment protection policies; together with links to sources of advice and assistance in the event of difficulty with mortgage payments and repossessions.
Item MORTGAGE REPOSSESSIONS (PROTECTION OF TENANTS Etc.) BILL 2009-10
Details The Bill which seeks to provide limited protection to unauthorised tenants of borrowers passed through its 2nd Reading in the House of Lords on 30th March 2010. No date has yet been set for the Committee stage. To follow progress of the Bill go to http://services.parliament.uk/bills/2009-10/mortgagerepossessionsprotectionoftenantsetc.html
Item Civil Procedure Rules etc Amendments - effective 6th and 1st April 2010 respectively
Details Just a reminder that there are two sets of forthcoming amendments to the Civil Procedure Rules, Protocol and Forms: 1. The Civil Procedure (Amendment No.2) Rules 2009 – 51st Update – effective 6th April 2010: Amendments to the Pre-Action Protocol for Possession Claims based on Mortgage or Home Purchase Plan Arrears in Respect of Residential Property. Under the protocol lenders are obliged to consider postponing possession proceedings should the borrower be entitled to financial support under the various support schemes listed in the protocol. The protocol has been amended to include a further scheme in the list: (1) In paragraph 4.1, delete “and” at the end of sub-paragraph (3), and at the end of sub-paragraph (4) insert— “; and (5) “Mortgage Rescue Scheme” means the shared equity and mortgage to rent scheme established either— (a) by the UK Government to help certain categories of vulnerable borrowers avoid repossession of their property in England, announced in September 2008 and opened in January 2009; or (b) by the Welsh Assembly Government to help certain categories of vulnerable borrowers avoid repossession of their property in Wales, first announced in June 2008.” (2) In paragraph 6.1— (a) at the end of sub-paragraph (1)(b) delete “,” and insert— “; or (c) a participating local authority for support under a Mortgage Rescue Scheme,”; (b) in sub-paragraph (2) after “insurer” insert “or support from the local authority”; (c) in sub-paragraph (3), after “insurer” insert “in relation to a claim under paragraph 6.1(1)(a) or (b)”. A consequentially amended Form N123 will be published shortly. 2. The Civil Procedure (Amendment) Rules 2010 – 52nd Update – effective 1st April 2010 Amendments to CPR 55: Part 55 is amended to require a claimant lender to notify other registered chargees where a residential mortgage possession claim is started under Part 55. In Part 55— in rule 55.10(2)— in sub-paragraph (a) omit “and”; in sub-paragraph (b), for “.” substitute “; and”; and after sub-paragraph (b) insert— “(c) any registered proprietor (other than the claimant) of a registered charge over the property.”