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High Court strikes out borrower’s repeated attempts to avoid repossession

Repeated unmeritorious attempts by the borrower to avoid repossession by Receivers and Lender led to strike out of the borrower’s claim and an Extended Civil Restraint Order

Mortgage Express, together with the fixed charge receivers [1] it appointed in respect of the claimant borrower’s six buy-to-let properties, obtained a summary judgment/strike out order to end the borrower’s High Court claim against them. The claim asserted that the receivers were “wrongly appointed” by the Bank and were acting unlawfully.

The facts

The claimant owned six buy-to-let properties. Mortgage Express (ME) had the benefit of mortgages secured against all six properties and appointed receivers over the properties when the borrower fell into arrears. In a desperate and repeated attempt to avoid repossession, the borrower made multiple applications to the courts seeking a declaration that the receivers were “wrongly appointed” culminating in the High Court claim.  ME and the receivers sought a strike out and/or summary judgment of that claim and also an Extended Civil Restraint Order to control the borrower’s future conduct.

“Wrongly appointed” receivers

In the High Court proceedings, the borrower argued that ME had “wrongly appointed” the receivers. Counsel for the borrower raised several grounds in support of this contention, including:

  • that ME had failed to give the borrower two months’ notice of the appointment
  • that section 103(i) of the Law of Property Act 1925 applied

In Court, however, Counsel for the borrower conceded that the terms of the mortgages did not require two month’s notice before the appointment of receivers and that section 103(i) had been expressly excluded. In contrast, the Judge accepted ME were entitled to appoint the receivers, due to the following:

1. Accrual of mortgage arrears

The mortgage terms provided that the full mortgage debt was to be repaid immediately if the borrower was at least 2 months in arrears with the mortgage payments. ME provided clear evidence that this was the case in respect of each of the 6 mortgages at the date of appointment of the receivers.

2. Grant of tenancies without consent

The mortgages prohibited the granting of any tenancy without prior written consent of the mortgagee, breach of which would lead to the entire mortgage debt being repayable immediately. The borrower had granted tenancies on all six properties. It argued that there was an “implied relaxation” of this condition because the properties were mortgaged on a buy-to-let basis. Mortgage Express denied that any consent to let had been sought by the borrower. This was accepted by the Court, which said it was for the borrower to prove that consent had been granted, which it had failed to do.

The Court was also dismissive of the borrower’s broad allegation that ME, by appointing the receivers, was acting unlawfully by prejudicing the borrower’s ability to deal with and derive income from the properties. The Court acknowledged that a mortgagee has a limited duty of care to a borrower once the mortgage debt has become repayable and receivers have been appointed. It said:

  • there is no duty in general law (nor was there a contractual one in ME’s mortgage terms) that requires the mortgagee to specify the reasons for appointing receivers
  • if the appointment notification to the borrower purports to include one (or more) reasons, the receivers’ appointment is not limited to that reason only
  • section 103(i) LPA can be expressly excluded by the mortgage terms and, if so, should the appointment of receivers not accord with the notice procedure set out on section 103, it does not invalidate their appointment
  • In appointing receivers, a mortgagee can act in his own interests so long as he does not act in bad faith
  • The receivers have no duty at common law (nor under ME’s mortgage terms) to notify the borrower of any possession action
  • The mortgage terms allowed ME to consolidate the borrower’s mortgages as they expressly excluded section 93 of the LPA. Contrary to the borrower’s assertions, the general law also allows a mortgagee to consolidate mortgages which have been transferred from a different mortgagee (which was true of three of the six mortgages).

The Court therefore determined that the entire High Court claim disclosed no reasonable cause of action and should be dismissed by way of summary judgment and/or struck out. The judge also said: “it is an abuse to make sweeping allegations when there is plainly no basis for doing so“. He concluded that the claim was totally without merit and therefore heard arguments on whether he should make an Extended Civil Restraint Order against the borrower. The borrower had previously brought similar county court proceedings and applications alleging that the receivers had been wrongly appointed, which the High Court also found had been dismissed as being totally without merit. An Extended Civil Restraint Order was therefore made against the borrower.

The Court Rules impose a pre-condition before the making of an Extended Civil Restraint Order that a party has “persistently issued claims or made applications which are totally without merit”. The Court Rules do not however specify the minimum number of claims or applications that need be made to satisfy the pre-condition of persistence. However, it was held in Tyrone Courtman (as Trustee in Bankruptcy of John Ludlam) v Ludlam [2009] EWHC 2067 (Ch) that a minimum of three claims or applications that were totally without merit were required to satisfy the pre-condition of persistence. The High Court found that the borrower’s actions in this instance had reached that threshold.

WM comment

The High Court proceedings demonstrate that, when appointing receivers, a mortgagee owes a very limited duty of care to the borrower (i.e. not to act in bad faith). Moreover, there is no fiduciary relationship in that the mortgagee need only consider its own interests when appointing a receiver. A mortgagee must still take care to ensure that the appointment is in accordance with the terms and conditions of the mortgage. However, borrowers who seek to assert that a mortgagee owes them a general obligation to negotiate payment terms or give them prior notice of receivers’ appointments or delay repossession action due to the presence of tenants will be unsuccessful.

[1]  Duly appointed under the Law of Property Act 1925 (LPA)

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