The approach of the courts to challenges to LPA receiverships

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The High Court case of (1) Jumani (2) Tariq v (1) Mortgage Express (2) Walker Singleton [1] concerned a challenge to the continuing appointment of LPA receivers and is instructive of the approach the courts are taking to challenges to appointments.

The case concerned borrowers who had a buy-to-let portfolio with many of the properties mortgaged. The mortgage conditions provided that “If you have more than one mortgage with us, and you want to pay off just one of those mortgages, we have the right … to stop you paying off the mortgages separately and to insist that you pay them all off”.

Following default, the bank appointed receivers. The receivers were the second defendants in the case (the bank being the first defendants).

The borrowers alleged that there was a binding agreement, albeit an oral agreement, between them and the bank by which the bank agreed to terminate the appointment of the receivers and return the portfolio to them on the basis that they would manage the properties and return the account to credit. The borrowers maintained that the bank was not honouring the agreement by reason of its failure to terminate the receivership.

The court rejected the borrowers’ submissions. It held that under the terms of the mortgage the bank was entitled to appoint the receivers and, further, there was no obligation on the bank to terminate the receivership even if the arrears were cleared. If the borrowers were to succeed in showing a variation to the bank’s right to appoint receivers then they would have to adduce evidence of a binding and enforceable agreement to do so. This, the borrowers had failed to do. The court held that the terms alleged by the borrowers were very vague and that it was commercially unlikely that the bank would have agreed to such a variation to the mortgage conditions.

The court also considered the question of the receivers’ agency, noting that, in accordance with the mortgage conditions, the receivers were the agents of the borrowers not the bank and therefore the bank was not liable for the receivers’ actions even though their core duties were owed to the bank. This was the case unless it could be shown that the bank had interfered in the receivership or that the receivers were acting at its direction which, again, was not the case here.

The case should offer reassurance to LPA receivers that borrowers seeking to challenge their appointment or terminate their appointment face a high hurdle. In particular, it shows that the courts will adopt a strict contractual approach to any suggestion by the borrower that the mortgage conditions have been varied. It is also a reminder that the acts or omissions of the receivers are unlikely to bind the lender unless it can be demonstrated that the lender has taken additional steps to assume responsibility for the actions of the receivers.

[1] [2013] EWHC 1571 (Ch)