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Wrongful repossession and Azhar: What lenders need to know

Holding house keys on house shaped keychain in front of a new home Print publication

04/03/2019

Walker Morris’ Banking & Finance specialists Sandip Singh and James Taylor explain why lenders may wish to rely on the recent Azhar v Accord [1] case to combat wrongful repossession claims.

What are wrongful repossession claims, and why are lenders concerned?

We explained in our recent briefing that a number of claims seen recently by Walker Morris’ Banking & Finance Litigation lawyers seem to herald the emergence of what are being termed ‘wrongful repossession’ claims – potentially the next flood of mortgage claims against lenders.

Wrongful repossession claims comprise allegations that defects with the mortgage sale process; the mortgage account calculation (whether in terms of interest rates or calculations, arrears calculations or the application/calculation of fees and charges, for example); the arrears claim and possession process; and/or the performance of the lenders’ (or their representatives’) contractual or statutory duties caused the borrowers to wrongfully suffer loss when their property was repossessed.

Apart from the financial cost that is inevitably associated with dealing with such claims (even where the claims are entirely without merit), lenders pursued for wrongful repossession claims face the practical and reputational difficulties that arise from raking over historic deals, accounts, processes and proceedings.

In one recent case however (which Walker Morris successfully defended on behalf of the lender), the court made a number of important points when giving reasons for the refusal of the claim, on which lenders might wish to rely to counter future claims.

Banking & Finance Litigation specialists Sandip Singh and James Taylor explain.

What happened in Azhar?

The claimant had re-mortgaged his property to the defendant lender in 2008. The loan was over 24 years on an interest-only basis.  The interest rate was initially fixed at 8.25% until November 2009, after which the lender’s standard variable rate plus 0.75% applied, in accordance with the lender’s Mortgage Loan Terms and Mortgage Conditions.  After repeated default, possession proceedings were issued.  A suspended possession order was granted in 2010 and enforced in 2012.  The claimant then redeemed the mortgage in full and the lender handed back possession.  Some years later, in 2016, the claimant sent a letter of claim to the lender.  The claim for interest, fees and charges, allegedly incorrectly levied in breach of contract or statutory duty, was issued in May 2018.

The lender relied on res judicata [2] to defend the claim on the basis that either ’cause of action estoppel’ or ‘issue estoppel’ prevented the claimant from pursuing its case.

  • Cause of action estoppel is the principle that once a cause of action has been held to exist or not exist, that may not be challenged by either party in subsequent proceedings.
  • Issue estoppel arises where, even if the cause of action in the later proceedings is not the same as in the prior proceedings, an issue which is common to both was decided on the earlier occasion and is binding on the parties.

The claimant attempted to undermine the lender’s defence, contending that the case in 2010 was not decided on the merits; that the present claim is based on breach of contract/statutory duty and is therefore a different cause of action; and/or that special circumstances [3] exist.

What did the court decide?

The claimant’s arguments were given short shrift by the court. Finding for the lender, the judge held:

  • In the original proceedings judgment was given. The lender had calculated the amount outstanding and the claimant either admitted that sum or failed to take issue. That surely amounted to a decision on the merits.
  • An admission or a default judgment can form the basis of a res judicata estoppel. A full trial on merits is not required.
  • The suggestion that the res judicata defence cannot apply because this claim was brought on the basis of breach of contract or statutory duty was not accepted. If the claim proceeded, that would inevitably involve a challenge to the figure for which the earlier judgment was entered. As per above, that sum was decided and cannot subsequently be challenged, even indirectly. Cause of action estoppel therefore arose in this case.
  • Even if it were necessary to go on to consider issue estoppel, no ‘special circumstances’ existed to defeat the res judicata defence. The claimant tried to argue that his being a consumer with limited experience in financial matters meant that he could not reasonably have known if he had been overcharged. However, the test for special circumstances is an objective test of reasonable diligence and there were numerous steps [4] that the claimant could have taken to determine whether or not he was being overcharged.
  • If the claimant was allowed to challenge the original judgment, the consequences could be bizarre – for example if such a challenge also gave rise to a challenge to possession in a case where a mortgagee had repossessed.
  • If the claimant’s challenge were to be upheld, thousands of similar judgments made every year in mortgage possession cases would also be capable of challenge. That would fly in the face of the practical convention that the courts should avoid ‘opening the floodgates’ to any flow of claims where that would be contrary to public policy and to the efficiency and efficacy of the court process overall.

WM Comment

With the PPI deadline looming, there is the potential for some claims management companies and other legal services providers to cast around for a new income stream – and wrongful repossession claims against lenders is likely to be one.

However, as the Azhar case and our earlier briefing demonstrate, the law does provide a number of legal and practical arguments that lenders can deploy to defend and counter wrongful repossession claims.

For further advice and assistance in relation to wrongful repossession claims or any other lender services issue, please do not hesitate to contact Sandip Singh, James Taylor or any member of Walker Morris’ Banking & Finance Litigation Team.

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[1] Mohammed Azhar v Accord Mortgages Limited, Bradford County Court, 7 December 2018
[2] the fundamental legal and public interest principle which states that there should be finality to litigation and that defendants should not face repeated litigation in respect of the same set of circumstances
[3] ‘special circumstances’ as a potential ‘get-around’ to the res judicata defence applies to issue estoppel only, and not to cause of action estoppel
[4] for example, he could have requested an explanation of all charges from the lender or taken advice from solicitors or accountants

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