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England and Wales High Court (Queen's Bench Division) Decisions |
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You are here: BAILII >> Databases >> England and Wales High Court (Queen's Bench Division) Decisions >> Thakker v Northern Rock Plc [2014] EWHC 2107 (QB) (05 February 2014) URL: http://www.bailii.org/ew/cases/EWHC/QB/2014/2107.html Cite as: [2014] EWHC 2107 (QB) |
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QUEEN'S BENCH DIVISION
The Strand London WC2A 2LL |
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B e f o r e :
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MR AND MRS THAKKER |
Applicant |
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- and - |
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NORTHERN ROCK PLC |
Respondent |
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8th Floor, 165 Fleet Street, London, EC4A 2DY
Tel No: 020 7421 4036 Fax No: 020 7404 1424
Web: www.merrillcorp.com/mls Email: [email protected]
(Official Shorthand Writers to the Court)
MR R. HAWKE (instructed by Squire Sanders (UK) LLP) appeared on behalf of the respondents
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Crown Copyright ©
1. MRS JUSTICE SIMLER: This is an appeal from the order of HHJ Charles Harrison QC dated 19 September 2013. By that order the judge made a declaration that the appellants' counterclaim is not a good defence to the respondent's claim for possession on the basis of the principle established in the case of National Westminster Bank Plc v Skelton [1993] 1 All ER, page 242. In Skelton the Court of Appeal held that a pleaded equitable set off arising from a counterclaim for an unliquidated sum cannot defeat a claim to possession. The judgment gave a judgment setting out the reasons for that decision and made further orders for the listing of this matter for a further hearing to deal with matters consequential upon his declaration. Although at paragraph 17 of his judgment the judge stated that possession was all that was sought in these proceedings by the respondent and that it was therefore appropriate for the defence to be struck out, this is not in fact what he did. Moreover, it is clear that possession is not all that was sought in these proceedings and that a money claim is also made.
2. No issue is taken on this appeal with the judge's statement of facts and his statement as to the law, set out at paragraphs 1-13 of his judgment. The focus of the appellants' attack upon this appeal is directed at paragraphs 14-17 of the judgment, but, as Mr Pugh realistically accepted on behalf of the appellants, no appeal can lie against the judge's reasons; rather the focus must be on the order he made, which was a declaration that the counterclaim and defence do not afford a defence in law to the claim for possession.
3. The background facts can be shortly stated. The respondent lent the appellants the sum of £242,000 by way of a mortgage on 87 Grove Gardens, Tring ("the property"). That mortgage was taken out in 2002. Between February 2003 and August 2006 further advances with the total value pleaded as just over £259,000 were made by the respondent to the appellants, also secured against the property. The appellants failed to make payments of sums contractually due and proceedings for possession were issued on 17 August 2010 by the respondent in respect of the mortgaged property with arrears at that time amounting to a sum of just over £53,000. The total sum owed by the appellants to the respondent on 1 November 2010 was £585,000.
4. By a defence and counterclaim drafted by counsel, Mr Pugh, and dated 27 January 2011, the appellants denied the respondent's rights to possession of the mortgaged property. They claimed further to seek to set off against any proved indebtedness their claim for damages set out in the counterclaim. The counterclaim made no complaint about the initial mortgage advance, as can be seen from paragraphs 4 and 12 of the defence. However, so far as the further advances by the respondent were concerned, the appellants alleged that they were advised and/or recommended and/or made negligently and/or, for those made after October 2004, advanced in breach of provisions of the Mortgage Conduct of Business Rules made under the Financial Services and Markets Act 2000 ("the 2000 Act"), now called the Mortgages and Home Finance: Conduct of Business sourcebook and referred to as "MCOB". These came into force on 31 October 2004.
5. Further particulars were requested by the respondent, dated 30 April 2013, about the defence and counterclaim. In particular, particulars were sought in relation to the denial of the respondent's right to possession of the property, and the appellants were invited to admit that even if they succeeded in their defence and counterclaim the respondent would still be entitled to possession of the property. The pleaded response to that, in a further information document, again settled by counsel, dated 30 May 2013, was "the claimant claims a possession order. The claim is denied by reason of denial of arrears by reason of set off". It is common ground therefore that the appellants' counterclaim was for unliquidated damages and that their only defence to the claim for possession was by way of equitable set off. No other defence is pleaded.
6. By an application dated 22 July 2013 the respondent applied for orders, first that the defence be struck out under CPR 3.4(2)(a); second, that the appellants immediately give possession of the mortgaged property to the respondent or its authorised agents; and, third, that the remaining issues between the parties, including the counterclaim, be stayed pending the sale of the mortgaged property. The application was considered and dealt with by the judge on 19 September 2013, leading to the order I have already identified.
7. It is common ground in the ordinary course of a claim of this kind that any application for possession is dealt with in two stages. The first stage concerns the question whether the mortgagee has a legal right to possession. So far as that stage is concerned, CPR 24 applies, and no summary judgment is possible where a legal defence or, to put it another way, a defence that is sustainable in law is put forward to challenge the mortgagee's right to possession. Such a defence might include, for example, fraud or an argument that the mortgage documents are void.
8. That is the first stage, and it is that stage that we have reached in this case, where the judge was considering the question whether the defence and counterclaim raised amounted in law to a defence to the mortgagee's right to possession here. The second stage gives rise to discretionary considerations. At the second stage the judge or tribunal of fact invited to make an order for possession can exercise discretion to stay execution, for example pending the trial of any counterclaim in circumstances where, for example, the claim is likely to be resolved relatively quickly, it has good prospects of success and the amount in issue is likely to make a material difference to the borrower's overall financial liability to the lender. Mathematical points concerning the quantum of the counterclaim in comparison with the claim are likely to feature here too. In this case that second stage has not yet been reached and, subject to the disposal of this appeal, this matter will return to the county court for the judge to consider questions of whether there should be a suspension or stay here.
9. It follows, and Mr Pugh again realistically accepted, that three of the grounds of appeal in this case appear to proceed on a misunderstanding or misconception of the judge's order, and were rightly not pursued. I deal with them very quickly simply to make clear why that is so. By ground 1 the appellants contend that the judge did not have jurisdiction to strike out their claim given the application of CPR 24.3, which prohibits an application for summary judgment for possession. It is accepted that the judge did not strike out the appellants' claim; rather, he gave directions for future consideration of the consequences of his declaration that the defence and counterclaim afforded no defence in law to the claim for possession. By ground 3 the appellants contend that it was wrong to decide whether or not possession should be given on purely mathematical grounds. Again, as I have just intimated, that will be an issue that may be raised at the discretionary or second stage when the matter returns to the judge, but it is premature to raise it now. Finally ground 4: this has two aspects. First, the appellants contend that there were serious procedural irregularities in striking out a defence which, in effect, constituted an application for summary judgment. That too is premature; no strike out has yet been ordered, but it will be a question that arises when the matter returns to the county court. So far as concerns the cross-claim giving rise to regulatory duties raised in ground 4, these can properly be considered in the remaining ground, which is ground 2, which lies at the heart of this appeal.
10. By ground 2 the appellants contend that the judge was wrong because he failed to heed and act upon the statutory principles and rules which apply to regulated mortgage contracts such as the one with which these proceedings are concerned. The appellants rely on the fact that the statutory regime for the regulation of mortgage contracts was introduced after the decision in Skelton and they contend that the principle established by Skelton only applies to regulated mortgage contracts subject to these principles.
11. In short, it is argued that in a case of a regulated mortgage contract, there are a number of fundamental principles that apply. Firstly, customers must be treated fairly under the code, or MCOB ("the code"). Secondly, when dealing with customers who are in payment difficulties the rules in the code governing the treatment of such customers must be adhered to. Thirdly, that mortgagees cannot obtain repossession of mortgaged properties unless all other attempts to resolve the position have failed. It is argued that those rules require reasonable steps to be taken before possession can be obtained by a mortgagee and are not limited to what happens afterwards, and that a refusal to even meet with the mortgagor, which is what is asserted in this case, is, on any objective view, unreasonable and cannot be justified under the rules. The appellants accordingly maintain that the principle in Skelton is to be read subject to this regulatory regime established by the code and that there can be no legal right to possession unless and until those rules have been complied with.
12. It is implicit in the way in which the appeal was advanced that there is an acceptance that, if this mortgage contract was not a regulated one, the principle established in Skelton would apply and the appellants would have no valid defence to the claim to possession.
13. That brings me therefore to the decision in Skelton. I deal with it briefly. The case concerns a claim by a mortgagee bank for possession of a mortgaged property. The mortgagors relied upon a counterclaim put forward by way of equitable set off as a defence to the possession claim. The defence was stuck out at first instance and the mortgagors appealed to the Court of Appeal. In a judgment of Slade LJ at page 77 onwards the court set out the applicable principles, concluding that the existence of a counterclaim for a sum of money, however valid, and even if it exceeds the amount of the debt to the lender, will not by itself defeat the lender's claim to possession since a mortgage lender is entitled to possession at any time after the mortgage is executed. I draw from this judgment the following points. The first in that case is that the bank's claim was one simply for possession. Secondly, there is a general and well established rule that a mortgagee is entitled to seek possession of the mortgaged property at any time after the mortgage is executed save insofar as his rights are limited by contract or statute.
14. A further principle established by the case of Mobil Oil v Rawlinson (1981) 43 P&CR 221 is that the existence of a cross-claim, even if it exceeds the amount of the mortgaged debt, will not by itself defeat a right to possession enjoyed by the mortgagee. The Mobil Oil principle is applicable both where the cross-claim is a mere counterclaim and where it is a cross-claim for unliquidated damages which, if established, would give rise to a right by way of equitable set off, even if such a claim proved to exceed the amount of the mortgaged debt. The courts have indicated that there may be a difference where a mortgagor can establish that he has a claim to a quantified sum by way of equitable set off because such a claim might have the effect of actually discharging the mortgaged debt, but that point has been left undecided and it does not apply in this case.
15. Accordingly, if the mortgage does not expressly limit the right to take immediate possession of the property, and nor is any such limitation to be implied, always bearing in mind that the court will not readily imply any such limitation, a defence based on an unliquidated set off cannot amount in law to a defence to a claim for possession of a mortgaged property. There is no suggestion in this case that there is any express limitation on the respondent's right to take immediate possession of the property in question; nor has any implied restriction been advanced save to the extent that the code is relied upon, and I will come to that in a moment.
16. A number of serious points are raised by the appellants in this case about the conduct of the respondent in relation to twelve further advances beyond the initial advanced by way of mortgage. Those serious complaints are made about the apparent failure to treat them fairly and reasonably, and in accordance with the code. It is said that no inquiry was made as to the appellants' means of repayment. No valuation of the property was undertaken at each additional lending stage. No adequate explanation or advice was given in relation to their additional borrowing. Moreover, a number of provisions of the code are relied upon that require the respondent to deal fairly with customers who are in arrears on a regulated mortgage contract. There are requirements that they put in place and operate in accordance with a written policy and procedure for dealing fairly with such customers. There are requirements to make reasonable efforts to reach agreement with customers over methods of repayment; requirements to liaise if the customer makes arrangements for third party sources of advice; requirements to allow reasonable time over which payments of shortfalls can be repaid, and a requirement not to repossess the property unless all other reasonable attempts to resolve the position have failed. I reach no concluded view as to the merits or otherwise of that pleaded case, observing at this stage merely that it is a claim that is denied by the respondent., I do consider however, that it raises serious issues that will no doubt be tried in due course. Having made those observations, it is clear that there is no pleaded claim that, as a consequence, the mortgage itself was void for illegality or is itself unenforceable or that the mortgagee is in some way estopped from asserting its rights to possession. In other words, the pleaded case raises no substantial question on its face as to the existence or enforceability of the respondent's right to possession other than by reference to the defence of set off already referred to.
17. I admirably focused submissions, both in writing and orally, Mr Pugh submits that the regulatory regime has nevertheless had the effect on the rights of this mortgagee, such that the principle established by Skelton cannot apply unless and until the code has been complied with.
18. I do not accept that submission, for the reasonsr that follow. As Mr Hawke has submitted, the starting point for consideration of the impact of the regulatory regime on the principle established by Skelton is the scope of the regulatory powers granted to the Financial Services Authority as set out in the 2000 Act. Section 151 of the 2000 Act provided( before its amendment in 2012) limits on the effect of contravening the rules set out in the code. In particular, S 151(2) of the 2000 Act provides::
"No such contravention makes any transaction void or unenforceable."
That provision has been re-enacted in the same terms precisely under the Financial Services Act 2012 and is now to be found at section 138(e).
19. As a matter of strict statutory construction, it seems to me that, even if the appellants' pleaded case was that the alleged breaches of the code render the respondent's right to possession under the mortgage contract unenforceable, such breaches, even if proved, could not have that effect by virtue of these provisions. Mr Pugh argues that he is not seeking to argue that any transaction is void or unenforceable, but in my judgment that is precisely the effect of his submission.
20. I am fortified in reaching that conclusion by a consideration of an extract from a leading specialists' textbook in this area. Jan Luba QC who, with others, has produced a legal action group book, entitled Defending Possession Proceedings, deals with the code and the consequences of a breach of its rules at paragraph 40.8(3) in the following terms:
"The FSA is charged with regulatory control of a myriad of different financial services and has issued a handbook which contains over thirty sourcebooks setting out the rules governing regulated persons in different fields. The handbook and its regulations are issued pursuant to powers given to the FSA under the 2000 Act. If a lender fails to comply with the rules it runs the risk of a regulatory and disciplinary action by the FSA. A borrower who can show that he or she has suffered loss as a result of contravention of a rule may sue the authorised person for damages. However, such a contravention does not render the transaction void or unenforceable."
)
No reference is made to the possibility of running, by way of a defence of set off in the context of regulated mortgages, a breach of the rules.
21. I am accordingly satisfied that the rules themselves do not give rise to such a defence, even if proved. The stage of the proceedings at which these rules are relevant is the second or discretionary stage referred to earlier. At that point the judge will consider as a matter of discretion, whether to suspend execution of a possession order or to stay such an order. The fact that there are alleged breaches of MCOB, or the code, can be raised, and the question whether and to what extent those breaches give rise to any loss resulting in damages can then be considered. However, they do not afford a basis in law for maintaining that the rights of the mortgagee under the mortgage contract to possession, a fundamental and important right, are unenforceable.
Accordingly, for the reasons just given, this appeal is dismissed.