A £15,000 mortgage dispute has ended in the UK’s highest court after more than a decade of negotiations.
The House of Lords awarded damages to mortgage adviser Bradford & Bingley (B&B) for a shortfall owing after it sold a client’s home in 1991 to recoup mortgage arrears.
Although the bank’s claim was lodged outside a 12-year time limit, the law lords ruled that correspondence between B&B and the debtor, Mohammed Rashid, during negotiations over repayment kept the limitation period alive.
B&B sold Rashid’s property in Duckworth Terrace, Bradford, for £47,000 but failed to bring a claim for the £15,583 shortfall until 2003, namely more than 12 years after Rashid had made his last mortgage payment.
It sought to rely upon two letters sent in 2001 by a legal advice centre, on Rashid’s behalf, as acknowledging the debt and extending the time limit. The letters, neither of which were marked “without prejudice”, offered to pay £500 towards the debt.
However, in July 2005, the Court of Appeal ruled that the letters were written without prejudice and could not be relied upon in evidence by the bank. The bank’s claim was therefore statute-barred.
Quashing that decision, the House of Lords has ruled that a letter acknowledging a debt will be admissible even if it forms part of negotiations aimed at giving the debtor time to pay or reducing the amount owed.
A majority of the law lords held that Rashid’s acknowledgment was not protected because it was not expressed to be “without prejudice”, and the negotiations were directed towards obtaining time for payment rather than disputing liability.
Lord Hoffmann said: “The Court of Appeal took a rather one-sided view of the matter. It looked only at encouraging the debtor to be open with his creditor without fear of what he said being used against him.
“However, it takes two to negotiate, and a public policy encourages the creditor not to initiate legal proceedings.”
He said that the acknowledgement rule “plays an important part” in furthering this policy by allowing “a creditor to proceed with the negotiations without being distracted by the sound of time’s winged chariot behind him”.
Lord Walker added: “The Court of Appeal failed to see that there are two public interests engaged in this appeal. There is the interest in encouraging the settlement of disputes so as to avoid, or at least shorten, litigation.
“But it is also in the public interest that a debtor who acknowledges his debt, and so induces his creditor not to have immediate resort to litigation, should not then be able to claim that the debt is statute-barred because the creditor stayed his hand.”
Bradford & Bingley plc v Rashid House of Lords (Lord Hoffmann, Lord Hope of Craighead, Lord Walker of Gestingthorpe, Lord Brown of Eaton-under-Heywood and Lord Mance) 12 July 2006.
Justin Fenwick QC and Nicole Sandells (instructed by Addleshaw Goddard, of Leeds) appeared for the appellant; Christopher Nugee QC and William Hanbury (instructed by Williscroft & Co, of Bradford) appeared for the defendant.
References: EGi Legal News 12/07/06
