Mortgage — Legal charge — Appellants falling into arrears with payments — Respondent obtaining possession order — Appellants challenging order after considerable lapse of time — Whether respondent having title to sue for possession — Whether respondent breaching implied obligation not improperly to vary interest rates — Whether legal charge constituting extortionate credit bargain — Appeal dismissed
The respondent held a legal charge over a property owned by the appellants. The latter subsequently fell into arrears and the respondent obtained a possession order. However, it failed to enforce the order for a number of years, during which time it continued to accept irregular payments from the appellants. When it began enforcement proceedings, the arrears and accumulated interest far outweighed the value of the property. After a considerable delay, the appellants applied to have the order set aside. The High Court dismissed their application: [2003] 49 EG 128 (CS).
The appellants appealed, contending that: (i) as at the date of the possession order, the respondent had no title to sue for possession since it had sold the mortgage debt to a third-party special purpose vehicle (SPV) under a scheme of securitisation; (ii) in any event, as at that date, they were not in default under the legal charge because, in exercising its power to vary the rates of interest, the respondent had breached its implied obligation not to exercise such power improperly or capriciously; and (iii) the legal charge represented an extortionate credit bargain for the purposes of the Consumer Credit Act 1974, in that when the charge had been granted, the respondent’s power to vary the rate of interest had been fettered by the terms of the securitisation (that is, by successive administration agreements relating to the legal charge to which the respondent was a party), and the respondent had failed to disclose the existence of that fetter.
Held: The appeal was dismissed.
1. So long as the respondent remained the registered proprietor of the legal charge, it was a necessary party to any claim for possession because an essential incident of its legal ownership was the right to possession of the mortgaged property.
Moreover, it was not necessary to join the SPV (as beneficial owner of the legal charge) in the proceedings. No issue arose between the SPV and the respondent as to the exercise of the mortgagee’s rights under the legal charge, and the SPV had expressly authorised the respondent to exercise such rights on its behalf.
2. Although the power to vary interest rates was subject to an implied qualification that it would not be exercised improperly, capriciously, arbitrarily or unreasonably, a commercial lender was free to conduct its business in what it genuinely believed to be its best commercial interests, save as otherwise expressly agreed with its borrowers.
A lender might, for a genuine commercial reason, adopt a policy of raising interest rates to levels at which its borrowers might consider refinancing their loans at more favourable rates of interest offered elsewhere: Paragon Finance plc v Nash [2001] EWCA Civ 1466; [2002] 1 WLR 685 considered.
3. On the available evidence, there was no basis upon which to characterise the legal charge as an extortionate credit bargain within section 138 of the 1974 Act. A consideration of the rates charged by the respondent did not support the allegation that such rates were grossly exorbitant or that they otherwise grossly contravened ordinary principles of fair dealing: Broadwick Financial Services Ltd v Spencer [2002] EWCA Civ 35; [2002] 1 All ER (Comm) 446 considered.
Hugo Page QC and Donald Broatch (instructed by Simons) appeared for the appellants; Ali Malek QC and Ian Wilson (instructed by Wragge & Co, of Birmingham) appeared for the respondents.
Eileen O’Grady, barrister
