Mortgage — Possession — Limitation Act 1980 — Mortgagor falling behind with repayments — Mortgagee making demand for repayment then taking no further action — Date when right of action for possession accruing — Whether action time-barred under section 15 such that charge extinguished under section 17 — Paragraph 8 of Part I of Schedule 1 — Applicability of para 8 to action for possession by mortgagee — Requirement of adverse possession — Whether mortgagee’s possession permissive
The appellant bank advanced sums to B secured by a second legal mortgage on a property owned by B and his wife. B fell behind with repayments. In 1992, the appellant issued a formal demand for payment. B was subsequently adjudged bankrupt. Correspondence ensued between the appellant and B, and further demands for payment were made in 2001. However, the appellant then took no further action to enforce its rights against B or the property. In 2004, the respondent was appointed as B’s trustee in bankruptcy.
In 2006, the appellant indicated that it was continuing to rely upon the mortgage and that it would require full repayment. The respondent applied for a declaration that the appellant’s charge had been extinguished by virtue of sections 15 and 17 of the Limitation Act 1980. He contended that the appellant’s right of action to recover the property was time-barred, having accrued more than 12 years previously, since which B and his wife had been in adverse possession. The appellant conceded that the right of action to sue B for the mortgage debt was statute-barred, but contended that its possession action was not. It submitted that the property was not in the adverse possession of a person in whose favour the limitation period could run, within the meaning of para 8 of Part I of Schedule I to the Act, since B and his wife had occupied with the appellant’s implied permission. In the court below, the deputy judge granted the declaration sought by the respondent. He held that a claim by a mortgagee for possession did not fall within the ambit of para 8 of Part I of Schedule 1, such that there was no requirement for adverse possession by the mortgagor in order for time to run. The appellant appealed.
Held: The appeal was dismissed. Paragraph 8 of Part I of Schedule 1 applies to all actions to recover land, including a mortgagee’s right of action for possession of the mortgaged land. The adverse possession required for para 8 purposes is ordinary possession of the land by a person in whose favour time can run; adverse possession refers to the capacity of the person in possession of the land and not to the nature of that person’s possession. The meaning given to “adverse possession” in JA Pye (Oxford) Ltd v Graham [2002] UKHL 30 is of general application to actions for the recovery of land. B and his wife had been in ordinary possession of the property for more than 12 years following the grant of the legal charge and after the last payment by B in respect of the mortgage debt, which had caused the appellant’s right of action to accrue afresh. Their possession had been exclusive. Prima facie, they had been in adverse possession of the property at all material times and there was no good reason why they should be treated otherwise. Their possession should not be regarded as permissive. Their continued possession after the grant of the legal charge was referable to their own registered legal title to the property and was not derived from the appellant. The appellant’s right of action and tolerance of their possession did not prevent them from being in ordinary possession of the property so as to satisfy the requirements of para 8. The appellant’s legal charge had therefore been extinguished by operation of sections 15 and 17 of the 1980 Act.
The following cases are referred to in this report.
Ashe v National Westminster Bank plc [2007] EWHC 494 (Ch); [2007] 2 P&CR 27; [2007] 2 EGLR 137
Common Luck Investments Ltd v Cheung Kam Chuen (1999) 2 HKCFAR 229; [1999] 2 HKLRD 417
Fairclough v Marshall (1878) 4 Ex D 37
Four-Maids Ltd v Dudley Marshall (Properties) Ltd [1957] Ch 317; [1957] 2 WLR 931; [1957] 2 All ER 35, Ch
Hall v Doe d Surtees (1825) 5 B&A 687
Keech v Hall (1778) 1 Doug KB 21
National Westminster Bank plc v Skelton [1993] 1 WLR 72; [1993] 1 All ER 242, CA
Pugh v Heath; Cadmore v Heath; sub nom Heath v Pugh (1881) LR 6 QBD 345, CA
Pye (JA) (Oxford) Ltd v Graham [2002] UKHL 30; [2003] 1 AC 419; [2002] 3 WLR 221; [2002] 3 All ER 865; [2003] 1 P&CR 10
Rhodes v Allied Dunbar (Pension Services) Ltd [1989] 1 WLR 800; [1989] 1 All ER 1161; [1989] 1 EGLR 78; [1989] 19 EG 70, CA
This was an appeal by the appellant, National Westminster Bank plc, from a decision of Mr Richard Arnold QC, sitting as a deputy judge of the Chancery Division, granting declaratory relief to the respondent trustee in bankruptcy, Robin Ashe, in respect of a mortgage executed by the bankrupt in favour of the appellant.
Justin Fenwick QC and Nicole Sandells (instructed by Addleshaw Goddard LLP, of Manchester) appeared for the appellant; Michael Driscoll QC and Peter Shaw (instructed by Moon Beaver) represented the respondent.
Giving judgment, Mummery LJ said:
Introductory
[1] The application of the Limitation Act 1980 (the 1980 Act) to a mortgagee’s right to possession of a mortgaged dwelling-house occupied by the mortgagors is the issue in this appeal.
[2] The main point in contention is whether the mortgagors, who were in exclusive possession of their mortgaged house for more than 12 years after the limitation period began to run, were in “adverse possession” of it for the purposes of the 1980 Act. Under the common form of “all monies” legal charge used in this case, the mortgagee bank (the bank) acquired an immediate right to possession of the mortgagors’ house on the execution of the charge more than 17 years before this action was brought. According to the mortgagors, the bank’s right of action accrued more than 12 years before the action was brought and has been extinguished under the 1980 Act.
[3] During the 12 years prior to this action, the mortgagors did nothing to cause time to run afresh: they neither made any payments to the bank in respect of the mortgage debt nor was there any acknowledgement of title.
[4] The decision under appeal was that the second legal charge in favour of the bank was statute-barred. The judge held that the mortgagors’ possession was adverse. Time had run in their favour and against the bank for more than 12 years.
[5] Some critics have predicted that the ruling, if correct, has important practical lessons for banks and other mortgagees. For a variety of reasons, lending institutions may prefer to delay the enforcement of their security rights against a mortgagor with a history of failed payment. If the delay continues for a long period and no proper steps have been taken to protect the legal interests of the lending institution, enforcement of the security rights may well become statute-barred.
Public interest points
[6] Before going to the facts of the case and the detail of the 1980 Act, I should comment on a number of public interest points made in support of the bank’s appeal.
[7] First, it was asserted that there may be a significant number of cases in which the title to a charge or mortgage will be extinguished if the decision under appeal is upheld. The title to the mortgage could be |page:124| extinguished even before the mortgagee has demanded payment of the mortgage debt.
[8] Second, it was submitted that banks and other lending institutions could be forced to issue possession proceedings, where they would not otherwise have done so, in order to protect their security rights from becoming statute-barred. It was even suggested that the ruling could lead to vulnerable mortgagors being made homeless when they could otherwise have gone on living in their own homes. This is an alarming but unlikely prospect. As explained below, modest measures are available to mortgagees for the protection of their security.
[9] Third, the public interest is in encouraging mortgagees to consent to mortgagors retaining possession of the mortgaged property. I agree. The ruling under appeal is not a valid reason for mortgagees refusing to allow their mortgagors to remain in possession of their homes.
[10] The above arguments, which were set out in the bank’s skeleton argument and developed by its counsel, Mr Justin Fenwick QC, at the hearing, are not really of much help to this court in interpreting technical legislation, consisting of lawyers’ law on mortgages, real property and limitation of actions, that has taken around 400 years to evolve.
[11] There are also contrary public interest arguments.
[12] First, the aim of the statutes of limitation is to prevent citizens from being oppressed by stale claims, to protect settled interests from being disturbed, to bring certainty and finality to disputes and so on. These are important aspects of the public interest.
[13] Second, if the bank is right and the mortgagors were not in adverse possession of their house, in some cases time would never begin to run against a mortgagee. That would be a surprising state of affairs.
[14] The court is grateful for being forewarned about the anticipated practical consequences of its decision, but the problems posed in the interpretation of the 1980 Act and its application to this case are largely technical in character.
[15] In my judgment, the practical solution to any limitation problems that the decision may present if it is upheld is almost certainly in the hands of the lending institutions potentially affected by it. They have access to expert legal advice. They are well able to take the necessary legal steps within the ample 12-year limitation period to put a stop to time running against their rights of action in respect of the mortgaged property and to prevent them from becoming statute-barred. Without having to issue possession proceedings, it ought to be possible to obtain part-payments of the mortgage debt (however small), if not written acknowledgements, from their defaulting mortgagors.
[16] The practical implications of the decision against the bank are in danger of being exaggerated.
[17] First, not all mortgagees acquire an immediate right to possession at the date of the mortgage. Many mortgages and charges contain provisions, which are absent from this case, limiting or qualifying the mortgagee’s right to possession. The right is often made dependent upon default in payment and the right of action would not then accrue before there was a default.
[18] Second, this is not simply a case of the passing of many years since the date of the legal charge. Unusually, many years passed without any payment having been made by the mortgagors. There was no part-payment of the mortgage debt between January 1993 and the commencement of this action in 2006. In many cases, there will be payments of at least some instalments or some other payments of arrears by the mortgagors. If there are, the part-payments will cause the mortgagee’s right of action to accrue afresh. The limitation period will run only from the date upon which the last payment was made by the mortgagor.
[19] In my judgment, the real public concern in this appeal, which I would agree is of considerable interest to mortgagees and mortgagors in general, is in this court determining the private property rights of the parties in accordance with law, as enacted in the 1980 Act, rather than by reference to the possible consequences of the decision and other public interest factors.
Background of appeal
[20] The appeal is from an order made on 13 March 2007 by Mr Richard Arnold QC (sitting as a deputy High Court judge): see [2007] EWHC 494 (Ch)*. He made a declaration that a second legal charge granted to the appellant bank (National Westminster Bank plc) (the bank) by Mr Djabar Babai and Mrs Zinat Babai, dated 8 June 1989 and registered on 23 August 1989, has been extinguished by operation of sections 15 and 17 of the 1980 Act. He ordered the register to be rectified by cancelling the registration of the bank’s charge and removing it from the charges register. He ordered the bank to pay the costs. He granted the bank permission to appeal.
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* Editor’s note: Reported at [2007] 2 EGLR 137
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[21] Mr and Mrs Babai granted the second legal charge over their registered long leasehold interest in 43 Valley Road, Heaton Mersey, Stockport, Cheshire (the property), to secure Mr Babai’s liabilities on his accounts with the bank. Halifax Building Society had a first mortgage on the property.
[22] Although the bank made formal demands for payment in 1992, it took no proceedings or other steps to enforce its right to possession or to obtain payment or otherwise to protect its legal position. There were negotiations between the parties concerning instalment payments. Some payments were made; the last payment to the bank by Mr Babai under the second legal charge was of £40 on 4 January 1993.
[23] Mr Babai was made bankrupt on 22 March 1993. By letter dated 8 January 1994, the bank reminded Mr Babai that he remained liable to it on his account, that it was secured by a legal mortgage over the property, that it would be to his advantage to repay the bank as soon as possible and that the bank would be prepared to accept payment by way of monthly instalments over a period of 10 years, failing which it would continue to await an eventual sale of the property to repay his liabilities.
[24] There was correspondence in 1999. Formal demands for payment were again made in 2001, followed by intermittent correspondence. No further payments have been made by Mr Babai. No sale of the property has taken place. No legal proceedings were issued by the bank to enforce its rights against the mortgagors or the property.
[25] The present proceedings were in fact brought by the respondent to this appeal, Mr Robin Ashe, on 14 September 2006. He is Mr Babai’s trustee in bankruptcy. He was appointed in October 2004. Mr Babai’s interest in the property is vested in him. It is the only asset of any value in Mr Babai’s estate. In his amended claim form, Mr Ashe sought a declaration that the bank’s legal charge on the property has been extinguished.
[26] It is common ground that although it is highly unlikely that Mr and Mrs Babai appreciated this any more than anyone else in their position would have done, the bank had, in law, the immediate right to take possession of the property, if it chose to do so, as soon as the “all monies” legal charge was executed on 8 June 1989. The bank’s right to enter into possession did not depend upon the terms of this particular mortgage, on any default on the part of Mr and Mrs Babai: see National Westminster Bank plc v Skelton [1993] 1 WLR 72, at pp77 and 81H, per Slade LJ.
[27] The bank’s right to immediate possession is enjoyed by virtue of the statutory equivalent of a legal term of years (less one day) conferred on the bank by the legal charge and stems from long-established principles of English real property law applicable to the form of legal charge used in this case. The terms of the bank’s “all monies” charge did not expressly restrict the right of the bank to take immediate possession of the property as legal mortgagee: see, for example, Four-Maids Ltd v Dudley Marshall (Properties) Ltd [1957] Ch 317, at p320. Skelton also states that the court will not readily imply a term into a legal mortgage restricting the right of the bank, as legal mortgagee, to take possession of the property.
[28] Before the judge, it was contended that the bank’s right of action to recover the property accrued when demands for payment were made |page:125| in 1992, but it was accepted on the appeal that the charge was in a form that did not restrict the right of the bank to immediate possession. On the facts of this case, the outcome is the same whether time runs from the date of the charge, from the date of the demand or from the date of the last payment by Mr Babai under the charge.
[29] In brief, Mr Ashe’s case on the appeal was that: (i) the bank’s right of action (that is, its immediate right to enter into possession of the property by virtue of the legal charge) initially accrued when the legal charge was granted on 8 June 1989; (ii) a fresh right of action to recover the property accrued to the bank in January 1993 when Mr Babai made a payment of £40 to the bank in respect of the mortgage debt; and (iii) since more than 12 years of the mortgagors’ adverse possession of the property had passed from that date, the bank’s right to possession of the property was statute-barred under sections 15 and 17 of the 1980 Act and its legal charge was extinguished.
[30] The bank conceded that its contractual right of action to sue Mr Babai for payment of the mortgage debt was statute-barred, but contended that its right to possession of the property and to bring an action for possession against Mr and Mrs Babai was not statute-barred because Mr and Mrs Babai’s possession of the property since the grant of the legal charge was not “adverse possession” as required by the 1980 Act. The bank’s right of action was not therefore treated as accruing.
[31] Indeed, far from Mr and Mrs Babai being in “adverse” possession of the property, the bank insisted that their continued possession of the property since the date of the legal charge has been with the consent of the bank. It was submitted to this court that: (i) the bank’s consent to possession meant that the property was not and still is not in the adverse possession of persons in whose favour the period of limitation could start to run under the 1980 Act; (ii) permissive possession is not the “adverse” possession required by the 1980 Act for the extinction of title to land; and (iii) the bank’s right of action against Mr and Mrs Babai is not treated as accruing while their permissive possession continues.
[32] The bank says that it has not revoked or terminated its consent, either by demanding that the property be vacated by Mr and Mrs Babai or by commencing possession proceedings against them. The long passage of time since the grant of the legal charge, and since the last payment in respect of the mortgage debt secured by it, is said to be irrelevant and cannot be relied upon by the respondent for his contention that the bank’s right of action is statute-barred and its legal charge extinguished.
[33] These submissions require closer examination in the light of the provisions of the 1980 Act and, in particular, the scope of the key concept of adverse possession. It will also be necessary to consider some authorities on the application of the Limitation Acts to the rights and remedies of mortgagees.
1980 Act
[34] At different points in this judgment, the relevant provisions of the 1980 Act will be discussed. It is convenient to quote all the relevant provisions in one place. The history of the successive statutes of limitation — the Statute of James (the 1623 Act), the Real Property Limitation Act 1833 (the 1833 Act) and the Limitation Act 1939 (the 1939 Act) — is also relevant to the bank’s submissions.
[35] Section 15 of the 1980 Act sets the 12-year time limit for actions to recover land:
15.(1) No action shall be brought by any person to recover any land after the expiration of twelve years from the date on which the right of action accrued to him or, if it first accrued to some person through whom he claims, to that person.
…
(6) Part I of Schedule 1 to this Act contains provisions for determining the date of accrual of rights of action to recover land in the cases there mentioned.
[36] A “right of action to recover any land” includes “a right to enter into possession of the land”: see section 38(7) of the 1980 Act.
[37] Schedule 1 contains provisions with respect to actions to recover land. Part I governs the accrual of rights of action to recover land. The provisions in para 1 of Schedule 1, relating to dispossession and discontinuance of possession and when a right of action to recover land is treated as accruing, put the provisions in the schedule into context.
1. Where the person bringing an action to recover land, or some person through whom he claims, has been in possession of the land, and has while entitled to the land been dispossessed or discontinued his possession, the right of action shall be treated as having accrued on the date of the dispossession or discontinuance.
[38] This paragraph does not apply to this case, since the bank has neither been dispossessed of the property nor has it discontinued possession of it. It does not allege that Mr and Mrs Babai are in wrongful possession of the property as squatters or trespassers.
[39] Although not immediately obvious on a first reading of it, para 3 of Schedule 1 is more in point:
3. Where any person brings an action to recover land, being an estate or interest in possession assured otherwise than by will to him, or to some person through whom he claims, and —
(a) the person making the assurance was on the date when the assurance took effect in possession of the land…; and
(b) no person has been in possession of the land by virtue of the assurance;
the right of action shall be treated as having accrued on the date when the assurance took effect.
[40] Although the words “mortgage” and “charge” do not feature in para 3, the legislative language fits the legal charge in this case: the bank claims to be entitled to bring an action to recover the property from Mr and Mrs Babai; an estate or interest in possession was assured to the bank by the second legal charge of the property to it; at the date of the second legal charge, the persons making it, Mr and Mrs Babai, were in possession of the property; and the bank has not been in possession of the property by virtue of the legal charge. The bank’s right of action is therefore treated as having first accrued when the assurance (the second legal charge) took effect on 8 June 1989.
[41] Paragraph 8(1) of Part I of Schedule 1 is critical to the arguments on the requirement of adverse possession of land. It provides that:
No right of action to recover land shall be treated as accruing unless the land is in the possession of some person in whose favour the period of limitation can run (referred to below in this paragraph as “adverse possession”); and where under the preceding provisions of this Schedule any such right of action is treated as accruing on a certain date and no person is in adverse possession on that date, the right of action shall not be treated as accruing unless and until adverse possession is taken of the land.
[42] Section 17 provides for the extinction of title to land after the expiry of the time limit:
Subject to —
(a) section 18 of this Act…
(b)… at the expiration of the period prescribed by this Act for any person to bring an action to recover land (including a redemption action) the title of that person to the land shall be extinguished.
[43] Section 29 contains provisions for a fresh accrual of action on part-payment in cases in which, for example, a right to recover the debt has accrued. On the making of a payment in respect of the debt by the person liable, the right of action is treated as having accrued on and not before the date of the payment: see section 29(5).
[44] In the case of an action by a mortgagee, if the person in possession of the mortgaged land in question makes any payment in respect of the mortgage debt (whether of principal or interest), the right shall be treated as having accrued on and not before the date of the payment: see section 29(3). In this case, a fresh right of action accrued to the bank on 4 January 1993.
[45] If the person in possession of the land acknowledges the title of the person to whom the right of action to recover land has accrued, the right shall be treated as having accrued on and not before the date of the acknowledgement: see section 29(2). To be effective, the acknowledgement must be in writing and signed by the person making it: see section 30(1). A point on acknowledgement unsuccessfully taken by the bank in the court below was not pursued on the appeal. |page:126|
[46] I turn next to the reserved judgment, which contains a clear statement of the uncontroversial facts and a comprehensive review of the relevant statute and case law and the views of the text writers and explains why the deputy judge found against the bank.
Judgment
[47] The deputy judge summarised, in [35], the bank’s key contentions: the date upon which its right of action accrued was to be determined in accordance with para 8 of Part I of Schedule 1 to the 1980 Act; under that paragraph, time does not run unless the occupier of the land is in “adverse possession” of it; and Mr and Mrs Babai had not been in “adverse” possession of the property because they occupied it with the implied permission of the bank.
[48] The judge did not find the bank’s arguments persuasive on a number of grounds.
[49] First, he accepted a counter-argument of Mr Babai’s trustee in bankruptcy that para 8 of Part I of Schedule 1 did not apply to a claim to possession by a mortgagee. There was no requirement of “adverse possession” in the case of a right of action by a mortgagee for the recovery of land.
[50] On this point, the deputy judge referred to the speech of Lord Browne-Wilkinson in the leading case of JA Pye (Oxford) Ltd v Graham [2002] UKHL 30; [2003] 1 AC 419, in [32], [35] to [37], [40] and [44] to [45], for his ruling on the meaning of “adverse possession” in the 1980 Act.
[51] Lord Browne-Wilkinson explained how, in the context of a claim to squatter’s title, the old notion of “non-adverse possession” had been removed from the law of limitations applicable to land by the 1833 Act and was not reintroduced by the references to adverse possession in the 1939 and 1980 Acts. He emphasised that the only question after the 1833 Act was whether the squatter had been in possession in the ordinary sense of that word for the requisite period without the consent of the owner. The requirement that the land is in the possession of a person in whose favour time can run is not directed to the nature of the possession, but to the capacity of the squatter or other person in possession of the land.
[52] The deputy judge said:
41. In the light of this exposition of the law, I have considerable difficulty in seeing how there could be a requirement for adverse possession by a mortgagor in order for time to run in his favour under section 15 if by “adverse possession” is meant possession without the consent of the mortgagee. The mortgagor is the owner of the land and is in possession of it both prior to and after executing the mortgage. True it is that the mortgagee has a legal interest in the land which entitled the mortgagee to possession in certain circumstances, but the mortgagee’s right to possession does not arise because he has been dispossessed by the mortgagor. On the contrary, when the right arises and is enforced it is the mortgagee that (lawfully) dispossesses the mortgagor.
[53] The deputy judge went on to conclude, in [42] and [43], that a claim by a mortgagee does not fall within para 8 of Part I of Schedule 1. It was not, he said, a freestanding provision, as contended for by the bank. It should be read as a provision that qualified the preceding paragraphs of Schedule 1 and, in particular, para 1. A claim by a mortgagee did not fall within para 8.
[54] In his excellent submissions on behalf of Mr Ashe, Mr Michael Driscoll QC, who did not appear below, told the court that he did not seek to support this part of the judgment. He rightly accepted that it is a requirement of the 1980 Act that, for time to run against the mortgagee, the mortgagor must be in adverse possession of the mortgaged land.
[55] In my judgment, para 8 of Part I of Schedule 1 applies to all actions to recover land. It provides that no such right of action “shall be treated as accruing”, unless there is a person in “adverse possession” of it. “Adverse possession” is used in the sense of ordinary possession by a person in whose favour the period of limitation can run.
[56] I do not agree with the deputy judge that para 8 has a particular link with para 1 of Schedule 1, which was at the core of the decision in Pye and covers cases of “the dispossession or discontinuance of possession of land”. The language of para 8 is wide enough to apply also to cases falling within para 3, which was not relied upon by the respondent before the deputy judge. As explained in [40] above, although para 3 does not include the word “mortgage” or “charge”, its language embraces a claim for possession by the bank as legal mortgagee against Mr and Mrs Babai, as mortgagors in possession of the property.
[57] The deputy judge helpfully went on to state his conclusion if, contrary to his view, a claim by a mortgagee to recover land falls within para 8. He said:
44. Even if, contrary to the view that I have just expressed, a claim by a mortgagee does fall within para 8, I consider that a mortgagor is a person in whose favour time can run so far as his capacity is concerned, and, in that sense, is in “adverse possession” as that expression is defined in para 8(1). I see no reason in principle why time should not run from the date upon which the mortgagee is entitled to possession, whether the mortgagee unequivocally demands possession on that date or forbears from doing so while attempting to persuade the mortgagor to pay up.
[58] The deputy judge did not, in this paragraph, expressly discuss the bank’s contention that Mr and Mrs Babai were not in “adverse possession” of the property because their possession was with the implied permission of the bank. I think that it is clear, however, from reading the judgment as a whole, that he was rejecting this submission of the bank, which he had summarised in [35] of his judgment: see [47] above.
[59] The deputy judge reviewed the secondary legal materials and concluded that none of them supported the existence of a requirement of adverse possession by the mortgagor: see [51]. He considered the primary authorities in detail and concluded that there was no hint in any of them of any requirement of adverse possession on the part of the mortgagor, in the sense of possession without the mortgagor’s consent. The general tenor of them was to the opposite effect. He observed that there was no suggestion in the authorities that the 1939 Act, which is relied upon by the bank in this appeal, made any difference to the law that had been established before then.
[60] His overall conclusion on possession by Mr and Mrs Babai and the consent of the bank was:
69. I conclude that, in a case such as the present, time starts to run for the purposes of section 15(1) on the date on which the mortgagee becomes entitled to possession, and that it is not necessary in order for time to run that the mortgagor be in possession without the consent of the mortgagee. Accordingly, the defendant’s [the bank] first ground of opposition to the claim fails.
[61] The second ground on which the bank resisted Mr Ashe’s case was acknowledgement of title by Mr Babai. The deputy judge rejected this ground, which was not pursued on the appeal.
Bank’s submissions
[62] As indicated above, the bank’s principal point on this appeal was that Mr and Mrs Babai’s possession of the property must have been with the express or implied consent of the bank. The argument that this was not “adverse possession” and that the bank’s right of action was not treated as accruing has been the main theme of lively submissions made by Mr Fenwick on the bank’s behalf. (As with Mr Driscoll, he did not appear in the court below.)
[63] Mr Fenwick highlighted the requirement of “adverse possession” before the bank’s right of action to recover land is treated as accruing and time can begin to run against the bank under the 1980 Act. He developed in detail his contention that possession of the property by Mr and Mrs Babai did not satisfy this requirement. His materials included helpful general discussions of the law in Jourdan on Adverse Possession (2003), at pp498-500, in paras 26-24 to 26-29, and in a number of other well-known textbooks.
[64] On the facts of this case, Mr Fenwick said that the bank had granted consent to Mr and Mrs Babai to remain in possession of the property. The bank has not withdrawn or terminated its consent. Far from the bank’s right of action to recover the property having become statute-barred, it could not be treated as accruing during the period of |page:127| the mortgagors’ permissive possession and time has not even started to run against the bank.
[65] Mr Fenwick traced the history of the statutes of limitation, as they applied to actions for the recovery of land, from the 1623 Act onwards. He cited many authorities on their interpretation. It was, he submitted, a clear requirement of the 1980 Act, as it had been under section 10 of the 1939 Act, that for time to run against a mortgagee so as to bar his right to recover the mortgaged land the mortgagor must be in “adverse possession” of the land in the sense that the mortgagor was in possession “as of wrong” and without any right or consent. A mortgagor in possession of the mortgaged land was to be treated as being in possession with the consent of the mortgagee, unless the mortgagee had terminated the consent and there was then evidence to show that the mortgagor was a trespasser on the mortgaged land: see, for example, Pugh v Heath (1881) LR 6 QBD 345, at pp359-360, per Lord Selbourne LC.
[66] Absent evidence of the withdrawal or termination of consent, time could not run against a mortgagee so as to bar its right to recover the mortgaged land. Consent to possession, whether explicit or implied, by the mortgagee must be treated as continuing unless and until the mortgagee demanded that the mortgagor vacate the mortgaged property and/or the mortgagee commenced possession proceedings. A mere demand that the mortgagor should comply with his obligations under the mortgage, even if coupled with a statement that the mortgagee will enforce its rights in default of compliance, was insufficient to amount to revocation of permission. There must be a clearly evidenced intention to withdraw consent for the mortgagor to remain in the mortgaged property beyond a mere request that the mortgagor comply with his obligations under the mortgage.
[67] Mr Fenwick cited many authorities in his skeleton argument. The pre-1833 cases of Keech v Hall (1778) 1 Doug KB 21 and Hall v Doe d Surtees (1825) 5 B&A 687 showed that there was a clear requirement before 1833 that for time to run against a mortgagee and bar its right to recovery of the mortgaged land, the mortgagor must be in adverse possession of the land in the sense that he was in possession without any right and without the consent, express or implied, of his mortgagee. Before 1833, the mortgagor was treated as being in possession of the mortgaged land as of right and with the consent of his mortgagee, unless the consent was terminated or withdrawn and the mortgagor was treated as a trespasser.
[68] He accepted that section 3 of the 1833 Act changed the position by removing the doctrine of “non-adverse possession”. Under section 3 of the 1833 Act, regardless of the issue of adverse possession, the right to recover the mortgaged land accrued and time began to run against the mortgagee either on the date upon which the mortgage was created or when the mortgagee became entitled to possession of the mortgaged land by reason of any forfeiture or breach of condition.
[69] Mr Fenwick submitted that section 10 of the 1939 Act reintroduced the concept of “adverse possession” and that this was re-enacted in the 1980 Act. The result was that the pre-1833 position was restored. This meant that there must be someone in possession of the land in whose favour the limitation period could run and, until there was, the right of action was not deemed to accrue. Section 10 of the 1939 Act applied to all actions for the recovery of land, including actions by a mortgagee.
[70] Mr Fenwick cited Pye (in [36] and [37]), as the leading post-1980 case on dispossession of an owner of land, for the proposition that “adverse possession” as used in the 1939 and 1980 Acts means possession as of wrong, or without right and/or without the consent of the true owner or the person entitled to possession.
[71] It was therefore submitted that the position under the 1980 Act is that time does not start to run against a mortgagee unless and until the mortgagor’s right to possession had terminated and/or the mortgagor was in possession without the consent of the mortgagee after the express or implied consent of the mortgagee has been revoked, as when the mortgagee demands that the mortgagor vacates the mortgaged property or commences possession proceedings.
[72] Mr Fenwick also submitted that, on the facts of this case, the bank had expressly given Mr and Mrs Babai permission to be in possession of the property. He referred to the correspondence that had passed between them.
Discussion and conclusion on adverse possession point
[73] Certain points in this case are clear.
(1) It is common ground that the bank acquired an immediate right to possession of the property on the granting of the legal charge on 8 June 1989. That was a right of action that could become statute-barred under the 1980 Act. For time to start running against the bank, however, its right of action was treated as accruing only if the requirement of adverse possession of the property by Mr and Mrs Babai were satisfied.
(2) Mr Fenwick correctly submitted that, in holding that the requirement of adverse possession does not apply to mortgaged land that the mortgagee seeks to recover by action, the deputy judge was wrong. For reasons already given, the requirement in para 8 of Part I of Schedule 1 to the 1980 Act is applicable to a mortgagee’s right of action for possession of the mortgaged land. The cases cited by the deputy judge in his judgment (in [52] and following) did not establish that adverse possession was unnecessary in the case of mortgaged land.
(3) The requirement of adverse possession must be applied in accordance with the exposition of it by the House of Lords in Pye and not that of the courts in the pre-1833 cases cited by Mr Fenwick. Adverse possession refers to the capacity of the person in possession of the land and not to the nature of that person’s possession. Possession is to be given its ordinary meaning. There must be “ordinary possession” of the mortgaged land by a person in whose favour time can run. As explained in Pye, the references to adverse possession in the 1939 and 1980 Acts did not reintroduce “by the back door” or “by a side wind after over 100 years the old notions of adverse possession in force before 1833”: see [35] of the speech of Lord Browne-Wilkinson.
(4) Mr and Mrs Babai were in ordinary possession of the property in the period following the legal charge and after the last payment by Mr Babai in respect of the mortgage debt, which caused the bank’s right of action to accrue afresh. It was exclusive possession. If they were not in possession of the property, no one else was. The bank had a right to possession of the property, but it was not in possession of the property.
[74] Mr and Mrs Babai were thus prima facie in adverse possession of the property at all material times, being persons in whose favour time could run under the 1980 Act, and the bank’s right of action was treated as accruing. The crucial issue is whether any good reason has been shown for treating Mr and Mrs Babai other than as persons in ordinary possession of the property and persons in whose favour time can run under the 1980 Act.
[75] Mr and Mrs Babai owned a long lease of the property. It was (and is) their home. As registered owners of the long lease, they have been in possession of the property since they bought it. It is true that the property was subject to two mortgages granted by them, but the granting of the mortgages did not divest them of their possession of the property. As is normally the case with mortgages of a home, the mortgagors were in possession of it and remained so, even after the mortgages conferred legal rights in the property on the mortgagees, including a right to possession.
[76] The crunch question is whether, in the circumstances of the case, Mr and Mrs Babai’s possession of the property was “adverse possession” under the 1980 Act. Mr Fenwick stressed the lawful and permissive quality of their possession and the fact that Mr and Mrs Babai were not trespassers.
[77] As to possession of property with permission, it is worth making a preliminary and obvious point that the circumstances of the mortgagee’s right of action against the mortgagor are, of course, quite different from the circumstances in a case such as Pye, where the contest is between the paper title owner of land and a person in possession of the land claiming squatter’s title against the owner. The paper title owner has no right of action for the recovery of the land from a person who has permission to be in possession of his land. This |page:128| explains the references in Pye to possession of the land with the consent of the paper title owner not constituting dispossession or possession by the squatter for the purposes of the 1980 Act: see [29], [36] and [37] of the speech of Lord Browne-Wilkinson.
[78] In the case of a squatter, unless and until the permission for a person to be on the land has expired or been revoked or otherwise terminated, there is no accrued right of action in the owner. No question of it becoming statute-barred can arise. Time cannot start to run against the paper title owner until his right of action has accrued. If he has no right of action to recover the land against a person who is in possession of the land with consent, the additional requirement of adverse possession under para 8 of Schedule 1 is not even reached.
[79] In this case, the bank had an immediate right of action to possession of the property as soon as the legal charge was executed. Its initial right of action to possession of the property was not dependent upon the termination of a permission granted by the bank for Mr and Mrs Babai to be in possession of the property.
[80] Mr and Mrs Babai’s continuance in possession of the property after the grant of the legal charge and after the last part-payment was made was, Mr Fenwick insisted, with the permission or consent of the bank. It could not therefore be adverse possession and the bank’s right of action is treated under para 8 as not accruing.
[81] In my judgment, this argument is wrong for several reasons. The following points of fact and law can be made.
[82] First, as a matter of fact, there was no evidence that Mr and Mrs Babai applied for, or were positively given, express permission by the bank to remain in possession of the property after the legal charge or after the last payment in respect of the mortgage debt.
[83] Second, as for the implied/implicit permission of the bank to Mr and Mrs Babai’s possession of the property, it is certainly true that the bank has never enforced its immediate right to possession against them. However, it does not necessarily follow from the bank’s non-enforcement of its right to possession, or its lack of objection to or tolerance of Mr and Mrs Babai’s possession, that the bank was impliedly granting them permission to remain in possession of the property so as to prevent them from being in adverse possession within para 8 of Schedule 1. The bank was simply not doing anything to enforce its right of action. I do not agree with Mr Fenwick’s reading of the correspondence between the parties that it can be inferred from the bank’s proposals or from its forbearance from enforcing its security by possession proceedings, or from Mr and Mrs Babai’s financial and personal circumstances, or from other circumstances, that permission was given by the bank for Mr and Mrs Babai to remain in possession. Nor is it necessary to imply any permission to explain the continued possession of Mr and Mrs Babai. This leads to the next point.
[84] There is, third, the question of whether Mr and Mrs Babai in fact needed to be given or to have the permission of the bank in order to be in possession of the property. Their possession of the property was referable to their own registered legal title to the property. It was not derived from the bank’s title to the property. If an officious bystander were asked to explain Mr and Mrs Babai’s possession of the property, the answer would be that it was their property, not that the bank had given them permission to live in their own property.
[85] The true nature of the transaction was that the legal charge was given as security for moneys owed to the bank and that they were to remain in possession of the property, which was, in substance, theirs: see Heath, at p359 and Fairclough v Marshall (1878) 4 Ex D 37, at p48. It is true that in some of the cases there are references to a mortgagee permitting the mortgagor to remain in possession and to the mortgagor remaining in possession “only by leave and licence of the mortgagee”: see, for example, Rhodes v Allied Dunbar (Pension Services) Ltd [1989] 1 WLR 800*, at p807D-E, per Nicholls LJ in the context of the mortgagor’s right to receive and retain the income of the mortgaged property without any liability to account.
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* Editor’s note: Also reported at [1989] 1 EGLR 78; [1989] 19 EG 70
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[86] In my judgment, however, the continued possession of the property by Mr and Mrs Babai after they had mortgaged it was referable to their property interest in it. This was not objected to by the bank. It must have been tacitly accepted by the bank in the context of the charge, but the bank’s right of action and its tolerance of their possession did not prevent them from being in ordinary possession of the property, which satisfied the requirements of para 8. The nature of this possession did not therefore prevent time running against the bank once its cause of action had accrued, or had accrued afresh by reason of a part-payment.
[87] In summary, the bank had a right of action. More than 12 years passed since it accrued afresh. Mr and Mrs Babai’s continued possession of the property with the apparent leave and licence of the bank did not prevent them from being persons against whom the bank’s right of action to recover the property arose on the granting of the legal charge, which right is treated as having accrued afresh when a payment in respect of it was made. Nor did it prevent Mr and Mrs Babai from being persons in whose favour time can run under the 1980 Act. According to the ruling in Pye, their possession was “adverse possession” within para 8.
[88] The question of a mortgagee’s right to possession of the mortgaged land vis-à-vis the mortgagor and the effect of the 1980 Act did not arise for consideration in Pye, but the meaning given to “adverse possession” in Pye is of general application to actions for the recovery of land, even though it may come as an unpleasant surprise to the bank and other mortgagees that their mortgagors are in adverse possession of the mortgaged property.
[89] I add that it was the view of the Law Commission in its report Land Registration Bill and Commentary (No 271, 2001) that led to the Land Registration Act 2002, in para 14.13, footnote 47, that, where the mortgagee has a right to possession from the date of the mortgage and the mortgagor fails to make any payment, the right to recover possession is barred 12 years from the date of the mortgage. In the footnote to the discussion of mortgagors in possession, in para 14.12 and 14.13, it is stated that the mortgagor is in adverse possession for the purposes of the 1980 Act “because the land subject to the charge is in the possession of some person in whose favour the period of limitation can run and the mortgagor does not in any sense have to be a ‘trespasser’ for these purposes”. I respectfully agree.
[90] For the above reasons, I conclude that the deputy judge was right to grant the declaration that the bank’s legal charge was extinguished by reason of the operation of sections 15 and 17 of the 1980 Act.
Other submissions of the bank: Discussion and conclusion
[91] Although this is sufficient to dispose of the appeal, several other points were made upon which I wish to comment.
[92] First, although Mr Fenwick cited many cases in his skeleton argument and the judge discussed many authorities in his judgment, I have not thought it necessary to mention most of them in this judgment. This is not out of disrespect for precedent or for the judge or out of lack of gratitude for the researches of counsel. The simple reason is that, in Pye, the House of Lords has made it perfectly plain how the concept of adverse possession in the 1980 Act should be interpreted and applied in general, not just in cases of dispossession of the paper title owner by a person setting up a case of squatter’s title. The focus is not upon the nature of the possession but upon the capacity of the person in possession. Ordinary possession of land is adverse possession so far as the person out of possession and the 1980 Act is concerned. Mr and Mrs Babai were in possession of the property. The bank was not in possession of the property, nor was anyone else. The cases from the 18th, 19th and 20th centuries will not help to make the present legal position any plainer than it was made by the House of Lords in Pye.
[93] Second, there are, however, two authorities upon which I should comment.
Common Luck case
[94] The bank cited the decision of the Court of Final Appeal of Hong Kong in Common Luck Investments Ltd v Cheung Kam Chuen (1999) 2 HKCFAR 229; [1999] 2 HKLRD 417 on the construction |page:129| of equivalent provisions in the Limitation Ordinance cap 347, which contained provisions on adverse possession equivalent to those in the 1939 and 1980 Acts.
[95] In that case, it was held that the mortgagor, who had defaulted in repayment, thus giving the mortgagee the right to enter into and take possession of the mortgaged property, continued in rightful possession of the mortgaged land with the implied licence (or “tacit agreement”) of the mortgagee. Contrary to the rulings in the courts below, the Court of Final Appeal held that the mortgagor was not in adverse possession vis-à-vis the mortgagee when he defaulted in payment and time did not run against the mortgagee. Default in repayment had not turned the mortgagor into a trespasser or a squatter in his own property.
[96] The deputy judge mentioned the case, saying that counsel for the bank did not feel able to rely upon it: see [69] of the judgment. Mr Driscoll submitted that the decision in Common Luck, which is not binding on this court, was wrong in several respects, a view shared by the Law Commission in its report no 271, in para 14.12, footnote 46, and para 14.13, footnote 51. In particular, the judgments in the Court of Final Appeal did not have the benefit of the exposition of the law on adverse possession in Pye, under which the important point would be not whether the mortgagor is a trespasser but whether the land subject to the mortgage is in the possession of a person in whose favour the period of limitation can run.
Cotterell v Price
[97] This decision of Buckley J reported at [1960] 1 WLR 1097 and a passage in his judgment at p1102 has been treated by some as authority for the proposition that once the mortgagee’s right to recover the principal sum is statute-barred, it loses its status as a mortgagee and: “He can no longer sue for possession or for foreclosure, nor can he redeem a prior mortgage.” See Cheshire & Burn’s Modern Law of Real Property (17th ed), at p764. I can see the force of this if there is no longer any enforceable debt to be secured.
[98] Mr Driscoll did not rely upon Cotterell to support a submission that the bank’s right to possession was statute-barred in consequence of its concession that its right to sue for the mortgage debt was statute-barred. As he pointed out, it was conceded by counsel in that case that the mortgagee’s remedies by action against the mortgagor under the mortgage were statute-barred: see p1100. Basing himself upon that concession, Buckley J concluded that the mortgagee could no longer sue for possession because his estate had come to an end and he lost his status as a mortgagee. In view of the concession, there was no need for the judge to address the points arising under the Limitation Act. I do not think that Cotterell is authority for the proposition that the right to possession is statute-barred mere because the right to recover the principal debt is statute-barred.
Result
[99] I would dismiss the appeal.
Hughes LJ said:
[100] I agree.
David Richards J said:
[101] I also agree.
Appeal dismissed.