Mortgage – Buy to let – Variation of contract – Defendant mortgage company granting buy to let mortgage to claimant borrower – Claimant seeking declarations as to proper construction of contractual documents – Whether defendant having contractual right to vary interest rate payable and terminate mortgage on notice – Claim dismissed
The defendant mortgage company granted a buy to let mortgage to the claimant borrower, who represented other borrowers as well. The contractual documents included an offer letter and mortgage conditions. Box 4 of the offer provided for an initial period of fixed interest, after which, the rate of interest would revert to a variable rate, namely the Bank of England base rate with a premium of 1.99%. Clause 5 of the mortgage conditions provided that the lender could vary interest for a number of specified reason. Clause 14 of the mortgage conditions provided that the borrower might be obliged to repay the loan in full if, among other things, the lender gave the borrower one month’s notice requiring repayment. The claimant accepted the offer and mortgage conditions, and signed the mortgage deed. A dispute arose when the defendant informed the claimant (and other customers who had three or more buy to let properties and so were not regarded as consumers) that it had decided to increase the margin over base rate applicable to their mortgage by 2%. The defendant’s decision was made in the light of market conditions and in order to carry out its business prudently, efficiently and competitively.
The claimant challenged the defendant’s right to take that decision and brought proceedings in the High Court seeking declarations as to the proper construction of the contract. The claimant argued that the mortgage conditions provided for rates to vary, after the initial fixed period, in accordance with the Bank of England base rate, but not otherwise. Clause 5 purported to enable the defendant to vary the interest rate in other circumstances, but that was inconsistent with the offer. In the event of inconsistency, the mortgage conditions provided that the terms of the offer prevailed. Therefore the defendant was not entitled to increase the margin of 1.99% over base rate. The questions for the determination of the court were: (i) whether clause 5 of the mortgage conditions contradicted box 4 of the offer; and (ii) whether the right to give one month’s notice requiring payment of the loan in clause 14 was inconsistent with the statement in the offer that the term of the mortgage was 25 years.
Held: The claim was dismissed.
(1) It was necessary to consider all the contractual terms as a whole. In particular, it was necessary to consider whether the provisions in the offer dealing with interest and those in clause 5 of the mortgage conditions dealing with interest could sensibly be read together. It was well-recognised that one term might qualify another without contradicting it or being in conflict with it. The court’s task was not simply to examine one contractual provision and compare it with another. It had to read the provisions together and, if possible, give sensible effect to each of them. That could be done by regarding one as modifying or qualifying the other. The court’s task, when the parties chose to agree two different sets of terms dealing with the same subject-matter, was to see whether, notwithstanding the difference, they could be read together. In the present case, effect could sensibly be given to both clauses if clause 5 was regarded as qualifying box 4. Although box 4 specified the rate of interest payable, it was modified or qualified by clause 5, which permitted the lender to vary the specified rate in certain circumstances. There being no inconsistency between box 4 and clause 5, the agreement that the offer took precedence over the mortgage conditions did not come into play: Pagnan SpA v Tradax Ocean Transportation SA [1987] 2 Lloyd’s Rep 342 and RWE Npower Renewables Ltd v JN Bentley Ltd [2013] EWHC 978 (TCC); [2014] EWCA Civ 150 (CA) applied.
(2) On the true construction of the mortgage documents, the provisions of the offer could not be said to contradict the right of the defendant to require repayment of the loan on one month’s notice. A term of 25 years was a long time and it was unrealistic to suppose that, during that period, the lender had no right to terminate the mortgage. The court had concluded that a reasonable man would not have understood the offer to contradict the provision in clause 14 that the lender might, in the events there specified, require repayment of the mortgage before the expiry of 25 years. Rather, he would have understood that clause 14 complemented the offer and did not contradict it. Accordingly, the claimant was not entitled to the declarations sought.
Mark Smith (instructed by Direct Access) appeared for the claimant; Raymond Cox QC and Chloe Carpenter (instructed by Addleshaw Goddard) appeared for the defendant.
Eileen O’Grady, barrister
Click here to read transcript: Alexander v West Bromwich Mortgage Co
