Legal charge – Bankrupt mortgagor failing to make repayments – Appellant mortgagee wishing to enforce security for outstanding sums – Respondent trustee in bankruptcy claiming charge extinguished – Judge declaring respondent in adverse possession – Whether appellant time-barred – Appeal dismissed
In 1989, B and his wife took out a second legal mortgage on their property in favour of the appellant bank. From January 1992, the appellant began to contact B regarding outstanding mortgage payments. In June, the appellant informed B that, since he had failed to make the agreed repayments, it intended to enforce its security. A formal demand was made for payment of the amount due.
In 1993, B was adjudged bankrupt. In September 1999, B informed the appellant that he had “lost everything”, was unemployed and would provide all his details as requested. Following a letter from B’s solicitor in April 2001, and having received medical evidence of B’s illness, the appellant took no further action. In October 2004, the respondent was appointed as B’s trustee in bankruptcy. The appellant stated that it was continuing to rely upon the mortgage and would require full repayment. The respondent applied for a declaration that the appellant’s charge over the property had been extinguished. The deputy judge held that the appellant’s right to possession of the property was statute-barred by virtue of sections 15 and 17 of the Limitation Act 1980, and that its legal charge had been extinguished, since the mortgagors had been in adverse possession of the property for more than 12 years: see [2007] EWHC 494 (Ch); [2007] 2 EGLR 137.
The appellant appealed. It conceded that its contractual right of action to sue for payment of the mortgage debt was statute-barred. However, relying upon the judgment of the House of Lords in JA Pye (Oxford) Ltd v Graham [2002] UKHL 30; [2003] 1 AC 419, the appellant contended that it retained a right to possession of the property because the mortgagors’ continued possession since the date of the legal charge had been with its consent and permissive possession was not adverse possession as required by the 1980 Act for the extinction of title to land.
Held: The appeal was dismissed.
The deputy judge had been right to grant the declaration that the appellant’s legal charge had been extinguished and that the mortgagors were in adverse possession.
Adverse possession referred to the capacity of the person in possession of the land (giving possession its ordinary meaning) and not to the nature of that person’s possession. There had to be “ordinary possession” of the mortgaged land by a person in whose favour time could run: Pye applied.
In the present case, the appellant had a right of action and more than 12 years had passed since it accrued afresh. The mortgagors’ continued possession of the property with the apparent leave and licence of the appellant did not prevent them from being persons against whom the appellant’s right of action to recover the property arose on the granting of the legal charge, which right was treated as having accrued afresh when a payment in respect of it was made in 1993. Nor did it prevent the mortgagors from being persons in whose favour time could run under the 1980 Act. Therefore, according to the ruling in Pye, their possession was “adverse possession” within para 8 of Part 1 of Schedule 1 to the 1980 Act. The meaning given to adverse possession in that case was of general application to actions for the recovery of land.
Where a mortgagee had a right to possession from the date of the mortgage and the mortgagor failed to make any payment, the right to recover possession was barred 12 years from the date of the mortgage. The mortgagor was in adverse possession for the purposes of the 1980 Act because the land subject to the charge was in the possession of a person in whose favour the period of limitation could run and the mortgagor did not in any sense have to be a “trespasser” for those purposes.
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) appeared for the respondent.
Eileen O’Grady, barrister