Legal charge – Bankrupt mortgagor failing to make repayments – Defendant mortgagee wishing to enforce security for outstanding sums – Claimant trustee in bankruptcy claiming charge extinguished – Whether defendant time-barred – Whether letters giving rise to fresh accrual of defendant’s rights – Application allowed
In 1989, B and his wife took out a second legal mortgage on their property in favour of the defendant bank. From January 1992, the defendant began contacting B regarding outstanding mortgage payments. In June, the defendant 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. By a letter of September 1999, B informed the defendant 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 defendant took no further action. In October 2004, the claimant was appointed as B’s trustee in bankruptcy. The defendant stated that it was continuing to rely upon the mortgage and would require full repayment. The claimant applied for a declaration that the defendant’s charge over the property had been extinguished.
The claimant contended that the defendant’s right of action to recover the property had accrued more than 12 years earlier, either in January 1992, when the defendant had demanded repayment, or in June 1992, when it had made formal demand relying upon the mortgage. Accordingly, the right of action was statute-barred by virtue of section 15(1) of the Act and section 17 had extinguished the defendant’s charge.
The defendant argued that the date upon which the right of action had accrued was to be determined in accordance with para 8 of Part 1 of Schedule 1 to the Act, which provided that no right of action to recover land could be treated as accruing unless that land was in the possession of some person in whose favour the period of limitation could run (adverse possession). B and his wife had not been in adverse possession of the property because repayment had been demanded. They had occupied it with the defendant’s implied permission since no unequivocal demand for possession had been made. The defendant further submitted that B had, in any event, acknowledged the defendant’s title either by his letter of September 1999 or that of his solicitor in April 2001, such that the defendant’s right of action had freshly accrued on those dates pursuant to section 29(2) of the Act.
Held: The application was allowed.
In a case such as the present, time started to run for the purposes of section 15(1) of the Act on the date upon which the mortgagee became entitled to possession. It was not necessary in order for time to run that the mortgagor should be in possession without the mortgagee’s consent. The mortgagor was the owner of the land and was in possession of it both prior to and after executing the mortgage. The mortgagee’s right to possession did not arise because it had been dispossessed by the mortgagor; when the right arose, it was enforced by the mortgagee, which lawfully dispossessed the mortgagor: JA Pye (Oxford) Ltd v Graham [2002] UKHL 30; [2003] 1 AC 419 applied.
Furthermore, the letters relied upon by the defendant did not amount to an acknowledgement of the mortgage. The correct test to be applied when determining whether title had been acknowledged within section 29(2) was the same as under section 29(5): viewed as a whole, the relevant statement had to be an admission of the title of the person having the right of action.
The issue was one of construction of the word “acknowledges” in the same section of the same statute. It was unlikely that the word should have a different meaning in the different subsections and, in the present situation, it was difficult to discern any reason why it should mean something different: Surrendra Overseas Ltd v Sri Lanka (The Apj Akash) [1977] 1 WLR 565, National Westminster Bank v Powney [1991] Ch 339, Bank of Baroda v Mahomed [1998] EWCA Civ 1776 and Bradford & Bingley plc v Rashid [2006] UKHL 37; [2006] 1 WLR 2066 considered.
Peter Shaw (instructed by Moon Beever) appeared for the claimant; Michael Bowmer (instructed by Addleshaw Goddard LLP) appeared for the defendant.
Eileen O’Grady, barrister