Bank advancing loan secured by way of mortgage over property – Borrower failing to make repayments – Bank selling property – Shortfall remaining – Bank assigning debt to appellant – Appellant issuing statutory demand – Whether claim statute-barred – Whether benefit of covenants in mortgage deed assigned – Claim dismissed – Appeal dismissed
In 1987 NM Home Loans Ltd (the bank) agreed to lend £182,000 to the respondent on the security of an endowment-linked mortgage on a flat at 117 Warwick Avenue, London. The mortgage was dated 31 March 1988 and was executed as a deed under seal by the respondent. It recited an advance of £182,000 from the bank to the respondent for a term of 25 years, with variable amounts of monthly payments being provided for in the attached mortgage conditions. Under the conditions, the bank had the right, on written notice, to call in the entire outstanding amount of the advance plus interest in various circumstances. Condition 11(E) provided that: “If the lender shall realise the security created hereby and there shall be insufficient monies arising therefrom to pay the Total Debt [ie outstanding principal and interest] then such deficiency together with any unpaid interest (which shall be capitalised) shall be treated as a loan outstanding by the Borrower to the Lender and shall carry interest at the Interest Rate [as defined] until the payment thereof.”
Subsequently, the respondent was unable to meet his commitments under the mortgage. The bank obtained judgment for possession of the flat and sold it in December 1990. There remained a shortfall of £144,481.05 on the respondent’s mortgage account. In February 1998 the bank entered into an assignment with Rees Investments Ltd (Rees), whereby the bank assigned a portfolio of old debts, including that of the respondent, to Rees. Rees served a statutory demand, dated 2 June 1999, in the sum of £144,672.05. By an order of 28 October 1999, the appellant became entitled by assignment to all the relevant interests of Rees and was substituted in place of Rees.
The respondent applied for the demand to be set aside on the ground that it was statute-barred, since the appellant’s claim had arisen in December 1990, nine years ago. The respondent relied on the six-year limitation period under section 5 of the Limitation Act 1980, which applies to “an action founded upon a simple contract”. Alternatively, he relied on section 9(1) of the Act, which applies to “an action to recover any sum recoverable by virtue of any enactment”. The appellant contended that the longer 12-year limitation period applied by virtue of section 8(1) of the Act, which applies to “an action upon a speciality”.
The bankruptcy court held that it was arguable that the appellant’s case was founded upon simple contract, and therefore that the claim might be statute-barred under section 5 of the Act. It concluded that the limitation point was a complicated issue of law of general importance and, in reliance on r 6.5(4)(d) of the Insolvency Rules 1986, held that the statutory demand should be set aside. The appellant appealed.
Held: The appeal was dismissed.
1. Although it would not be appropriate for the bankruptcy court to decide a case that raised such difficult points of law that summary determination was not appropriate, there was no reason why it should not decide a pure point of law such as the issue of limitation that had arisen: Cale v Assuidoman KPS (Harrow) Ltd [1996] BPIR 245, considered.
2. The claim against the respondent arose under condition 11(E), which specifically addressed the situation where the mortgagee had realised the security and there was a shortfall. Condition 11(E) was contained in a deed under seal and a claim founded on that condition could be categorised as a claim on simple contract. Accordingly, section 5 of the Act did not apply. It was well established that an action to enforce a contractual right or obligation, arising under a contract under seal, was an action “upon a speciality”. Accordingly, the action was a claim upon a speciality and, by virtue of section 8(1) of the 1980 Act, the 12-year limitation period of applied and the claim was not statute-barred: Hopkinson v Tupper (unreported, 30 January 1997) distinguished.
3. Section 9(1) of the Act did not apply because it dealt with the wide variety of cases in which a statute created a right to be paid a sum of money. The sum claimed by the appellant against the respondent was not recoverable by virtue of an enactment but was recoverable, if at all, by virtue of condition 11(E) of the mortgage deed and the assignment. Although a potential bankruptcy petition could properly be described as an action, it could not be accepted that the money claimed by the appellant was recoverable by virtue of the Insolvency Act.
4. Rees’, and accordingly the appellant’s, claim to be entitled to the benefit of condition 11(E) against the respondent depended on the assignment of February 1998. However, on the documentary material it could not be concluded that the benefit of the covenants in the mortgage deed, including condition 11(E), had been assigned by the bank. Accordingly, the statutory demand was to be set aside.
Paul Key (instructed by Lindsey Oliver) appeared for the appellant; the respondent appeared in person.
Thomas Elliott, barrister
