Charging order – Interest – Mortgage – Appellant defaulting on mortgage – Respondent lender obtaining possession of mortgaged property and judgment for outstanding loan sum – Property sold – Respondent obtaining charging order for outstanding sums – Appellant applying unsuccessfully to discharge order – Whether interest at contractual rate continuing to accrue after date of judgment – Whether charging order made on erroneous assumption that interest continuing to accrue at contractual rate after sale – Appeal allowed in part
In 2008, the appellant took out a mortgage loan of £180,000 with the respondent lender in order to finance the purchase of a property in Bromley, Kent. The loan was secured by a charge over the property. The loan agreement contained a covenant by the appellant to discharge “all liabilities” to the lender “together with interest… at such rate and computed and compounded in the manner set out in the facility letter”.
The appellant defaulted on the loan. In 2009, the respondent brought a successful claim for possession of the property and for the sum of £207,025 then outstanding on the mortgage. The property was eventually sold in 2010 for £240,000, which left about £57,774 outstanding under the loan agreement if the contractual rate of interest was applied.
In April 2011, the respondent applied for a charging order over another of the appellant’s properties, in West Wickham, Kent, to secure payment of the sum owing under the earlier judgment. A charging order was granted for a little over £77,044, that being the sum, including ongoing interest, which was said to be outstanding at that time.
In 2014, the appellant applied to discharge the charging order pursuant to section 3(5) of the Charging Orders Act 1979. He contended that interest at the contractual rate had ceased to accrue after the date of the judgment, since the loan agreement did not provide for interest to continue after any judgment and the covenant for repayment had merged with the judgment. That argument was rejected by the county court and the appellant appealed.
On the appeal, the appellant further contended that, even if he failed in his main contention, the charging order was in too high a sum since it assumed that interest at the contractual rate had continued to accrue after the sale of the property, which was incorrect since the charge ceased to exist on sale and the judgment did not provide for contractual interest to be paid on the outstanding sum.
Held: The appeal was allowed in part.
(1) The respondent was entitled to claim and receive contractual interest up to the point of sale of the Bromley property over which it held its charge. Until the sale of that property, the respondent was exercising its rights under the charge, so far as it made express provision for the payment of “all liabilities” together with “interest … computed and compounded in the manner set out in the facility letter”. In those circumstances, there was no merger of the covenant with the judgment because of the wording of the loan agreement and the charge, and because of the relevant circumstances showing that the respondent was holding the charge as security until the sale of the Bromley property. It followed that the respondent was entitled to contractual interest under the terms of the charge up until the point of the sale: Economic Life Assurance Society v Usborne [1902] AC 147 and Ealing London Borough Council v El Isaac [1980] 1 WLR 932 applied. That being so, there was a sum still outstanding to the respondent after the sale of the Bromley property and the respondent was entitled to a charging order for that sum.
(2) Just over £57,774.72 remained outstanding under the judgment at that date when the property was sold and the respondent was entitled to a charging order in that amount. It was not entitled to an order in the higher amount granted by the county court, which wrongly assumed that interest had continued to accrue at the contractual rate after the sale. Interest did not continue to accrue in that way since the respondent did not continue to hold the charge after the sale and the judgment did not provide for contractual interest to be paid on the outstanding sums. While the mistake in the figures did not justify setting aside the charging order, it should be varied so that the correct amount was secured.
Richard Alomo (instructed by Charles Allotey & Co) appeared for the appellant; Lina Mattsson (instructed by Watson Farley & Williams LLP) appeared for the respondent.
Sally Dobson, barrister
Click here to read transcript: Parr v Tiuta International Ltd
