Mortgage –– Power of sale –– Duty of mortgagee –– Limitation period –– Claim that mortgagee’s expenses on sale excessive and sale made at an undervalue –– Whether claim statute-barred by expiry of limitation period –– Whether six-year limitation appropriate –– Whether proper distribution of proceeds of sale
The claimant had charged four properties to the defendant bank, three of which were later repossessed by the bank and sold pursuant to the charges. The claimant brought the present proceedings in 1997 alleging that: (1) the bank’s expenses in selling the properties were excessive and it had sold them at an undervalue, in breach of its duty to obtain the best price reasonably obtainable; and (2) the bank had wrongly paid too much out of the surplus proceeds of sale to a subsequent chargee, and had therefore prejudiced the claimant’s ability to dispute the claim of the subsequent chargee. One of the issues raised by the defence was that the allegations relating to excessive expenses and marketing were statute-barred. The claimant appealed a decision of the master striking out the statement of claim and dismissing his application to strike out parts of the defence and his application for permission to amend the statement of claim.
Held: The appeal was dismissed. The basis of the duty owed by a mortgagee to the mortgagor in relation to the sale of a mortgaged property is not contractual, although there is authority that the duty arises in equity. In accordance with section 36 of the Limitation Act 1980, the six-year limitation period applied to the claim against the defendant; the claim was therefore statute-barred. The defendant was entitled, notwithstanding section 105 of the Law of Property Act 1925, to pay part of the proceeds of sale to a subsequent chargee.
The following cases are referred to in this report.
Aiken v Stewart Wrightson Members Agency Ltd [1995] 1 WLR 1281; [1995] 3 All ER 449; [1995] 2 Lloyd’s Rep 618
China & South Sea Bank Ltd v Tan Soon Gin [1990] 1 AC 536; [1996] 2 WLR 56; [1989] 3 All ER 839; [1990] 1 Lloyd’s Rep 113
Cia de Seguros Imperio v Heath (REBX) Ltd;sub nom Companhia de Seguros Imperio v Heath (REBX) Ltd [1999] 1 All ER (Comm) 750; [1999] Lloyd’s Rep IR 571; [1999] Lloyd’s Rep PN 571
Clayton’s Case (1816) 1 Mer 572Coulthard v Disco Mix Club Ltd [2000] 1 WLR 707; [1999] 2 All ER 457
Cuckmere Brick Co Ltd v Mutual Finance Ltd [1971] Ch 949; [1971] 2 WLR 1207; [1971] 2 All ER 633; (1971) 22 P&CR 624; [1971] RVR 126, CA
Downsview Nominees Ltd v First City Corp [1993] AC 295; [1993] 2 WLR 86; [1993] 3 All ER 626
Medforth v Blake [2000] Ch 86; [1999] 3 WLR 922; [1999] 3 All ER 97; [1999] 2 EGLR 75; [1999] 29 EG 119
Metropolitan Bank v Heiron (1880) LR 5 ExD 319
Parker-Tweedale v Dunbar Bank plc [1991] Ch 12; [1990] 3 WLR 767; [1990] 2 All ER 577; (1990) 60 P&CR 83
Robinson, Re [1911] 1 Ch 502
This was an appeal by the claimant, Ibrahim Khan Raja, from a decision of Master Moncaster ordering the statement of claim and the claim to be struck out in proceedings by the claimant against the defendant, Lloyds TSB Bank plc.
Oriel Hinds (instructed by CM Atif & Co) appeared for the claimant; Richard Handyside (instructed by CMS Cameron McKenna, of Bristol) represented the defendant.
Giving judgment, Mr Michael Tugendhat QC said: The defendant was formerly the banker to the claimant, Mr Ibrahim Khan Raja. He was the owner of four properties, which he charged to the bank, and in respect of which the bank granted him facilities. The present proceedings were commenced in 1997. Mr Raja claims, in substance, a declaration that his liabilities to the defendant have been completely discharged as a result of the sale of the properties, which were repossessed and sold pursuant to the charges. The bank counterclaims a sum of £350,785.30, together with interest. Mr Raja bases his claim essentially upon two points. First, he says that the bank misapplied the proceeds of sale by paying too much of them to a subsequent chargee, Messrs Ashok Patel & Partners, a firm of solicitors. Second, he says that the bank was in breach of duty in failing to obtain a proper price for the properties that it did sell. By an order dated 17 November 1999, Master Moncaster ordered that the statement of claim and the claim be struck out, and that an application dated 23 August 1999 be dismissed. By that application, the claimant sought an order that parts of the defence be struck out or that he obtain summary judgment upon them.
The matter comes before me by way of appeal from that order. In addition, by an application notice dated 27 March 2000, the claimant seeks leave to amend the statement of claim. The master’s order was on the application of the defendant, made by notice dated 26 October 1999. The defendant asked for an order, first, pursuant to CPR Part 3.4, that the statement of claim be struck out, upon the ground that it discloses no reasonable grounds for bringing the claim and/or upon the grounds that it is an abuse of the court’s process or is otherwise likely to obstruct the just disposal of the proceedings; and, second, pursuant to CPR Part 24.2, that the defendant be granted summary judgment against the claimant on the claim; alternatively on the issues raised in paras 8 to 10 and 11 of the statement of claim.
I shall consider the defendant’s application first.
So far as material, the statement of claim reads as follows:
1. The Plaintiff is and was at all material times the owner of the registered freehold of the property known as 4 Dunheved Road North, Thornton Heath… (“Dunheved”). He also:
(a) owned the registered freehold of the property known as 23 Granville Road, Hove… (“23 Granville”) until its sale on 12 July 1989;
(b) owned the registered freehold of the property known as 7 Granville Road, Hove… (“7 Granville”) until its sale on or about March 1990;
(c) owned the registered freehold of the property known as 22 Brunswick Square, Hove… (“Brunswick”) until its sale on 17 October 1991.
…
3. In or about early 1986 the Defendant granted to the Plaintiff banking overdraft facilities… as security for the overdraft facilities the Plaintiff provided the Defendant with
(a) a legal charge over Dunheved dated 5 March 1986 and registered on 10 April 1986; and
(b) a legal charge over 23 Granville dated 25 February 1986 and registered on 14 March 1986; and
(c) a legal charge over 7 Granville dated 25 February 1986 and registered on 14 March 1986; and
(d) a legal charge over Brunswick…
5. … from a date on or about June 1987 until a date on or about August 1989… the Plaintiff was prevented from servicing the overdraft facility. Therefore, on 18 March 1988 the Defendant obtained orders for possession of 23 Granville and Brunswick. On the 19 September 1988 and 22 October 1988 the Defendant obtained two further orders of possession, one for each of Dunheved and 7 Granville respectively.
6. Pursuant to said orders, the Defendant by its servants or agents took possession of 23 Granville, 7 Granville and Brunswick… To date, the order for possession of Dunheved has not been enforced.
7. Accordingly the Defendant became a mortgagee in possession of 23 Granville, 7 Granville and Brunswick and owed to the Plaintiff, inter alia:
(a) a duty to obtain the best price reasonably obtainable for the properties;
(b) a duty to incur no more than reasonable expenses in the marketing and sale of the properties and
(c) a duty to credit the balance of the account with the sums recovered from the sale of the securities immediately upon receipt.
8. 23 Granville was sold by the Defendant on 12 July 1989 for £189,500 gross, which was reduced to £187,372.50 after deduction of expenses. On or about March 1990 the Defendant sold 7 Granville for £135,000 gross, which sum became £128,041 net of expenses, and on 17 October 1991 it sold Brunswick for £62,000 gross, which sum became £41,319 net of expenses. Accordingly the total sum realised by the sale of these securities was £386,500 (£356,732.50 net of expenses).
9. The Plaintiff will contend that by 17 October 1991 the sums realised on the Defendant’s security had completely discharged the Plaintiff’s debt to the Defendant on the overdraft facilities and moreover had realised the surplus which surplus the Defendant held and continues to hold on trust for the Plaintiff…
10. To date the Defendant has not credited either of the Plaintiff’s accounts with the sums realised by the sales or any part thereof…
11. Further or alternatively the Defendant sold 23 Granville, 7 Granville and Brunswick all at undervalues: in July 1989 23 Granville was worth approximately £210,000 on the open market; in March 1997 Granville was worth approximately £210,000 on the open market; and in October 1991 Brunswick was worth approximately £100,000 on the open market.
The statement of claim then goes on to particularise the damage in the sum of £133,500, and claims declarations that the plaintiff’s liabilities to the defendant had been completely discharged, and other relief.
The defence was served on 9 January 1998, and includes the following:
5. The Defendant’s properties are and or were at all material times the subject of further charges in addition to those pleaded in paragraph 3 of the Statement of Claim, such further charges were inter alia as follows:
…
5.2 23 Granville… was charged:
5.2.1 By a charge dated 15 March 1986 registered on 18 March 1986, to Ashok Patel;
5.2.2 By a charged dated 17 March 1986 registered on 19 March 1986, to Abbot Page PLC of…;
5.2.3 By a further charge dated 5th August 1986 registered on 26 November 1986, to the Defendant.
5.3 7 Granville… was charged:
5.3.1 By a charge dated 15 March 1986 registered on 18 March 1986, to Ashok Patel;
5.3.2 By a charge dated 15 March 1986 registered on 19 March 1986, to Abbot Page PLC.
…
8. On 23 June 1987 the Defendant made demand upon the Plaintiff in the sum of £212,975.36 which was then due and owing by the Plaintiff to the Defendant. The Plaintiff failed to repay such amount or any part thereof to the Defendant.
9. The Defendant thereafter obtained the following orders against the Plaintiff;
9.1 …
9.2 In respect of 23 Granville, an order in the Brighton County Court dated 5 February 1988 for possession on 18 March 1988;
9.3 In respect of 7 Granville, an order in the Brighton County Court dated 22 September 1988 for possession on or before 20 October 1988;
9.4 In respect of 22 Brunswick, an order in the Brighton County Court dated 5 February 1988 for possession on 18 March 1988…
12. …The total sum realised by the sales of the three said properties (net of expenses) was £365,395.96… It is specifically denied that the expenses incurred in the marketing and sale of 7 Granville and 22 Brunswick were excessive.
13. Further alternatively, in the circumstances pleaded in paragraph 20 below, the Plaintiff’s alleged cause of action (which cause of action is denied) in respect of the marketing and sale expenses of 7 Granville and 22 Brunswick is statute barred.
14. … The Defendant continued to make advances to the Plaintiff after having notice of the charges referred to in paragraph 5.2.1 and 5.3.1 above. By reason of the foregoing, the Defendant was only entitled to priority over the subsequent chargee, Ashok Patel, in respect of the proceeds of 7 Granville and 23 Granville to the extent of £72,565.88 which sum was credited to the Plaintiff so as to reduce his overdraft.
15. Following the sale of 7 Granville and 23 Granville, the Defendant held the balance of the net proceeds of sale of those properties, and did not pay them to the subsequent chargee, Ashok Patel, because the Plaintiff disputed the validity of Ashok Patel’s security in the said property. As at 3 May 1994 the balance of the net sale proceeds of 7 Granville and 23 Granville held by the Defendant amounted to £373,780 (including interest)…
16. In about July 1995, Ashok Patel obtained judgment against the Plaintiff for £110,367.91 plus costs. On 8 February 1996, the Defendant paid to Ashok Patel the sum due under the judgment, namely £112,664.34, from the balance of the net sale proceeds… On 20 January 1997, the Defendant paid the remainder of the balance of the net sale proceeds (namely £295,769 (including interest), to Ashok Patel.
There then follow pleas to the effect that the plaintiff remains indebted to the defendant and a counterclaim as mentioned above. There is a reply and defence to counterclaim served on 25 March 1998. In that document, the further charges pleaded in para 5 of the defence are not admitted, but they were not in dispute before me.
Part 3.4 is headed “Power to strike out a statement of case”, and it provides:
(2) The court may strike out a statement of case if it appears to the court ––
(a) that the statement of case discloses no reasonable grounds for bringing or defending the claim;…
Part 24.2 is headed “Grounds for summary judgment”, and provides as follows:
The court may give summary judgment against a claimant or defendant on the whole of a claim or on a particular issue if ––
(a) it considers that ––
(i) that claimant has no real prospect of succeeding on the claim or issue;
(ii)…; and
(b) there is no other reason why the case or issue should be disposed of at a trial.
In his skeleton argument and in his submissions to me, counsel for the claimant very helpfully distilled the points into two. The first main point is whether the claim for damages arising out of the alleged sale at an undervalue is statute-barred or not. The second main point relates to the priority of charges of the defendant and Ashok Patel, and the distribution of the proceeds of sale. In his application notice dated 25 August 1999, the claimant sought an order that included declarations that his liabilities to the defendant had been completely discharged, that the defendant’s legal charge dated 5 March 1986 over 4 Dunheved Road be discharged forthwith, and that his claims in respect of the sales of the other properties at an alleged undervalue are not statute-barred. He sought consequential orders striking out the relevant paragraphs of the defence. These orders were sought pursuant to the same provisions of the CPR as those relied upon by the defendant, namely Part 3.4 and Part 24. However, in the course of his submissions, counsel for the
I shall therefore turn to consider the two main points that have been raised. In doing so, it is not necessary for me to consider any of the disputes of fact, such as they are. There were no disputes of fact raised before me that were material to any of the issues that I had to decide.
Sale at an undervalue
At paras 7 and 11 of the statement of claim, it is alleged that, as mortgagee, the defendant owed duties to the claimant in and about the sale of the properties, and that those duties were breached, in that the expenses of sale were excessive and the properties were sold at an undervalue. There is no dispute about the content of the duty in question. It is to obtain the true market value, in the words of Salmon LJ in Cuckmere Brick Co Ltd v Mutual Finance Ltd [1971] 1 Ch 949 at p966E, or a proper price, in the words of Cairns LJ at p978A. There is a dispute about whether there has been a breach, but I am not asked to resolve that. The dispute that I am asked to resolve is as to the applicable period of limitation.
According to the claimant, the period is 12 years, under section 8 of the Limitation Act 1980, since the charges under which they were sold were ones that had been entered into by deed. According to the defendant, it is six years, under section 2 of the Limitation Act 1980, because, it says, the duty arises in tort. Alternatively, it says, it arises in equity, and the six-year period for tort should be applied by analogy, in accordance with section 36 of the Limitation Act. As a last resort, it would rely upon the doctrine of laches. It is common ground that if the applicable period is six years, then the claim is statute-barred. During the hearing, the parties agreed that I should decide this question as a preliminary issue, rather than upon the basis of a strike-out or an application for summary judgment.
The first question I must decide is, therefore, the basis of the duty: does it arise as a matter of contract, tort or equity?
Section 8 of the Limitation Act 1980 provides:
(1) An action upon a specialty shall not be brought after the expiration of twelve years from the date on which the cause of action accrued.
In Aiken v Stewart Wrightson Members Agency Ltd [1995] 1 WLR 1281, Potter J held that contracts of service, just as much as contracts for payment of a debt, were capable of being “specialties” within section 8(1) of the Limitation Act 1980, and that an action for damages for breach of contract under seal was governed by section 8(1) of that Act and subject to a 12-year limitation period. I conclude that a mortgage by deed is a specialty within that section. So the question is whether the duty in question is a contractual one, arising under the deeds of charge, or whether it arises independently of the contractual relationship.
While Aiken supports the claimant’s submission that section 8 of the 1980 Act may be applicable to any sort of contract under seal, it is important to note a point of distinction between contracts of service and mortgages. The power of sale under a mortgage is not part of the consideration that the mortgagee agrees to provide to the mortgagor pursuant to the contract. Rather, it is a power that arises for the benefit of the mortgagee when the mortgagor is in breach of the contract by failing to repay the debt secured by the mortgage. So, while it might, in principle, be possible to imply a term in a mortgage deed that the mortgagee will exercise care and skill, the analogy with contracts for the supply of services is weak.
A mortgagee’s power of sale arises under section 101 of the Law of Property Act 1925, which includes the following:
(1) A mortgagee, where the mortgage is by deed, shall, by virtue of this Act, have the following powers, to the like extent as if they had been in terms conferred by the mortgage deed, but not further (namely) ––
(i) A power, when the mortgage money has become due, to sell…
The deeds in question in this case are in the defendant’s standard form and include:
4. The powers and remedies conferred on mortgagees by the Law of Property Act 1925 shall apply to this security but without the restrictions on the exercise of the power of sale imposed by s103 of that Act…
I was referred to Cuckmere, in which a mortgagor claimed that a mortgagee had failed in a duty of care when exercising its statutory power of sale (p950H). Some of the language used in that case by Salmon LJ is characteristic of tort. At p966D he said:
The mortgagor is vitally affected by the result of the sale but its preparation and conduct is left entirely in the hands of the mortgagee. The proximity between them could scarcely be closer. Surely they are “neighbours”.
But at p967D he noted that the duty was much older than the law of tort:
It would seem, therefore, that many years before the modern development of the law of negligence, the courts of equity had laid down a doctrine in relation to mortgages which is entirely consonant with the general principles later evolved by the common law.
The only reference to contract is by Cross LJ, who, at p973C-E, refers to the absence of contractual relations between the mortgagor and the mortgagee’s agent. There is no suggestion of any liability in contract. No question of limitation arose in that or any of the other cases to which I was referred.
Next, I was referred to Parker-Tweedale v Dunbar Bank plc [1991] Ch 12, in which the claim was by a beneficiary under a trust of which the mortgagor was the trustee. So no question of contract could have arisen between the plaintiff and the mortgagee. Nourse LJ said at p18G-H:
it is both unnecessary and confusing for the duties owed by a mortgagee to the mortgagor and the surety, if there is one, to be expressed in the terms of the tort of negligence…
and cited the passage from Salmon LJ in Cuckmere at p967. He added at p19B-D:
The duty owed to the surety arises in the same way. In China and South Sea Bank Ltd v Tan Soon Gin (alias George Tan) [1990] 1 AC 536, Lord Templeman, in delivering the judgment of the Privy Council, having pointed out that the surety in that case admitted that the moneys secured by the guarantee were due, continued at p543:
“But the surety claims that the creditor owed the surety a duty to exercise the power of sale conferred by the mortgage and in that case the liability of the surety under the guarantee would either have been eliminated or very much reduced. The Court of Appeal [in Hong Kong] sought to find such a duty in the tort of negligence but the tort of negligence has not yet subsumed all torts and does not supplant the principles of equity or contradict contractual promises… Equity intervenes to protect a surety.”
There is a contract both between a mortgagee and a mortgagor, and between a mortgagee and a surety, but it is not said by Nourse LJ or Lord Templeman that the duty arises from the contract.
Counsel for the claimant referred me to Downsview Nominees Ltd v First City Corp [1993] AC 295. At p315A the board said:
The general duty of care said to be owed by a mortgagee to subsequent encumbrancers and the mortgagor in negligence is inconsistent with the right of the mortgagee and the duties which the courts applying equitable principles have imposed on the mortgagee…
and added at p316E:
If the defined equitable duties attaching to mortgagees and to receivers and managers appointed by debenture holders are replaced or supplemented by a liability in negligence the result will be confusion and injustice.
This assists the claimant in showing that the duty is not tortious, but it does not assist him in showing that it is contractual. On the contrary, if it were contractual, it would be owed only to the mortgagee and not to subsequent encumbrancers, because a subsequent mortgage is not a contract with the prior mortgagee. There is no suggestion in Downsview of two duties, one in equity and one in contract.
Upon the basis of the foregoing, I conclude that there is authority that the duty arises in equity, and that there is no authority that the duty arises in contract. A contractual duty is also too narrow (since it would not be owed to subsequent mortgagees). And it is difficult to find any analogy between the duties of a mortgagee when a contract is broken by the mortgagor and the duties of a person providing services pursuant to a contract.
Since the conclusion of the argument, I have read Medforth v Blake [1999] 3 WLR 922*. At p933B Scott V-C said:
As a Privy Council case, the Downsview Nominees case is not binding but, as Mr Smith submitted, is a persuasive authority of great weight. But what did it decide as to the duties owed by a receiver/manager to a mortgagor? It decided that the duty lies in equity, not in tort. It decided that there is no general duty of care in negligence. It held that the receiver/manager owes the same specific duties when exercising the power of sale as are owed by a mortgagee when exercising the power of sale. Lord Templeman cited with approval the Cuckmere Brick case test, namely, that the mortgagee must take reasonable care to obtain a proper price. So, a receiver/manager when selling must take reasonable care to obtain a proper price. In so deciding, Lord Templeman departed from the proposition to be found in Jenkins LJ’s judgment in In re Johnson & Co (Builders) Ltd.
In Yorkshire Bank Plc v Hall [1999] 1 WLR 1713, Robert Walker LJ reviewed a mortgagee’s duty to his mortgagor. He referred to China and South Sea Bank Ltd v Tan Soon Gin (alias George Tan) [1990] 1 AC 536, National Bank of Greece SA v Pinios Shipping Co No 1 [1990] 1 AC 637 and the Downsview Nominees case [1993] AC 295 and then said [1999] 1 WLR 1713, 1728:
“Those cases together establish or reaffirm that a mortgagee’s duty to the mortgagor or to a surety depend partly on the express terms on which the transaction was agreed and partly on duties (some general and some particular) which equity imposes for the protection of the mortgagor and the surety. The mortgagee’s duty is not a duty imposed under the tort of negligence, nor are contractual duties to be implied. The general duty (owed both to subsequent incumbrancers and to the mortgagor) is for the mortgagee to use his powers only for proper purposes, and to act in good faith… The specific duties arise if the mortgagee exercises his express or statutory powers… If he exercises his power to take possession, he becomes liable to account on a strict basis (which is why mortgagees and debenture holders operate by appointing receivers whenever they can). If he exercises his power of sale, he must take reasonable care to obtain a proper price.”
(Judge’s emphasis.)
* Editor’s note: Also reported at [1999] 2 EGLR 75
Medforth v Blake seems to me to be authority binding upon me to the effect that the duty is not contractual. But, because that is a view that I had already reached upon the basis of the cases that were cited to me, I have not asked for further submissions on Medforth.
I conclude that the period of limitation is not 12 years under section 8 of the 1980 Act, and is not governed directly by section 2 of that Act either.
Upon this basis, counsel for the defendant submits that section 36 applies, referring me to Coulthard v Disco Mix Club Ltd [1999] 2 All ER 457, a decision of Mr Jules Sher QC, sitting as a deputy judge of the High Court, which was followed by Langley J in Cia de Seguros Imperio v Heath (REBX) Ltd [1999] 1 All ER (Comm) 750. At p478 of Coulthard, the judge reviewed the authorities and concluded:
even if the relief afforded by the court of equity was wider than that available at law, the court of equity would apply the statute by analogy, where there was “correspondence” between the remedies available at law or in equity.
In this case, there is a claim for damages for breach of a duty of care that corresponds with the remedy for breach of the duty of care in the tort of negligence. The fact that the claim could not be brought at common law is immaterial: see Re Robinson [1911] 1 Ch 502 at pp507-508 and Metropolitan Bank v Heiron (1880) LR 5 ExD 319 at pp323-324. Accordingly, I apply the six-year period provided for under section 2 by analogy under section 36. On this footing, all the claimant’s claims in respect of the sales of the property are admitted to be barred.
Distribution of proceeds of sale
Having sold the three properties between July 1989 and October 1991, the defendant realised a net sum of £356,732.50. The defendant calculates that the amount covered by its charges on two of these, namely 7 and 23 Granville Road, Hove, was no more than £72,565.88. That it was so little came about as a result of what the defendant tells me was a mistake. In June 1986 it received notices under section 30 of the Land Registration Act 1925 notifying it of the registration at the Land Registry of further charges over these two properties, namely 7 and 23 Granville Road. These charges were in favour of Ashok Patel & Partners. At the date of its demand, the defendant says that the claimant owed it £212,975.36. The defendant decided to block the claimant’s existing account, which was in overdraft, and to open a new account for him. The purpose of this was to prevent the amount secured from reducing by operation of the rule in Clayton’s Case (1816) 1 Mer 572. The evidence for the defendant explains that, in fact, there continued to be credit transactions on the old account. There was litigation between the claimant and Ashok Patel, and, in July 1995, Ashok Patel obtained a judgment in the sum of £110,367.91 and an order for costs in his favour. There was also a dispute between Ashok Patel and the defendant. In due course, the defendant paid £112,664.34 to Ashok Patel in February 1996 and a further £295,769.21 in January 1997. These sums were calculated as equivalent to the combined net sale proceeds of 7 and 23 Granville Road, less the amount secured by the defendant’s charges in priority to the subsequent charges. This was notwithstanding that the defendant claims that the claimant is indebted to it in the sum claimed in the counterclaim, namely £350,785.30.
The reason for the claimant’s complaint about this is that he contends that this method of proceeding has prejudiced his ability to dispute Ashok Patel’s charges. It is not for me to decide whether that is right or wrong, although it seems to me to be unlikely. I have simply to consider whether the defendant was entitled to do what it did.
I have no doubt that it was. This part of the claimant’s case is unarguable. Arguments were advanced to me about the effect of section 30 of the Land Registration Act, to show that the defendant was mistaken in the calculation of priorities. But I do not need to adjudicate upon those arguments. The charges placed no obligation upon the defendant to make further advances to the claimant, and it would not have assisted the claimant if it had.
It was submitted that a mortgagee owes a duty to a mortgagor not to disadvantage him, and that this arises from the wording of section 105 of the Law of Property Act 1925:
The money which is received by the mortgagee, arising from the sale… shall be held by him in trust to be applied by him… secondly, in discharge of the mortgage money, interest, and costs, and other money, if any, due under the mortgage; and the residue of the money so received shall be paid to the person entitled to the mortgaged property, or authorised to give receipts for the proceeds of the sale thereof.
Counsel for the claimant referred me to Fisher & Lightwood’s Law of Mortgage (10th ed) p399, which comments on section 105 of the Law of Property Act 1925. But the law is stated as follows at p396:
Where there are subsequent incumbrancers, it has been held that the surplus proceeds should be paid to the incumbrancer next in order.
This is the position where the subsequent incumbrancer has indisputably got something that is due to him, as Ashok Patel had, under the judgment that it had obtained.
In the draft amended statement of claim, it is pleaded that:
10. In breach of the express trust created by s105 of the Law of Property Act 1925 to date the Defendant has not credit the Plaintiff’s account with the sums realised by the sale…
10B. … the sum of £295,769.21 was paid by the Defendant to Ashok Patel & Partners in error and in breach of the Defendant’s fiduciary duty to the claimant…
I was referred to no authority for the proposition that a mortgagee is bound to recover all that he is owed out of the proceeds of sale before paying them over to the incumbrancer next in order, or that he owes a
Conclusion
It follows that the appeal fails, and that permission to amend the statement of claim will be refused.
Appeal dismissed.
