Mortgage — Limitation — Appellant claiming principal and interest due under second mortgage containing no express covenant to repay principal — Respondent mortgagor contending claim statute-barred — Claim accruing before first mortgagee exercising power of sale — Whether six- or 12-year limitation period applying — Sections 5, 8 and 20 of Limitation Act 1980 — Appeal allowed
The appellant lent £15,000 to the respondents by way of a mortgage secured by a second legal charge on their flat. The mortgage contained an express covenant to pay the interest, but not to repay the principal. The respondents failed to pay the interest due under the mortgage, and, in October 1990, the appellant brought possession proceedings in the county court. The first mortgagee subsequently took possession of the property and sold it, but none of the sale proceeds went to the appellant.
In March 1999, the appellant commenced proceedings claiming the principal and interest owing under the mortgage. The district judge tried a preliminary issue as to whether the limitation period applicable to the claim was the six-year period (under section 5 of the Limitation Act 1980) for claims in simple contract, or the 12-year period (under section 8) for actions on a specialty. He concluded that the 12-year period applied, and the respondents appealed. The appeal judge considered that the absence of an express covenant to repay meant that the claim for the principal was in simple contract within the terms of section 5. He went on to find that the appellant’s cause of action had accrued in October 1990, when it brought its possession proceedings, and that the claim was accordingly statute-barred. He held that section 20, which specified a 12-year limit for claims to recover sums “secured by a mortgage or other charge on property,” could have no application to the case now that the property had been sold, as was, at that time, common ground between the parties.
Following the Court of Appeal decision in Bristol & West Building Society v Bartlett [2003] 01 EG 69, the appellant appealed, relying upon the reasoning in that case that section 20 applied so long as the principal was secured by the mortgage at the time the cause of action accrued. It submitted that because, at that time, the first mortgagee had not yet exercised its power of sale, the principal then owing to the appellant was still “secured by a mortgage or other charge on property” within the meaning of section 20(1).
Held: The appeal was allowed.
It was clear from Bartlett that the present case was one to which section 20 applied. Although the consideration of section 20 in Bartlett was strictly obiter, as it was academic in that case whether section 8 or 20 applied, the reasoning on the meaning and effect of section 20 was applicable to the present case. The 12-year time limit in section 20(1) applied to the claim for principal, which should accordingly be allowed. The six-year period in section 20(5) applied to the claim for interest, so that interest accruing since 1993 could be recovered.
David Gilchrist (instructed by Addleshaw Booth & Co, of Leeds) appeared for the appellant; John Thompson appeared in person for both respondents.
Sally Dobson, barrister