Contents

AIB Group (UK) Plc v Personal Representatives of James Aiken deceased

[2012] NIQB 51

LEGAL POINTS

Mortgages –downturn in economic market – whether bank acting unfairly and unreasonably – whether Banking Code an implied term

SUMMARY

A bank was entitled to enforce payment of monies secured by way of bridging loan on a property that the borrowers had been unable to sell because of the downturn in the market. The court was not minded to imply a term that the Banking Code applied.

FACTS

Mr & Mrs A who ran a guest house wished to retire and buy a bungalow. They obtained a bridging loan from the Bank to purchase the bungalow, secured on the guest house. Repayment was due in January 2009. Mr & Mrs were unable to sell the guest house, despite pressure from the Bank to reduce the asking price, and defaulted in repayment. The Bank’s application for summary judgment was dismissed by the Master principally on the ground that the Bank had been heavy-handed and failed to act fairly and reasonably in accordance with the Banking Code – a voluntary code in which banks offered certain key commitments including a promise to act fairly and reasonably in all its dealings with its customers, and that it would consider cases of financial difficulty sympathetically and positively. The Bank sought to appeal.

HELD

Allowing the appeal, the law required reassuring clarity. Whilst there is a consistent principle that obliges banks to act in good faith, the Bank cannot be expected to await the upturn in the economic cycle before exercising its rights. The Bank was entitled to exercise its power of sale in accordance with the authorities (Cuckmere Brick Co Ltd v Mutual Finance Ltd[1971] Ch 949). The Bank was not a trustee of the power of sale for the borrower. It was entitled to give preference to its own interests.

There was no evidence of breach of the Banking Code. That made it unnecessary to decide whether compliance with the Banking Code had become an implied term in any agreement between a bank and its customer. However, the court ventured to suggest that customers may have difficulty in sustaining that argument (1) because there was no statutory basis for implying such a term, (2) non-compliance with the Code cannot mean that a customer is exempted from liability to repay the loan, and (3) implication of such a term would not pass the reasonable bystander test.

COMMENT

Just a reminder, this is a decision of the High Court of Northern Ireland and is of persuasive authority only.

Borrowers frequently claim that lenders have adopted a heavy-handed approach, or failed to act fairly and reasonably in the circumstances. Occasionally, they refer to the oft-quoted dicta of Lord Denning MR in Quennell v Maltby[1979] 1 All ER 568 that a lender will be restrained from getting possession except when it is sought bona fide and reasonably for the purpose of enforcing the security, and then only subject to such conditions as the court thinks fit. In practice however, this has only limited application.

In most cases, borrowers need to identify a breach of an express or implied term of their contract of mortgage, or a breach of statutory duty (including compliance with MCOB). In this case, whilst not deciding the point, the court indicated that it would not be minded to imply a term requiring compliance with the Banking Code. Even if it had, there wouldn’t have been a breach. A downturn in the market rendering a voluntary sale by a borrower in possession impossible, is not a defence to a claim for possession by the lender.

Bank of Scotland Plc v McGuigan

[2012] NICh 19

LEGAL POINTS

Mortgages – transmission of rights and liabilities – Halifax Plc and Bank of Scotland Plc

SUMMARY

Bank of Scotland Plc, as proprietor of a charge entered into by its predecessor Halifax plc, was entitled to enforce the charge, notwithstanding speculative assertion that it had sold the charge pursuant to a securitisation process.

FACTS

Bank of Scotland Plc sought possession and payment pursuant to a legal charge entered into in 2007 by Halifax Plc. The Master duly made an order for possession. The borrower (a litigant in person) appealed, contending amongst other things that Halifax/Bank of Scotland had fraudulently sold their loans by a ‘securitisation process’ with the knowledge of the regulators and the Government. He accused them of immorality, lying, cheating, conning, perjury, coercion and ‘asymmetric information’. During the appeal he also applied for discovery of documents to prove the fraud.

HELD

The discovery application was based on fanciful and flimsy speculation and was dismissed. On the substantive appeal, Bank of Scotland had at no time divested itself of the charge. The court rejected the ‘various wild, speculative and increasingly bizarre claims and assertions’ made by the borrower. The order of the Master was affirmed.

COMMENT

Again, this is a decision of the High Court of Northern Ireland and is of persuasive authority only.

Despite the fairly complex transmission of rights and liabilities from Halifax Plc to Bank of Scotland Plc (now a wholly owned subsidiary of Lloyds Banking Group) the entitlement to enforce any particular mortgage is usually down to the registered proprietor of the charge at HM Land Registry.

HM Land Registry Practice Guide 36A - Law of Property Act Receivers

In September 2012 the Land Registry introduced a range of new Practice Guides concerning personal and corporate insolvency:

Practice Guide 34: Personal Insolvency

Practice Guide 35: Corporate Insolvency

Practice Guide 36: Administration and Receivership

Practice Guide 36A: Receivers appointed under the provisions of the Law of Property Act 1925

We are particularly concerned with Practice Guide 36A – LPA Receivers. The aim of the Practice Guide is to deal with transfers and leases of a registered estate where the disposition is executed on behalf of the borrower by a receiver appointed under the LPA 1925. It is aimed at conveyancers and insolvency practitioners but will be of assistance to anyone advising an LPA Receiver.

References to appointments made under the LPA include also appointments made pursuant to contractual powers in the mortgage deed or conditions (frequently referred to as Fixed Charge Receivers).

It recognises that whilst s 109 LPA 1925 enables a lender to appoint a receiver once the mortgage money has become due, this only confers limited powers which must be varied or extended of the receiver is to have power to dispose of the mortgaged property. It recognises that contractual powers typically empower the receiver to sell the mortgaged property and execute a conveyance or transfer in the name of the borrower, and that such a provision in a mortgage amounts to a power of attorney whether or not it is expressed as such and whether or not the mortgage also contains an express power of attorney.

The Practice Guide then goes on to address some of the key issues common to dispositions by LPA Receivers, including:

  • Whether a transfer by a single LPA Receiver is effective where there is more than one borrower, and whether there is a Form [A] restriction
  • Practice and procedure on the removal/cancellation of a Form [A] restriction
  • Whether the disposition is affected by the bankruptcy, death, incapacity or winding up of the borrower
  • Particular issues concerning dispositions by lease
  • Execution by an LPA Receiver
  • Release of an estate from mortgages and charges on a disposition by an LPA Receiver
  • Evidence required on application for registration based on a disposition by an LPA Receiver
  • Register entries consequent upon appointment of an LPA Receiver

Mortgage Market Review – House of Commons Library Standard Note

On 20th September 2012, the House of Commons published a Library Standard Note on the Mortgage Market Review(SN05808).

Library Standard Notes are short briefings often produced in response to frequently asked questions by MPs.

The note on the Mortgage Market Review describes the proposed changes to the rules surrounding the granting of mortgages by lenders. The changes are intended to provide more protection for consumers and to reduce the chance of mortgage holders experiencing difficulty in paying off their debt. The mortgage industry however argues that the rules are too strict and will dramatically reduce the chance of some sections of society being able to get the loan funding that they want.

The FSA’s Mortgage Market Review, and its updates can be accessed here.