Campbell v Redstone Mortgages Ltd  EWHC 3081 (Ch) (29 September 2014)
We welcome again Anis Waiz, solicitor and head of commercial litigation at Curtis Law Solicitors, as he continues his critical review of current case law.
This case raised interesting points as to an alleged fraudulent execution of a mortgage and an issue that often arises on lenders taking possession of property where the borrower has left chattels. What rights do the respective parties have in respect of the chattels?
As a general point a lender in possession becomes an involuntary bailee of the chattels.
In this case the borrower sought damages against the lender in respect of chattels which the borrower left behind following the execution by the lender of a warrant for possession.
The background facts are lengthy and the reader is referred to the judgment for details. For the purpose of this case summary the following facts are germane:
- The borrower executed a mortgage deed over a property in Durham in August 2006 in favour of another lender. The mortgage was a re-mortgage of an existing debt of approximately £500,000 secured on the property in favour of Bristol & West Building Society.
- The borrower’s signature on the mortgage was purportedly witnessed although the borrower alleged the witness was not present when she signed the mortgage.
- Shortly after the mortgage was executed the lender assigned the mortgage to the lender in this case.
- The borrower fell into arrears and possession proceedings were issued by the lender. There then followed a series of hearings and adjournments. Again the reader is referred to the judgment.
- The lender took possession of the property in January 2014 and left notices at the Property pursuant to the mortgage conditions (see below) and the Torts (Interference with Goods) Act 1977 warning that all goods contained at the property would be disposed of should they not be collected.
- In April 2014 the lender commenced clearance of the chattels from the property. Various parties including the borrower’s daughter sent purported notices relating to undefined goods which they claimed were left by them at the property. At a later stage the borrower’s daughter and one of her sons, obtained an injunction which prevented the lender or its agents from removing, disposing or otherwise dealing with named personal belongings from the property.
- The injunction was discharged following a hearing. The lender’s contractors returned to the property on 15 May 2014 and continued removing chattels and disposing of them.
- The borrower issued proceedings seeking an interim injunction alleging that the mortgage had not been validly executed in the presence of a witness who attested her signature contrary to s.1(3) of the Law of Property (Miscellaneous Provisions) Act 1989 and relying on a recent decision Bank of Scotland Plc v Waugh & others  EWHC 2117 (Ch).
Mr Andrew Sutcliffe QC dealt with the following key issues:
- Was the borrower entitled to have the mortgage set aside on the basis that it was procured by fraud or that it did not comply with s.1(3) of the Law of Property (Miscellaneous Provisions) Act 1989?
- Was the lender liable to the borrower in damages as a result of the steps it took as an involuntary bailee of her chattels?
Mr Andrew Sutcliffe QC held that for a number of reasons the attempt by the borrower to set aside the mortgage was hopeless for a number of reasons.
I. The borrower could not establish the special grounds for admitting fresh evidence set out in Ladd v Marshall  1 WLR 1489 (CA, per Denning LJ at p1491).
II. In particular, fresh evidence the borrower may have wished to rely upon could have been obtained with reasonable diligence for use in the possession proceedings before the possession Order was made.
III. Her evidence was not apparently credible for two principal reasons: first, on its face the mortgage had been executed by the borrower in the presence of a witness and no proper evidence had been produced by the borrower to cast doubt on that fact; second, the allegation that the mortgage deed was forged or somehow failed to comply with s.1(3) of the 1989 Act has been raised far too late.
IV. The issue should have been raised as a defence to the original possession claim because the parties to those proceedings were the same and it was obviously an issue that could and should have been raised in those proceedings: see Secretary of State for Trade and Industry v Bairstow  Ch 1, (CA per Morritt V-C at £§£§28-38).
V. The borrower would in any event be estopped from asserting that the mortgage was procured by fraud or executed as a deed as the lender had throughout the original possession proceedings accepted the payment of mortgage arrears by the borrower, resulting in the dismissal or suspension of numerous warrants of possession: see Shah v Shah  QB 35, (CA per Pill LJ at £§13 and £§£§30-34).
VI. The borrower sought to rely on Bank of Scotland Plc v Waugh & others  EWHC 2117 (Ch) and submitted that the facts of that case were indistinguishable from the present case, with the result that no estoppel can arise and the mortgage in this case had to be set aside. That submission was rejected. There was a clear distinction between the facts in Waugh and the facts in this case. This case, similar to the Shah case, concerns a document purporting to be a deed regular on its face in that it appears that the borrower’s signature was attested by a witness. The borrower’s allegation is that the witness was not in fact present when the mortgage was signed and thus the formalities of s.1(3) of the 1989 Act were not complied with. As Judge Behrens pointed out at in Waugh, that situation is factually different from a situation where the document has no attestation clause at all and is thus not even regular on its face (which was the position in Waugh and in Briggs v Gleeds  EWHC (Ch) 1178, a recent decision of Newey J).
The mortgage conditions (standard in most well drawn mortgages) provided that if the lender took possession of the property, the borrower must, on notice, remove all of the furniture and belongings. If she had not done so within 7 days of the notice, the lender may as her agent remove, store or sell any items left behind. The lender would not be responsible for any resulting loss or damage to her possessions.
As to whether the lender was liable to the borrower in damages when it became an involuntary bailee of her chattels, the court noted the classic statement regarding the duty of an involuntary bailee in Elvin & Powell Ltd v Plummer Roddis Ltd  Solicitors Journal 48. A rogue ordered goods for delivery to a shop. The shop delivered the goods to the rogue who then disappeared. It was held that the shop was an involuntary bailee, but that it was not liable in damages to the true owner of the goods because it had acted reasonably. Hawke J held that the shop had done everything which was reasonable: "An involuntary bailee has an obligation to do what was right and reasonable."
The law on involuntary bailment was helpfully reviewed by the Court of Appeal in Da Rocha-Afodu and another v Mortgage Express Limited and another  EWCA Civ 454. A case concerning a lender taking possession. The court held that on the authorities, the duty of an involuntary bailee was to do what was right and reasonable. That would depend upon the findings of fact in each case.
The following propositions of law arose from the Da Rocha-Afodu decision:
I. A borrower is subject to an obligation to deliver up vacant possession of the Property on the execution of a warrant for possession.
II. A lender who finds himself in possession of chattels on the execution of a warrant for possession is in law an involuntary bailee.
III. The relevant conditions of the mortgage provide a framework within which the common law duty of care, which is imposed on an involuntary bailee, is to operate. Further, any of the trigger events in the mortgage conditions is merely a starting point. The court has to go on and ask whether what the lender did was, in the particular circumstances of the case, what was right and reasonable.
The court held that despite three court orders, the borrower and others did not remove their chattels from the property. At no time did the lenders or its agents take any step which had the effect of interfering or otherwise hindering the exercise by the borrower of her rights to collect their chattels.
Indeed Mr Andrew Sutcliffe QC held that on the contrary, the lender made every attempt to facilitate the clearance of those chattels. It was of course in the lender’s interests that the chattels should be removed from the property and vacant possession given.
The lender was entirely justified in commencing to clear the property and dispose of the goods and the decision to dispose of the goods, as opposed to putting them into storage or selling them, was entirely appropriate as the goods appeared to have no intrinsic value. Given the substantial mortgage account in excess of £730,000, this was the most sensible and cost effective way for the lender to deal with matters.
The borrower had more than sufficient notice of the lender’s intention to remove and dispose of the goods. It was entirely due to her own deliberate actions that she chose not to avail herself of the opportunities offered by the court and by the lender to clear those goods from the property, despite the fact that she was obliged upon the enforcement of the warrant for possession to give vacant possession of the property to Redstone.
Accordingly the lender had no liability in damages to the borrower.
The case highlights yet again how preparation of a defence and the proper marshalling of evidence is key. In this matter the borrower failed to adduce any evidence as to execution of the mortgage. The fact that it was not raised in the original defence clearly weighed in the court’s mind. The borrower was in effect estopped from denying the mortgage had been validly executed by reason of the payment of the arrears.
As to the disposal of her chattels by the lender, the case provides an excellent resume of the law on involuntary bailiee’s and the parties’ rights and responsibilities in dealing with personal property. The duty is to do what is right and reasonable. The starting point is the terms of the mortgage within which the common law duty of care operates.
A consideration of the key document, the mortgage is very often overlooked by lender and borrower in such disputes.