This case highlighted again the dangers of failing to properly grasp the issue of an appointment of an LPA Receiver and the failure to understand some basic principles under the Law of Property Act 1925 (“the 1925 Act”).
The Judge Mr David Halpern QC observed “…The more times a thoroughly bad point is raised, the more it becomes an abuse.”
In this matter Mortgage Express (“the Lender “) and the LPA receivers applied to strike out the claim on the basis there was no reasonable grounds for bringing the claim or that the proceedings were an abuse of process.
The Claimant was the owner of 6 buy-to-let properties of which 3 were charged to the Lender and 3 were initially charged to another lender and subsequently assigned to the Lender.
In May 2012 the Lender appointed LPA receivers over all the Properties. The Receivers obtained possession orders in respect of 5 of the Properties.
In addition in a separate application the Claimant sought against the Lender and another company a declaration that the appointment of the Receivers was unlawful and an injunction to stop all actions of the Respondents in exercising their alleged rights under the mortgage. That application was dismissed in January 2013 as being totally without merit.
The Claimant made a number of allegations against the Lender and Receivers. The following are germane:
1. The Receivers were "wrongly appointed". No particulars were given.
2. ME "failed to follow the “statutory procedure" for the appointment of a LPA Receiver. No particulars were given.
3. The standard mortgage terms provided that the entire debt was repayable immediately if there was any breach of any condition of the agreement (other than for payment of money) and the prohibition from granting any tenancy without the written consent of the Lender. The Claimant sought to argue that there was an implied relaxation of this requirement because the Lender knew that the properties had been bought on a buy-to-let basis. The Lender denied that any consent had been sought or obtained in relation to the tenancies.
4. That the Receivers purported to act before being appointed. The basis of the allegation was a letter dated 17th April 2012 notifying the Claimant of the appointment. The letter enclosed a copy of the deed of appointment, which was dated 4th May 2012.
5. Attacked the Lender’s power to consolidate the mortgages by alleging the right to combine mortgages is not restricted by section 93 of the 1925 Act.
The Courts Decision
Mr David Halpern QC held:
1. As to the allegation that the Receivers were "wrongly appointed" the Claimant admitted that there were arrears, but failed to admit how much or for how long. The Mortgage terms provided for the full mortgage debt to be repaid immediately if the mortgagor was late in paying at least 2 total monthly payments.
Whilst counsel for the Claimant argued that the Lender had failed to give 2 months’ notice of the appointment, he accepted that this was not a precondition to the appointment of a receiver. In addition the Claimant sought to rely on Section 103 of the 1925 Act. However, this was inapplicable, given section 103(ii) and (iii) of the 1925 Act (unpaid interest and breach of provision of the mortgage deed) Accordingly the Court held that the Receivers were validly appointed on the basis of arrears of interest.
As to the alleged failure to follow the statutory procedure it was held that there was no basis for attacking the mechanics of the appointment and therefore the allegation stood no realistic prospect of success.
2. There was no evidence that the Lender consented to the actual form of the tenancy by the claimant to another company or the sub tenancies by another company. There was however a positive statement by the Lender that it did not consent. In Taylor v. Ellis  Ch. 368 at 375, Cross J held that the burden of proof was on the borrower to show that consent had been granted. The Claimant made no attempt to discharge that burden.
3. As to the allegation that the Receivers had acted before being appointed It was clear on the face of the letter dated 17 April that the letter was wrongly dated and should have borne a date on or after 4th May. A witness statement by one of the Receivers noted that point and was not challenged by the Claimant.
4. As to the right of the Lender to consolidate the mortgages it was held that under the general law, the mortgagee’s power to consolidate extends to consolidating mortgages which have been transferred from a different mortgagee (see Pledge v. White  AC 187 and the other cases cited in Fisher & Lightwood’s Law of Mortgages paragraphs 46.3 and 46.6). Despite the Claimant’s arguments that the mortgage conditions changed the position at law, it was held that the specific terms was not intended to cut down the right of the Lender to transfer its rights but merely to ensure that it was not to be used to create further rights or responsibilities. In addition the consolidation of the mortgages did not affect the claimant’s legal rights or responsibilities. The power of consolidation was a restriction rather than a "right or responsibility".
Accordingly it was held that the entire claim disclosed no reasonable cause of action and that there was no other compelling reason for a trial. In addition the court granted Summary judgment to the Defendants.
The Judgment reveals a number of flawed attacks by the Claimant borrower on the Lender’s actions in appointing the Receivers. All too often I see these allegations made in correspondence. However there were a number of fundamental flaws in the Claimant’s case.
In this case and indeed in most cases there is nothing in the general law or in standard mortgage conditions, which requires a Lender to specify the reasons for appointing receivers or which limits a lender to reasons which had been given.
The clear answer lies in the consideration of sections 109 (1) and 103 of the 1925 Act.
Section 109(1) provides that;
A mortgagee entitled to appoint a receiver under the power in that behalf conferred by this Act shall not appoint a receiver until he has become entitled to exercise the power of sale conferred by this Act, but may then, by writing under his hand, appoint such person as he thinks fit to be receiver.
Section 103 provides that A mortgagee shall not exercise the power of sale conferred by this Act unless and until–
(i)Notice requiring payment of the mortgage money has been served on the mortgagor or one of two or more mortgagors, and default has been made in payment of the mortgage money, or of part thereof, for three months after such service; or
(ii)Some interest under the mortgage is in arrear and unpaid for two months after becoming due; or
(iii)There has been a breach of some provision contained in the mortgage deed or in this Act, or in an enactment replaced by this Act, and on the part of the mortgagor, or of some person concurring in making the mortgage, to be observed or performed, other than and besides a covenant for payment of the mortgage money or interest thereon.
In this case as in the majority of standard Legal Charges section 103 of the 1925 Act is usually expressly disapplied so that the power of sale become exercisable on demand.
It is worth repeating Mr David Halpern QC wise words
“It is (or should be) elementary law that a mortgagee is not a trustee of the power of sale or of the power of appointing a receiver. He is entitled to act in his own interests, so long as he does not act in bad faith, and he has a very limited duty of care (see, for example the recent summary by Eder J in Saltri III Ltd v. MD Mezzanine SA Sicar  2 BCLC 217 at  and ).”