A lender was estopped from enforcing a debt by recovering possession of a second property where it had already obtained judgment for the debt and possession of another property. It was limited to enforcing the judgment, which did not include the right to recover possession of another property without first obtaining a charging order
In June 2006, Mr Munday and his mother, Mrs Munday, borrowed £1.3m on security of their farm house and a further £1m on security of some barns which had been converted into holiday cottages. Both charges were ‘all monies’ charges, ie the debt was payable on demand. They provided that each property was charged with all monies now or at any future time due to the borrower under each and every loan agreement made between the lender and borrower, now or at any time. By September 2007, the borrowers had fallen into arrears and the lender obtained two possession orders and two money judgments in respect of the farm house and the holiday cottages. In 2008, however, two warrants of possession were suspended on condition that the arrears of both loans be repaid by monthly instalments. To reduce the arrears, the borrowers sold some of the land adjoining the farm house. As a result, the borrower withdrew its warrant in respect of the farm house. In 2009, the lenders obtained possession of the cottages after the borrowers failed to keep to the terms of the suspended warrant. For various reasons the borrowers did not sell the cottages and so the money judgment in respect of the cottages remained outstanding. By 2011, the amount outstanding under the farm house loan had fallen to around £100,000. In contrast, over a £1m remained outstanding in respect of the loan secured against the holiday cottages. In September 2011, the lender applied for charging order over the farm house in order to secure the money judgment for the loan originally secured against the cottages. The application for a charging order was later abandoned. Instead, the borrowers contended that the all monies charge secured over the farm house was security for both loans and they applied for a warrant of possession in respect of the farm house. The borrowers applied to set aside the warrant for possession on the basis that they had never been advised that the charge over the farm house was security for both loans. Deputy District judge Hall refused the application, but his judgment was set aside by HHJ Cotter on the basis that the lenders were estopped from contending that the all monies charge over the farmhouse was security for the holiday cottages loan. The lenders appealed to the Court of Appeal.
The Court of Appeal dismissed the appeal. There was no evidence that the lenders, at the time that charges were entered into originally, when the claims for possession were issued or when the land adjoining the farm house was sold, had told the borrowers that the charge over the farm house was only security for the first loan. The borrowers’ evidence was merely that they had never been told the true effect of the charges. For there to be an estoppel by convention it is not enough merely to show that both parties shared the same view about the effect of the relevant contract; it must also be demonstrated that the party alleged to be estopped had some responsibility for conveying that understanding of its effect to the other party in the expectation it would be relied upon so as to create a shared (almost consensual) understanding of the lenders’ rights under the charge. Nor was there any evidence that the borrowers had relied on the alleged shared understanding; there was no evidence that the borrowers would have paid off the holiday cottages loan sooner if they knew that the farm house was threatened. It was the borrower’s case that they could not afford to pay the holiday cottages loan. In any event, it was unlikely that a positive decision not to pay the instalments of the holiday cottages loan in the belief that the lenders had no effective remedy for the recovery of any shortfall can amount to a form of detriment sufficient to raise an estoppel.
The lenders were, however, estopped from recovering the holiday cottages loan in a fresh set of proceedings. They had already obtained judgment for the sum outstanding in the earlier possession proceedings and their cause of action had merged with the judgment. Their remedies for recovering the debt were limited to enforcing the judgment debt. This did not include the ability to recover possession of the farm house without first obtaining a charging order. Nor could the lenders contend that Administration of Justice Act 1970 s36 did not apply in respect of the farm house loan on the basis that the charge was an all monies charge. The court was limited to considering the amount of the money judgment in respect of the farm house. The lenders should have merely sought possession of both the farm house and the holiday cottages and then exercised their power of sale as a mortgagee to recover all of the sums due.
However, as the interest on both debts created a fresh cause of action (which had not merged with the judgment) the lenders could bring a fresh action on the recovery of the interest of both loans that remained due. This did not mean, however, that section 36 would be of no application. Patten LJ held:
[43]… It seems to me that the court on a s36 application to suspend the warrant issued pursuant to the earlier judgment is duty bound to consider whether the mortgagor is likely to be able to pay ‘any sums due under the mortgage’ within a reasonable time. These provisions apply even where the mortgagee obtains no judgment for the arrears as such but seeks and obtains an order for possession based on the mortgagor’s failure to pay. The court must then consider whether to allow the mortgagee to take possession and sell in order to recover the mortgage debt.
Note: it does not appear that
Habib Bank v Tailor (
Habib Bank v Tailor) was referred to the Court of Appeal in which it was held that although section 36 applied to all monies charges Administration of Justice Act 1973 s8 did not. As a result the court had no power to exercise the discretion under section 36(2) to stay the date for possession.