An interesting case passed through the Court of Appeal a few weeks ago, which counsel for the bank concerned said could impact on a good number of cases where banks have acquiesced in allowing borrowers to remain in their homes.
In the National Westminster Bank v Ashe case, a trustee in bankruptcy took action to defeat Nat West’s second charge over a property on the basis that the bank’s debt, and its rights of repossession, had both become statute barred under the Limitation Act 1980. The fact that the case was taken by a trustee in bankruptcy is not relevant, the principles apply to any case where a lender defers taking recovery action.
In the Nat West case, the bank had to concede that its right to sue the debtor for repayment of the debt was statute barred – the debtor had made no payments, nor had he acknowledged the existence of the debt, for well over twelve years. The main argument on which the bank relied related to a technicality in the Limitation Act: it argued that the debtor had not been in ‘adverse possession’ for the purposes of the Act (ie the debtor could not benefit from expiry of the limitation period), which if the court had agreed would mean that the bank could still take possession. In this case the bank had, through a fairly standard ‘all monies’ legal charge, acquired an immediate right of repossession when the charge was signed, but it simply failed to follow it through.
The Judges were not particularly sympathetic with the bank. They chose instead to uphold the principles of the Limitation Act in preventing stale claims being brought, protecting settled interests from being disturbed, and bringing finality to disputes. In essence, the Judges told the bank it should have taken more substantial steps, sooner, to get its money back because, after all, it was a large bank with access to specialist legal advice. The Judges decided that the debtor had been in ‘adverse possession’ with the result that the right of possession was not enforceable and the bank lost its money.
Does this case open, as counsel for the bank suggested, the floodgates for thousands of debtors to avoid paying old secured debts which they have ignored?
We do not think so. First off, not all mortgages contain a right of repossession at the date of the mortgage, indeed many mortgages limit the lender’s right of repossession; and secondly, instances where a charge holder has been paid nothing on his debt and received no contact from the debtor acknowledging either the debt or the title for over twelve years are probably few and far between. It will mean, however, that the banks will be dusting off their security documentation and applying more pressure, and earlier, on debtors to acknowledge the debt and title so as not to trip up limitation issues.