Ladjadj & Anor v Bank Of Scotland

Under a stabilised mortgage scheme, the borrower remains liable to pay at the selected payment rate throughout the mortgage term unless the borrower exercises a one-off option to pay at the stabilised charging rate. A provision stating that the option may be exercised only once during the term does not make its effect temporary or limited to a fixed period. Contractual ambiguity may strengthen the application of the contra proferentem rule, but it does not justify an interpretation inconsistent with the contractual structure. A lender is not generally subject to an implied contractual duty to remind a borrower of an express contractual option. Where the calculation of mortgage arrears is materially uncertain, possession proceedings should be reheard before relief under the relevant statutory provisions is determined.

The appellants, mortgagors, appealed against an order for possession made after arrears had accrued under a stabilised mortgage plan. The Deputy Master made the possession order, and the Chancery Division dismissed an appeal against it on the basis that the arrears exceeded £80,000 and could not realistically be repaid within the mortgage term.

Before the Court of Appeal, the appellants argued that the contract entitled them to pay only the stabilised charging rate after January 1996, reducing the arrears. The bank contended that the selected payment rate remained payable unless the one-off option to switch rates was exercised. The appeal also raised uncertainty about the calculation of arrears, possible compound interest, the amount paid, and whether the option had been exercised.

The appeal was allowed. The Court of Appeal held that the mortgage documents, though seriously unclear and poorly drafted, had to be construed as a whole.

1. Construction of the payment obligation. The expression “chargeable rate” in the option clause referred to the stabilised charging rate. The selected payment rate was the ordinary payment obligation under the scheme. The contrast between the chargeable and fixed amounts, the provisions for review of the fixed rate, and the structure of the stabilised mortgage plan supported that conclusion.
2. Effect of the option. The option permitted the borrower to elect to pay at the stabilised charging rate once at any time during the mortgage term. The wording did not indicate that the option, once exercised, would operate for a fixed period. The guidance describing the scheme as stabilising payments for an indefinite period pointed against that interpretation.
3. Implied notification term. No term should be implied requiring the lender to remind the borrowers of an express contractual option. English contract law did not impose such a general paternalistic duty.
4. Rehearing required. The decision below could not stand because the evidence did not reliably establish the arrears. The correct amount depended on whether the option had been exercised, whether compound interest had been charged without contractual authority, and which figure for repayments was accurate. The new issues were considered exceptionally because the construction question had not been properly addressed below and neither party was responsible for that omission.

The Court contemplated a retrial or rehearing, consistently with its construction of the contract, while encouraging mediation. The respondents were ordered to pay the costs of the appeal; costs of any retrial were to follow the event.

• Court of Appeal (Civil Division): [2000] EWCA Civ 21 — appeal allowed. The possession decision was set aside and the matter was to be reheard unless the parties agreed another resolution.
• Chancery Division: appeal dismissed by the Deputy Judge on 17 December 1998.
• Chancery Division: possession order made by Deputy Master Hoffman on 6 August 1998.