Raja v Lloyds TSB Bank Plc

A mortgagee in possession’s duty to obtain the best reasonably obtainable price and to incur only reasonable selling expenses is an equitable duty arising from the mortgage relationship. It is not contractual, tortious or an implied term of the mortgage instrument.

A claim for breach of that duty is therefore not an action upon a specialty merely because the legal charge is under seal. The applicable limitation period is six years, by analogy with the relevant provisions of the Limitation Act 1980.

Observations in Bishop v Bonham suggesting that the duty was an implied contractual obligation were obiter and did not establish the contrary proposition.

The claimant owned four properties charged to the respondent bank as security for overdraft facilities. The bank obtained possession orders over three Hove properties and sold them between 1989 and 1991.

The claimant alleged that the properties had been sold at significant undervaluations, that excessive expenses had been incurred, and that the sale proceeds had been misapplied. The deputy High Court judge held that the undervaluation claims were time barred and dismissed the claim concerning the proceeds. Permission for a further appeal on the latter issue was refused.

The Court of Appeal considered the renewed permission application and the substantive limitation issue. The central question was whether the claim for breach of the mortgagee’s duties was an action upon a specialty attracting the twelve-year period under section 8 of the Limitation Act 1980.

1. Renewed permission application. The proposed challenge concerning the application of the sale proceeds had already been rejected by the Master, the deputy judge and Lord Justice Robert Walker. Even assuming that the full court had jurisdiction to reconsider the matter, section 55(1) of the Access to Justice Act 1999 required an important point of principle or practice, or another compelling reason. No such circumstance existed. The proposed claim was speculative, and permission was refused.
2. Nature of the mortgagee’s duty. The duties to obtain the best price reasonably obtainable and to incur no more than reasonable expenses were duties imposed in equity by the relationship of mortgagor and mortgagee. They were not duties imposed by the tort of negligence, nor contractual duties implied into the legal charge. The same equitable duty could arise in favour of subsequent mortgagees and sureties, and could be owed by receivers, without any relevant contract between the parties.
3. Bishop v Bonham. The Court rejected the submission that observations in that case converted the general equitable duty into an implied contractual term. Read in context, the observations concerned the scope of the mortgagee’s powers and the limits imposed by the general law. The remarks were obiter on the source of the duty and did not displace the approach in Cuckmere Brick Co Limited v Mutual Finance Limited, Parker-Tweedale v Dunbar Bank Plc, Downsview Nominees Limited v First City Corporation Limited and Yorkshire Bank Plc v Hall.
4. Limitation. The claim was not an action upon a specialty. Section 8 of the Limitation Act 1980 therefore did not provide a twelve-year period. The applicable period was six years, by analogy with sections 2 and 36. Since the proceedings were commenced outside that period, the claims were time barred.
5. Disposition. The application and the appeal were dismissed.

• Court of Appeal (Civil Division): The court dismissed the appeal from the order of Michael Tugendhat QC, sitting as a deputy judge of the High Court, and refused permission to pursue the separate section 105 issue.
• High Court: The deputy judge held that the undervaluation claims were time barred and dismissed the claim concerning the alleged misapplication of sale proceeds.
• Earlier permission decision: Lord Justice Robert Walker refused permission for a second-tier appeal on the section 105 issue.