Adamson v Halifax plc

Where a mortgagee sells repossessed property in breach of its duty to obtain the best price reasonably obtainable, damages are prima facie the reduction in the value of the mortgagor’s equity of redemption. They are assessed at trial with the benefit of events then known. A merely theoretical prospect that a subsequent chargeholder will claim the shortfall does not require damages to be withheld. The chance may be ignored if negligible, or the sum may be paid into court pending a timely claim.

Delay in commencing proceedings may justify reducing the period for which interest runs, but will rarely justify refusing all interest. An appellate court will not disturb a trial judge’s costs discretion absent error of principle, a material error in the considerations taken into account, or a decision that is plainly wrong.

The claimant mortgagor appealed from District Judge Freeman in Manchester County Court. The mortgagee had taken possession of her flat and sold it for £17,000. The judge found that it should have obtained £23,000 and had breached its statutory duty, but awarded only £1,000 because a subsequent charging order holder would have received £5,000 on a proper sale.

The judge made no interest award and ordered the mortgagee to pay half the claimant’s costs, with the reasonable surveyor’s fees. The mortgagee sought permission to cross-appeal on costs. The central issue was whether the mortgagor could recover the whole £6,000 diminution where the subsequent chargeholder had not sued and its claim against the mortgagee had become time-barred.

1. Appeal allowed. Sir Murray Stuart-Smith, with whom Potter LJ agreed, held that the claimant was entitled to £6,000. The mortgagee had breached the duty in paragraph 1(1)(a) of Schedule 4 to the Building Societies Act 1986 to take reasonable care to obtain the best price reasonably obtainable.

2. The prima facie loss was the £6,000 reduction in the value of the equity of redemption. Damages had to be assessed at trial in the light of events then known. Although a proper sale would initially have required payment of £5,000 to the subsequent chargeholder, the chargeholder had shown no interest in claiming against the mortgagee. The judge could properly treat the prospect of a claim before expiry of the limitation period as negligible. Alternatively, he could have directed payment of that sum into court pending a claim. The mortgagee was no longer exposed to such a claim.

3. The claimant remained potentially subject to an application by the chargeholder for permission to enforce its judgment against her. That possibility did not reduce the mortgagee’s liability for its own breach.

4. The refusal of all interest could not stand. Delay in starting proceedings, though within the limitation period, justified a reduced period for interest. It did not justify total deprivation. Interest was awarded on £1,000 from 24 November 1997 and on £5,000 from 24 November 2001.

5. The court refused the mortgagee permission to cross-appeal on costs. Applying the approach stated in Roache v News Group Ltd [1998] EMCR and approved in AEI v Phonographic Performance Ltd [1999] 1 WLR 1507, the judge had taken account of the claimant’s failed possession claim and credibility. He had exercised the discretion consistently with the Civil Procedure Rules.

• Court of Appeal: Allowed the claimant’s appeal from District Judge Freeman, varied the damages from £1,000 to £6,000 with interest, and refused the respondent permission to cross-appeal on costs.

• Manchester County Court: On 14 June 2001, District Judge Freeman found that the mortgagee had sold at an undervalue, awarded £1,000 damages, awarded no interest, and made a partial costs order for the claimant.