West Bromwich Building Society (Appellants) v. Wilkinson and another (Respondents)

Where a cause of action arises for recovery of a debt secured by a mortgage, section 20 of the Limitation Act 1980 continues to govern the limitation period after the security has been realised or released. A mortgagee cannot stop time running by exercising its power of sale.

A mortgage must be construed like any other conveyancing transaction. Where its terms permit the mortgagee to demand immediate payment and exercise the power of sale upon specified events, those terms may necessarily imply that the outstanding principal becomes payable when such an event occurs. A claim commenced more than 12 years afterwards is statute barred.

The respondents borrowed money from the building society under a legal charge providing for repayment by monthly instalments. Following default, the society obtained possession and sold the mortgaged house, leaving a shortfall. More than 12 years later, it claimed the shortfall and interest.

The Court of Appeal, following Bristol and West plc v Bartlett [2002] EWCA Civ 1181, held that section 20 of the Limitation Act 1980 applied and that the claim was time barred: [2004] EWCA Civ 1063.

The issues before the House were whether section 20 continued to apply after the mortgage security had been realised and when, on the proper construction of the legal charge, the society obtained a cause of action or right to receive the outstanding capital.

1. Appeal dismissed unanimously. Lord Hoffmann delivered the leading speech. Lord Scott of Foscote agreed and supplied additional reasoning. Lord Walker of Gestingthorpe, Baroness Hale of Richmond and Lord Carswell agreed with Lord Hoffmann.

2. Per Lord Hoffmann, section 20 of the Limitation Act 1980 applied. Limitation periods are ordinarily classified by the cause of action which the claimant seeks to enforce. Where the cause of action was a claim to a debt secured by a mortgage when it arose, section 20 does not cease to apply merely because the mortgagee subsequently realises or releases the security. Otherwise, the lender could stop time running by exercising its own power of sale. Bristol and West plc v Bartlett [2002] EWCA Civ 1181 was rightly decided.

3. Per Lord Hoffmann, the legal charge had to be construed like any other conveyancing transaction. Mortgages are not subject to special artificial rules of construction merely because their legal effect may be affected by equitable doctrines. Clause 5(d)(i), which permitted the power of sale to be exercised after a written demand for immediate payment, naturally implied that the secured money became payable upon demand. It would be unreal to construe the clause as authorising a demand which the lender had no right to make. By parity of reasoning, the other events in clause 5(d), including default in paying an instalment, had the same consequence.

4. Lord Scott agreed that clause 5(d) necessarily contained an implied term that the outstanding principal became due and payable upon the occurrence of a specified event. Without that implication, a notice demanding immediate payment under clause 5(d)(i) would assert an entitlement which the society did not possess. The term also made commercial sense in relation to the remaining events. Lord Scott considered that clause 5(c), by contrast, merely protected purchasers and did not itself advance the repayment date.

5. The outstanding mortgage money had therefore become due and receivable following the borrowers’ default, well before the society took possession in 1989. Time had expired before proceedings began in November 2002. The claim was barred whether the applicable provision was section 20, governing recovery of principal secured by a mortgage, or section 8, governing an action on a speciality.

1. House of Lords: Dismissed the building society’s appeal unanimously and upheld the conclusion that its claim was statute barred: [2005] UKHL 44.

2. Court of Appeal: Following its earlier authority on section 20 of the Limitation Act 1980, held that section 20 applied and rejected the society’s claim: [2004] EWCA Civ 1063.