National Westminster Bank Plc v Ashe

A mortgagor who remains in ordinary possession of mortgaged land may be in adverse possession against a mortgagee whose right to possession has accrued. Adverse possession under the Limitation Act 1980 concerns the occupier’s capacity as a person in whose favour time can run, rather than whether the occupation is wrongful or equivalent to trespass.

Where the mortgagor’s possession derives from the mortgagor’s own title, the mortgagee’s tolerance or non-enforcement does not, without more, amount to permission preventing time from running. A payment towards the mortgage debt causes the mortgagee’s right of action to accrue afresh. If 12 years then pass without a further payment or effective acknowledgment, the right to recover the land becomes barred and the mortgagee’s title is extinguished.

The Bank held a second legal charge over the mortgagors’ registered long leasehold home. The charge conferred an immediate right to possession. The Bank did not enforce that right, and no payment was made after 4 January 1993.

The trustee in bankruptcy commenced proceedings in 2006 seeking a declaration that the charge had been extinguished. A Deputy High Court Judge granted that declaration and ordered rectification of the register.

The Bank appealed. It contended that the mortgagors occupied with its implied consent and therefore were not in adverse possession for the purposes of the Limitation Act 1980. The central issue was whether ordinary possession by mortgagors could constitute adverse possession against a mortgagee entitled to immediate possession.

1. The appeal was dismissed. The Bank’s legal charge had been extinguished through the operation of sections 15 and 17 of the Limitation Act 1980. Mummery LJ delivered the judgment, with which Hughes LJ and David Richards J agreed.

2. Paragraph 8 of Part I of Schedule 1 applies to all actions to recover land, including an action by a mortgagee. The Deputy High Court Judge had therefore been wrong to hold that adverse possession was unnecessary in a mortgagee’s claim. Paragraph 3 applied because an interest in possession had been assured to the Bank while the mortgagors remained in possession and the Bank had never possessed the property under the assurance.

3. The meaning of adverse possession established in JA Pye (Oxford) Ltd v Graham [2002] UKHL 30 applied generally to actions for the recovery of land. The expression concerns the capacity of the person possessing the land, rather than the quality or wrongfulness of that possession. Ordinary possession by a person in whose favour limitation can run is sufficient. The legislation did not revive the pre-1833 requirement that occupation be wrongful or equivalent to trespass.

4. The mortgagors were in exclusive ordinary possession. Their possession derived from their own registered legal title, not from permission granted by the Bank. The Bank’s tolerance, forbearance and failure to enforce its immediate right did not convert their occupation into permissive possession incapable of satisfying paragraph 8. No express permission had been sought or given, and no implied permission was needed to explain why the mortgagors remained in their own home.

5. The Bank’s right of action initially accrued when the charge took effect. Under section 29(3), it accrued afresh when the last payment towards the mortgage debt was made on 4 January 1993. The mortgagors remained in adverse possession for more than 12 years thereafter, without any further payment or effective written acknowledgment. Sections 15 and 17 consequently barred the action and extinguished the charge.

6. Cotterell v Price [1960] 1 WLR 1097 did not establish that a mortgagee’s right to possession becomes barred merely because recovery of the principal debt is barred. That decision rested on a concession and did not decide the relevant limitation issue.

1. Court of Appeal (Civil Division): The Bank’s appeal was dismissed. The declaration that its second legal charge had been extinguished under sections 15 and 17 of the Limitation Act 1980 was upheld: [2008] EWCA Civ 55.

2. High Court, Chancery Division: Mr Richard Arnold QC, sitting as a Deputy High Court Judge, declared that the charge had been extinguished, ordered rectification of the register and granted permission to appeal. No citation is stated in the judgment.