Royal Bank of Scotland Plc v Luwum (Rev 1)

Where a creditor gives a debtor a defined period to remedy a default, and the debtor changes position in reliance on that assurance, the creditor may be estopped from enforcing its rights before the period ends. The assurance need not amount to a contract where consideration is uncertain. The arrangement’s plain sense governs: here it created a three-month amnesty followed by a review, rather than a permanent waiver of enforcement rights or a promise to restore the account. Possession proceedings issued during the amnesty, after reliance and while the account was within its limit, were premature.

The Bank held a secured current account and overdraft facility secured by a legal mortgage over Mr Luwum’s home. After the account exceeded its limit, the Bank demanded full repayment. Mr Luwum said that a subsequent telephone conversation gave him three months to reduce the balance, during which enforcement would be held in abeyance and the position reviewed.

The Bank issued possession proceedings during that period. A possession order was initially made by District Judge Smith, then set aside by District Judge Reeson to allow a fuller hearing. At trial, His Honour Judge Inglis found that a conversation had occurred but that it had not compromised the Bank’s rights, and made a possession order on 8 August 2007. The appeal concerned the legal effect of the arrangement and whether the proceedings had been issued prematurely.

1. Appeal allowed. Rimer LJ delivered the reasons, with which Rix LJ and Sir Robert Morritt agreed. The possession order was set aside and the proceedings should have been dismissed.
2. On the judge’s unchallenged primary findings, the arrangement was that Mr Luwum would have three months to bring the account within the permitted limit, after which the Bank would review the position. Its plain sense was a three-month amnesty during which the Bank would hold its hand. It was not an arrangement under which the Bank retained the right to issue possession proceedings immediately. The Bank remained free to decide what to do after the review, and was not committed to restoring the account to its former operation.
3. The Bank’s legal entitlement to enforce the mortgage after the formal demand was distinct from the effect of its subsequent promise. It was unclear whether the arrangement created a contract, because it was unclear that consideration had moved from Mr Luwum to the Bank. Nevertheless, the arrangement amounted to a representation or promise that the Bank would refrain from enforcing its rights for three months.
4. Mr Luwum relied on that promise by borrowing money from friends and family and making a payment towards reducing the account balance. The Bank was therefore estopped from reneging on the promise and issuing proceedings before the three-month period expired. The proceedings were issued during that period and when the account had been brought within its permitted limit, defeating the purpose of the arrangement.
5. The trial judge erred in treating the Bank as having reserved an immediate right to issue proceedings. The subsequent fact that the balance later exceeded the limit did not cure the premature issue of proceedings.

• Court of Appeal (Civil Division): Appeal allowed and possession order set aside: [2008] EWCA Civ 648.
• Nottingham County Court: His Honour Judge Inglis made a possession order on 8 August 2007.
• Nottingham County Court: District Judge Smith made an earlier possession order on 19 July 2006. District Judge Reeson set it aside on 28 October 2006 to permit the defence to be heard properly.