Nautch Ltd & Ors v Mortgage Express & Anor

A mortgage loan may provide that the whole debt becomes due automatically when arrears reach the specified contractual threshold. Clearing the arrears does not retrospectively remove the right to appoint or retain receivers, subject to any effective waiver.

Acceleration of repayment on default does not ordinarily engage Unfair Contract Terms Act 1977 section 3(2)(b), because it alters the borrower’s repayment obligations rather than the lender’s contractual performance. The fixed-rate period is determined by the mortgage offer. Receivers must exercise independent judgment and protect the interests of both mortgagee and mortgagor while pursuing repayment of the mortgage debt.

The claimants were associated companies that had taken out interest-only buy-to-let mortgages from Mortgage Express. Mortgage Express appointed Walker Singleton as receivers over a number of properties after alleged arrears. Some appointments were invalid because Mortgage Express mistakenly treated the securities as cross-collateralised, while others were valid on alternative contractual grounds.

The claimants challenged the enforcement action, the operation of the arrears agreements, interest and fee charges, the receivers’ conduct, and the recoverability of losses. They also sought accounts. The central issues concerned the effect of contractual arrears provisions, the scope of any waiver, the receivers’ duties, liability for invalid appointments, and the appropriate costs order.

1. Mortgage debt and receivership. The loan conditions made the whole mortgage debt due once overdue sums equalled at least two monthly payments. Mortgage Express could appoint receivers under the mortgage conditions, even if the arrears were later paid, and could rely on a valid ground not specified when the appointment was made: [2007] BCC 640. The Arrears Agreement suspended enforcement only in respect of existing arrears and required strict monthly payments of £20. It did not protect later defaults.
2. UCTA. Section 3(2)(a) of the Unfair Contract Terms Act 1977 did not apply because the relevant provisions were not exclusion or limitation clauses. Section 3(2)(b) was also inapplicable. Following the reasoning in Paragon Finance v Nash [2002] 1 WLR 685, acceleration altered the borrower’s repayment obligations and did not render Mortgage Express’s contractual performance substantially different.
3. Interest and fees. The fixed-rate period was the period stated in each mortgage offer, not necessarily 36 months. The first payment provisions permitted additional interest for the completion month and, where applicable, deferred payment. Early collection of a first payment did not produce an overall overcharge, although modest consequential bank charges were recoverable. Receiver remuneration of 10 per cent of rents was permitted by the mortgage conditions and Law of Property Act 1925 section 101(3), notwithstanding section 109(3), applying Allan & Another v UCB Group Limited.
4. Accounts and liability. A general account was refused where detailed account information had been provided and a formal inquiry would be disproportionate, applying Hurst v Bryk & Ors [1999] Ch. 1. For an invalid appointment, Mortgage Express and the receivers were jointly and severally liable for properly proved loss arising from the appointment. For separate wrongdoing, liability rested on the wrongdoing defendant alone unless agency was established.
5. Receivers’ duties. Receivers owed real duties to the mortgagor as well as the mortgagee. They had to exercise their own judgment and could not simply await or follow mortgagee instructions. Their primary purpose remained repayment of the mortgage debt, but they had to protect and preserve the property and consider both parties’ interests. The receivers’ failure to act on a reletting opportunity caused recoverable loss in the Gnathic case. The approach was supported by Selven Properties Ltd & Anor v RBS & Ors [2004] 1 WLR 997 and distinguished from the more extreme facts in Knight v Lawrence [1993] BCLC 215.
6. Disposition and costs. The claims largely failed. Limited sums were recoverable for invalid appointments, wrongful direct-debit operations, bank charges, and the receivers’ breach concerning Gnathic. Mortgage Express received its costs on the indemnity basis. Walker Singleton received standard-basis costs before the June 2011 offer and indemnity costs thereafter, with 90 per cent of its pre-offer costs in the Gnathic claim.