Graves v Capital Home Loans Ltd

Under sections 140A and 140B of the Consumer Credit Act 1974, fairness is assessed by reference to the agreement’s terms, the creditor’s enforcement of its rights, other relevant conduct, and all relevant circumstances. A power to appoint a Law of Property Act receiver when a borrower cannot manage financial affairs is not inherently unfair in a commercial buy-to-let mortgage. The main focus is ordinarily the manner in which the mortgagee exercises its power of sale. Unfairness will be exceptional where the power arose from payment default, and the lender may consider the borrower’s payment history and demonstrated ability to maintain the mortgage. Relief also requires a causal link between the impugned conduct and the alleged loss.

Mr Graves appealed from the dismissal of his claim against Capital Home Loans Ltd concerning the appointment of receivers and the subsequent sale of his buy-to-let property. His mortgage account had a substantial history of arrears. He alleged that the relationship was unfair because of the contractual power to appoint a receiver, the manner in which the lender exercised its rights, and its treatment of his mental health difficulties.

The County Court rejected his allegations and struck out or dismissed the claim. Permission for a second appeal was granted on the application of sections 140A and 140B of the Consumer Credit Act 1974, including whether the mortgage relationship was unfair because of the contractual term or the lender’s enforcement conduct.

1. Appeal dismissed unanimously. Lords Justices Underhill and Briggs agreed with the judgment of Lord Justice Patten.
2. Capital Home Loans conceded that sections 140A and 140B of the Consumer Credit Act 1974 applied to the mortgage, notwithstanding that the amount of credit meant it was not a regulated agreement. The issue was whether the relationship was unfair because of the contractual term or the lender’s enforcement of its rights.
3. The inclusion of a term permitting appointment of a Law of Property Act receiver where the borrower became incapable through mental incapacity of managing his affairs was not unfair. In an essentially commercial buy-to-let mortgage, the power protected the lender’s security and could also protect the borrower’s interest in maintaining the tenancy and meeting mortgage payments. The requirement that the power of sale be exercisable before appointment of a receiver followed from section 109(1) of the Law of Property Act 1925 and did not itself create unfairness. The same reasoning applied to a receiver appointed following breach of a mortgage term, consistently with Rahman v HSBC Bank plc [2012] EWHC 11 (Ch).
4. The relevant focus was the manner and circumstances in which the power of sale was exercised. It would be exceptional for a mortgagee to act unfairly where the power had become exercisable because of non-payment. The lender was entitled to take account of the long history of arrears, previous attempts to accommodate the borrower, the commercial position of the mortgage, and the absence of evidence that the borrower could maintain future instalments. The guidance concerning borrowers with mental health problems did not require the lender to disregard those matters.
5. The appointment of receivers was not causally relevant to the alleged loss. The receivers did not mismanage the property, and the loss resulted from the later decision to sell as mortgagee in possession. The Equality Act argument was raised too late and lacked relevant findings or medical evidence establishing disability within section 6 of the Equality Act 2010.

1. Court of Appeal (Civil Division). The court heard a second appeal and dismissed it.
2. Ipswich County Court, HH Judge Holt. The judge treated the proceedings as including a claim for trespass damages and rejected the allegations concerning arrears, receiver appointment, and industry guidance.
3. Ipswich County Court, Deputy District Judge. The claims were treated as applications for interim possession against a trespasser and were held not to be maintainable after the property had been sold.