Graves v Capital Home Loans Ltd

The Court of Appeal dismissed the appellant's challenge to the mortgagee's conduct and sale of a buy-to-let property. The court considered the application of ss.140A and 140B of the Consumer Credit Act 1974 to a mortgage relationship and concluded that, although those provisions applied, the inclusion of a contractual power to appoint a Law of Property Act receiver on the ground of the borrower's mental incapacity (clause 9.1.6 of the mortgage conditions) was not in itself unfair. The court held that the appointment of receivers was justified by arrears (condition 9.1.1) and, in any event, the loss complained of flowed from the mortgagee's exercise of its power of sale after the receivers were discharged.

On the factual matrix the court found that the lender had largely followed available good practice in investigating the borrower’s mental health, and that the lender’s commercial decision to sell the property in the light of a long history of arrears and failed repayment arrangements was not unfair under ss.140A/140B. The appellant’s pleaded reliance on the Equality Act 2010 and lack of medical evidence meant that discrimination was not established on the material before the court.

Background and parties: The appellant, Mr Graves, obtained a buy-to-let mortgage from Capital Home Loans Limited in November 2007. The mortgage contained special conditions making the statutory power of sale immediately exercisable in certain events and a specific clause (9.1.6) permitting appointment of a receiver if the borrower became incapable by reason of mental incapacity of managing his affairs. The borrower fell into arrears repeatedly and was hospitalised and sectioned under the Mental Health Act 1983 in March 2012. CHL obtained evidence of incapacity via a Debt and Mental Health Evidence Form, appointed Law of Property Act receivers in May 2012 and thereafter sold the property in October 2012.

Procedural posture: Two possession/damages claims were commenced in the Ipswich County Court. The district judge ordered particulars and the claims were treated as including claims for damages for trespass and improper appointment of receivers. HH Judge Holt dismissed the claims. Permission for a second appeal to the Court of Appeal was granted on limited grounds by Longmore LJ (after an initial refusal by Floyd LJ), confined to whether ss.140A and 140B of the Consumer Credit Act 1974 applied and, if so, whether the relationship was unfair because of clause 9.1.6 and/or the way CHL exercised its rights given knowledge of the appellant’s mental disability.

Issues framed: (i) Do ss.140A and 140B CCA 1974 apply to the mortgage and, if so, is the creditor–debtor relationship unfair because of (a) the inclusion of clause 9.1.6 or (b) the way CHL exercised or enforced its rights? (ii) Were there arguable claims under the Equality Act 2010 or under industry guidance in the circumstances?

Court’s reasoning: The court accepted CHL’s concession that ss.140A/140B applied but found that inclusion of clause 9.1.6 was not unfair: a mortgagee requires express powers to intervene where a mortgagor lacks capacity and the appointment of receivers to collect rents and preserve security is commercially reasonable and commonly used. The court held that the appointment of receivers was supportable on arrears grounds (condition 9.1.1) and that any arguable unfairness must focus on the manner of exercising the power of sale. On the facts, CHL had engaged with the appellant, used the DMHEF procedure, and broadly complied with relevant guidance (OFT and Money Advice Liaison Group). The lender’s decision to demand redemption or to sell in light of a lengthy history of arrears and failed repayment engagements was commercially justifiable and not unfair under ss.140A/140B. The Equality Act point lacked supporting medical evidence and was too late to be raised on appeal.

Remedy sought and result: The appellant sought relief under s.140B including repayment or compensation for loss arising from sale. The Court dismissed the appeal and refused to grant the relief claimed.

Appeal dismissed. The Court held that ss.140A and 140B CCA 1974 applied but that the inclusion of clause 9.1.6 in the mortgage was not unfair and that CHL’s exercise of its rights, including appointment of receivers and subsequent sale, was not unfair in all the circumstances. The appellant failed to establish discrimination under the Equality Act 2010 on the material before the court.

Appeal from Ipswich County Court (HH Judge Holt, 2IP00405). Permission for a second appeal was initially refused on paper by Floyd LJ but subsequently granted by Longmore LJ on limited grounds; heard in the Court of Appeal (Civil Division) resulting in dismissal [2014] EWCA Civ 1297.