Alexander v West Bromwich Mortgage Company Ltd

Contractual provisions dealing with the same subject matter are inconsistent only where they contradict one another or are in clear and irreconcilable conflict, so that effect cannot fairly be given to both. A term may qualify or modify another without creating inconsistency. The contract must be read as a whole, and an agreed order of precedence is engaged only if reconciliation is impossible. A mortgage offer specifying a tracker rate may therefore be qualified by standard conditions permitting variation for stated reasons. Such a power must be exercised honestly and in good faith, and not arbitrarily, capriciously or unreasonably. A stated mortgage term does not necessarily exclude an express contractual right to require early repayment.

The claimant, representing the Property 118 Action Group, challenged provisions in buy-to-let mortgage documentation issued by the defendant lender. The mortgage offer stated an initial fixed rate followed by a variable rate linked to the Bank of England Base Rate plus a specified margin. The mortgage conditions allowed the lender to vary the rate for specified reasons, including market conditions and prudent business operation.

The claimant argued that the offer prevailed because it was inconsistent with those conditions. He also argued that the offer’s stated 25-year term and repayment schedule were inconsistent with a condition allowing the lender to require repayment on one month’s notice. The court had to construe the documents together and determine whether either alleged inconsistency existed.

1. Interest-rate variation. The court applied the approach in Pagnan SpA v Tradax Ocean Transportation [1987] 2 Lloyd’s Rep. 342: inconsistency requires contradiction or conflict such that effect cannot fairly be given to both provisions. The court must read the contractual documents as a whole. A term which qualifies or modifies another does not necessarily contradict it.
2. The offer specified the rate payable after the fixed period, namely the Bank of England Base Rate plus 1.99%, and contemplated variation following changes in Base Rate. Clause 5 of the Mortgage Conditions expressly recognised the rates specified in the offer but permitted variation for additional stated reasons. The provisions could sensibly operate together, with clause 5 qualifying the offer. There was no clear and irreconcilable discrepancy, so the order-of-precedence clause was not engaged.
3. The lender’s power under clause 5 remained subject to an obligation to act honestly and in good faith, and not arbitrarily, capriciously or unreasonably. The court’s task was contractual construction. Whether reliance on the standard term was fair in circumstances where the offer did not draw attention to it was not before the court.
4. Early repayment. The stated 25-year term and repayment provisions did not contradict clause 14, which allowed repayment to be required on one month’s notice. Read as a whole, the offer contemplated that the mortgage might end before 25 years, while the Mortgage Conditions supplied the circumstances for early termination. Section 8 of the Administration of Justice Act also contemplated repayment following a mortgagee’s demand in the absence of default.
5. The claimant was not entitled to the declarations sought.

Not stated in the judgment.