Monks v National Westminster Bank Plc

Mortgage instalments deferred by agreement do not constitute arrears where the parties objectively agreed that the unpaid interest would be added to the secured loan. A lender must not report such agreed deferrals as adverse arrears. Contractual arrangements may be binding even without a further signed capitalisation letter where the parties’ objective agreement and the surrounding documents establish the arrangement. A declaration may properly be granted where it will correct an erroneous financial record and serve a useful purpose. A continuing guarantee remains enforceable absent clear evidence of cancellation; a promise to postpone enforcement does not necessarily prevent judgment for the guaranteed debt.

The claimant, a long-standing bank customer, agreed with the defendant’s relationship manager that mortgage instalments would be deferred for six months on two mortgage accounts, with the resulting interest capitalised. The defendant subsequently treated the instalments as arrears, reported adverse information to credit reference agencies and maintained that the claimant owed the deferred instalments in addition to the mortgage balances.

The claimant sought declarations and corrective relief. The defendant counterclaimed under a guarantee of a company overdraft. The issues were whether the mortgage interest had been double-counted, whether the claimant was in arrears, whether adverse reporting should be corrected, and whether the guarantee remained enforceable.

1. Guarantee. The guarantee had not been shown to have been cancelled and remained a continuing security. The argument under section 140A of the Consumer Credit Act 1974 failed because the guarantee was not a credit agreement. NatWest’s promise, communicated through the Financial Ombudsman Service, to put recovery action on hold was clear and relied upon, but the claimant had not sufficiently altered his position. In any event, the promise postponed enforcement rather than extinguishing the guaranteed debt. NatWest’s entitlement to repayment was established, subject to an undertaking or appropriate future-effective order.
2. Double charging. The mortgage conditions permitted unpaid interest to be added to the secured loan. The arrangements made through the relationship manager objectively provided for six instalments on each account to be missed, with the unpaid interest capitalised. The absence of signed capitalisation letters did not invalidate the arrangements. NatWest nevertheless wrongly maintained for approximately one year that more than £9,300 was owed as arrears in addition to mortgage balances which already included the corresponding interest.
3. Arrears and reporting. “Arrears” bore its ordinary meaning of overdue or behind in discharging liabilities. Since the deferrals were agreed in advance, the claimant was not in arrears. The evidence did not establish that adverse monthly credit reporting had been explained to him. Such reporting was erroneous and was to be corrected, including by suitable communications to credit reference agencies and, if necessary, an injunction.
4. Declaration and costs. The discretionary criteria for declaratory relief were satisfied: justice favoured the claimant, the declaration served the useful purpose of correcting the record, and there was a special reason for granting it. The claimant succeeded on the arrears and reporting issues and substantially on double charging; NatWest succeeded on the guarantee. Costs were ordered on the standard basis.

First-instance judgment. No appellate history is stated in the judgment.