Alexander (representative of the "Property118 Action Group") v West Bromwich Mortgage Company Ltd

Where specially agreed terms and printed standard conditions are subject to an inconsistency clause, the court approaches them objectively, without striving either to find or avoid inconsistency. Terms are inconsistent when effect cannot fairly or sensibly be given to both, assessed with regard to rationality, commercial common sense and the contract’s main object.

A standard condition cannot transform or negate a specifically agreed mortgage product. A discretionary power to replace an agreed tracker rate, and an unrestricted right to demand repayment of a 25-year loan on one month’s notice without default, were therefore inconsistent with the bespoke offer and were not incorporated.

The borrower obtained a buy-to-let, interest-only mortgage whose offer specified a 25-year term, an initial fixed rate and thereafter a rate equal to the Bank of England Base Rate plus 1.99%. Printed Mortgage Conditions purported to permit the lender to vary the rate for broad reasons and to require full repayment on one month’s notice without default.

Teare J held that those conditions were not inconsistent with the offer and were incorporated. The borrower appealed. The central questions were whether the rate-variation condition and the unrestricted repayment condition could fairly and sensibly coexist with the specially agreed product description and term.

1. Appeal allowed on both issues. The rate-variation provision in clause 5 and the unrestricted one-month repayment provision in the first bullet point of clause 14 were inconsistent with the specially agreed offer and were not incorporated into the mortgage contract.

2. Where a contract contains an inconsistency clause, the court should approach the documents objectively and without a predisposition either to find or avoid inconsistency. Qualification or modification alone is insufficient. Inconsistency exists where provisions contradict or conflict so that they cannot fairly or sensibly be read together. The inquiry includes rationality, commercial common sense and the contract’s main purpose.

3. The offer defined the post-fixed-period rate as the Bank of England Base Rate plus 1.99% until the end of the term. Clause 5 instead permitted variation for broadly specified or unspecified valid reasons. Subject only to the implied restriction recognised in Paragon Finance plc v Nash [2002] 1 WLR 685, it would permit the lender to remove the tracker element or convert the loan into another product. That was transformation and negation of the agreed product, rather than qualification or modification.

4. The 25-year term was central to the buy-to-let, interest-only transaction. An unrestricted power to require repayment on one month’s notice, despite full performance and no event akin to default, would deprive the borrower of the loan term and undermine the contemplated letting arrangements. It could not fairly or sensibly be read with the lender’s obligation to provide the agreed mortgage for 25 years.

5. Sharp LJ agreed with both judgments. Sir Brian Leveson P agreed with Hamblen LJ and added that any power to alter the 1.99% premium had to be made clear in the offer. Any non-default termination power likewise had to appear clearly in the offer and be carefully circumscribed so that it did not deprive the borrower of the benefit of the bargain.

1. Court of Appeal (Civil Division): The appeal was allowed on both issues. Clauses 5 and 14, first bullet point, were held inconsistent with the specially agreed offer and were not incorporated.
2. High Court, Queen’s Bench Division, Commercial Court: Teare J held that the printed conditions were not inconsistent with the offer, were incorporated and could be relied upon by the lender. No citation is stated in the judgment.