Parr v Tiuta International Ltd

A judgment for a secured lender does not necessarily merge the borrower’s contractual obligation to pay interest. Where the lender continues to hold and exercise rights under the security, and the security instrument preserves liability for interest, contractual interest may continue until the secured property is sold. After sale, contractual interest cannot continue unless the judgment or another enforceable instrument provides for it. A charging order made for an excessive sum should not ordinarily be discharged merely because the amount was misstated. Where the court has jurisdiction under section 3(5) of the Charging Orders Act 1979, it may vary the order to correct an admitted error, and delay is not an absolute bar where no accrued rights are prejudiced.

The appellant appealed from the Bromley County Court’s refusal to discharge a charging order over his interest in residential property. The charging order secured sums said to be due under an earlier judgment obtained by the respondent lender after enforcing a charge over another property.

The appellant argued that the earlier judgment had merged the contractual obligation to pay interest, so that only judgment interest was recoverable and no balance remained after sale of the charged property. He also argued that the charging order should be discharged because it secured an excessive sum. The central issues were whether contractual interest survived judgment and whether the charging order should be discharged or varied.

1. The appeal was dismissed in relation to discharge, but allowed to the extent of varying the charging order.

2. Entry of judgment may merge a contractual right to interest in the judgment. The question is one of construction of the relevant agreement and security. Here, the charge expressly secured all liabilities together with interest calculated in the manner specified in the facility letter. Until the sale of the secured property, the lender was exercising its rights under the charge. Contractual interest therefore continued to accrue until that sale.

3. The distinction between a mortgage and a charge did not alter the result. The principle that merger does not apply where there is an independent covenant, or to a security distinct from a contract, supported the conclusion that there had been no merger in the circumstances of this case.

4. After the secured property was sold, the lender no longer held the charge and the judgment did not provide for contractual interest thereafter. The charging order application therefore overstated the amount due. The correct secured sum was the balance outstanding at the date of sale, together with applicable judgment interest.

5. An excessive figure did not require the charging order to be discharged. The jurisdiction under section 3(5) of the Charging Orders Act 1979 permitted variation. Although delay and the absence of an earlier appeal were relevant circumstances, they did not prevent correction of an admitted error supplied by the creditor, particularly because future accounting could adjust the figures and no accrued rights were affected.

• High Court (Queen’s Bench Division): The court dismissed the appeal against the refusal to discharge the charging order, but allowed the appeal to the extent of varying it to show the correct amount.
• Bromley County Court: HHJ Mitchell dismissed the application to discharge the charging order on 7 August 2015.