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	England and Wales Court of Appeal (Civil Division) Decisions
You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> Raja v Lloyds TSB Bank Plc [2001] EWCA Civ 210 (24 January 2001) URL: http://www.bailii.org/ew/cases/EWCA/Civ/2001/210.html Cite as: [2001] EWCA Civ 210, [2001] Lloyd's Rep Bank 113, (2001) 82 P & CR DG3, [2001] Lloyds Rep Bank 113, (2001) 82 P & CR 16

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IN THE SUPREME COURT OF JUDICATURE
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM ORDER OF MICHAEL TUGENDHAT QC
(Sitting as a Deputy Judge of the High Court)

		Royal Courts of Justice Strand London WC2
		Wednesday, 24th January 2001

1. LORD JUSTICE JUDGE: Ibrahim Raja was a customer of Lloyds Bank Plc (now Lloyds TSB Bank Plc) ("the Bank"). He owned four properties, one in Thornton Heath and three in Hove. In 1986 he sought and was granted banking overdraft facilities and provided security by way of legal charges on all four of his properties.
2. On 18th March 1998 the defendant obtained orders for possession of two of the Hove properties, and on 22nd October 1988 a similar order was obtained in respect of the third Hove property. A further order in relation to the property at Thornton Heath was not enforced. Between 12th July 1989 and 17th October 1991 the bank sold all three Hove properties for £386,500 which, after deduction of expenses, left a net sum of £356,732.06.
3. In proceedings which began on 29th October 1997 Mr Raja claimed that the sums achieved by the sales were inadequate, representing a significant undervaluation, and that the amounts charged for expenses were excessive. Moreover, he contended that the sums actually realised not only discharged his entire debt to the bank, but that, contrary to its duty under Section 105 of the Law of Property Act, the bank had misapplied the proceeds of sale by paying them to a subsequent chargee, Ashok Patel & Partners, solicitors.
4. Mr Raja's claim for damages was quantified at £133,500. Interest was claimed on this sum and he claimed additional declaratory and other consequential relief. The bank denied liability, asserting that the proceeds of sale were properly paid to Ashok Patel, and counterclaimed for £350,785. In addition, the claims for damages following the alleged undervaluation and excessive expenses were said to be time barred.
5. Save to note that he was hearing an appeal from Master Muncaster, it is unnecessary to recite all the procedural steps which led to the decision by Mr Michael Tugendhat QC, sitting as a deputy judge of the High Court, now under appeal. He concluded that the connected claims arising out of the three Hove properties at a culpable undervaluation were indeed time barred. Leave to appeal against that decision was given by Lord Justice Robert Walker.
6. At the same time Mr Tugendhat also dismissed the appeal from the decision of Master Muncaster who had dismissed the claim by Mr Raja arising under Section 105 of the Law of Property Act 1925 and deriving from the alleged misapplication of the proceeds of sale. In his judgment on the application for permission to appeal this part of the decision Lord Justice Robert Walker, sitting in open court, said:

"The deputy judge could see nothing in the ..... point and, despite the clear submissions made to me ..... neither can I see anything in it. It is an every day occurrence that a mortgagee exercises his power of sale either out of court or after possession proceedings but continues to have a money claim for the balance of the mortgage debt. The fact that the bank lost some measure of its priority through its failure to take the usual precautions on receiving notice ..... cannot affect that."

7. The application for permission was therefore refused, Lord Justice Robert Walker pointing out that permission was being sought for a second tier appeal, and permission would be granted for such an appeal only if an important point of principle is raised. Matters of accounting as between mortgagor and mortgagee did not normally come within that category.
8. Very shortly before the hearing of the appeal, in a skeleton argument received in the Civil Appeal Office on Monday this week, an attempt was made to resuscitate this issue. The argument had been considered and rejected; first by Master Muncaster, then in a reasoned judgment by the judge below who refused permission to appeal, and then by the single Lord Justice sitting in open court who refused permission, and, like the judge below, gave a reasoned judgment.
9. The present application is therefore concerned with a second tier appeal. Section 55 (1) of the Access to Justice Act 1999 provides:

"Where an appeal is made to a County Court or the High Court in relation to any matter, and on hearing the appeal the court makes a decision in relation to that matter, no appeal may be made to the Court of Appeal from that decision unless the Court of Appeal considers that (a) the appeal would raise an important point of principle or practice, or (b) there is some other compelling reason for the Court of Appeal to hear it."

10. In Tanfern Limited v Cameron MacDonald [2000] 1 WlR 1311 Lord Justice Brooke observed that the section introduced a reforming and major change to appeal procedures:

"It will no longer be possible to pursue a second appeal to the Court of Appeal merely because the appeal is `properly arguable' or `because it has a real prospect of success'. The tougher rules introduced by a recent Court of Appeal Practice Direction for `second tier appeals' related only to cases where a would-be appellant had already lost twice in the courts below ..... The new statutory provision is even tougher - the relevant point of principle or practice must be an important one - and it has effect even if the would-be appellant won in a lower court before losing in the Appeal Court."

11. Even assuming, without deciding, that notwithstanding the decision of a single Lord Justice sitting in open court, this Court has jurisdiction to allow an application of the kind advanced by Mr Sen to us in his skeleton argument and orally today, on reading his argument I could find no compelling circumstance or important point of principle which drove me to conclude that the issue canvassed and rejected on three separate occasions should be once more re-argued and reconsidered by the full court. I mean no disrespect to his oral argument if I summarise its effect by saying that so far as I was concerned it seemed clear that the proposed claim which he was seeking to advance was at best speculative. Accordingly, Mr Sen was refused permission.
12. The outcome of this appeal depends on the single question whether Mr Raja's action against the bank is an action "upon a specialty". If so, subject to Section 8 (2) of the Limitation Act 1980, Section 8 (1) provides a twelve year limitation period, and the action would not be time barred. Our attention has been drawn to the view expressed by Mr Justice Potter (as he then was) agreeing with the observation of Lord Justice Oliver in Collin v Duke of Westminster [1985] QB 581 at 601:

"The obvious and most common place of an action upon a specialty is an action based on a contract under seal but it is clear that specialty was not originally confined to such contracts but extends also to obligations imposed by statute (see Aiken v Stewart Wright Agency [1995] 1 WLR 1281 at 1292."

13. The bank's contention is simple. Section 8 has no application. The appropriate limitation period in this case is six years. If so, it is agreed that the present proceedings began after the expiry of that period. The primary claim for damages was based on the bank's duties as mortgagees in possession (a) to obtain the best price reasonably obtainable for the properties, and (b) a duty to incur no more than reasonable expenses in the marketing and sale of the property. The bank admitted a duty to take reasonable care to obtain a proper price for the properties at the date when they were sold.
14. Although this latter formulation is consistent with the way in which the relevant duty was described in Cuckmere Brick Co Limited v Mutual Finance Limited [1971] Ch 949, Downsview Nominees Limited v First City Corporation Limited [1993] AC 295 and most recently in Yorkshire Bank Plc v Hall [1999] 1 WLR 1713, for present purposes the differences between the ways in which the general duty of the mortgagee in possession is described in the pleadings is immaterial. It is, however, more significant to identify the source or the basis of the general duty. In Medforth v Blake [2000] Ch 86 at 102, Sir Richard Scott V-C observed:

"I do not accept that there is any difference between the answer that would be given by the common law to the question what duties are owed by a receiver managing a mortgaged property to those interested in the equity of redemption and the answer that would be given by equity to that question. I do not, for my part, think it matters one jot whether the duty is expressed as a common law duty or as a duty in equity. The result is the same. The origin of the receiver's duty, like the mortgagee's duty, lies, however, in equity and we might as well continue to refer to it as a duty in equity."

15. The Vice-Chancellor was plainly directing attention to - indeed, concentrating on - practical consequences rather than interesting but for the purposes of the case then under consideration, theoretical jurisprudence. As his judgment makes clear however, the duties of the mortgagee in possession are indeed, "duties in equity" and nothing in his analysis of the authorities suggests that he was intending to undermine or place a gloss on the summary of the relevant principles formulated after he had considered all the relevant authorities by Lord Justice Robert Walker in Yorkshire Bank Plc v Hall.
16. There, Lord Justice Robert Walker formulated the principle in this way:

" ..... a mortgagee's duty to the mortgagor or to a surety depend partly on the express terms on which the transaction was agreed and partly on duties (some general and some particular) which equity imposes for the protection of the mortgagor and the surety. The mortgagee's duty is not a duty imposed under the tort of negligence, nor are contractual duties to be implied."

17. The same principle can be found in Parker-Tweedale v Dunbar Bank Plc [1991] Ch 12 and Downsview Nominees Limited v First City Corporation Limited [1993] AC 295. In effect, these are modern manifestations of the principle that, whatever the entitlement of the mortgagee in possession at common law as the legal owner, it would be unconscionable for him to sell the property at a culpable valuation.
18. Nothing in any of these authorities suggest that the present action by Mr Raja could properly be described as an action upon a specialty, and indeed the duties relied on by him in his pleadings are based not on any express or implied terms of any of the individual legal charges but rather on the general obligation imposed by law stemming from the relationship of mortgagor and mortgagee.
19. On behalf of Mr Raja, Mr Sen drew our attention to the decision of this Court in Bishop v Bonham [1988] 1 WLR 742 as the single authority on which to support his proposition that the general duties of the mortgagee in possession, whether arising in equity or in tort, were implied terms of the relevant legal charge. The authority was not drawn to the attention of the judge below. Mr Sen further submitted that the same result followed from the effect of Section 101 of the Law of Property Act read with Clause 4 of the relevant charges. He did not, however, rely on any implication arising in consequence of a breach of tortious obligation. The critical issue in Bishop v Bonham was whether the proper construction of the legal charge then under consideration excluded any possible liability of the chargee for failing to comply with the general legal obligation to which he would normally be subject.
20. While accepting that, in principle, liability could have been excluded by appropriate, clear and express language in the charge, the Court of Appeal rejected the contention that the legal charge under consideration had had that effect. In the course of his judgment, Lord Justice Slade (at page 752) linked the general duty imposed by law with an obligation implied in the legal charge. He said:

"The duty of care imposed on a selling mortgagee, by what I may call the Cuckmere principle [1971] Ch 949, is essentially in the nature of an obligation implied by law, and as such is, in my judgment, undoubtedly capable of being excluded by agreement."

21. Having referred to the speech of Lord Diplock in Photo Production Limited v Securicor Transport Limited, Lord Justice Slade continued:

"The duty imposed by the law to take care to obtain a proper price in realising a mortgage security would, in my judgment, be an implied obligation of the nature referred to by Lord Diplock."

22. I have some reservations whether Lord Justice Slade's remarks were intended to convey the meaning for which Mr Sen contends, that is that the general duty recognised at law formed the basis for implied contractual terms in the legal charge. Lord Justice Slade appears to have been summarising the principle in Cuckmere, which he was expressly seeking to apply. Accordingly I shall refer briefly to Lord Justice Salmon's summary of the history of the principle in Cuckmere Brick Co Limited v Mutual Finance Limited [1971] Ch 949 at 967:

"It would seem, therefore, that many years before the modern development of the law of negligence, the courts of equity had laid down a doctrine in relation to mortgages which is entirely consonant with the general principles later evolved by the common law."

23. In my judgment, the decision in Bishop v Bonham is found at page 753, where Lord Justice Slade said:

"With due respect to that argument, [of counsel] in my judgment it involves a misconstruction of the words `as you may think fit.' In my judgment where the general law imposes a duty on a person to act with reasonable care in carrying out a particular transaction, the natural construction of words authorising a person to carry out such a transaction in such manner and upon such terms and for such consideration `as you may think fit' is as authorising that person to carry out the transaction in such manner (and so on) as he thinks fit, within the limits of the duty of reasonable care imposed by the general law - no more, and no less."

24. Nevertheless, on Mr Sen's construction of Lord Justice Slade's language in Bishop v Bonham, he submitted that the breach of duty alleged by Mr Raja constituted a breach of the implied term in the legal charge that if a sale were to take place there should be no culpable undervaluation and if there were there would be liability in damages. Accordingly, he suggested that the present claim was founded on the legal charge, hence the action was "upon a specialty".
25. The difficulties with this argument seem to me to be that the duties imposed by the general law do not depend on the existence of an enforceable contract between the parties. The identical duty is owed by the first mortgagee to each subsequent mortgagee. It is also owed to any relevant surety. Receivers owe an identical duty. None of these manifestations of the duty relied on by Mr Raja is dependent on or represents an implied contractual obligation.
26. In reality, if Mr Sen were right about what Lord Justice Slade meant by his observations in Bishop v Bonham, in my judgment, they would appear to be inconsistent both with the historical origin of the principle and modern authority. I agree with the submission made in his skeleton argument by Mr Handyside that Lord Justice Slade's remarks should be examined in the context of a decision in which the scope and origin of the duty were not under consideration and should therefore be regarded as obiter. That view is confirmed by the fact that although the decision in Bishop v Bonham was cited in argument in both Parker Tweedale v Dunbar Bank Plc and Yorkshire Bank Plc v Hall, the essential principle was expressed in terms which excluded the implied contractual obligation for which Mr Sen has contended.
27. I do not consider that Section 101 and Clause 4 to which Mr Sen drew our attention produces any different result. In my judgment, this present action was not an action upon a specialty. The relevant limitation is six years. These proceedings are time barred. I would dismiss the appeal.
28. LORD JUSTICE MANCE: I agree with the judgment and the reasoning of Lord Justice Judge on the renewed application for permission to appeal in respect of a point said to arise under Section 105 of the Law of Property Act.
29. I add only this. As my Lord mentioned, this follows a refusal in open court by Lord Justice Robert Walker. I express no view on the question whether we have jurisdiction to re-entertain it, but assuming, as my Lord did, that we do, it raises no significant point of principle or practice. There is no particular reason why we should entertain it. It is said that the bank took the wrong date as the cut off date for calculating Mr Raja's indebtedness; it took March 1986 when he owed £72,000, and it is said that it should have taken June 1986, by when the debt was £202,000 as a result of the advancing by the bank to Mr Raja of further monies. Out of the proceeds of the later sales of Mr Raja's properties, more of his indebtedness to the bank would then have been discharged and less would have gone to subsequent creditors, particularly solicitors Ashok Patel who had been acting for him. However, one way or the other, Mr Raja's overall indebtedness has still been or would still have been discharged.
30. Mr Sen argued that Mr Raja would, in some way, have had arguments as to his indebtedness to the bank and his indebtedness to subsequent creditors. That may be. But it seems to me that such arguments were not affected by any complaint that the wrong date was taken. In my judgment it is speculative in the extreme to suggest that Mr Raja would have been better off had the bank taken a later date than was taken.
31. On the substantive point on which we heard the appeal, I agree with Lord Justice Judge's analysis of the authorities; the duty arises in equity, not in contract or tort. I accept that it is the relationship arising from the existence of a mortgage that gives rise to any duty in equity. That is not the same as saying an action for breach of such duty is an action upon the specialty within Section 8 of the Limitation Act.
32. Aiken v Stewart Wrights Agency [1995] 1 WLR 1281 illustrates the position. In that case, a number of specialty contracts with Lloyd's names existed and gave rise to contractual claims for breach of duty against the members' agency. In respect of those claims it was held that the limitation period was twelve years under Section 8 of the Limitation Act. However, the relationships between Lloyd's names and the underwriting agency created by the same specialty contracts were also capable of giving rise, on authority, to tortious duties. No suggestion was made that the limitation period in respect of any breach of such tortious duties should be twelve rather than six years. The only submissions raised regarding the tort claims were quite different (see pages 1292 to 1295 B). The claims were subject to the limitation period in Section 2 of the Act. So here any duty in equity arose, onauthority, outside the contract. The judge was right to conclude that the limitation period, although not directly governed by Section 2, was by analogy six years in the light of Sections 2 and 36 of the Act.
33. THE VICE-CHANCELLOR: I agree with my Lords that the application and the appeal should be dismissed for the reasons that each of them has given.
34. I add a few words of my own only in relation to Mr Sen's submission that Lord Justice Slade was somehow striking out in a different direction by the observations that he made in Bishop v Bonham [1988] 1 WLR 742. The suggestion is that Lord Justice Slade found the obligations of the mortgagee to be a term implied in the contract so that as the contract in this case was under seal the obligation is a specialty. I do not think that the words he used can be open to such an interpretation. He said quite clearly at the top of page 752:

"The duty of care imposed on a selling mortgagee, by what I may call the Cuckmere principle [1971] Ch 949, is essentially in the nature of an obligation implied by law ..... "

35. That was evidently a reference back to that part of the judgment of Lord Justice Salmon in Cuckmere Brick Co Limited v Mutual Finance Limited [1971] 1 Ch 949 at 967:

"It would seem, therefore, that many years before the modern development of the law of negligence, the courts of equity had laid down a doctrine in relation to mortgages which is entirely consonant with the general principles later evolved by the common law."

36. It seems to me clear that when later on in his judgment in Bishop v Bonham Lord Justice Slade referred, as he did on a number of occasions, to the general law imposing a duty he was there referring, by way of shorthand, to the obligation on a mortgagee as described by Lord Justice Salmon in Cuckmere. Obviously, Lord Justice Slade was not under any misapprehension given the number of references he made to Cuckmere, to the nature of the obligation as described by Lord Justice Salmon. For the reasons my Lords have given, I agree that both the application and the appeal should be dismissed.
Order: Appeal dismissed