Paul Evans & Anor v Swansea Building Society

1. This is the claimants’ application by a notice filed on 3 April 2024 for an injunction to restrain the defendant building society (i) from appointing a receiver in respect of their property at Mumbles Road, Swansea, and (ii) from making any demands for repayment under the legal charge. The application is made in a Part 8 claim that was commenced on the same day, 3 April 2024, and the lengthy particulars of claim supporting the Part 8 claim set out the detail for the same relief that is sought on the application for an interim injunction. I will come back to that point later.

2. The story can begin with an all-moneys legal charge dated 7 December 2018, which was granted to the defendant building society as security for a debt of something over £400,000. A further advance of some £300,000 was made in October 2020 for the purpose of financing extension, improvement, and renovation works at the property. That further advance was made pursuant to a written offer in October 2020, but was secured by the original legal charge.

3. The defendant says that the term applicable to the further advance expired in October 2023 and that it is entitled to full repayment of the further advance on three grounds, namely, the expiration of the 3-year term for which the advance was made and the occurrence of two enforcement events giving it a right to immediate repayment of all moneys secured, one being untruthful declarations that were made to support the advance and the other being the demolition of the house without its prior written consent.

4. The second ground (the allegation of untruthfulness) relates to the application for a mortgage in 2018 when, on the application form, under the section dealing with credit history, the claimants gave the answer “N” (for “No”) to two questions: “Have you ever missed a payment, made a late payment or defaulted on any credit agreement?” and “Have you ever been party to insolvency proceedings, bankruptcy or made a formal arrangement with your creditors?” The negative answer given by each claimant to both of those questions was, and is accepted to be, incorrect. The claimants’ argument is that the declarations and the answers were in fact completed by a servant or agent of the defendant building society, who also (it is said) made numerous other mistakes in completing the form. The defendant’s response is that, while it is accepted that the actual answers were filled in by the person who worked for the building society, the declaration of truth was signed (as is accepted) by the claimants.

5. The third ground (unauthorised demolition of the house) arises in this way. The originally anticipated scheme was for extension, renovation, and redevelopment of the existing house. However, in June 2021 the local planning authority approved an application for a different scheme of development involving demolition of the existing dwelling and the building of a new dwelling. (The formal grant of planning permission was in August 2021.) The claimants tell me that a copy of that planning permission was given to the defendant building society in March 2022 and that the existing dwelling was demolished in October 2022. The defendant says that the demolition was without its prior written consent and amounts to an event that in and of itself would justify the demand for immediate repayment.

6. In my judgment, the position regarding the application for an injunction is straightforward. The defendant has already issued a demand for repayment. Whether or not it was entitled to do that is one question. But an injunction to restrain it from issuing a demand would be a classic case of shutting the stable door after the horse has bolted, because it has been done.

7. The position regarding the appointment of a receiver is this. The defendant maintains that as legal charge it has the right to appoint a receiver. The only reference that has been identified before me to the appointment of a receiver comes in a letter of demand dated 20 March 2024, which in its third page states: “We give notice with reference to the mortgage that our client proposes to exercise the power and remedies conferred upon it as mortgagee by the Law of Property Act, 1925, as varied or extended by the mortgage, by sale of the property or otherwise.” … Clause 19 of the charge also requires you to pay all costs and fees incurred by our client in recovering the monies secured thereby. These will include any fees and costs charged by any receivers appointed over the property as well as the costs incurred by our client in engaging legal advisers. You will also be liable for the society’s own costs as shown on the enclosed list of standard fees and charges, any such costs will be charged to your mortgage account”.

8. The particular step that the defendant has actually threatened to take and in terms stated that it will take is to commence a claim for possession of the property with a view to exercising its power of sale. If the defendant commences a possession claim, it will be open to the present claimants (as to any claimants) to seek to defend the possession claim. That is a not a matter that requires or justifies Part 8 proceedings or the grant of an interim injunction. The evidence does not show any reason to suppose that the appointment of a receiver is imminent or that there is a strong possibility or probability that, unless restrained by injunction, the defendant will appoint a receiver. Mr Forsyth, for the defendant, made clear that the defendant reserves it rights in respects of available remedies, but he pointed out that the appointment of a receiver would generally be unlikely unless the chargee saw a particular reason for it, for example in order to preserve the building—for example, from demolition, which is another horse that has bolted in this case. In my judgment, for that reason alone, it would be inappropriate to grant an injunction of an anticipatory nature, just in case the defendant were to decide not only to seek possession and sale through action but also to appoint a receiver.

9. However, I go back to the underlying issues in the case. The arguments on the Part 8 claim seem to me to be essentially the same as those on the application for an interim injunction. The basic contentions by the claimants are as follows. As a matter of construction, the moneys under the further advance have not become due. Alternatively, if as a matter of construction the moneys under the further advance have become due, the defendant has waived its entitlement to seek immediate repayment of those moneys. Further, if the moneys have not fallen due for repayment by the expiration of the term, the defendant is not entitled to demand payment on the basis of either untruthful declarations or unpermitted demolition.

10. I turn to consider the terms of the charge. Clauses 1 and 4 indicate that it is an all-moneys charge. Clause 2.1 provides: “The Mortgagor covenants with the Lender that the Mortgagor will pay to the Lender or discharge all Secured Liabilities on the due date or dates for payment or discharge or, in the absence of an agreed or specified due date, immediately on demand by the Lender.” At the time when the charge was granted, the secured liability was a loan for a fixed term of 30 years. There is no question of that having become due or being capable of demand independently of some other reason.

11. Clause 9 contains covenants by the mortgagor (that is, the claimants) at all times during the continuance of the security. I need only refer to clause 9(e), headed “Alterations”, which is a covenant: “Not without the previous written consent of the Lender, not to be unreasonably withheld or delayed, to demolish, pull down, remove or permit or suffer to be demolished, pulled down or removed any building, installation or structure for the time being upon the Property or, except in connection with the renewal or replacement of it, any fixtures or erect or make or suffer to be erected or made on the Property any building, installation, structure or material alteration or a change of use of it or otherwise destroy or injure in any manner or by any means lessen or suffer to be lessened, to any material extent, the value of the Property.” I have tried to read that aloud in a way that brings out the structure of the clause. It can be analysed as a covenant in the following parts: • Not (without the previous written consent of the Lender, not to be unreasonably withheld or delayed) to demolish, pull down, remove or permit or suffer to be demolished, pulled down or removed any building, installation or structure for the time being upon the Property • Not (without the previous written consent of the Lender, not to be unreasonably withheld or delayed) to demolish, pull down, remove or permit or suffer to be demolished, pulled down or removed, except in connection with the renewal or replacement of it, any fixtures • Not (without the previous written consent of the Lender, not to be unreasonably withheld or delayed) to erect or make or suffer to be erected or made on the Property any building, installation, structure or material alteration or a change of use of it or otherwise destroy or injure in any manner or by any means lessen or suffer to be lessened, to any material extent, the value of the Property.” What the clause does not mean is that the mortgagor can, without consent, demolish buildings on the land in connection with the renewal or replacement of the buildings. That is governed by the earlier part with consent not to be unreasonably withheld. That consent is required to be written consent; it is not suggested that there was written consent to the demolition of the property.

12. Clause 12 of the charge is headed “Enforcement Events” and begins: “If any of the following events shall occur, then the Secured Liabilities shall become immediately due and payable at any time on demand by the Lender and the Lender shall cease to be under any further obligation to advance monies to the Mortgagor: (a) the Mortgagor fails to pay any of the Secured Liabilities when due or any sum due under this charge and the amount unpaid is at least equal to two monthly payments of a loan for which this Charge forms security and the Mortgagor has failed to remedy the breach within a month of the Lender requesting the mortgagor to do so; or (b) the Mortgagor commits any breach of clauses [several are listed, including clause 9] (not being an obligation purely for the payment of money) and either such breach is in the opinion of the Lender not capable of remedy or such breach is in the opinion of the Lender capable of remedy and is not remedied within a Month after the earlier of the date of notice by the Lender requiring such remedy or the date on which the Mortgagor first becomes aware of the breach; or (c) any representation or warranty made or repeated by the Mortgagor in or in connection with this Charge is or proves to have been untrue or incorrect in any material respect when made or repeated with reference to the facts and circumstances existing at such time”. So clause 12(a) relates to failing to pay moneys when due. Clause 12(b) relates to a breach of a clause, including clause 9, that is incapable or remedy or, if capable of remedy, not remedied. Clause 12(c) relates to false representations or warranties made in connection with the charge.

13. I turn to consider the offer of loan in October 2020, which has been the focus of most of the discussion before me.

14. It is, perhaps, helpful to begin with a related document, namely the Mortgage Suitability Report dated 15 October 2020. That is a document from the defendant, addressed to the claimants. On the second page, under the heading “Mortgage Term” and in the course of explaining why this mortgage offer is suitable, the author of the report says: “I have recommended a mortgage term of 3 years which will provide sufficient time for you to get the renovation / extension works completed.”

15. The mortgage offer was actually dated the previous day, 14 October 2020. It shows that the loan to be granted was £770,000, which was the sum of (i) the existing debt, (ii) a mortgage arrangement fee and (iii) the further advance of £300,000. In box 2, “Main features of the loan”, it says: “Duration of the loan: 3 years” and “This is an interest only mortgage.” At the foot of that box, it says: “This mortgage would be secured on your home, 71 Mumbles Road, etc. This is an interest only loan. You will still owe £770,000 on an interest-only basis at the end of the mortgage term.” In box 5, “Amount of each instalment”, it says: “You will have to make 1 payment of £2,757.22 followed by 34 payments of £1,732.50”. It continues: “Because this is an interest only loan you will need to make separate arrangement to repay the £770,000 you will owe at the end of the mortgage term. You have stated that you intend to repay the amount at the end of the repayment term by converting to a new capital and interest repayment mortgage following completion of the development of the project.” Box 6 recorded the right of early repayment. Box 16 provides: “If we fail or delay in exercising in any right or remedy under this offer document this does not mean that we have waived that right or remedy and we may exercise any right or remedy on more than one occasion.” Box 19 contained offer conditions The text at the end of the box says: “For an Interest Only Mortgage: These payments cover only the interest and not the capital borrowed. This mortgage will be repaid when it is converted to a new capital and interest repayment mortgage following completion of the development of the project.”

16. The claimants contend that after three years the interest-only arrangement is to continue until completion of the development or, in the alternative, that after three years the interest-only mortgage will be converted into a further fixed term-loan; and they say that, in circumstances where the project has not been completed, they are entitled to continue on the interest-only basis or, at least, they are entitled to have the debt converted into a fixed-term loan.

17. I am afraid that, with all respect, that seems to me to be a hopeless construction to put on the offer. The principles regarding contractual construction are well-established. When one has a written document, one looks at what it would reasonably convey to people in the position of the parties with their background knowledge, that is, their knowledge of the surrounding circumstances. One construes the document as a whole. The words have primacy, in that one is construing the words rather than some unexpressed intention. But the words are to be interpreted both in their wider context and each part in the context of the other parts, and they are to be interpreted so far as possible in a way that gives them sense. That does not mean, of course, that one makes an agreement for the parties that they did not make; nor does one substitute something that seems more sensible than what the parties actually agreed.

18. I find the terms of this offer entirely clear, if they are read in any sensible way. There is fixed term of three years, which is the length of time for which the advance is made, though there is a right to make earlier repayment. It is not some open-ended loan which goes on for however long the works take. The reference to the completion of the development of the project is because three years is the period that gives sufficient time for completion of the work that was envisaged. Upon completion of the work within that period—and box 19 of the offer shows that it is the obligation of the claimants as mortgagors to provide the necessary evidence of the completion of the project—what is envisaged is that the loan will be repaid by being converted to a capital-and-interest repayment mortgage, which, as was recorded, was the claimants’ preferred way of addressing repayment. What the offer quite obviously does not mean is that the interest-only arrangement just continues for however long the completion of the development takes. Such an interpretation entirely fails to take account of the fact that it is a fixed-term arrangement. The reference to the completion of the development simply reflects the fact that the fixed term was, as I have said, intended and designed to be a term within which the project was anticipated to be completed. It does not mean that at the end of three years there is some sort of open-ended obligation on the defendant to grant a further fixed-term loan in circumstances where the project has not been completed. There is nothing in the offer to make such an interpretation remotely plausible.

19. There is nothing exceptional or untoward about this conclusion. The position is simply that the claimants have not completed the work in three years. That may be because they had their own problems as regards to the work, or it may be that the scope of the work changed drastically. However, that does not create a problem with understanding the agreement.

20. The concluding part of box 19 of the agreement does not, as the claimants would have it, mean that there is some waiver of the three-year term; that would be to make the document internally incoherent and inconsistent. It simply means that, if as anticipated upon completion of the project the loan is converted into a new capital-and-interest repayment arrangement (which is what the claimants wanted to happen), the existing loan will be paid off and replaced by the new loan. That is obvious and fair enough, but it does not go any further than that.

21. The other argument that has been raised in support of the contention that there has been a waiver relates to an email of 24 October 2023, in which Jane Parker of the defendant building society writes to the first claimant saying: “Your monthly repayments will continue as normal until a new facility is arranged, as Alan [the defendant’s Chief Executive or some such person] confirmed yesterday.” That falls well short of a waiver. It simply states the obvious: that, while the parties are actively seeking to reach a further refinancing agreement, the payments will continue on the interest-only basis. Clause 24.1 of the charge provides that: “No delay or omission on the part of the Lender in exercising any right or remedy under this Charge shall impair that right or remedy or operate or be taken to be a waiver of it, nor shall any single, partial or defective exercise of any such right or remedy preclude any other or further exercise under this Charge of that or any other right or remedy.” Clause 24.3 provides: “Any waiver by the Lender of any terms of this Charge or any consent or approval given by the Lender under it, shall only be effective if given in writing and then only for the purpose and upon the terms and conditions, if any, on which it is given.” I refer, too, to box 16 of the offer letter of October 2020, which provides: “If we fail or delay in exercising any right or remedy under this offer document, this does not mean that we have waived that right or remedy, and we may exercise any right or remedy on more than one occasion.”

22. All that happened here was that, no doubt very sensibly, the defendant did not immediately make a demand for payment. That is as far as it went. If the claimants can negotiate refinancing with the defendant or any other lender, well and good. It has no contractual right to such refinancing from the defendant.

23. In these circumstances, the defendant was entitled to make the demand as the moneys had fallen due for payment. It is therefore unnecessary to consider the question whether the demolition of the house was in breach of covenant, though I note that it has not been claimed that written consent was obtained as required. It is also unnecessary to determine any issue about untruthful declarations in the 2018 mortgage application, although I note that the claimants did indeed sign and verify declarations that were false and that this in itself would seem to constitute an enforcement event under the terms of the charge.

24. In these circumstances, I refuse the injunction. I regard it as pointless to leave the Part 8 proceedings in existence. If the defendant wants to commence possession proceedings, it ought to do so under the county court procedure, not by way of a cross-claim to the Part 8 claim. The Part 8 claim itself has, in effect, been argued before me. Therefore I shall refuse the application for an injunction and shall dismiss the Part 8 claim. End of Judgment Transcript of a recording by Acolad UK Ltd 291-299 Borough High Street, London SE1 1JG Tel: 020 7269 0370 [email protected] Acolad UK Ltd hereby certify that the above is an accurate and complete record of the proceedings or part thereof.