Banfield & Anor v Leeds Building Society [2007] EWCA Civ 1369

[2007] EWCA Civ 1369Case No B5/2007/0462
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM CENTRAL LONDON COUNTY COURT
HIS HONOUR JUDGE COWELL
CHY06155
Venue Royal Courts of Justice, Strand, London, WC2A 2LLDate 19/12/2007
Before
LORD JUSTICE LONGMORELORD JUSTICE THOMASLORD JUSTICE LAWRENCE COLLINS
Between
LAWRENCE ST JOHN BANFIELDAppellants/BEAULAH AVONDA BANFIELDDefendantsLEEDS BUILDING SOCIETYRespondent/Claimant
Mr Banfield appeared in person on his behalf and for Mrs BanfieldMr Mark West and Miss Frances Ratcliffe (instructed by Walker Morris) for RespondentHearing Hearing dates : October 17 & November 26, 2007
Judgment

Introduction

[1]This is the fifth action for possession brought by the Leeds Building Society (“the Society”) against Mr and Mrs Banfield for possession of 37 Dean Drive, Stanmore (“the property”). This is the only one which proceeded to trial, the other four having been withdrawn after Mr and Mrs Banfield reduced the mortgage arrears. HH Judge Cowell gave judgment for £19,000 (the principal and arrears). The Society’s costs to the end of trial were in the region of £19,000, which Mr and Mrs Banfield were ordered to pay, and of course further sums have been expended on this appeal.[2]Mr and Mrs Banfield own a house which they say is worth between £250,000 and £300,000 (and this may be an underestimate). The Society claimed that the arrears at the date of the proceedings were £2,428.06. If Mr and Mrs Banfield had devoted as much effort to keeping up the mortgage payments as they have devoted to this litigation, they would not be in the position they are.

II The background

[3]On November 29, 1983 Mr and Mrs Banfield, together with Mrs R.L. Thornhill (Mrs Banfield’s mother), applied for a mortgage with the Leeds Building Society (“the Society”) for £32,500 to facilitate their purchase of the property for £35,000.[4]Section 18 of the application form provides for alternative methods of repayment, and the application opts for “Low Cost Endowment.”[5]On January 18, 1994 the Society made an offer of a £30,000 advance to Mr and Mrs Banfield, and Mrs Thornhill.[6]The terms of the offer were for an advance of £30,000, at an interest rate of 13.25% variable, with repayment of the loan over 25 years by monthly instalments. The offer was subject to Mr Banfield assigning to the Society an endowment policy effected with Abbey Life Assurance Company on his life for £30,000 over not more than 25 years.[7]It was also subject to “insurance guarantee, which is already accepted” and for which a premium of £242.20 would be deducted. A document dated January 18, 1984 refers to a guarantee given by Sun Alliance Insurance Company and also to a “guarantee given by the Abbey Life Assurance Company that in the event of the Society exercising its powers of sale and there being a deficiency, the company will pay to the Society an additional surrender value of the endowment assurance policy charged to the Society.” This type of arrangement is sometimes referred to as mortgage indemnity insurance or mortgage indemnity guarantee, and I will refer to it in this judgment as “mortgage guarantee.”[8]The purchase took place in May 1984. At the request of Mr and Mrs Banfield’s solicitor Mrs Thornhill was removed from the arrangement. On May 23, 1984 £30,000 (less the £242.20 premium for the mortgage guarantee) was advanced.[9]By this time the original application form had been amended by annotations; new figures had been written in. The figure of £32,500 was altered to £30,000, and the name of Mrs Thornhill as applicant was deleted. These changes were made by the Society later, when the figure of the advance was reduced and Mrs Thornhill dropped out. The part of the form “For Head Office Use” was altered to contain (in section 26) the figure of £306.25 as the monthly subscription “interest only.”[10]On the same day Mr and Mrs Banfield executed a Legal Charge over the property for £35,000 (which Judge Cowell held to be an error by the solicitor, who had inserted the purchase price rather than the mortgage advance). The Charge contained the following provisions:(1) By clause 4 the Society would not require repayment of capital in respect of any amount covered by subsisting endowment assurance, but this does not apply if the policy is held as security only.(2) By clause 12(a) the principal amount of the debt would become immediately repayable “if the Borrower defaults for two months in making a payment of money payable under the Charge.”[11]On the same day Mr Banfield assigned by way of mortgage to the Society two Abbey Life policies, one dated 1 March 1983 (No 8729490D) for an insured sum of £22,500 and a monthly premium of £20.31, and the other dated 15 November 1983 (No 2800568B) for an insured sum of £10,500 and a monthly premium of £10.11. It provided (clause 1(v)) that “instead of selling the policy the Society may surrender it to the insurers …”[12]From 1990 payments by Mr and Mrs Banfield of the monthly amounts due to the Society, and of the policy premiums became erratic. The first proceedings for possession were commenced in June 1993, and in November 1993 (and on other occasions) the Society wrote to Mr and Mrs Banfield informing them that premiums on the policies had not been paid.[13]On December 4, 1995 the Society wrote to Mr and Mrs Banfield to say that they were in arrears with their policy premiums, and that if they remained outstanding their account would be transferred to the capital and interest method of repayment, and the surrender value of the policies would be used to reduce the balance of the account.[14]Correspondence between the Society and Abbey Life in January and February 1996 shows that the Society was contemplating exercising its power under the assignment to surrender the policies.[15]The Society wrote to Abbey Life on 2 February 1996 to the effect that it was surrendering both policies and enclosed the policies together with the deed of assignment under cover of that letter. On 7 February 1996 Abbey Life sent the Society the surrender application forms for completion. The Society wrote to Mr and Mrs Banfield on the same day to inform them that the account had been transferred from the endowment basis to an interest only basis as a temporary expedient (since that method of repayment did not provide any facility for paying off the outstanding balance of the mortgage debt at the end of the term). Any surrender value accrued on the policies would be claimed bythe Society and used to reduce the mortgage debt.[16]On 22 February 1996 the Society completed the surrender application forms, and returned them to Abbey Life on the following day. Letters had crossed in the post and on 5 March Abbey Life, having sent the policies back to the Society, asked for their return. The Society replied on 19 March to the effect that it did wish to proceed with the surrender of the policies and returned the policies and the deed of assignment. On 26 March Abbey Life wrote back, explaining that the policy documents sent were copies; in the event that the original policies had been mislaid lost policy declaration forms were enclosed. On 24 April Abbey Life wrote again, noting that it had not heard from the Society, enclosed another copy of its March letter and returned the policy documents.The Society returned the lost policy declarations on 30 April.[17]The surrender of the first policy was duly effected and the Society was sent a cheque from Abbey Life for £4,271.15 on 7 May, and the proceeds were credited to the mortgage account on 9 May 1996.[18]On 9 May Abbey Life wrote to the Society to the effect that, if it wished to proceed with the surrender of the second policy, a new lost policy declaration should be completed as the one sent in late March had not been signed. In fact the declaration was not completed and the surrender of the second policy was not effected.[19]In the aftermath of the possession judgment of Judge Cowell on 9 February 2007 the Society effected the surrender of the second policy. The surrender application form and the lost policy declaration were completed and returned to Abbey Life on 13 February 2007. According to the Society, a cheque for £5,451.59 was sent to it on 27 February and credited to the mortgage account on 7 March 2007. This is the main subject of the present appeal.[20]The Society agreed on 30 May 1996 that the account should be transferred to a capital and interest repayment type mortgage, with a monthly repayment of £316.16. On 4 November 1996 Mr and Mrs Banfield confirmed that the mortgage should be transferred to a capital and interest mortgage, i.e. not an endowment mortgage. The transfer was notified to Mr and Mrs Banfield on 25 November 1996, by which time the monthly payment was to be £318.26.

III The proceedings

[21]Prior to the present proceedings the Society had commenced proceedings for possession on 4 previous occasions, on 2 June 1993, 2 November 2000, 29 January 2002 and 8 April 2003. Each of the actions was adjourned generally with liberty to restore, after Mr and Mrs Banfield made payments towards the arrears. In the third and fourth cases, the proceedings had to be re-listed because Mr and Mrs Banfield had not complied with payment conditions on the first adjournment.[22]The present proceedings were commenced on 2 November 2005 in the Willesden County Court seeking possession of the property on the grounds of alleged arrears of £2,428.06. Mr and Mrs Banfield counterclaimed for the repayment of £51,499: the difference between the payments which they had made to the building society over the years, a total of £81,499, and the original advance of £30,000.[23]The proceedings were allocated to the multitrack and transferred from Willesden County Court to Central London County Court. There was a three day trial before HH Judge Cowell, who gave judgment on 22 December 2006. There was a further hearing on 9 February 2007, when the judge dealt (inter alia) with the fact that the second policy had mistakenly not been surrendered by the Society.[24]The judge, having (as he said) “listened to a vast number of points” made by Mr and Mrs Banfield, rejected all their arguments.[25]Among the points taken by Mr and Mrs Banfield were these:(a) The original charge certificate was void because the defendants did not sign it and it stated it was for the value of £35,000, not the £30,000 actually advanced. Judge Cowell found that this did not affect the liability of the defendants.(b) The charge was not valid because the application form contained Mrs R.L. Thornhill as an applicant as well as Mr and Mrs Banfield. The judge found that Mrs Thornhill had dropped out of the picture by the time the loan was made.(c) The Society had not shown or proved how the arrears occurred. The judge was satisfied by the evidence of Susan Astles, a team leader in the collections department of the Society, who gave oral evidence over nearly two days, that her figures were accurate and that the arrears were established.(d) The Society had failed to apply MIRAS (Mortgage Interest Relief at Source) to the advance covered in May 1996, and that there were inconsistencies in the 1996 payment schedules. The judge found that the mortgage did not come within the MIRAS scheme when the first instalment was paid and not at all until the end of 1986. In October 1986 the Inland Revenue confirmed the mortgage was in the MIRAS scheme and the monthly repayments were reduced to £243.61. He was satisfied that MIRAS was dealt with appropriately by the Society. If Mr and Mrs Banfield had any complaints of negligence about the treatment by the Society of the MIRAS scheme, it would have been statute-barred, and in any event for the legal adviser of Mr and Mrs Banfield.(e) The Society was negligent in advancing £30,000 when £32,500 was applied for. The judge found that £30,000 was the agreed advance.(f) The charge registered at Land Registry did not contain the signatures of both Mr and Mrs Banfield. The judge found that there was nothing in the point.[26]It is necessary to deal in a little more detail with the judge’s decision on the points which arise in the present appeal.[27]The first point relates to the mortgage guarantees. Mr and Mrs Banfield said that the £242.20 for the mortgage guarantee premium had been wrongly deducted, and that they had not been properly notified of the guarantees which the Society had taken out with Sun Alliance and Abbey Life in breach of section 28 of the Building Societies Act 1962.[28]The judge decided that on the balance of probabilities Mr and Mrs Banfield had signed the Form (Form 1) by which they were notified of the Abbey Life guarantee given to the Society. No objection had been taken to the deduction of the £242.20 from the initial advance. Although there was no actual evidence that the premium of £242.20 was ever paid, on the balance of probabilities, the Society did pay.[29]After the judge had given judgment, Mr and Mrs Banfield claimed in their “proposals for clearing arrears” that there were no arrears because the Society was able to take advantage of the mortgage guarantees, and had not taken steps to mitigate its loss. In his second judgment the judge decided that the guarantee from Abbey Life had been obtained for the benefit of the Society, and accordingly the Society was not bound to account to Mr and Mrs Banfield: Bristol & West Building Society v May May & Merrimans [1998] 1 WLR 336, at 346-7.[30]The second point is that Mr and Mrs Banfield argued that they had applied for a repayment mortgage, and not an endowment mortgage. Alterations and adjustments had been made to the application form after they had submitted it. Consequently, they said, the monthly repayments were calculated on an erroneous basis.[31]This argument was rejected by the judge who decided that the mortgage was (as agreed by Mr Banfield) an endowment mortgage. That accorded with the specified amount for the first instalment of £306.25, which was less than the amount on the Society’s original offer (£346.80) not because the type of mortgage was different, but because of a change in interest rates.[32]The third point relates to the failure of the Society to effect the surrender of the second endowment policy in 1996. In his first judgment, the judge said that he would say nothing about the failure by the Society to surrender the second policy, because there was not the slightest indication in the pleadings that the point was going to be taken. It was a point brought up in re-examination by Mrs Banfield of Mr Banfield, and it was inappropriate to raise it.[33]By the time of the second judgment the position had become clearer. The current surrender value was by then £5,432.49. The judge said that whether the Society surrendered the policy was entirely a matter for the Society, but it would be a very good thing if it were surrendered. The judge refused a further adjournment until enquiries had been made about what could be claimed under the mortgage guarantee and the second policy. Mr and Mrs Banfield had not put forward evidence sufficient to justify the exercise of jurisdiction to suspend or postpone under section 36 of the Administration of Justice Act 1970, as amended.[34]Overall, the figure owing was £18,926.17, and were the second policy to be surrendered for £5,450.14 or so, the amount owing, apart from costs, would be about £13,500, and what would be owing in costs would be between £10,000 and £20,000. The judge ordered that possession be given unless £8,100 were paid to the Society, in which case Mr and Mrs Banfield would be able to apply on evidence concerning their means and willingness to repay.[35]Judge Cowell adjourned the proceedings to February 9, 2007, and directed that by 26 January 2007 Mr and Mrs Banfield should notify the Society “with proposals for repayment of the sum outstanding” and on 26 January 2007 Mr and Mrs Banfield made “proposals for clearing the arrears,” in which they, in effect, repeated that they owed nothing.[36]At the hearing on 9 February the judge’s order was that(1) Mr and Mrs Banfield pay forthwith the sum outstanding at 22 December 2006 being (a) £19,001.17 and (b) either the total of solicitors’ fees billed from 1 January 2006 to 22 December 2006 and amounting to £19,706.70 in the event of the Society serving a copy of its bill of costs (and the further sum claimed for the hearing on 9 February 2007) and Mr and Mrs Banfield not serving points of dispute within 21 days thereafter, or the amount determined on the detailed assessment and determination of the points of dispute;(2) Mr and Mrs Banfield deliver up possession of the property by 9 March 2007;(3) if by 4pm on 9March 2007 £8,100 was paid to the Society, Mr and Mrs Banfield were at liberty to apply by 23 March 2007 to suspend the possession order with evidence of their means and willingness to pay the amount outstanding and their proposals for payment; (d) the costs of 9 February be the Society’s;(4) permission to appeal be refused.

IV The appeal

[37]The judge refused permission to appeal, and Mummery LJ refused permission on the papers. He considered that Mr and Mrs Banfield were seeking to overturn findings of fact, and it was not the function of this court to re-try the case. On March 14, 2007, after hearing Mr Banfield (who, it must be said, is a very persuasive and charming advocate in his own cause) Chadwick LJ gave limited permission to appeal on 4 points. Because two of them are really one point, this appeal deals with three questions.[1]The mortgage guarantees[38]It appears that there were two mortgage guarantees, one given by Sun Alliance and the other by Abbey Life.[39]The forms of the guarantees were not before the court. On 24 January 2007 Abbey Life wrote to Mr Banfield to explain that the guarantee given by it related to an arrangement made between Abbey Life and a number of building societies and other lenders. Providing the policy is assigned to the lender, in the event of the borrower defaulting on the mortgage and the lender exercising the right to surrender the policy, Abbey Life would make an additional payment to the lender. The additional amount payable would be based on the difference between how much the borrower would have paid on a capital repayment mortgage and how much they did pay on their endowment mortgage, less the surrender value of the policy.[40]The judge held that Mr and Mrs Banfield could not obtain any benefit whatsoever from the mortgage guarantees, and could not require the proceeds to be credited to their account.[41]Chadwick LJ gave permission to appeal on the ground that it was not clear why no claim was made by the Society under the Abbey Life guarantee, and that it was possible that had a claim been made the amount received may have been sufficient to eliminate the arrears.[42]Mr and Mrs Banfield submit that Judge Cowell was wrong. They say, first, that the Building Societies Act 1962, section 28,allows the borrower to make a claim on guarantees. There is nothing in this point. The Building Societies Act 1962, section 28, provides that, except by leave of the court, no sums shall be recoverable by the building society unless the society has given to the borrower a notice stating the amount of the advance and such particulars as may be prescribed relating to any security for the advance which is taken or is to be taken from any person other than the borrower; and where a building society makes an advance without giving notice to the borrower the court may re-open the transaction.[43]Second, they say that the premium paid to the Society for the mortgage guarantees gives rise to a right in Mr and Mrs Banfield to claim under the guarantees through the Society.[44]In my judgment, Judge Cowell was right to apply the principle that a person who has the benefit of a mortgage guarantee is not obliged to account.[45]As is well known, it is common for lenders against the security of real property to protect themselves against loss which they will suffer if the borrower defaults and the value of the property falls short of the outstanding mortgage debt. Whether the protection amounts to a contract of insurance or a contract of guarantee will in the first instance depend upon its terms, including the surrounding circumstances: Re Denton’s Estate [1904] 2 Ch 178 (in which the arrangement was held to be one of guarantee by Cozens-Hardy and Stirling LJJ, and, with hesitation, by Vaughan Williams LJ). The answer may be of considerable practical importance in connection with the question whether the insurer/guarantor is entitled to be subrogated to the rights of the mortgagee (MacGillivray on Insurance, 10th ed. 2003, paras 22-86, 31-40-43; Andrews and Millett, Law of Guarantees, 4th ed. 2005, para 1-008) or whether the mortgagee has duties of disclosure (see Seaton v Burnand [1900] AC 135, reversing Seaton v Heath [1899] 1 QB 782).[46]Woolwich Building Society v Brown [1996] CLC 625 is directly relevant. It concerned the question whether a mortgagor was entitled to credit for any sums recovered by a building society from a third party insurance company under a mortgage indemnity policy. A premium for the mortgage indemnity policy had been deducted from the mortgage advance, and the mortgagor had approved the terms of the policy. Waller J (as he then was) held that the mortgage indemnity policy was not a contract of guarantee but an insurance contract. The mortgagor’s debt was not discharged by the payment from the insurance company to the society, and the mortgagor was not entitled to any credit for any sum paid or payable by the insurers. The result was not affected by the fact that the mortgagor had had to pay the premium.[47]Bristol and West Building Society v May May & Merrimans(No 2) [1998] 1 WLR 336 was not a case in which the borrower sought the benefit of the insurance/guarantee. Solicitors who had been found liable in negligence to the building society sought directions as to whether the society was obliged to give credit for sums recoverable by the society. Chadwick J (as he then was) said (at 343):
“… [T]he purpose of section 28 of the [Building Societies Act 1962] was to put the borrower on notice that the basic security over his house was not thought by the building society to be adequate and that, in the event of default, he might become liable, not only to the society under his covenant for payment, but also to the rights, by way of subrogation, of an institutional guarantor who had been required to make a payment to the society in respect of a shortfall. … It is not, I think, helpful to attempt to categorise the arrangement as a ‘guarantee,’ an ‘indemnity’ or ‘insurance’. There are features which suggest each of those categories; but the arrangement does not fit readily into any one category rather than another. The security which the Mortgage Indemnity Guarantee is intended to provide is the covenant of the insurance company.”
[48]If the contract is one of guarantee the right of the guarantor against the borrower is a right of indemnity. If it is a contract of insurance, then the right of the insurer would be based on its right of subrogation. But in either case the borrower cannot be heard to say, as against the lender, that the debt is reduced by the guarantor/insurer’s payment under the mortgage guarantee.[2]Endowment or repayment mortgage?[49]At the risk of oversimplification, a repayment mortgage takes the form of repayment by fixed periodical instalments, comprised partly of capital and partly of interest over the term of the mortgage. In endowment mortgages the principal is left outstanding until the end of the term of the mortgage, with only the interest on it being paid during the term. At the same time, as a condition of the mortgage, an endowment policy is taken out by the mortgagor on his or her own life for a term equal to the mortgage. The intention is that at the end of the term, the endowment policy will be mature to pay off the mortgage in one lump sum.[50]Mr and Mrs Banfield had pleaded that the Society had been negligent in not applying a repayment mortgage on inception when the Appellants had clearly signed for one in the legal charge. Chadwick LJ considered, when granting permission to appeal, that it was arguable that the Society might not be able to rely on adjustments to documents after they were executed.[51]I am satisfied that the judge was entitled to come to these conclusions:(a) after hearing evidence, that Mr and Mrs Banfield agreed to an endowment mortgage;(b) in any event, the documents objectively viewed showed an intention to that effect;(c) that the application was for an endowment mortgage and that the alterations to the application form made by the Society were proper and consistent with the basis on which the mortgage was applied for and accepted; and(d) that the errors in the legal charge (the amount of the advance wrongly stated as £35,000) and the initial interest (wrongly stated as £346.80, when the application form had been altered to read £306.25) did not affect the position.[52]Consequently I am satisfied that the judge was entitled on the evidence to conclude that Mr and Mrs Banfield initially had an endowment mortgage until November 1996, when it became a capital and interest repayment mortgage.[3]The second policy[53]At some time during the trial Mr and Mrs Banfield learned that the Society had not effected a surrender of the second policy.[54]What had happened was that the Society had submitted a Surrender Application form and Lost Policy Declaration to Abbey Life for policy number 2800568B but that it was not processed due to a missing signature which was to be provided by the Society. On 10 January 2007 Abbey Life informed Mr and Mrs Banfield that the application for the surrender of policy number 2800568B was not accepted as it was signed in the wrong place. Abbey Life said: “The policy status should have remained as paid up, but due to an administration error it remain as surrendered even though no monies had been paid out”.[55]Chadwick LJ gave permission to appeal on the practical consequences of the Society’s failure to surrender the second policy, and to disclose that it had failed to do so, and therefore on whether this aspect of the matter should be remitted to the judge. He said that Mr and Mrs Banfield should have the opportunity of arguing that the matter should be remitted to the judge to deal with the practical consequences of the Society’s failure to disclose the letter of 9 May 1996, since it was arguable that the value of the unsurrendered policy was in excess of the arrears in 2005.[56]When this appeal first came before this court, the Society did not have available figures which would have shown what effect a surrender of the second policy would have had in 1996, and whether (as Mr and Mrs Banfield contended) it would have meant that there would have been no arrears in November 2005 when these proceedings were commenced. Accordingly the hearing was adjourned for the figures to be obtained and for the parties to make submissions on them.

A The position of Mr and Mrs Banfield

[57]Mr and Mrs Banfield submit that it was wrong for the Society to initiate the claim on 2 November 2005 for arrears of £2,428.06 when it had at its disposal a policy worth in excess of £5,000. The Society intended and attempted to surrender the second policy in May 1996, failing only because they were negligent in completing the necessary information. There was also a duty to mitigate their loss as the beneficial owner of the second policy. Had the policy been applied to the account in 1996, there would have been no arrears on 2 November 2005.[58]Both parties were ordered by District Judge Cohen sitting at Willesden County Court to disclose documents by 4pm on 12 May 2006. The Society failed to disclose the letter dated 9 May 1996, which was only received by Mr and Mrs Banfield on 11 January 2007 by fax from Abbey Life. The failure to disclose the letter seriously affected Mr and Mrs Banfield’s defence.[59]No reasonable person would have taken legal action to recover a sum of £2,428.06 when they had available to them over £5,000 in a policy assigned as a collateral security specifically for that purpose.[60]The non-disclosure by the Society of the facts of the second policy meant that the claim was made at best prematurely or even dishonestly since there was an alternative remedy opened to the Society to satisfy the potential debt.[61]If the Society had surrendered the second policy in 1996 as it intended, which was worth £2,160.85 at that time, there would have been an outstanding balance of £5,724.49 in November 2005. On the balance of probabilities there would have been no arrears in November 2005 when the Society made the claim for possession, if it had surrendered the policy either in 1996 or 2005.

B The position of the Society

[62]The Society’s position is that it has not failed to comply with its disclosure obligations because, inter alia, the issue of the second endowment policy was not raised until the point of re-examination of Mr Banfield. The judge was correct to find that it was inappropriate for Mr and Mrs Banfield to raise the point as it had not been the subject of any cross-examination by counsel for the Society. The point had not been raised on the pleadings; it had not been intimated before by Mr and Mrs Banfield; it was not the subject of nor arose from cross examination.[63]In any event, it raised no point which could have amounted to a defence. Pursuant to condition 12 of the terms of the mortgage (para 10, above)the total debt became immediately payable to the Society on default for two months in making a payment of money payable under the mortgage.[64]There is no duty to mitigate a claim in debt. At the time of the mortgage transaction there was no obligation on the Society to effect the surrender of either of the policies. There is no obligation on a mortgagee to surrender an insurance policy at a time to suit the convenience of the borrower or indeed at all. On the contrary, the terms and conditions of the assignment of the policies made it clear that the Society had the ability to surrender the policies, but was not obliged to do so (clause 1(v), para 11), although when the policy monies were received they had to be applied immediately in discharging or reducing the indebtedness of the borrowers to the Society. Any obligation to that effect on the part of the Society can only have arisen subsequently, if at all.[65]The letters from the Society to Mr and Mrs Banfield in December 1995 and February 1996 (in which the Society said that it would use the surrender value of the policies to reduce the mortgage debt) did not amount to a contractual variation. Mr and Mrs Banfield gave no consideration in altering the basis of mortgage from endowment basis to repayment basis. The alteration of basis from the endowment method to an interest only basis had already occurred before the letter of 7 February 1996 was sent. Nor can consideration be found by virtue of the debiting of £50 to mortgage account in respect of the surrender of each policy. The administration fee was charged in respect of the transfer from the endowment basis to the interest only basis, not for effecting surrender of the policies.[66]Even if Mr and Mrs Banfield had an unliquidated cross-claim against the Society for failure to surrender the policy, it would not discharge the mortgage debt: Samuel Keller (Holdings) Ltd v Martins Bank Ltd[1971] 1 WLR 43, 51. This has been said to apply even if the cross-claim is liquidated and admitted: Mobil Oil vRawlinson ((1981) 43 P & CR 221, 226. But whether the result is the same for equitable set-off in the case of a liquidated or quantified sum has been left open: National Westminster Bank v Skelton [1993] 1WLR 72, 78; Ashley Guarantee Plc v Zacaria [1993] 1 WLR 62, 66.[67]The Society says that a mortgage debt is only discharged by payment and acceptance, and the borrower cannot unilaterally appropriate the amount of his claim in discharge of the mortgage debt.[68]But the Society says that its revised figures show that the court does not have to decide the question whether a liquidated claim amounting to an equitable set-off which overtops the mortgage debt has the effect of actually discharging the mortgage debt (but in any event as a matter of principle the question should be answered in the negative).[69]The Society has recalculated the figures for the mortgage account on the basis that the second policy had also been surrendered in May 1996 and the proceeds of that policy credited to the mortgage account at that time. The calculations have been prepared by Katrina Forrest who is the Administration Manager of Mortgage Services at the Society.[70]The recalculations show that if the second policy had been credited to the mortgage in the same manner as the first policy in May 1996, there would still have been arrears of £1372.28, amounting to 3.5 months arrears.[71]As at November 2005 when the current proceedings were commenced the outstanding balance of the mortgage debt was £17,283.68 and the arrears on the account were £2,428.06. No payment was made by Mr and Mrs Banfield after one of £500 in August 2005. That remained the position for the next 17 months, until the trial of the action, and continues to be the case. The position is now that no repayment has been made for over 2 years.[72]It is accepted that the mortgage did not give an immediate right to possession of the mortgaged property, but only a right to possession on default. That is because clause 11 of the mortgage conditions provided that the borrower was allowed to hold and enjoy the property until the Total Debt had become immediately payable to the Society. By clause 12(a) the Total Debt became immediately payable if the borrower defaulted for 2 months in making a payment of money payable under the charge.[73]On the facts of this case, the right to possession of the property had arisen because the Total Debt was payable by the borrowers; the Total Debt had become payable because even on the revised figures Mr and Mrs Banfield had defaulted for 2 months in making payments of money due under the charge. Thus, the position is that Mr and Mrs Banfield were in default under the terms of the mortgage and the Society was entitled to bring the possession proceedings which it did; its cause of action had accrued at the date of the commencement of those proceedings.[74]On the revised figures, even if the Society was guilty of a breach of contract, Mr and Mrs Banfield were in default under the terms of the mortgage and the Society was entitled to possession under the terms of the mortgage deed.

C Conclusion

[75]Two documents were been prepared by the Society on the resumed hearing.[76]The first is a Revised Arrears Statement. The second documentis a Breakdown of Interest Charged and Capital Outstanding showing how the outstanding balance on the mortgage account was capitalised and carried forward to the next year as summarised in the last 2 columns of the Revised Arrears Statement.[77]The account operated by interest being charged on the outstanding amount from the moment that it was lent, or from the beginning of the year, and that figure of interest is added to the total. It is calculated on the basis of the interest rate at the start of the year, and should the rate change, the account would be credited or debited accordingly.[78]Note 2 to the Revised Statement of Arrears explains the revised figures have been recalculated on the basis that a sum of £2,160.85 in respect of the second endowment policy, was received and credited to the mortgage account on 9 May 1996, the same date as the actual receipt of the sum of £4,271.15 from the first policy.[79]At the date of the commencement of the proceedings in November 2005, the monthly repayments, even on the revised basis, would have been £394.13, with the result that Mr and Mrs Banfield would have been 3.5 months in arrears.[80]The Revised Arrears Statement shows that, had the sum of £2,160.85 in respect of the second policy been credited as a capital repayment on 9 May 1996 (the same date as the credit of the proceeds of the first policy), as at the date of the commencement of the proceedings in November 2005 Mr and Mrs Banfield would have been in arrears in the sum of £1,372.28.[81]It is not denied that the extra credit would have had an effect on the account: the interest charged would have been £2,037.16 less, the arrears would have been reduced by £1,055.78, and the amount outstanding would have been reduced by £1,263.58. Nevertheless, the Society’s position is that, irrespective of whether the second life endowment policy was surrendered in 1996 and whether it was negligent in not effecting the surrender, the cause of action, namely, two months of arrears outstanding, was established, giving rise to the Society’s right to possession. Initiating proceedings in November 2005 was therefore justified.[82]Mr and Mrs Banfield submit that these calculations are flawed. On their calculations, there would have been no arrears in November 2005 had the proceeds of the second policy been applied to the account in May 1996. On the contrary, the amount of capital outstanding would have reduced to £5,724.49.[83]The reasons the calculations provided by Mr and Mrs Banfield are so different from those supplied by the Society, are, Mr Banfield alleges, threefold:(i) MIRAS was not subtracted by the Society, thereby inflating the monthly interest payments,(ii) the Society applied the incorrect interest rate in 1997, and(iii) the basic figures used by the Society as actual arrears in their calculations are not correct, and have not found to be so by the judge.[84]Had the Society fully complied with their duty and surrendered the second policy, there would have been no arrears, and therefore no cause of action. They should not be held accountable for the Society’s negligence.[85]In my judgment, the Society’s position is unassailable. Judge Cowell accepted the figures provided to the court by Ms. Susan Astles, and there is no basis for an appeal against them. The submission of Mr and Mrs Banfield relating to MIRAS and potential flaws in the underlying calculations are unsustainable in the light of the judge’s conclusions that Ms. Astles’ figures were accurate. The arrears figure put forward by the Society arises because at the end of each financial year, any overpayment was capitalised and applied to reduce the outstanding balance accordingly. This means that an overpayment in one year was not available to set off against arrears in the next. Mr and Mrs Banfield have failed to take this into account in their calculations, and this explains the discrepancy between the two sets of calculations. Consequently, this court should accept that Ms. Forrest’s calculations demonstrate that in November 2005 there would still have been substantial enough arrears to justify the initiation of proceedings.[86]Accordingly the questions whether Mr and Mrs Banfield had a claim against the Society for failure to surrender the second policy, and whether the damage flowing from that breach could have disentitled the Society from seeking possession, do not arise, and it is not necessary to address them. The Society’s treatment of the second policy does it no credit, but I am satisfied that in the end it did not prejudice Mr and Mrs Banfield.[87]I would therefore dismiss the appeal.[88]I agree.[89]I agree also.