Pure Legal cases dismissed on limitation grounds - UK

• United Kingdom

• Financial services disputes and investigations

01-09-2021

Richard Colborn and Cathy Colborn (“Claimants”) v Albany Park Limited (“Defendants”)

The last 12 months have seen a significant increase in mortgage “mis-selling” claims and letters before action, particularly from Pure Legal, which focus on advice provided by lenders and intermediaries typically in relation to interest only mortgages in the years leading up to the financial crisis. Limitation is a key defence for such claims and a number of recent judgments in the County Court suggest that judges are open to dismissing these claims on limitation grounds either at trial or summarily. The recent judgement of Colborn v Albany is one of these examples and we examine it in more detail below.

Facts of the Case

In early 2006, the Claimants, a young married couple with a combined annual income of circa £37,464, approached the Defendant mortgage brokers for advice on entering into a mortgage to purchase a property (the “Property”). The purchase price of the Property was £105,000, the Claimants had no savings to pay a deposit, were living in rented accommodation and already had unsecured loans of around £11,000.

On consultation, the Defendants noted the Claimants’ instructions within a number of documents, recording that the Claimants were seeking an interest only mortgage but intended to switch to a repayment mortgage in future.  They wished to minimise repayments in the early years to allow scope to repay other debts.

The Claimants eventually accepted a mortgage offer from GMAC-RFC (“GMAC”) on or around 4 April 2006. They were provided with a Key Facts Illustration (“KFI”), which provided a breakdown of all costs, charges and special features of the mortgage. The mortgage and purchase of the Property were completed on 20 June 2006.

No steps were taken by the Claimants at the end of the two year fixed period to convert the mortgage into a repayment mortgage or to agree a further fixed interest period. The Claimants were regularly in arrears on their monthly payments and GMAC obtained a possession order on 16 October 2013. The Claimants sold the Property in April 2018 and redeemed the mortgage.

The Claim

The Claimants claimed that the Defendants were negligent in recommending an interest only mortgage without there being any repayment vehicle or viable repayment strategy in place. They asserted that a repayment mortgage would have been more suitable and alleged that the Defendants were wrong to advise them that a repayment product would not have been available to them. 

Damages in the sum of circa £40,000 were sought under the following heads of loss:

1. a claim for interest charges which would not have been incurred on a repayment product (due to the reduction in the capital balance over time); and
2. additional damages to reflect capital payments that the Claimants would have made had they taken out a repayment mortgage (“the Capital Claim”).

The Claimants abandoned the Capital Claim, seemingly as a result of the High Court’s rejection of the underlying arguments in Ross & Another v Attanta Limited [2021] EWHC 5503 (Comm), another Pure Legal case. This reduced the value of the claim to circa £5,000.

The Defendants argued that the claim was statute barred pursuant to the Limitation Act 1980 (“the LA 1980”). They further denied that advice provided in relation to the mortgage was negligent and maintained that the advisor’s recommendation was suitable based on the evidence that was available at the time.

The Decision

The primary limitation period under s.2 LA 1980 had expired as it had been more than 6 years since the Claimants had entered into the mortgage. The claim was therefore time-barred unless the Claimants could rely on the secondary limitation period for negligence claims under s.14A LA 1980, which required the Claimants to prove that they had only acquired knowledge of the material facts in the three years preceding the issue of the claim.

The Claimants alleged that they had only recently come to realise that they would have been eligible for a repayment mortgage at the time and that this was a “material fact” which was key to their claim. That argument was rejected, with Mr Recorder Najib finding that the material facts were:

1. the mortgage was on an interest only basis;
2. there was no repayment vehicle or viable repayment strategy in place; and
3. the capital sum would not reduce and would still be repayable in full at the end of the mortgage term.

The Recorder concluded that all of the above facts had been in the possession of the Claimants at the time the Mortgage was entered into and referenced the Defendants’ contemporaneous documents in support of this finding.

It was further held that correspondence issued by the lender in the years following the agreement of the mortgage had the effect of providing the Claimants with the knowledge required to bring their claim.

Regardless of the Claimants’ evidence that they had not read these documents, the Recorder had “no hesitation” in concluding that they had constructive knowledge of their contents. Accordingly, by 2010 at the very latest they had the necessary knowledge to bring their claim.

Despite being time barred, the Recorder continued to state that he would not have concluded that the Defendant was negligent and would have dismissed the claim in any event. There was clear documentary evidence that the Claimants’ needs and circumstances had been assessed and the recommendation was a reasonable one against the background of the information collected by the adviser. 

Analysis and Practical Advice

This case will be encouraging to lenders and intermediaries alike currently faced with claims of this nature. It is one of several recent cases where claims brought on identical grounds have been found to be statute barred, with the relevant knowledge being held to have been acquired at the start of the mortgage contract. These provide a blueprint for judges looking to justify a summary dismissal without needing to hear oral evidence at trial by anchoring limitation defences in the contemporary documents.

Limitation aside it is clear that the arguments behind the Capital Claim are completely without merit and are liable to be struck out if not withdrawn by claimants. Lenders and intermediaries should take advantage of the Attanta judgment to robustly contest those heads of claim so as to reduce the value of the dispute.