Neutral Citation Number: [2014] EWCA Civ 1297
Case No: B5/2013/2722
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE IPSWICH COUNTY COURT
HH Judge Holt
2IP00405 
Royal Courts of Justice
Strand, London, WC2A 2LL

Date: 9th October 2014
Before :

LORD JUSTICE PATTEN
LORD JUSTICE UNDERHILL
and
LORD JUSTICE BRIGGS
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Between :

	Raymond james graves	Claimant/
Appellant	
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	CAPITAL HOME LOANS LIMITED	Defendant/Respondent	

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Mr Graves appeared in person
Mr Peter Dodge (instructed by Capital Home Loans Ltd) for the Respondent

Hearing date: 30 July 2014
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Judgment
Lord Justice Patten : 
1.	In November 2007 the appellant, Mr Graves, applied to the respondent, Capital Home Loans Limited (“CHL”), for a buy-to-let mortgage in respect of a property known as Willow Tree Cottage, The Tye, Barking Tye, Ipswich (“the Property”).  A mortgage offer was made to him on 23 October in the sum of £319,860 on an interest-only basis for a term of 15 years.
2.	The mortgage offer was made subject to certain special conditions which required the Property to be let out on an assured shorthold tenancy.  It was also subject to CHL’s 2004 Mortgage Conditions which, so far as material to this appeal, provided that:
“9.1. Section 103 of the [Law of Property Act 1925] shall not apply to the Mortgage and the statutory power of sale (as varied and extended in accordance with these conditions) shall be immediately exercisable:
9.1.1	if the Borrower shall fail to pay in full any Monthly Payment or other payment due under the Mortgage ... ;
9.1.6	if the Borrower becomes incapable by reason of mental incapacity of managing his affairs ... ;
9.2 The power of sale and incidental powers conferred by the [Law of Property Act 1925] are hereby extended and varied to authorise the Lender at its absolute discretion:
9.2.1	to enter into possession of the Property or any part thereof or into receipt of the rents or profits of the Property or any part thereof.  Moreover, whether or not the Lender has entered into possession or into receipt of rents or profits, the Lender may at the sole cost and risk of the Borrower appoint one or more receivers of the Property ... ;
9.2.2 	to sell the Property ... ;
9.5 In relation to any receiver appointed by the Lender pursuant to Section 109 of the [Law of Property Act 1925] the following provisions shall apply:
9.5.1 	such receiver shall have the same powers as are conferred under these Conditions on the Lender in addition to his statutory powers;
9.5.4 	Section 109 shall apply as if sub-section (8)(iv) thereof reads "in payment of the monies (whether for interest or otherwise) in arrears or accruing due under the mortgage";
9.5.5 	Notice requiring payment of the Mortgage debt shall not be required prior to the appointment of any receiver.”
3.	Mr Graves accepted the mortgage offer on these terms and executed the charge in favour of CHL on 12 November 2007.
4.	From 2008 onwards there was a long history of arrears on the mortgage account.  By March 2008 almost three months’ arrears of interest had accrued (£4,223).  Mr Graves promised to clear the arrears by the end of that month but failed to do so.  CHL agreed to a schedule of repayments but this was not kept to and in July 2008 they indicated that Law of Property Act receivers would be appointed unless steps were taken to clear the arrears.  Mr Graves promised to make payments to do this by the end of September 2008 but this was not achieved and, after a further year of continuing default, CHL agreed in October 2009 to capitalise the outstanding arrears and to allow Mr Graves to revert to a lower rate of interest.
5.	By February 2010 further arrears of £1,270 had accrued and the established pattern of broken promises of repayment and threats to appoint a receiver continued.  As of February 2012 the mortgage payments were one month in arrears and in March 2012 the arrears were still £1,226.  CHL had written to Mr Graves at his address at 158 Cemetery Road, Ipswich in January 2012 asking for the then arrears of £617 to be cleared and on 6 March a further letter was sent asking him to take urgent action to pay the arrears of £1,226 or to contact CHL to discuss a payment plan.  Unless an arrangement could be come to, CHL was likely to appoint Law of Property Act receivers.  A further letter to the same effect was sent on 12 March.  It then came to CHL’s attention that Mr Graves had been admitted to Ipswich Hospital which occurred on 13 March.
6.	It appears that an employee of CHL spoke to Mr Graves on 21 March who told her that he was in hospital and unable to collect the rent from the Property.  He asked if he could send the rent directly to CHL and said that if the existing tenant were to leave he had a possible new tenant who would pay £900 per month.  He also asked for his post to be sent to the hospital.  In order to discover the extent of his health problems, CHL sent to Mr Graves at the hospital what is described as a Debt and Mental Health Evidence Form (“DMHEF”).  This is a consent form which, once signed by the patient, enables a lender such as CHL to obtain relevant details of his or her condition.  The evidence is that the DMHEF was developed by the Royal College of Psychiatrists in consultation with various credit agencies as an appropriate means of obtaining relevant information about the patient’s state of health.  The guidance published by the Office of Fair Trading in March 2010 for lenders advises the use of the DMHEF for this purpose.  
7.	Mr Graves signed the DMHEF on 1 April 2012 and the form was then completed by the primary mental health nurse on the ward where he was being treated and returned to CHL.  It stated that Mr Graves had mental health problems (including bipolar affective disorder) which meant that he did not have the capacity to deal with financial issues and that he had been compulsorily admitted to and detained in hospital pursuant to s.3 of the Mental Health Act 1983.  
8.	On 11 May 2012 CHL received a letter from Dr Axford, the consultant psychiatrist at Ipswich Hospital, confirming that Mr Graves remained sectioned for the condition I have referred to and still lacked capacity to deal with his affairs but adding that “this is a temporary loss of capacity due to illness.  He is making a good recovery and I would anticipate he will be able to manage his affairs again in the near future”.
9.	Notwithstanding this, on 14 May CHL sent to Mr Graves at his address at Cemetery Road rather than at the hospital what was described as a 7-day letter before action stating that, in the light of Dr Axford’s view that he lacked the capacity to manage his financial affairs, CHL had no alternative but to proceed to appoint a receiver of the rent pursuant to condition 9.1.6 of the mortgage conditions.  On 25 May Touchstone Lending Services were appointed as Law of Property Act receivers for this purpose.  On 29 May Dr Axford wrote again to CHL to inform them that although Mr Graves remained at the hospital, he was no longer sectioned and had regained his capacity to manage his financial affairs.
10.	The receivers once appointed proceeded to carry out an assessment of the Property and reported on its condition and marketability.  By this time it had become vacant.  On 15 August 2012 CHL wrote to Mr Graves (again at the Cemetery Road address) informing him that the receivers had been requested to resign and that CHL intended to sell the Property as mortgagee in possession.  The receivers resigned on 28 August and on 12 October 2012 contracts were exchanged for the sale of the Property at a price of £295,000.  The sale was completed on 15 October 2012.  As of 18 October the arrears on the mortgage account amounted to £4,548 (not including the arrears capitalised in 2009).  There was a shortfall on the mortgage account after sale.
11.	On 8 October 2012 Mr Graves issued two sets of proceedings in the Ipswich County Court against CHL seeking possession of the Property.  The first application (no. 404) was issued in the name of “Roofs”.  The second (no. 405) was in Mr Graves’ own name.  The claims were brought under CPR 55 using form N130 and sought interim orders for possession which can only be made against trespassers: see CPR 55.21(1).  He was therefore ordered to file fully particularised particulars of claim in each action which he did on 23 October.
12.	The particulars of claim are not in conventional form but they set out a brief history of the mortgage account and an explanation of why there were arrears of interest.  In paragraph 13 of the particulars of claim Mr Graves says that he let the Property to Roofs, an unincorporated association, in March 2012 but, due to various problems, the money was not forthcoming to allow the monthly instalments of interest to be paid.  He accepts that on 13 March he was sectioned and admitted to hospital but denies being unable to manage his own affairs.  This is supported by a letter from a Mr Graham Fretwell who says that he is a long-time friend of Mr Graves whom he describes as an “adult eccentric with a penchant for financial and tax expertise”.  In these circumstances, there were, he alleges, no grounds for the appointment of the Law of Property Act receivers and CHL has trespassed on the Property.  The particulars of claim include a claim for damages for trespass in the sum of £140,000 but before us Mr Graves said that his claim was in excess of that sum and included the amount of lost rent and the loss of future capital value which he has suffered from the sale of the Property.  
13.	CHL applied under CPR 3.4(2)(a) to strike out the claim.  The Deputy District Judge took the view that both claims remained ones for interim possession against a trespasser and that since the Property had by then been sold they were not maintainable.  But on appeal HH Judge Holt treated them as including a claim for damages for trespass and considered whether on that basis the claims should be struck out.  Roofs took no part in the appeal and nothing more need be said about claim no. 404.  But, in relation to his own claim for damages, the judge was asked by Mr Graves to consider three allegations: (1) that the mortgage account had not been in arrears; (2) that the Law of Property Act receivers had not been validly appointed because Mr Graves was not mentally unfit to manage his own financial affairs at the time; and (3) that taking possession of the Property by CHL was in breach of industry guidelines. 
14.	Judge Holt rejected all three submissions.  He accepted the evidence of CHL as to the calculation of the arrears and held that Mr Graves had no prospect of successfully challenging those calculations. 
15.	In relation to the appointment of the Law of Property Act receivers, the judge held that it was unnecessary to decide any issue about Mr Graves’ mental capacity because on 25 May 2012 (the date of appointment) there were arrears of monthly interest which meant that grounds existed to justify the appointment under condition 9.1.1 of the mortgage conditions.  But he went on to hold that, although Mr Graves only remained sectioned until 23 May and his condition has continuously improved since then, the power of appointment under condition 9.1.6 was exercisable if Mr Graves became incapable through mental incapacity of managing his financial affairs.  Since this was clearly the case prior to 23 May, it made no difference (if this was the case) that Mr Graves’ incapacity had ceased by 25 May when the appointment came to be made. 
16.	After he had given judgment dismissing the appeal from the District Judge, Mr Graves raised, I think for the first time, the application of ss.140A and 140B of the Consumer Credit Act 1974 (“CCA 1974”).  This had never been part of the pleaded claim in the action but Judge Holt told him that had he relied upon those provisions, the decision would have been the same.
17.	Mr Graves then sought permission from this Court for a second appeal which was refused on a consideration of the papers by Floyd LJ but granted by Longmore LJ on very limited grounds.  Mr Graves has permission to appeal on the question whether the provisions of ss.140A and 140B apply to the mortgage in this case and, if so, whether the relationship between himself and CHL was unfair because of (a) the inclusion of clause 9.1.6 of the mortgage; and/or because of (b) the way in which CHL exercised or enforced its rights under the agreement in the light of its knowledge of Mr Graves’ mental disability.  
18.	Given that a claim for relief under s.140B is not in fact pleaded, nor was it relied upon except as an after-thought following the hearing before Judge Holt, that might be thought to be the short answer to the appeal.  But we have proceeded to hear full argument on the point in order to avoid any possibility of further proceedings and further hearings to determine the issue.  
19.	So far as material, ss. 140A and 140B provide:
“140A Unfair relationships between creditors and debtors
(1) The court may make an order under section 140B in connection with a credit agreement if it determines that the relationship between the creditor and the debtor arising out of the agreement (or the agreement taken with any related agreement) is unfair to the debtor because of one or more of the following–
(a)	any of the terms of the agreement or of any related agreement;
(b) 	the way in which the creditor has exercised or enforced any of his rights under the agreement or any related agreement;
(c) 	any other thing done (or not done) by, or on behalf of, the creditor (either before or after the making of the agreement or any related agreement).
(2) In deciding whether to make a determination under this section the court shall have regard to all matters it thinks relevant (including matters relating to the creditor and matters relating to the debtor).
(3) For the purposes of this section the court shall (except to the extent that it is not appropriate to do so) treat anything done (or not done) by, or on behalf of, or in relation to, an associate or a former associate of the creditor as if done (or not done) by, or on behalf of, or in relation to, the creditor.
(4) A determination may be made under this section in relation to a relationship notwithstanding that the relationship may have ended.
(5) An order under section 140B shall not be made in connection with a credit agreement which is an exempt [for the purposes of Chapter 14A of Part 2 of the Regulated Activities Order by virtue of article 60C(2) of that Order (regulated mortgage contracts and regulated home purchase plans)].
140B Powers of court in relation to unfair relationships
(1) An order under this section in connection with a credit agreement may do one or more of the following–
(a)	require the creditor, or any associate or former associate of his, to repay (in whole or in part) any sum paid by the debtor or by a surety by virtue of the agreement or any related agreement (whether paid to the creditor, the associate or the former associate or to any other person);
(b) 	require the creditor, or any associate or former associate of his, to do or not to do (or to cease doing) anything specified in the order in connection with the agreement or any related agreement;
(c) 	reduce or discharge any sum payable by the debtor or by a surety by virtue of the agreement or any related agreement;
(d) 	direct the return to a surety of any property provided by him for the purposes of a security;
(e) 	otherwise set aside (in whole or in part) any duty imposed on the debtor or on a surety by virtue of the agreement or any related agreement;
(f) 	alter the terms of the agreement or of any related agreement;
(g) 	direct accounts to be taken, or (in Scotland) an accounting to be made, between any persons.”
20.	CHL concede that ss.140A and 140B did apply to the mortgage.  By reason of s.8(2) of CCA 1974 which was then in force, the mortgage was not a regulated agreement because the credit provided exceeded £25,000.  But ss.140A and 140B came into force on 6 April 2007 before the date of the agreement and apply in connection with a “credit agreement” as defined in s.140C(1).  This means:
“any agreement between an individual (the ‘debtor’) and any other person (the ‘creditor’) by which the creditor provides the debtor with credit of any amount.”
21.	The disputed question on the appeal is therefore limited to whether the relationship between the parties was unfair either because of the inclusion of clause 9.1.6 or because of the way in which CHL exercised or enforced its rights under the agreement.  During the course of his submissions, it became clear to us that Mr Graves’ claim for financial compensation under s.140B for the loss of the Property following its sale by CHL meant that his allegation of unfairness was directed not to the inclusion of clause 9.1.6 in the mortgage but to the way and circumstances in which CHL chose to exercise the power of sale.  Mr Graves accepted that, looked at objectively taking into account the essentially commercial nature of a buy-to-let mortgage and the interests of both parties to the relationship, it could not be said that it was unfair for CHL to have included a power to appoint a Law of Property receiver in the event of the debtor becoming unable to manage his financial affairs.  This seems to me to be obviously right.  The lender would have no right to intervene in the tenancy of the mortgaged property in such circumstances without an express power to do so and the appointment of a receiver to collect the rents and to manage the property thereby maintaining the payment of the mortgage is as much in the interests of the mortgagor as it is in the interests of the mortgagee.  The fact that the power of sale has to become exercisable in order for a Law of Property Act receiver to be appointed is simply a function of s.109(1) of the LPA 1925 and cannot of itself make the inclusion of such a power unfair.  The same must go for the power to appoint a Law of Property Act receiver in the event of a breach of one of the mortgage terms: see Rahman v HSBC Bank plc [2012] EWHC 11 (Ch).  These are commonplace provisions in any mortgage.  The real focus is likely to be on the way in which the power is ultimately exercised. 
22.	Mr Graves’ case on unfairness does not on analysis even seriously challenge the appointment of the Law of Property Act receivers.  Although CHL failed to engage with him in any meaningful sense prior to the appointment of the receivers and sent the 7-day notice of appointment to the Cemetery Road address where he was no longer living rather than to the hospital as promised, none of this ultimately led to the loss of the Property.  There is no suggestion, nor any evidence, that the receivers in any sense mismanaged the Property.  It was already vacant and apparently untenanted and Mr Graves does not suggest that it could or should have been re-let or to whom.  The reality is that the receivers were discharged, as Mr Graves himself wanted, and CHL became a mortgagee in possession after 28 August 2012 and were responsible for the sale of the Property.  The appointment of the receivers was not therefore causally relevant to the loss and treatment which Mr Graves complains of.  I do not doubt that it was difficult, if not impossible, for Mr Graves to run his affairs whilst still hospitalised.  But that was not through anything for which CHL can be treated as responsible.  Nor is it important to decide whether the appointment of the receivers (even though the grounds for their appointment existed) was in fact necessary.  The loss which Mr Graves says that he has suffered stems not from their appointment but from CHL’s exercise of its power of sale. 
23.	Mr Graves drew our attention to four matters which he says are material to the fairness of the action which CHL took.  The first was condition 13 of the mortgage special conditions.  This states: 
“Should your mortgage account fall into arrears CHL Mortgages will arrange for an Independent Mortgage Arrears Counsellor to visit you.
If you have a Buy to Let mortgage we will also visit the mortgage property to assess the tenancy.  All costs for this service will be added to the interest bearing balance unless you choose to pay them. (Condition 925)”
24.	It is common ground that no Arrears Counsellor did in fact visit Mr Graves either before or after his stay in hospital although, as mentioned earlier, CHL was in communication with him about the payment of the arrears. 
25.	The second matter is an OFT document entitled “Irresponsible lending” which was issued in March 2010 and updated in February 2011.  This includes guidance to creditors on the handling of default and arrears.  Paragraph 7.3 states:
“7.3 Failing to treat borrowers in default or arrears difficulties with understanding and due consideration. 
For example, a lack of mental capacity to make a relevant financial decision at any particular time may impair a borrower's ability to maintain repayment schedules. Borrowers lacking mental capacity to make such decisions at any particular time may be unable to engage with debt repayment at that time and consequently it would not be appropriate to regard - or treat - them as 'uncooperative' or 'won't pays'. We consider that 'reasonable adjustments' should be made to policies and procedures for recovering debts, to the extent that it is appropriate or necessary to do so, under circumstances in which borrowers are known to - or reasonably believed to - lack the mental capacity to make the requisite financial decisions at the time at which they are being pursued for the debt.”
26.	Mr Graves says that he was not treated with sufficient understanding in the period leading up to the sale.  Even when he had regained his ability to deal with his financial affairs, CHL were not prepared to negotiate some kind of further payment plan to cover the arrears.  Their position was that he should either redeem the mortgage in full or the Property would be sold.
27.	The third matter which he relies on is the Good Practice Awareness Guidelines for Consumers with Mental Health Problems and Debt published by the Money Advice Liaison Group in 2009.  Paragraphs 3.1 and 6.2 of this guide state that:
“Creditors, advice agencies and health and social care professionals should work in a joined-up way.
3.1	It is important that members of each agency helping to resolve a person’s debt problems work together, exchange information (with clients’ consent), and explain what might be unfamiliar working practices to each other. Better dialogue overall may lead to potential financial difficulties being addressed at an earlier stage. 
…
6.2	When a relevant mental health problem is identified, an adviser will typically try to establish the nature of the problem and how it affects their client. This can involve: 
•	Gathering and reviewing relevant correspondence and documentation 
•	Liaising with health and social care professionals currently working with the client and obtaining evidence of how the client’s mental health problem and/or associated medication impacts on their ability to manage money and resolve/avoid debt
•	Assessing the client’s overall financial, housing and care situation 
•	Agreeing a course of action with the client.”
28.	Finally, Mr Graves also relies upon the provisions of the Equality Act 2010.  He says that he is a disabled person within the meaning of s.6 of the Act and has been discriminated against by CHL in its treatment of him up to and including the sale of the Property.
29.	The guidance contained in the Good Practice Awareness document was in my judgment substantially complied with by CHL during the relevant period.  They followed a procedure to discover the extent of the appellant’s mental health problems which did enable them properly to assess his overall financial situation.  Although they were not prepared to continue with the mortgage and demanded either its redemption or a sale, that was in my view a commercially justifiable decision having regard to the history of the mortgage loan and the repeated history of arrears.  As Judge Holt said in his judgment, the evidence from CHL was that it had bent over backwards to accommodate Mr Graves over the years and to keep the mortgage going rather than taking possession.  Its decision to play hardball, so to speak, in 2012 has to be looked at in that wider context.
30.	It is, I think, important to keep in mind that the decision to sell was not taken until some time after Mr Graves had left hospital and after Dr Axford had indicated that Mr Graves was fit to re-take control of his financial affairs.  CHL’s evidence was that neither this nor the earlier decision to appoint Law of Property Act receivers was based simply on the late payments in early 2012.  Its case was that it had exhausted all available means of assisting Mr Graves.  He had indicated that he wished to move into the Property rather than to re-let it, in which case the repayment of the mortgage would depend upon his ability to make the repayments from his other sources of income.  CHL took the view that its security was in jeopardy and that it was justified in bringing the mortgage to an end.  
31.	It would, I think, have to be an exceptional case for the Court to conclude that a mortgagee whose power of sale had become exercisable due to the non-payment of the mortgage instalments was to be treated as having acted unfairly in deciding to realise its security  Perhaps Mr Graves’ position might have been different if he had had an unblemished record of payment up to his admission to hospital and CHL had chosen to exercise its power of sale solely on the basis of arrears which occurred when he was unable to manage his financial affairs.  But that is not this case.  Even if CHL can be criticised for failing to hold a more formal consultation with him attended by a mortgage counsellor, the judge had no evidence from Mr Graves that such a meeting would have made any difference.  The advice contained in OFT1107 to treat borrowers in default with understanding and due consideration does not mean that the lender has to ignore the history of the account or the ability of the borrower to maintain it in order in the future.  Although given an opportunity to do so under the directions for evidence given by the judge in relation to the first appeal, Mr Graves did not put in any evidence about his financial circumstances and sources of income and there is nothing to show that he could have satisfied CHL of his ability to pay further instalments of the mortgage on time.  
32.	That leaves his reliance on the Equality Act.  This depends upon Mr Graves establishing that he has a disability within the terms of s.6 of the Act which provides that:
“(1) A person (P) has a disability if—
(a)	P has a physical or mental impairment, and
(b)	the impairment has a substantial and long-term adverse effect on P's ability to carry out normal day-to-day activities.”
33.	Long-term effect is dealt with by paragraph 2(1) of Schedule 1 which provides that:
“(1) The effect of an impairment is long-term if—
(a)	it has lasted for at least 12 months,
(b)	it is likely to last for at least 12 months, or
(c)	it is likely to last for the rest of the life of the person affected.”
34.	Disability discrimination under the Equality Act was not relied upon by Mr Graves either before the District Judge or on appeal to Judge Holt and there has been no medical evidence filed to establish that Mr Graves does suffer from a mental impairment of the kind necessary to engage the Act.  In my view, it is too late for this point to be raised by way of argument on this appeal in the absence of any relevant findings of fact by the courts below.
35.	For those reasons, I am not satisfied that Mr Graves has established that his relationship with CHL was unfair due to the way in which CHL exercised its powers under the mortgage.  I would therefore dismiss the appeal. 
Lord Justice Underhill :
36.	I agree.
Lord Justice Briggs :
37.	I also agree.
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