Mortgage mis-selling claim struck out on limitation: a significant victory for mortgage brokers

Collett v SPF Private Clients [21.04.21]

This case review has since been re-purposed for Mortgage Solutions, May 2021.

The decision in Collett v SPF Private Clients [21.04.21] to strike out an interest only mortgage claim on grounds of limitation could be a significant blow to the claimant law firms who have been flooding the market with these claims.

The approach to quantum also supports the Commercial Court’s decision in the earlier case of Ross v Attanta [2021].

Background

In 2005, the claimants, Mr and Mrs Collett, sought mortgage advice from the defendant broker, SPF Private Clients Ltd, to purchase a house in Great Cambourne, Cambridge for close to £400,000. The advice was given over the phone and culminated in the defendant advising the claimants to part exchange their current property in order to enter into a regulated mortgage with Birmingham Midshires. The mortgage was repayable on an interest only basis over a period of 20 years.

The claimants brought a claim against the defendant in April 2020, just before the 15 year longstop date for limitation. They raised two key allegations: (1) the defendant advised the claimants to enter into an interest only mortgage when a repayment mortgage would have been more affordable and (2) the defendant failed to advise the claimants that they would need a suitable repayment vehicle, in order to fund the repayment of the mortgage at the end of the term.

The claimants claimed the difference in the interest payments paid under the interest only mortgage, when compared with a hypothetical repayment mortgage (circa £17,000), plus the amount by which the capital sum would have been reduced under that repayment mortgage (circa £141,000). The total claim was pleaded at circa £158,000.

The claimants accepted that the primary limitation period had expired and sought to rely on the secondary limitation period of three years from the date of knowledge. The claimants asserted that they only acquired the relevant knowledge on seeing adverts on social media about mortgage mis-selling in August 2018. They then realised that a repayment mortgage may have been available to them in 2005.

Limitation

The judge granted summary judgment in favour of the defendant. He agreed with the defendant’s position that, on the basis of the documentary material available and, in particular, the mortgage offer letters and mortgage statements, the claimants either knew or could be taken to have known that their mortgage was an interest only one and they did not have a repayment vehicle in place.

As per Ross v Attanta, the judge also found that the claimants must have had sufficient understanding of the advice they were seeking from the defendant to appreciate the scope of the duty owed to them. Furthermore, the fact that you will be required to pay more interest on the entire capital sum in an interest only mortgage than on a reducing capital sum in a repayment mortgage was something that any individual should understand.

While in Ross v Attanta the judge ultimately felt unable to strike out the claim, that decision was distinguished on a significant factual basis - the broker in that case may have wrongly indicated to Mr and Mrs Ross that their mortgage was, in fact, a lifetime one. Here, the documentary evidence was sufficient to put the claimants on notice that the mortgage they had entered into was unsuitable, given the risk that they would have to repay the entire capital sum at the end of the term.

Counsel acting on behalf of the claimants also sought to argue that it was not appropriate to grant summary judgment in circumstances where the claimants had yet to file witness evidence. However, the judge considered that to be a bad point. It was the claimants’ choice whether or not to file witness statements in response. They therefore could not decline to provide evidence and then rely on that fact in opposition to the application.

Quantum

The judge followed the decision in Ross v Attanta and found that the claim should be limited to the difference in the cost of borrowing over the term of the mortgage as between the interest only and capital repayment options. Had summary judgment not been granted, the quantum would therefore have been reduced from circa £158,000 to circa £17,000.

Comment

The judge’s finding that the warnings provided in the mortgage offers and statements are sufficient to give the claimants constructive knowledge for the purposes of limitation is highly significant. The vast majority of claims against brokers for mis-selling interest only mortgages are being brought well outside the primary limitation period. Previous attempts to strike out claims on similar grounds have been unsuccessful (for example, Ross v Attanta and Jago v Mortgage4You Limited [2019]) and therefore this decision could mark a significant turning of the tide for defendant mortgage brokers.

Kennedys acted on behalf of the defendant in the application for strike out and summary judgment