In Mark Alexander (as representative of the "Property 118 Action Group") v West Bromwich Mortgage Co Ltd, the High Court considered a mortgage contract that incorporated terms from multiple sources, one of which contained a priority clause in case of inconsistencies between them. The Claimant alleged that such inconsistencies existed and sought to rely on the priority clause in order to challenge terms relating to both the raising of the mortgage interest rate and the notice period for mortgage redemption. The Judge held that the two documents were not inconsistent and, as a result, there was no need to rely on the priority clause.

Background  On 6 June 2008, the Claimant borrower accepted a 25 year mortgage offer from the Defendant lender and, in due course, signed the mortgage deed.  The mortgage offer was set out in the Offer of Loan (the "Offer") but was subject to the Defendant's Mortgage Conditions 2006 (daily interest) (the "Mortgage Conditions") and the Standard Conditions of Offer.  Clause 1 of the Mortgage Conditions stated that if inconsistencies existed between it and the Offer, then the terms of the Offer should prevail.  A dispute arose between the parties over the terms concerning (i) variations to the mortgage interest rate, and (ii) early termination of the mortgage:

  • Interest rate variations – The Offer provided for a fixed interest rate for the first two years of the loan before the application of a variable rate comprising the Bank of England Base Rate (the "Base Rate") plus a premium of 1.99%.  Clause 5 of the Mortgage Conditions stipulated that the variable rate could be changed for numerous reasons.  These reasons included the need to "reflect market conditions generally" and to ensure its "business was carried out prudently, efficiently and competitively".  In September 2013, the Defendant changed the variable rate to increase the premium added to the Base Rate from 1.99% to 3.99%.
  • Termination of mortgage – The Offer provided for a 25 year mortgage with a total of 299 monthly payments (but nonetheless contemplated the possibility of early termination).  Clause 14 of the Mortgage Conditions stated that the mortgage was repayable in a number of circumstances, including upon the Defendant giving "one month's notice" to the Claimant.

The Claimant sought declarations from the Court that provisions contained in the Mortgage Conditions relating to the variable rate increase and the one month's notice repayment were not consistent with the terms of the Offer.  As a result, the Claimant sought to rely on the terms of the Offer because it argued that there were inconsistencies between the two documents. The Defendant disagreed, and sought to rely upon the terms of the Mortgage Conditions.

The question for the Court was whether there was a clear and irreconcilable discrepancy between the clauses in each document.

Decision

Teare J held that to make either of the declarations sought by the Claimant, there needed to be "a clear and irreconcilable discrepancy" between the Offer and the Mortgage Conditions and that "the court's task is to read the provisions together and, if possible, give sensible effect to each of them". 

Regarding the variable interest rate, the Offer specified the variable rate as the Base Rate plus 1.99%.  This implied that the variable rate was subject to changes in the Base Rate, but it did not state that the variable rate could not be changed for any other reason.  Therefore, Teare J held that it was possible to read Clause 5 of the Mortgage Conditions as qualifying the Offer rather than contradicting it.  As a result, there was no need to prioritise the Offer terms over the Mortgage Conditions.

Similarly, the notice provision in the Mortgage Conditions was seen to modify, rather than conflict with, the 25 year term outlined in the Offer. This was especially evident considering that the Claimant accepted that other provisions in Clause 14 of the Mortgage Conditions (for example, Claimant bankruptcy provisions) were capable of triggering early repayment.

Therefore, Teare J refused to grant the declarations sought by the Claimant.

Comment

This decision serves as a reminder that the English courts will, where possible, try to give effect to potentially ambiguous contractual terms. This is especially the case in situations where the parties are on an equal footing (in this case, the Claimant was not deemed to be a "consumer" by the Defendant because he had more than three buy-to-let properties).  However, this does highlight the dangers involved in incorporating the terms of a contract from more than one document; care should be taken to avoid ambiguity in such situations.  We understand that the Claimant is seeking permission to appeal this Judgment.