The bank took a charge on the borrowers’ property. In January 1992, it demanded payment of the balance due under the secured facilities. In June 1992, it made a further formal demand specifically relying on the mortgage. One of the borrowers was subsequently made bankrupt. Periodically, the bank informed the borrowers that they continued to be liable and made demands for payment and referred to the mortgage. In 2006, the trustee in bankruptcy sought declaratory relief contending that the bank’s right of action to recover the property had accrued in January or June 1992 when it had first made demands for repayment. As that was more than 12 years ago, the cause of action was statute barred under the Limitation Act 1980, and so the bank’s charge had thereby been extinguished.

The bank argued that time only started to run once the borrowers were in adverse possession of the property. Here, it argued that the borrowers had continued to occupy with its implied permission - as no unequivocal demand for possession had been made. The bank’s arguments failed. The court held that there was no reason why time should not run from the date on which the mortgagee was entitled to possession, whether the mortgagee unequivocally demands possession on that date or forbears from doing so while trying to persuade the mortgagor to pay up. There was no requirement that the mortgagor be in possession without the consent of the mortgagee. The cause of action was time barred and the legal charge extinguished under s17 of the Act.

This judgment should be borne in mind where a lender is faced with borrowers with a long history of failure to pay and where the formal demand was first made some time ago. Protracted negotiations with such borrowers could lead to the security being forfeited.

Ashe v National Westminster Bank Plc