A claim brought by Pure Legal, who entered administration this week, has been struck out on limitation grounds in a further blow to claims for the alleged mis-selling of interest only mortgages.
The facts of the claim were not complicated. The Claimants, Mr & Mrs White, had a baby on the way and were separately living with their parents. They were looking to purchase a property to accommodate their growing family and approached Homemaker Mortgages, an appointed representative of the Defendant broker Mortgage Intelligence Ltd, to give them advice on the options available to them. Mr White was an electrician and Mrs White a fraud handler at the time.
The broker recommended that they enter into an interest only mortgage (IOM) with Northern Rock (the Lender) and completion took place in October 2005. The record of suitability completed by the broker indicated that the Claimants intended to use ISAs to repay the capital of the mortgage at the end of the term.
After a failed attempt to remortgage in 2017, in May 2019 the Claimants remortgaged onto a capital repayment mortgage (CRM). The Claimants then brought proceedings in March 2020.
The usual allegations that we see in claims brought by Pure Legal were made:
- failure to advise the Claimants of the need for a suitable repayment vehicle and/or advise the Claimants to enter into the IOM when a CRM would have been more appropriate for their needs; and
- failure to ensure that the Claimants had a suitable repayment vehicle in place in order to repay the outstanding capital at the end of the term which was said to have caused them to purchase their property on an unaffordable interest only basis.
The Claimants claimed that the Defendant's breach of duty caused them to suffer loss, namely:
- the cumulative interest that they paid to the Lender over the course of the recommended IOM less the cumulative interest that they allegedly would have paid under a hypothetical CRM; plus
- the amount by which the capital sum would have been reduced under the counterfactual CRM at the time of redemption in May 2019 (the Capital Loss).
It was Claimants' position that they were entitled to rely on Section 14A Limitation Act 1980 (Section 14A) to argue that their claim was in time for limitation purposes, as they did not have the requisite knowledge for the purposes of Section 14A more than three years before the claim had been issued.
Section 14A permits a claim in negligence to be brought within six years from the accrual of the cause of action (the primary limitation period) or, if later, three years from the earliest date on which the claimant had the knowledge required for bringing an action for damages in respect of the relevant damage and a right to bring such an action (the secondary limitation period). The ‘knowledge’ required to bringing an action for damage means knowledge of:
- such facts as would lead a reasonable person who had suffered such damage to consider it sufficiently serious to justify commencing proceedings for damages; and
- knowledge that the damage was attributable to the act or omission which was alleged to constitute negligence and the identity of the party responsible.
Around October 2017, the Claimants went to another mortgage broker to discuss re-mortgaging their property because of Mrs White's redundancy earlier that year. It was the Claimants' position that they were advised that because of the redundancy they were not eligible for a CRM but that they would have been eligible for a CRM in 2005. The Claimants asserted, therefore, that it was in 2017 they acquired relevant knowledge for Section 14A purposes as they realised the advice in 2005 had been "bad advice".
A strike out application on limitation grounds was made and went before the Leeds County Court.
Following consideration of Section 14A and the relevant case law (including other cases involving claims brought by Pure Legal for alleged mortgage mis-selling), the Judge defined the limitation issue on the basis of when did the Claimants know (or ought to have known) that the capital fell to be paid at the end of the mortgage term and that it was incumbent on them to ensure that something was in place to pay it?
In answering that question, the Judge reached the following findings:
1. The Judge had "no hesitation in concluding that the [Claimants] had no prospect of overcoming the limitation issue" and had acquired relevant knowledge years before March 2017 (three years before the claim was brought).
Around the time the mortgage was incepted in 2005, salient details regarding the mortgage were included on the key facts illustration, the mortgage application form, the mortgage record of suitability sent to the Claimants and the Lender's completion letter.
The judge was unpersuaded by arguments made by the Claimants that the fact they were unsophisticated financial service users meant they could not understand the different forms of finance available for the funding of a property or the undesirable position which they would find themselves in at the end of the term of the interest only mortgage when the capital fell to be repaid. The judge concluded that the warnings on the mortgage documents were not complicated or obscure rather they were crystal clear and eminently comprehensible. As such, is was not realistically arguable that lay people such as the Claimants would not understand those documents.
Furthermore, it was the Claimants' case that they did not have ISAs in place, as indicated on the mortgage record of suitability. This meant the Claimants had no capital repayment vehicle for the purposes of repaying the capital due at the end of the mortgage term. The Judge found that "this positively counts against [the Claimants]" on limitation. If the advice was being offered on a mistaken or false premise, because its suitability was even partially dependent on the existence of ISAs, then that was clear from the mortgage record of suitability which a reasonable person would have read.
Accordingly, the claim was out of time 6 years from when the mortgage incepted as the damage was patent from the outset of the mortgage in 2005 and not latent, and so Section 14A had no application. The Claimants knew that they had a mortgage where the capital was due at the end of the term with nothing in place from which the capital could be paid.
2. The judge confirmed that, even if he was wrong on point 1, the claim would still have been brought out of time as:
- the Claimants took out mortgage holidays in September 2010 and 2011 which generated correspondence from their Lender drawing attention to their mortgage being interest only with the capital remaining to be paid;
- even if that was not enough, from at least 2012 (although probably before), the Claimants received annual mortgage statements that had information regarding the interest only mortgage.
Even if the Claimants did not read the repeated warnings from the Lender on those documents, the judge was of the view that could not assist them as, on the authority of Cole v Scion (2020) EWHC 1022 (Ch), they were deemed to have the constructive knowledge that reading the documents would have provided.
3. As a final blow to the Claimants, the judge confirmed that, even if the documentation contained in the Lender's correspondence was insufficient, the Lender's call log confirmed that there was a call in 2015 between Mrs White and her Lender when she described them as having been in financial disorder when asked what their plan was to pay the interest only balance.
Furthermore, the Judge confirmed that he would have struck out the claim even if the Claimants had been permitted to amend their pleading by way of an application made on the day of the hearing. The Claimants sought to assert that the advice was defective as (1) the Claimants were not told of the more suitable option of a CRM or other funding options which did not depend on a very sizeable lump sum being due at the end of the mortgage term, or alternatively (2) the recommendation that they take out a mortgage at all to purchase the particular property was defective. The Judge confirmed his view that, even on this non-pleaded basis, the claim was time barred as the limitation clock started when the Claimants had knowledge of material facts about any damage of a nature sufficiently serious to pursue by litigation that damage was capable of attribution to the applicants.
The Judge also confirmed that had he not struck out the claim on limitation grounds he would have partially struck out the Capital Loss claimed. The Claimants sought to rely on Emptage v Financial Services Compensation Scheme Ltd v (2013) EWCA Civ 729 in pursuing the Capital Loss. However, the judge concluded that Emptage was wholly distinguishable on the facts, confirming that it merely decided that, in assessing the compensation to which Ms Emptage was entitled via the FSCS, account could be had to the loss caused by the occurrence of the risk to which she was negligently exposed.
Accordingly, the judge was of the view that, by entering into the IOM, the Claimants had in no sense “lost” any part of the capital sum which was repayable when the mortgage was redeemed. Had the Claimants taken out a CRM there would still have been an obligation to pay, not just the interest, but also the capital. The Capital Loss could not, therefore, be considered a recoverable head of loss in the claim even if it had not been struck out entirely.
Where does that leave these claims?
This claim is one of hundreds that have brought by claimants represented by Pure Legal in relation to allegedly negligent advice to enter into interest only mortgages from 2005 to around 2009. Common amongst those claims is the claimants looking to rely on Section 14A in trying to persuade the Court that their claims are not statute barred and have, therefore, been brought in time.
As such, the judgment in White will come as a relief to the mortgage broker market and provides useful guidance on limitation for those ongoing claims. The judgment confirms that the information contained in standard mortgage documents was sufficient to set the time running for the purposes of Section 14A. Furthermore, the mortgage statements lenders are required by their regulator to send out annually (again with standard wording and warnings) also provide claimants with enough information to start time running, even if it is a claimant's position is that they never read their statements. A reasonable person is expected to read their correspondence and is, therefore, deemed to have the knowledge that reading them would have provided.
This successful strike out application follows a string of recent hearings in disputes involving claimants represented by Pure Legal where the defendant has been successful in defeating the claimant's position on either limitation.
White further confirms that the Capital Loss being claimed by Pure Legal's clients is entirely over-inflated and a bad claim in law. Once the Capital Loss is disregarded, the value of the claim in White reduced by 80%.
With the judgment in White now having been handed down, this is a yet further positive judgment for the mortgage broker market. With the administration of Pure Legal we may now be seeing the beginning of the end of these claims.