Key point

A mortgagee cannot exercise its powers for a purpose which is unconnected with protecting its security or ultimately obtaining repayment of the outstanding debt.  

The Facts

The claimant bank (the "Claimant") was the second mortgagee in relation to two properties owned by the defendant (the "Defendant").  After the Defendant fell into arrears, the Claimant brought proceedings for possession of the properties.  The Defendant sought an order that the possession proceedings be struck out on the basis that, amongst other objections, they were brought for a collateral purpose which was beyond the Claimant's powers as a mortgagee.  The claims were transferred to the High Court but were subsequently discontinued by the Claimant.  The Defendant sought his costs from the Claimant on an indemnity basis.

The Decision

The application for costs against the Claimant on an indemnity basis was dismissed as the possession proceedings were not brought for a collateral-improper purpose.  While the purpose of the possession proceedings may have been to put pressure on the Claimant and his family to make repayment, this was ultimately within the scope of the Claimant's permitted powers.

Comment

The case serves as a useful reminder of the equitable constraints on a mortgagee when exercising its powers: the powers of a mortgagee are so vested to enable the mortgagee to protect its position and enable it to obtain repayment.  It can be difficult to discern a mortgagee's motives in practice but, where the purpose of the action taken by the mortgagee is ultimately not connected with the recovery of its debt, the exercise of any such power will be improper.

The Co-Operative Bank Plc v Phillips [2014] EWHC 2862 (Ch)