When can the court override the express wording of a mortgage?

When can the court override the express wording of a mortgage?

How will costs clauses in mortgages be treated by the courts? Warren Gordon, head of real estate know how at Olswang, comments on ruling in which the High Court was able to override the express wording of the mortgage in deciding that the mortgagor should not pay the mortgagee’s costs because they were unreasonable.

Original news

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

As security for a loan, Mr Phillips, the mortgagor, charged two residential properties in favour of the Co-operative Bank plc, the mortgagee. Following failure to repay the sums demanded by the mortgagee on 30 July 2008, the mortgagee brought possession proceedings on 19 April 2013 for the two properties, asserting its right to possession as charge of the properties.

The charges in favour of the mortgagee were second ranking charges behind charges in favour of another bank and it was argued by the mortgagor, both prior and during the proceedings, that the properties were in negative equity—ie the charges in favour of the Co-operative Bank were out of the money. On 18 June 2014, the Co-operative Bank as mortgagee served notice of discontinuance of its possession proceedings.

The court had previously held that the mortgagee was liable to pay mortgagor’s costs in the proceedings and the latest hearing held:

  1. the mortgagee was not required to pay the mortgagor’s costs of the proceedings on the indemnity basis rather than the standard basis
  2. the mortgagee was unable to add the costs incurred by it in these proceedings (including the sums payable to the mortgagor) to the sums secured by the charges
  3. the mortgagee was not entitled to set off its liability to pay the mortgagor’s costs against sums otherwise due from the mortgagor to the bank

What were the key features of this case?

The judge came to a common sense decision. He rejected awarding costs against the mortgagee on the wider indemnity basis when ultimately the mortgagee (prior to discontinuing the proceedings) was merely exercising its powers as mortgagee in bringing the possession claim. The judge was not swayed by the mortgagor’s argument that the mortgagee would gain no legitimate commercial advantage from enforcing its mortgages, because

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