If a lender is enforcing a mortgage it should do so to recover it’s debt. Usually this will be by selling or letting the property.
It cannot do so for a collateral purpose.
Most mortgages entitle a lender to recover, also, the costs it incurs in enforcing the mortgage.
In The Co-Operative Bank Plc v Phillips (2014) the bank had a legal charge which stood second to Barclays Bank’s first mortgages over the properties.
The Co-Operative Bank Plc (“Coop”) had no realistic chance, or therefore intention, of recovering the borrower’s indebtedness by selling or leasing the properties.
It withdrew the enforcement proceedings.
Mr Phillips claimed the bank had merely brought the proceedings to frighten family members into paying. Indeed his daughter had raised £50,000 to pay to the bank. He said this was an invalid collateral purpose entitling him to recoup his costs from the bank on the much more generous “indemnity basis”.
The High Court took a broader view. Whilst there was no prospect, or intention, of the bank recouping itself by a sale or letting of the properties, it was quite entitled to take proceedings to bring pressure on the family to pay money to the bank. The bank was merely seeking to get its money back, which was the whole purpose of mortgages. So Mr Phillips’ claim to indemnity costs failed.
Nevertheless, as there was no realistic prospect of a sale or letting, the legal costs the bank had caused to be incurred by enforcing the charge were not “properly incurred” as the legal charge’s cost recoupment clause had stipulated. This may seem strange to some, given the court’s earlier ruling that the proceedings were a legitimate tactic to enforce the legal charge’s purpose of getting the money back.
As such the bank was neither entitled to recoup it’s own legal outlay through the legal charge, nor was it entitled to recoup, through the legal charge, the legal costs the court had awarded Mr Phillips against the bank when the bank withdrew its proceedings against him.
This blog has been posted out of general interest. It does not remove the need to get bespoke legal advice in individual cases.