In Bridging Loans Ltd v Toombs  EWCA Civ 205, the Court of Appeal has dismissed a lender's appeal against summary judgment granted in favour of a valuer in the High Court.
The lower courts had considered the lender's arguments concerning the primary limitation period in tort (applying Nykredit) and s14A (secondary limitation).
On the facts of this case, the lender had failed to establish any evidence to show that the borrower's covenant had value. This could not therefore 'bridge the gap' between the alleged true value of the property and the outstanding debt owed to the lender.
On appeal, the lender argued that the property's true value might be higher than it had itself pleaded and so, accordingly, it was not appropriate to order summary judgment. The Court of Appeal unsurprisingly rejected this argument.
The key facts are:
The first appeal was heard before HHJ Seymour QC. The valuer's application was successful and summary judgment was granted. The Judge confirmed that in order to determine when the cause of action accrues, one needs to ascertain when the lender first sustains measurable relevant loss. This is the point in time when the combined value of the borrower's covenant, and the value of the security, is less than the amount outstanding to the lender.
In this case, the borrower had failed to repay the loan when due. It was therefore for the lender to adduce some evidence to show that the borrower's covenant had some value. The lender failed to do so and it was held that the claim was outside the six year primary limitation period in tort.
As for s14A (secondary limitation), this did not assist the lender because it had actual knowledge of the relevant facts more than three years before the claim was issued. There could be little doubt about this – a Preliminary Notice had been served back in 2007. Therefore, the lender's claim was dismissed.
On 14 February 2017, the lender's appeal was heard in the Court of Appeal.
The crux of the lender's argument was that, in cases of this type, it is not uncommon for the court to find a true retrospective value somewhere between the parties' contended positions. As such, it was argued that the appeal should be allowed, as the property's true value may reveal that the lender was within the limitation period.
This argument was firmly rejected. The court held that it was appropriate to give summary judgment on this issue by reference to the lender's pleaded case, which was supported by the lender's expert evidence. The lender had not adduced any evidence to show that the property's true value might have been higher.
On the lender's own case, the property was worth less than the debt outstanding at all times. Given that the borrower had not made any repayments and the lender had not adduced any evidence to show that its covenant had value, this outcome is not surprising.
This decision should not dissuade lenders from pursuing meritorious claims in reliance on Nykredit or s14A limitation arguments, but they should take note of the pitfalls to be aware of. The main issues to consider are:
When outside the limitation period in contract, it is always prudent to seek to enter into a standstill agreement as early as possible. This preserves the limitation position as at that date and limits the scope for future dispute over limitation.
If you have any limitations, please do not hesitate to contact Neil Franklin or Sam McCollum in TLT's Financial Disputes and Investigations team.
This publication is intended for general guidance and represents our understanding of the relevant law and practice as at March 2017. Specific advice should be sought for specific cases. For more information see our terms & conditions.