National Westminster Bank Plc v Ashe

The application of the Limitation Act 1980 (the 1980 Act) to a mortgagee’s right to possession of a mortgaged dwelling house occupied by the mortgagors is the issue in this appeal.

The main point in contention is whether the mortgagors, who were in exclusive possession of their mortgaged house for more than 12 years after the limitation period began to run, were in “adverse possession” of it for the purposes of the 1980 Act. Under the common form of “all monies” legal charge used in this case the mortgagee bank (the Bank) acquired an immediate right to possession of the mortgagors’ house on the execution of the charge over 17 years before this action was brought. According to the mortgagors the Bank’s right of action accrued more than 12 years before the action was brought and has been extinguished under the 1980 Act.

During the 12 years prior to this action the mortgagors did nothing to cause time to run afresh: they neither made any payments to the Bank in respect of the mortgage debt nor was there any acknowledgment of title.

The decision under appeal was that the second legal charge in favour of the Bank was statute barred. The judge held that the mortgagors’ possession was adverse possession. Time had run in their favour and against the Bank for more than 12 years.

Some critics have predicted that the ruling, if correct, has important practical lessons for banks and other mortgagees. For a variety of reasons lending institutions may prefer to delay the enforcement of their security rights against a mortgagor with a history of failed payment. If the delay continues for a long period and no proper steps have been taken to protect the legal interests of the lending institution, enforcement of the security rights may well become statute barred.

Before going to the facts of the case and the detail of the 1980 Act I should comment on a number of public interest points made in support of the Bank’s appeal.

First, it was asserted that there may be a significant number of cases in which the title to a charge or mortgage will be extinguished if the decision under appeal is upheld. The title to the mortgage could be extinguished even before the mortgagee has demanded payment of the mortgage debt.

Secondly, it was submitted that banks and other lending institutions could be forced to issue possession proceedings, where they would not otherwise have done so, in order to protect their security rights from becoming statute-barred. It was even suggested that the ruling could lead to vulnerable mortgagors being made homeless, when they could otherwise have gone on living in their own homes. This is an alarming, but unlikely, prospect. As explained below, modest measures are available to mortgagees for the protection of their security.

Thirdly, the public interest is in encouraging mortgagees to consent to mortgagors retaining possession of the mortgaged property. I agree. The ruling under appeal is not a valid reason for mortgagees refusing to allow their mortgagors to remain in possession of their homes.

The above arguments, which were set out in the Bank’s skeleton argument and developed by its counsel, Mr Justin Fenwick QC at the hearing, are not really of much help to this court in interpreting technical legislation consisting of lawyers’ law about mortgages, real property and limitation of actions, which has taken about 400 years to evolve.

There are also contrary public interest arguments.

First, the aim of the statutes of limitation is to prevent citizens from being oppressed by stale claims, to protect settled interests from being disturbed, to bring certainty and finality to disputes and so on. These are important aspects of the public interest.

Secondly, if the Bank is right and the mortgagors were not in adverse possession of their house, then in some cases time would never begin to run against a mortgagee. That would be a surprising state of affairs.

The court is grateful for being forewarned about the anticipated practical consequences of its decision, but the problems posed in the interpretation of the 1980 Act and its application to this case are largely technical in character.

In my judgment, the practical solution to any limitation problems, which the decision may present if it is upheld, is almost certainly in the hands of the lending institutions potentially affected by it. They have access to expert legal advice. They are well able to take the necessary legal steps within the ample 12 year limitation period to put a stop to time running against their rights of action in respect of the mortgaged property and to prevent them from becoming statute-barred. Without having to issue possession proceedings it ought to be possible to obtain part payments of the mortgage debt (however small), if not written acknowledgments, from their defaulting mortgagors.

The practical implications of the decision against the Bank are in danger of being exaggerated.

First, not all mortgagees acquire an immediate right to possession at the date of the mortgage. Many mortgages and charges contain provisions, which are absent from this case, limiting or qualifying the mortgagee’s right to possession. The right is often made dependent on default in payment and the right of action would not then accrue before there was a default.

Secondly, this is not simply a case of the passing of many years since the date of the legal charge. Unusually, many years passed without any payment being made by the mortgagors. There was no part payment of the mortgage debt between January 1993 and the commencement of this action in 2006. In many cases there will be payments of at least some instalments or some other payments of arrears by the mortgagors. If there are, the part payments will cause the mortgagee’s right of action to accrue afresh. The limitation period will only run from the date on which the last payment was made by the mortgagor.

In my judgment, the real public concern in this appeal, which I would agree is of considerable interest to mortgagees and mortgagors in general, is in this court determining the private property rights of the parties in accordance with law, as enacted in the 1980 Act, rather than by reference to the possible consequences of the decision and other public interest factors.

The appeal is from an order made on 13 March 2007 by Mr Richard Arnold QC (sitting as a Deputy High Court Judge). He made a declaration that a second Legal Charge granted to the appellant Bank (National Westminster Bank plc ) by Mr & Mrs Babai dated 8 June 1989 and registered on 23 August 1989 has been extinguished by operation of sections 15 and 17 of the 1980 Act. He ordered the register to be rectified by cancelling the registration of the Bank’s charge and removing it from the Charges Register. He ordered the Bank to pay the costs. He granted the Bank permission to appeal.

Mr & Mrs Babai granted the second legal charge over their registered long leasehold interest in 43 Valley Road, Heaton Mersey, Stockport, Cheshire (the Property) to secure Mr Babai’s liabilities on his accounts with the Bank. The Halifax Building Society had a first mortgage on the Property.

Although the Bank made formal demands for payment in 1992, it took no proceedings or other steps to enforce its right to possession or to obtain payment or otherwise to protect its legal position. There were negotiations between the parties about instalment payments. Some payments were made. The last payment to the Bank by Mr Babai under the second legal charge was of £40 on 4 January 1993.

Mr Babai was made bankrupt on 22 March 1993. By letter dated 8 January 1994 the Bank reminded Mr Babai that he remained liable to the Bank on his account, that it was secured by a legal mortgage over the Property, that it would be to his advantage to repay the Bank as soon as possible and that the Bank would be prepared to accept payment by way of monthly instalments over a period of 10 years, failing which the Bank would continue to await an eventual sale of the Property to repay his liabilities.

There was correspondence in 1999. Formal demands for payment were again made in 2001 followed by intermittent correspondence. No further payments have been made by Mr Babai. No sale of the Property has taken place. No legal proceedings were issued by the Bank to enforce its rights against the mortgagors or the Property.

The present proceedings were in fact brought by the respondent to this appeal, Mr Robin Ashe, on 14 September 2006. He is Mr Babai’s trustee in bankruptcy. He was appointed in October 2004. Mr Babai’s interest in the Property is vested in him. It is the only asset of any value in Mr Babai’s estate. In his amended claim form Mr Ashe sought a declaration that the Bank’s legal charge on the Property has been extinguished.

It is common ground that, although it is highly unlikely that Mr & Mrs Babai appreciated this any more than anyone else in their position would have done, the Bank had, in law, the immediate right to take possession of the Property, if it chose to do so, as soon as the “all monies” legal charge was executed on 8 June 1989. The Bank’s right to enter into possession did not depend on the terms of this particular mortgage, on any default on the part of Mr & Mrs Babai: National Westminster Bank plc v. Skelton [1993] 1 WLR 72 at 77 and 81H per Slade LJ (Skelton).

The Bank’s right to immediate possession is enjoyed by virtue of the statutory equivalent of a legal term of years (less 1 day) conferred on the Bank by the legal charge and stems from long established principles of English real property law applicable to the form of legal charge used in this case. The terms of the Bank’s “all monies” charge did not expressly restrict the right of the Bank to take immediate possession of the Property as legal mortgagee: see, for example, Four–Maids Ltd v. Dudley Marshall (Properties) Ltd [1957] 317 at 320. Skelton also states that the court will not readily imply a term into a legal mortgage restricting the right of the Bank, as legal mortgagee, to take possession of the Property.

Before the judge it was contended that the Bank’s right of action to recover the Property accrued when demands for payment were made in 1992, but it was accepted on the appeal that the charge was in a form which did not restrict the right of the Bank to immediate possession. On the facts of this case the outcome is the same whether time runs from the date of the charge or from the date of the demand or from date of the last payment by Mr Babai under the charge.

In brief, Mr Ashe’s case on the appeal was that the Bank’s right of action (i.e. its immediate right to enter into possession of the Property by virtue of the legal charge) initially accrued when the legal charge was granted on 8 June 1989; that a fresh right of action to recover the Property accrued to the Bank in January 1993 when Mr Babai made a payment of £40 to the Bank in respect of the mortgage debt; and that, as more than 12 years of the mortgagors’ adverse possession of the Property had passed from that date, the Bank’s right to possession of the Property was statute barred under sections 15 and 17 of the 1980 Act and its legal charge was extinguished.

The Bank conceded that its contractual right of action to sue Mr Babai for payment of the mortgage debt was statute barred, but contended that its right to possession of the Property and to bring an action for possession against Mr & Mrs Babai was not statute barred, as Mr & Mrs Babai’s possession of the Property since the grant of the legal charge was not “adverse possession” as required by the 1980 Act. The Bank’s right of action was not therefore treated as accruing.

Indeed, far from Mr & Mrs Babai being in “adverse” possession of the Property, the Bank insisted that their continued possession of the Property since the date of the legal charge has been with the consent of the Bank. It was submitted to this court that the Bank’s consent to possession meant that the Property was not and still is not in the adverse possession of persons in whose favour the period of limitation could start to run under the 1980 Act; that permissive possession is not the “adverse” possession required by the 1980 Act for the extinction of title to land; and the Bank’s right of action against Mr & Mrs Babai is not treated as accruing while their permissive possession continues.

The Bank says that it has not revoked or terminated its consent, either by demanding that the Property be vacated by Mr & Mrs Babai or by commencing possession proceedings against them. The long passage of time since the grant of the legal charge and since the last payment in respect of the mortgage debt secured by it, is said to be irrelevant and cannot be relied upon by the respondent for his contention that the Bank’s right of action is statute-barred and its legal charge extinguished.

These submissions require closer examination in the light of the provisions of the 1980 Act, and, in particular, the scope of the key concept of adverse possession. It will also be necessary to consider some authorities on the application of the Limitation Acts to the rights and remedies of mortgagees.

At different points in this judgment the relevant provisions of the 1980 Act will be discussed. It is convenient to quote all the relevant provisions in one place. The history of the successive statutes of limitation-the Statute of James (the 1623 Act), the Real Property Limitation Act 1833 (the 1833 Act) and the Limitation Act 1939 (the 1939 Act)- is also relevant to the Bank’s submissions.

Section 15 of the 1980 Act sets the 12 year time limit for actions to recover land-

A “right of action to recover any land” includes “a right to enter into possession of the land”: section 38(7) of the 1980 Act.

Schedule 1 contains provisions with respect to actions to recover land. Part I governs the accrual of rights of action to recover land. The provisions in paragraph 1 of Schedule 1, relating to dispossession and discontinuance of possession and when a right of action to recover land is treated as accruing, put the provisions in the Schedule into context.

This paragraph does not apply to this case, as the Bank has neither been dispossessed of the Property nor has it discontinued possession of it. It does not allege that Mr & Mrs Babai are in wrongful possession of the Property as squatters or trespassers.

Although not immediately obvious on a first reading of it, paragraph 3 of Schedule 1 is more in point.

the person making the assurance was on the date when the assurance took effect in possession of the land…..; and

no person has been in possession of the land by virtue of the assurance;

Although the words “mortgage” and “charge” do not feature in paragraph 3, the legislative language fits the legal charge in this case: the Bank claims to be entitled to bring an action to recover the Property from Mr & Mrs Babai; an estate or interest in possession was assured to the Bank by the second legal charge of the Property to it; at the date of the second legal charge the persons making it Mr & Mrs Babai were in possession of the Property; and the Bank has not been in possession of the Property by virtue of the legal charge. The Bank’s right of action is therefore treated as having first accrued when the assurance (the second legal charge) took effect on 8 June 1989.

Paragraph 8(1) of Part I of Schedule 1 is critical to the arguments on the requirement of adverse possession of land. It provides that

Section 17 provides for the extinction of title to land after the expiration of the time limit.

Section 29 contains provisions for a fresh accrual of action on part payment in cases in which, for example, a right to recover the debt has accrued. On the making of a payment in respect of the debt by the person liable the right of action is treated as having accrued on and not before the date of the payment: section 29(5).

In the case of an action by a mortgagee, if the person in possession of the mortgaged land in question makes any payment in respect of the mortgage debt (whether of principal or interest) the right shall be treated as having accrued on and not before the date of the payment: section 29(3). In this case a fresh right of action accrued to the Bank on 4 January 1993.

If the person in possession of the land acknowledges the title of the person to whom the right of action to recover land has accrued the right shall be treated as having accrued on and not before the date of the acknowledgement: section 29 (2). To be effective the acknowledgement must be in writing and signed by the person making it: section 30(1). A point on acknowledgment unsuccessfully taken by the Bank in the court below was not pursued on the appeal.

I turn next to the reserved judgment, which contains a clear statement of the uncontroversial facts and a comprehensive review of the relevant statute and case law and the views of the text writers and explains why the deputy judge found against the Bank.

The deputy judge summarised (in paragraph 35) the Bank’s key contentions: the date on which its right of action accrued was to be determined in accordance with paragraph 8 of Part I of Schedule 1 of the 1980 Act; under that paragraph time does not run unless the occupier of the land is in “adverse possession” of it; and Mr & Mrs Babai had not been in “adverse” possession of the Property, since Mr & Mrs Babai occupied it with the implied permission of the Bank.

The judge did not find the Bank’s arguments persuasive on a number of grounds.

First, he accepted a counter argument of Mr Babai’s trustee in bankruptcy that paragraph 8 in Part I of Schedule 1 did not apply to a claim to possession by a mortgagee. There was no requirement of “adverse possession” in the case of a right of action by a mortgagee for the recovery of land.

On this point the deputy judge referred to the speech of Lord Browne-Wilkinson in the leading case of JA Pye (Oxford) Limited v. Graham [2003] 1 AC 419; [2002] UKHL 30 (Pye) at paragraphs 32, 35-37, 40 and 44-45 for his ruling on the meaning of “adverse possession” in the 1980 Act.

Lord Browne-Wilkinson explained how, in the context of a claim to squatter’s title, the old notion of “non-adverse possession” had been removed from the law of limitations applicable to land by the 1833 Act and was not re-introduced by the references to adverse possession in the 1939 Act and the 1980 Act. He emphasised that the only question after the 1833 Act was whether the squatter had been in possession in the ordinary sense of that word for the requisite period without the consent of the owner. The requirement that the land is in the possession of a person in whose favour time can run is not directed to the nature of the possession, but to the capacity of the squatter or other person in possession of the land.

The deputy judge said –

The deputy judge went on to conclude (in paragraphs 42 and 43) that a claim by a mortgagee does not fall within paragraph 8 in Part I of Schedule 1. It was not, he said, a freestanding provision as contended for by the Bank. It should be read as a provision which qualified the preceding paragraphs of Schedule 1 and in particular paragraph 1. A claim by a mortgagee did not fall within paragraph 8.

In his excellent submissions on behalf of Mr Ashe Mr Michael Driscoll QC, who did not appear below, told the court that he did not seek to support this part of the judgment. He rightly accepted that it is a requirement of the 1980 Act that, for time to run against the mortgagee, the mortgagor must be in adverse possession of the mortgaged land.

In my judgment, paragraph 8 in Part I of Schedule 1 applies to all actions to recover land. It provides that no such right of action “shall be treated as accruing”, unless there is a person in “adverse possession” of it. “Adverse possession” is used in the sense of ordinary possession by a person in whose favour the period of limitation can run.

I do not agree with the deputy judge that paragraph 8 has a particular link with paragraph 1 of Schedule 1, which was at the core of the decision in Pye and covers cases of “the dispossession or discontinuance of possession of land.” The language of paragraph 8 is wide enough to apply also to cases falling within paragraph 3, which was not relied on by the respondent before the deputy judge. As explained in paragraph 40 above, although paragraph 3 does not include the word “mortgage” or “charge”, its language embraces a claim for possession by the Bank as legal mortgagee against Mr & Mrs Babai, as mortgagors in possession of the Property.

The deputy judge helpfully went on to state his conclusion if, contrary to his view, a claim by a mortgagee to recover land falls within paragraph 8. He said-

The deputy judge did not in this paragraph expressly discuss the Bank’s contention that Mr & Mrs Babai were not in “adverse possession” of the Property because their possession was with the implied permission of the Bank. I think that it is clear, however, from reading the judgment as a whole, that he was rejecting this submission of the Bank, which he had summarised in paragraph 35 of his judgment (see paragraph 47 above).

The deputy judge reviewed the secondary legal materials and concluded that none of them supported the existence of a requirement of adverse possession by the mortgagor (paragraph 51). He considered the primary authorities in detail and concluded that there was no hint in any of them of any requirement of adverse possession on the part of the mortgagor, in the sense of possession without the mortgagor’s consent. The general tenor of them was to the opposite effect. He observed that there was no suggestion in the authorities that the 1939 Act, which is relied on by the Bank in this appeal, made any difference to the law which had been established before then.

His overall conclusion on possession by Mr & Mrs Babai and the consent of the Bank was this-

The second ground on which the Bank resisted Mr Ashe’s case was acknowledgement of title by Mr Babai. The deputy judge rejected this ground which was not pursued on the appeal.

As indicated above, the Bank’s principal point on this appeal was that Mr & Mrs Babai’s possession of the Property must have been with the express or implied consent of the Bank. The argument that this was not “adverse possession” and that the Bank’s right of action was not treated as accruing has been the main theme of lively submissions made by Mr Justin Fenwick QC on the Bank’s behalf. (Like Mr Driscoll he did not appear in the court below.)

Mr Fenwick highlighted the requirement of “adverse possession” before the Bank’s right of action to recover land is treated as accruing and time can begin to run against the Bank under the 1980 Act. He developed in detail his contention that possession of the Property by Mr & Mrs Babai did not satisfy this requirement. His materials included helpful general discussions of the law in Jourdan on Adverse Posssession (2003) at pages 498 to 500, paragraphs 26-24 to 26-29 and in a number of other well known text books.

On the facts of this case Mr Fenwick said that the Bank had granted consent to Mr & Mrs Babai to remain in possession of the Property. The Bank has not withdrawn or terminated its consent. Far from the Bank’s right of action to recover the Property having become statute barred, it could not be treated as accruing during the period of the mortgagors’ permissive possession and time has not even started to run against the Bank.

Mr Fenwick traced the history of the statutes of limitation, as they applied to actions for the recovery of land, from the 1623 Act onwards. He cited many authorities on their interpretation. It was, he submitted, a clear requirement of the 1980 Act, as it had been under section 10 of the 1939 Act, that, for time to run against a mortgagee so as to bar his right to recover the mortgaged land, the mortgagor must be in “adverse possession” of the land in the sense that the mortgagor was in possession “as of wrong” and without any right or consent. A mortgagor in possession of the mortgaged land was to be treated as being in possession with the consent of the mortgagee, unless the mortgagee had terminated the consent and there was then evidence to show that the mortgagor was a trespasser on the mortgaged land. See for example Heath v. Pugh (1881) 6 QBD 362 at 359-360 per Lord Selbourne LC.

Absent evidence of the withdrawal or termination of consent, time could not run against a mortgagee so as to bar his right to recover the mortgaged land. Consent to possession, whether explicit or implied, by the mortgagee must be treated as continuing unless and until the mortgagee demanded that the mortgagor vacate the mortgaged property and/or the mortgagee commenced possession proceedings. A mere demand that the mortgagor should comply with his obligations under the mortgage, even if coupled with a statement that the mortgagee will enforce its rights in default of compliance, was insufficient to amount to revocation of permission. There must be a clearly evidenced intention to withdraw consent for the mortgagor to remain in the mortgaged property beyond a mere request that the mortgagor comply with his obligations under the mortgage.

Mr Fenwick cited many authorities in his skeleton argument. The pre-1833 cases of Keech v. Hall (1778) 1 Doug KB 21 and Hall v. Doe d Surtees 5 B & A 687 showed that there was a clear requirement before 1833 that, for time to run against a mortgagee and bar his right to recovery of the mortgaged land, the mortgagor must be in adverse possession of the land in the sense that he was in possession without any right and without the consent, express or implied, of his mortgagee. Before 1833 the mortgagor was treated as in possession of the mortgaged land as of right and with the consent of his mortgagee, unless the consent was terminated or withdrawn and the mortgagor was treated as a trespasser.

He accepted that section 3 of the 1833 Act changed the position by removing the doctrine of “non-adverse possession”. Under section 3 of the 1833 Act, regardless of the issue of adverse possession, the right to recover the mortgaged land accrued and time began to run against the mortgagee either on the date when the mortgage was created or when the mortgagee became entitled to possession of the mortgaged land by reason of any forfeiture or breach of condition.

Mr Fenwick submitted that section 10 of the 1939 Act re-introduced the concept of “adverse possession” and that this was re-enacted in the 1980 Act. The result was that the pre-1833 position was restored. This meant that there must be someone in possession of the land in whose favour the limitation period could run and, until there was, the right of action was not deemed to accrue. Section 10 of the 1939 Act applied to all actions for the recovery of land including actions by a mortgagee.

Mr Fenwick cited Pye (at paragraphs 36 and 37) as the leading post-1980 case on dispossession of an owner of land, for the proposition that “adverse possession”, as used in the 1939 Act and in the 1980 Act, means possession as of wrong, or without right, and/or without the consent of the true owner or the person entitled to possession.

It was therefore submitted that the position under the 1980 Act is that time does not start to run against a mortgagee unless and until the mortgagor’s right to possession had terminated and/or the mortgagor was in possession without the consent of the mortgagee after the express or implied consent of the mortgagee has been revoked, as when the mortgagee demands that the mortgagor vacates the mortgaged property or commences possession proceedings.

Mr Fenwick also submitted that on the facts of this case the Bank had expressly given Mr & Mrs Babai permission to be in possession of the Property. He referred to the correspondence which had passed between them.

Certain points in this case are clear.

It is common ground that the Bank acquired an immediate right to possession of the Property on the granting of the legal charge on 8 June 1989. That was a right of action which could become statute barred under the 1980 Act. For time to start running against the Bank, however, its right of action was only treated as accruing if the requirement of adverse possession of the Property by Mr & Mrs Babai was satisfied.

Mr Fenwick correctly submitted that, in holding that the requirement of adverse possession does not apply to mortgaged land which the mortgagee seeks to recover by action, the deputy judge was wrong. For reasons already given the requirement in paragraph 8 of Part I of Schedule 1 to the 1980 Act is applicable to a mortgagee’s right of action for possession of the mortgaged land. The cases cited by the deputy judge in his judgment (paragraphs 52 and following) did not establish that adverse possession was unnecessary in the case of mortgaged land.

The requirement of adverse possession must be applied in accordance with the exposition of it by the House of Lords in Pye and not that of the courts in the pre-1833 cases cited by Mr Fenwick. Adverse possession refers to the capacity of the person in possession of the land and not to the nature of that person’s possession. Possession is to be given its ordinary meaning. There must be “ordinary possession” of the mortgaged land by a person in whose favour time can run. As explained in Pye the references to adverse possession in the 1939 Act and the 1980 Act did not reintroduce “ by the back door” or “by a side wind after over 100 years the old notions of adverse possession in force before 1833”: see paragraph 35 of the speech of Lord Browne-Wilkinson.

Mr & Mrs Babai were in ordinary possession of the Property in the period following the legal charge and after the last payment by Mr Babai in respect of the mortgage debt, which caused the Bank’s right of action to accrue afresh. It was exclusive possession. If they were not in possession of the Property, no one else was. The Bank had a right to possession of the Property, but it was not in possession of the Property

Mr & Mrs Babai were thus prima facie in adverse possession of the Property at all material times, being persons in whose favour time could run under the 1980 Act and the Bank’s right of action was treated as accruing. The crucial issue is whether any good reason has been shown for treating Mr & Mrs Babai other than as persons in ordinary possession of the Property and persons in whose favour time can run under the 1980 Act.

Mr & Mrs Babai owned a long lease of the Property. It was (and is) their home. As registered owners of the long lease they have been in possession of the Property since they bought it. It is true that the Property was subject to two mortgages granted by them, but the granting of the mortgages did not divest them of their possession of the Property. As is normally the case with mortgages of a home, the mortgagors were in possession of it and remained so, even after the mortgages conferred legal rights in the Property on the mortgagees, including a right to possession.

The crunch question is whether, in the circumstances of the case, Mr & Mrs Babai’s possession of the Property was “adverse possession” under the 1980 Act. Mr Fenwick stressed the lawful and permissive quality of their possession and the fact that Mr & Mrs Babai were not trespassers.

As to possession of property with permission it is worth making a preliminary and obvious point that the circumstances of the mortgagee’s right of action against the mortgagor are, of course, quite different from the circumstances in a case like Pye, where the contest is between the paper title owner of land and a person in possession of the land claiming squatter’s title against the owner. The paper title owner has no right of action for the recovery of the land from a person who has permission to be in possession of his land. This explains the references in Pye to possession of the land with the consent of the paper title owner not constituting dispossession or possession by the squatter for the purposes of the 1980 Act: see paragraphs 29, 36 and 37 of the speech of Lord Browne-Wilkinson.

In the case of a squatter, unless and until the permission for a person to be on the land has expired or been revoked or otherwise terminated, there is no accrued right of action in the owner. No question of it becoming statute barred can arise. Time cannot start to run against the paper title owner until his right of action has accrued. If he has no right of action to recover the land against a person who is in possession of the land with consent, the additional requirement of adverse possession under paragraph 8 of the Schedule 1 is not even reached.

In this case the Bank had an immediate right of action to possession of the Property as soon as the legal charge was executed. Its initial right of action to possession of the Property was not dependent on the termination of a permission granted by the Bank for Mr & Mrs Babai to be in possession of the Property.

Mr & Mrs Babai’s continuance in possession of the Property after the grant of the legal charge and after the last part payment was made was, Mr Fenwick insisted, with the permission or consent of the Bank. It could not therefore be adverse possession and the Bank’s right of action is treated under paragraph 8 as not accruing.

In my judgment, this argument is wrong for several reasons. The following points of fact and law can be made.

First, as a matter of fact, there was no evidence that Mr & Mrs Babai applied for, or were positively given, express permission by the Bank to remain in possession of the Property after the legal charge or after the last payment in respect of the mortgage debt.

Secondly, as for the implied/ implicit permission of the Bank to Mr & Mrs Babai’s possession of the Property, it is certainly true that the Bank has never enforced its immediate right to possession against them. But it does not necessarily follow from the Bank’s non-enforcement of its right to possession, or its lack of objection to, or tolerance of, Mr & Mrs Babai’s possession that the Bank was impliedly granting them permission to remain in possession of the Property so as to prevent them from being in adverse possession within paragraph 8 of Schedule 1. The Bank was simply not doing anything to enforce its right of action. I do not agree with Mr Fenwick’s reading of the correspondence between the parties that it can be inferred from the Bank’s proposals or from its forbearance from enforcing its security by possession proceedings, or from Mr & Mrs Babai’s financial and personal circumstances or from other circumstances that permission was given by the Bank for Mr & Mrs Babai to remain in possession. Nor is it necessary to imply any permission to explain the continued possession of Mr & Mrs Babai. This leads to the next point.

There is, thirdly, the question whether Mr & Mrs Babai in fact needed to be given or to have the permission by the Bank in order to be in possession of the Property. Their possession of the Property was referable to their own registered legal title to the Property. It was not derived from the Bank’s title to the Property. If an officious bystander were asked to explain Mr & Mrs Babai’s possession of the Property, the answer would be that it was their property, not that the Bank had given them permission to live in their own property.

The true nature of the transaction was that the legal charge was given as security for monies owed to the Bank and that they were to remain in possession of the Property which was, in substance, theirs: see Heath v. Pugh (1881) 6 QBD 345 at 359 and Fairclough v. Marshall 4 Ex D 37 at 48. It is true that in some of the cases there are references to a mortgagee permitting the mortgagor to remain in possession and to the mortgagor remaining in possession “only by leave and licence of the mortgagee”: see, for example, Rhodes v. Allied Dunbar Pension Services Ltd [1989] 1 WLR 800 at 807 D-E per Nicholls LJ in the context of the mortgagor’s right to receive and retain the income of the mortgaged property without any liability to account.

In my judgment, however, the continued possession of the Property by Mr & Mrs Babai after they had mortgaged it was referable to their property interest in it. This was not objected to by the Bank. It must have been tacitly accepted by the Bank in the context of the charge, but the Bank’s right of action and its tolerance of their possession did not prevent them from being in ordinary possession of the Property which satisfied the requirements of paragraph 8 . The nature of this possession did not therefore prevent time running against the Bank once its cause of action had accrued, or had accrued afresh by reason of a part payment.

In summary, the Bank had a right of action. More than 12 years passed since it accrued afresh . Mr & Mrs Babai’s continued possession of the Property with the apparent leave and licence of the Bank did not prevent them from being persons against whom the Bank’s right of action to recover the Property arose on the granting of the legal charge, which right is treated as having accrued afresh when a payment in respect of it was made. Nor did it prevent Mr & Mrs Babai from being persons in whose favour time can run under the 1980 Act. According to the ruling in Pye their possession was “adverse possession” within paragraph 8.

The question of a mortgagee’s right to possession of the mortgaged land vis-a vis the mortgagor and the impact of the 1980 Act did not arise for consideration in Pye, but the meaning given to “adverse possession” in Pye is of general application to actions for the recovery of land, even though it may come as an unpleasant surprise to the Bank and other mortgagees that their mortgagors are in adverse possession of the mortgaged property.

I add that it was the view of the Law Commission in their report Land Registration Bill and Commentary (No 271, 2001), which led to the Land Registration Act 2002, at paragraph 14.13 (footnote 47) that, where the mortgagee has a right to possession from the date of the mortgage and the mortgagor fails to make any payment, the right to recover possession is barred 12 years from the date of the mortgage. In the footnote to the discussion of mortgagors in possession in paragraph 14.12 and 14.13 it is stated that the mortgagor is in adverse possession for the purposes of the 1980 Act “because the land subject to the charge is in the possession of some person in whose favour the period of limitation can run and the mortgagor does not in any sense have to be a ‘trespasser’ for these purposes.” I respectfully agree.

For the above reasons I conclude that the deputy judge was right to grant the declaration that the Bank’s legal charge was extinguished by reason of the operation of sections 15 and 17 of the 1980 Act.

Although this is sufficient to dispose of the appeal, several other points were made on which I wish to comment.

First, although Mr Fenwick cited many cases in his skeleton argument and the judge discussed many authorities in his judgment, I have not thought it necessary to mention most of them in this judgment. This is not out of disrespect for precedent or for the judge or out of lack of gratitude for the researches of counsel. The simple reason is that in Pye the House of Lords has made it perfectly plain how the concept of adverse possession in the 1980 Act should be interpreted and applied in general, not just in cases of dispossession of the paper title owner by a person setting up a case of squatter’s title. The focus is not on the nature of the possession but on the capacity of the person in possession. Ordinary possession of land is adverse possession so far as the person out of possession and the 1980 Act is concerned. Mr & Mrs Babai were in possession of the Property. The Bank was not in possession of the Property nor was anyone else. The cases from the 18^th, 19^th and 20^th centuries will not help to make the present legal position any plainer than it was made by the House of Lords in Pye.

Secondly, there are, however, two authorities on which I should comment.

The Bank cited the decision of the Court of Final Appeal of Hong Kong in Common Luck Investment Ltd v. Cheung Kam Chuen (1999) 2 HKCFAR 229; [1999] 2 HKLRD 417 (Common Luck) on the construction of equivalent provisions in the Limitation Ordinance cap 347, which contained provisions on adverse possession equivalent to those in the 1939 Act and the 1980 Act.

In that case it was held that the mortgagor, who had defaulted in repayment thus giving the mortgagee the right to enter into and take possession of the mortgaged property, continued in rightful possession of the mortgaged land with the implied licence (or “tacit agreement”) of the mortgagee. Contrary to the rulings in the courts below, the Court of Final Appeal held that the mortgagor was not in adverse in possession vis-a-vis the mortgagee when he defaulted in payment and time did not run against the mortgagee. Default in repayment had not turned the mortgagor into a trespasser or a squatter in his own property.

The deputy judge mentioned the case saying that counsel for the Bank did not feel able to rely upon it (paragraph 69 of the judgment). Mr Driscoll submitted that the decision in Common Luck, which is not binding on this court, was wrong in several respects, a view shared by the Law Commission in its report No 271 at paragraphs 14.12 footnote 46 and paragraph 14.13 footnote 51. In particular the judgments in the Court of Final Appeal did not have the benefit of the exposition of the law on adverse possession in Pye under which the important point would be not whether the mortgagor is a trespasser but whether the land subject to the mortgage is in the possession of a person in whose favour the period of limitation can run.

This decision of Buckley J reported at [1960] 1 WLR 1097 and a passage in his judgment at page 1102 has been treated by some as authority for the proposition that once the mortgagee’s right to recover the principal sum is statute barred, he loses his status as a mortgagee and “He can no longer sue for possession or for foreclosure, nor can he redeem a prior mortgage.” See Cheshire & Burn’s Modern Law of Real Property (17^th Ed) at page 764. I can see the force of this if there is no longer any enforceable debt to be secured.

Mr Driscoll did not rely on Cotterell v. Price to support a submission that the Bank’s right to possession was statute barred in consequence of its concession that its right to sue for the mortgage debt was statute barred. As he pointed out it was conceded by counsel in that case that the mortgagee’s remedies by action against the mortgagor under the mortgage were statute barred: see page 1100. Basing himself on that concession Buckley J concluded that the mortgagee could no longer sue for possession as his estate had come to an end and he lost his status as a mortgagee. In view of the concession there was no need for the judge to address the points arising under the Limitation Act. I do not think that Cotterill v Price is authority for the proposition that the right to possession is statute barred simply because the right to recover the principal debt is statute barred.

I would dismiss the appeal.

I agree.

I also agree.