Bradford & Bingley Plc v Cutler

In 1987, Bradford and Bingley Building Society, the predecessor in title for the present claimant, lent £28,000 to Mr Cutler, the defendant, secured on a mortgage to enable him to buy, for £30,000, Flat 3, 29a Harold Road, Upper Norwood.

In the course of the next year or so, it made two further advances to him, amounting in all to £7,000 to finance improvements to the property. Until the end of 1991, Mr Cutler paid the monthly instalments due on the mortgage account, but at that time he had the misfortune to be made redundant and he became unemployed. The mortgage account fell into arrears. At first it seems he did not claim benefits, but eventually he did, and in October 1992 the Benefits Agency wrote to Bradford and Bingley to inform them that they intended to make deductions from Mr Cutler’s benefit in respect of mortgage interest payments and would pay those deductions directly to Bradford and Bingley to be credited to the appropriate account. The payments were to start from 28 October 1992 and were to amount to £46.45 per week, to be paid four weekly in arrear and that, as I understand it, was calculated at the rate of interest of which the Benefits Agency had been informed by Bradford and Bingley as interest on the amount outstanding in respect of the initial loan of £28,000, but not the further advances and not any arrears that had built up on the £28,000 since the beginning of 1992.

These direct payments were made pursuant to a change in the law made earlier in 1992 by the Social Security (Mortgage Interest Payments) Act 1992. Payments were duly made, and they continued until a final payment made on 5 December 1993 of £79.63. Mr Cutler had been able to gain employment and his benefits had been terminated with effect from 26 October 1993. A month or so after that, on 29 November 1993, the Benefits Agency wrote again to Bradford and Bingley stating that, due to a change in circumstances -- which was in fact his obtaining employment -- deductions from his benefit in respect of mortgage interest payments were terminating from 26 October 1993 and the letter said that any final payments due up to the date of termination would be issued to you separately. We are told that there were two payments after 26 October 1993 of which only the second £79.63 paid on 5 December 1993 is relevant.

Notwithstanding his return to work, Mr Cutler was unable to cope with the arrears that had built up on the mortgage account and, in the course of 1994, Bradford and Bingley obtained an order for possession of the property and, in June 1994, they sold the property for some £10,000 which left a substantial shortfall on the indebtedness. Many years went by.

On 20 November 2005 Bradford and Bingley Plc issued proceedings to recover the shortfall. The defence, the only defence remaining by the time of the trial, was that the claim was barred by limitation. More than twelve years had elapsed since the course of action had accrued, and the issue was whether the payment of £79-odd in December 1993, which was within the twelve years before the issue of the claim form, was sufficient to extend time for the benefit of the claimant.

District Judge Dancey heard the case, which had been allocated to the multi-track with the consent of the designated civil judge, in the Bournemouth County Court, and he held that the claimant did extend the time being made by an agent of the debtor for the purposes of section 29 and 30 of the Limitation Act 1980, though he rejected an alternative argument that the time was extended on the basis that the payments were made by someone liable, or accountable, for the debt under subsection 5 of section 29.

With permission granted by Sir Henry Brooke, the defendant appeals on the question of agency, and the district judge’s adverse ruling under section 29(5) is challenged by a respondent’s notice. I should say that, in addition to challenging the finding of agency as such, the appellant contends that the £79-odd was, in any event, not paid with his authority because, as the district judge found, it was an overpayment.

The relevant provisions of the Limitation Act 1980 are these. Section 29(5):

Having regard to the view which I take on the question of whether the payment in December 1993 made by the Benefits Agency was made by an agent for the defendant, it is unnecessary to consider the question whether the Benefits Agency was a person liable or accountable for the claim on which the district judge delivered a careful, learned and interesting judgment.

The Social Security (Mortgage Interest Payments) Act 1992 introduced new provisions into the Social Security Act 1996 providing for benefit payments in respect of mortgage interest, payable by a person in receipt of income support, to be paid directly to qualifying lenders. A new section 51C of the 1986 Act included the following relevant provisions:

Subsection 2 gave power to make regulations which might make provision, among other things, as follows:

Under subsection 3, qualifying lenders included any building society (as Bradford and Bingley then was) although the regulations made could allow a body, which would otherwise be a qualifying lender, to opt out of such treatment. Subsection 4 includes relevant definitions on which nothing turns for present purposes.

The regulations made were the Social Security Claims and Payments Amendment Regulations 1992, Statutory Instrument 1992 1026. These introduced into the Social Security Claims and Payments Regulations 1987 new provisions, including the regulation 24(a) which follows the terms of section 51C(1). It provides, in the relevant circumstances, for such part of any relevant benefits to which a relevant beneficiary is entitled, as may be specified in a schedule -- 9(a) -- to be paid by the Secretary of State directly to the qualifying lender, and shall be applied by that lender towards the discharge of the liability in respect of that mortgage interest.

A new schedule, 9(a), was introduced into the Claims and Payments Regulations containing incidental provisions. These included provision for the Secretary of State to be entitled to require information to be provided by qualifying members, relating to the mortgage interest, the amount of the loan, the purpose for which the loan is made and so on, and including any change in the amount of interest payable at given times -- which would be at any time when a request is issued by the Secretary of State on the making of a claim for income support or, likewise, on request when a claim for income support ceases to be paid, or once every twelve months.

Paragraph 11 of the new schedule also provided for the recovery of sums wrongly paid on request by the Secretary of State. These provisions were introduced as a package, which suited both the Benefits Agency (acting on behalf of the DSS) and mortgage lenders. Previously, benefit claimants have received benefit payments in respect of housing costs, and it was left up to them whether they used that part of their payments in order to defray those housing costs or for other purposes of liabilities. If they did not, they were at risk of homelessness at the suit of the lender, seeking to enforce its security.

The council for mortgage lenders proposed for the government a package providing for direct payment and offered as a quid pro quo, among other things, that, in normal circumstances, while the interest was being paid in this way, even if it was not the full amount of the interest accruing on the account, the mortgage lender would not seek possession. Such a scheme could also, it seems to me, fairly be seen as being for the benefit a benefit claimant mortgagor.

The payment of £79.63 in December 1993 was made by the Benefits Agency under these provisions. The first question is whether, in making this payment, and, for that matter, all other previous payments, the Benefits Agency was acting as agent for the defendant at all. At first sight it may seem odd to regard the Benefits Agency, or the corresponding department of state, as an agent for a private individual such as Mr Cutler, but it is not necessary that such agencies should be found to exist in relation to anything other than the making of payments in respect of mortgage interest to the claimant.

The argument in favour of agency derives from the fact that the payment is made to the creditor in respect of their liability of the debtor and is to be applied by the creditor, as the statute requires, in discharging the debtor’s liability. Moreover, it is made with the assent of the debtor, inasmuch as the debtor applies in the first place for benefit payments to be made to him or his benefit, including payments to cover housing costs.

The relevant ground of appeal is that the payments should not be treated as paid by an agent for the defendant because the defendant had no control over the Benefits Agency, or over the suggested agency relationship, and that to treat the payment as made by the Benefits Agency as an agent for the defendant would oversimplify and mischaracterise a complex tripartite relationship imposed, it is said, on the defendant by statute.

For the defendant, Mr Egleton points out that the defendant had no real choice in this regard. If he wanted benefits and, at any rate, if he wanted benefits to cover his housing costs, he would get them (assuming he was found to be entitled) by way of the direct payment of certain sums in respect of mortgage interest. He was not consulted about the amounts. He had no choice or control in the matter, and he could only opt out of his situation by coming off benefits -- something which, not surprisingly, he did not do until he regained employment and was disentitled to continuing benefits.

Mr Egleton submits that the discharge of the debtor’s liability is no more than an incidental effect of the package and that the main purpose of the scheme was to avoid homelessness on the part of those entitled to income support. It may be that that was the main purpose, from the point of view at least of the Benefits Agency, and perhaps from the point of view of the claimant (the benefit applicant) but the discharge of the liability in respect of mortgage interest was the necessary means to that end. Unless the mortgage interest liability was kept down, by means of these payments, there would be nothing to prevent the mortgagee seeking to enforce the mortgage in respect of the arrears that have built up and, indeed, were no doubt continuing in the present case inasmuch as the mortgage interest payments did not reflect the further advances or the pre-existing (inaudible).

The argument is that, apart from applying for benefit, including to cover housing costs, the defendant did nothing else, knew nothing else and agreed to nothing else as regards what the Benefits Agency did or might do. It is submitted that there is no real consent and certainly no normal relationship or principle agent as between the defendant and the Benefits Agency. In particular, there was no control. Either these benefits were payable and were paid, in which case they would be paid directly, or they were not. It can be seen to be very far (it is suggested) from a normal principle agent relationship. The district judge acknowledged that it would be unusual for a department of state to be regarded as an agent for an individual citizen, but held that a relationship of agency did exist. He considered that the necessary consented authority on the part of Mr Cutler was given by way of the application for benefits, which would include both the payments direct to himself and payments for his benefit direct to the claimant; and the judge also considered that the defendant’s ability to bring the position to an end by stopping his claim for benefits gave him whatever degree of control might be regarded as necessary over the acts of the Benefits Agency.

The payments by the Benefits Agency were intended to discharge the defendant’s liability to the extent of the amounts paid, and were required by the statute to be applied by the claimant in such discharge. In that respect, the Benefits Agency was doing something on behalf of the defendant -- that is to say, making a payment which was due from the defendant. The judge’s reasoning is set out in paragraph 78 of his judgment.

I consider that the judge was right to hold that, in respect of making the payments to the claimant, the Benefits Agency was acting as agent for the defendant. As a matter of general law, a payment by A to B’s creditor, C, will only discharge B’s debt if the payment was made with the authority of B, whether given beforehand or later by ratification. It may not be necessary strictly to invoke that general principal of law to establish the proposition that the payments made by the Benefits Agency to the claimant did discharge Mr Cutler’s liability because the Act and the Regulations required that the qualifying lender shall apply the payment in discharge of the debtor’s liability. But it seems to me that the proposition is nevertheless instructed. The debtor has a choice. The choice is between applying for benefits, including benefits to cover housing costs, and not making such an application. Unlike the position before the 1992 Act was passed, a successful application does not leave the claimant with the choice of whether or not actually to use benefit payments towards housing costs; rather he knows that the payments will be made direct and will discharge his liability to the given amounts. In my judgment, in such circumstances the Benefits Agency does act as agent for the debtor in making payments in respect of mortgage interest liability to the creditor.

The scope of the agency is no wider than making the payment. It is one which the benefit claimant can opt into by applying for benefit, or out of by stopping the benefit claim, but cannot otherwise control or modify. Nevertheless, I see nothing inconsistent with general principles of agency law in regarding the Benefits Agency as the defendant’s agent in making payment. On the contrary, it seems to me that it would be unreal to regard it as not making those payments on his behalf -- that is to say, as his agent. The district judge dealt with this point in paragraphs 64-79 of his judgment. I agree with him on this, and on his reasoning.

The appellant’s notice takes another distinct point, which is that the £79 was not in fact due in respect of mortgage interest on the initial loan (or what was outstanding in respect of that) and accordingly, in terms of what the Benefits Agency had decided should be paid, was an overpayment. Mr Egleton argues that, as an overpayment, it was outside the scope of the Benefits Agency’s authority for the defendant and was therefore not made as his agent, even if it would have been -- even though, as I have held, it would have been made as agent, it had been properly due. As to this, the district judge had held that the £79.63 was paid in respect of mortgage interest -- a point which is not challenged on appeal -- and did hold that it was not due in respect of the mortgage interest on the relevant principle. That is because the Benefits Agency’s calculations had proceeded on the basis of an interest rate applicable at the beginning of 1992 and did not take account of reductions of interest rates during the year (see paragraph 21 of his judgment). The district judge considered the implications of this at paragraphs 22-26 of his judgment and then came, at paragraph 80 and following, to the question of whether that payment was within the scope of the agency, which he had held existed.

Mr Egleton renews his arguments on this point. He contends that Bradford and Bingley knew, or should have known, that it was not entitled to the £79.63 from the Benefits Agency. He argues that the Bradford and Bingley must have known, or ought to have known, that this was an overpayment and indeed that there had been other overpayments, because the interest rate communicated to the Benefits Agency had been the high rate applicable in early in 1992, since when there had been an number of reductions of interest rates and, he submitted, that the Bradford and Bingley could have foreseen a recalculation after a year (under the normal provisions in schedule 9(a) of the Regulations) although this did not in fact occur because Mr Cutler came off benefit after just over one year of receiving benefit.

Mr Egleton continued by contending that the society should have done its sums, not least on receipt of the final payment, and should have paid it back to the Benefits Agency, knowing that it was not due in respect of mortgage interest on the basic amount of the initial loan, although, of course, it was well within the amount of what the defendant in fact owed to the lender.

It seems to me that Mr Egleton’s contention is ingenious but not sound. To suggest that the claimant would or should do anything of the kind proposed, unless and until it were asked by the Benefits Agency for relevant information, is fanciful. The claimant was owed substantial and increasing sums on Mr Cutler’s mortgage account, was entitled to receive and -- subject to the statute of provisions for recovery -- to retain, having applied it to the credit of the mortgage account, whatever sums it was paid by the Benefits Agency.

Mr Egleton also relied, as he had done before the district judge, on the decision in Portman Building Society v Gallwey [1955] 1WLR 96. I consider that the district judge was entirely correct to distinguish that case, which was decided on the fundamental ground that the purported agent was not an agent at all, because its appointment was by statute a nullity. Only in one respect would I differ from the district judge on this point. At paragraph 80 of his judgment he says that he accepts that the defendant did not authorise the Benefits Agency to pay to the Bradford and Bingley more than was strictly due, in accordance with the decision that the Benefits Agency had taken as to what ought to be paid.

In my judgment, the correct view is that Mr Cutler authorised the Benefits Agency to pay to the defendant whatever the Benefits Agency calculated to be due; and whatever it in fact paid, was paid with Mr Cutler’s authority and therefore as his agent, for the purposes of Sections 29 and 30 of the Limitation Act. Subject to any steps for recovery of an overpayment (and, of course, none were taken in the present case) whatever was paid was applied to in discharge to the appropriate extent of Mr Cutler’s liability to the lender and has, therefore, accrued to his benefit. I do not see how he can realistically repudiate it, even though, as it turns out, because of the extraordinarily long time taken by the claimant to get round to issuing the proceedings, it would now be to his advantage to be able to say that the £79.63 -- in fact received by the lender in December 1993, and in fact applied to the modest extent of that amount in reduction of his liability -- was not paid on his behalf.

In my judgment, it was paid on his behalf, and the Benefits Agency in making the payment was his agent. For those reasons I would dismiss this appeal.

I agree.

I also agree. I would just add one point of fact. Those reading our judgments might be surprised at the delay in pursing this particular matter. It is right to record that the district judge, in paragraphs 32 and 33 of his judgment, did turn his mind to that, and indicated that the mortgagee had been active in seeking to pursue proceedings over quite a substantial period of time before the proceedings were actually issued. The appeal is therefore dismissed.