Monks v National Westminster Bank Plc

BIRMINGHAM DISTRICT REGISTRY

The Priory Courts

33 Bull Street

Birmingham

B4 6DS

Before:

HIS HONOUR JUDGE SIMON BAKER QC (sitting as a Judge of the High Court)

B E T W E E N :

JOHN LAWRENCE MONKS

Claimant

- and -

NATIONAL WESTMINSTER BANK PLC

Defendant

Representation :

MR JOHN MONKS appeared in Person.

MISS TETYANA NESTERCHUK instructed by MATTHEW ARNOLD & BALDWIN LLP appeared on behalf of the Defendant.

Hearing Dates : 21 – 24 April 2015

JUDGMENT (No. 2)

HHJ SIMON BARKER QC :

Introduction

1 Mr John Monks (‘JM’), the Claimant, is now in his late 60’s. He has been a customer of National Westminster Bank PLC, or one of its forebear banks (Footnote: ¹), (‘NatWest’) since 1966. He is a chartered surveyor and a chartered builder. Since the 1980’s he has been a self-employed chartered surveyor and, more recently, he has engaged in property development on a small scale. For more than 43 years, until December 2009 or shortly thereafter, JM enjoyed a good relationship with NatWest and his credit rating was in good standing.

2 NatWest provided all JM’s banking and financial services : his personal bank account, his home mortgage, his business - Choyce Survey Limited (‘CSL’) - bank account, his development or buy to let mortgage, and his credit cards. JM paid an annual fee for preferential banking services (Footnote: ²), which services included a personal relationship manager (‘PRM’) and, for his business banking, a business relationship manager (‘BRM’).

3 Over the period 2006 to 2009, JM’s financial profile changed significantly. In 2006, he completed the development of a bungalow (‘40A’) in the grounds at the rear of his home at 40 New Street, Kenilworth, Warwickshire, which is a listed building. In the course of so doing JM was falsely accused by the local authority of, and wrongly prosecuted for, carrying out works to his home without permission; after his acquittal the local authority issued a press release which prompted JM to sue for defamation. His evidence is that this matter was resolved at a mediation, with the court proceedings being concluded to his satisfaction pursuant to a Tomlin order. The relevance of these events is that JM says that over this period he had to put his professional practice on hold and devote himself full time to righting the wrongs done by the local authority. Thus, for some three plus years JM had no earned income and had to rely on rental income from letting 40A and borrowing from NatWest. Over this period of time, which included the early phase of the financial crisis in the UK, NatWest accommodated JM’s requirements.

4 The evidence as to JM’s financial position in the latter part of 2009 indicates that he was experiencing cash flow difficulties but that he was solvent in that he had significant equity in his home and in 40A and, in addition, had a pension fund which included an unencumbered commercial property in Coventry at which he had his offices. JM wanted to revive his dormant professional practice. He recognised that there would be a time lag between recommencing practice and receiving income, he was also anxious to avoid exceeding the overdraft limits on his personal account and on CSL’s account. In September 2009, JM’s personal balance sheet was broadly :

Assets : in excess of £1million (the principal assets being his home £0.5million, 40A £0.25million, his pension/commercial property in excess of £0.25million);

Liabilities : approximately £406,000 (the principal liabilities being home mortgage £302,000, 40A mortgage £101,000, personal overdraft £3,000);

Net Assets : approximately £600,000.

There was and is a further potential liability on the part of JM to NatWest in the order of £30,000. This arises under a written guarantee of CSL’s overdraft dated 14.2.05 given and signed by JM (‘the Guarantee’) and is the subject of NatWest’s counterclaim in this action.

5 Against this background, in September 2009, JM approached NatWest with a proposal to reorganise his finances utilising the commercial property within his pension fund. JM’s PRM, Mr Paul Kelly (‘PK’), referred JM to NatWest’s commercial division which, in turn, referred the matter to their pensions specialists. In the financial climate of 2009 and for technical reasons, this proposal was not of interest to NatWest.

6 In November 2009, JM’s personal overdraft was approaching £10,000, his then limit. He contacted PK again. They met on 26.11.09. JM followed up the meeting with a letter dated 30.11.09 in which he set out two alternatives that had been discussed at the meeting :

(1) that monthly payments for his two mortgage accounts, £1,005.38 on the home mortgage account (‘A/C 9830’) and £554.59 on the 40A mortgage account (‘A/C 2194’), be “temporarily placed on hold commencing immediately. The interest being added to the amount of the capital”, or

(2) that the amount of his agreed overdraft be “increased on a monthly basis to cover the cost of the mortgage payments”.

In the light of the discussion at the meeting, specifically that PK had informed JM that an increase in overdraft limits would be unlikely because JM had not worked for three years and that PK had suggested alternative (1) to JM, JM put that forward as the more feasible alternative and proposed a term of six months at the end of which, if his situation was not improved, he would sell a property (‘JM’s proposal’).

7 As JM sees it, from shortly thereafter things went badly wrong in the handling of his accounts and undermined his financial good standing.

8 The critical events occurred during December 2009 and the first half of 2010 and concern the basis upon which monthly instalments were not paid for six months on A/C 9830 (January – June 2010) (‘the A/C 9830 instalments’) and for the equivalent period on A/C 2194 (December 2009 – May 2010) (‘the A/C 2194 instalments’). Further relevant events, in particular credit reporting by NatWest to credit agencies, occurred and continued after these periods. A particular issue is the extent to which, if at all, the credit rating implications of agreed non-payment of mortgage instalments, and/or what NatWest has done by way of credit reporting, were explained to JM at the relevant time.

9 JM blames NatWest for ruining his good standing with credit agencies and for effectively depriving him of normal banking and credit facilities.

10 NatWest accepts that for a period of some months from 11.8.11 to a date between about January and July 2012, it maintained, including in communications with the Financial Ombudsman Service (‘FOS’), that JM owed more on his mortgages than was in fact the case as the result of apparently double counting mortgage interest as it accrued and unpaid mortgage instalments. Subject to that, NatWest maintains that its conduct has not been other than appropriate and in accordance with the arrangements in place between it and JM.

11 Over the course of 2010 – 2011 JM made several complaints to NatWest. Dissatisfied with the outcome, in 2011 JM made his first of several complaints to FOS. FOS considered JM’s complaints under three separate references. On one reference which concerned the A/C 9830 instalments, FOS’s conclusion, issued in February 2012, was favourable to JM, and included a recommendation that NatWest pay modest compensation for distress and inconvenience caused by the provision of incorrect adverse credit information; NatWest responded to FOS maintaining its position that JM was in arrears (and in so doing double counted the interest the subject of the A/C 9830 instalments). On another reference, which concerned three issues relating to the service provided by NatWest, FOS concluded in April 2012, by reference to a short telephone attendance note to such effect, that JM had probably been advised of “the credit implications” of missing mortgage interest payments; declined to reach any decision as to a complaint relating to CSL because it had, by then, ceased to exist (having been dissolved on 8.2.11); and, upheld a poor service complaint relating to the handling of JM’s proposal. That left one complaint pending.

12 From 2010 onwards, the banker / customer relationship between NatWest and JM was deteriorating. In 2012 it broke down completely. By letters dated 15.11.12, NatWest informed JM that he was no longer welcome as a customer, that his personal and business current accounts, which were then overdrawn, would be closed with effect from 14.1.13, and that repayment would be demanded of any overdraft at that date. NatWest asked to be informed of JM’s new banking arrangements once made. JM responded by requesting that his overdrafts be added to his mortgages giving as his reason that NatWest’s adverse credit information reported to credit agencies prevented him from making normal banking arrangements elsewhere and, as he saw it, earning a living. This request was refused on 10.1.13 and, in the meantime, NatWest had written to JM informing him that unless he repaid his personal overdraft balance by 21.1.13, indebtedness default information would be circulated to credit reference agencies (Experian Ltd, Equifax Europe Ltd, and Callcredit plc). By letter dated 18.2.13, NatWest demanded payment by JM of CSL’s overdraft, said to be £28,824.83, pursuant to the Guarantee. For reasons which are not clear from the evidence, by letters dated 20.2.13 NatWest gave JM further written notice of closure of his accounts specifying 21.4.13 as the closure date.

13 In early April 2013, being dissatisfied with the outcome and delays in FOS’s complaints procedures, which are also constrained by limits on the extent of FOS’s investigative powers, and with NatWest’s closure of his accounts at a time when NatWest’s reports to credit reference agencies rendered him unable to make normal banking arrangements elsewhere, JM commenced these proceedings seeking declaratory and other non-monetary relief aimed at establishing :

(1) that he had been subjected to double charging on each of his mortgage accounts; and,

(2) that from January 2010 onwards he has not been in arrears in respect of his mortgage accounts and in consequence, that an injunction should be granted to compel NatWest to remove or delete adverse credit information and data to the effect that he has been, and/or continues to be, in arrears and to inform credit agencies of the correct position.

14 By letter dated 22.4.13, NatWest wrote to JM informing him that unless he repaid his personal overdraft balance by 9.5.13, indebtedness default information would be circulated to the same credit reference agencies. Also, by further letters dated 22.4.13, Natwest demanded immediate repayment of JM’s mortgage loans, requiring payment of £308,930.37 in respect of A/C 9830 and £104,814.95 in respect of A/C 2194. By letters dated 15 and 17.10.13, NatWest informed JM that steps would be taken for immediate recovery of the balances due in respect of JM’s personal current account and his mortgages, totalling some £425,000, by instructing solicitors and that his outstanding balances would be placed on hold pending resolution of the foreshadowed litigation.

15 Further to its 18.2.13 and 22.4.13 letters demanding repayment of overdrafts, on 21.3.14, following a court order granting leave, NatWest served a counterclaim seeking judgment under the Guarantee in the sum of £28,824.83 and continuing interest, and judgment in respect JM’s personal current account in the sum of £12,140.62 and continuing interest. On 13.4.15, one week before the trial, NatWest discontinued its counterclaim in respect of the personal overdraft and has written off that claimed debt entirely. As to the Guarantee claim, the amount of CSL’s indebtedness is not disputed, the issues raised by JM are as to the continued subsistence and, if subsisting, the enforceability and limit of the Guarantee.

16 The broad issues for determination are therefore :

(1) Was JM subjected to double charging on each of his mortgage accounts and, if so, for what period? (‘the double charging issue’)

(2) (a) Has JM been in arrears in respect of his mortgage accounts, or either of them and, if so, for what period? (b) Should NatWest take steps to remove or delete adverse credit information and data to the effect that JM has been, and/or continues to be, in arrears and to inform credit agencies that he was not in arrears? (‘the arrears and reporting issues’)

(3) (a) Is JM liable to NatWest under the Guarantee? (b) If so, in what sum? (‘the Guarantee issue’).

17 The Guarantee issue is a discrete issue and it is convenient to consider this issue first. To an extent the double charging issue is wrapped up in the arrears and reporting issues but the evidence relevant to this issue is readily identifiable and the issue may be extracted for determination separately from and before the altogether more complex arrears and reporting issues. However, before addressing each of the issues in turn, I make some general observations and findings about the witnesses and I summarise the contractual arrangements in place between NatWest and JM in November 2009.

The Witnesses

18 JM has complained that NatWest’s attitude to these proceedings has not been one of cooperation in the way envisaged by the CPR and recently the subject of a reminder from the Court of Appeal, see Denton and others v T H White Ltd [2014] EWCA Civ 906 at paragraph 40. That that criticism is not unfair is demonstrated in part by NatWest’s very late and unheralded application to amend its defence and adduce evidence from a new witness to whose proposed statement a 220 page bundle of documents was exhibited, 50 pages of which was a schedule then recently prepared by the proposed witness and the remaining 170 pages of which were, at that late stage, hitherto undisclosed – and in that sense only – new documents. NatWest’s application was unsuccessful (Footnote: ³).

19 At trial, JM further complained that NatWest’s case in defence to his claims has been created or structured by its solicitors. JM supported this complaint by reference, first, to the similarity between a witness statement dated 9.5.13 of Mrs Teresa Stothard (‘TS’), the partner in the firm of solicitors instructed by NatWest having conduct of the litigation, and the statement of Duncan Milton (‘DM’), a senior manager in NatWest’s debt Management Department, dated 17.1.14. It is part of a lawyer’s function to identify cogent material and there can usually be no criticism of a solicitor making a witness statement and putting material before the court as documentary evidence for the purposes of an interim hearing. JM’s criticism is that TS’s witness statement became DM’s evidence for trial. The real thrust of his point is that, when giving oral evidence, DM put his statement forward as a document written in his own words whereas the truth is that in substance it was taken from a witness statement crafted almost a year earlier by or for TS.

20 For further justification, JM relies upon the oral evidence of another of NatWest’s witnesses, PK, who disavowed a paragraph in his witness statement on the basis that he had disagreed with it but it had nevertheless been included by NatWest’s solicitors. The paragraph is material to the arrears and reporting issues. At paragraph 26 of his witness statement dated 16.1.14, PK refers to an internal telephone conversation with Salma Bi (‘SB’) of NatWest’s mortgage services department on 17 or 18.12.09 and states “ … I recall that I discussed with Mortgage Services the effect the deferral arrangements would have on [JM], including his credit rating”. The basis for this sentence in PK’s written evidence is a NatWest internal note of the conversation concerning deferral of 3 months mortgage instalments including the abbreviation “ … adv of credit imps” (Footnote: ⁴). PK’s evidence, which I accept (Footnote: ⁵), includes that (1) he was not told and was not aware that arrangements made with a customer, such as deferral arrangements relating to mortgage instalments as distinct from defaults by a customer on mortgage instalments, would affect a customer’s credit rating; and, (2) even if the phrase “credit implications” had been mentioned in the context of missed payments, he was not told in any detail what that actually meant or entailed for a customer. That is one of several examples given by PK of material drafted into his witness statement rather than written by PK. It is a particularly serious example because it is directly relevant to the arrears and reporting issues.

21 In submissions, Miss Nesterchuk, NatWest’s counsel, cautions against making findings or drawing adverse inferences in circumstances where privilege may inhibit what can be said in response on behalf of NatWest. That is a fair point to an extent. However, in the light of the above, I regret that I must record that I approach NatWest’s evidence, including disclosed abbreviated internal notes, with some caution. I do not imply that the notes have been altered or revised; but, I must be cautious when considering the meaning of such notes and what inferences may properly be drawn as to the substance of any conversation noted; this is all the more so when considering summaries or chronologies or notes prepared by NatWest which are themselves second hand or more remote from the original communication.

22 In his closing submissions, JM referred to a further matter. In January 2014, JM made an application under CPR Part 18 (for further information) and CPR Part 32 (for specific disclosure) in respect of assertions in TS’s witness statement including in particular requests as to the source of the assertions. At a CMC before a District Judge on 18.3.14, NatWest’s position was that TS would not be a witness at trial with the result that JM’s application was refused. At that time, JM was not aware that TS’s evidence had been carried over into DM’s witness statement and so did not press his application on a revised basis. JM submits that NatWest did not cooperate or deal fairly with him in relation to this application at the CMC, and that this typifies NatWest’s approach to JM in this litigation. I am not unreceptive to JM’s criticism of NatWest’s conduct. However, the critical issue for me is overall fairness of the trial. Given that JM is responsible for the majority of the material in the trial bundle and, further, that I refused NatWest’s inordinately late application to amend its case, to introduce a new witness who had been tasked with reconstructing NatWest’s answer to JM’s case on the arrears and reporting issues, and to provide substantial late disclosure, I do not consider that JM has been significantly disadvantaged by the order made on 18.3.14, frustrating though its terms may be for JM.

23 As to the witnesses generally, I start with JM. Miss Nesterchuk submits that JM is a less than reliable witness - at least in the sense that he is prone to selective memory. It is fair comment that, during cross-examination, JM displayed a tendency to brush aside or disregard matters which he did not regard as important or which were unhelpful to his case. Against that, there was no exaggeration or dissembling underlying his evidence as to his grievances or in his approach to being cross-examined. The question relevant to fact finding is whether his genuine recollection and perception of the core facts is sound. Some allowance for the passage of time must be made in favour of all witnesses actually involved in the relevant events. On the whole, I regard JM as a reliable witness, not least because the documents he has disclosed are broadly consistent with his case and are not undermined by the internal documents disclosed by NatWest. For example, there is cogent evidence that he made contemporaneous subject access requests under the Data Protection Act 1988 for transcripts of recorded conversations between himself and NatWest employees; JM submits that such transcripts, if provided by NatWest, would have demonstrated that he did not receive the explanations which NatWest maintained and maintains were given and that is why he wanted to obtain them at the time. Further, the content of the transcripts that were referred to at trial does not undermine JM’s evidence.

24 At trial, NatWest’s evidence was given by three witnesses : DM, Hayley Dowling (nee Bean) (‘HD’), and PK.

25 DM is a senior manager in NatWest’s debt management department. He had no contemporaneous involvement in the matters the subject of these proceedings. Miss Nesterchuk informs me that the witness NatWest had wished to put forward is not available because she has been and is on long term sick leave. On his own evidence, the purpose of DM’s evidence is to speak to NatWest’s systems of and strategies for debt management. DM was first involved in this case in January 2014, a matter of days – or a fortnight at most – before signing his witness statement. When cross-examined about the striking similarity between his witness statement and that of TS, DM contradicted his initial oral evidence that his statement was written in his own words and volunteered that his statement came to him as a draft and that he “looked through” it to make sure he was “comfortable” with it. He said he did not know that it had been taken from an existing witness statement and he expressed surprise when JM drew the similarities to his attention. In one sense this does not matter because the main purpose of DM’s evidence is to speak to NatWest’s procedures in principle not their application, or otherwise, in JM’s particular case. However, it is not a promising start when a witness states on oath at the commencement of his oral evidence that his witness statement has been written in his own words and, immediately thereafter, this is shown to be untrue. DM had not been involved in or in reviewing or advising within NatWest on the relevant dealings between JM and NatWest and was not in a position to give evidence relating to the facts in dispute. For example, the first time DM saw JM’s letter of 30.11.09 to NatWest containing JM’s proposal was when being cross-examined by JM. Of course, anything DM might have had to say about it would have been a matter of comment and evidence of fact.

26 HD was JM’s BRM. She has been employed by NatWest since 2001. She became a BRM in about 2005 and took over responsibility for CSL’s banking in about 2008. HD says in her witness statement that she gives her evidence in relation to NatWest’s counterclaim; in other words, she does not see herself as a witness of fact in relation to the principal issues in JM’s claim. However, there is a question as to whether and, if so, to what extent she was involved in NatWest’s management and handling of JM’s banking arrangements. JM is very critical of HD, both as to her integrity when dealing with him (for CSL and for himself) and in her evidence, and as to her competence in her dealings with him. The challenge to HD’s integrity is exemplified by evidence as to JM’s attempts to communicate with HD in September 2010. In her witness statement, and initially in her oral evidence, HD suggested that she had not received an email and a letter from JM; she gave as her explanation that she had recently married and had changed her surname with the result that communications to her maiden name might not have reached her; however, when shown an ‘out of office’ reply in her married name received by JM in response to his email sent to her under her maiden name, HD had to accept, when pressed by JM in cross-examination, that her change of surname did not prevent JM’s communications from reaching her. JM also put to HD a series of communications he had sent to her but to which he had received no reply; in fairness to HD, she referred some of these communications to a regional director, Andrew Sparham (‘AS’), but she did not acknowledge JM’s communication at all. JM’s challenge to HD’s competence included taking her to several instances of failure on her part to acknowledge, respond or act in response to communications from him; HD’s general position in answer was that she understood that someone else was dealing with JM. JM submits that HD was evasive when giving evidence and was “not up to the job” of relationship manager; on the material before me at trial, those are fair observations. My impression from HD’s evidence is that she was out of her depth as a BRM and tended to ignore or attempt to pass on rather than deal with matters that JM referred to her and that NatWest had placed within her remit. That being said, there is also evidence that within that she was not supported as she expected to be by AS, her line director, and it is not clear that HD was adequately trained for her role. There is also some force in JM’s challenge to HD’s integrity, including that, at least in relation to her attempt to explain away emails not replied to on the basis that, being addressed to her maiden name, they had not reached her, HD came to court prepared to lie on oath.

27 PK was NatWest’s third witness. PK is a senior relationship manager. PK became JM’s PRM in 2005. By then, PK had been employed by NatWest or a related company for some 25 years. In oral evidence he referred to his banking qualifications, the breadth of his experience, and the frequency with which he attends training courses to be “upskilled on how to assist customers”. JM characterises PK’s involvement as his PRM as incompetent and “fumbling” and he criticises PK’s evidence as unreliable. I have a very different impression of PK and his evidence. When giving evidence under oath, PK was careful to correct and distance himself from matters included in his written evidence which were outside his knowledge (eg the terms on which JM’s libel action was concluded) and with which he disagreed (the principal example is referred to above). Further, when being cross-examined, PK’s answers were straightforward and at times contradicted Natwest’s internal documentation to JM’s advantage. I reject JM’s criticisms of PK and consider him to be a generally reliable witness. I also note from PK’s and JM’s evidence that PK was instrumental in assisting JM to present his financial position to NatWest in the best light. For example, after JM ceased professional practice in order to deal with the local authority’s prosecution and JM’s subsequent defamation action, it was PK who suggested that JM sever the title to 40A from that of his home in order to be able to obtain additional finance via a buy to let mortgage loan. Further, the documents in the trial bundle, including internal NatWest documents, support the proposition that, working properly within the constraints of NatWest’s policies, PK did what he could to secure financial arrangements most favourable to JM.

28 There are two further potentially important witnesses who are said still to be employed by NatWest and who would be in a position to give important evidence. Unfortunately, neither was called by NatWest.

29 The first, to whom I have already referred, is SB, who worked in NatWest’s mortgages department. SB appears to have had telephone conversations with both PK and JM on which NatWest rely. I have set out above my conclusion in relation to SB’s discussion with PK. As an employee in the mortgage services section at the time and as someone who was also concerned with aspects of the subject matter of these proceedings, it seems to me that SB might well have been a more relevant witness than DM.

30 The second is AS, to whom I have also referred and to whom both HD and PK deferred as a line director and referred in their evidence. AS had written communications directly with JM and he had a meeting with JM on 2/11/10. AS told JM that JM’s communications to HD in September 2010 had not reached her probably because she had changed her name on marriage. Entirely reasonably, JM points to the improbability of that being an honest statement.

31 AS would have been a significant witness because he met with JM and because, from some point in the latter part of 2010, he appears to have assumed overall responsibility for the handling of JM’s affairs, whether formally or de facto is unclear. It is also apparent from internal NatWest emails that, at the time when he was dealing with JM, AS himself did not know and does not appear to have been able to find out from PK or HD what the “credit implications” were in respect of NatWest’s arrangement with JM for mortgage instalments “ … to be deferred / holiday etc.” (Footnote: ⁶). This adds considerable support to JM’s evidence and case that he was not told about adverse credit implications flowing from these arrangements. It also provides indirect support for PK’s evidence that he did not know in any detail what “credit implications” actually meant and may explain why HD did not or was not in a position to provide answers to JM’s emails and letters.

The Contractual Arrangements in place in November 2009

32 The original contractual arrangements between JM and NatWest are not in evidence. JM’s mortgage arrangements relevant to this case were in fact made with NatWest Home Loans Ltd but nothing turns on this so far as the parties are concerned. What is before the court is (1) in respect of A/C 9830, NatWest’s loan offer dated 21.3.07 and Natwest’s standard mortgage conditions for residential mortgages in England and Wales as at December 2006; (2) in respect of A/C 2194, NatWest’s loan offer dated 23.12.08 and Natwest’s standard mortgage conditions for residential mortgages in England and Wales as at January 2008; (3) in respect of CSL’s current account, NatWest’s written confirmation of the business overdraft facility (limit £20,000) for the calendar year 2009; and, (4) the Guarantee, which is dated 14.2.05 and by which JM agreed to pay on demand CSL’s liabilities to NatWest up to a maximum sum of £45,000 together with interest and expenses (both of which are defined in the Guarantee). It is common ground that, as at November 2009, there was an overdraft facility (limit £10,000) agreed in relation to JM’s personal current account but the facility letter, if there was one, is not in evidence.

33 The essential terms of the 2007 loan offer relating to A/C 9830 were that NatWest would lend £300,000 plus fees of £599 for a period of 9 years on an interest only basis with interest being charged at NatWest’s base rate + 0.24% for the first two years and then reverting to Natwest’s standard variable rate as from 1.5.09. The arrangement underlying this borrowing was that JM wished to consolidate his then existing mortgage loan (some £210,000) and CSL’s then overdraft (some £38,000), obtain a bridging loan (some £10,000), and obtain finance for development or improvement of his home and 40A, which was then within the same title, (some £42,000).

34 The essential terms of the loan offer which became A/C 2194 were that NatWest would lend £100,000 plus fees of £999 as a ‘buy to let’ mortgage for a period of 8 years on an interest only basis with interest being charged at 6.59% for the first two years and then reverting to Natwest’s buy to let variable rate as from 1.2.11. The arrangement underlying this borrowing was that JM wished to restructure his finances to provide for living costs while his litigation with the local authority was ongoing and to cover the cost of developing 40A which had exceeded JM’s estimate due largely, on JM’s evidence, to conditions attached to the planning consent by the local authority.

35 Relevant terms of NatWest’s standard conditions applicable to both A/C 9830 and A/C 2194 include :

9. INTEREST

…

9.4 Interest will be charged from Release of Loan and will be calculated on the daily balance of the Secured Amounts unless otherwise stated in the Offer of Loan.

9.5 … interest on the Loan will be charged and collected in arrears one Month from Release of Loan and on the same day of each month thereafter during the Loan term. Regardless of which date in the Month Completion takes place, each Monthly Payment throughout the Loan Term, including the first Monthly Payment, will be for equal amounts, unless varied by the Lender in accordance with the Conditions.

10. MONTHLY PAYMENTS (VARIABLE)

10.1 Unless the Borrower has been notified otherwise in writing by the Lender, the Monthly Payment will be calculated by the Lender so as to incorporate

10.1.1 the interest payable by the Borrower in each [calendar month];

10.1.2 any interest which shall have accrued and remain unpaid in accordance with Condition 12.3; … .

12. COVENANT TO PAY

…

12.2 The Loan with interest accrued is repayable in full one month after the date of the Mortgage but provided that :

12.2.1 there has been no breach by the borrower of any obligation to the Lender (express or implied), and

12.2.2 the power of sale applicable to the Mortgage shall not have become exercisable and

12.2.3 the Borrower pays to the Lender : -

12.2.3.1 on each Payment Date the Monthly Payment due, and

12.2.3.2 pays all other of the Secured Amounts as and when they fall due, and

12.2.3.3 on the last day of the Loan Term pays the last Monthly Payment and repays the Secured Amounts in full

then and in each case the Lender shall accept the payment of (i) the Monthly Payment, (ii) all other Secured Amounts as and when they fall due and (iii) the payment of the Secured Amounts at the end of the Loan Term (save to the extent that the Loan shall not have been repaid to the Lender by inclusion within the Monthly Payment).

12.3 If the Monthly Payment is not made on the due date for whatever reason the Lender reserves the right to charge and accrue interest at the Interest rate on such unpaid amount until paid.

12.4 If any payment due (or part thereof) is in arrears the Lender shall be entitled to charge an administration fee which fee shall be payable by the Borrower on demand and until paid shall be added to the Secured Amounts and bear interest at the Interest Rate.

…

12.6 The Lender may at any time or times (but shall not be obliged to) accept payments other than those payable under the Conditions or give further time for payment of any of the Secured Amounts or generally make any other arrangement as to the mode of and/or time for payment of any money (whether in the nature of principal, interest or otherwise)and any such arrangement shall not in any way prejudice or affect the power of sale or other powers conferred on the Lender.

…

12.11 Each payment made by the Borrower to the Lender shall be applied towards satisfying the Secured Amounts due to the Lender in such order or in such proportion between more than one liability or as between capital and interest as the Lender reasonably thinks fit, except where otherwise agreed in writing between the Lender and the Borrower.

36 As to the defined terms, “the Monthly Payment” is the monthly repayment stipulated in the mortgage offer or as varied in accordance with the Conditions; “the Conditions” are those set out in the standard terms and/or the mortgage offer; “the Secured Amounts” refers to the Loan or the balance from time to time unpaid and interest and all other amounts which are or may become payable by JM to NatWest under the mortgage; and, “the Loan” means any loan from time to time made by NatWest to JM and includes any further loan or loans made by NatWest to JM secured or intended to be secured by the mortgage.

37 CSL’s overdraft was arranged on NatWest’s standard terms, referred to in the facility letter dated 2.3.09 as “Committed Overdraft General Terms”. The facility letter provides for an arrangement fee to be charged (£350); for interest to be charged at 6.95% above Natwest’s base rate; and, at paragraph 6 that :

If applicable, the Facility will be secured by the security held and/or required by us as set out in an attached Schedule.

In the attached Schedule no existing security was identified and under the heading for new security required by NatWest the word “None” had been inserted. JM relies on this in the context of the Guarantee claim.

38 The Guarantee, which is in NatWest’s standard terms for a limited guarantee by an individual of a third party’s obligations, includes the following terms :

Continuing Security

3.1 This deed shall be a continuing security notwithstanding the death or disability of the Guarantor until the expiry of one month from the date of receipt by the Bank of written notice to the Bank by the Guarantor or his personal representatives to discontinue this deed. …

Arrangements with the Debtor and others

4 The Bank may without the consent of or notice to the Guarantor and without releasing or reducing the liability to the Bank of the Guarantor under this deed : -

….

4.2 Grant to the Debtor … any new or increased facility and increase any rate of interest or charge.

It is common ground that JM did not give notice of discontinuance under the Guarantee and that NatWest granted a new facility to CSL after CSL’s indebtedness under the £45,000 facility was rolled into the loan under A/C 9830.

39 In the latter part of November 2009, JM’s indebtedness to NatWest appears to have been as follows :

A/C 9830 £302,301.09

A/C 2194 £101,031.68

JM’s personal account £ 8,989.95

CSL’s account £ 19,901.43 (if liable under the Guarantee).

This is consistent with JM’s account of his reasons for approaching NatWest at the time. The reason why the mortgage balances slightly exceeded the agreed loan plus fees is that interest is charged on a daily basis but paid on the basis of equal monthly instalments estimated to cover the interest charge over the course of a 12 month period.

40 On 30.11.09 an overdraft arrangement fee (£437) was charged to CSL’s account. This evidences some new arrangement being made as between NatWest and JM, but precisely what the fee relates to is unclear from the evidence to which I have been referred.

The Guarantee Issue

41 NatWest’s counterclaim in respect of the Guarantee proceeds on the basis that JM admits that, in 2009, CSL had an authorised overdraft limit of £25,000 and that, irrespective of an entitlement under the agreed facility to charge interest at an unauthorised overdraft rate (29.5%), NatWest is limiting its interest charged to the business overdraft rate of 7.45% (the base rate element being currently 0.5%). Payment of the balance on the account at 31.1.13, namely £28,824.83, was demanded of JM by a letter dated 18.2.13.

42 JM raises a number of arguments to counter liability under the Guarantee. His first point is that the Guarantee was cancelled. However, during cross-examination by Miss Nesterchuk JM was unsure whether the Guarantee was cancelled or intended to be reduced pro-rata to a new reduced overdraft limit for CSL of £20,000. The fact that the Guarantee was not referred to as existing security in the facility letter relating to CSL’s overdraft for 2009 supports JM’s case that the Guarantee had been cancelled. Against that it is clear that, even though on his own case JM ceased carrying on his professional practice in about 2006, JM continued to draw on CSL’s account by cheque and otherwise and that CSL’s account was generally overdrawn. Puzzlingly, but perhaps confirming the unreliability of her evidence, HD’s written evidence is that during this period the CSL account was “largely dormant”; that is not borne out by CSL’s bank statements.

43 In the absence of clear evidence that the Guarantee was cancelled, I am unwilling to make such a finding. Based on the evidence at trial, the probability is that the Guarantee was not cancelled.

44 A further defence to liability raised by JM is to invoke s.140A of the Consumer Credit Act 1974 on the ground that the Guarantee is or relates to or arises out of an unfair credit agreement. Miss Nesterchuk draws attention to Paragon Mortgages Ltd v McEwan-Peters [2011] EWHC 2491 (Comm) at paragraphs 52-53 at which David Steel J affirms an earlier unreported decision of HHJ Pelling QC in Paragon Mortgages Ltd v Hyah, to the effect that no such point can arise in relation to a guarantee because it does not constitute a credit agreement.

45 Finally, JM relies on what he characterises as promises not to enforce the Guarantee pending the determination of JM’s claims in these proceedings as giving rise to a contract or a promissory estoppel to such effect. JM relies on a common factual basis of promises or offers moving from NatWest, or evidenced as moving from NatWest, as follows :

(1) an email from FOS to JM of 2.9.11 confirming that NatWest “has now put recovery action on hold”;

(2) TS’s witness statement dated 9.5.13, which precedes the counterclaim, begins with a statement that she is authorised to make the statement on NatWest’s behalf and that the contents are true to the best of her knowledge, information and belief, and concludes with statements that “ … NatWest has at this stage decided not to pursue the demands. … however NatWest has not waived its rights in relation to [JM’s] guarantee liability which does not form part of these proceedings and has been acknowledged by [JM]”; and,

(3) a letter dated 17.10.13, which was after close of pleadings on JM’s claim and after allocation of the claim to the multi-track and after a two month stay to provide an opportunity to the parties to negotiate a settlement but before a scheduled mediation, from a senior manager at NatWest, Mr Russell Woodward (‘RW’), by which JM was informed that his mortgage accounts and his personal current account had been transferred to NatWest’s credit management services department and further that “ … [NatWest’s solicitors] have informed you that [NatWest] will place your accounts on hold until the current litigation has been resolved. This is still the position …”.

46 JM’s case is that there was mutual consideration between NatWest and himself in the form of postponement of collection of the debt being matched by postponement of repayment. This is a misconceived notion of consideration provided by JM applied to an equally misconceived notion of alleged breach of contract giving rise to a defence to NatWest’s counterclaim under the Guarantee.

47 That leaves promissory estoppel.

48 First, the email from FOS should be put in context. By letter dated 25.7.11, NatWest wrote to JM asking him to set out his repayment proposals in relation to CSL. JM replied asking that the debt in respect of CSL be added to the outstanding debt on either of his secured loans (A/C 9830 or A/C 2194) on the basis that there was ample security and the monthly cost was readily affordable, JM had resumed paying monthly mortgage instalments as from June / July 2010; JM made the further point that he could not make arrangements with other banks because of the adverse effect of NatWest’s credit reporting, which was the subject of a complaint to FOS. NatWest did not relent. On 31.8.11, JM wrote to FOS and on the same day, in response to a telephone call and email from FOS, NatWest sent an email to FOS stating that “ … all recovery action is now on hold, please advise if [JM] receives any more chaser letters”. FOS replied that it would so advise JM.

49 For NatWest, Miss Nesterchuk makes the following points : (1) the email from FOS does not contain any promise made by NatWest and cannot be relied on by JM against NatWest; (2) TS’s statement cannot be construed as a promise by NatWest not to claim under the Guarantee pending the conclusion of these proceedings; (3) RW’s letter is silent as to the position in relation to the Guarantee; (4) even if, which is disputed by NatWest, NatWest made a clear and unequivocal promise to JM which he relied upon, there can be no inequity in NatWest resiling from its promise because JM has not altered his position in any way or acted to his detriment; and, (5) even if, which is not accepted, all the elements of promissory estoppel are made out, the promise was merely suspensive and should not inhibit the court from giving judgment on the counterclaim under the Guarantee albeit that the court may specify a later date from which the judgment is to take effect.

50 As to the issue of whether or not a clear and unequivocal promise was made to JM, in my judgment such a promise was as good as made by NatWest to JM in 2011, albeit that communication was via FOS, before the counterclaim was issued and was reasonably understood by JM to have been repeated on behalf of NatWest by TS. That NatWest’s promise was relied upon by JM is evident from his evidence which I accept.

51 That JM altered his position is less straightforward. JM asserts that he altered his position by accepting that interest continued to accrue on the CSL debt and, given that CSL no longer exists, implicitly accepting personal liability for such interest until the debt is settled. JM’s defence to the counterclaim is itself equivocal : on one hand, JM asserts that the Guarantee was cancelled; on the other, JM accepts liability for £25,000 at paragraph 14.10 of his defence to the counterclaim. However, his evidence at trial is that he is no longer certain that the Guarantee was cancelled.

52 This aspect of JM’s defence to the counterclaim received virtually no attention in the parties’ submissions at trial. JM’s closing submission is that he did alter his position in reliance on NatWest’s promise by accumulating income rather than repaying the debt but there is no evidence before me to support this assertion. Miss Nesterchuk’s submission is simply that it is unclear in what sense JM altered his position.

53 What is clear is that JM made an offer to alter his position by improving the status of the debt as enforceable against himself from being an unsecured debt to a debt the subject of a fixed charge over land. However, it would be unrealistic to find that such an offer constituted a sufficient alteration of position on JM’s part to entitle him to raise an estoppel against NatWest’s claim.

54 In any event, the point is to an extent academic because the promise itself is not to forego the right to enforce the Guarantee but to postpone enforcement. In substance that is JM’s objective. He is an honourable man and would be unhappy to leave an unpaid debt founded on a loan from which he has benefitted in CSL’s wake.

55 In my judgment, NatWest’s entitlement to repayment under the Guarantee is established and may be protected either by a declaration to such effect or an undertaking by JM or, as Miss Nesterchuk suggests as NatWest’s fallback position, a judgment to take effect in the future. If JM is willing to provide an undertaking to pay the debt due under the Guarantee (which is the actual balance plus interest at the standard overdraft rate) forthwith upon the earliest of completing the sale of either his home or 40A or remortgaging either of those properties with a different lender, that will suffice. If not I shall make an appropriate declaration or other order.

The Double Charging Issue

56 JM seeks a declaration “confirming that [NatWest] has wrongfully charged twice for the interest payments that were due during the 6 month duration of the mortgage hold periods”.

57 The foundation of this issue is a letter dated 9.8.11 from NatWest’s Birmingham Collection Centre stating that NatWest is “ … concerned to note that there are outstanding payments on [A/C 9830]”. The letter identifies the “total amount unpaid” as being £5,882.28 (Footnote: ⁷) and the amount outstanding on the mortgage account as being £307,770.23. This prompted JM to telephone NatWest to challenge the assertion that there were unpaid instalments on account A/C 9830 because he understood there to be an agreement or arrangement made with NatWest by which the mortgage instalments would be deferred with the interest being added to the mortgage account balance, i.e. capitalised. When JM rang NatWest he spoke to SB who told him that the £5,882.28 was in addition to, and not part of, the balance of £307,770.23. JM challenged that statement and SB agreed to look into the matter and call JM back, which she did. NatWest’s records indicate that SB then confirmed that JM’s total indebtedness on A/C 9830 was the total of £5,882 odd and £307,770 odd, namely “about [£]313,652”. JM understood from that that NatWest had capitalised the interest and was claiming in addition the unpaid monthly instalments.

58 So far as JM was concerned, this error was compounded in September 2011 when JM received two letters from NatWest, each dated 23.9.11. The first letter referred to A/C 9830 and stated that the outstanding balance on the mortgage was then £308,275.06 and that the outstanding arrears balance was £5,882.28. The second letter referred to A/C 2194 and stated that the outstanding balance on the mortgage was then £104,767.61 and that the outstanding arrears balance was £3,326.94 (Footnote: ⁸). JM immediately replied denying that there were any arrears. NatWest persisted in sending similar letters and an internal note shows that within NatWest the collections department confirmed that the “arrears” were in addition to the mortgage balances.

59 Having failed to establish the correct position with NatWest, JM referred the matter to FOS as his his double charging complaint. FOS raised the matter with NatWest and, by email dated 23.2.12, NatWest informed FOS that, in relation to A/C 9830 “The balance outstanding as at today’s date (22/2/2012) is £307,845.22 and this figure does not include the arrears of £6,012.28”. FOS concluded that the instalments had been capitalised and were not in arrears and that the arrears should be cleared. NatWest did not accept FOS’s conclusion.

60 Cross-examining JM, Miss Nesterchuk made the point to JM that any misunderstanding was cleared up by January 2012 and she referred to several internal NatWest summary notes of telephone calls made by JM to NatWest over the period January to June 2012 which indicate that JM was told that the ‘arrears’ were in fact included in the mortgage balance and to a letter said to be dated 24.7.12 from NatWest to JM which is not in evidence but which is referred to in an internal NatWest chronology of dealings with JM in relation to A/C 9830 prepared on or before 17.5.13. JM did not deny the conversations but said he had no recollection of them. Miss Nesterchuk submits that it is not credible that JM should have no recollection of these telephone conversations but have a clear recollection of a conversation in December 2009. I do not find that JM was dissembling. It is notable that after January 2012 NatWest erroneously maintained what amounted to a double charging statement to FOS; this indicates that NatWest had not corrected its error internally at that time.

61 Miss Nesterchuk submits that “as a matter of fact, [NatWest] has not charged [JM] at all (let alone twice) for the contractual monthly payments missed during the period the deferral arrangement was in place”. Miss Nesterchuk explains this, at first blush, surprising submission by reference to the terms of clauses 9.4 and 9.5 of the mortgage conditions and the Annual Mortgage Statements for each mortgage account sent by NatWest to JM.

62 For A/C 9830, the relevant Annual Mortgage Statements are those for the year 26.3.09 to 25.3.10 and 26.3.10 to 25.3.11. These statements show interest continuing to be charged on a monthly basis throughout the period January to June 2010, contra entries resulting from no interest payments being made, and the balance on the mortgage account increasing as a consequence. These statements show that there was no double charging or double counting on this account.

63 For A/C 2194, the relevant Annual Mortgage Statements are those for the year 13.3.09 to 12.3.10 and 13.3.10 to 12.3.11. These statements are to the same effect as those for A/C 9830.

64 Miss Nestrchuk also refers to redemption statements prepared on 6.11.13 as evidencing the proposition that NatWest is “not proposing to charge [JM] twice in respect of missed payments on redemption of the mortgage”. That is correct.

65 The “not charged [JM] at all” submission is based on language of the declaration JM seeks which refers to the double charging being of “interest payments that were due”. Strictly, Miss Nesterchuk is correct, monthly instalments are not charged at all, they are payments by JM in respect of the monthly interest charged by NatWest, see clauses 9.4 and 9.5 of NatWest’s standard mortgage conditions referred to above.

66 However, Miss Nesterchuk and NatWest are aware that JM’s complaint is actually that the double charging arises from adding monthly interest calculated as due to the balance of the mortgage loan and contending that the monthly instalments are an additional debt which, if and while unpaid, further increase the balance of the mortgage loans.

67 It is relevant to consider, in the context of the double charging issue, whether or not the interest on the mortgage accounts added to the mortgage balance and continuing to form part of that balance because mortgage instalments were not paid has been capitalised. However, this issue is more sensibly considered in the context of the arrears and reporting issues. For reasons which I shall give, I shall find that the unpaid interest has been capitalised as part of JM’s mortgage loans.

68 That something went wrong and that NatWest made a mistake about the amounts of JM’s mortgage liabilities in written and oral communications with JM and FOS is admitted by NatWest via DM in both his written and his oral evidence.

69 Miss Nesterchuk draws attention to CPR 40.20, which recognises the court’s discretionary power to make a binding declaration whether or not any other relief is claimed. For guidance as to the exercise of the discretionary power, Miss Nesterchuk refers to FSA v Rourke [2002] CP Rep 14, a decision of Lord Neuberger when a first instance judge. The question for the court is whether in all the circumstances it is appropriate to make a declaration. The grant of a declaration, being the exercise of a discretion, does not follow merely because rights, facts or principles have been established. Rather, as Neuberger J put it :

“ … the court should take into account justice to the claimant, justice to the defendant, whether the declaration would serve a useful purpose and whether there are any other special reasons why or why not the court should grant the declaration”.

70 Miss Nesterchuk submits that a declaration as sought is factually unfounded and would serve no useful purpose.

71 As I understand it, JM’s case is that (1) for a significant period of time NatWest wrongly maintained that the mortgage instalments for the periods December 2009 to May 2010 (A/C 2194) and January 2010 to June 2010 (A/C 9830) were owed as arrears and, separately and in addition, that the mortgage interest accruing during those periods was added to the balance on the mortgage account thereby further increasing the total amount due under JM’s mortgage loans; (2) that came at a time when the banker / customer relationship had already deteriorated badly and at a time when he had complaints against NatWest underway with FOS; (3) NatWest aggravated the error by making the same wrong statement to FOS and by rejecting FOS’s conclusion on his complaint about double charging; and, (4) a declaration would be just in the circumstances; and, (5) a declaration will be useful to him in seeking to restore his financial good standing as it will confirm at least that NatWest made both an internal error as to his actual indebtedness under his mortgages and compounded that error by stating it to him and to a third party.

72 In my judgment, the criteria engaging the power to make a declaration, albeit not precisely as formulated by JM, are made out; justice as between the parties is in favour of JM, the useful purpose is formal correction of the record including to a third party regulator, and there is a special reason for granting the declaration, namely assisting JM to have a true and fair statement of his financial standing established as a matter of record.

73 The appropriate declaration seems to me to be that :

From August 2011, for a period of approximately 1 year, [NatWest] wrongly maintained that [JM] owed unpaid arrears of interest on his mortgage accounts totalling in excess of £9,300 in addition to the balances on his mortgage accounts which already included the corresponding interest charges and, in the course of so doing, overstated [JM’s] liability under his mortgages (1) internally within various departments of [NatWest], (2) to [JM], and (3) to one or more third parties.

The Arrears and Reporting Issues

74 JM’s proposal, that the mortgage interest for the ensuing six months be added to the capital owing on each mortgage account, was born out of PK’s suggestion at their meeting on 26.11.09. JM envisaged and envisages repayment out of the proceeds of sale of his property if reestablishment of his professional practice does not enable him to pay off the accumulated interest at the expiration of six months.

75 The extent to which JM and PK discussed how JM’s credit standing might be affected is apparent from JM’s letter sent to PK by email on 2.12.09 :

“I have looked through the Personal Profile form that you handed to me at our meeting. I cannot see anything here that you do not know already. What does concern me with this form is the resultant additional credit agency search that you will undertake. Following on so soon after the two recent searches that you undertook in connection with the additional mortgage applications I feel that this will unnecessarily damage my credit status. Please give me your views on this” and PK’s reply on 4.12.09 : “ … any request for additional borrowing is going to involve a Credit Reference Search, this is unavoidable. Too many can affect your credit status”. JM’s evidence is that he was acutely aware of this and anxious to avoid damaging his credit status; this is not seriously challenged by NatWest.

76 At the same time, JM was seeking to raise a business loan of £10,000 to provide working capital to fund the restart of his business by covering significant expenses such as PI insurance and website access fees. On 30.11.09, NatWest, through HD agreed a £5,000 extension of CSL’s overdraft facility for this purpose. When this came to PK’s attention he sent an email to JM to ascertain whether that facility had fully addressed his requirements, and also forwarded the contact details of NatWest’s mortgage services department in case JM wished to pursue “temporarily placing your Mortgage payments on hold”. JM followed this up, was told by the mortgage services department that any such request had to be made to or by PK, and reverted to PK asking him to make the necessary arrangement. One consequence of this to-ing and fro-ing instigated by NatWest was that because no arrangement was in place, the monthly direct debit on A/C 2194 for December 2009 was unpaid. In cross-examination, PK volunteered that there had been “crossed wires” within the mortgage services department and further that, but for the wires getting crossed, there had been ample time to put an arrangement in place before the December 2009 payment fell due. JM wrote again to PK, expressed his dissatisfaction and asked for the direct debits on his mortgage accounts to be put on hold for 6 months. On 18.12.09, PK sent an email to JM stating that he had spoken to SB and that mortgage instalments had been put on hold for 3 months. There is no mention in PK’s email to JM of credit implications arising from this arrangement. PK’s evidence is that that is because SB did not tell him that there were any credit implications.

77 As already stated, I accept PK’s evidence. At this point in time, as between JM and NatWest there was a 3 month arrangement in place relating to both mortgage accounts. Addressing the principle of such an arrangement in the context of the contractual terms, DM’s evidence is that the borrower would not be in breach of the covenant to pay (clause 12.2 of the Conditions), the interest would be added to and increase the balance due and, further, NatWest would be entitled to charge interest on the accrued interest as part of the balance on the account (clauses 10.1 and 12.3 of the Conditions).

78 Unfortunately, NatWest processed the January instalment on A/C 9830 as also unpaid. JM protested and the instalment and unpaid direct debit fee were reversed. On 4.2.10 NatWest wrote to JM to express concern that 2 months instalments, January and February 2010, were outstanding on A/C 9830. Within NatWest, the Birmingham Collections Centre sent an email to PK asking him to contact JM and obtain proposals for clearing arrears; PK responded immediately querying the request given the arrangement in place. JM wrote to PK and asked that the “arrears” be added to the mortgage, i.e. capitalised, as he had done at PK’s suggestion back in November. That this is in line with what PK recommended and understood had been agreed appears from an email he sent to NatWest’s mortgage department on 12.2.10. In cross-examination PK said that he had not written to JM in terms to state that the first thee months instalments were to be capitalised because “ … it was all done and dusted”, i.e. such a letter was unnecessary.

79 In late February or early March 2010, JM asked PK to agree to the same arrangement for a further three months. JM reported that he had had an offer, subject to contract, on his home and that completion was expected in May which would enable both mortgages to be cleared. PK referred this request internally on the basis that he recommended it and received confirmation within 48 hours that the direct debits had been cancelled. In response to a question as to whether the direct debits should restart after the six months, PK confirmed that they should. In May, JM’s proposed sale fell through as the result of last minute renegotiation by the prospective purchaser and JM immediately wrote to PK to advise him of this and to confirm that the collection of mortgage instalments would restart in June for A/C 2194 and July for A/C 9830.

80 In the meantime, in February 2010, NatWest had written to JM offering to “cap”, i.e. capitalise, the interest representing two mortgage instalments on each of the two mortgage accounts but also making plain that capitalisation could only happen once during the term of a mortgage. JM rejected these offers because the initial arrangements had been for three months, not two, and JM was seeking to extend the arrangements for a further three months in line with his original proposal. When JM telephoned NatWest to discuss this, he was told that any arrangement to capitalise more than two months would have to be discussed with his PRM, i.e. PK. JM already knew that PK was amenable to such arrangements.

81 It is apparent from these facts that the arrangements under discussion between JM and NatWest were that mortgage interest accruing over the deferral period or, if different, mortgage interest to the value of initially three, and ultimately six, monthly instalments on each mortgage loan was to be capitalised. It is also apparent from the evidence that these arrangements were in fact made between NatWest, acting by PK, and JM.

82 At the time, no further capitalisation offer letters were sent to JM for signature. However, that failure or shortcoming on NatWest’s part does not undermine the validity of the arrangements.

83 In 2010, JM approached NatWest with a view to securing a better arrangement for his mortgage. By letter dated 16.8.10, NatWest offered JM altered terms for his mortgage A/C 9830, termed by NatWest a Product Switch. The headnote on the front sheet of the document includes a recommendation to “take independent legal advice before accepting verbally or signing and only do so if you want to be legally bound” and makes clear that, if accepted, the new agreement would be read and construed together with the existing mortgage. By the Product Switch, NatWest acknowledged that JM had stated that he wished to borrow £308,108.41 on an interest only basis and offered to make a loan of £308,307.41, including a fee of £199, available to JM on an interest only basis at an initial interest tracker rate for two years (base rate + 1.49%) and thereafter at NatWest’s standard variable rate (then 4%) until repayment after five years and seven months. The Product Switch states in terms that the loan amount is £308,307.41 comprising the aggregate of three parts (£216,059.25, £40,999.18 and £51,248.98) in respect of each of which early repayment charges applied. The Product Switch also states that JM will “still owe £308,307.41 at the end of the mortgage term”.

84 Unsurprisingly, this served to confirm to JM that the arrangements to miss or defer instalments on his mortgage accounts had, as he had understood when making the arrangements, led to the capitalisation of the interest/instalments.

85 Miss Nesterchuk submits that the Product Switch does not constitute or evidence capitalisation of the mortgage because it is not a new contract, rather the mortgage is the same, and because the deferred payments are not consolidated into the contractual payments. She submits that the Product Switch is confined to setting a new rate of interest in respect of the 2007 borrowing of £302,391.45.

86 Very close analysis of one small part of a four line table in the Product Switch document, which runs to 12 pages, supports the submission as to borrowing; but, Miss Nesterchuk’s submission flies in the face of the tenor and content of the remainder of the document. Of course, the mortgage agreement, which is the security, is unchanged; and, of course, a borrower intends to save interest through a Product Switch. However, and as the Product Switch documentation between NatWest and JM states, NatWest and JM made a new written contract - i.e. a new loan agreement - the terms of which include an express statement of the amount of the loan the subject of the mortgage. The upshot of the new contract is that on mortgage A/C 9830 NatWest agreed to lend £308,307.41 on new terms as to interest. That the new loan arrangement is covered by the existing and continuing security agreement does not preclude the making of a new loan contract. That is entirely consistent with the terms governing the mortgage. Further, it is comparable to periodic overdraft facility agreements entered into successively by customers, including JM, in relation to personal and business banking; the particular account, as signified by the account number, remains unchanged but each periodic arrangement for a facility in a particular sum is the subject of a new contract. If NatWest had mis-stated the interest to be charged, as appears might well have happened, on being read and construed with mortgage terms, including the Conditions, NatWest could have corrected the position.

87 Reviewing the internal NatWest documents to which I have been referred at trial, it appears that the only reason why NatWest maintains that the unpaid interest / deferred instalments on JM’s mortgage accounts were not capitalised is that JM has not signed capping letters. The capping letters sent to JM contemporaneously in February 2010 offered to capitalise only two months’ instalments and made clear that capitalisation could only occur once in the lifetime of a mortgage. JM followed this up in the context of responding to letters from NatWest informing him that he was in arrears and entirely reasonably understood that arranging for capitalisation was within PK’s remit as his PRM and that that was in hand and, in due course, occurred. Moreover, capitalisation of only two months’ instalments was never under discussion between JM and PK; the 12.2.10 capping letters were a mistake on NatWest’s part.

88 In about August 2011, in response to further arrears letters relating to his mortgages JM contacted NatWest to complain that he was not in arrears. Later, in November 2011, a view was expressed internally at NatWest that capping was not available because instalment payments had been missed from March to June 2010. It is not clear that this conclusion was communicated to JM. Further, and to the contrary, by letter dated 1.12.11 NatWest wrote to FOS stating that where direct debits have been cancelled for an agreed period of time “ … the interest continues to accrue and is capitalised into the mortgage”.

89 JM contacted NatWest again in January 2012 and, by then, had made his complaint to FOS about double charging. NatWest set in train a further internal review into whether what Natwest was classing as “arrears” had been capitalised. Eventually, and for the first time, in August 2012, NatWest issued a capping letter in respect of the six instalments on A/C 9830 totalling £6,022.28 the subject of JM’s arrangements with NatWest. This serves to confirm that NatWest has no objection in principle to capitalisation pursuant to the arrangements agreed by JM with PK, acting for NatWest. JM did not sign this letter because he was then in the midst of complaints about NatWest; that is not to be understood as a rejection of the capitalisation arrangement; nor is it to be understood, as Miss Nesterchuk suggests it should be, as a rejection of the capitalisation offer because monthly mortgage instalments would increase because the increase is relatively minor and well within the means of JM and his partner.

90 The conclusion that I reach and key facts that I find, after filtering out the confusion within NatWest, is that (1) NatWest, by PK, did agree with JM in two stages that six instalments on A/C 9830 for the period January to June 2010 and six instalments on A/C 2194 for the period December 2009 to May 2010 could be missed, the precise terminology used is unclear and immaterial for this purpose (Footnote: ⁹), with the direct debits being cancelled for those periods and with the result that the interest charged but not covered by instalments would be added to and capitalised as part of the respective secured loans; (2) such arrangements are consistent with and catered for by the terms of JM’s mortgage loans with NatWest; and, (3) the arrangements in respect of A/C 9830 were confirmed by the documentation relating to the Product Switch of August 2010.

91 At this point I should note that Miss Nesterchuk submits that whatever JM personally may have thought he was arranging or agreeing or had arranged or agreed with NatWest is subjective and irrelevant. I agree that the question of whether or not JM and NatWest made legally binding arrangements and what the terms of any such arrangements are and mean is a matter of objective analysis. That is the basis on which I have analysed the evidence, including the contractual documents, before me and reached my conclusions.

92 Finally, there is the reporting issue : whether NatWest was and is entitled to inform credit rating agencies on a monthly basis that JM was and is in arrears by reason of having failed to pay the instalments the subject of arrangements made with PK on behalf of NatWest.

93 There is no definition of ‘arrears’ in the mortgage documents and loan agreements. There is no evidence that the noun ‘arrears’ was at the material times a term of art having a well known meaning in the context of banking, including to the general public as customers. Accordingly, the term is to have its ordinary English meaning of ‘overdue’ or ‘behind in the discharge of liabilities’. Having made arrangements with Natwest in advance of instalments falling due (save possibly in respect of the December 2009 instalment due under A/C 2194 which was sought in advance but appears to have been delayed in processing and the subject of an arrangement having retrospective effect made very shortly thereafter), JM was not at any time in arrears under either A/C 9830 or A/C 2194.

94 However, that is not the end of this issue. There is a dispute as to whether or not JM was told, when seeking and making the arrangements, that a consequence would be monthly adverse reporting to credit agencies, also referred to by the parties as ‘markers’.

95 The contemporaneous evidence against JM is a summary note dated 18.12.09 that SB told PK of credit implications and a summary note dated 12.2.10 that SB told JM of the credit implications. Strikingly, PK followed up his conversation with SB with an email to JM on the same day in which he confirmed the arrangement to freeze or defer mortgage instalments on both mortgages for three months, referred expressly to having spoken to SB, and advised JM to telephone her in March 2010 with an update on his circumstances but made no mention at all of credit implications. No less strikingly, JM wrote to PK on 12.2.10 after speaking to SB and stated that he (JM) had been advised that an extension of the deferral arrangement could only be considered if recommended by PK, and JM made no mention of credit implications in his letter. PK made such a recommendation by email that day and there is no evidence that SB or anyone else at NatWest’s mortgages department responded with a statement or reminder about credit implications or adverse credit markers. Before commencement of these proceedings, JM has asked NatWest to provide a transcript of his conversation on 12.2.10 but NatWest has been unable to retrieve the call from its systems.

96 Miss Nesterchuk also relies on an email dated 28.10.10 from PK to an unknown (redacted) recipient at NatWest stating “Although I have nothing in writing, I can recall informing him that the Arrears would have an implication on his Credit File”. The context of this email is unclear. PK makes no reference to it in his witness statement. As noted earlier in this judgment, PK retracted paragraph 26 of his witness statement, which refers to him having discussed with NatWest’s mortgages department the effect of deferral arrangements on credit rating, and in his oral evidence he said that he did not know what the position would be. Even more cogently, a week later, on 4-5.11.10 AS had an email exchange with PK and HD in which AS asked for an explanation of how credit reporting worked to which there is no response from PK. The 28.10.10 email is inconsistent with and outweighed by the general tenor of PK’s evidence.

97 The internal NatWest documents and the communications between NatWest and JM over the period October 2010 to mid 2012 referred to at trial demonstrate that NatWest investigated JM’s assertion that he had not been informed that adverse credit reporting would follow as a consequence of the arrangements relating to non-payment of mortgage instalments. In October 2010, that is a matter of only eight months after the phonecall between JM and SB, NatWest was “currently listening to the calls to see exactly what was discuss[ed]”. Nothing further was reported to PK or AS and no transcript is available (not for want of a request by JM). AS’s view at that time, expressed internally, was that HD would not have known of such consequences when dealing with JM and that, although he expected that PK would know, AS acknowledged that PK may not have known of such consequences. It is clear from the evidence (Footnote: ¹⁰) that AS himself did not know of such consequences at the time when he was dealing with JM, including when they met on 2.11.10.

98 Accordingly, I reject the proposition that adverse credit implications, in the sense of monthly adverse reporting to credit agencies, were actually notified or explained to JM and find, to the contrary, that no such explanation was in fact given to JM at any material time.

99 On the evidence before me, I am satisfied that (1) the only statement PK made to JM about adverse credit implications was that every loan application necessitated a credit reference being taken which, if made on a number of occasions, might affect a credit file but otherwise he neither informed JM of nor raised with JM adverse credit implications such as monthly reporting of adverse credit markers against mortgage instalments missed by express arrangement; and, (2) JM was alive to the importance of maintaining good credit standing with agencies, such as Experian, and that, when seeking and making arrangements to miss mortgage instalments, had JM been informed that mortgage payments deferred or missed by arrangement would have adverse credit implications or give rise to adverse credit markers he would have raised the matter in writing with NatWest, probably PK, immediately.

100 I note from an internal NatWest email sent to PK, AS and HD on 25.10.10 that if NatWest has made an error in relation to credit reporting it is able to amend JM’s data for the relevant period.

101 In my judgment, (1) JM was and is not in arrears in relation to A/C 9830 or A/C 2194; AND, (2) all adverse credit reporting arising out of the arrangements which permitted JM to miss monthly instalment payments on A/C 9830 for the period January to June 2010 and on A/C 2194 for the period December 2009 to May 2010 was erroneous and should be corrected.

102 If and to the extent that it may be necessary to grant JM an injunction to compel such a course by NatWest removing or deleting them from its own records and informing third parties of the correct position, I shall so order. However, I note that during the trial NatWest offered to write to the credit reference agencies to confirm that the arrangements to defer JM’s monthly mortgage instalments for six months were consented to in advance by NatWest. If such a letter also states that the court has found that JM was not and is not in arrears with any mortgage instalment and that the resultant unpaid interest has been capitalised, that may avoid the need for an injunction requiring NatWest to inform third parties of the correct position. Equally, it is open to NatWest to offer an undertaking to correct its internal records.

Conclusion

103 The overall outcome of my judgment is that NatWest has succeeded in the Guarantee issue the subject of the counterclaim and JM has succeeded on the arrears and reporting issues and, to a significant extent, on the double charging issue.

No. B30BM010

Neutral Citation Number: [2015] EWHC 2310 (Ch)

IN THE HIGH COURT OF JUSTICE

CHANCERY DIVISION

SITTING AT THE BIRMINGHAM DISTRICT REGISTRY

33 Bull Street

Birmingham B4 6DS

Friday, 31st July 2015

Before:

HIS HONOUR JUDGE SIMON BARKER QC

(Sitting as a Judge of the High Court)

B E T W E E N :

JOHN LAWRENCE MONKS Claimant

- and -

NATIONAL WESTMINSTER BANK PLC Defendant

Transcribed by BEVERLEY F. NUNNERY & CO.

Official Court Reporters and Audio Transcribers

5 Chancery Lane, London EC4A 1BL

Tel: 020 7831 5627 Fax: 020 7831 7737

info@beverleynunnery.com

THE CLAIMANT appeared in Person.

MS. T. NESTERCHUK (instructed by Matthew Arnold & Baldwin) appeared on behalf of the Respondent.

J U D G M E N T

JUDGE BARKER QC: