Phil Sheard - Summary Judgment in Respect of a Secured Loan

The claim was for £182,000 plus interest in respect of a loan between two former friends for the purpose of purchasing a property. It was agreed the loan was to be repayable after 12 months. Repayment was not made but monthly repayments had been made for nearly seven years before repayment of the capital and interest was demanded. The borrower refused to make repayment and, following the issue of proceedings, defended the claim on the basis that:

a. The loan agreement had been varied so there was no repayment date and, therefore, there had been no breach of contract on which the claim could be brought; and

b. The claim was statute barred as the original repayment date was more than six years ago;

Summary judgment was applied for but, before that application was heard, the property was sold following the appointment of an LPA Receiver and which left a shortfall in respect of the capital sum outstanding.

At the summary judgment hearing counsel for the borrower sought to argue:

c. The summary judgment application was founded on an incorrect value and showed a case that was shifting (notwithstanding the obvious fact that it was shifting downwards in value given the net sale proceeds had been credited against the original claim value);

d. No reference had been made in the proceedings of the appointment of a Receiver, the sale and the credit given from the net proceeds of sale until a Second Witness Statement was served (despite that later evidence being served before the borrower served his evidence in response to the summary judgment application);

e. The Borrower had a potential counterclaim for a sale at an undervalue and the basis of that counterclaim could be seen in the property valuations from 2022 together with expert evidence which could be obtained by the borrower;

f. The balance of the claim for repayment of the capital was disputed on the basis that credit had only being given in respect of the net proceeds of sale rather than the gross proceeds of sale;

g. Emails between the parties showed that there was a clear representation that the agreement had been varied and on which the Defendant had relied in continuing to make his monthly payments;

h. There had been no breach of the agreement and no breach had been pleaded in the claim;

i. The Particulars of Claim failed to rely on the limitation period of 12 years;

j. The Particulars of Claim failed to plead that the claim was based on the Charge and proceeded on the basis of the loan so the limitation period was six years;

k. The loan agreement merged with the charge so the limitation period was six years;

The judge held that:

a. There was no dispute that the loan was recorded in writing;

b. There was no dispute over its terms;

c. The claim was issued before the property had been sold;

d. The Borrower’s Part 18 Response admitted that no repayment date had been agreed at the time of the alleged variations or thereafter;

e. There may have been an agreement to negotiate but not to either vary the agreement or to vary the no oral variation clause;

f. Even if there was an agreement to vary the loan agreement it would render the loan repayable on demand and the limitation period would only be triggered upon a demand being made;

g. On our case the limitation period was 12 years so on either case the limitation period had not expired and the claim was not statute barred;

h. The expiry of a limitation period was a Defence to a claim and did not need pleading in the Particulars of Claim;

i. The loan had not been repaid and credit had been properly given for the net proceeds of sale;

j. It was right to apply the net proceeds of sale as it was unfathomable that the gross proceeds of sale should be applied as a credit to the claim;

k. The estoppel argument relied on was bound to fail as our client clearly stated in her email that she was entitled to call in the loan if an agreement could not be reached on repayment (and the Borrower himself admitted an agreement had not been reached following the expiry of the original repayment date);

l. At best our client had simply conveyed her forbearance in that email and it did not evidence an agreement to vary or an agreement to vary the no oral variation clause in the loan agreement so there was no binding estoppel on which the Borrower could rely;

m. The suggestion that the sale was at an undervalue was not pleaded by the Borrower (because the Defence preceded the sale) but whilst he had pleaded the right to bring a counterclaim for any sale at an undervalue he had neither brought the claim nor applied to amend his Defence;

n. The evidence exhibited showed that the highest offer had been accepted some 12 months after the date of the valuations and also after the Liz Truss Mini-Budget that had drastically affected the property market and sent it into a freefall;

o. No expert evidence had been relied upon by the borrower and the 2022 valuations relied upon showed no real prospect of success of establishing a sale at an undervalue in 2023;

p. The Particulars of Claim clearly pleaded a breach by mentioning the non-payment by the Borrower;

q. There was no real prospect of success of the borrower defending the claim for repayment of the capital balance and the sections of the Defence that asserted that there had been no breach of repayment and that the claim was statute barred were bound to fail and were struck out;

The judge also awarded our client her costs of the summary judgment application.