Raja -v- Lloyds TSB Bank plc - New Case on Banks' Duty of Care

A case decided on 19th April 2000 held that the limitation period for bringing a claim against a mortgagee for breach of the mortgagee's duty to obtain a proper price for properties charged to, and sold by, the mortgagee in possession is six years from the date of sale.

In this case, there was no issue as to the Bank's duty, namely that established by Cuckmere Brick Co -v- Mutual Finance Limited [1971] 1Ch 949 to obtain the true market value or a proper price. The dispute was in relation to the period of limitation for bringing a claim for breach of that duty. The Court characterised the duty as one arising in equity rather than contract; however as the duty corresponded with a breach of duty of care in the tort of negligence it was appropriate to apply the same period of limitation as that applicable to a tortious claim (by virtue of section 36 of the Limitation Act 1980).

The Court therefore found that the appropriate period of limitation was six years, and on the facts of the present case, as all the sales had taken place more than six years before the action had been commenced, the Claimant's claims in respect of the sales of the properties were statute barred.

This case therefore establishes that although an action on a mortgage is a specialty for which the appropriate period of limitation is twelve years, the duty on a mortgagee to obtain a proper price does not arise under the charge itself but in equity. Further, any claims that the mortgagee acted in breach of such a duty to obtain a proper price must be brought within six years.

For further information in relation to this case, in which CMS Cameron McKenna acted for the Bank, contact Nick Agar ([email protected]) or Belinda Hackett ([email protected]).