The Court of Appeal’s decision in Bristol & West plc v Bartlett & anr provides clarity as to the legal effect of the Limitation Act in the context of mortgagees’ shortfall claims. However, it is likely that the position in individual cases will be far from clear.
When a shortfall claim is brought, if it is established that some of the sums claimed fell due more than 6 years prior to issue it will be necessary to investigate how much of that was accrued interest. The investigation required is likely to involve ascertaining whether and to what extent repayments made by the borrower went to satisfy interest due on the account rather than capital.
In the absence of a pre-existing agreement defining to what part of a debt payments are to be appropriated, it is open to a debtor when making a payment to determine how his payment is to be treated (Lowther v Heaver (1889) 41 Ch D 248; Leeson v Lesson  2 KB 156). If the debtor makes no appropriation before or at the time of payment the creditor has the right to do so (Seymour v Pickett  1 KB 715). The debtor’s right can be exercised at any time until it is inequitable for him to be permitted to do so. It should be noted that payments can be appropriated to a statute-barred claim prior to judgment (Smith v Betty  2 KB 317). It seems where there has been no appropriation the law may well apply any payment made to interest before applying it to the capital to which the interest relates ( Income Tax Commissionaer v Maharajadhiraja of Darbhanga (1933) LR 60 IA ).
It follows that the first consideration is whether the mortgage terms and conditions provide for appropriation of payments as between interest and capital. If no provision is made, a borrower has a small window of opportunity to provide for appropriation to capital. However if that step has not been taken in the case of each payment by the time it is made, the lender will be free to appropriate sums to interest whether it is statute-barred or not, so as to ensure that as much of the debt as possible benefits from a 12 year limitation period. Further, even if the lender takes no steps it seems that the law will come to his assistance rather than that of the borrower.
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