Conflicting terms Alexander v West Bromwich Mortgage Company Ltd [2016] EWCA Civ 498

How are conflicts or inconsistencies between terms resolved?

The facts

Mr Alexander, a mortgage borrower, appealed against a decision that the respondent lender was entitled to: (i) increase the variable rate on a 25-year “buy to let” tracker mortgage; and (ii) require repayment on one month’s notice.

The mortgage offer stated that the mortgage term would be 25 years and that the interest rate would be fixed for the first two years, after which it would be at a variable rate of 1.99% over Bank of England base rate.

Clause 1 of the lender’s standard mortgage conditions provided: “If there are any inconsistencies between the terms in the Mortgage Conditions and those contained in the Offer of Loan then the terms contained in the Offer of Loan will prevail.” Clause 5 stated that the variable rate could be changed for as number of reasons, including “market conditions” and ensuring that the lender’s business was “carried out prudently”. Clause 14 stated that the borrower might be obliged to repay the loan on one month’s notice by the lender.

After the fixed-rate period had expired, the lender informed the borrower that the margin over base rate had increased from 1.99% to 3.99%. The borrower claimed that the mortgage conditions were inconsistent with the offer and were therefore not incorporated into the contract. The judge at first instance disagreed.

The decision

The Court of Appeal followed the principle in Pagnan SpA v Tradax [1987] 3 All ER 565, that when considering the clauses, the Court should take a “cool and objective” approach to whether there is inconsistency, ie where clauses: (i) clearly conflict; and (ii) cannot be “fairly or sensibly read together”.

The Court also noted special conditions prevail over general conditions and printed standard terms must not be construed to defeat the main object and intent of the agreement (Glynn v Margetson [1893] AC 351).

The Court held there were 3 grounds upon which clause 5 had not been effectively incorporated into the mortgage contract as a result of inconsistency with the Offer:

• a printed standard term provided a different method of varying the rate that was inconsistent with the specially agreed terms in the Offer
• clause 5 allowed the lender to disregard its obligation to provide the product
• the printed standard term, which entitled the lender to substitute a different product, was inconsistent with the main purpose of the contract

The Court also held that clause 14 was not incorporated into the mortgage contract as it was inconsistent with the offer of an interest only mortgage for a term of 25 years to allow termination on
one month’s notice.

Why is this important?

The decision confirms the approach and application of established principles of construction when the Court considers inconsistent or conflicting terms.

Any practical tips?

Ensure that provisions do not conflict and are not inconsistent! If you do need to alter provisions (or reserve the right to do so), consider including that possibility within the relevant special conditions or raise more expressly – do not seek to rely on general or boilerplate provisions.