Cases
Bank of Ireland v. Feeney
[1930] IR 457
Johnston J.
This matter comes before me by summary summons for an order for possession of certain lands, held by the defendant from the Irish Land Commission, which lands were charged by an indenture, dated September 5th, 1921, with the payment of advances made by the plaintiffs to the defendant; and “if necessary, that it may be declared that the said mortgage is well charged upon the said lands.” The only order that the plaintiffs ask for, however, is an order for possession. It is stated in an affidavit made by the agent of the plaintiffs at Mountbellew that it was the intention of the plaintiffs to put the lands up for sale, and he adds:”I am convinced that to ensure a successful sale it is essential that the plaintiffs be put into possession of the premises.”
It was decided by the Master of the Rolls in Bank of Irelandv. Slattery (1) and by Barton J. in Bunyan v. Bunyan (2) that the words “delivery of possession by the mortgagor,” in Or. LV, r. 7, of the Supreme Court Rules of 1905 could not be read as merely ancillary to a sale ordered by the Court in a proceeding by the mortgagee against the mortgagor, and that an order for possession could be given by the Court in favour of the mortgagee without any other relief being asked for. A different construction was, in the case of Wallis v. Griffiths (3),placed upon the corresponding rule in England.
In the two Irish cases the question raised was one merely of procedure. Neither defendant could have had any objection if the procedure had been by writ of summons. In the latter case the mortgagor had regularly assigned the premises to the mortgagee by way of mortgage, and in the former there had been a demise for a term of 10,000 years.
In the present case, however, the rights of the parties are dependent upon the very special terms of the indenture of 1921, which represents the contract between the debtor and creditor. The deed is a printed form, which appears to have been prepared on behalf of the bank for general use, and the indorsement on the back describes its nature in these words:”Deed of Charge of Judicial Tenancies in the lands of to secure the account of the Mortgagor.” The maker of the deed is called throughout “the mortgagor,” and the bank is described merely as “the said Governor and Company.” The document begins with a covenant by the mortgagor to pay on demand the amount of the balance owing by him to the bank, and then he charges the said balance upon the lands, which are to be the security for the debt, and declares that these lands are to be liable for the said balance. There is no reservation of any equity of redemption in the usual form; but the bank agrees, if and when the balance is paid, that it will “upon the request and at the cost of the mortgagor, his heirs, executors, administrators or assigns, release the premises hereinbefore expressed to be hereby charged unto the mortgagor or as he shall direct.” The effect of these clauses is to charge the payment of the debt upon the lands, and there is nothing in the nature of a conveyance or assignment of the lands, or of any interest in the same, to the bank. The mortgagor then covenants that,”during the continuance of the present security” he will keep the buildings in repair, and insure them against loss or damage by fire. Then there is a proviso making it lawful for, but not obligatory upon, the bank themselves to insure the buildings, to repair and keep repaired the same, “and to enter upon the said mortgaged premises for that purpose.” There is also a proviso that the restriction upon the right to consolidate mortgages imposed by sect. 17 of the Conveyancing Act, 1881, is not to apply; and a proviso that the bank is to have the power of sale, and all other powers, conferred by the Act of 1881 upon mortgagees, with certain modifications. I do not think that any implication which would further the bank’s present claim to be entitled to go into possession can be drawn from these provisoes. The Act of 1881 defines a mortgage as including”any charge on any property for securing money or money’s worth,” but the Conveyancing Acts do not confer upon a mortgagee any power of which I am aware of taking possession of the mortgaged premises apart from the rights which the contract confers upon him, with the exception of the rights given to annuitants by sect. 44 of the Act of 1881.
The next clause in the deed is regarded as of some importance by the plaintiffs. It provides that the mortgagor “shall henceforth stand possessed of the tenant’s interest and of every other estate and interest which may hereafter be acquired by the mortgagor in the said lands hereby charged in trust for [the bank] subject to such equity of redemption (if any) as may for the time being be subsisting by virtue of these presents and to dispose thereof as they or he shall direct”; and the mortgagor then appoints certain persons, and each of them as”the attorney and attorneys of him the mortgagor in his name and on his behalf at any time to assign, release and convey all his estate and interest now acquired or hereafter to be acquired in the said lands” to the bank, or as they should think fit, and to execute all necessary deeds and documents for that purpose,”and for the purpose of any exercise of the power of sale hereby authorised or otherwise to do all things and give all notices which may be necessary or considered expedient under the Land Law (Ireland) Acts.” Finally, the deed contains a further power enabling the bank at any time to appoint a new trustee of the tenant’s interests in the said lands in place of the mortgagor, as if he were dead.
This deed is no more and no less than a deed of charge, carefully framed, for the purpose of meeting a special difficulty.
It was decided by the Vice-Chancellor in 1893, in Fisher v.Coan (1), that a mortgage by a judicial tenant was not a sale within the meaning of sect. 1 of the Land Law Act, 1881, and that the landlord had not a right of pre-emption, but it was provided by sect. 19 of the Land Act of 1896 that the alienation to one person of a holding by way of mortgage was a sale within sect. 1, but only for the purpose of regulation 6 of that section, which enacts that where a tenancy is sold to a person other than the landlord, the latter may on reasonable grounds refuse to accept the purchaser as tenant. I rather think that the particular form of mortgage deed which was executed in this case was prepared on behalf of the Dublin banks, and came into use after the passing of that enactment on August 15th, 1896, and before the decision of the Master of the Rolls in National Bank v. Hegarty (2), in 1900. It was designed with great skill, to enable a judicial tenant to make his holding available as security for his debts, and at the same time to avoid anything in the nature of an alienation of the holding, which would bring the transaction within sect. 19.
Could the bank have succeeded in an ordinary common law or Chancery action in recovering possession of these premises from the mortgagor? Mr. Belton argues that they could not. The deed is primarily a deed of charge, and it does not of itself purport to convey any estate or interest to the bank. The powers that have been conferred upon the bank by the trust clause are conditional only, and there is no evidence before me that before these proceedings began the plaintiffs made any attempt to exercise those powers. No demand of possession was made, and no “direction” was given by the bank to the mortgagor or to the persons nominated as attorney for the mortgagor.
It seems to me impossible to distinguish this deed from that which was the subject of discussion in National Bank v.Hegarty (2), where the Master of the Rolls said:”The present deed does not convey the lands; and it cautiously and deliberately abstains from conveying the title that Hegarty had. There is a covenant to give up possession to the bank on demand, and a covenant that the bank may appoint some person to take possession for them. There are other covenants in the deed, but there is no direct dealing with the tenancy.” He points out that the bank could have a sale through the Courts or the appointment of a Receiver, and adds:”There is no case in the books in which, on mere covenant, apart from conveyance of any estate or grant of title, there has been an ejectment decree. In this case it is more like a licence to the bank to enter into possession of the lands than the conveyance to them of any estate whatever.” Deeds of a very similar character were the subject of discussion in Watson v. Waltham (3), and Ex parte Izard (4). In the latter case Mellish L.J. said:”Until demand no right to the property agreed to be assigned, with the exception of the lease that was deposited, would pass either at law or in equity. We think that it was intended that until demand the debtors should have the power of dealing with their property in any way they pleased.” The plaintiffs in this case are confronted by the further difficulty that whenever any alienation of the farm by way of mortgage is attempted, the landlords (the Irish Land Commission) have the right by virtue of sect. 19 to refuse on reasonable grounds to accept the bank as their tenants.
The plaintiffs, therefore, could not have succeeded in an action of ejectment, and (apart from the mere question of procedure) it cannot be argued that either Or. LV, r. 7, of the Rules of 1905, or Or. III, r. 1 (iv), of the rules of 1926 conferred, or could possibly confer, any powers upon them outside of, and apart from, those that they had by virtue of their contract and by statute. It would be a very curious result, indeed, if it were the law that a mortgagee could get relief by summary summons that he could not get by plenary summons. The effect of the decisions in Bank of Ireland v. Slattery (1) and Bunyan v. Bunyan (2) was that a mortgagee, by the adoption of the procedure provided by Or. LV, could obtain possession of the mortgaged lands without resorting to the troublesome and costly procedure of an action.
I am of opinion that at the time when the proceedings were instituted the plaintiffs had no right to enter into possession of these lands, and that their application must, therefore, be refused.
R. R.
The plaintiffs appealed to the Supreme Court (3), on the ground that Johnston J. was wrong in law in holding that the plaintiffs were not entitled to possession of the premises comprised in the indenture of September 5th, 1921.
KENNEDY C.J.
This is an appeal by the plaintiff bank against the judgment and order of the High Court (Johnston J.) dismissing the action with costs.
The action was commenced by a summary summons, specially indorsed with a claim for an order that possession be delivered to the plaintiff bank of three holdings of land in the County of Roscommon comprised in an indenture of charge in favour of the bank, and, if necessary, for a declaration that the lands were well charged by the indenture, and for further and other relief.
Of the three holdings, one is held from the Land Commission under a judicial tenancy, and the other two are held from the Land Commission (formerly the Congested Districts Board) under tenancies from year to year respectively.
The indenture mentioned in the claim was made on the 5th September, 1921, between Michael Feeney, the defendant, of the one part, and the Governor and Company of the Bank of Ireland of the other part. The first witnessing part was a
covenant by Feeney to pay to the bank, on demand made to him either personally or by notice in writing, the balance for the time being owing by him to the bank on all accounts (described in detail, as usual in bank mortgages), together with interest from such demand until payment at five per cent. per annum or current bank rate, as the bank should elect. In the second witnessing part the defendant, as beneficial owner, charged with the said balance and interest in favour of the bank the several holdings of land described in the indorsement on the summons, and all the estate and interest which he might afterwards acquire in the lands. The charge was followed by a proviso that, on payment of such balance and interest on demand or without demand, the bank should at any time after such payment, upon the request of the defendant, release the premises thereby charged unto the defendant, or as he should direct; and the deed contained covenants by the defendant for repair and insurance and for performance of the statutory conditions affecting the premises, and that the security should be a continuing security, and against merger of other contracts and securities in respect of the moneys due, and a proviso that the bank should have the power of sale conferred on mortgagees by the Conveyancing Act, 1881, with the modification that the money thereby secured should be deemed to have become due when such demand as aforesaid should have been made or served, and that the restrictions imposed by sect. 20 of the Conveyancing Act, 1881, should not apply, and the following clauses, to which importance was attached in argument, viz.:
1. A declaration by the defendant, the mortgagor, that “he, the mortgagor, his executors, administrators, and assigns shall henceforth stand possessed of the tenant’s interest and of every other estate and interest which may hereafter be acquired by the mortgagor in the said lands hereby charged in trust for the said Governor and Company, their successors and assigns, subject to such equity of redemption (if any) as may for the time being be subsisting by virtue of these presents, and to dispose thereof as they or he shall direct.”
2. A power of attorney in the following words:
“The mortgagor doth hereby irrevocably appoint the said Governor and Company and their successors, or Robert Jones Buckley, Philip O’Connell, and George Robert Deverell, or any of them without the others or other of them, or other, the Secretary for the time being when this power shall be exercised of the said Governor and Company, their successors or assigns, and every of them the attorney and attorneys of him, the mortgagor, in his name and on his behalf at any time to assign, release, and convey all his estate and interest now acquired, or hereafter to be acquired, in the said lands to the said Governor and Company, their successors or assigns, or as they shall think fit, and to execute and do all deeds, instruments, and acts
necessary for the purpose, and for the purpose of any exercise of the power of sale hereby authorised, or otherwise to do all things and give all notices which may be necessary or considered expedient under the Land Law (Ireland) Acts or otherwise.”
3. A power given to the bank to appoint a new trustee of the tenant’s interest and other estate of the defendant in the lands and premises in place of the defendant or his assigns, as if he or they were dead, and thereupon to make a vesting declaration vesting the lands in such new trustee.
On the 13th December, 1928, the bank served a notice in writing on the defendant, requiring him to pay to the bank the sum, £330 14s. 5d., stated to be the amount then due on the security of the deed of charge of 5th September, 1921, with interest thereon from the date of the notice until payment, at the rate therein mentioned; and, further, that in default of immediate payment of the sum mentioned and interest, the bank would proceed to sell the lands and premises comprised in the deed of charge, in pursuance and exercise of the powers thereby given.
No payment was made by the defendant pursuant to the notice, whereupon the bank instituted these proceedings.
The originating summons was served on the 12th April, 1929, and was set down for summary hearing upon an affidavit stating the facts which I have mentioned, and that the deed of charge of the 5th September, 1921, was, as appeared by a search in the Registry of Deeds, the only incumbrance affecting the premises, and that the defendant was in possession of two of the holdings, and that a grazing tenant was in occupation of the other holding. It was also stated in the affidavit that it was the intention of the bank to offer for sale all the premises comprised in the deed of charge, and that from the knowledge of the deponent (who is the agent of the bank at Mountbellew, Co. Galway) as “to the conditions which prevail in the district in which the lands are situate,” he was convinced “that to ensure a successful sale it is essential that the plaintiffs be put into possession of the premises.”
The defendant, in a replying affidavit, complained of the hardship upon him of giving immediate possession to the bank as a preliminary to sale, and said that it was not a remedy contemplated in the indenture of mortgage, but that he is willing to give up possession immediately and peacefully if a sale is effected in the usual way under the Court. An affidavit was made by an auctioneer, on behalf of the bank, stating that he had been approached by prospective purchasers of one of the holdings, who undertook to make offers, provided they were satisfied that possession would be peaceably given up by the defendant.
The action came on for hearing before Mr. Justice Johnston, who, after a two-day hearing, delivered a considered judgment,
and made an order dismissing the action with costs, from which judgment and order the present appeal is taken. Johnston J. held that the case was governed by the decision of the Master of the Rolls in National Bank v. Hegarty (1), and that, inasmuch as the bank had not a legal assignment, but a mere charge and nothing more, it was not entitled to recover possession. I am of opinion that that view is correct.
Such difficulty as has been made to appear in the case is the result of the very ingenious manner in which the appeal was introduced as though we were dealing with Or. LV, r. 7, of the Rules of the Supreme Court, 1905, under which there were several decisions in the Courts in Ireland ordering delivery of possession to mortgagees. When the fallacy of this argument has been exposed, the plaintiffs are seen to have not a leg to stand on.
The decisions in the three cases, Doran v. Hannin (2), Bank of Ireland v. Slattery (3), and Bunyan v. Bunyan (4), were decisions on procedure. They were all cases of legal mortgages by assignment in Doran v. Hannin (2) and Bunyan v. Bunyan (4),and by sub-demise in Bank of Ireland v. Slattery (3). There was no doubt in any of them but that the mortgagee would have been entitled to recover possession of the mortgaged property in an action of ejectment, and the question decided was that in a proper case, without any proceedings for sale, but not as of course, the mortgagee was also entitled by virtue of Or. LV, r. 7, of the Rules of the Supreme Court, 1905, to obtain an order for delivery of possession by an originating summons in chambers in the Chancery Division of the former High Court. Apart from the fact that these were cases of legal mortgages, they do not help us in deciding the present case, because the question of procedure does not arise. This is not an originating summons under Or. LV, r. 7, no a chamber proceeding at all. It is an action of ejectment on the title, commenced by a summary originating summons under the Rules of the High Court and Supreme Court, 1926, which would formerly have been commenced by a writ of summons. We have only to consider, therefore, whether, on the facts here, an action of ejectment lies against the defendant at the suit of the plaintiff bank. The answer does not appear to me open to doubt.
The form of the deed of 5th September, 1921, is familiar to Irish lawyers. It was, I think, devised by the late Mr. Commissioner J. H. Edge K.C., and was passed on from his book (published in 1884) to the “Irish Forms and Precedents” (published in 1910). It was deliberately and carefully framed to meet the obstacles in the way of creating mortgages of holdings held under “present tenancies,” arising from the provisions of sect. 1 of the Land Law (Ir.) Act, 1881, and, later, of sect. 19 of the Land Law (Ir.) Act, 1896. Moreover, mortgage
by sub-demise was made practically impossible by sect. 2 of the Act of 1881. This form of mortgage was, therefore, devised to create a security which would not take effect as an alienation or as a subletting within the operation of the Land Law Acts. The security was given by way of an equitable charge on the mortgagor-tenant’s interest in the holding, but care was taken that there be not assigned to the lender by the instrument any estate in the land, legal or equitable, or any specific legal interest in the tenancy or in the statutory term (where a fair rent had been fixed). It was then sought to bring the instrument, while preserving the form of a mere equitable charge, as near to the effectiveness of a legal mortgage as could be done, by importing the power of sale of the Conveyancing Act, 1881, by appointing the lender to be the borrower’s attorney to convey the holding, and by the borrower declaring himself a trustee of the holding for the lender, subject to redemption, and to dispose thereof as the lender should direct. None of these ancillary provisions, while not actually put into operation, changed the character of the security from that of an equitable charge on the holding.
Were it not for the course of the argument, it might be supposed to be unnecessary to emphasise the difference between the several kinds of mortgage securities which are commonly referred to by the expression, “equitable mortgage.” A puisne mortgage, or mortgage of an equity of redemption, created by way of assurance, which may become a legal mortgage by redemption of the prior mortgage, is described as an “equitable mortgage.” That was the type of equitable mortgage considered in Antrim County Land, Building, and Investment Co., Ltd., and Houston v. Stewart (1), where it was held that an action of ejectment on the title lay at the suit of the puisne mortgagee against the mortgagor as between them only, the prior mortgagee not seeking possession. Again, the expression,”equitable mortgage,” is used to describe a mortgage by deposit of title deeds, in which transaction there is implied a contract to execute a legal mortgage. Thirdly, we have an “equitable mortgage” which consists of a mere equitable charge without conveyance of any estate, legal or equitable, in the land charged. and without contract, express or implied, for the execution of a legal mortgage, but which can be enforced by a sale, such as was the case in National Bank v. Hegarty (2) and in the case now under appeal. That was the type of case in In re Hodson and Howes’ Contract (3), where the English Court of Appeal held that the chargeant could not convey the legal estate in the charged lands pursuant to a contract of sale made by him, though there was a covenant there by the owner of the land to execute a legal mortgage when required. Another illustration of the same type of case is (in the view there taken of the effect of the Local Registration of Title Act, 1891) Northern Banking
Co., Ltd., v. Devlin (1), where the Court of Appeal of Northern Ireland held that the plaintiff bank, owner of a registered charge on registered land, could not recover possession of the land from the registered owner. The ground of the decision was (see perAndrews L.J.) that the bank was a mere chargeant which had an equitable interest, but no estate, legal or equitable, in the land.
In the case before us no action has been taken by the bank under the power of sale, or the declaration of trust, or the power of attorney. The provisions are, so to speak, dormant for the time being. Standing on a mere equitable charge, with no estate, legal or equitable, in the land or the tenancy, the bank has brought an action of ejectment on the title against the debtor, who is legally in possession of the lands and tenancy. In my opinion, the bank’s claim to possession is ill-founded and against all authority, as I think it is also against the contractual intention shown by the frame of the deed, and, therefore, the action was properly dismissed by Johnston J.
Questions were also raised on the form of the special indorsement on the summary summons and other matters, which, having regard to my opinion on the main question, I do not think it necessary to discuss.
In my opinion, this appeal should be dismissed with costs.
FITZGIBBON J. :The Chief Justice has allowed me to read the judgment which he has just delivered, and in which I entirely concur. I have nothing to add.
Murnaghan J. :I also concur.
Byrne v. Allied Irish Banks
[1978] IR 446
McWilliam J.
I have already stated the facts of this matter in my judgment of the 1st June, 1976.
The relevant paragraphs of the letter of the 8th April, 1974, from Wm. Fry & Sons on which the claim of Allied Irish Banks Ltd. is based, are as follows:
“We now therefore undertake in consideration of your granting the company a bridging loan of £4,000 on the strength of the contract for the sale of their premises in Grafton Street to hold such documents of title to the said premises as we may have in trust for the Bank and to hand over sufficient monies out of the proceeds of the sale to redeem this bridging finance as soon as the sale is closed. It is however to be strictly understood that this firm undertakes only to hand over out of the proceeds of sale and should there be any delay in closing the sale the firm cannot be held responsible for the money until the sale has been finalised.”
Having decided that this letter was sufficient to create an equitable charge, I had this matter re-entered for argument on the question of what property was charged and, if it was the purchase money which was charged, whether it was a charge that was required to be registered under s. 99 of the Companies Act, 1963, either as a charge on land or any interest therein or as a charge on book debts of the company.
On behalf of the bank it was argued, first, that a vendor is a trustee for a purchaser after a binding contract for sale has been signed and that such vendor retains no interest in the land which can be charged; Hillingdon Estates Co. v. Stonefield Estates Ltd. 2 was cited in support of this proposition. Secondly, it was argued that the purchase price is a chose in action which can be charged, that this is what was intended to be charged and was charged in the present case, and that it was not a book debt within the meaning of the section. As to book debts, Paul & Frank Ltd. v. Discount Bank (Overseas) Ltd. 3 was cited.
On behalf of the liquidator it was argued that this was a mortgage by deposit of title deeds, that it was a charge on the vendor’s interest in the premises, that the vendor did have an interest in the premises which could be charged, and that it was not intended to charge the proceeds of sale. No argument was advanced to support the proposition that the proceeds of sale were a book debt.
Since the hearing I have been furnished with the judgment of Mr. Justice Kenny of 1st June, 1976, in Tempany v. Hynes 4 in which he discusses at length the nature of the interest retained in land by a vendor after a contract for sale has been signed, and the extent to which this can be charged so as to affect a purchaser. In the present case I am only concerned to ascertain whether the purchase price was charged. Mr. Justice Kenny’s judgment is only relevant in so far as I suggested originally (and counsel for the bank argued) that the company retained no interest in the lands after the contract for sale which could be charged.
The letter of the 8th April, 1974, dealt solely with the proceeds of sale; the title deeds were stated to be held solely to secure payment out of the proceeds of sale. Although not stated in so many words, the clear intention was to charge the proceeds of sale and no argument has been advanced to me to show that the proceeds of sale cannot be charged as such, and I can see no reason why they should not be so charged. Although the fact that the documents of title were to be held by the solicitors in trust would normally create a charge on the vendor’s interest in the lands and, very possibly, would have done so in this case had it been registered, the purchase price would only be paid on handing over the deeds so that the holding of the deeds would be equally attributable to securing the proper application of the purchase price.
I am satisfied that it was intended to charge the purchase money, that the letter was effective to do this, and that the purchase price is not a book debt within the meaning of the section. Accordingly, I will make the necessary declaration in favour of the bank.
[The purchase money had been placed on deposit account with a merchant bank pursuant to the order of 24th June, 1974. The order made pursuant to the judgment,supra, declared that the sum of £3353-62 secured by the equitable charge was well charged on the purchase money, and ordered that sum to be withdrawn and paid to the respondent bank and the balance to be withdrawn and paid to the applicant as official liquidator of the company.
Allied Irish Banks PLC -v- Heagney
[2012] IEHC 138
Kearns P,
DECISION
I may state at the outset that I accept the defendant’s proposition that the bank became mortgagees in possession following the liquidation of Balmain Ltd and that from that time onwards Mr Luby became an agent of the bank. The evidence of his continued management of the asset is open to no other interpretation.
The duties of a mortgagee m possession are set out in Fisher Lightwood’s Law of Mortgage (Butterworths, 11th ed., 2002) at p 737:
“A mortgagee in possession is not liable for waste as such. He is, however, under an equitable duty to give back the property uninjured on redemption. Thus the mortgagee must take reasonable care of the property: he will be liable to the mortgagor for negligence resulting in damage to the mortgaged property arising out of his possession of it. For example, he will be liable if mortgaged mines are flooded by improper working; if water pipes are negligently allowed to freeze; if mortgaged chattels are injured by negligent removal; or if loss is caused due to alterations injurious to the value of the property, such as the pulling down of cottages on an estate. As regards agricultural land under cultivation, a mortgagee is liable for damage caused by his own gross negligence. He will be liable if, after an order for possession has been made in his favour, he fails to take reasonable steps to protect the premises (for example, against vandals pending sale) and damage to the premises ensues…Any loss caused by deliberate injury to the property, or by the negligence of the mortgagee, will be charged on the accounts with interest, either as a capital loss or the lost rents or profits.”
In Holohan v Friends Provident and Century Life [1966] I.R. 1 O’Dalaigh C.J. at p. 18 cited with approval the passage from the judgment of Sir John Stuart in Robertson v. Norris [1 Giff. 421] where he outlined the duties as follows:-
“…this Court requires that he will exercise the power of sale in a provident way, with a due regard to the rights and interests of the mortgagor.”
O’Dalaigh C.J. also cited with approval the statement of Sir Stewart in Jenkin v. Jones [2 Giff. 99) that “the mortgagee must take all reasonable means to prevent any sacrifice of the property”
Continuing at p. 19 the Chief Justice, quoting and adopting the law as stated by Lindley L.J. in Kennedy v. De Trafford [1896] 1 Ch. 762, stated:-
“A mortgagee is not a trustee of a power of sale of the mortgagor at all; his right is to look after himself first. But he is not at liberty to look after his own interests alone, and it is not right, or proper, or legal, for him, either fraudulently, or wilfully, or recklessly, to sacrifice the property of the mortgagor: that is all.”
The relevant test was then outlined as follows by O’Dalaigh CJ at p. 21:-
“The trial judge, I am satisfied, applied too lenient a test in judging the conduct of the defendants. The question he should have asked was: Did the defendants act as a reasonable man would in selling the plaintiffs property?”
I have dwelt at considerable length on the evidence given that my findings on factual issues will determine whether or not there was any breach of the duty of care owed by either the plaintiff bank or its agent to the defendant in this case. Given that at different times Mr. Luby was both a receiver and an agent of the bank, I am treating the relevant duty as being the higher of the two insofar as they may differ. While I have not been referred to any statutory duty so stating, I am also taking it that Mr. Luby’s duty was to obtain the best price he could in the context of any sale, be it as receiver or agent of the bank.
I have come to the conclusion that there was no breach of duty by the plaintiff bank or Mr. Luby, either in his capacity as receiver or as agent of the bank. I do not accept Mr. Heagney’s contention that this hotel was in “perfect” condition in June 2009. I accept Mr. Luby’s evidence that he found evidence of damp on his walk- through of the premises the day after his appointment as receiver. Similar findings were reported from the would be purchasers who decided not to proceed further in negotiations with Mr Morrissey in late 2009. I find as a fact that these premises were in a less than good condition at the time of the commencement of Mr. Luby’s stewardship. This is hardly surprising, given that for some considerable time the premises had ceased to operate as a hotel and functioned on some sort of ad hoc basis at weekends only.
I am satisfied that following his appointment as receiver Mr. Luby carried out his duties in a responsible fashion. He secured the premises. He arranged for an inventory of contents to be prepared. He retained the services of Mr. Tony Morrissey to report on the possibility of a sale of the premises as a going concern. He explored and made preparations for rectifying the multiple problems associated with the licences in the hotel. Later, in his capacity as agent of the bank, he responded swiftly when notified of a number of trespass incidents in late 2009 and reacted similarly following the major trespass incident in December of that year with increased security measures in early 2010. Through the agency of Messrs. Morrisseys, he engaged with potential purchasers in 2009. He is not to be faulted because the state of the market combined with the reported condition of the hotel made a sale virtually impossible.
I am not satisfied that the bank failed to fund Mr. Luby adequately as has been contended by Mr. Heagney. He was provided with sufficient funds to carry out his work and has not complained that he was left short. By the time the hotel was bricked up and put “into mothballs” in 2010 a sum of €175,000 had been expended on receivership fees, security fees and repairs to the roof of the hotel. Against a backdrop where the bank were already out of pocket to the tune of €7 million, I do not believe it can seriously be suggested that they had an obligation to continue clocking up expenses under these various headings in the clear knowledge that they would never recover them, either from the defendant or in the context of any sale of the hotel premises.
Insofar as the breaking of the glass panels outside the hotel is concerned, I do feel that Mr. Heagney has a valid ground of complaint, because there was evidence to suggest that these panels could have been removed without being broken up. This was an act of waste perpetrated by the security company, but in the overall context it cannot avail Mr. Heagney in any meaningful way.
Nor can I hold that Mr. Luby was obliged to expend the sum of €125,000 in order to renew and reconfigure the licences attaching to the premises. It is clear from the evidence that a very considerable expenditure of this nature would have been necessary for the purpose of obtaining a certificate of compliance with fire regulations.
Equally I am satisfied that neither Mr. Luby or the bank were negligent in refusing to accept the offer of €1.4 million offered for the premises in May 2010. This offer was conditional on compliance with a number of conditions, including the resolution of the difficulties surrounding the alcohol licences. Having regard to the valuations so recently obtained by the plaintiff bank through the receiver, it might have been wiser to have accepted the offer given that the advice to this effect was given by both Mr. Morrissey and indeed with the view of Mr. Luby himself. However, I cannot possibly hold that the failure to sell for that figure was negligent or in breach of any duty of care in all the circumstances.
Accordingly, I am satisfied in an overall way that both the bank and the receiver did take reasonable care as regards the interests of Mr. Heagney in this case.
Quite apart from that conclusion, I also accept the submissions made by the bank to the effect that no allowance would exonerate the defendant from liability for the amount of his guarantee having regard to the amount of debt due by Balmain Ltd to Allied Irish Banks. Even were I to have held that the bank should have accepted the offer of €1.4 million for the premises made in May 2010, the debt would have remained close to €6 million after the costs associated with the receivership had been deducted.
Finally, I must also take into account that the terms of the guarantee specifically preclude any set off howsoever arising and I am compelled to accept as correct the plaintiff’s submissions to this effect.
In all the circumstances, the defendant has failed to make out the case elaborated in his defence and in circumstances where the amount covered by the guarantee is agreed, it seems to me I have no alternative but to give judgment for the plaintiff in the sum of €2.4 million.
Silven Properties Ltd. & Anor v Royal Bank of Scotland Plc & Ors
[2003] EWCA Civ 1409 (21 October 2003)
Lightman J
THE LAW
The Claimants’ submissions require an examination and comparison of the duties of mortgagees and receivers. We shall therefore first consider the relevant duties of mortgagees and then turn to the duties of receivers.
MORTGAGEES
A mortgagee has no duty at any time to exercise his powers as mortgagee to sell, to take possession or to appoint a receiver and preserve the security or its value or to realise his security. He is entitled to remain totally passive. If the mortgagee takes possession, he becomes the manager of the charged property: see Kendle v. Melsom [1998] 139 CLR 46 at 64 (High Court of Australia). He thereby assumes a duty to take reasonable care of the property secured: see Downsview Nominees Ltd v. First City Corp [1993] AC 295 (“Downsview”) at 315A per Lord Templeman; and this requires him to be active in protecting and exploiting the security, maximising the return, but without taking undue risks: see Palk v. Mortgage Services Funding Plc [1993] Ch 330 at 338A per Nicholls V-C (“Palk”).
A mortgagee “is not a trustee of the power of sale for the mortgagor”. This time-honoured expression can be traced back at least as far as Sir George Jessel MR in Nash v. Eads (1880) 25 Sol. J. 95. In default of provision to the contrary in the mortgage, the power is conferred upon the mortgagee by way of bargain by the mortgagor for his own benefit and he has an unfettered discretion to sell when he likes to achieve repayment of the debt which he is owed: see Cuckmere Brick Co v. Mutual Finance Limited [1971] Ch 949 (“Cuckmere”) at 969G. A mortgagee is at all times free to consult his own interests alone whether and when to exercise his power of sale. The most recent authoritative restatement of this principle is to be found in Raja v. Austin Gray [2002] EWCA Civ 1965 paragraph 95 per Peter Gibson LJ (“Raja”). The mortgagee’s decision is not constrained by reason of the fact that the exercise or non-exercise of the power will occasion loss or damage to the mortgagor: see China and South Sea Bank Limited v. Tan Soon Gin [1990] 1 AC 536. It does not matter that the time may be unpropitious and that by waiting a higher price could be obtained: he is not bound to postpone in the hope of obtaining a better price: see Tse Kwong Lam v. Wong Chit Sen [1983] 1 WLR 1349 at 1355B.
The Claimants contend that a mortgagee is not entitled to ignore the fact that a short delay might result in a higher price. For this purpose they rely on certain obiter dicta of Lord Denning MR in Standard Chartered Bank v. Walker [1982] 1 WLR 1410 (“Standard Chartered”) at 1415G-H and 1416A. The mortgagee in that case, having obtained insufficient on the sale at auction of the property charged to recover the sum secured, applied for summary judgment against the mortgagor for that sum. The mortgagor resisted the application alleging that the mortgagee had sold at an undervalue on a variety of grounds one of which was that the sale took place at the wrong time of year. The Court of Appeal gave the mortgagor leave to defend on the ground that there was an arguable case that the sale had been negligently handled. It was common ground in that case that a mortgagee can choose his own time for sale: see Fox LJ at p.1418 F-G. Lord Denning accepted that there were dicta to this effect, but added that he did not think that this meant that the mortgagee could sell at the worst possible moment and that it was at least arguable that in choosing the time he must exercise a reasonable degree of care. The view expressed by Lord Denning cannot stand with the later authorities to which we have referred and which state quite categorically that the mortgagee is under no such duty of care to the mortgagor in respect of the timing of a sale and can act in his own interests in deciding whether and when he should exercise his power of sale.
The mortgagee is entitled to sell the mortgaged property as it is. He is under no obligation to improve it or increase its value. There is no obligation to take any such pre-marketing steps to increase the value of the property as is suggested by the Claimants. The Claimants submitted that this principle could not stand with the decision of the Privy Council in McHugh v. Union Bank of Canada [1913] AC 299. Lord Moulton in that case (at p.312) held that, if a mortgagee does proceed with a sale of property which is unsaleable as it stands, a duty of care may be imposed on him when taking the necessary steps to render the mortgaged property saleable. The mortgage in that case was of horses, which the mortgagee needed to drive to market if he was to sell them. The mortgagee was held to owe to the mortgagor a duty to take proper care of them whilst driving them to market. The duty imposed on the mortgagee was to take care to preserve, not increase, the value of the security. The decision accordingly affords no support for the Claimants’ case
The mortgagee is free (in his own interest as well as that of the mortgagor) to investigate whether and how he can “unlock” the potential for an increase in value of the property mortgaged (e.g. by an application for planning permission or the grant of a lease) and indeed (going further) he can proceed with such an application or grant. But he is likewise free at any time to halt his efforts and proceed instead immediately with a sale. By commencing on this path the mortgagee does not in any way preclude himself from calling a halt at will: he does not assume any such obligation of care to the mortgagor in respect of its continuance as the Claimants contend. If however the mortgagee is to seek to charge to the mortgagor the costs of the exercise which he has undertaken of obtaining planning permission or a lessee, subject to any applicable terms of the mortgage, the mortgagee may only be entitled to do so if he acted reasonably in incurring those costs and fairly balanced the costs of the exercise against the potential benefits taking fully into account the possibility that he might at any moment “pull the plug” on these efforts and the consequences for the mortgagor if he did so.
If the mortgagor requires protection in any of these respects, whether by imposing further duties on the mortgagee or limitations on his rights and powers, he must insist upon them when the bargain is made and upon the inclusion of protective provisions in the mortgage. In the absence of such protective provisions, the mortgagee is entitled to rest on the terms of the mortgage and (save where statute otherwise requires) the court must give effect to them. The one method available to the mortgagor to prevent the mortgagee exercising the rights conferred upon him by the mortgagee is to redeem the mortgage. If he redeems, there can be no need or justification for recourse by the mortgagee to the power of sale to achieve repayment of the debt due to him secured by the mortgage.
When and if the mortgagee does exercise the power of sale, he comes under a duty in equity (and not tort) to the mortgagor (and all others interested in the equity of redemption) to take reasonable precautions to obtain “the fair” or “the true market” value of or the ” proper price” for the mortgaged property at the date of the sale, and not (as the Claimants submitted) the date of the decision to sell. If the period of time between the dates of the decision to sell and of the sale is short, there may be no difference in value between the two dates and indeed in many (if not most cases) this may be readily assumed. But where there is a period of delay, the difference in date could prove significant. The mortgagee is not entitled to act in a way which unfairly prejudices the mortgagor by selling hastily at a knock-down price sufficient to pay off his debt: Palk at 337-8 per Nicholls V-C. He must take proper care whether by fairly and properly exposing the property to the market or otherwise to obtain the best price reasonably obtainable at the date of sale. The remedy for breach of this equitable duty is not common law damages, but an order that the mortgagee account to the mortgagor and all others interested in the equity of redemption, not just for what he actually received, but for what he should have received: see Standard Chartered at 1416B.
In our judgment there can accordingly be no duty on the part of a mortgagee, as suggested by the Claimants, to postpone exercising the power of sale until after the further pursuit (let alone the outcome) of an application for planning permission or the grant of a lease of the mortgaged property, though the outcome of the application and the effect of the grant of the lease may be to increase the market value of the mortgaged property and price obtained on sale. A mortgagee is entitled to sell the property in the condition in which it stands without investing money or time in increasing its likely sale value. He is entitled to discontinue efforts already undertaken to increase their likely sale value in favour of such a sale. A mortgagee is under a duty to take reasonable care to obtain a sale price which reflects the added value available on the grant of planning permission and the grant of a lease of a vacant property and (as a means of achieving this end) to ensure that the potential is brought to the notice of prospective purchasers and accordingly taken into account in their offers: see Cuckmere. But that is the limit of his duty.
RECEIVERS
We turn to the question of the duties regarding mortgaged properties of receivers and in particular of receivers who under the term of the mortgage under which they are appointed are designated as agents of the mortgagor.
There is binding authority for the proposition that (again in default of agreement to the contrary) in the exercise of the power of sale receivers owe the same equitable duty to the mortgagor and others interested in the equity of redemption as is owed by the mortgagee: they are both obliged to take care to obtain the best price reasonably obtainable: see e.g. Cuckmere; Downsview; Yorkshire Bank plc v. Hall [1999] 1 WLR 1713 at 1728E-F; Medforth v. Blake [2000] Ch 86 at 98H-99A (“Medforth”); and Raja at paragraph 55. The critical issue however is whether the receiver (unlike the mortgagee) is under a duty of care in regard to the date of sale and to ensure that steps are taken (in particular in respect of planning and the grant of leases) to realise the full potential of the secured property before sale by obtaining permission or granting the leases.
In a number of respects it is clear that a receiver is in a very different position from a mortgagee. Whilst a mortgagee has no duty at any time to exercise his powers to enforce his security, a receiver has no right to remain passive if that course would be damaging to the interests of the mortgagor or mortgagee. In the absence of a provision to the contrary in the mortgage or his appointment, the receiver must be active in the protection and preservation of the charged property over which he is appointed: see Lightman & Moss, Law of Receivers and Administrators 3rd ed para 7.030. Thus if the mortgaged property is let, the receiver is duty bound to inspect the lease and, if the lease contains an upwards only rent review, to trigger that rent review in due time: see Knight v. Lawrence [1991] BCC 411. His management duties will ordinarily impose on him no general duty to exercise the power of sale: see Routestone Ltd v. Minories Finance Ltd [1997] BCC 180 at 187G. But a duty may arise if e.g. the goods are perishable and a failure to do so would cause loss to the mortgagee and mortgagor.
The critical issue raised is whether (as contended by the Claimants) the wider management duties imposed on a receiver (but not on a mortgagee) may require a receiver (and in particular a receiver appointed the agent of the mortgagor) to postpone a sale until after steps have been taken (in this case proceeding with an application for planning permission and with the grant of a lease) calculated to increase the price obtainable in a sum greater than the cost of taking those steps plus the sum representing accrued interest over the period whilst those steps are being taken.
The existence and scope of the duties of an agent, fiduciary and otherwise, depend on the terms on which they are acting: see Kelly v. Cooper [1993] AC 205 at 214. In the case of an agent appointed to manage his principal’s property on his behalf alone, general agency principles will apply. The agent will be obliged to pursue single-mindedly the interests of his principal and he will owe the duties to his principal for which the Claimants contend. This is reflected in the passage in the judgment of Millett J in the case of Re Charnley v. Davies Ltd (No 2) [1990] BCLC 760 cited by Patten J. The administrator as agent for the company owes a duty of care to the company in the choice of the time to sell and (by parity of reasoning) in the decision whether to take the appropriate available advantageous pre-marketing steps which are calculated to achieve the best price. The issue raised is whether receivers who are appointed by a mortgagee to act as agents of the mortgagor are in a like legal position and owe a like duty to the mortgagor.
The character and incidents of such receivers’ agency has been the subject of judicial and extra-judicial consideration. Mr Peter Millett QC (as he then was) in “The Conveyancing Powers of Receivers After Liquidation” (1977) 41 Conv. (NS) 83 at 88 wrote: “The so called ‘agency of the [receivers]’ is not a true agency, but merely a formula for making the company rather than the [mortgagee] liable for his acts”. But this agency of the receivers is a real one, even though it has some peculiar incidents: see Re Offshore Ventilation (1989) 5 BCC 160 at 166A-B. Its reality is reflected in the continuity after the appointment of receivers of the rateable occupation of the mortgagor through the agency of the receivers (see Ratford v. Northavon RDC [1987] QB 357) and in the absence of personal liability of the receivers for tax in respect of receipts which come to the hands of the receivers as agents: see In re Piacentini [2003] 3 WLR 354.
The peculiar incidents of the agency are significant. In particular: (1) the agency is one where the principal, the mortgagor, has no say in the appointment or identity of the receiver and is not entitled to give any instructions to the receiver or to dismiss the receiver. In the words of Rigby LJ in Gaskell v. Gosling [1896] 1 QB 669 at 692: “For valuable consideration he has committed the management of his property to an attorney whose appointment he cannot interfere with”; (2) there is no contractual relationship or duty owed in tort by the receiver to the mortgagor: the relationship and duties owed by the receiver are equitable only: see Medforth and Raja; (3) the equitable duty is owed to the mortgagee as well as the mortgagor. The relationship created by the mortgage is tripartite involving the mortgagor, the mortgagee and the receiver; (4) the duty owed by the receiver (like the duty owed by a mortgagee) to the mortgagor is not owed to him individually but to him as one of the persons interested in the equity of redemption. The class character of the right is reflected in the class character of the relief to be granted in case of a breach of this duty. That relief is an order that the receiver account to the persons interested in the equity of redemption for what he would have held as receiver but for his default; (5) not merely does the receiver owe a duty of care to the mortgagee as well as the mortgagor, but his primary duty in exercising his powers of management is to try and bring about a situation in which the secured debt is repaid: see Medforth at p86; and (6) the receiver is not managing the mortgagor’s property for the benefit of the mortgagor, but the security, the property of the mortgagee, for the benefit of the mortgagee: see Re B Johnson & Co (Builders) Ltd [1953] Ch 634 per Jenkins LJ at 661 cited with approval by Lord Templeman in Downsview at 331B and at p646 per Evershed MR cited with approval by Scott V-C in Medforth at p95H to 96A. His powers of management are really ancillary to that duty: Gomba Holdings v. Homan [1986] 1 WLR 1301 at 1305 per Hoffmann J.
In the context of a relationship such at the present, which is no ordinary agency and is primarily a device to protect the mortgagee, general agency principles are of limited assistance in identifying the duties owed by the receiver to the mortgagor: see Gomba Holdings v. Homan [1986] 1 WLR 1301 at 1305 B-D (Hoffmann J); [1988] 1 WLR 1231 at 1233 D-H (Fox LJ). The core duty of the receiver to account to the mortgagor subsists, but (for example) the mortgagor has no unrestricted right of access to receivership documents. The mortgage confers upon the mortgagee a direct and indirect means of securing a sale in order to achieve repayment of his secured debt. The mortgagee can sell as mortgagee and the mortgagee can appoint a receiver who likewise can sell in the name of the mortgagor. Having regard to the fact that the receiver’s primary duty is to bring about a situation where the secured debt is repaid, as a matter of principle the receiver must be entitled (like the mortgagee) to sell the property in the condition in which it is in the same way as the mortgagee can and in particular without awaiting or effecting any increase in value or improvement in the property. This accords with the repeated statements in the authorities that the duties in respect of the exercise of the power of sale by mortgagees and receivers are the same and with the holding in a series of decisions at first instance that receivers are not obliged before sale to spend money on repairs (see Meftah v. Lloyds TSB Bank [2001] 2 All ER (Comm) 741 at 744 and 766 per Lawrence Collins J), to make the property more attractive before marketing it (Garland v. Ralph Pay & Ransom [1984] 2 EGLR 147 at 151 per Nicholls J) or to “work” an estate by refurbishing it (Routestone Ltd v. Minories Finance Ltd [1997] 1 EGLR 123 at 130D per Jacob J).
In summary, by accepting office as receivers of the Claimants’ properties the Receivers assumed a fiduciary duty of care to the Bank, the Claimants and all (if any) others interested in the equity of redemption. This accords with the statement of principle to this effect of Lord Browne-Wilkinson in Henderson v. Merrett Syndicates Limited [1995] 2 AC 145 at 205 E-H relied on by the Claimants. The appointment of the Receivers as agents of the Claimants having regard to the special character of the agency does not affect the scope or the content of the fiduciary duty. The scope or content of the duty must depend on and reflect the special nature of the relationship between the Bank, the Claimants and the Receivers arising under the terms of the mortgages and the appointments of the Receivers, and in particular the role of the Receivers in securing repayment of the secured debt and the primacy of their obligations in this regard to the Bank. These circumstances preclude the assumption by, or imposition on, the Receivers of the obligation to take the pre-marketing steps for which the Claimants contend in this action. Further no such obligation could arise in their case (any more than in the case of the Bank) from the steps which they took to investigate and (for a period) to proceed with applications for planning permission. The Receivers were at all times free (as was the Bank) to halt those steps and exercise their right to proceed with an immediate sale of the mortgaged properties as they were.
CONCLUSION
For these reasons this appeal should be dismissed.
Irish Permanent Building Society v. Ryan.
[1950] IR 21
GAVAN DUFFY P. :
Mortgagees have seldom sought possession under Order LV, r. 7, and the Court has been slow to make an order. Nevertheless, I am of opinion that applications such as the present should be encouraged, rather than discouraged, in suitable
cases, in view of the great saving in costs so far as the defendant is concerned. Having regard to the position of the defendant, I think this is a suitable case.
The defendant executed an indenture of mortgage which contained a special clause, carefully drafted, enabling the mortgagees to enter into possession of the mortgaged premises if the mortgagor should be in default for the space of three calendar months in the payment of some instalment of principal and interest due under the mortgage deed. In the present case the defendant has been in default for the space of twelve months in the payment of the instalments and, in fact, has never paid any of the instalments due under the mortgage deed and has no prospect of paying any. There is evidence that no one but the defendant and the members of his family are in possession of the mortgaged premises and that there is no incumbrance, other than the present mortgage, affecting the premises. By letter, dated the 5th May, 1949, the plaintiffs called upon the defendant to deliver up possession of the premises because of his default in the payment of these instalments, and no satisfactory reply to this demand was received by the plaintiffs. In the affidavit made by the secretary of the plaintiff society, it is deposed that it would be difficult to effect a sale of the premises if the defendant remained in possession and that the value of the premises would be greatly enhanced by a sale with vacant possession. I am satisfied that a sale with the defendant in possession is likely to be far less satisfactory than a sale with vacant possession. I, therefore, propose making an order for the delivery of possession to the plaintiffs of the premises. I will allow a stay of execution for a period of three calendar months from this date.
Horsham Properties Group Ltd v Clark & Anor
[2008] EWHC 2327 (Ch) [2009] 1 WLR 1255, [2008] EWHC 2327 (Ch)
Miss Williams usefully identified four issues or, as she put it, hurdles for her client to surmount. They are as follows:
i) Did the sale of the Property by the receivers deprive Miss Beech of one of her possessions in such a way as to engage A1FP?
ii) If so, can the conditions imposed for a lawful deprivation of possessions by A1FP be satisfied otherwise than by subjecting the mortgagee’s power of sale in section 101 to a prior application to the court for permission, at which the court is vested with a discretion to adjourn or stay broadly equivalent to that conferred in possession cases by section 36;
iii) if not, is it possible for section 101 to be read and/or given effect in such a way as to require the mortgagee to make such an application before selling the mortgaged property;
iv) if not, should there be a declaration of incompatibility.
Without much enthusiasm Miss Williams advanced an alternative case that compatibility with A1FP might be achieved if section 36 was construed so as to impose upon any purchaser from a mortgagee an obligation to seek a court order for possession, and to confer upon the court in such circumstances the same discretion as it plainly has on an application for possession by the mortgagee itself.
Before addressing those issues in turn, it is necessary in my judgment to address with some precision the nature of Miss Beech’s rights in relation to the Property following the grant of the Mortgage by her and Mr Clark to GMAC. A useful general description of the consequences of the grant of a legal mortgage since 1925 is set out in the following passage in the judgment of Chadwick LJ in Ropaigealach (supra) at page 271g to 272b:
“The genesis of section 36 of the Administration of Justice Act 1970 is not in dispute. Since 1925 a mortgage of freehold land has taken effect as a demise for a term of years absolute, subject to proviso for redemption – see section 85 of the Law of Property Act 1925. A charge by deed expressed to be by way of legal mortgage takes effect as if a mortgage term of 3,000 years had been created in favour of the mortgagee – see section 87(1) of that Act and, where the land is registered land, section 27(1) of the Land Registration Act 1925. The effect, as a matter of legal analysis, is that the mortgagor demises his immediate estate to the mortgagee; who thereupon becomes entitled to possession by virtue of the estate which he has acquired. The position is described in Halsbury’s Laws of England, 4th ed., vol 32 (1980), p. 308, para. 672:
“Where a legal [mortgage] has been created, whether by demise or by legal charge, and no provision is made for retention of possession by the mortgagor, the mortgagee is entitled to immediate possession or receipt of the rents and profits at any time after the execution of the mortgage, and equity does not interfere, notwithstanding that there has been no default on the mortgagor’s part …”
See, also, the comparable passage in Fisher and Lightwood’s Law of Mortgage, 10th ed. (1988), p. 331, and the observations of Harman J. in Four-Maids Ltd v. DudleyMarshall (Properties) Ltd. [1957] Ch 317, 321-322, and of Russell J. in Birmingham Citizens Permanent Building Society v. Caunt [1962] Ch 883, 887.”
That description was necessarily focussed upon the mortgagee’s immediate right of possession, because of the issues raised in that case. The position in relation to sale is different. The deemed demise does not of itself confer upon the mortgagee an immediate power to sell the mortgaged property free from the mortgagor’s rights, otherwise than with the mortgagor’s concurrence. Nonetheless, from the early 19th century it became common for the parties to legal mortgages to insert an express power of sale, until it was rendered unnecessary to do so by the creation of a statutory power of sale in Lord Cranworth’s Act 1860, repeated in section 19(1) of the Conveyancing Act 1881 and now to be found in section 101(1)(i) of the Law of Property Act 1925. The exercise of that power overreaches any interest of the mortgagor: see section 2(1)(iii) of the LPA. I shall refer to it as the statutory power of sale. It becomes exercisable only when the mortgage money has become due, subject (like everything else in section 101) to any contrary intention in the mortgage deed: see section 101(4)).
Although an important purpose of section 101 and its statutory predecessors was to streamline conveyancing by removing the need for typical mortgagee’s powers to be spelt out in every mortgage, it is still common for modern legal mortgages to contain express powers overlapping with those to be found in section 101, and the Mortgage in the present case is no exception. Clause 11 of the Mortgage Conditions (to which the Mortgage was expressly made subject) provides that:
“For the purposes of the Law of Property Act 1925, the mortgage debt will be treated as due one month after the mortgage has been completed.”
Clause 11.2 sets out a series of events of default giving rise to an immediate obligation on the borrower to repay the mortgage debt immediately. Those events include:
i) If the borrower fails to make one monthly payment or more when it is due;
ii) If the borrower fails to pay any other part of the mortgage debt within one month of it becoming due.
By clause 11.5:
“Once any of the events specified in Condition 11.2 has occurred, the Company may do any of the following things:
(a) require the borrower to leave the property so that the Company may take possession of the property or, if the property is let, collect the rent;
(b) sell the property using the power of sale conferred by the Law of Property Act 1925…. Section 103 of the Law of Property Act 1925 imposes certain restrictions on the power of sale of a mortgagee (the Company in this case), but these restrictions do not apply to the mortgage;
(c) Appoint a receiver of the property….
(d) Exercise all the other powers conferred on mortgagees by the Law of Property Act 1925.”
Clause 12 headed “Appointment of Receivers” gave GMAC the power to appoint receivers:
“at any time after the company shall have demanded payment of any of the mortgage debt or after any breach by the borrower(s) of any of the provisions of the mortgage”.
The receivers were to be the agents of the borrower and by sub-clause (f) were given an express power of sale in relation to the Property. By sub-clause (o), the receivers were given power:
“To exercise all powers which the company has by statute or under this mortgage.”
By the express terms of the Mortgage therefore, Miss Beech’s rights in relation to the Property were all made subject to being overridden by a sale of the Property by GMAC or by receivers appointed by GMAC at any time after a default in paying sums due under the Mortgage. Furthermore, her enjoyment of occupation of the Property was expressed to be subject to a contractual obligation to vacate on demand after any default (including failure to make payments when due). Accordingly, her enjoyment of occupation of the Property as her home was at all times after the grant of the Mortgage expressly subject as a matter of contract to her compliance with the terms of the Mortgage. In that respect she may be said to have enjoyed a greater right of occupation of the Property than that inherent in the status of a legal mortgagor (as set out in Ropaigealach) since the terms of the Mortgage Deed in substance afforded to her a right of occupation pending default.
No description of Miss Beech’s rights as mortgagor would be complete without mention of the mortgagor’s inherent right to redeem, that is, to recover full legal and beneficial ownership of the mortgaged property, and a discharge of the mortgage, on payment of all that is due to the mortgagee. Leaving aside the technical differences between legal and equitable rights to redeem (which do not matter for present purposes) I shall refer to it as the mortgagor’s equity of redemption. It constitutes an interest in the mortgaged property and, in terms of value, is the principal element of that which the mortgagor retains after the grant of the mortgage. Thus when a house owner describes herself as having an equity of £300,000 in a property worth £500,000 mortgaged to secure a debt of £200,000, it is strictly the equity of redemption to which the owner refers. While it is true that the mortgagor of registered land remains the registered proprietor during the subsistence of the mortgage, it is wrong in substance to describe the rights of such a mortgagor as tantamount to freehold ownership. For example, the equity of redemption is overridden once the mortgagee contracts to sell the mortgaged property in exercise of the statutory power of sale, or when a receiver, duly appointed under the mortgage contracts to sell the mortgaged property, whether on behalf of the mortgagor or mortgagee, pursuant to powers given by the mortgage itself. In the present case Miss Beech’s share in the equity of redemption was lost when the receivers contracted to sell to Coastal pursuant to their powers contained in the Mortgage, rather than when, as agents for GMAC, they later transferred the Property to Coastal on completion.
Turning directly to issue one, A1FP in its English translation is as follows:
“Every natural or legal person is entitled to the peaceful enjoyment of his possessions. No one shall be deprived of his possessions except in the public interest and subject to the conditions provided for by law and by the general principles of international law.
The preceding provisions shall not, however, in any way impair the right of a State to enforce such laws as it deems necessary to control the use of property in accordance with the general interest or to secure the payment of taxes or other contributions or penalties.”
Miss Williams submitted that Miss Beech’s loss of her rights as co-owner of the Property or, as I would prefer to put it, her share in the equity of redemption, amounted to being deprived of a possession of hers within the meaning of the second sentence of the first paragraph of A1FP. She acknowledged, in the light of relevant authority, that it was incumbent upon Miss Beech to show first that the rights that she lost fell within the meaning of “possessions” and secondly that she lost them by virtue of some form of State intervention, rather than purely as the result of the terms of her private bargain with GMAC.
I have no difficulty in concluding that Miss Beech’s share in the equity of redemption in relation to the Property was a “possession”, a widely defined expression which may include purely statutory rights in relation to property, such as the result to renew a business tenancy under Part II of the Landlord and Tenant Act 1954: see Pennycook v. Shaws (EAL) Ltd [2004] Ch 296 at 310-311 per Arden LJ at paragraph 35. It is the second of those requirements which constituted the issue most keenly debated before me.
It is well settled that the necessary State intervention may lie in legislation, rather than in the taking of steps by a government body. Thus in Wilson v. First County Trust Ltd (No 2) [2004] 1 AC 816, A1FP was engaged by provisions in the Consumer Credit Act 1974, which rendered unenforceable a private bargain pursuant to which Miss Wilson pawned her car in connection with a borrowing of £5,000 from a pawnbroker. That was a case in which the sum total of the relevant State intervention was the enactment of the Consumer Credit Act itself, in connection with a dispute which, like the present, otherwise only involved private parties. As Lord Nicholls put it on page 837 at paragraph 44:
“The lender’s rights were extinguished in favour of the borrower by legislation for which the state is responsible. This was a deprivation of possessions within the meaning of article 1….”
Earlier, at paragraph 41, he said:
“Clearly, the expiry of a limited interest such as a licence in accordance with its terms does not engage article 1. That is not this case. Here the transaction between the parties provided for repayment of the loan and for the car to be held as security. What is in issue is the “lawfulness” of overriding legislation.”
Miss Williams submitted that the application of that analysis to the present case engaged A1FP because Miss Beech’s rights in relation to the Property had been taken away by the exercise of GMAC’s statutory power of sale, conferred not by private contract, but by section 101. She relied in particular upon section 101(3), which provides:
“The provisions of this Act relating to the foregoing powers, comprised either in this section, or in any other section regulating the exercise of those powers, may be varied or extended by the mortgage deed, and, as so varied or extended, shall, as far as may be, operate in the like manner and with all the like incidents, effects, and consequences, as if such variation or extensions were contained in this Act.”
It mattered not, she therefore submitted, that GMAC’s power of sale was referred to in the mortgage deed, or that GMAC enjoyed a contractual power of sale in different terms from the statutory power of sale. All such contractual powers were deemed by section 101(3) to be contained in the Act, and therefore to be statutory powers for the purposes of analysis of the State intervention question. In the same context, she relied upon section 104(3) of the LPA which provides that:
“A conveyance on sale by a mortgagee, made after the commencement of this Act, shall be deemed to have been made in exercise of the power of sale conferred by this Act unless a contrary intention appears.”
Miss Williams submitted that, regardless whether the sale of the Property might be capable of being analysed as a sale pursuant to GMAC’s contractual rights in the Mortgage, section 104(3) required it to be analysed as a sale pursuant to statutory power in the absence of any contrary intention.
Recognising that her opponents might argue that the speeches of Lords Hope, Scott and Hobhouse in Wilson v. First County Trust Ltd (supra), meant that there could be no deprivation under A1FP if the overriding legislation governed the relationship creating the contractual rights as from the outset, Miss Williams took me to Pennycook v. Shaws (supra) to demonstrate that this was not inevitably an answer to an alleged case of deprivation of possessions under A1FP. That was a case in which a tenant of business premises lost the right to renew the tenancy by serving notice within the allowed two month period, by notifying the landlord before the expiry of the two month period that the tenant would be willing to give up possession of the property (called a “positive counter-notice”). The Court of Appeal held that the statutory effect of a positive counter-notice, in barring the exercise of the right to renew thereafter if the tenant had a change of mind, was a relevant deprivation of possessions within A1FP, albeit that, on the merits, it was justified in the public interest so as to afford certainty to the landlord.
At paragraph 35 (on page 310) Arden LJ said this:
“… the court must look at the substance of the claimed rights to see whether the bar in this case to the exercise of the tenant’s rights is a delimitation of the right or whether it represents a deprivation of right. A relevant circumstance is that the bar is rigid, arbitrary or discriminatory.”
In this respect Arden LJ followed the observations of Lord Nicholls, who at paragraph 44 of Wilson v. First County Trust Ltd described the relevant provisions of the Consumer Credit Act as:
“… more readily and appropriately characterised as a statutory deprivation of the lender’s rights of property in the broadest sense of that expression than as a mere delimitation of the extent of the rights granted by a transaction. The rigid ban on enforcement of security and contractual rights prescribed by section 127(3) alone and in conjunction with sections 106 and 113 engages article 1 of the First Protocol.”
Later at paragraph 38 in Pennycook v. Shaws, Arden LJ said this:
“Returning to the statutory scheme in the present case, I consider that the correct analysis is that the tenant had a right to apply to the court for a continuation of a tenancy if he served the requisite notice at any time within the period of two months from service of the landlord’s notice: section 25(5). The bar that arises if he first served a positive counter-notice is not apparent on the face of section 25(5) or section 29(2). In those circumstances I consider that it is more accurately analysed as a deprivation of a right rather than a delineation of a right.”
Attractively though Miss Williams’ submissions were presented, I have not been persuaded by them. In my judgment the correct analysis is as follows.
First, Miss Beech lost her equity of redemption in the Property by virtue of the contract for sale which ensued from the receivers’ placing of the Property in the auction. In this respect, they enjoyed no statutory power to sell the Property free from the mortgage. Although section 101(1)(iii) confers on a mortgagee a statutory power to appoint receivers, such receivers are given no statutory power of sale.
The result is that Miss Beech lost her equity of redemption by virtue of the exercise of powers conferred purely by contract. By the time the receivers transferred the Property to Coastal on completion as agents for GMAC, which may well have been, or been deemed to be, the exercise of a statutory power, Miss Beech had already lost her equity of redemption. It follows that, on a strict analysis of the particular facts of the present case, Miss Beech lost her equity of redemption without any State intervention at all.
I do not however rest my conclusion upon that narrow ground, not least because it would leave open at least the possibility that on only slightly different facts, such as for example a contract for sale by the receivers expressly as agents for GMAC under its statutory powers, a different result might have ensued. That the outcome of this important question should turn on such technicalities is both unattractive and in my judgment unrealistic. Even if GMAC had sold (both by way of contract and on completion) purely in exercise of its statutory powers, I consider that there would still have been no relevant deprivation of possessions within the meaning of A1FP.
My primary reason for that conclusion is that section 101 serves to implement rather than override the private bargain between mortgagor and mortgagee. As I have described, its history, going back to 1860, is that it supplies a convenient power of sale out of court to mortgagees in substitution for the parties having (as they routinely did before 1860) to spell out such a power in every legal mortgage. It is in substance a form of conveyancing shorthand designed to implement the ordinary expectations of mortgagors and mortgagees while reducing the costs and delays of conveyancing. Far from overriding the parties’ private bargain, as in the case of the Consumer Credit Act reviewed in Wilson v. First County Trust Ltd, it implements and gives effect to it. It is in that respect nothing to the point that the modern facilities of photocopiers and word processors enable the parties to modern mortgages to spell out private powers which overlap or replace the convenient statutory powers in section 101.
Furthermore, all the statutory powers in section 101 are expressed to be subject to contrary intention. Section 101(4) provides that:
“This section applies only if and as far as a contrary intention is not expressed in the mortgage deed, and has effect subject to the terms of the mortgage deed and to the provisions therein contained.”
That sub-section on its own demonstrates that section 101 serves rather than overrides the parties’ bargain. It is in my judgment as far removed from the concept of State intervention into private rights through overriding legislation, which lies behind A1FP, as it is possible for legislation to get. It is neither rigid, arbitrary or discriminatory, and its effect is not only apparent on the face of section 101, but (in the present case) spelt out in terms in the Mortgage itself. It therefore has none of the characteristics which led to the Court of Appeal in Pennycook v. Shaws, or for that matter Lord Nicholls (albeit without the support of his brethren) in Wilson v. First County Trust, to characterise the relevant statutory provisions as giving rise to a deprivation of possessions within the meaning of A1FP.
Furthermore, the case that section 101 engages A1FP gains nothing from the undoubted fact that the exercise by a mortgagee of a power of sale under section 101, without first obtaining possession, will probably be a necessary and sufficient preliminary to the easy obtaining of possession by the purchaser, who will after the sale properly be able to characterise the mortgagor, if still in possession, as a trespasser. As was pointed out in Ropaigealach (supra) the continued occupation of mortgaged property by the mortgagor once the ink is dry on the mortgage is, subject to statutory intervention or contractual restraint, at the mercy of the mortgagee, who has an immediate right to possession by virtue of his estate in the property. In the present case, as is typical with most modern residential mortgages, the mortgagor’s right of occupation is better than that, because the taking of possession by the mortgagee is usually expressed contractually to be dependent upon the mortgagor’s prior default.
That analysis, fully applicable to the present case as I have described above, shows that by contrast with the facts of Pennycook v. Shaws, the liability of the mortgagor to lose possession upon default is fully spelt out in the same mortgage conditions as give rise to that enhanced right of continued possession in the first place. Continued possession is, by the terms of the Mortgage Conditions, conferred only upon the mortgagors for as long as they abide by the terms of the Mortgage. Thereafter they are contractually obliged to give up possession on demand.
There is, finally, nothing in my judgment in Miss Williams’ point that section 101(3) requires privately created powers of sale to be treated as if contained in the Act. That piece of unusual statutory ingenuity was no doubt designed to ensure that the provisions in section 104 designed to protect the title of purchasers from mortgagees could not be circumvented by nit-picking arguments that a particular sale was achieved by the exercise by a contractual rather than a statutory power. It does not however begin to detract from the substance of the statutory power as the servant rather than the overriding master of the parties’ bargain.
It follows in my judgment that Miss Beech’s case under A1FP falls at the first of Miss Williams’ hurdles. The exercise of a statutory power of sale under section 101 after a relevant default by the mortgagor is not a deprivation of possessions within the meaning of A1FP and, a fortiori, the exercise by receivers appointed and acting under purely contractual powers in overriding Miss Beech’s equity of redemption by contracting to sell the Property cannot be either.
I leave for another occasion the more difficult question whether a sale in breach of the terms of a mortgage (for example in the absence of any default by the mortgagor), relied upon by the purchaser under section 104(2)(a) might engage A1FP. In such a case the sale would overreach the mortgagor’s equity of redemption without any justification, as between the parties to the mortgage, and leave the mortgagor to a remedy in damages against the mortgagee. If the need for the purchaser to rely upon section 104 engaged A1FP, then the question might arise whether it was justified by the public interest in affording certainty of title in real property transactions. In the present case, by contrast, it is common ground that Miss Beech was in default, so that, as between her and GMAC, the latter was entitled to sell, and the claimant therefore has no need to rely upon section 104.
That is, on Miss Williams’ eminently sensible concessions, sufficient to determine the case against Miss Beech. Nonetheless, for completeness, and because a higher court might take a different view as to the interpretation of A1FP on the meaning of deprivation of possessions, I shall briefly state what my conclusions would have been on the remaining issues, had Miss Beech surmounted the first hurdle of demonstrating that A1FP was engaged.
The second question is whether any supposed deprivation of possessions constituted by a mortgagee’s sale out of court without first obtaining a court order for possession is justified in the public interest. In this respect Miss Williams relied with some force upon the way in which in practice such a sale circumvents the court’s discretion to relieve the mortgagor from having to give up possession of a dwelling house under section 36 of the Administration of Justice Act 1970. She submitted that the court’s discretion under section 36 was typically responsive (albeit before the event) to the requirement imposed by A1FP for a proportionate balance to be struck as between private property and public interest, as indeed Hart J. observed in Barclays Bank plc v. Alcorn (unrep) [2002] EWHC 498 (Ch), where he said:
” It seems to me however, that her general submission on the effect of the Human Rights Act in relationship to a mortgagee’s action for possession is correct, namely, that the matter is regulated by s.36 of the Administration of Justice Act 1970 in a way which draws a balance which Parliament was entitled to draw between the interests of occupants of dwelling houses and the interests of mortgagees, and does so in a manner which is proportionate and reasonable, and allows the court, in the exercise of its discretion, to apply criteria of reasonableness and proportionality in either granting or denying the mortgagee its remedy.”
In my judgment, any deprivation of possession constituted by the exercise by a mortgagee of its powers under section 101 of the Law of Property Act after a relevant default by the mortgagor is justified in the public interest, and requires no case-by-case exercise of a proportionality discretion by the court, for the following reasons. First, it reflects the bargain habitually drawn between mortgagors and mortgagees for nearly 200 years, in which the ability of a mortgagee to sell the property offered as a security without having to go to court has been identified as a central and essential aspect of the security necessarily to be provided if substantial property based secured lending is to be available at affordable rates of interest. That it is in the public interest that property buyers and owners should be able to obtain lending for that purpose can hardly be open to doubt, even if the loan-to-value ratios at which it has recently become possible have now become a matter of controversy.
Secondly, I am bound by the decision of the Court of Appeal in Ropaigealach (supra) to conclude that there was no wider policy behind section 36 of the Administration of Justice Act 1970 than to put back what the courts had shortly before taken away, namely a discretion to stay or adjourn proceedings for possession, triggered only where the mortgagee considered it necessary or appropriate to go to court in the first place. The question whether any wider policy ought to be implemented wherever steps taken by a mortgagee to realise its security are likely to lead to the obtaining of possession is a matter for Parliament, and upon which Parliament has yet, so far as I can ascertain, to form any view. It would be quite wrong for the courts in a vigorous and imaginative interpretation of the Human Rights Convention to make that policy, as it were, on the hoof. In that respect the following observations of Lord Scott in Harrow LBC v. Qazi [2004] 1 AC 983 at 1024-5 are, albeit expressed in relation to Article 8 rather than A1FP, applicable by analogy:
“… social housing legislation of this character is well justifiable on public interest grounds provided for by the article: James v. United Kingdom (1986) 8 EHRR 123. If, on the other hand, the tenant has no right to remain in possession as against the landlord he cannot claim such right under article 8. To hold otherwise, to hold that Article 8 can vest property rights in the tenant and diminish the landlord’s contractual and property rights, would be to attribute to Article 8 an effect that it was never intended to have. Article 8 was intended to deal with arbitrary intrusion by State or public authorities into a citizen’s home life. It was not intended to operate as an amendment or improvement of whatever social housing legislation the signatory state had chosen to enact. There is nothing in Strasbourg case law to suggest the contrary.”
To the same effect, but in relation to a complaint both under Article 8 and A1FP, is the following observation of the Commission in Wood v. United Kingdom (1997) 24 EHRR 69, at 70-71:
“In so far as the repossession constituted an interference with the applicant’s home, the Commission finds that this was in accordance with the terms of the loan and the domestic law and was necessary for the protection of the rights and freedoms of others, namely the lender. To the extent that the applicant is deprived of her possessions by the repossession, the Commission considers that this deprivation is in the public interest, that is the public interest in ensuring the payment of contractual debts, and is also in accordance with the rules provided for by law.”
As to issues three and four, if I had concluded that the ability of a mortgagee to sell the mortgaged property without first obtaining possession, or an order of the court, both engaged and contravened A1FP, I would not have concluded that any construction of section 101, however purposive, could have led to the recognition of a statutory requirement first to seek a court order permitting sale. That would override the central purpose of section 101 and its statutory predecessors, namely to give the mortgagee the ability to realise its security over the mortgaged property without having to go to court. It would apply to all forms of mortgage by deed, regardless of the nature of the property offered as security, an enormous class of which mortgages of residential homes form only a sub-set. I would have accordingly had been obliged to make a declaration of incompatibility which would not, incidentally, have afforded any practical assistance to Miss Beech.
I need only briefly mention the alternative cases under Articles 6 and 8. It is well established, for example by Wilson v First County Trust (supra) that Article 6 creates no new substantive civil rights, but merely guarantees the procedural right to have a claim in respect of civil rights and obligations adjudicated by an independent tribunal. It is for that reason that Miss Williams sensibly conceded that she would have a case under Article 6 only if her case under A1FP (or perhaps Article 8) succeeded.
As for Article 8, it is equally well established, for example by Harrow LBC v. Qazi (supra) that although the loss of the right to possession of a dwelling house does not automatically lead that house to cease to be the former owner’s home, Article 8 was not intended to interfere with the legal rights of the person entitled to possession against the occupier such that, if a claimant had an unqualified right to possession (as in the present case), there was nothing in Article 8 to prevent the enforcement of that right.
As for Miss Williams’ alternative case, that section 36 of the Administration of Justice Act 1970 could be triggered on an application by a purchaser from a mortgagee, that case failed first because of the non-engagement of A1FP, Article 6 or Article 8 at the stage of the sale overreaching the mortgagor’s equity of redemption, and secondly because in any event it is in practice impossible to apply section 36 in the context of a claim by the purchaser.
The effect of the sale in the present case was not merely to overreach Miss Beech’s share in the equity of redemption, but to discharge the mortgage, since the net proceeds of sale were sufficient for that purpose. There was therefore, by the time the claimant applied for possession in the present case, no subsisting mortgage, no continuing obligation to pay instalments, let alone discharge arrears, and therefore, nothing upon which the court could focus in concluding, as the condition for the exercise of a discretion to adjourn or stay, that there was something which could be paid by the mortgagor within a reasonable time.
In my judgment, although the definition of mortgagee in section 36 includes successors in title to an original mortgagee, it necessarily refers only to successors in title to the mortgage, claiming under the mortgage, rather than to successors in title to the mortgaged property, taking free of the mortgage. Miss Williams did not with any vigour resist that analysis.
In conclusion therefore, it follows that the claimant is entitled to possession of the Property as against Miss Beech, the Human Rights Act defence having entirely failed.
Bank of Ireland v. Smyth
[1993] 2 IR 102
Geoghegan J. HC
This is a claim for possession by the plaintiff of the house and lands comprised in numbers 1, 2 and 3 of Folio 9173F of the Register of Freeholders, County Tipperary, pursuant to s. 62, sub-s. 7 of the Registration of Title Act, 1964. The plaintiff is registered as owner of a charge purported to have been created by instrument of charge. The first defendant is the registered owner of the property and the second defendant is his wife.
The defendants between them have defended this action on a number of quite separate grounds of defence. Three of these grounds were rejected by this court when they were raised on an application for a non-suit at the end of the plaintiff’s case. The first was that there was non-compliance with O. 9, r. 9 of the Rules of the Superior Courts, 1986, in that at the time the proceedings were instituted the first defendant’s mother was allegedly in possession or in receipt of rents and profits within the meaning of the rule, because she enjoyed a right of residence and a right of support charged on the property. I ruled against the first defendant on the grounds that:
(a) Having regard to s. 81 of the Registration of Title Act, 1964, the mother’s right of residence was a lien for money’s worth. The entitlement to that right or to the right of support did not constitute her a person in possession or in receipt of rents and profits within the meaning of the rule. As to whether a County Registrar executing an order for possession could require the mother, if she were still alive, to vacate is quite another matter and did not fall to be determined in this action.
(b) The mother is, at any rate, now dead. I took the view that even if the mother ought to have been served with the summons under the Rules of the Superior Courts, 1986, I should not dismiss the action for failure to do so, but on the contrary should dispense with the requirement having regard to the fact that she is now deceased. If and insofar as service on the mother was required, therefore, I dispensed with that requirement.
The second ground of application for non-suit was a related ground. It was submitted that the action ought to be dismissed or struck out for failure to comply with O. 9, r. 14, of the Rules of the Superior Courts, 1986. I considered that having regard to paragraph 10 of the first affidavit of Mr. David Dowley, manager of the relevant branch of the plaintiff, there was sufficient compliance with the rule. I also took the view that even if there was not strict compliance, nobody was prejudiced and that it would be wrong to non-suit the plaintiff on this account.
The third ground of application for non-suit was that the evidence seemed to indicate that the consent of the second defendant to the charge under the Family Home Protection Act, 1976, was signed after the instrument of charge had been signed by the first defendant. However, when on my request Mr. Dowley, the manager at the time of the
transaction was re-called, he stated that he could not really remember which document was signed first but that he was satisfied he would have complied with the guidelines which had come from headquarters and which had been put in evidence. I refused the non-suit on the grounds that this defence had not been pleaded. Before doing so, I indicated that I would favourably entertain an application for an adjournment by the second defendant to amend her defence, provided that her counsel could assure me that her client would be testifying that she signed the consent after the husband signed the charge. The invitation was not taken up. Even if the absence of prior consent had been pleaded, I would take the view that, as a matter of reasonable inference from the evidence, the instrument of charge could not have been treated as having been unconditionally signed, sealed and delivered by the first defendant prior to the signature of his wife on the form of consent under the Family Home Protection Act, 1976. Pending the wife’s signature, the deed of charge would have been considered as signed and sealed but not yet delivered, or alternatively delivered as an escrow. This view is in line with Bank of Ireland v. Hanrahan (Unreported, High Court, O’Hanlon J., 10th February, 1987) where in the analogous situation of an equitable mortgage by deposit of title deeds, the learned judge decided that even though the document had been handed to the bank prior to the signing of the spouse’s consent, the mortgage was valid as not having been intended to take effect until the consent was signed.
Following on the refusal of the non-suit the only witness who gave evidence was the second named defendant. At the close of the defendants’ case two substantive grounds of defence were argued. The first was that the consent of the second defendant was not a true consent in that she was not advised to obtain independent legal advice and that she did not have a proper understanding of what she was signing. It was submitted that the charge was void, both because, on the evidence, the plea of non est factum in relation to the consent had been sustained, and because in signing the consent, the second defendant was allegedly entering into an improvident transaction without the benefit of independent legal advice and without a proper understanding of the transaction involved.
The second substantive ground of defence was based on the judgment of Denham J. in First National Building Society v. Ring [1992] 1 I.R. 375, a case involving the exercise of discretion under s. 4 of the Partition Act, 1868. By analogy with Denham J.’s interpretation of the section in the Partition Act, 1868, it has been argued that upon the
wording of s. 62, sub-s. 7 of the Registration of Title Act, 1964, I have a discretion as to whether I order possession in this case or not. I will now discuss each of these substantive defences separately.
To determine the consent issue it is necessary to analyse carefully the provisions of s. 3 of the Family Home Protection Act, 1976. Section 3, subject to four statutory exceptions, renders void a purported conveyance by a spouse of any interest in the family home, unless either there is a prior consent in writing by the other spouse or a court order dispensing with such consent. Of the four statutory exceptions, the only one which would be relevant to this case is the exception under s. 3, sub-s. 3 (a) of a conveyance to a purchaser for full value. “Conveyance”is defined in s. 1 of the Act as including (inter alia) a “mortgage”.”Mortgage” is in turn defined as including (inter alia) “a charge on registered land”. Accordingly the charge in this case is a “conveyance”within the meaning of the Act of 1976.
The expression “full value” is defined in sub-s. 5 as meaning “such value as amounts or approximates to the value of that for which it is given”. In the context of a mortgage or a charge there has always been some doubt as to the meaning of “full value”. But this question does not arise for decision in this case in that the plaintiff is relying on the existence of a valid consent and not on any suggestion that it is a purchaser for value. This was a proper approach for the plaintiff to take, because on the particular facts of the case, if the consent is invalid on any of the grounds contended for by counsel for the respective defendants, the plaintiff had or ought to have had knowledge of the vitiating elements and therefore could not be a “purchaser” within the artifical definition of that expression in the 1976 Act. In order to be a “purchaser”within the meaning of the Act, the plaintiff would have had to be a chargeant acquiring “in good faith” the interest in the property – see s. 3, sub-s. 6 of the Act of 1976. The Supreme Court in Somers v. W. [1979] I.R. 94 has held that the words “in good faith” import the equitable doctrine of notice. Since the bank in this case had full notice of all the factors alleged by the defendants to vitiate the consent, it follows that if the consent is invalid by reason of any of those factors, the bank is not a “purchaser”. Accordingly the escape route of the statutory exception in favour of a “purchaser for value” is not available to the bank. It is only necessary to consider therefore was the consent invalid?
Counsel for the second defendant, Ms. Kennedy, submits that a consent by a wife under the Family Home Protection Act, 1976, to a
mortgage or charge in favour of the bank is not valid unless the wife understands the nature and consequences of the transaction. She cannot normally be said to have such understanding unless:
(1) She is told of the amount of the loan involved, and if the security is to cover future advances, that she is informed of that.
(2) She has explained to her the repayment terms.
(3) She has explained to her the consequences of non-payment and in particular that possession of her family home may be recovered by the bank, and the home may be sold.
(4) She is recommended to obtain independent legal advice.
In making this submission Ms. Kennedy relies heavily on Barclays Bank plc v. O’Brien [1992] 3 W.L.R. 593. That was a case before the Court of Appeal in England in which a wife joined in a charge over the matrimonial home jointly owned by her and her husband, as security for a personal guarantee by her husband in favour of the bank. Scott L.J. delivered the principal judgment and I believe that the views expressed by him represent Irish law, particularly having regard to the line of Irish cases dealing with voluntary deeds. I do not find it necessary to quote at length from the judgment because the headnote ([1992] 4 All E.R. 983) accurately sets out what the court held. The relevant part of the headnote reads as follows:
“Held – as a matter of policy married women who provided security for their husbands’ debts and others in an analagous position such as elderly parents on whom pressure might be brought to bear by adult children, were to be treated as a specially protected class of sureties so that where the relationship between the surety and the debtor was one in which influence by the debtor over the surety and reliance by the surety on the debtor were natural and probable features of the relationship, the security given by the surety would in certain circumstances be unenforcable notwithstanding that the creditor might have had no knowledge of and not have been responsible for the vitiating feature of the transaction. The circumstances in which equity would hold that the security given by a surety in that protected class was unenforceable were:
(i) if the relationship between the debtor and the surety and the consequent likelihood of influence and reliance was known to the creditor,
(ii) if the surety’s consent to the transaction was procured by undue influence or material misrepresentation on the part
of the debtor or the surety lacked an adequate understanding of the nature and effect of the transaction,
(iii) if the creditor, whether by leaving it to the debtor to deal with the surety or otherwise, failed to take reasonable steps to try and ensure that the surety entered into the transaction with an adequate understanding of its nature and effect and that the surety’s consent to the transaction was a true and informed consent. Accordingly although each case within the protected class depended on its own facts, as a general rule a creditor who took security from a married woman for her husband’s debts ought to take reasonable steps, such as advising her to take independent advice or, if she declined to do so, offering a fair explanation of the security document before she signed it, to see that she understood the transaction she was entering into . . .”
In my opinion Ms. Kennedy’s reliance on this case is fully justified. I do not think that any valid distinction can be drawn between that case and the present case on the grounds either that the second defendant is not a co-owner of the family home or on the grounds that the liability of the husband being secured was a primary liability and not a guarantor liability. The rights of a spouse conferred by the Act of 1976 are very important quasi proprietary rights, even if they are not ownership rights.
Applying Scott L.J.’s criteria, it is obvious that Mr. Dowley was well aware of the husband and wife relationship with the consequent inherent likelihood of influence and reliance. He was equally well aware that the wife’s understanding of the transaction depended essentially on what he told her. He should have realised that what he told her and what he advised her were inadequate. He did not take adequate steps to ensure that the second defendant fully understood the transaction. In particular he did not advise her to take independent advice.
It is only fair to say at this juncture, that I reject the second defendant’s evidence that Mr. Dowley did not use the expression “family home” but merely referred to the property generally. Mr. Dowley is certain that he did refer to the family home and I believe him. Having regard to the fact that this was the first legal charge with which Mr. Dowley was involved after the 1976 Act was enacted, I think it highly unlikely that he would not have explained in a general way the purpose of the consent as referred to in the guidelines. However, I do not think that the second defendant was deliberately giving false evidence. I
suspect that she was engaging in some wishful thinking and she had no clear memory as to what exactly was said at the discussion with Mr. Dowley. It may well be that in Mrs. Smyth’s mind she thought that, as there was a first charge on her home in favour of ACC because of a loan of £8,000.00 from ACC to build the house, the bank would be unable to sell or take possession of the home. At one point in her evidence Mrs. Smyth spoke of the house as being owned by the ACC. But if these matters were in her mind Mr. Dowley could not reasonably have been expected to be aware of them. But the bank via Mr. Dowley did not adequately explain to Mrs. Smyth the potential liabilities secured by the charge and above all did not explain to her that in the event of default the property including the matrimonial home could be sold by or at the instance of the bank, or that an order for possession could be sought by the bank. These are vital matters of which Mrs. Smyth should have been made aware before she signed the consent. Furthermore she was not recommended to obtain independent advice. I am reasonably satisfied that Mr. Dowley did tell Mrs. Smyth that she would be signing a consent to a mortgage of the family home, but having regard to Barclays Bank v. O’Brien [1992] 3 W.L.R. 593, I do not consider that that was sufficient. Accordingly, in my view, while there was a document purporting to be a consent in writing, there was in fact no consent within the meaning of the Act of 1976. In coming to that conclusion I prefer to rely on the equitable principles referred to by Scott L.J. rather than the doctrine ofnon est factum which would not apply in this case in my view. The charge is therefore void, and for the reasons indicated the bank is not a”purchaser” within the meaning of the Act of 1976. That is sufficient to dispose of this action but in case the matter goes further I think I should indicate my views on the other substantive ground of defence.
It is submitted on behalf of the defendants that, as a matter of discretion, I ought to refuse the application for possession. It is suggested that the wording of s. 62, sub-s. 7 of the Registration of Title Act, 1964, gives the court this discretion, and that the judgment of Denham J. in First National Building Society v. Ring [1992] 1 I.R. 375 supports the view that I should exercise it against the plaintiff I disagree. I do not think that First National Building Society v. Ring [1992] 1 I.R. 375 has any relevance to this case. The decision of Denham J. turned on an interpretation of s. 4 of the Partition Act, 1868. But the wording of that section is totally different from the wording of s. 62, sub-s. 7 of the Registration of Title Act, 1964. The words “may, if it so thinks proper”in s. 62, sub-s. 7 mean no more, in my view than, that the court is to apply
equitable principles in considering the application for possession. This means that the court must be satisfied that the application is made bona fide with a view to realising the security. But Mr. Dowley establishes this essential proof in paragraph 11 of his first affidavit, and it is not disputed in either a replying affidavit or the pleadings or at the hearing. It had been held in Northern Banking Company Ltd. v. Devlin [1924] 1 I.R. 90 that even though the Registration of Title Act, 1891, conferred on a registered owner of a charge the rights of a legal mortgagee under the Conveyancing Act, 1881, nevertheless a registered owner of a charge, unlike a legal mortgagee, could not obtain an order for possession for the purposes of a sale out of court, because the legal mortgagee’s right to possession arose by virtue of his estate in the land at common law, and not by virtue of the Conveyancing Act, 1881. This yawning gap in the rights of a legal chargeant was heavily criticised by Glover in his Registration of Land in Ireland, 1933. The position was corrected by s. 13 of the Registration of Title Act, 1942, which is in identical terms to s. 62, sub-s. 7 of the Registration of Title Act, 1964. The historical background to the subsection therefore reinforces me in the interpretation which I give to it. I do not believe that the Oireachtas intended a wide discretion which could take sympathetic factors into account. If, therefore, I had been of the view that the consent of the second defendant was a valid consent for the purposes of the Act of 1976 I would have made the order for possession. But as I have held that there was in fact no valid consent, I must refuse the application.
Ropaigealach v Barclays Bank Plc
[1998] EWCA Civ 1960 [1999] 3 WLR 17, [1998] EWCA Civ 1960, [1998] EG 189, [1999] 4 All ER 235, [2000] QB 263, (2000) 32 HLR 234
Lord Justice Chadwick
1. This is an appeal from the order made on 30 July 1997 by Mr Justice Longmore, in the Cardiff District Registry, dismissing Mr Ropaigealach’s appeal from a decision of the District Judge to dismiss these proceedings. The appeal raises a point of some general importance as to the effect (if any) of section 36 of the Administration of Justice Act 1970 in a case where a mortgagee has taken possession of the mortgaged property by peaceable entry and without first obtaining an order of the court.
The facts
2. The proceedings concern a dwelling house known as 16 Windsor Esplanade, Butetown, Cardiff. The property is registered at HM Land Registry under title number WA 175003. On 30 September 1988 Seoirse Trebahr Ropaigealach and his wife Melini Savuciri Ropaigealach, as registered owners of the property, executed a legal charge to secure their indebtedness to Barclays Bank plc. The legal charge contained, in clause 1, a covenant by Mr and Mrs Ropaigealach that they would, on demand in writing, pay to the bank all monies which should from time to time be owing by them to the bank. Clause 5 excluded the provisions of section 103 of the Law of Property Act 1925. That clause went on to provide that, as between the bank and a purchaser from the bank, the statutory power of sale should arise on and be exercisable at any time after the execution of the legal charge; but that, as between the bank and the mortgagor, the bank should not exercise its power of sale until payment of the monies secured by the legal charge had been demanded. The legal charge made no express provision for the mortgagor to be or remain in possession of the property.
3. Demand for repayment was made by letter dated 27 September 1995 addressed to Mr Ropaigealach at 16 Windsor Esplanade. The demand was for payment of £63,873.41. It is not in dispute that that was a valid demand under the legal charge; nor that Mr and Mrs Ropaigealach have not repaid the sum demanded, or any other sum, since the demand was made.
4. On 8 October 1996, the bank informed Mr Ropaigealach by letter that it was taking steps to realise its security. A letter in the same terms was sent to Mrs Ropaigealach at a different address. The bank wrote again, on 7 November 1996, to Mr and Mrs Ropaigealach at 16 Windsor Esplanade:
“Please note that as we have not received your proposals for repayment of your liabilities to Barclays Bank plc, we are now taking steps to realise our security and sell 16 Windsor Esplanade under our power of sale.
The property will be entered for sale in Crown & Co’s forthcoming auction which is due to be held on the 26 November 1996.”
Mr and Mrs Ropaigealach were not living at 16 Windsor Esplanade at that time. It is said that the property was undergoing repair or refurbishment; and that, for that purpose, it was empty. In any event they each deny having received the letter of 7 November 1996.
5. The auction took place on 26 November 1996. The property was listed as Lot 65. The special conditions of sale, incorporated in the auction particulars, provided for a contractual completion date of 17 December 1996. Special condition 4 made it clear that the sale was a sale by a mortgagee:
“4. The seller will transfer the property in exercise of the power given to it by section 101 of the Law of Property Act 1925 and in exercise of the power conferred on the seller by the legal mortgage. A copy of the legal mortgage together with evidence of the title to the property having been made available to the buyers or solicitors for the buyer prior to the date hereof, the buyer shall be deemed to have full knowledge of the contents of the same and shall not be entitled to raise any requisitions or make any objection with regard thereto.”
Special condition 5 expressly excluded the covenants for title on the part of the seller – thereby excluding the limited title guarantee that would otherwise have been implied under section 3 (3) of the Law of Property (Miscellaneous Provisions Act) 1994. It is clear that the bank was giving no warranty that the purchaser would obtain vacant possession or that he would take free from whatever rights of possession or occupation Mr and Mrs Ropaigealach, as mortgagors, might enjoy.
6. The property sold at auction at a price of £77,000. Completion took place on or about 17 December 1996 in accordance with the special conditions. No covenants for title were given in the transfer to the purchaser. On 31 December 1996 the bank wrote to Mr Ropaigealach at a different address, 1 Bute Esplanade, Cardiff, in the following terms:
“This property [16 Windsor Esplanade] was sold by Barclays Bank plc at auction on the 26 November 1996. Title to the property was conveyed under the power of sale conferred upon Barclays Bank plc by virtue of the legal charge executed by you over the property. The power of sale arose immediately formal demand for repayment of your borrowings was served upon you on 27 September 1995.
The sale of the property has now been completed with title being transferred to the purchaser. The net sale proceeds of £76,439.25 have been received and placed in reduction of your liabilities to Barclays Bank plc.”
These proceedings
7. In the meantime, it appears that Mr Ropaigealach had discovered from a neighbour that the property had been sold. He confirmed this with the auctioneers. He consulted solicitors. On 30 December 1996 he swore an affidavit in support of an application ex parte for an injunction restraining the bank from proceeding with the sale. That application was refused; no doubt because it was too late for the relief sought by Mr Ropaigealach to be of any use. The sale had already been completed.
8. On 6 January 1997 Mr Ropaigealach issued an originating summons in the Queen’s Bench Division, Cardiff District Registry, to which the bank was made respondent. The summons was reissued in an amended form on 15 January 1997. By the amended summons Mr Ropaigealach sought the determination of the court on the following question:
“Whether the defendant as mortgagee of the property named in this matter, or otherwise, was entitled by law [particularly, having regard to the provisions of section 126 and other provisions of the Consumer Credit Act 1974, and regulations made thereunder, and to the provisions of section 36 of the Administration of Justice Act 1970 as amended by (or affected by) section 8 of the Administration of Justice Act 1973] to take possession of the property, on a date unknown, and sell it by auction, to persons unknown, on or about 27 November 1996, without first having sought and obtained the order of the appropriate court.”
The hearing of the summons was fixed for 1 May 1997 before the District Judge. On 17 March 1997 Mr Ropaigealach gave notice of his intention to apply for directions; including an order for discovery and “such other orders or directions under RSC Order 27 Rule 4 (2) as the Court may deem appropriate having regard to the fact that the action is not yet ready for final hearing or trial”.
9. The District Judge took the view that the matter could be dealt with summarily. On 1 May 1997 he dismissed the application of 17 March 1997; dismissed the originating summons of 15 January 1997; and ordered that Mr Ropaigealach pay all the costs. Mr Ropaigealach appealed to the Judge. The appeal came before Mr Justice Longmore on 30 July 1997 in Swansea. He dismissed the appeal and refused leave to appeal.
10. Mr Ropaigealach sought leave to appeal from this Court. He was still acting in person. Leave was granted on 12 December 1997. In granting leave Lord Justice Mantell said this:
“For my own part, I am unable to find any flaw in the reasoning contained in the judgment of Longmore J, but it is apparent that this is a question the answer to which is not universally agreed. Longmore J has the Law Commission on his side, but it does appear from an article written by Miss or Mrs Alison Clarke and published in The Conveyancer July/August 1983 that, by necessary implication, the effect of section 36 of the Administration of Justice Act is that a mortgagee must first obtain the leave of the Court before proceeding to enforce its right to possession or its power of sale under the mortgage deed in relation to a dwelling house.
Because of that view and because it seems to me that this matter ought to receive the consideration of the Court of Appeal so that the profession is not left in any doubt about the position, I would grant leave.”
The question for decision on this appeal
11. So it is that the appeal comes before us. Mr Ropaigealach now has the benefit of legal representation and his notice of appeal has been resettled by counsel. There is now no reliance on the provisions of the Consumer Credit Act 1974. The grounds relied upon in the notice of appeal are (i) that the Judge was wrong to uphold the decision of the District Judge to dismiss the originating summons summarily and without a full hearing and (ii) that the Judge ought to have held that the provisions of section 36(1) and (2) of the Administration of Justice Act 1970 impose a restriction upon the powers of a mortgagee of residential property “whereby the mortgagee must apply to the County Court for an order for possession before exercising its power of sale and/or right of possession” with the consequence that the bank, not having applied to the court for any order for possession (as is common ground), did not at the time of sale of the property at auction have the right to exercise the power of sale or to take possession under the mortgage.
12. The question raised by the originating summons (insofar as now material) might have been thought to incorporate two distinct questions: (i) was the bank entitled to take possession of the mortgaged property without having obtained an order from the court; and (ii) was the bank entitled to sell and transfer the mortgaged property without first having obtained an order for possession or (in the alternative) an order for sale. In the event the second question was not pursued on this appeal. It was the appellant’s case at the hearing that the only issue for determination was that identified in paragraph 1 of the skeleton argument lodged on his behalf:
“. . . whether the respondent as mortgagee of the dwelling house of which the appellant was mortgagor was entitled to take possession of the property without obtaining a court order despite section 36 of the Administration of Justice Act 1970 as extended by section 8 of the Administration of Justice Act 1973.”
13. So framed, the issue presents two difficulties for this Court. First, it was not the question which the Judge thought that he was being asked to determine. That appears from the following passage in his judgment (transcript: page 7 A-B):
“The second matter (on which, speaking for myself I have had more difficulty) is that Mr Ropaigealach claims that the law of England and Wales is that before a bank can exercise its rights of sale against a mortgagee of a dwelling house in default, they must first obtain an order for possession.”
The Judge answered that question in the negative (transcript: page 12 F-G):
“It does not appear to me on the material with which I have been provided that it is a requirement of section [36] of the Administration of Justice Act 1970 or indeed of any other statute, that a bank which seeks to sell property at auction must first obtain a court order for possession. It therefore seems to me that the originating summons can only be answered in this respect by saying that the bank was not so bound.”
Secondly, the bank denies strenuously that it did go into possession of the mortgaged property either before the auction on 26 November 1996 or thereafter. On the basis upon which the matter was presented to the Judge, that was not a question which needed to be decided. It was common ground that the bank had not obtained an order for possession. It was immaterial, in the context of the question which the Judge thought that he was being asked to determine, whether or not the bank had gone into possession without a court order. But, of course, the question is central to the issue as presented to us. If the bank never went into possession of the mortgaged property at all, then the issue as formulated in paragraph 1 of the appellant’s skeleton argument simply does not arise.
14. These difficulties are, perhaps, compounded by the Judge’s observation that, after examining documents which he had required the bank to produce in the course of the hearing before him, he would have been prepared to infer as a matter of fact (if it had been necessary) that the bank did not in any event go into possession and that the originating summons, insofar as it asserted that the bank did take possession of the property, was based on a factual misconception.
15. Encouraged by those observations, Miss Gloster QC, who appeared for the bank on this appeal, urged us to dismiss the appeal in limine. We took the view that that course was not open to us. It seemed to us reasonably clear that the matter was argued before the District Judge on the basis that it could be disposed of in the bank’s favour without the need to investigate the question – which was plainly a question of fact – whether the bank did go into possession of the property. It is clear that the Judge himself approached the appeal on that basis. It is also clear that, if it were necessary to decide the question whether the bank did go into possession of the property, the matter could not be disposed of summarily. At the least Mr Ropaigealach would be entitled to discovery and to have the opportunity to test the bank’s evidence by cross-examination. It is understandable that, in a case in which the appellant was in person, the Judge thought it appropriate to make the informal investigation which led to the observations which he made; but it is clear that he could not have thought that he was engaged in the trial of a contested issue of fact. As he pointed out, on the view which he took on the law and having regard to the question which (as he thought) was actually before him, it was unnecessary for him to decide whether the bank did, in fact, go into possession. We must approach this appeal on the basis that that question of fact has not been resolved. If we are to decide the question of law which is now posed in the argument presented to us, it must be on the hypothesis (which might well prove to be unfounded) that the bank did take possession of the property.
16. We have considered whether we should decide the question of law which is now posed – notwithstanding the unsatisfactory way in which it has eventually emerged – or whether we should decline to do so on the ground that it is wholly academic or hypothetical. For my part, I am satisfied that it is right to decide the question. I am satisfied that the exercise is not wholly academic. If, as Mr Ropaigealach contends, the bank was not entitled to take possession of 16 Windsor Esplanade without obtaining a court order – and if (on the hypothesis to be adopted) it did so – then, as it seems to me, it could be argued that the bank was in possession as a trespasser against Mr Ropaigealach and could, in principle, be liable to damages. It is true that their originating summons, in its present form, is not an obvious vehicle on which to bring an action for trespass; but it was made clear to us in argument that such a claim would be added by amendment if we were to decide the question of law in the appellant’s favour. Having formed a clear view on the question of law, I think it would be wrong to put the parties to the expense and inconvenience of a trial on the facts.
17. I turn, therefore, to examine the issue raised in paragraph 1 of the appellant’s skeleton argument: whether the bank as mortgagee was entitled to take possession of the property without obtaining a court order.
Section 36 of the Administration of Justice Act 1970
18. The appellant relies on section 36 of the Administration of Justice Act 1970. The section is in these terms, insofar as material:
“36(1) Where the mortgagee under a mortgage of land which consists of or includes a dwelling house brings an action in which he claims possession of the mortgaged property, not being an action for foreclosure in which a claim for possession of the mortgaged property is also made, the Court may exercise any of the powers conferred on it by subsection (2) below if it appears to the Court that in the event of its exercising the power the mortgagor is likely to be able within a reasonable period to pay any sums due under the mortgage or to remedy a default consisting of a breach of any other obligation arising under or by virtue of the mortgage.
(2) The Court –
(a) may adjourn the proceedings or
(b) on giving judgment, or making an order, for delivery of possession of the mortgaged property, or at any time before the execution of such judgment or order, may –
(i) stay or suspend execution of the judgment or order, or
(ii) postpone the date of delivery for possession,
for such period or periods as the Court thinks reasonable.
(3) Any such adjournment, stay, suspension or postponement as is referred to in subsection (ii) above may be made subject to such conditions with regard to payment by the mortgagor of any sum secured by the mortgage or the remedying of any default as the Court thinks fit.”
For the purposes of those provisions “dwelling house” includes any building or part thereof which is used as a dwelling; and “mortgagor” and “mortgagee” includes any person having title under the original mortgagor or mortgagee – see section 39(1) of the Act of 1970.
19. The section is expressed to apply where a mortgagee brings an action in which he claims possession of the mortgaged property. Where the conditions in sub-section (1) are satisfied the court is given powers, by sub-section (2), which may fairly be described as procedural – in the sense that they are only capable of being exercised in the context of existing proceedings in which a claim for possession is made. But, it is said, Parliament could not have intended that the protection against ejectment which the section was plainly intended to give to mortgagors in respect of their homes should be capable of being frustrated by a mortgagee who resorted to self-help; that is to say, by a mortgagee who obtained possession by entry without the assistance of the court. Accordingly, so it is contended, the section must be construed in such a way as to make it unlawful for a mortgagee to take possession of a dwelling house except under an order of the court. It never became clear in argument how, by any interpretation of the words actually used, that result could be achieved; but that objection was brushed aside as unduly technical. What mattered, it was said, was that the court should give effect to the purpose for which the section was plainly enacted.
The statutory purpose
20. The genesis of section 36 of the Administration of Justice Act 1970 is not in dispute. Since 1925 a mortgage of freehold land has taken effect as a demise for a term of years absolute, subject to proviso for redemption – see section 85 of the Law of Property Act 1925. A charge by deed expressed to be by way of legal mortgage takes effect as if a mortgage term of 3000 years had been created in favour of the mortgagee – see section 87(1) of that Act and, where the land is registered land, section 27(1) of the Land Registration Act 1925. The effect, as a matter of legal analysis, is that the mortgagor demises his immediate estate to the mortgagee; who thereupon becomes entitled to possession by virtue of the estate which he has acquired. The position is described in Halsbury’s Laws of England (4th Edition) volume 32, page 308 at paragraph 672:
“Where a legal mortgage has been created, whether by demise or legal charge, and no provision is made for retention of possession by the mortgagor, the mortgagee is entitled to immediate possession or receipt of the rents and profits at any time after the execution of the mortgage, and equity does not interfere, notwithstanding that there has been no default on the mortgagor’s part.”
See, also, the comparable passage in Fisher and Lightwood’s Law of Mortgage (10th Edition) (1988) at page 331, and the observations of Mr Justice Harman in Fourmaids Ltd v Dudley Marshall (Properties) Ltd [1957] Ch 317, at pages 321-2, and of Mr Justice Russell in Birmingham Citizens Permanent Building Society v Caunt [1962] Ch 883, at page 887.
21. It was held, in those cases, that the necessary consequence of the legal foundation upon which a mortgage was based was that the court had no power to refuse, or to suspend, an order for possession sought by a mortgagee who was otherwise entitled to enter by virtue of his estate. Mr Justice Russell, in Caunt, expressed the position in these terms (at page 912):
“. . . where (as here) the legal mortgagee under an instalment mortgage under which by reason of default the whole money has become payable, is entitled to possession, the Court has no jurisdiction to decline the order or to adjourn the hearing whether on terms of keeping up payments or paying arrears if the mortgagee cannot be persuaded to agree to this course. To this the sole exception is that the application may be adjourned for a short time to afford to the mortgagor the chance of paying off the mortgage in full or otherwise satisfying him; but this should not be done if there is no reasonable prospect of this occurring.”
22. The decision in Caunt put an end to a practice, which had been developed by the Chancery Masters since the introduction, in 1936, of what was then Order 55 rule 5A of the Rules of the Supreme Court (now Order 88 rule 2 RSC 1965), under which mortgage possession summonses were adjourned to give the mortgagor an opportunity to pay by instalments. Following the introduction of new Rules of the Supreme Court in 1965, the matter was considered by the Committee on the Enforcement of Judgment Debts under the chairmanship of Mr R W Payne. The Payne Committee recommended at paragraph 1390 of its Report (Cmnd. 3909), dated 21 November 1968, that:
“ . . . when possession is sought under a mortgage of a dwelling house having a rateable value which would bring it within the protection of the Rent Acts (whether with or without a concurrent claim for payment) and the defendant is in arrear with any instalments, and it appears to the Court that the defendant ought to be given opportunity to pay off the arrears of instalments or interest, or to have time to make arrangements to redeem the mortgage, or otherwise requires the protection of the Court, the Court should have a discretion to adjourn the application or, if an order or judgment for possession is, or has been, made, and not executed, to stay or suspend the execution of any such order or judgment or postpone the date of possession for such a period or periods as it thinks fit, subject to such conditions (if any) in regard to payment by the mortgagor of arrears as the Court thinks fit, and, if such conditions are complied with, the Court should have discretion to discharge or rescind any such order or judgment; . . .”
23. Section 36 of the Administration of Justice Act 1970 does, of course, go rather further than the Payne Committee had recommended; for it does not restrict the court’s powers to adjourn or suspend orders for possession to cases in which the rateable value of the dwelling house would bring it within the protection of the Rent Acts. Be that as it may, it is plain enough that the section was enacted in order to deal with problem which had arisen following Caunt; and which had been the subject of examination and recommendation by the Payne Committee – see the observation of Lord Justice Scarman in Western Bank Ltd v Schindler [1977] Ch 1, at page 17G. There is nothing in the circumstances leading to the enactment of section 36 of the 1970 Act which provides any foundation for a submission that it was intended to deal with a different problem – not then identified – arising from entry without an order of the court.
24. Nor is there anything in the language of the section itself which lends support to that submission. If the section had been intended to deal with the problems arising from entry without an order of the court, it is (to my mind) inconceivable that the section would have been enacted in the form in which it was:
“(1) Where the mortgagee . . . brings an action in which he claims possession . . . the court may . . . (2) . . (a) . . adjourn the proceedings, or (b) on giving judgment, or making an order, for delivery of possession of the mortgaged property, . . . (i) stay or suspend execution of the judgment or order . . .”
The Law Commission Report
25. The language of the section, as well as the circumstances in which it was enacted, lend strong support to the view expressed in the Law Commission Working Paper No 99 (1986), at para. 3.69:
“(a) The Court can exercise its discretion [under section 36 of the 1970 Act] only if the mortgagee applies to it for a possession order: technically, therefore, the mortgagee can deprive the mortgagor of protection by electing to seek some other means of enforcement.”
There is passage to the same effect in the Report which followed that Working Paper (Law Com. No 204) (1991) at para. 6.16:
“6.16 One of the consequences of the relationship created by the mortgage by demise and by the charge by way of legal mortgage is that it is the mortgagee and not the mortgagor who is entitled to possession of the property. Unless the mortgage deed expressly restricts the exercise of the right it is exercisable at any time for any (or no) reason; its exercise is not dependent on any default by the mortgagor, nor on any threat to the security. If the mortgagee prefers to obtain a court order for possession rather than obtain possession extra judicially the Court has power, if the property is a dwelling house, to withhold or delay the order on condition that the mortgagor remedies any default. Otherwise, the Court has no power to regulate the exercise of the right: it is a matter in which equity has consistently refused to intervene.”
Academic commentary
26. The view that the protection which section 36 affords to mortgagors of dwelling houses is limited to cases in which the mortgagee seeks an order for possession from the court was criticised in the article “Further Implications of Section 36 of the Administration of Justice 1970” published in the Conveyancing Journal (July/August 1983, at page 293) to which Lord Justice Mantell referred when giving leave for this appeal. The article, which may well have provided the inspiration for much of the argument advanced on behalf of Mr Ropaigealach on this appeal, contains a careful and scholarly analysis of the circumstances in which section 36 was enacted. The author recognises the force of the arguments in favour of what may be stigmatised as the literal construction of the section. But she goes on to say this, at pages 295-6:
“The Courts would therefore be faced with a difficult task in interpreting section 36 as removing the mortgagee’s right to take possession peacefully. Arguably, it is a task they should refuse to undertake: reading words into a statute in order to restrict a common law property right is not usually regarded as justifiable, and one would expect the courts to be particularly reluctant to do so where, as here, it is not at all clear either what the words should be or where in the section they should be inserted.
In spite of all this, however, it is submitted that the common-sense view must prevail. It is anomalous and undesirable to protect mortgagors against eviction by court process yet leave them open to eviction by self help, particularly if – as apparently would be the case – the mortgagee’s right to use self help continued notwithstanding that he had applied to the Court for immediate possession and been refused.”
A purposive construction?
27. In support of the contention that the court should give what he described as a purposive construction to section 36 of the Act of 1970, Mr Scrivener QC, counsel for Mr Ropaigealach, relied on two decisions of this Court on the effect of a comparable provision in section 5 of the Increase of Rent and Mortgage Interest (Restrictions) Act 1920: Remon v City of London Real Property Co [1921] 1 KB 49 and Cruise v Terrell [1922] 1 KB 664. The Act was enacted shortly after the conclusion of the Great War for the purpose of consolidating and amending the law “with respect to the increase of rent and recovery of possession of premises in certain cases, and the increase of the rate of interest on, and the calling in of securities on such premises”. The Act applied to houses of low rateable value let as a separate dwelling. It was, of course, an early example of the social housing legislation which was to be developed and re-enacted in subsequent Rent Acts and in the Housing Acts. Section 5 of the Act of 1920 precluded the court from making an order for possession of any dwelling house to which the Act applied unless one or more of a now familiar list of conditions were satisfied:
“5(1) No order or judgment for the recovery of possession of any dwelling house to which this Act applies, or for the ejectment of a tenant therefrom, shall be made or given unless – (a) . . . (g); and in any such case as aforesaid, the court considers it reasonable to make such an order or give such judgment.”
It was held by this Court, in the two cases to which I have referred, that the effect of the Act of 1920 was to make it unlawful, in circumstances in which a former contractual tenant remained in occupation after the determination of the term, for a landlord to re-enter premises to which the Act applied without first obtaining an order for possession. So, it was argued, the same effect should be given to section 36 of the Administration of Justice Act 1970. That submission overlooks, as it seems to me, the basis upon which this Court reached its decision in those two cases.
28. The question for decision in Remon was whether the plaintiff, a tenant of rooms to which (once enacted) the Act of 1920 applied and who had been excluded from possession by the landlord’s re-entry on the day that the Act came into force following service of a notice to quit, was entitled to an injunction restraining the landlord from interfering with his quiet enjoyment of the premises. It is pertinent to keep in mind that re-entry had been obtained forcibly, by the landlord breaking the locks. It was held that, although the contractual tenancy had come to an end with expiry of the notice to quit, nevertheless, at the time of the re-entry, the plaintiff was to be treated as a tenant who by virtue of the provisions of the Act had retained possession for the purposes of section 15(1); and so was a person entitled to the benefit of the implied covenant for quiet enjoyment under that subsection. Section 15(1) was in these terms(so far as material).
“15(1) A tenant who by virtue of the provisions of this Act retains possession of any dwelling house to which this Act applies shall, so long as he retains possession, observe and be entitled to the benefit of all the terms and conditions of the original contract of tenancy so far as the same are consistent with the provisions of this Act . . .”
29. Lord Justice Scrutton identified the problem in these terms, at page 56:
“The question is whether, his tenancy by agreement having expired at a time when no Rent Restriction Act gave him any right to stay on, and the landlords having got into the premises without any assistance from the Court, he can claim any right to stay on or to ask the Court to restrain landlords from interfering with his possession.”
He went on, at page 57, to say this:
“The object of the various Rent Restrictions Acts is clear. It was intended to prevent the tenant from having his rent raised against him or from being turned out, though his tenancy by agreement had expired, so long as he was willing to pay the rent authorised by statute. He was originally presented by Parliament with a statutory tenancy at the will of the tenant for so long as he liked and no longer. But Parliament did not in terms say that though his tenancy by agreement has expired, he had a statutory right to stay in on specified terms; it provided that no order for recovery of possession should be made, and omitted expressly to provide what sort of legal interest the person who stayed in by permission of Parliament and against the will of the landlord should have, nor did Parliament expressly provide for the case where the landlord by his own action and without obtaining the order of the Court, got into possession of his own premises.”
Lord Justice Scrutton then compared the provisions recently enacted in the Act of 1920 with those in earlier Rent Restrictions Acts. He pointed out that section 15 of the Act of 1920 was plainly intended to define the terms under which a person who had remained in possession after the determination of contractual tenancy was to continue in possession “under the new statutory tenancy”. The difficulty which he found in construing section 15(1) of the Act of 1920 was that the identification, in the opening words of the sub-section, of the person who was to have the benefit of its provisions as “a tenant” was not an apt description of a former tenant whose contractual tenancy had determined and who was holding over against the will of his landlord. He addressed that difficulty in a passage, at pages 58-9, on which Mr Scrivener relies strongly:
“Yet I think it is clear Parliament had intended to confirm these people in a statutory tenancy and speak of their position as “a letting”. Mr Romer [counsel for the landlords] argued very forcibly to us that though the policy were clear yet the courts ought not to give effect to it unless they could find words apt in their ordinary meaning to justify them in so doing, and that the case of landlord getting into possession of premises which under the agreement of tenancy he had a right to enter had not been dealt with by Parliament. I do think it has expressly; and I feel I am straining language in speaking of a person whose tenancy has expired and who stays in against the active protest of the landlord as “tenant”, and of the landlords’ relation to him as “letting”; but such a person appears to be within the clear intention of the legislature, and where the statute has forbidden any process of court to be used to eject him, I think it must have intended and be taken to forbid ejection by the private action of the landlords without the aid of the Court. ”
[Emphasis added].
30. Lord Justice Bankes dealt with the matter on a somewhat narrower basis. He accepted (at page 54) that in no ordinary sense of the word was the respondent a tenant of the premises on the coming into force of the Act. But he went on:
“It is however clear that in all the Rent Restrictions Acts the expression “tenant” has been used in a special, a peculiar sense, and as including a person who might be described as an ex-tenant, someone whose occupation had commenced as a tenant and who had continued in occupation without any legal right to do so except possibly such as the Acts themselves conferred upon him. The respondent therefore on the coming into operation of the new Act was a tenant within the meaning of that expression in the Act . . .”
On that basis Lord Justice Bankes was able to hold that the plaintiff had the protection of section 15. He said this, at page 55:
“Section 15 is intended to supply something that was wanting in the previous Acts, namely, an indication as to the legal position of a person who continued in occupation of premises merely by reason of the protection afforded by those Acts. The opening words of section 15 are words of description of the person to whom the conditions of the statutory tenancy apply. He is described as a tenant who by virtue of the provisions of the Act retains possession of a dwelling house to which the Act applies. As pointed out by Mr Romer in his argument the Legislature in section 5 was apparently only contemplating eviction by legal process. A person therefore who is protected by the Act from eviction by legal process from his dwelling house may not inaccurately be described as a person who by virtue of the Act retains possession of his dwelling house. The respondent being obviously a person protected by section 5 from eviction by legal process, comes in my opinion within the description contained in section 15, and is therefore entitled to the benefit of the Act, assuming that his premises come within the Act.”
Lord Justice Atkin agreed with both judgments.
31. On a proper analysis of the passages which I have set out, the basis of the decision in Remon can be seen to be this: (i) a person holding over after the determination of a contractual tenancy to which the Act applied was protected by section 5 of the Act from eviction by legal process; (ii) it followed that he was a person who, by virtue of the provisions of the Act, retained possession of the dwelling house which had formerly been let to him; (iii) accordingly, he was a person to whom the provisions of section 15 of the Act were plainly intended to apply; (iv) so it was permissible, as a matter of construction, to treat him as a “tenant” for the purposes of section 15; (v) if he were a tenant for those purposes, he had the benefit of the landlord’s covenant for quiet enjoyment; and (vi) ejection by forcible re-entry was in breach of the covenant for quiet enjoyment and could be restrained by injunction. The plaintiff was able to bring himself within that analysis because re-entry had not been made before the day on which the Act came into force. The Court was able to reach the conclusion that the Act “must have intended and be taken to forbid ejection by the private action of the landlord without the aid of the Court” ( ibid, page 59) because, giving the word “tenant” a meaning for the purposes of section 15 which was wide enough to include a former contractual tenant holding over against the will of his landlord, “ejection” following forcible re-entry would constitute a breach of the covenant for quiet enjoyment to which, by virtue of that section, the “tenant” was entitled.
32. The point was before this Court again, some eighteen months later, in Cruise v Terrell [1922] 1 KB 664. The plaintiffs were “week-enders” to whom a cottage had been let for a fixed term of one year. The contractual term determined on 25 March 1921 and was not renewed. On 7 April, in the absence of the plaintiffs, the defendant sent the local blacksmith to the cottage, who broke into the premises and put a new lock upon the door and locked it. The plaintiffs sued in trespass. The defendant pleaded by way of defence that the tenancy had determined by effluxion of time; in the alternative he counterclaimed for possession of the cottage on one of the statutory grounds. The trial Judge awarded damages for trespass, but made an order for possession on the counterclaim. The defendant appealed. After rejecting the contention that the Act of 1920 had no application to a tenancy for a term certain, the Court went on to consider whether the effect of the Act was that the defendant’s forcible re-entry constituted a trespass. Lord Sterndale, Master of the Rolls, said this (at page 669):
“The next point is that assuming the Act does apply and that the plaintiffs are statutory tenants, the Act does not prevent a landlord from exercising a right of re-entry where he is entitled to an immediate order for possession under section 5 of the Act, which order it is contended when obtained relates back to the date of his entry. That point was, however, decided against the appellant in Remon v City of London Real Property Co. It is said that in the judgments in that case the point is dealt with by dicta only. In my opinion they are not dicta , but, even if they are, they are dicta from which we ought not to differ, and by which we are bound.”
33. Lord Justice Warrington took the same view. He said this (at page 671):
“The second point, that on the date when the defendant entered the plaintiffs were mere trespassers, has been disposed of by the decision in Remon v City of London Real Property Co. There the landlords went into possession without an order in the same way as the landlord did in this case and the action was brought for an injunction to restrain them, and it is clear that there would have been no right of action unless the tenant were a statutory tenant under section 15.”
The Lord Justice then set out the passage from the judgment of Lord Justice Bankes in Remon, to which I have already referred, and went on (at page 672):
“That decision is binding upon this Court, but even without it I would have taken the same view. It is quite clear that a person holding over is not to be treated as a trespasser.”
Lord Justice Scrutton, the third member of the Court, agreed. He said this at page 673:
“As to the second point it was said that the Act did not destroy the common law right of the landlord to enter. It will not help him to enter, but if he gets in peaceably he is in his right. It is that argument that as a member of the Court in Remon v City of London Real Property Co I listened to from Mr Romer and in my view we decided against it. It is true that in that case the landlord had not obtained an order for possession under s. 5 of the Act, as he did here, but in my view the object of the Act was to fetter landlords and to take away their common law rights, and until an order was obtained against him, a tenant stayed on, not as a trespasser, but as a statutory tenant – even against the will of the landlord. If the words of Bankes LJ and myself in Remon’s case which cover this point were obiter , they are now affirmed.”
34. It is clear that Lord Justice Warrington, at least, took the view, in Cruise, that the tenants’ right of action depended on section 15 of the Act of 1920. As I have sought to explain, the true analysis of the decision in Remon is not that section 5 of the Act took away the landlord’s common law rights; the true analysis is that section 15(1) extended the landlord’s obligation to afford quiet enjoyment of the premises to his tenant (an obligation formerly subsisting under the contractual tenancy) to the period of holding over under the new statutory tenancy – so that re-entry, in the circumstances in which it was effected in both Remon and Cruise, was in breach of that covenant. I do not, myself, think that Lord Justice Scrutton intended his observations to have any wider application than that.
35. The view which I have expressed as to the true basis for the decisions in Remon and Cruise finds support in the decision of Mr Justice Atkinson in Lavender v Betts [1942] 2 All ER 72. The landlord, having served a notice to quit, obtained entry to the property without force and removed the doors and windows so that it could no longer be used as a dwelling. The plaintiff brought an action for trespass. After referring to the landlord’s right, at common law, to retake possession of the demised premises peaceably after the determination of the tenancy, Mr Justice Atkinson pointed out that, following the enactment of the Act of 1920, the position was regulated by section 15(1). He set out the provisions of that subsection – which he described as “quite clear” – and went on to say this (at page 73D-F):
“A statutory tenancy is created, and the terms of the statutory tenancy are to be the same as those which have prevailed during the contractual tenancy. At the expiration of the notice the plaintiffs were in possession. They retained possession, and they were there on the terms of their original tenancy. They were under a legal obligation to carry out the obligations which had rested on them, and the landlord was under the same obligation; and the plaintiffs had the benefit of any terms and conditions which formed part of the contract of tenancy. No one disputes that one of the obligations resting on the landlord, of which the plaintiffs had the benefit, was an undertaking for quiet enjoyment. It is perfectly clear from the two cases which have been cited to me – Remon v City of London Real Property Co Ltd and Cruise v Terrell – that the effect of the section is that a statutory tenancy is created on the terms which I have stated. The statutory tenant has the same rights and is subject to the same obligations as prevailed during the tenancy. Therefore the landlord has no conceivable right to interfere with their possession or to trespass on the premises occupied by them, unless he obtains an order giving him possession of the premises.”
36. For the reasons which I have set out, I am satisfied that the early decisions on the Increase of Rent and Mortgage Interest (Restrictions) Act 1920 provide no support for Mr Scrivener’s contention that section 36 of the Administration of Justice Act 1970 should be given a construction which, on the language used, it cannot bear. Remon and Cruise, properly understood, provide examples of the court construing statutory provisions to give effect to a clearly identifiable purpose by a legitimate process of interpretation. It was legitimate to consider whether the clear purpose of the Act of 1920 could be served by restricting the meaning of the word “tenant” in section 15(1) to its ordinary sense. To restrict the meaning of that word would, as the court held, be to frustrate the objective which the Act was clearly intended to achieve. So it was necessary to give a wider meaning to that word; but subject to the constraint that that wider meaning must be one which the word was capable of bearing in the context in which it fell to be construed. There is no comparable process of construction by which the words used by the legislature in section 36 of the Act of 1970 can be held to have the effect for which Mr Scrivener contends.
37. Mr Scrivener sought, also, to rely on Western Bank Ltd v Schindler [1977] Ch 1. In that case this Court found it possible to construe section 36 of the Act of 1970 in such a way as to avoid what the court perceived would be an obvious lacuna if the words were given a literal meaning. The mortgagee sought possession in circumstances in which the mortgagor had allowed a life policy, taken as collateral security, to lapse; but where there had been no default under the mortgage itself. The question arose whether the court could exercise the powers conferred by section 36(2) of the Act in a case where – no sums being due under the mortgage and there being no default – it was argued that the condition in sub-section (1) could not be satisfied. As it was put by Lord Justice Buckley, at page 12B:
“If sub-s (1) [of section 36] is read literally, the conditional clause introduced by the words ‘if it appears to the court’ (which I shall refer to as ‘the conditional clause’) appears to restrict the operation of the section to cases in which some sum is due or some default has taken place and remains unremedied when the application comes before the court. This, however, seems to me to lead to a ridiculous result.”
After explaining why the result to which he would be led by a literal reading of the words used would be so unfair and irrational that it could not have been intended by Parliament, the Lord Justice directed himself that he “must therefore investigate whether the section is capable of some other construction”. He found that it was. The conditional clause could be read as if the words were these: “but, if any sum is due under the mortgage or the mortgagor is in default in respect of any other obligation arising under or by virtue of the mortgage, only if it appears to the court . . . etc.” – see at page 13B-C. So construed the section “applies to any case in which a mortgagee seeks possession, whether the mortgagor be in arrear or otherwise in default under the mortgage or not, but where the mortgagor is in arrear or in default, the discretion is limited by the conditional clause.” – see at page 13E. Lord Justice Buckley rejected the submission that section 36 must be taken to have abrogated the mortgagee’s right to possession where there is no sum due and no subsisting default. He said this, at page 12F:
“Section 36 is an enabling section which empowers the court to inhibit the mortgagee’s right to take possession. It confers a discretionary power on the court to achieve this result. It is, in my judgment, impossible to spell out of it a positive abrogation of an important property right, and, moreover, an abrogation of it only in particular circumstances.”
38. Lord Justice Scarman identified three courses which the court might adopt (page 18D):
“The first is to treat the section as having a ‘casus omissus’ which only Parliament can fill. The second . . . is to treat the section as excluding the common law right to possession from mortgages of dwelling houses. The third is to treat the section as giving the court a power to delay making an order in all cases where, upon whatever ground, a mortgagee is seeking possession of a mortgaged dwelling house.”
He went on, at page 18E-F:
“Judicial legislation is not an option open to an English judge. Our courts are not required, as are, for instance, the Swiss courts (see the Swiss Civil Code, arts 1 and 2), to declare and insert into legislation rules which the judge would have put there had he been the legislator. But our courts do have the duty of giving effect to the intention of Parliament, if it be possible, even though the process require a strained construction of the language used or the insertion of some words in order to do so; see Luke v Inland Revenue Commissioners [1963] AC 557, per Lord Reid at p.577. The line between judicial legislation, which our law does not permit, and judicial interpretation in a way best designed to give effect to the intention of Parliament is not an easy one to draw. Suffice it to say that before our courts can imply words into an Act the statutory intention must be plain and the insertion not too big, or too much at variance with the language in fact used by the legislature. The courts will strain against having to take the first of the three courses I mentioned; that is to say, leaving unfulfilled the ‘casus omissus’. In the case of this section, is there an acceptable reading which would enable us to give effect to Parliament’s intention within the principle which I think governs the problem?
It would be going too far, in my judgment, to adopt the second course. It would, indeed, be judicial legislation to read a section conferring discretionary powers on the court as abrogating a common law right. I am not prepared to go that far in an attempt to make sense. If one had to go that far, then it would be for the legislature, not the courts, to take the step.”
39. Lord Justice Goff agreed that section 36 could not be held, by a side wind, to have abrogated the mortgagee’s proprietary right to take possession – as he put it, at page 25E:
“This would not, I think, be applying the principle of liberal construction to avoid absurdity stated in Luke v Inland Revenue Commissioners [1963] AC 577, but disregarding the statute or overriding it, which as Ungoed-Thomas J. pointed out in In re Maryon-Wilson’s Will Trusts [1968] Ch 268, 282, and in my judgment rightly pointed out, is what the court is not allowed to do.”
He agreed that there were only two courses open to the court: to construe the section as conferring a discretion in all cases; or to construe the section literally and face whatever anomalies or absurdities that produced. He preferred the latter; on the ground that he could not see how any sensible effect could be given to the powers in subsection (2) if there was nothing to be done by the mortgagor which an adjournment, stay, suspension or postponement would enable to be done within a time which the court was required to decide was a reasonable time.
40. In my view, Mr Scrivener can derive no assistance from Western Bank Ltd v Schindler. It provides clear authority for the proposition that section 36 of the Administration of Justice Act 1970 has not abrogated the mortgagee’s common law right to take possession by virtue of his estate. It provides, also, a very good illustration of the principles on which the court acts when faced with the problem that a literal construction of the words used by the legislature would give rise to an obvious lacuna or absurdity. An English judge is not to indulge in judicial legislation. Before he can imply words into an Act, the statutory intention must be plain and the insertion not too big, or too much at variance with the language in fact used by the legislature. The case provides no support for a contention that Parliament must have intended that the mortgagee’s right to take possession should be exercisable only with the assistance of the court.
Conclusion
41. I find it impossible to be satisfied that Parliament must have intended, when enacting section 36 of the Act of 1970, that the mortgagee’s common law right to take possession by virtue of his estate should only be exercisable with the assistance of the court. In my view, the only conclusion as to Parliamentary intention that this Court can properly reach is that which can be derived from the circumstances in which the section was enacted, the statutory context in which it appears and the language which was used. All point in the same direction. Parliament was concerned with the problem which had arisen following the decision in Birmingham Citizens Permanent Building Society v Caunt [1962] Ch 883; it intended to restore the position to what it had been thought to be before that decision; and it did not address its mind to the question whether the mortgagor required protection against the mortgagee who took possession without the assistance of the court. It is impossible to be sure what course Parliament would have thought it appropriate to adopt, in 1970, if it had identified and addressed that question. It is impossible to be sure that Parliament did not intend (or would not have intended, if it had addressed its mind to the question) to leave the position as it was in that regard. It is not irrelevant that, at the date at which the Act of 1970 was enacted, the mortgagor who was in occupation had the protection – subsequently replaced in a different and, perhaps, more limited form by section 6 of the Criminal Law Act 1977 – afforded by the Statutes of Forcible Entry 1381-1623. It is because it is impossible to be sure that Parliament cannot have intended to leave the position as it was – but must have intended that the mortgagee should only be entitled to exercise his common law right to possession with the assistance of the court – that it cannot be appropriate to embark on an investigation whether the words which have been used are capable of some other construction than that which they naturally bear.
For these reasons I would dismiss this appeal.
Lord Justice Clarke
I agree, although I must confess that I do so with considerable reluctance. The effect of construing section 36 of the Administration of Justice Act 1970 (as amended) in the manner proposed is that there is what appears to me to be a curious anomaly in the powers of the court to afford relief to mortgagors against mortgagees who wish to take possession of mortgaged dwelling houses. It is not in dispute that, where a mortgagee takes proceedings for possession, the court has power under section 36 in some circumstances to stop the mortgagee from taking possession. Those circumstances are where it appears to the court that if it exercises its power the mortgagor is likely within a reasonable period to pay the sums due under the mortgage or to remedy a relevant default under the mortgage, as the case might be.
Chadwick LJ has explained the circumstances in which section 36 came to be enacted, namely as a result of recommendations of the Payne Committee which were made in order to deal with the problem which had arisen following the decision of this court in Birmingham Citizens Permanent Building Society v Caunt [1962] Ch 883. In that case the court was considering the powers of the court where the mortgagee brought an action for possession. Both the Payne Committee and subsequently Parliament took the view that mortgagors should be afforded limited protection in such a case. The nature of that protection was considered by this court in Cheltenham and Gloucester Plc v Krausz [1997] 1 WLR 1558. That decision shows that the protection is limited, but it is nevertheless of considerable value to mortgagors who are in default.
It is true to say that neither this court in Caunt nor the Payne Committee was considering whether the court should have similar powers in cases in which the mortgagee chooses not to take proceedings for possession but simply takes possession or perhaps sells the property under his power of sale and the purchaser takes possession. In these circumstances I agree that it cannot readily be inferred that Parliament intended to give protection to mortgagors in such a case. It does however strike me as very curious that mortgagors should only have protection in the case where the mortgagee chooses to take legal proceedings and not in the case where he chooses simply to enter the property. As Alison Clarke put it in her illuminating article in the Conveyancing Journal for July/August 1983 to which Chadwick LJ has referred, it is anomalous and undesirable to protect mortgagors against eviction by court process yet leave them open to eviction by self help.
We were referred to two cases which seem to me to highlight the problem. The first is Hemmings v The Stoke Poges Golf Club Limited [1920] 1 KB 720, where the defendant landlord entered the demised property, in which the plaintiff and his wife were living, and removed them and their furniture, using no more force than was reasonably necessary to do so. The landlord had an immediate right to possession because the tenant’s right to live in the property depended upon his continuing to work for the landlord, which he no longer did. It was held by this court that the plaintiff had no right of action against the defendant even if the actions of the landlord were a crime under 5 Ric 2, stat 1 c 7.
So far as I can see the position is the same in the case of a mortgagee entitled to possession. As Chadwick LJ has pointed out, and as is made clear in paragraph 6.16 of the Law Commission report which he has quoted, in the absence of a provision to the contrary in the mortgage, a mortgagee has a right of immediate possession (as the ink dries on the document). Although I suspect that many mortgagors would be astonished to discover that a bank which had lent them money to buy a property for them to live in could take possession of it the next day, Mr Scrivener (as I understand it) accepts that in the absence of an express provision in the mortgage and subject to his argument as to the true construction of section 36 of the 1970 Act, that is the position. Thus a mortgagee has an immediate right of possession just like the defendant landlord in the Stoke Poges case. So far as I can see it follows from that decision that, subject to any relevant statutory provisions, if a mortgagee chooses to take possession and moreover to do so by using reasonable force to remove the mortgagor there is nothing that the mortgagor can do about it.
The only statutory provision which might assist a mortgagor in such a case if section 36 of the 1970 Act does not do so is section 126 of the Consumer Credit Act 1974, which provides:
“A land mortgage securing a regulated agreement is enforceable so far as provided in relation to the agreement on an order of the court only.”
As the judge held, this is not a case to which section 126 applies because it only applies to a ‘regulated agreement’, which must be ‘a consumer credit agreement’, which by section 8(2) must in turn be a personal credit agreement by which the creditor provides the debtor with credit not exceeding £15,000. Like many house mortgages, this is not such a case.
It may be noted in passing that the crime of using or threatening violence to secure entry into occupied property is expressed in narrow terms in section 6 of the Criminal Law Act 1977, as amended. As I see it, it would afford no protection to a mortgagor in circumstances such as occurred in the Stoke Poges case.
The second case which seems to me to highlight the potential problems is the decision of this court in National & Provincial Building Society v Ahmed [1995] 2 EGLR 127, where it was held that the mortgagor’s equity of redemption is extinguished when the mortgagee, in the exercise of his power of sale, enters into a contract of sale of the mortgaged property. In the course of his judgment (with which Russell and Rose LJJ agreed) Millett LJ said (at p 129):
“The purpose of making an order under section 36 of the Administration Act 1970 is to enable a mortgagor who has fallen into arrears with the payment of the mortgage instalments to resume his payments and to pay off the arrears with a view to the ultimate redemption of the mortgage by instalments in the ordinary way. But that result can no longer be achieved once the mortgagor’s equity of redemption has been extinguished by the exchange of contracts of sale of the mortgaged property by the mortgagee to a purchaser. Of course, if the order for possession had not been executed so that the court still retained jurisdiction to suspend it, and the mortgagor or his tenants were in possession at the date of the contract for sale so that the purchaser had notice of the mortgagor’s rights, the mortgagee would not be able to rely upon the contract to defeat the mortgagor’s application. But that is not the present case.”
The way in which section 36 might operate, as envisaged by Millett LJ in the second part of that passage, is undoubtedly desirable, although it is not easy to see how it works if the effect of the contract for sale is to extinguish the mortgagor’s equity of redemption. In a Law Commission Working Paper (No 99), which was produced before the report and was expressly stated not to represent the final views of the Commission, the position was put thus with regard to the court’s discretion under section 36:
“The discretion is to delay or withhold the possession order only, not any other remedy. In practice this usually prevents enforcement, but in theory it is still open to the mortgagee to proceed to exercise its power of sale notwithstanding the court’s refusal to make a possession order. Since such a sale terminates the mortgagor’s interest in the property, the purchaser presumably would have no difficulty in obtaining a possession order against the mortgagor after completion.”
In a written note sent to us after the conclusion of the hearing Miss Gloster says that the respondent mortgagee would not go so far as to submit that that view is correct. Miss Gloster correctly adds that this kind of issue does not to fall for determination on this appeal, and I express no view upon the solution to such problems, but such considerations do highlight the potential problems. Such problems would not arise (or would be much reduced) if it were held that the effect of section 36 were (as Mr Scrivener submits) to give the court the same power to inhibit the exercise by the mortgagee of its right to possession at common law whether it were exercised by simply entering possession or by doing so pursuant to an order of the court. Mr Scrivener submits that in the case of a sale the court would have the same power to prevent the purchaser from actually taking possession as it has to prevent the mortgagee himself from taking possession because by section 39(1) of the 1970 Act “mortgagee” includes “any person deriving title under the original … mortgagee”.
As Chadwick LJ has pointed out, the majority of this court in Western Bank Ltd v Schindler [1977] Ch 1, rejected the submission that the effect of section 36 was to abrogate the mortgagee’s right of possession. However, as appears from the passage from the judgment of Buckley LJ (at p 12) which he has quoted, section 36 is an enabling section which empowers the court to inhibit the mortgagee’s right to take possession. He might have added that it also inhibits the right of any person deriving title from the mortgagee to do so. As I see it, the question is whether the section can be construed so as to inhibit the mortgagee’s right to take possession by self help.
It is submitted that it can because of the underlying purpose of the section, as for example stated by Millett LJ in the passage from Ahmed quoted above and as stated by Griffiths LJ in Bank of Scotland v Grimes [1986] 1 QB 1179, where he said of section 36 of the 1970 Act and section 8 of the Administration of Justice Act 1973:
“It is the intention of both sections to give a measure of relief to those people who find themselves in temporary financial difficulties, unable to meet their commitments under their mortgages and in danger of losing their homes.”
It seems to me that if a mortgagor needs that relief he needs it whether the mortgagee chooses to exercise his right of possession by entering into possession with or without an order of the court. Indeed he also needs it if instead of doing either the mortgagee sells the property to a purchaser leaving the purchaser to take possession.
I recognize that Miss Gloster says that responsible mortgagees do not in practice take possession of property in which the mortgagor and his family are living without an order of the court, and I accept that that is so, but in my judgment the problem should be approached by reference to the legal rights of the mortgagee and to the legitimate interests of the mortgagor in the light of the purpose of the Act. In these circumstances, if it were possible to construe section 36 by affording mortgagors protection whether or not the mortgagee chose to obtain possession by self-help or legal action, I for my part would do so. I have however been persuaded that it is not possible.
I agree that the section should be given a purposive construction: see eg Pepper v Hart [1993] AC 593 per Lord Griffiths at p 617. But the process remains one of construction and I have reluctantly reached the conclusion that where a section gives the court powers “where the mortgagee … brings an action in which he claims possession of the mortgaged property” it is not permissible to hold that the effect of the section is to give the court such powers whether or not the mortgagee brings such an action.
The appellant’s submission amounts to saying that the effect of the section is that a mortgagee is not entitled to take possession of mortgaged property save by order of the court. The problem is that the section does not say so. If Parliament had wished so to provide there is no reason why it should not have done so expressly, as it has in related circumstances. Thus it introduced legislation to protect tenants from eviction by landlords entitled to possession save by order of the court. Section 2 of the Protection from Eviction Act 1977 provides:
“Where any premises are let as a dwelling on a lease which is subject to a right of re-entry or forfeiture it shall not be lawful to enforce that right otherwise than by proceedings in the court while any person is lawfully residing in the premises or any part of them.”
Chadwick LJ has also referred to various provisions of the Rent Acts to which we were referred in argument. Moreover Parliament has considered in what circumstances it should restrict the exercise of a mortgagee’s right of possession. It did so in a very limited form in section 126 of the Consumer Credit Act 1974 which is quoted above. It could have so provided in the case of all mortgages of dwelling houses, but it did not.
In all the circumstances I respectfully agree with Chadwick LJ, essentially for the reasons which he gives. I accept Miss Gloster’s submission that the question what, if any, restrictions to impose upon the exercise of a mortgagee’s right of possession is essentially a matter of policy. In order to answer the question it would no doubt be necessary to consider what, if any, such restrictions should be imposed (a) in circumstances in which mortgaged property has been vacated by the mortgagor (which appears to be the case in the vast majority of cases in which mortgagees take possession without an order of the court) and (b) in circumstances in which the mortgagor is residing in the property. In these circumstances, although consideration of the policy behind section 36 supports the appellant’s submissions, I do not feel able to accede to them as a matter of construction of the section. I have only added some observations of my own because of my reluctance to reach that conclusion. However, in the result I agree that the appeal must be dismissed.
Lord Justice Henry:
I agree, for the reasons given by Chadwick LJ, that this appeal must be dismissed.
Clarke LJ has drawn attention to the curious anomaly that mortgagors should have the protection afforded by section 36 of the Administration of Justice Act 1970 in cases in which the mortgagee chooses to take proceedings to enforce his right to possession but should have no such protection where he chooses (and is able) to enter without first obtaining an order from the court. He has pointed out, also, the problem which may exist if the court is asked to exercise the power conferred by section 36 in a case where the mortgagee has already exercised his power of sale, without having taken possession as against the mortgagor. But this anomaly, and this problem, are not identified for the first time in the present case. They have been the subject of academic comment in the past. Perhaps more pertinently, they were considered by the Law Commission in the Working Paper and the Report to which my Lords have referred. The Law Commission has made proposals to reform the law in this field. It is for Parliament to decide whether to accept those or other proposals.
Silven Properties Ltd & Anor v Royal Bank of Scotland & Ors
[2003] EWCA Civ 1817 Mr Justice Lightman.
INTRODUCTION
This is an appeal brought with the permission of Chadwick LJ against part of the judgment of Patten J given on the 11th October 2002. By his judgment, Patten J dismissed all the claims of Silven Properties Limited (“Silven”) and Chart Enterprises Incorporated (“Chart”), the claimants in this action (“the Claimants”) against the first defendant the Royal Bank of Scotland plc (“the Bank”) and the second and third defendants Nigel Vooght and Timothy Harris (“the Receivers”).
The Claimants mortgaged properties to the Bank to secure indebtedness. The Bank pursuant to the mortgages appointed the Receivers as receivers of the mortgaged properties and between them the Bank and the Receivers sold all the properties. The mortgages (as is common form) provided that the Receivers should be the agents of the Claimants.
In this action the Claimants as mortgagors claimed damages against the Bank as mortgagee and the Receivers as receivers (“the Defendants”) alleging that in breach of duty they sold the mortgaged properties at an undervalue. Patten J dismissed all the Claimants’ claims against all the Defendants and refused permission to appeal. Chadwick LJ gave the Claimants permission to appeal limited to the claims against the Receivers in respect of six of the properties. In the case of each of these sales it was conceded by the Claimants or established by evidence at the trial that the sales were at the best price reasonably obtainable at the dates of such sales for the properties in the condition in which they were. The relevant complaint made by the Claimants at the trial in respect of these sales was that the Receivers were under a duty not to sell the properties as they were. Instead they were under a duty before selling, in order to obtain the best price obtainable, to pursue planning applications for the development of the properties and (in the case of two of the properties, which were vacant or partially vacant, but in respect of which there were negotiations for grant of leases) to proceed with the grant of leases, and to defer a sale until these goals were achieved. Patten J dismissed these claims against the Receivers without determining whether the Receivers’ failure to take this course of action caused any damage or loss. He did so on the ground that as a matter of law the Receivers had no duty to delay the sale for the purposes suggested by the Claimants and were entitled, whether or not it was reasonable for them to do so, to sell the properties without delay as they were. The only issue on this appeal is whether the judge was correct. It is common ground that, if the judge was wrong, the case must be remitted to the judge (or some other judge) to decide whether any breaches by the Receivers of the duties established on this appeal by the Claimants in fact occasioned any damage or loss.
The issue of law raised on this appeal is of some considerable practical importance. Earlier authorities have expressed the view that the duties of receivers appointed by mortgagees are the same as the duties of the mortgagees themselves in respect of the sale of mortgaged property and that mortgagees do not have the duties for which the Claimants contend. But (as Chadwick LJ stated when granting permission to appeal), consideration is called for whether the express appointment in the mortgage of receivers as agents of the mortgagor leads to the assumption by receivers who accept such appointment of responsibilities and duties which differ from those owed by the mortgagees, and it is important that any doubt in this regard should be resolved in the interests of mortgagees, mortgagors and receivers.
The full history of events in this case is set out in the careful and detailed judgment of Patten J. Only a very brief summary is called for of the facts relevant to this appeal. But a detailed examination is called for of the relevant authorities and principles which throw light on the legal implications in this context of the appointment by a mortgagee of receivers as agents of the mortgagor.
FACTS
The Claimants are property companies set up for the benefit of the Ezekiel family. They had large borrowings from the Bank secured by mortgages over some 34 properties which they owned. In May 1996 in accordance with the terms of the mortgages the Bank demanded repayment. According to the Bank the indebtedness at that date of Silven was £4,309,946 and of Chart was £620,891. In May and June 1996 the Bank appointed receivers over all the properties mortgaged to it. Save for one property (which is not relevant on this appeal) the receivers appointed were the Receivers. The Receivers set about selling the 33 properties in respect of which they had been appointed receivers and in the course of some 18 months all 34 mortgaged properties were sold. The gross realisation in respect of properties owned by Silven was £4,881,500 and in respect of properties owned by Chart was £366,500. The Receivers entered into the various contracts for sale of the 33 properties as agents for the Claimants. In the case of some of these properties, however, instead of the Receivers completing the sales, in order to make title overriding adverse registered interests, the Bank conveyed or transferred the properties as mortgagee. No point was taken before the judge or this court that in the cases where the Bank completed the sales those sales ceased to be sales by the Receivers and became sales by the Bank in respect of which no liability could attach to the Receivers. Accordingly it does not fall to us to express any view on that question.
The Claimants complained in the action that many of the properties were sold at an undervalue. The appeal relates only to six of the properties. The particular complaint which is the subject of this appeal is that the undervalue is attributable to the decision of the Receivers to sell without first obtaining planning permission for development and without first letting a vacant property.
When they began their receivership, the Receivers adopted the strategy of investigating the possibility of adding value to some of the mortgaged properties by obtaining planning permission. This strategy was clearly set out in their First, Second and Third Reports to the Bank dated respectively the 13th August, 17th September and 5th November 1996. In accordance with that strategy the Receivers obtained reports from planning consultants advising them as to the prospects of obtaining planning permission for various of the properties. On the 8th November 1996 the Receivers obtained estimates for applying for planning permission. On the 30th December 1996 the Receivers instructed planning consultants to make planning applications and at the same time asked the property consultants to give them advice as to the expected uplift in price which would be achieved by obtaining planning permission. By the end of February 1997, however, the Receivers had decided not to proceed with any planning application or to await the completion of negotiations for the grant of a lease of the vacant property and instead to proceed immediately with sales of the mortgaged properties as they were. The reasons for their decision are disputed. By so doing the Receivers decided to forego any potential increase in price obtainable on a sale if delayed until after the result of the planning applications and the grant of the leases in favour of the advantage to the Bank of saving the costs of those exercises and obtaining an immediate realisation and partial repayment of its secured indebtedness. The issue before this court is whether, for whatever the reason they decided on this course, the Receivers were free to do so.
JUDGMENT BELOW
The judge set out clearly in his judgment his reasons for dismissing the claim against the Receivers. The first relevant extract reads as follows:
“Underpinning the claims against the Coopers Receivers is the proposition that they owed a duty to the mortgagors to act in their best interests in determining when to sell the mortgaged property and that, as part of their duty to obtain the best or a proper price, they were obliged to take steps to improve the value of the properties by, for example, applying for planning permission, completing the grant of a lease or, in the case of Watney Street, of carrying into effect a land swap with the local authority. If this is correct, there is a fundamental difference between the legal duties owed by a mortgagee and those of any receiver he chooses to appoint. It is common ground that a mortgagee who exercises his power of sale owes a duty to take reasonable precautions to obtain the true market value or a proper price for the property at the time when he comes to sell: see Cuckmere.”
McEnery -v- Sheahan
[2012] IEHC 331
Feeney J.
2.1 The plaintiff seeks an order compelling the defendant to deliver up possession of the Property together with declaratory relief. The defendant claims that the Bank had no power to appoint a receiver and that the plaintiff has no right to enter on to his properties and that not having such a right the plaintiff should not have been granted either an interim or an interlocutory order. In his defence and counterclaim the defendant contends that the charge upon which the plaintiff seeks to rely has not been registered and does not affect the Property as described by the plaintiff in his claim. The defendant pleads, at paragraph 22 of the defence and counterclaim, that it is denied that pursuant to s. 19(1)(ii) of the Conveyancing and Law of Property Act 1881, that Ulster Bank became entitled to appoint a receiver to the property of the defendant as alleged or at all. It was further pleaded that the plaintiff at no material time had a right to enter the defendant’s premises since the Bank’s power of sale was not exercisable as the mortgage document had not been registered. The defendant counterclaims seeking damages for trespass, breach of contract or alternatively on foot of the undertaking by the plaintiff as to damages. In the reply and defence to counterclaim the plaintiff admits that the charge upon which the plaintiff seeks to rely had not been registered, as of the date of the Reply and Counterclaim, and that the plaintiff denies that the said charge does not affect the Property in circumstances where an application to register has been lodged since the 15th June, 2009 and registration remains pending since that date. The plaintiff seeks a declaration that pursuant to the provisions of the Interpretation Act 2005 and, in particular, s. 27(1)(c) thereof that the right of Ulster Bank Ireland Limited to appoint a receiver to the premises pursuant to the provisions of the Conveyancing and Law of Property Act 1881 has not been affected by the enactment of the Land and Conveyancing Law Reform Act 2009.
2.2 There is a legal issue between the parties as to the effect that the enactment of the Land and Conveyancing Law Reform Act 2009 (the Act of 2009) has, if any, on the right of the Bank to appoint a receiver to the premises pursuant to the Conveyancing and Law of Property Act 1881 (the Act of 1881).
2.3 A separate issue which is in issue between the parties relates to the defendant’s plea in paragraph 21 of his defence where it is pleaded that the letter of demand was an immediate demand for payment which was unreasonable and inequitable in all the circumstances and in breach of an implied term of the contract between the parties. The plaintiff denies that its immediate demand for repayment was unreasonable or inequitable or in breach of the alleged or any implied term of contract between the defendant and the Bank.
3.1 The first issue which the Court has to consider is the validity of the appointment of the receiver. The defendant claims that the Bank had no power to appoint a receiver.
3.2 All parties agree that the defendant and the Bank entered into a mortgage agreement in respect of the property by a deed executed on the 26th October, 2007. That mortgage was executed on foot of advances made by the Bank to the defendant.
3.3 The relevant statutory provision which was in force at the time of the execution of the mortgage deed on the 26th October, 2007 was the Act of 1881.
4.1 Section 19(1) of the Act of 1881 provides:
“19(1) A mortgagee, where the mortgage is made by deed, shall, by virtue of this Act, have the following powers, to the like extent as if they had been in terms conferred by the mortgage deed, but not further (namely)- …
(iii) A power, when the mortgage money has become due, to appoint a receiver of the income of the mortgaged property, or of any part thereof;.”
Section 8(3) of the Act of 2009 and Schedule II thereof repealed the provisions of the Conveyancing Acts 1881/1911 in respect of mortgages. The Act of 2009 was commenced by Statutory Instrument No. 356/2009 on the 1st December, 2009. The power of appointment of a receiver by a mortgagee is dealt with by s. 108 of the Act of 2009 which provides for the appointment of a receiver following specified events of default and provides, inter alia, that a mortgagee may appoint, by writing, a receiver over the income or the property. Chapter III of the Act of 2009 deals with the obligations, powers and rights of a mortgagee and s. 96 identifies the powers and rights generally and the following section, s. 97, deals with the taking of possession. The mortgage the subject matter of these proceedings predates the Act of 2009 and it follows that s. 109 of that Act has no application.
4.2 It is claimed by the defendant that the repeal of the Act of 1881 and, in particular, ss. 19 and 24 of that Act results in a situation where the mortgagee in this case no longer has a statutory power to appoint a receiver to the Property. It is further contended that as a result of that situation that a lacuna exists following the coming into effect of the Act of 2009 whereby the implicit statutory terms implied into every mortgage created from the commencement of the Act of 1881 up until the commencement of the Act of 2009 no longer apply with the consequence that a mortgagee’s power of appointment of a receiver for all such mortgages has been lost.
4.3 In response to the defendant’s claim that the mortgagee has no power to appoint a receiver, the plaintiff relies firstly on the provisions of the Interpretation Act 2005 (the Act of 2005) and, in particular, s. 27(1)(c). Secondly, based upon such reliance the plaintiff contends that the rights acquired by the mortgagee under the Act of 1881 continue to apply based upon a claim that the provisions of s. 19 of the Act of 1881 were incorporated as a term of mortgage at the date of the creation of the mortgage, that is, on the 26th October, 2007, and cannot be removed thereafter by operation of a subsequent statute.
4.4 A key issue in contention between the parties in this case concerns the Bank’s power to appoint the plaintiff as its receiver. An examination of the terms of the mortgage establishes that there is no express power to so appoint in the mortgage instrument and in those circumstances the plaintiff relies on a claim that the rights acquired by the mortgagee under the Act of 1881 apply and continue to apply. The Bank and the plaintiff seek to rely on a claimed statutory power under s. 19 of the Act of 1881 and the defendant contends that that section has been repealed by s. 8(3) of the Act of 2009 as and from the 1st December, 2009. The area of dispute between the parties therefore centres on the plaintiffs contention that the Bank’s power to appoint a receiver was unaffected by the repeal contained in the Act of 2009 because it had an acquired or accrued right to make the appointment. The plaintiff submitted that the rights that a mortgagee possessed under the Act of 1881 at the time of the creation of the mortgage were in fact accrued, or, perhaps more particularly, acquired rights and that those rights were implied into the deed of mortgage at the time of its creation. Section 19(1) of the Act of 1881 providing:
“A mortgagee, where the mortgage is made by deed, shall, by virtue of this Act, have the following powers, to the like extent as if they had been in terms conferred by the mortgage deed.”
The plaintiff argues that the rights so identified are different in type and order from the mere hope or expectation that rights might be conferred at some later stage and they were incorporated at the time that the mortgage was completed as if they were terms of the deed itself. Whilst the plaintiff accepts that the powers implied by the Act of 1881 do not become exercisable until default by the mortgagor, that power arises automatically once there has been default by the mortgagor and the mortgagee does not require to take any further steps to prove his entitlement.
5.1 This Court has delivered two recent judgments concerning the law in relation to repossession and the appointment of a receiver. The first of those cases was Start Mortgages v. Gunn and Ors. [2011] IEHC 275 and the later case was Kavanagh and Anor. v. Lynch and Anor. (Unreported judgment of Ms. Justice Laffoy delivered on the 31st August, 2011).
5.2 The Start Mortgages decision dealt with a common issue which had arisen in a number of related cases concerning the consequences of the repeal of s. 62(7) of the Registration of Title Act 1964 (the Act of 1964) by s. 8 of the Act of 2009. The judgment delivered by Dunne J. in the Start Mortgage case covered not only that case but also the related cases.
5.3 Section 62 of the Act of 1964 deals with the creation and effect of charge on registered land and provides at s. 62(7):
“When repayment of the principal money secured by the instrument of charge has become due, the registered owner of the charge or his personal representative may apply to the court in a summary manner for possession of the land or any part of the land, and on the application the court may, if it so thinks proper, order possession of the land or the said part thereof to be delivered to the applicant, and the applicant, upon obtaining possession of the land or the said part thereof, shall be deemed to be a mortgagee in possession.”
Section 27 of the Act 2005 provides at subss. (1)(c) and (e):
“(1) Where an enactment is repealed, the repeal does not …
(c) affect any right, privilege, obligation or liability acquired, accrued or incurred under the enactment, …
(e) prejudice or affect any legal proceedings (civil or criminal) pending at the time of the repeal in respect of any such right, privilege, obligation, liability, offence or contravention.”
Section 27(2) of the Act of2005 provides that:
“(2) Where an enactment is repealed, any legal proceedings (civil or criminal) in respect of a right, privilege, obligation or liability acquired, accrued or incurred under, or an offence against or contravention of, the enactment may be instituted, continued or enforced, and any penalty, forfeiture or punishment in respect of such offence or contravention may be imposed and carried out, as if the enactment had not been repealed.”
5.4 In all of the cases under consideration in the Start Mortgages decision, the facts were in each instance similar in that the plaintiffs held security in the form of mortgages over properties owned by the defendants. The mortgages in issue provided for the agreement of the borrowers to make payment and that in the event that monies were unpaid, that unpaid monies were due and payable on demand in the event of default. The cases under consideration covered mortgages which had been created between the years 2006 and 2008. The mortgages provided that the lenders could enter into possession of the property and that they had the statutory powers conferred on lenders by the Conveyancing Acts. The mortgagee’s powers could not be exercised until a default had occurred. In those cases it was accepted by the parties to the litigation that until a charge was registered, a lender posses no interest in the property nor was there any dispute that if it transpired that the various plaintiffs could not rely on s. 62(7) of the Act of 1964, that there was in those circumstances no basis for an order for possession. The matter in issue before the Court centred on whether any reliance could be placed on s. 62(7) by the plaintiffs in the various actions.
5.5 In the Start Mortgage decision, in addressing the issue as to whether the Court could place any reliance on s. 62(7) of the 1964 Act, Dunne J. considered the meaning of the word “right” and the issue of the right to apply for possession together with the meanings of “accrued” and “acquired”. In the case before Dunne J., the plaintiffs contended that when considering the provisions of s. 27(1)(c) and (e), the word “right” was to be interpreted on the basis that it was the right to apply for possession pursuant to s. 62(7) of the Act of 1964. On page 16 of her judgment, Dunne J. stated:
“I was referred in the course of the submissions to a number of judgments which refer to the exercise of the court’s power to make orders under s. 62(7) or its equivalent. The first of the cases referred to was the decision in Birmingham Citizens Permanent Building Society v. Caunt [1962] 1 Ch. 883. Russell J. in that case considered at p. 912 the nature of the court’s jurisdiction to decline to make an order for possession in the following terms:-
‘Accordingly, in my judgment where (as here) the legal mortgagee under an instalment mortgage under which by reason of default the whole money has become payable, is entitled to possession, the court has no jurisdiction to decline the order or to adjourn the hearing whether on terms of keeping up payments or paying arrears, if the mortgagee cannot be persuaded to agree to this course. To this the sole exception is that the application may be adjourned for a short time to afford to the mortgagor a chance of paying off the mortgagee in full or otherwise satisfying him; but this should not be done if there is no reasonable prospect of this occurring. When I say the sole exception, I do not, of course, intend to exclude adjournments which in the ordinary course of procedure may be desirable in circumstances such as temporary inability of a party to attend and so forth’.”
5.6 Bank of Ireland v. Smyth [1993] 2 I.R. 102, was also considered by Dunne J. in the Start Mortgages decision at p. 18, and in the Bank of Ireland case, Geoghegan J. dealt with the suggestion that s. 62(7) gives the Court discretion to refuse an application for possession and stated (at p. 111) of his judgment:
“The words ‘may, if it so thinks proper’ ins. 62(7) mean no more, in my view than, that the court is to apply equitable principles in considering the application for possession.”
Having considered the authorities, Dunne J. held (at p. 19):
“It is clear from the authorities referred to above that s. 62(7) conferred on a registered owner of a charge the right to obtain an order for possession for the purposes of a sale out of court. It can clearly be seen from the decision in the Smyth case, the decisions in the Birmingham Citizens Permanent Building Society v. Caunt and Anglo Irish Bank v. Fanning that the scope of the discretion conferred on the court is very limited. In practical terms if the principal sum due on foot of the charge has become payable the registered owner of the charge is entitled to an order for possession. That is not to say that the borrower is not entitled to an adjournment of proceedings to pay off the mortgage in full or alternatively to come to an arrangement with the lender as to the repayment of the mortgage. However, if the proofs of a plaintiff are in order and there is no other bar to an order being made, then it seems, the court has no discretion but to make the order.”
It was on that basis that counsel for the plaintiff in Start Mortgages argued that there was a right to apply for an order for possession when repayment of the principal monies secured by the instrument of charge had become due. The defendant’s counsel contended that s. 62(7) did not provide a right per se because the granting of such an order was merely discretionary. Dunne J. went on to consider the findings in Director of Public Works v. Ho Po Sang [1961] AC 901 and in Chief Adjudication Officer v. Maguire [1999] 1 WLR 1778 and the statement in Bennion on Statutory Interpretations (5th Ed.) at page 309 and held (at p. 22):
“It seems to me to be clear from the authorities referred to above that if the right at issue has, to use the words referred to in Bennion, become vested by the date of repeal, then the right is one that can be enforced not withstanding the repeal of the particular statutory provision. That being so, it is necessary to look again at the wording of section 62(7) ….”
Dunne J. held that accordingly the right to apply for an order for possession of the lands is saved by s. 27 notwithstanding the repeal of s. 62(7), as it is a right which confers an entitlement and not merely an exception. Having so held, the Judge then addressed the question as to whether the right was acquired or accrued. On that issue, in the case of Director of Public Works v. Ho Po Sang, it was held by Simon Brown L.J. (at p. 1788]:
“… that whether or not there is an acquired right depends upon whether at the date of the repeal the claimant had an entitlement (at least contingent) to money or other certain benefit receivable by him provided only that he takes all appropriate steps by way of notices and/or claims thereafter.”
Dunne J. also considered the case of O’Sullivan v. Superintendent in Charge of Togher Garda Station [2008] 4 IR 212 in relation to the issue as to when rights are acquired. That case concerned the amendment of s. 29 of the Road Traffic Act 1961 by s. 7 of the Road Traffic Act 2006. Section 7 of the Act of 2006 changed the basis upon which a person in respect of whom a consequential disqualification order of not less than two years had been made on conviction for a road traffic offence was entitled to apply for its removal. Under the old provisions of the Act of 1961, an application to restore the driving licence could be made after nine months. Following the repeal, it was not possible in the case of a person disqualified for a period of more than two years to apply for the restoration of the licence before the completion of one half of the period specified, i.e. twelve months. In the O’Sullivan case the Court considered the words “acquired” and “accrued” and identified that at pages 222 and 223 of the O’Sullivan case the judgment had stated:
“I am of the view that the applicants acquired the right or came into possession of the right to apply for the restoration of their driving licences on their conviction and consequential disqualification. The legislature in enacting s. 27(1)(c) and also s. 27(2), clearly saw a distinction between a right acquired and a right accrued. I accept the argument of the applicants that the right to apply arose following conviction and that the right then accrued after the lapse of nine months.”
The plaintiffs in the Start Mortgages case argued that the right was accrued and acquired at the date of registration of the charges and Dunne J. opined that that issue lay in the future. She identified the issue as to whether the lender had a right to apply for possession on the date of repeal and Dunne J. agreed that the right to apply for an order accrued only when the monies were due and until such time as demand for repayment was made. She concluded (at p. 26):
“… having regard to the provisions of s. 62(7) that repayment of the principal monies secured did not become due until such time as demand for repayment of same was made. I agree with her submissions.”
It followed that Dunne J. held that where monies secured by charge became due and demand had been made prior to the 1st December, 2009, the proceedings were not barred, notwithstanding the repeal of s. 62(7). In those circumstances the rights of the lender to apply for an order of possession were saved and proceedings could be continued or instituted, provided that the monies had become due and demand had been made before the date of repeal. If demand was made after the 1st December, 2009, the lender could not have acquired or accrued a right to apply for an order of possession.
5.7 The effect of the Start Mortgages decision is that there is a lacuna in the law following the repeal of s. 62(7). The consequences of the repeal, as identified in the Start Mortgages decision, was that those lenders who did not have an entitlement to apply for an order pursuant to s. 62(7) by the 1st December, 2009 could not after the repeal apply for an order pursuant to s. 62(7). It was also the case that the provisions in the 2009 Act which replaced s. 62(7) applied only to mortgages registered as and from the 1st December, 2009. That situation gave rise to a situation which Dunne J. described (at p. 30) in her judgment in the following terms:
“It (the repeal of s. 62(7)) only applies therefore to mortgages created by deed after the 1st December, 2009. It appears that there is a lacuna created by the repeal of s. 62(7) in that, as I have found, those lenders who did not have an entitlement to apply for an order pursuant to s. 62(7) by the 1st December, 2009, are not in a position of avail of the provisions of the 2009 Act to apply for an order of possession as their right to apply for such an order is not saved by the provisions of the 2005 Act. It is not for the court to supply that which is not contained in the 2009 Act.”
5.8 The judgment in the Start Mortgages case was expressly limited to the particular facts of that case. As Dunne J. (at p. 30) of her judgment:
“I reiterate the fact that this judgment is not intended to deal with any issue other than the right of the lender to apply for an order pursuant to s. 62(7) of the 1964 Act notwithstanding its repeal by s. 8 of the 2009 Act. Any other issues that may arise by way of defence can be dealt with in due course.”
5.9 The implications of the Start Mortgages decision were considered by Laffoy J. in Kavanagh & Anor. v. Jeremiah Lynch & Anor. (Unreported, judgment of Ms. Justice Laffoy of 31st August, 2011). In that case the Court held that where a mortgagee’s statutory rights, powers and remedies, such as the right to appoint a receiver, pursuant to the Act of 1881 had been contractually incorporated into a mortgage granted prior to the 1st December, 2009, then such rights, powers and remedies are enforceable by the mortgagee notwithstanding the repeal of the relevant sections of the Act of 1881 by the Act of 2009. In the Kavanagh case it was argued by the defendants that by extension of the ruling in the Start Mortgages case any appointment of a receiver which was reliant in any way upon the terms of the Act of 1881 was ineffective. Having considered the authorities, including the Start Mortgages case, the Court held that receivers were validly appointed in the cases before the Court in that the relevant mortgages contained express provisions to the effect that the mortgagees had the relevant rights, even though those rights were incorporated by reference to the Act of 1881. Laffoy J. held (at p. 10 and p. 11) as follows:
“3.5 On the basis of the provisions of the 2007 Mortgage and the Mortgage Conditions to which I have referred and the contents and provisions of the documents exhibited by Mr. Lowe, I am satisfied that on the 13th May, 2010 the power of Permanent to appoint a receiver was exercisable and, further, that it was properly exercised by the deed of appointment of that date. By the combined operation of the 2007 Mortgage and the Mortgage Conditions, certain rights, remedies and powers were given to Permanent, in some instances by reference to the Act of 1881. At the time the 2007 Mortgage and those rights, remedies and powers were created, the Act of 1881 was in force. In properly construing the extent of the mortgagee’s rights, remedies and powers, one must read into the 2007 Mortgage and the Mortgage Conditions, where appropriate, the relevant provisions of the Act of 1881 where they have been incorporated therein, subject to any variations which are expressly provided for. The fact that since the commencement of the Act of 2009, on the 1st December, 2009, ss. 15 to 24 of the Act of 1881 have been repealed cannot vary the proper construction of the 2007 Mortgage or impact on the contractual relationship of the mortgagors and Permanent, as mortgagee, thereby created. The rights, remedies and powers conferred on Permanent ab initio in the 2007 Mortgage still apply.
3.6 Accordingly, in my view, the considerations which arose in Start Mortgages Limited v. Gunn and Others [2011] IEHC 275 in consequence of the repeal of s. 62(7) of the Registration of Title Act 1964 (the Act of 1964) by s. 8 of the Act of 2009 do not arise in relation to the power of Permanent to appoint Mr. Lowe as receiver or the nature of the powers conferred on Mr. Lowe as such receiver, insofar as they are conferred by reference to the provisions of the Act of 1881.”
The Court read into the mortgages being considered in the Kavanagh case the relevant provisions of the Act of 1881 subject to any variations expressly provided for. The Court also held that the repeal of the relevant statutory provisions did not alter that construction of the mortgages or the contractual entitlements thereby created as they existed at the time of the repeal. Laffoy J. concluded (at p. 20 and p. 21) in her judgment as follows:
“7.4 On this application, the defendants have raised issues about the title of the plaintiffs as receivers and their powers, which I have addressed earlier, by reference to the provisions of the 2005 Mortgage and the 2007 Mortgage, and they have done so in reliance on the fact that the provisions of the Act of 1881, by reference to which powers were conferred on the mortgagees and receivers appointed by them, have been repealed. On this point, it seems to me that there is a clear distinction between the impact of the repeal of s. 62(7) of the Act of 1964, which provided a statutory remedy to the owner of registered land to apply to court in a summary matter for possession of the land when repayment of the money secured by the charge had become due, as found by Dunne J. in Start Mortgages Limited & Ors v. Gunn & Ors, and the impact, if any, of the repeal of the Act of 1881 on the drafting device universally availed of by draftsmen of security documents of conferring powers on mortgagees by incorporating statutory provisions in force at the time of creation of the security, with or without variation. As I have found, in the latter situation, the ascertainment of the rights and liabilities of the parties to the security document is a matter of construction of the document and the repeal of the statutory provisions does not have the impact advocated by counsel for the defendants. Nonetheless, the issue may be the subject of further debate at the trial of the action. However, at this juncture, on the basis that all of the immovable property the subject of this application was mortgaged by the 2005 Mortgage or the 2007 Mortgage and that both Mr. Kavanagh and Mr. Lowe have been validly appointed as receivers with power to take possession of the respective parts of that property over which each has been appointed a receiver, I am satisfied that the title of each of the plaintiffs to possession cannot be in issue.”
This Court will follow the approach identified by Laffoy J. and, on the facts of this case, is satisfied that there is also a clear distinction between the impact of the repeal of s. 62(7) of the Act of 1964, which was being considered by Dunne J. in Start Mortgages, namely, the entitlement to apply for summary relief and this case where the entitlement to appoint a receiver had been in place by reference to the Act of 1881 at the date of the repeal.
6.1 The decision in the Start Mortgages case dealt only with the issue of the entitlement to apply to court for an order for possession on a summary basis. In this case what is in issue is the right to appoint a receiver. The Court is satisfied that the right to appoint a receiver is of a different nature or order to the right to apply to the Court for an order for possession on a summary basis. The right to appoint a receiver is different in character. A consideration of what is involved leads to the conclusion that a lender who loses the right to apply for possession of mortgaged property on a summary basis still retains the right to apply on a plenary basis. Therefore, what is in issue is the loss of a procedural facility and there is no loss of a substantive right. In contrast, the loss of the right to appoint a receiver would result in the loss of a substantive right. It is also the case that the right to appoint a receiver and in what circumstances was fully in place at the date of repeal. The nature of the distinction between the effect of a change to a right of a procedural nature as opposed to a right of a substantive nature was considered in Wilson v. First County Trust Ltd. (No. 2) [2004] 1 AC 816 at p. 881. Lord Rodger stated in relation to the issue of statutes altering matters of pure procedure as follows:
“199 So far I have been dealing with changes in substantive law. As can be seen from the statement of Wright J in In re Athlumney [1898] 2 QB 547, 552 which I quoted above, changes in matters of pure procedure have been treated differently. Wilde B stated the position most starkly in Wright v Hale (1860) 6 H & N 227, 232: ‘where the enactment deals with procedure only, unless the contrary is expressed, the enactment applies to all actions, whether commenced before or after the passing of the Act’. The justification for treating matters of pure procedure differently was stated by Mellish LJ in Republic of Costa Rica v Erlanger (1876) 3 Ch D 62, 69: ‘No suitor has any vested interest in the course of procedure, nor any right to complain, if during the litigation the procedure is changed, provided, of course, that no injustice is done’.”
The decision in the Start Mortgages cases relates to the loss of a procedural facility and to extend its scope beyond procedural facilities to substantive rights would be to disregard the established rights of mortgagees as recognised in legislation for over one hundred years. The judgment in Start Mortgages was expressly limited to issue before the Court and did not deal with any other issue. The provisions of the Act of 1881 and the implied power of the appointment of a receiver by a mortgagee are well established. The re-enactment of the 1881 provisions in the Act of 2009 in a substantially similar form by way of s. 108 of that Act leads to the conclusion that applying the canons of statutory interpretation and, in particular, the provisions of the Act of 2005, that if the Oireachtas had intended to abolish the statutory power of the appointment of a receiver such abolition would have been expressly provided for in the legislation. Section 27(1)(c) of the Act of 2005 expressly provides that where an enactment is repealed, the repeal does not:
“(c) affect any right, privilege, obligation or liability acquired, accrued or incurred under the enactment.”
It is a well established principle consistent with the Act of 2005 that the legislature does not intend to change the law beyond the immediate scope and object of an enactment and that the more radical a change can be said to be, the more weight is given to such presumption. See judgment of Finnegan J. in Meagher v. Luke J. Healy Pharmacy Ltd. [2010] IESC 40 (Unreported, Supreme Court, 16th June, 2010) where Finnegan J. adopted with approval (At p. 19) the statement of the law contained in the textbook Statutory Interpretation- Bennion (2nd Ed.) set forth at s. 269 which stated:
“It is a principle of legal policy that laws should be altered deliberately rather than casually, and that Parliament should not change either common law or statute law by a sidewind, but only by measured and considered provisions. In the case of common law, or Acts embodying common law, the principle is somewhat stronger than in other cases. It is also stronger the more fundamental the change is.”
6.2 In applying the above approach to the facts of this case, the Court is satisfied that the abolition of a substantive right is not comparable with or to be compared with the abolition of a procedural right. The presumption against radical amendments applies with particular force to a purported abolition of a well established substantive right. In those circumstances when the Court comes to ascertain the intention of the Oireachtas it is satisfied that if it had been the intention of the Oireachtas to disapply the provisions of the previously existing law, in particular, the provisions of the Act of 1881 to mortgages created prior to December 2009, the Act of 2009 would have expressly so provided. In applying the provisions of s. 27 of the Act of 2005 to substantive rights as opposed to procedural rights, the Court is satisfied that the facts of this case can be distinguished from Start Mortgages. The provisions of s. 62(7) of the Act of 1964 are unique and provide for an additional procedural right without removing the substantive right. The Court has already indicated that if the Oireachtas had intended to make a radical change to a substantive right it would have expressly and explicitly stated such a change. It was submitted on behalf of the plaintiff in this action that if the intention of the Oireachtas had been to disapply the provisions of the previously existing law, in particular, the provisions of the Act of 1881, to mortgages created prior to 1st December, 2009, the Act of 2009 would have expressly so provided. In this context, it is informative that when s. 111 of the Act of 2009 amends the law in relation to future advances, s.111(4)(a) expressly provides that it applies to mortgages made both before and after the commencement of Chapter 3 of the Act of 2009. It was contended that that demonstrated a clear intention on the part of the Oireachtas to disapply the previous legislation to mortgages created before 1st December, 2009. The Court adopts that argument and is satisfied that if the intention of the Oireachtas had been to disapply other aspects of the pre-existing law to mortgages created by deed prior to the commencement of the Act of 2009, it would have done so by express provision.
7.1 Applying s. 27(1)(c) of the Act of2005 to this case, the Court is satisfied that the mortgagee’s statutory right to appoint a receiver was acquired under the Act of 1881 at the time of the execution of the mortgage and that therefore the operation of the relevant section in the Act of 2005 results in a situation where such acquired or accrued right cannot be abrogated by the operation of a subsequent statute which purports to abolish such a right. Section 19(1) of the Act of 1881 provided:
“A mortgagee, where the mortgage is made by deed, shall, by virtue of this Act, have the following powers, to the like extent as if they had been in terms conferred by the mortgage deed ….”
The facts in this case demonstrate that the right to appoint a receiver was conferred immediately upon the creation of the mortgage. Even though as of that date the mortgagee could not exercise that right but could only do so when the mortgage monies became due, the entitlement to do so and the circumstances which would permit the exercise of the entitlement were identified and required no further agreement. The Court is satisfied that a correct analysis of the contractual agreement between the parties and the application of the then relevant legislative provisions as contained in the Act of 1881 to the agreement results in the situation that the power to appoint a receiver was acquired at the time of the creation of the mortgage even though the power did not actually accrue or become capable of exercise until mortgage monies had fallen due. The restriction on the appointment of a receiver until after the mortgage monies had become due can be correctly categorised as a procedural restriction which is placed on the exercise of the power rather than a substantive restriction placed upon the acquisition of the power. Section 24 of the Act of 1881 specifically commences with the words “A mortgagee entitled to appoint a receiver under the power in that behalf conferred by this Act ….” There is no doubt but that the right sought to be relied upon by the plaintiff in this case must have been acquired or accrued, as provided for in the words of s. 27(1)(c) of the Act of2005 and not merely capable of being acquired or accrued to benefit from that provision. The provisions within s. 27 of the Act of 2005 are similar to those contained in the English Interpretation Act 1978. Those provisions have been the subject of review by the English courts in a number of cases which have addressed the issue as to when a right is to be deemed to be acquired or accrued and thus saved by the equivalent English provision to that contained in the Act of 2005.
8.1 In the case of Chief Adjudication Officer & Anor. v. Maguire [1999] 2 All ER 859, the Court of Appeal considered the issue of whether for the purposes of s. 16 of the English Act of 1978, a right could be acquired under enactment before its repeal even though that right was contingent upon an event which occurred only after the repeal. In a paragraph in the judgment headed “Conclusion”, Simon Brown L.J. in giving judgment held (at p. 868):
“I greatly prefer Mr. Howell’s argument. Indeed I think that much of Mr. Drabble’s argument proceeds on a fundamentally false premise. The court is not, in my judgment, engaged on a two stage inquiry, first deciding whether there is a right and then deciding whether it is an ‘acquired’ or ‘accrued’ right. (Incidentally, despite what Lord Hunter said in Moray CC, and perhaps what Atkin LJ hinted at in Hamilton Gell v White, I for my part see no distinction in this context between ‘acquired’ and ‘accrued’. I would note, indeed, that certain of the saving legislation refers to only one of these words- the Ceylon Ordinance in the Free Lanka case to ‘any right acquired’; the relevant provision in Abbott’s case to ‘all rights accrued’.) Rather the court is concerned with a single question: has the claimant established that at the time of repeal he had a right? True, as Lord Evershed observed in the Free Lanka case: ‘The distinction between what is and what is not “a right” must often be one of great fineness.’ But there are now to be found in the authorities helpful touchstones by which to reach the correct answer. A mere hope or expectation of acquiring a right is insufficient. An entitlement, however, even if inchoate or contingent, suffices. The fact that further steps may still be necessary to provide that the entitlement existed before repeal, or to prove its true extent, does not preclude it being regarded as a right.”
This Court adopts the approach identified in the judgment of Simon Brown LJ. It is then necessary to apply that statement of the law to the facts of this case and to consider the single question; has the plaintiff in this case established that at the time of repeal he had a right? In addressing that question, the Court proceeds on the basis that a mere hope or expectation of acquiring a right is insufficient but that an entitlement, however, even if inchoate or contingent suffices. The plaintiff in this case had the rights that a mortgagee possessed under the 1881 Act at the time that the mortgage was created and those rights were acquired rights. Those rights were expressly implied into the deed of mortgage at the time of its creation given that s. 19(1) provided:
“A mortgagee, where the mortgage is made by deed, shall, by virtue of this Act, have the following powers, to the like extent as if they had been in terms conferred by the mortgage deed ….”
The rights identified therein are not rights which could be categorised as falling within the hope or expectation category or rights that might be conferred at some future date but were rights which were incorporated as if they were terms of the deed itself. The facts of this case establish that the powers which were incorporated by reference to the Act of 1881 did not become exercisable until default by the defendant. However, the power to exercise such right arises automatically on default and is not a mere hope or expectation and can be correctly identified as a contingent right as of the date upon which the parties entered into the mortgage. The right to appoint a receiver was inchoate as of the date upon which the mortgage was agreed but applying the statement of the law from Simon Brown LJ, set out above, such right was nevertheless a real and acquired right and not a right based upon hope or expectation. The right to appoint was present as and from the date when the mortgage was completed and was not dependent upon any further action being taken or any future agreement.
8.2 Applying the approach identified by Dunne J. in the O’Sullivan v. Superintendent in Charge of Togher Garda Station case, and, in particular, the statement of the law contained at p. 222 of that judgment, to the facts of this case, those facts demonstrate that the mortgagee acquired the right to appoint a receiver upon the creation of the deed of mortgage whilst the Act of 1881 was still in force and even though that right did not accrue until an act of default occurred by the defendant which occurred subsequent to the repeal of the Act of 1881 provisions in the Act of 2009 based upon the ratio of Dunne J. in the O’Sullivan case, leads to the conclusion that the right of the mortgagee to appoint a receiver survived the Act of 2009 by virtue of the provisions of s. 27(1)(c) of the Act of 2005.
9.1 During the course of argument before the Court a distinction was sought to be drawn between the words “acquired” and “accrued”. Various authorities were referred to which indicated disagreement in various decisions of the English courts as to whether or not there was a distinction between the words “acquired” and “accrued”. However, in the light of the determination which this Court has made that the plaintiff had the right to appoint a receiver as of the date of the creation of the mortgage deed even though that right did not accrue until mortgage monies became due, it follows that given the wording of s. 27(1)(c) of the Act of 2005 which provides that a right that is either acquired or accrued is saved by the provisions of that section, this matter does not fall to be considered in this case. The plaintiff had acquired a right as of the date of the creation of the mortgage and that acquired right is saved by the provisions of s. 27(1)(c) of the Act of 2005 and can be relied upon by the plaintiff in this case. The Court is satisfied that the provisions of the Act of 2005 apply and accordingly the rights acquired by the mortgagee under the Act of 1881 continue to apply and that since the provisions of s. 19 of the Act of 1881 were incorporated as a term of the mortgage as of the date of the creation of the mortgage, that term cannot be removed by the operation of a subsequent statute. The plaintiff as mortgagee had a statutory right to appoint a receiver and the receiver had statutory powers under the statutory provision.
10.1 The defendants contended that the bank’s deed of mortgage/charge was not registered and since it was not registered that the charge did not operate as a mortgage by deed and since the charge was not a mortgage by deed, the bank had no power of sale nor had it a power to appoint a receiver. It was therefore claimed that as a result of the non-registration that the bank had no right to summary possession of the premises. The facts are that an application for registration of the charge over the mortgaged property was made on the 15th June, 2009 and that charge was ultimately registered in August 2011. Since the charge is now registered, the issue which the defendant raises in relation to non-registration is moot due to the fact that the registration of the charge, which is now complete, is deemed effective from the date of application which is the 15th June, 2009. The Court must proceed on the basis that the registration was effective from 15th June, 2009, which is prior to the appointment of a receiver.
10.2 A further issue raised by the defendant was that it was claimed that the bank acted in a precipitous manner in sending in a receiver in that it did not give the defendant sufficient time or an adequate opportunity to make a proposal or to deal with the bank and had acted in an unreasonable manner. The evidence which was before the Court both on affidavit, which was admitted in evidence, and on oral evidence, makes it clear that a receiver was only appointed by the bank after there had been extensive discussions, negotiations and meetings between the defendant and his representatives and the bank and their employees and that notwithstanding those events, no agreement could be reached between the parties. The demand on the 11th April, 2011 was not a precipitous demand as it followed upon the extensive negotiations and contacts between the parties and the fact that that demand was made immediately prior to the appointment of the receiver in no way disentitles the bank to appoint the plaintiff as a receiver. As of the date that the plaintiff was appointed receiver there was a sum of over €1,800,000 due by the defendant to the bank and this Court is satisfied that pursuant to s. 19(1)(iii) of the Act of 1881 and pursuant to the provisions of the deed of mortgage, the Ulster Bank became and was entitled to appoint a receiver to the premises following an act of default by the defendant, namely, his failure to pay the monies due and owing to the bank upon demand and when such demand had been made.
11.1 In the light of the above findings, this Court is satisfied that the plaintiff is entitled to the declarations sought at paragraph (1) of the statement of claim, that is a declaration pursuant to the provisions of the Act of 2005 and, in particular, s. 27(1)(c) thereof that the right of Ulster Bank Ireland Ltd. to appoint a receiver to the premises pursuant to the provisions of the Act of 1881 has not been affected by the enactment of the Act of 2009 and that in the light of that declaration and based upon the findings made by this Court, it follows that the plaintiff is entitled to an order compelling the defendant to deliver up possession of the property. It also follows that the defendant’s counterclaim and his claim for damages for trespass, breach of contract and for damages on foot of the undertaking given by the plaintiff to this Court, should be dismissed. The Court is satisfied that there was no trespass and that there was no breach of contract and that the bank as mortgagee had a right to appoint a receiver and that the receiver was appointed after demand had been made and at a time when the defendant was in default. It is also the case that following the plaintiff’s demand to the defendant that the defendant refused to deliver up possession of his premises until ordered by the Court. The Court, therefore, will grant the plaintiff the relief sought as indicated in this paragraph and will dismiss the claims made by the defendant as contained in his counterclaim.
Stepstone Mortgage Funding Ltd -v- Fitzell & Anor
[2012] IEHC 142
Judgment by: Mary Laffoy J.
2. The issue and the relevant facts
2.1 The core issue which the Court has to determine is whether the conclusion of the Master that the plaintiff was incorrect in informing the defendants in the letter of 29th November 2011 that they had no right of appeal was wrong in fact and in law. The determination of that issue turns on the proper application of the “Code of Conduct on Mortgage Arrears” issued by the Central Bank of Ireland in December 2010 to mortgage lenders pursuant to s. 117 of the Central Bank Act, 1989 (the Act of 1989). That code, to which I will refer as the “the Current Code”, replaced two earlier codes (the Code of Conduct on Mortgage Arrears issued by the Financial Regulator in February 2009, and the Code of Conduct on Mortgage Arrears issued by the Financial Regulator on 17th February 2010).
2.2 While the Compliance Affidavit is very comprehensive and covers transactions on the defendants’ mortgage account from November 2007, onwards, for present purposes I consider that it is only necessary to address the factual situation since the Current Code came into effect on 1st January 2011. However, in order to give some perspective on the monthly instalment for which the defendants were liable in 2010 and 2011, I note that it is averred in the Compliance Affidavit that, in February 2010, the plaintiff asked if the defendants could pay €150 per week “as this would cover the monthly instalment and mean that arrears were not increasing”. Accordingly, I assume that the monthly instalment at that stage was in the region of €663. During the eleven months from January 2011 to November 2011, the defendants made no payments for four months, they paid €300 for one month, €400 for five months and €600 for one month. In other words, they only paid €2,900 over eleven months.
2.3 By letter dated 1st July 2011, the plaintiff informed the defendants about the Current Code, that it became effective on 1st January 2011 and that it contained certain requirements which the plaintiff was obliged to adhere to when dealing with borrowers who find themselves in arrears on their mortgage account. There was enclosed with the letter a booklet which explained the plaintiff’s “Mortgage Arrears Resolution Process (MARP)” and what borrowers could expect during the process. The letter would appear to be a standard letter which, I infer in all probability, went to all of the plaintiff’s borrowers.
2.4 A document referred to a “Standard Financial Statement (SFS)” was completed by the defendants, presumably at the request of the plaintiffs, and was received by the plaintiffs on 30th September 2011. However, it was considered by the plaintiff that SFS was incorrectly completed and by letter dated 3rd October 2011 the plaintiff requested the defendants to complete the incomplete sections and return it. Once again, I would surmise that this letter was a standard letter issued to borrowers who had not completed the SFS correctly. For instance, there was a caveat in the letter that failure to provide the plaintiff with a fully completed SFS might cause the defendants to be classed “as borrower who is not co-operating”, so as to allow the plaintiff to commence legal proceedings for possession of the mortgage property. Further, the letter stated that the plaintiff reserved the right to commence such proceedings “if the fully completed SFS was not provided within twenty business days”. That caveat was of no relevance to the defendants because these proceedings were already in being. In any event, the defendants completed the SFS, signed it, dated it 10th October 2011, and returned it to the plaintiff. In the Compliance Affidavit it is averred that the plaintiff assessed the SFS as completed and came to the conclusion that the SFS did not show sufficient disposable income to meet an appropriate level of payment to mortgage account. That led to the letter dated 29th November 2011, which prompted the Master’s decision not to accede to the plaintiffs request to transfer the matter to the Chancery special summons list.
2.5 The letter of 29th November 2011 sets out the total arrears due on the mortgage account at that stage at €17,106.78. The letter stated that, following the assessment of the defendants’ personal and financial circumstances, the plaintiff was not prepared to offer the defendants a repayment arrangement; they did not have sufficient disposable income to enable them to maintain an appropriate level of payments and there was no evidence that there would be any material change in their circumstances. The letter then went on to say:-
“Therefore we intend to proceed with the litigation process for possession of your property which commenced previously. Given that this process has already commenced, you do not have the benefit of the MARP process referred in the 2010 Code of Conduct on Mortgage Arrears [i.e. the Current Code] and, consequently, amongst other things, you do not have the right to appeal this decision”.
It was the plaintiff’s contention in that paragraph that the defendants did not have the right to appeal the decision of the plaintiff that the Master determined was incorrect and it was to rectify what he believed was a mistake on the part of the plaintiff that the Master directed the plaintiff to inform the defendants that they did in fact have a right of appeal. In order to determine what is the correct position it is necessary to consider the provisions of the Current Code.
3. The Current Code
3.1 In Chapter 1, entitled “Scope” of the Current Code, existing arrears cases are addressed in the following paragraph:
“From 1 January 2011, this Code applies to all existing Arrears cases falling within this Code. While lenders’ attention is specifically brought to provisions 21, 35, 47 and to steps 3 and 4 of the Mortgage Arrears Resolution Process, lenders must ensure that they comply with all provisions of this Code from 1 January 2011.”
It is unquestionably the case that the defendants’ mortgage account was an existing arrears case on 1st January 2011.
3.2 Counsel for the plaintiff emphasised the extent to which matters had advanced as between the plaintiff and the defendants by 1st January 2011. At that stage, these proceedings for possession had been in being for over a year. That being the case, it was submitted by counsel for the plaintiff that the relevant provision of the Current Code as regards what action the plaintiff could take after 1st January, 2011 is provision 50, which provides:-
“In cases where legal action to obtain an Order for Possession has commenced, a lender must endeavour to maintain contact with the borrower or his/her nominated representative. If an alternative repayment arrangement is agreed between the parties before an Order for Possession is granted, the lender must put the legal proceedings on hold, for the period during which the borrower adheres to the terms of the alternative repayment arrangement.”
Taking an overview of the terms of the Current Code, in my view, provision 50 applies in every case in which legal action is commenced, whether before or after 1st January 2011.
3.3 As stipulated in the provision quoted at para 3.1 above, all of the provisions of the Current Code applied to the defendants’ case from 1st January 2011, irrespective of the fact that these proceedings had commenced a year earlier. In the standard letter from the Central Bank to mortgage lenders notifying them of the introduction of the Current Code, under the heading “Transitional Arrangements”, that provision was reiterated and the attention of lenders was specifically brought to the provisions which were set out in that provision, for instance, the limits on unsolicited contact as imposed by provision 21. As regards steps 3 and 4, it was stated:-
“Where no formal arrangement is in place, a lender must review each borrower’s case in accordance with steps 3 and 4 of the MARP”.
The letter then went on to deal with the situation where there was an alternative repayment arrangement in place and stated as follows:-
“Where an alternative repayment arrangement (which was already in place before the introduction of this Code) breaks down, the lender’s ASU must review the borrower’s case immediately, in accordance with provision 41.”
Provision 41 provides:-
“Where a borrower ceases to adhere to the terms of an alternative repayment arrangement, the lender’s ASU must formally review the borrower’s case, including the standard financial statement, immediately.”
The ASU is the centralised dedicated Arrears Support Unit, which each mortgage lender which is subject to the Current Code must establish.
3.4 While not directly relevant to the issue with which the Court is concerned, I think it is worth noting that the standard letter draws attention to “some overlap of requirements between the existing Consumer Protection Code” and the Current Code and to the fact that certain provisions of the Consumer Protection Code have been “disapplied for mortgage lenders when dealing with mortgage arrears and pre-arrears cases”. As I understand the position, the disapplication has been preserved in the Consumer Protection Code 2012.
3.5 In this case, there was an alternative repayment arrangement in place on 1st January 2011. In reality, there had been a series of arrangements and a series of breakdowns. The last arrangement put in place before 1st January 2011 was that the defendants would make a double payment in January 2011 and would pay €600 by 7th January 2011. The defendants only paid €300 in January 2011, so that the defendants had once again failed to adhere to the arrangement with the plaintiff. Therefore, in my view, provision 41 came into play and there was an obligation on the plaintiff to formally review the defendants’ case, that is to say, to go through step 3 and 4 of the MARP. In fact, that is what the plaintiff set out to do in obtaining the completed SFS from the defendants and in conducting the assessment referred to in the letter of 29th November 2011. In my view, the submission made on behalf of the plaintiff that after July 2011 the plaintiff had gone further in engaging with the defendants than it was obliged to do under the Current Code is not correct. It follows that the statement in the letter of 29th November 2011, which I have quoted at para. 2.5 above, to the effect that the defendants did not have the benefit of the MARP process, and, consequently, did not have a right of appeal against the decision of the plaintiff, is not correct.
3.6 The interpretation of the Current Code which, in my view, is the correct interpretation, as set out in the previous paragraph, is consistent with a document which was helpfully put before the court by the plaintiff’s legal advisors- a document which I believe has been produced by the Central Bank and is headed “Mortgage Arrears- Frequently Asked Questions”. The pertinent question is: “I went into mortgage arrears in 2009. Am I covered by the [Current Code]?” The answer given to the question is as follows:
“Yes, you are. Anyone who was in arrears on their mortgage on their home before 1st January 2011… is covered by the [Current Code]. Your lender must apply the protections of the [Current Code] to your case after 1st January, but how they do this will depend on what stage of the Mortgage Arrears Resolution Process (MARP) you are at when the [Current Code] carne into place. For example, if you entered an arrangement with your lender last year and this breaks down after 1st January 2011, your lender must formally review your case immediately. As part of this review, your lender will ask you to complete a Standard Financial Statement (SFS), which you may not have had to do before. Your case will then go through all stages of the MARP process. This means that your case will be assessed by your lender’s Arrears Support Unit, which will consider what form of alternative repayment arrangement is suitable for your current circumstances. If you are not happy with the arrangement you are offered, you can make an appeal to your lender’s Appeals Board…”
3.7 Step 5 of the MARP deals with appeals. Provision 42 provides that a lender must establish an Appeals Board to consider any appeals submitted by borrowers and to independently review, inter alia, the decision of the lender’s ASU. I assume that the assessment referred in the letter of the 29th November 2011 was carried out by the plaintiff’s ASU in accordance with step 3 (provisions 30 to 32 inclusive of the Current Code). Provision 45 provides as follows:-
“A lender must allow the borrower a reasonable period of time to consider submitting an appeal to the Appeals Board, which must be at least 20 business days from the date he/she received notification of the decision of the lender’s ASU.”
In this case, the defendants were not given the opportunity to consider appealing the decision recorded in the letter of 29th November, 2011, as they should have been.
3.8 It was also part of the plaintiff’s case that the defendants, through their consistent and repeated default and non-compliance with the alternative arrangements entered into between the parties, are non-co-operating borrowers. The defendants undoubtedly have reneged on agreements entered into with the plaintiff. However, I think it would be premature to form a view as to whether the defendants are non-co operating borrowers at this juncture, given that they have not been afforded the benefit of the Current Code as they should have been. In any event, the evidence before the Court, in the form of the completed SFS, raises the question as to whether the defendants are unable, as distinct from being unwilling, to meet repayment obligations they have taken on.
4. Submissions
4.1 The Court has been furnished with comprehensive written legal submissions on behalf of the plaintiff to which I have had regard. The submissions have been veryhelpful, particularly, given the non-appearance of the defendants or anybody on their behalf.
4.2 A number of issues were raised in the affidavit of Mr. Kelly in relation to the manner in which the Master dealt with the matter on 6th December 2011. It was contended that he acted outside his jurisdiction in adjourning the matter. As the plaintiff’s papers were in order, it is the plaintiff’s case that the Master’s only role was to transfer the matter to the Chancery Special Summons list. Further, while the position adopted on behalf of the plaintiff at the hearing of this application was that there had not been non-compliance by the plaintiff with the Current Code, it was suggested that compliance with the Current Code is not a necessary proof in an application for possession made by way of special summons.
4.3 On the status of the Current Code in the context of these legal proceedings, the court was referred to the decision of the High Court (Birmingham J.) in Zurich Bank v. McConnon [2011] IEHC 75 where, in the context of an application for summary judgment on foot of a summary summons, there was a discussion of the entitlement of the defendant to raise, by way of defence, his reliance on the Financial Regulator’s Consumer Protection Code. The observations Birmingham J. made were against the background of his finding that the defendant was “emphatically” not a consumer who came within that code, and that his loan agreement predated the coming into force of the relevant code. Having said that, the obiter observations of Birmingham J. are in line with the statement on the status of Central Bank Codes of Practice quoted at para. 5.12 below.
5. Conclusions
5.1 Given that the Court has not had the benefit of evidence or submissions from the defendants and has not had the benefit of any view on the application of the Current Code, either generally or to the circumstances of this case, other than that of the plaintiff, I consider that it is necessary to exercise caution in expressing a viewon the application of the Current Code, particularly in the current economic climate.
5.2 The following passage from Breslin on Banking Law (2nd Ed.) at 3 – 56, which sets out to explain the contractual setting of Central Bank Codes of Practice is helpful in considering the status of the Current Code. It is stated:
“The Central Bank has promulgated Codes of Practice for credit institutions pursuant to its powers under s. 117 of the Central Bank Act 1989. Breach of the code is not a criminal offence and the Act does not spell out any particular consequences in civil law arising from a breach. Breach of a direction by the Central Bank to comply with particular provisions of the Code is a criminal offence. A key question is whether or not these provisions are merely ‘soft law’, i.e. devoid of legal effect such that a breach of a provision in the Code of Practice will not sound in a remedy in civil law for damages. In the unlikely event that the Codes of Practice have been incorporated into the bank customer bargain then they apply. Whether a particular requirement is deemed to be an implied term in that contract depends on the particular term sought to be implied, and the circumstances of the case – but the test is not an easy one to meet. It is submitted that the Codes of Practice appear more likely primarily to arise in the context of the analysis of the bank’s duty of care and whether the bank has in a particular case met reasonable standards.”
For present purposes, I accept that passage as an accurate statement of the jurisprudence of the Superior Courts on the status of the Current Code as of now. However, in the light of the observations of the author in Donnelly on The Law of Credit and Security at paras. 9-79 and 20-47, some development of the jurisprudence in this area in the future may be anticipated.
5.3 The legislative basis of the Current Code as set out therein is also consistent with the passage quoted above and is in the following terms:
“This Code is issued under Section 117 of the Central Bank Act 1989.
The Central Bank has power to administer sanctions for a contravention of this Code, under Part IIIC of the Central Bank Act 1942.
Lenders are reminded that they are required to comply with this Code as a matter of law.”
Further, in the standard letter, it is stated that contraventions of the Current Code “may be subject to imposition of administrative sanctions”.
5.4 In summary, the methods of enforcement of the Current Code provided by law are:
(a) the administrative sanctions provided for in Part IIIC of the Act of 1942 (as inserted by s. 10(1) of the Central Bank and Financial Services Authority of Ireland Act 2004 (the Act of 2004); and
(b) criminal prosecution for breach of offences created by subs. (4) of s. 117 of the Act of 1989 (as substituted by Schedule 3 of the Act of 2004).
5.5 Notwithstanding what is stated in the preceding paragraphs, I find it impossible to agree with the proposition that, in proceedings for possession of a primary residence by way of enforcement of a mortgage or charge to which the Current Code applies, which comes before the court for hearing after the Current Code came into force, the plaintiff does not have to demonstrate to the Court compliance with the Current Code. To take what is perhaps the best known provision of the Current Code, the imposition of a moratorium on the initiation of proceedings, which is now contained in provision 47 of the Current Code (and which was also to be found in the earlier codes, although the moratorium period in the case of the earliest code was six months, rather than twelve months), surely a court which is being asked to make an order which will, in all probability, result in a person being evicted from his or her home, is entitled to know that the requirement in provision 47, which has been imposed pursuant to statutory authority, is complied with. Moreover, it is likely that it would render the enforcement of provision 47 nugatory, if a lender did not have to adduce evidence to demonstrate that the moratorium period had expired.
5.6 On the facts of this case, for the reasons set out in paragraph 3.7 above- that the defendants were not given the opportunity to consider appealing the decision of the plaintiff recorded in the letter of 29th November, 2011- I consider that the Current Code was not complied with.
5.7 Under O.38, r. 6 of the Rules of the Superior Courts, 1986, it is provided:
“In all cases in which he shall not have jurisdiction… the Master shall transfer the summons, when in order for hearing, to the Court list for hearing on the first opportunity”.
In this case, the position of the plaintiff on 6th December, 2011 was that the case was ready for hearing. Aside from the application on behalf of the defendants for an adjournment by counsel in circumstances where an appearance had not been entered, which, as I understand from Mr. Kelly’s affidavit, the Master was not inclined to accede to, it seems to me that the function of the Master was to transfer the proceedings to the Chancery Special Summons list. In the light of the view I have taken of the application of the Current Code to the defendants’ case, however, that would not have availed the plaintiff because, on the basis of the evidence before the court now, in my view, they are not entitled to an order for possession, not having complied with the Current Code.
6. Form of order
6.1 I propose hearing further submissions from the plaintiff as to the form of order which the court should make in the light of the conclusions set above, the objective being to minimise the use of court time and to minimise the legal costs in relation to the matter.
Irish Life & Permament Plc -v- Duff & Anor
[2013] IEHC 43 (
Hogan J.
20. Section 62(7) of the 1964 Act provided that:-
“When repayment of the principal money secured by the instrument of charge has become due, the registered owner of the charge … may apply to the court in a summary manner for possession of the land …, and on the application the court may, if it so thinks proper, order possession of the land … to be delivered to the applicant, and the applicant, upon obtaining possession of the land …, shall be deemed to be a mortgagee in possession.”
21. This sub-section must be read in context with its companion sub-section, s. 62(6) of the 1964 Act:-
“On registration of the owner of a charge on land for the repayment of any principal sum of money with or without interest, the instrument of charge shall operate as a mortgage by deed within the meaning of the Conveyancing Acts, and the registered owner of the charge shall, for the purpose of enforcing his charge, have all the rights and powers of a mortgagee under a mortgage by deed, including the power to sell the estate or interest which is subject to the charge.”
22. Section 62(7) was, however, repealed with effect from 1st December, 2009, by s. 8(3) and Schedule 2, Part 5 of the Land and Conveyancing Law Reform Act 2009 (“the 2009 Act”). But as Laffoy J. herself pointed out in EBS Ltd. v. Gillespie [2012] IEHC 243 (as had indeed Dunne J. in her judgment in Start Mortgages Ltd. v. Gunn [2011] IEHC 275), s. 27(1) of the Interpretation Act 2005 (“the 2005 Act”) provides that the repeal of any enactment does not “…affect any right, privilege, obligation or liability acquired, accrued or incurred under the enactment.” Section 27(2) of the 2005 Act provides that where an enactment is repealed, any legal proceedings (including civil proceedings) may be “instituted, continued or enforced…as if the enactment had not been repealed” in respect of the right or obligation in question.
23. Laffoy J. then continued thus in Gillespie:-
“In order to determine whether, notwithstanding the repeal of s. 62(7), the jurisdiction of the Court to make an order for possession under that provision is alive as regards the plaintiff’s claim against the defendant in these proceedings, the crucial question is whether it has been established that the plaintiff had acquired as against the defendant a right to seek the statutory remedy in the form of an order for possession of the property secured by the charge prior to 1st December, 2009. The answer to that question turns on the application of the requirements of s. 62(7) in the context of the agreement between the plaintiff and the defendant embodied in the charge to the facts. In performing that exercise, because it is the easiest course to adopt, I propose looking at the matter from the historic perspective and considering whether the plaintiff has established that it had a right to seek an order for possession prior to 1st December, 2009. However, it is not to be inferred that I consider that such approach is the only approach to answering the crucial question.
In order to establish that its claim for possession came within s. 62(7) prior to 1st December, 2009, the plaintiff has to establish compliance with the two requirements expressly set out in the sub-section, namely:-
(a) that repayment of the principal monies secured by the charge had become due by that date; and
(b) that the plaintiff was the registered owner of the charge.
Requirement (b) was clearly complied with. As regards requirement (a), it is necessary to consider what was agreed between the plaintiff and the defendant in relation to repayment of the principal money secured by the charge. Apart from those two requirements, the Court must be satisfied that it would have been proper to afford the plaintiff the statutory remedy of an order for possession against the defendant to enforce the right acquired. Having regard to the observations of Geoghegan J. in Bank of Ireland v. Smyth [1993] 2 IR 102…., I consider the Court would have to be satisfied not only that the application was made bona fide with a view to realising the plaintiffs security, but also that the power of sale had arisen and was exercisable by virtue of the terms of the agreement between the plaintiff and the defendant contained in the Charge.”
24. It is plain here that ILP are the registered owner of the charge. The real question is whether the monies in question had become due prior to 1st December, 2009. In the letter of demand dated 11th December, 2008, ILP referred to the arrears of almost €7,500 and then said:-
“As a result of the arrears stated above and the terms of your mortgage, the Bank is now entitled to recover possession of the mortgaged premises.
Accordingly, unless the above mentioned arrears are discharged within 21 days of today’s date, or, alternatively, vacant possession is given to the Bank within 21 days; we will issue proceedings without further notice against you for a Court Order for the recovery of possession of the premises so that the property may be sold….”
25. It is clear, however, that the letter refers simply to the arrears and not to the principal sum. Put another way, had the arrears been discharged as of that date, then it is plain that ILP would not have proceeded further. While counsel for ILP, Mr. Seligman, accepted that no formal demand for repayment of the entirety of the mortgage monies was made by letter, he insisted that this was not necessary having regard to the relevant terms and conditions of the mortgage itself, namely, condition 6(2)(a), condition 6(4)(a) and condition 7(1) which may now be conveniently considered.
26. So far as condition 6(2)(a) is concerned, it merely says that formal notice requiring payment of the mortgage debt shall not be required. But this in itself does not tell determine whether the debt had become payable. Condition 6(4) is likewise not dispositive, since it simply purports to give ILP the right to enter into possession of the property without notice to the mortgagor “at any time after the total debt has become immediately payable”. This condition does not, however, determine whether the total debt has become payable.
27. Clause 7.1 provides, however, that:-
“The total debt shall become immediately payable to permanent tsb:-
1. If the mortgagor defaults in the making of two monthly repayment or for two months in the payment of any other moneys payable under the mortgage…”
28. It is, of course, true that there had been such default on the part of the mortgagor such as rendered the debt payable immediately given that more than two monthly payments had been missed. But this contractual clause in the mortgage deed had itself been almost instantly overtaken by the letter of 11th December, 2008, which, in effect, promised the mortgagor that the mortgage debt would not become due if the arrears were discharged. Could it be suggested that if the Duffs had, in fact, paid the arrears at that time that ILP could validly have called in the mortgage, the provisions of Condition 7.1 notwithstanding?
29. To my mind, it is clear that ILP could not so have demanded the repayment or otherwise contended that the entirety of the mortgage monies had become due, since by writing the letter in question, the bank were effectively waiving or superseding the strict entitlements of the mortgage deed. In essence, the letter amounted to a representation that the entire sum was not due. All of this is further underscored by the fact that in response to the letter of December 2008, Mr. and Ms. Duff offered to make two payments of €1,500 on 6th February, 2009, and 13th February, 2009. The Bank wrote in response on 28th January, 2009 agreeing to this, although stressing the importance of making these payments on or before that date. While, of course, the Duffs found it impossible to keep up with the repayments schedule, this sequence correspondence further illustrates that the Bank had not actually called upon the Duffs to repay the entire mortgage at this point or that it had ever in reality required them to do so.
30. In these circumstances, I am driven to the conclusion that as ILP had not unequivocally demanded repayment of the entirety of the mortgage debt prior to 1st December, 2009, the bank had not, in the words of Dunne J. in Start Mortgages, “acquired the right to apply for an order pursuant to s. 62(7) [as] the principal monies secured by the mortgage have not become due”. It follows, therefore, that this Court has no jurisdiction to grant the plaintiff bank possession pursuant to s. 62(7), as the latter’s right to apply for possession under that sub-section had not by 1st December, 2009, sufficiently crystallised for the purposes of s. 27(5) of the 2005 Act.
Does the Court have jurisdiction to grant the Bank possession of registered land pursuant to a contractual agreement?
31. Counsel for the Bank, Mr. Seligman, argued forcefully that even if it could not avail of the right to possession under s. 62(7) of the 1964 Act, it was nonetheless entitled to possession as a matter of contractual entitlement. I think that the short answer to that is that the Oireachtas had originally designated s. 62(7) as the sole mechanism whereby this Court could grant possession in this fashion to the holder of a mortgage over registered land (i.e., the well-charging procedure coupled with an order for sale described in the next paragraph excepted). Section 62(7) – following its earlier predecessor, s. 13 of the 1942 Act – thus rectified the yawning gap in the powers of such a mortgagee which Andrews L.J. had identified in Devlin by expressly granting such a power, such as already had been done for the first time in 1942. Given that the Oireachtas has removed that power – save in those cases of demand having been made or the entirety of the mortgaged sum fell due prior to 1st December, 2009 – in the case of pre-2009 Act mortgages of registered land, this Court cannot supply a power to recover possession where none existed in the first place independently of statute.
32. Of course, this does not at all mean, for example, that the Bank cannot sue independently to obtain a well-charging order and to ask the Court to exercise its “inherent” power of sale in that fashion: see Bank of Ireland v. Waldron [1944] IR 303 and Wylie, Irish Land Law (4th Ed., 2010) at 801. Rather, all that has been decided by me is that as the Bank neither demanded repayment of the entire sum nor that the entire sum had properly become due prior to 1st December 2009 (the terms of the mortgage deed notwithstanding), the statutory power to allow a mortgagee possession by means of court order in respect of registered land is no longer exercisable. Absent the applicability of that (now repealed) statutory power and given that the successor to s. 62(7) provided for in s. 97(2) of the 2009 Act only applies to mortgages created after 1st December, 2009, this Court cannot, as it were, create or invent a new power to grant the mortgagee possession.
33. I cannot, however, pass from this point without observing that ILP did not raise – and, of course, could not validly raise in the Circuit Court – the constitutionality of s. 8(3) of the 2009 Act insofar as it repealed a mortgagee’s right to seek an order for possession under s. 62(7) of the 1964 Act. Naturally, in view of the express language of Article 34.3.2 of the Constitution, the constitutionality of any enactment can only be challenged in original proceedings commenced in the High Court.
34. From the standpoint of ILP, however, the constitutionality of such a measure might well be questioned. After all, the mortgagee might well ask why, as a result of what it might fairly consider a piece of legislative legerdemain, an essential ingredient of its security interest (namely, the right through court order to recover possession of the mortgaged property) was now made contingent on the essentially fortuitous issue as to whether a full demand for repayment had been made or the mortgage sum had otherwise become due prior to 1st December, 2009, even though the significance of this date was only to become apparent some time later in July, 2011 following the decision of Dunne J. in Start Mortgages.
35. In these circumstances, a lender might well question whether the legislation was based on rational considerations, i.e., the very first limb of the Heaney proportionality test (Heaney v. Ireland [1994] 3 I.R. 593). This concern might well be re-inforced when one considers that more or less the same power was simultaneously re-introduced for mortgages created after 1st December, 2009, by s. 97(2) of the 2009 Act. One might also query whether by significantly curtailing (or, at least, circumscribing) a lender’s right to possession in this fashion, the Oireachtas unfairly struck at the substance of the lender’s property rights in a disproportionate fashion, which in this instance is the right to recover the security given in exchange for the loan where the borrower has defaulted.
36. These, however, are issues which will be doubtless ventilated in other proceedings and it would be inappropriate at this juncture to do any more other than to raise these issues and to draw attention to them.
Does the Court have jurisdiction to grant possession in respect of the unregistered land?
37. Prior to the enactment of the 2009 Act, the legal status of mortgages over unregistered land was underwritten by a great deal of legal fiction which, although hallowed by unquestioned usage over the centuries, had long ceased to have any real or practical reality. In theory, the mortgagee generally took a conveyance of the lands by fee simple, subject to the mortgagor’s equity of redemption. For so long, therefore, as the mortgagor honoured the terms of the mortgage, he or she was entitled to possession. This is all faithfully reflected in the indenture of mortgage created in the present case so far as the unregistered portion of the land is concerned.
38. One of the great achievements of the 2009 Act has been to liberate the law from these unnecessary and cumbersome fictions. Accordingly, therefore, the creation of mortgages over unregistered land after 1st December, 2009, has been largely assimilated to that regarding registered land, so that the mortgage now operates as a charge on the title of the mortgagor: see s. 89 of the 2009 Act.
39. The present case concerns a pre-2009 Act mortgage, so that the mortgagee is entitled under the mortgage to possession by virtue of the fact that – reflecting the then prevailing legal fiction of which we have just spoken – Mr. and Ms. Duff had conveyed unto ILP their entire beneficial estate subject to the equity of redemption. That in turn meant that they were entitled to possession of the property by virtue of that equity of redemption, subject only to compliance with their repayment of obligations under the mortgage.
40. There is fundamentally no dispute but that the present mortgage is significantly in arrears. Nor could it be realistically argued that ILP are not otherwise entitled in principle to possession in respect of the unregistered portion of the lands (subject to the question of a stay). But here again it is necessary to re-visit the legal fiction underpinning a mortgage of this kind in respect of unregistered land
41. In theory, the mortgagee is entitled to take possession peaceably without even the need for a court order. As Mr. Seligman fairly stressed, this in practice never arises. What happens, however, is that even in the case of unregistered land, the practice had de facto assimilated itself to that of registered land, so that the lender here too would first ask the Court for order for possession and forebore to exercise the right to possession which the mortgage deed clearly gave him, even where the mortgagor had forfeited his equity of redemption by defaulting on the mortgage repayments
42. It is, of course, true that there is modern authority for the proposition that a mortgagee is entitled to take peaceable possession of the dwelling of a defaulting mortgagor without the need for a court order: see First National Building Society v. Gale [1985] IR 609, 612, per Costello J. Yet the decision in Gale must now be re-examined in the light of Article 40.5 of the Constitution and the contemporary jurisprudence concerning the interpretation of this constitutional provision insofar as the pre-2009 Act law permits the peaceable recovery of dwellings situate on unregistered land by the mortgagor without the necessity for court order.
43. It is true that Gale rests on the idea of a contractual licence (i.e., the right of the mortgagee to take possession pursuant to the deed once the defaulting mortgagor has lost the equity of redemption) and one might, of course, say that any homeowner is free to come an agreement that he or she will allow a third party to take possession in defined circumstances. But this would be to allow the triumph of ancient legal fictions over the requirements of justice in a modern society.
44. The key points, however, in this context are surely the requirements of notice, foreseeability and independent determination of the objective necessity for yielding up of possession which is inherent in the judicial process. All of these are key values comprised in the very essence of the protection of the “inviolability” of the dwelling guaranteed by Article 40.5. This was issue which did not feature at all in Gale, but which now requires to be evaluated in this context in the light of the contemporary case-law.
45. In the aftermath of the Supreme Court’s decision in Damache v. Director of Public Prosecutions [2012] IESC 11, [2012] 2 ILRM 153 (where legislation permitting the grant of non-judicial warrants in respect of a family home was found unconstitutional), the Court of Criminal Appeal has taken the opportunity in a series of cases to emphasise what Hardiman J. described in The People (Director of Public Prosecutions) v. Cunningham [2012] IECCA 64, [2012] 2 ILRM 406 as the “intrinsic importance” of Article 40.5 to a free and democratic society.
46. In another post-Damache decision, The People (Director of Public Prosecutions) v. O’Brien [2012] IECCA 68, Hardiman J. also observed that:-
“Article 40.5 by guaranteeing the ‘inviolability’ of the dwelling reflects long standing constitutional traditions in both common law and civil law jurisdictions, features of which were stressed in both Damache and Cunningham respectively. This constitutional guarantee presupposes that in a free society the dwelling is set apart as a place of repose from the cares of the world. In so doing, Article 40.5 complements and re-inforces other constitutional guarantees and values, such as assuring the dignity of the individual (as per the Preamble to the Constitution), the protection of the person (Article 40.3.2), the protection of family life (Article 41) and the education and protection of children (Article 42). Article 40.5 thereby assures the citizen that his or her privacy, person and security will be protected against all comers, save in the exceptional circumstances presupposed by the saver to this guarantee.”
47. If I might also venture to repeat what I said in Sullivan v. Boylan [2012] IEHC 385 in this context:-
“The Irish language text of Article 40.5 (“Is slán do gach saoránach a ionad cónaithe….”) captures and expresses the essence of the English language word (“inviolability”) by stressing the concepts of safety and security of the dwelling.”
48. This assurance of security and protection inherent in the guarantee of “inviolability” would be fundamentally compromised if peaceable possession of a dwelling could be taken by a lender at almost any time other than by means of a court order without express notice to the borrower in the manner envisaged by Costello J. in Gale merely because the borrower was in default, even if this were to be contractually agreed by reason of the pre-2009 Act fictions in respect of unregistered land we have just examined. Nor could this be assured if the determination as to whether the borrower was in actually in default was to be left to the say-so of the lender or whether there was an objective justification for the mortgagee taking possession of the dwelling without any independent determination of these questions by the judicial branch.
49. This conclusion, in any event, merely reflects the new statutory prohibition which (subject to minor exceptions) precludes a mortgagee taking possession of mortgaged property without a court order and which is now provided for in the 2009 Act: see s. 97(1) of the 2009 Act.
50. None of this is to suggest that a defaulting borrower can invoke Article 40.5 to avoid having to yield up possession where a court so orders, no more than Article 40.5 can be invoked to justify the unlawful construction of a dwelling on another’s land or the construction of a dwelling without planning permission: see, e.g., Wicklow County Council v. Fortune [2012] IEHC 406. It is, however, to say that those elements of formal notice, foreseeability and an independent determination of the objective necessity for possession of the dwelling are presupposed by the guarantee of inviolability and these protections cannot be assured outside the judicial process or, at least, something akin to the judicial process.
51. All of this means that even in the case of unregistered land, the homeowner cannot be required to give up possession save by court order. But unlike the position with regard to registered land (which was governed by statute), in the case of unregistered land the courts have always assumed a jurisdiction to grant possession and, in fairness, mortgagees have always (or, at least, almost always) submitted to the necessity for court adjudication and an actual order before taking possession ever before the enactment of s. 97(1) of the 2009 Act.
52. All of this is to say that the court retains a jurisdiction to determine whether to make an order for possession in the case of unregistered land and this general jurisdiction to grant possession is not affected by the operation of the 2009 Act in the same manner as has occurred in the case of registered land. The real question, therefore, is whether this Court should exercise that jurisdiction in this particular case. It is contended, however, that by failing to engage with Mr. and Ms. Duff with regard to the issue of mortgage arrears and their capacity to repay, ILP have not complied with the Financial Regulators’ Code of Conduct and that, as a result, no order for possession should now be made.
53. It is, therefore, to this final issue to which we can now turn.
The Code of Conduct
54. As we just seen, the claim that ILP have not complied with the Financial Regulator’s Code of Conduct on Mortgage Arrears is central to the defendants’ defence of these proceedings. It is thus necessary to consider the somewhat troublesome issue of the precise legal status of the Code of Conduct. At the outset, it is, however, necessary to state how the defendants maintain that ILP have not complied with the Code.
55. First, according to the latest affidavit sworn by Mr. Duff on the 13th November, 2012, he was never offered “any alternative repayment arrangement” or a “mortgage holiday, deferred payments, interest only or recapitalisation”. He also says without contradiction that he made an oral offer of interest only repayments, but that this was rejected and that he was not informed of his right to appeal.
56. Second, Mr. Duff also objects to the way in which he and his wife were classified as “non co-operating borrowers” by the Bank. He acknowledges that his wife sold a small portion of land which, after expenses, came to €6,200. These funds were used to discharge basic household essentials (such as food and to pay arrears due in respect of electricity bills). He says that the Bank were fully aware of this proposal – something which the Bank denies – and that they was never an agreement that the proceeds of the sale would be paid to the Bank.
57. The Code itself is promulgated under s. 117 of the Central Bank Act 1989 (“the 1989 Act”). Section 117(1) provides that:-
“(1) The Bank may, after consultation with the Minister [for Finance], from time to time draw up, amend or revoke, in relation to any class or classes of licence holders or other persons supervised by the Bank under this or any other enactment, one or more than one code of practice concerning dealings with any class or classes of persons and every such code shall be observed by the licence holders, or other persons so supervised, to whom they relate.”
58. There is no doubt but that the Central Bank, as regulatory authority, has power to invoke the administrative sanctions procedure contained in Part IIIC of the Central Bank Act 1942 (as amended by s. 10(1) of the Central Bank and Financial Services Authority of Ireland Act 2004)(“the 2004 Act”). Breach of the code is designated as a criminal offence: see s. 117(4) of the 1989 Act (as substituted by Schedule 3 of the Act of 2004).
59. It is, of course, important to recall that the Oireachtas could not by means of enacting s. 117 effectively give the Central Bank the power to change the substantive law by making codes made pursuant to this provision. As this Court recently pointed out in the (admittedly different) context of guidelines governing prosecutorial discretion, an administrative officer cannot effectively change or alter the law through this mechanism, since the power to enact legislation is constitutionally reserved to the Oireachtas by Article 15.2.1 of the Constitution: see Fleming v. Ireland [2013] IEHC 1. Likewise, in Crawford v. Centime Ltd. [2005] IEHC 325, [2006] 1 ILRM 543, Clarke J. held that the Revenue Commissioners enjoyed no general discretion to waive, alter or otherwise dispense with the law by means of published guidelines, even if those guidelines had the merit of enabling taxpayers better to understand their legal rights and obligations. By the same token the Supreme Court held in Curley v. Governor of Arbour Hill Prison [2005] IESC 49, [2005] 3 IR 308 that secondary legislation could not be read as having been superseded by an industrial relations agreement, even if the secondary legislation in question had itself been the product of industrial relations negotiations.
60. The question of the status of the Code has been examined in a number of recent cases. In Zurich Bank v. McConnon [2011] IEHC 75 Birmingham J. rejected the suggestion that the Code created any justiciable rights at the hands of a consumer:-
“Entirely lacking is any suggestion that a breach of the Code renders the contract null and void or otherwise exempts a borrower from the liability to repay. The questions of sanctions is referred to in s. 33AQ of the Central Bank Act 1942, as amended by s. 10(1) of the Central Bank and Financial Services Authority of Ireland Act 2004. This contains provisions for matters such as caution or reprimand, the payment of a monetary penalty to the financial regulatory authority, disqualification provisions and the like, but again there is no suggestion that a lender is prohibited from seeking repayment from its borrower. The contrast between the approach taken in the Code and the approach of the Consumer Credit Act 1995, is striking. Section 30 of the Act contains mandatory provisions concerning a credit agreement or contract of guarantee entered into by a consumer. Matters such as a requirement for the agreement to be in writing and for a cooling off period are dealt with. Section 38 of the Act deals with the consequences of failing to comply with the requirements of the section and provides that a creditor will not be entitled to enforce a credit agreement or contract of guarantee and that any security given shall not be enforceable. There are no comparable provisions whatever in the Code.”
61. One might add that s. 117 of the 1989 Act contains no mandatory sanction of voidness such as has been adopted in other cases where the consumers have either pledged the credit of or were otherwise engaged in selling their family home, of which s. 3(1) of the Family Home Protection Act 1976 is perhaps only the most notable example. Birmingham J. then went on to reject the implied terms argument:-
“The defendant has argued that the Code forms an implied term of the contract. There are a number of fundamental difficulties with this argument. First of all the question arises by what method is it suggested that a term has been implied. It is not the case that any terms have been implied by statute. There is also the question of what term would be implied if a mechanism for doing so was found. The only implied term that would assist the defendant would be a term that the Bank was obliged to comply in all respects with the Code and that the consequence of non compliance was that the borrower was exempted from the liability to repay the loan. If one introduces the traditional officious bystander into the equation then it would be seen that such a suggestion has little reality. The notion that a bystander asking whether such a term formed part of the agreement would be hushed by the parties jointly and impatiently snapping “of course” seems more than improbable. In summary I can see no basis for suggesting that any alleged breach of the Code exempts the borrower from repaying his loan.”
62. Of course, it must be acknowledged that while Birmingham J. found against the defendant on this ground, this was against a background where the judge had also found that he was not a “consumer” within the meaning of the Code and, furthermore, that the loan in question had been executed some two weeks before the first such Code had been promulgated. These comments were, accordingly, in all strictness merely obiter dicta.
63. A somewhat different approach is, perhaps, evident in the judgment of Laffoy J. in Stepstone Mortgage Funding Ltd. v. Fitzell [2012] IEHC 142. This was an undefended mortgage suit wherein the plaintiffs sought possession. While she acknowledged that it was necessary “to exercise caution in expressing a view on the application of the Current Code, particularly in the current economic climate”, Laffoy J. also acknowledged that “some development of the jurisprudence in this area in the future may be anticipated”.
64. In that case Laffoy J. held that the Code was applicable to the facts of that case and concluded that because the defendants in question had not been given any adequate opportunity of appealing a particular decision of the lender to an Appeals Board in the manner required by the Code, the plaintiff lender was thus in default.
65. Laffoy J. then proceeded to hold that:-
“Notwithstanding what is stated in the preceding paragraphs, I find it impossible to agree with the proposition that, in proceedings for possession of a primary residence by way of enforcement of a mortgage or charge to which the Current Code applies, which comes before the court for hearing after the Current Code came into force, the plaintiff does not have to demonstrate to the Court compliance with the Current Code. To take what is perhaps the best known provision of the Current Code, the imposition of a moratorium on the initiation of proceedings, which is now contained in provision 47 of the Current Code (and which was also to be found in the earlier codes, although the moratorium period in the case of the earliest code was six months, rather than twelve months), surely a court which is being asked to make an order which will, in all probability, result in a person being evicted from his or her home, is entitled to know that the requirement in provision 47, which has been imposed pursuant to statutory authority, is complied with. Moreover, it is likely that it would render the enforcement of provision 47 nugatory, if a lender did not have to adduce evidence to demonstrate that the moratorium period had expired.”
66. Laffoy J. then concluded that the plaintiff lender was not entitled to possession because it could not show it had complied with the provisions of the Code. This was because she concluded that the borrowers had not been advised of their right to appeal in the manner required by the Code.
67. The present case is governed by the 2009 Code of Conduct which was the one applicable at the time of the commencement of the proceedings. Clause 6 of the Code provides that:-
“the lenders must not seek repossession of the property until every reasonable effort has been made to agree an alternative repayment schedule with the borrower or his/her nominated representative. However where it is clear that the borrower is deliberately not engaging with the lender or where other circumstances reasonably justify [it] the lender may seek repossession in the absence of any engagement with the borrower.”
68. The question, for example, of what constitutes a “reasonable effort” on the part of the lender does not easily lend itself to judicial analysis by readily cognisable legal criteria. How, for example, are “reasonable efforts” to be measured and ascertained? If, moreover, non-compliance with the Code resulted in the courts declining to make orders for possession to which (as here) the lenders were otherwise apparently justified in seeking and obtaining, there would be a risk that by promulgating the Code and giving it a status that it did not otherwise legally merit, the courts would, in effect, be permitting the Central Bank unconstitutionally to change the law in this fashion. Likewise, the argument advanced by Birmingham J .in McConnon regarding the absence of any statutory indication that failure to comply with the Code would affect the ability of the lender to secure relief may be thought to be a forceful one.
69. While I am acutely conscious of these concerns, given these cross-currents of judicial opinion, I feel that I must nonetheless follow the most recent pronouncement of this Court in Fitzell, given that this is the most recent and authoritative analysis of this question where the judicial comments formed part of the ratio of the decision: cf. by analogy my own judgment in AG v. Residential Institutions Redress Board [2012] IEHC 492 and the comments of Clarke J. for the Supreme Court in Kadri v. Governor of Cloverhill Prison [2012] IESC 27 regarding the importance (where possible) of maintaining stare decisis at High Court level in respect of earlier High Court decisions. This is especially so where the decision is recent and all issues have been fully considered. It is essentially for that reason that I feel that I must follow Fitzell while departing from the earlier decision in Gale, the latter decision having been overtaken in any event by constitutional and statutory developments.
70. Proceeding from that standpoint, therefore, in the present case I feel I cannot ignore the averment made by Mr. Duff that he offered the Bank interest only repayments in 2009, but that this was rebuffed. In these circumstances, I find myself coerced to the conclusion that the Bank did not comply (or, at least, comply fully) with the requirements of Clause 6 of the 2009 Code prior to the effective commencement of the proceedings in that it cannot be said that “every reasonable effort” had been made to agree an alternative repayment schedule in the discussions which ensued in 2009, even if some of these discussions formally post-dated the commencement of the present proceedings by some weeks or even months.
71. Nor can it be said that at that stage – whatever possibly may have been the case subsequently – that the Duffs were non-cooperating borrowers. On the contrary, they seem to have been as frank and forthcoming with the Bank – whether personally or through their solicitors in correspondence – to the effect that they were facing acute financial difficulties and sought some way out of the dreadful circumstances into which they – like so many others – had been plunged.
Conclusion
72. In these circumstances, I must therefore conclude:-
A. The Court no longer has jurisdiction to make an order for possession of the registered land in view of the repeal of s. 62(7) of the 1964 Act. Nor had the rights of the Bank accrued prior to 1st December 2009, since the entirety of the mortgage monies had neither been demanded nor were they actually due prior to that date.
B. The Court has a jurisdiction to grant possession in respect of the unregistered land. While the level of arrears is such that an application for possession would normally be justified, in the present case, following the decision of Laffoy J. in Fitzell, I must ask whether the Bank have complied with the Code of Conduct.
C. As I have concluded that the Bank did not so comply with the requirements of Clause 6 of the Code in the manner that I have indicated, in line with the reasoning in Fitzell, it would not be appropriate for me to exercise a judicial discretion in favour of granting an order for possession.
D. It is in these special circumstances that I propose to allow the appeal and I would therefore decline to grant the Bank an order for possession. None of this should be taken as precluding the Bank taking such further steps to realise the security as it may now consider appropriate in the light of this judgment.
Bank of Ireland v. Waldron
[1944] IR 303
Overend J.
This matter comes before me on a motion by the purchaser, Patrick Martin, that £892 19s. 6d. may be paid to him out of his purchase money, which is still in Court, as compensation for delay in completing the sale to him of the defendant’s farm at Carrowbaun, Masmore, directed to be sold in this matter, and also, in respect of damage to the crops, fences and premises, after the date of sale and before the purchaser was put into possession.
The defendant held the said lands in fee simple, and by indenture of mortgage, dated 7th February, 1923, had conveyed the same to the plaintiffs, by way of mortgage. On 20th November, 1940, the plaintiffs issued a summary summons to realise the amount due to them. The defendant did not appear, and on the 21st day of January, 1941, the Court made an order declaring the mortgage well charged, and ascertained the principal sum due at £5,786 19s. 11d. with interest thereon (unless the defendant disputed that amount within one month), and, in default of payment within three months from the service of the order, directed the premises to be sold. The plaintiffs obtained carriage of the sale.
This order was duly served on the defendant on the 20th February, 1941, but the plaintiffs were not paid. The particulars and conditions of sale were settled on the 4th February, 1942. The particulars stated that “vacant possession will be given to the purchaser,” and the conditions were in the prescribed form. The auction was to be held on 24th February, 1942, and the 18th of March was the date fixed for payment into Court of the balance of the purchase money, on payment of which the purchaser was to be entitled to possession, i.e., to be given vacant possession as stated in the particulars.
The reserve price had previously been fixed at £2,500 which was the figure recommended by Mr. W. G. Lougheed, the auctioneer appointed by the Court, whom I asume made a careful inspection of the premises before making his valuation.
The auction proved abortive, but subsequently the purchaser, after some negotiation through his solicitor, Mr. Gerald Maguire, offered £2,650 and this proposal, which incorporated the conditions already settled, was brought before the Court for acceptance, and by order of the 8th day of June, 1942, was accepted and £662 10s. 0d. paid as deposit. The order was perfected on the 12th June, and it shows that the date for payment of the balance of the purchase money was to be the 8th July, 1942.
On an open contract a purchaser is entitled to possession on paying his purchase money: Engel v. Fitch (1); Royal Bristol Permanent Building Society v. Bomash (2); Williams, Vendor and Purchaser, 4th Edn., Vol. 1, p. 37. A fortnight later, on the 23rd June, Mr. Maguire wrote to the plaintiffs’ solicitor complaining of trespass on the lands, and asking whether the purchaser could then be given possession if he paid the balance of his purchase money. On the 30th June, Mr. Maguire wrote again that he had now received the balance of the purchase money from his client and requesting a privity to enable him to lodge it, and complaining of serious trespass by a large number of cattle and sheep and some horses, stating that the purchaser must claim compensation. He also asked that the necessary steps be taken to give possession to the purchaser at the earliest possible moment. It is unnecessary to refer to the correspondence in detail, suffice it to say that an order for possession was not obtained till the end of July, and was not sent to the County Registrar for execution till 14th August, although the purchaser’s solicitor had the money and was ready to lodge it in advance on the 30th June if his client could be given possession. In fact, in the end he lodged it, but “without prejudice to his client’s claim,” on the 14th July, though there was then no prospect of getting possession. So far as the purchaser is concerned, the cause of delay was not material, provided it was not due to any defect of title, and there was here no question of title, and he is entitled to compensation for the period he was kept out of possession in breach (if contract: Engel v. Fitch (1); Royal Bristol Permanent Building Society v.Bomash (2). Further, a vendor is bound, until possession is given to the purchaser, to manage and preserve the property with the same care as a trustee would exercise in regard to the property subject to his trust: Phillips v. Silvester (3); Royal Bristol Permanent Building Society v. Bomash (2); Clarke v. Ramuz (4);Williams, Vendor and Purchaser, 4th Edn., Vol. 1, p. 59; Connolly v. Keating (No. 2). (5) In this case the plaintiffs did not, before the date for completion, take up possession, nor did they get a receiver appointed, and, when warned of trespass, no effective steps were taken to prevent further damage. The purchaser is therefore entitled to compensation sufficient to make good the damage which accrued between the date of purchase and the date of giving him possession.
It was suggested that the plaintiffs were not the vendors, and were in no way responsible, because the Court was the vendor and the sale was by the Court. There is a statement to the effect that the Court is vendor in Prideaux, Forms and Precedents in Conveyancing, 22nd Edn., Vol. 1, p. 382, note (f), which I think quite erroneous. In my opinion the plaintiffs are the vendors, they sought a sale under order of the Court; they obtained carriage of that sale. Condition 6 provides “The vendors are . . . to deliver . . . an abstract of the title.” Condition 7 provides that the outgoings down to the date for completion are to be paid by the vendors. Condition 15 provides that “if the purchaser should make any objection or requisition which the vendors shall be unable or unwilling to remove or comply with, the vendors shall be at liberty with the sanction of the Court . . . to rescind.” Rescind what? Surely the contract between the vendors and the purchaser. The Conditions of Sale are in the form proscribed by the rules of Court (Or. LI, & App. L., form 16) and are the same as in the corresponding English Rules.
This view of the legal position is supported by high authority in In re Banister, Broad v. Munton (6). Jessel M.R., Brett and Cotton, L.JJ., all took the view that Court conveyancing counsel, in settling conditions for a sale under order of the Court, must be regarded as agent for the vendor (in that case a defendant who was devisee of the property on trust for sale), who must accept responsibility for a statement which the Court held to be misleading, and that the purchaser was entitled to be relieved from the condition.
The same view was taken in Union Bank v. Munster (1).These decisions do not appear ever to have been questioned.
It was suggested in argument that no purchaser at a sale under an order of the Court expects the sale to be completed in accordance with the contract. If there were the slightest foundation for such a statement it would indicate a lamentable state of affairs and would go far to explain why reserve prices are not reached and why sales prove abortive. The judgment in the Court of Appeal in England which I have just referred to, show that the Court expects exemplary conduct on the part of vendors selling under its order and will see that purchasers are fairly dealt with in every respect. The same view was expressed by the Master of the Rolls in Connolly v. Keating (No. 2). (2)
In my view it is the duty of the vendor having carriage to be in a position to give clear possession on the date fixed for completion, and, in any case of doubt, application can be made to the Court in good time for an order for possession with a view to sale. I recollect frequent applications for such orders, and I think this was the normal procedure in the past unless in cases in which it was clearly unnecessary. I am at a loss to understand why this practice was discontinued; for it seems to me that the certainty that a purchase would be promptly and punctiliously carried out, or adequate compensation awarded in case of default, should be an incentive to purchasers to give better prices, which would benefit both mortgagees and mortgagors.
The purchaser is not, in my opinion, entitled to succeed in his claim for £330 for increase in the price of stock. I have no evidence that a rise in price always, or even frequently, occurs between July and September, and should therefore have been in contemplation of the parties, and apart from any question of remoteness, I have no evidence that beasts bought in September are not a better article.
There is a conflict of testimony as to the area of meadow, but, even if I were to accept Mr. Lougheed’s figures as to area, I should allow for delay in giving possession of 196 acres at the rate of £2 per annum, bearing in mind that these are summer months. Mr. Lougheed placed no value on the garden because it was neglected, but he does not suggest that the fruit trees bore no fruit. Mr. Lougheed had inspected the house before sale and says it was in had repair, but he does not contradict the purchaser’s statement that he stated he first saw the destruction on the 8th of July, nor does he traverse a single item of destruction or removal of doors, windows gates, fences, etc., claimed, except the five gates allowed for by Mr. Biggins. I have perused and compared the estimates of damage prepared by Mr. Kennedy and Mr. Walsh. I find agreement in price in very many instances, in others, Mr. Walsh allows only a reduced figure, because he thinks the fitting or fixture removed was in bad condition, a matter irrelevant for present purposes, for which the proper figure is the cost of replacement. As to certain items which he disallowed, he did so because in his opinion there was evidence that the removal was not very recent from the appearance of the particular site.
Giving the matter the best consideration I can, I have arrived at a figure of £468 5s. 0d. as the reasonable amount of compensation to which the purchaser is entitled. When it is proved to the satisfaction of the Court that the property sold has been damaged between the date of sale and the time when the purchaser gets possession, the onus is shifted to the vendor, whose duty it was to preserve the property, and it is for him to establish, if he can, what portion of the damage pre-existed the sale and what portion could not have been prevented by the exercise of due care and forethought on his part.
It is only fair to the solicitor having carriage to say that he appears to have followed a practice which in recent years seems to have become prevalent, but which I now have held to be erroneous.
The purchaser is entitled to his costs to be paid out of the funds in Court, and, as the defendant is primarily responsible for the delay in getting possession, and there are no puisne incumbrancers who would be prejudicially affected, I shall declare the plaintiffs entitled to their costs with their demand.