The impact of Horsham Properties Group v Clark & Another - Essay Example

?The Impact of Horsham Properties Group v Clark & Another Introduction In 2008, Shelter principal solicitor John Gallagher was quoted by some newspapers to have remarked “It is quite incredible in the 21st century that the law allows the lender to choose whether or not to take possession proceedings and that the borrower then becomes a trespasser in his or her own home.” This remark was triggered by a High Court ruling in the case of Horsham Properties Group Ltd v Clark & Another [2008] EWHC 2327, where the Court held that the sale by the mortgagee of the property subject of the mortgage deed in the event of arrears of payments by the mortgagor without prior court order does not infringe a mortgagor’s rights under the European Convention on Human Rights. Despite the furor the decision seemed to have triggered, the fact is that the decision did not embody a new law on the matter, but was merely a restatement of the existing law on the mortgagee’s power of sale. Horsham Properties v Clark & Another The case of Horsham Properties Ltd v Clark & Another [2008] EWHC 2327 seeks to settle the issue as to whether s. 101 of the Law of Property Act 1925 violates a mortgagor’s rights over his property. The aforesaid provision grants the mortgagee the power, among others, to sell the mortgaged property in the event the mortgagee falls in arrear in the payment of his loan without prior court order of possession. In this case, the defendants obtained a loan from GMAC with their property located in Walderslade Road as security. When the defendants failed to pay their obligations, GMAC immediately assigned two receivers to handle the sale of the property subject of the mortgage. The property was subsequently purchased by Coastal Estates Ltd, which also sold the same to Horsham on the same day. Horsham immediately initiated court proceedings to dispossess the defendants of the property subject of the mortgage on the ground that their presence in the property is a trespass considering that the legal right of the property had already been transferred to Horsham by virtue of the sale. Although the fact that they were in arrears in the payment of their loan was not disputed, the defendants nevertheless, believed that the mortgagee had no right to dispossess them of their property and sell it without first obtaining any court order for the reason that this infringes their rights under the Human Rights Act of 1998 and the European Convention on Human Rights, particularly Article 1 of the First Protocol (A1FP hereafter). A1FP guarantees peaceful enjoyment of one’s possessions and prohibits their deprivation except in the public interest and with due process as provided by laws. The defendants argued that the relevant provisions of the LPA 1925 must be construed in such a way that they are made compatible with Convention rights and that therefore, the rights of the mortgagee under the LPA, particularly those laid down in s. 101, must be tempered by prior acquisition of corresponding court orders before they can be fully exercise. If this cannot be had, the defendants would like the court to issue a declaration of incompatibility. The Court refuted the defendants’ position and ruled in favor of the claimant. It held, inter alia, that the sale of the property subject of mortgage by the mortgagee in a case where the mortgagor has defaulted does not engage Convention rights under A1FP and ss. 6 and 8 thereof. According to the Court, the right under A1FP is underpinned by “state intervention into private rights through overriding legislation,” which is not the case in the sale of mortgaged property by the mortgagee in the case when payments of the principal loan are in arrears. The sale in this case merely functions to implement the contract between and the expectations of the mortgagor and the mortgagee and does not amount to state intervention. The Court also pointed out that s 101(4) reinforces this implication by providing that the applicability of the provision is subject to a contrary term expressly provided by the parties in the contract. Moreover, the sale without prior court order is justified by public interest, which is that loans secured through properties are made available to the public. According to the Court, since the sale without prior court order did not engage A1FP, it also follows that it neither engages Articles 6 and 8 of the Convention. This is because these provisions do not confer new substantive rights, but merely guarantee procedural and freedom from state intervention. Article 8, for instance, cannot be exercised to defeat a better legal right of another as against a person in possession of the property. Mortgagee’s Power of Sale As early as 1714, the power of sale by mortgagees of personal chattel was upheld in the case of Wilson v Tooker [1714] 5 Bro Paul Cas. It was only in the Lord Cranworth’s Act in 1860 that mortgagees were granted statutory power of sale. This same power is now currently incorporated in the Law Property Act of 1925 and made applicable to mortgages by deed (Wood 2007:362). The power of sale of the mortgagee, under s 101 of the LPA, is triggered by any of the following occurrences: notice has been served to the mortgagor and there was default for three months after such notice; interest is in arrears for at least two months, and; breach of the mortgage deed other than default in payment. The power of sale of the mortgagee, under the aforesaid conditions, does not require prior approval of the court. Nonetheless, in actual practice, most mortgagees prefer to obtain prior possession of the property before actually exercising their power of sale so as to secure higher marketability of the mortgaged property. Unregistered lands present no problem as mortgagees are entitled to immediate possession of the land at the moment of the execution of the mortgage contract in accordance with s. 87 of the LPA 1925. In other cases, unless the mortgagor or any other occupier voluntarily surrenders the property to the mortgagee, the latter will be compelled to go to court to seek possession of the property. Particularly in cases where the security of the loan is an occupied family home, the mortgagee will be forced to obtain court order since forced eviction of residential dwellers is criminally sanctioned under the Criminal Law Act 1977 and the Eviction Act 1977 (Weatherhill 165). Once the mortgagee seeks court intervention, the mortgagor will have an opportunity to buy more time as the court may issue an order that would postpone granting possession to the mortgagee for as long as 28 days so that the latter can find the money to cover payments in arrears. In Birmingham Citizens Permanent Building Society v Caunt [1962] Ch 883, ChD, the Court held that it has no jurisdiction to refuse or delay the mortgagee from taking possession of the property where his rights thereto have consolidated in accordance with the law when the mortgagee himself does not permit it except in cases where it is evident to the court that there is a reasonable prospect for the mortgagee of finding money to pay the arrears if the court grants him a reasonable time to secure it. Section 36 of the Administration of Justice Act 1970, which are made applicable to dwelling houses, expressly allows courts to grant mortgagors reasonable period of time to secure money to pay the arrears and in effect, delay the proceeding for possession by the mortgagee. This power may constitute the following: adjournment of the proceedings; stay or postponement of judgment execution or postponement of delivery of possession. Since the aforementioned provision does not define ‘reasonable period,’ it was up to the court to determine what constitutes it. In Centrax Trustees v Ross [1979] 2 All ER 952, the Court held that reasonable period must be determined by taking into consideration the rights and obligations of the parties including the mortgagee’s right to recover his money and in Western Bank v Schindler [1977] Ch 1, [1976] 2 All ER 393, the Court stated that “reasonable period” must depend on the circumstances of the case and that at times, is so warranted, it might even imply the entire remaining life of the mortgage. Similarly, in Cheltenham & Gloucester Building Society v Norgan [1996] 2 FLR 257, the claimant sought court intervention to repossess the defendant’s home due to arrears in loan payments in the amount of ?7,216. The possession order was postponed by the court for 28 days to give the defendants time to secure money to pay the arrears, but still failed to pay them after the lapse of the period. The claimant moved for a warrant against the property, but was suspended two times. In both times the defendant failed to comply with his obligations and the Court refused to grant another suspension. The defendant elevated his case to the Court Appeal, where it was held that the county court must make a determination that would take into account the full term of the mortgage and ask whether the defendants can pay their arrears by installments over that period, implying that the courts need not confine themselves to the 28-day period when there is every reason to believe that a longer period is necessary and reasonable. Discussion/Conclusion The question of the legal propriety of mortgagees selling properties whose principal loans they secured have payments that are in arrears without prior court order have already cropped up in the case of Ropaigealach v Barclays Bank Plc [2000] QB 263, [1999] 3 WLR. In that case, the mortgagee also sold the property, a dwelling house, without prior seeking possession order from the court. In sustaining the mortgagee, Chadwick LJ justified the Court’s decision by the ‘curious anomaly’ in the law where the LPA 1925 expressly grants to the mortgagee the power of sale under express circumstances and at the same time s. 36 of the Act of 1970 evidently serving to protect mortgagors of dwelling-houses. Nonetheless, the Court was forced to find in favour of the mortgagee because it was not able to construe an opposing intent in s. 36 of the Act that would allow the Court to stop the mortgagee from doing so. The implication is that the law upon which the Horsham decision was based upon was already existent even before the decision was handed down in 2008. What the Horsham decision did was to highlight the law in a case where the claimant chose to exercise a practice that is not often employed as most mortgagees would rather choose to take possession of the property first before liquidating it. The Horsham case illustrates a strategy that mortgagees can use to skirt the provisions of s. 36 of the Administration Justice Act of 1970. By choosing not to take possession first of the property before selling it, the mortgagee has deprived the mortgagor of the protection of said law, which could have made it difficult for the mortgagee to sell the land and allow the mortgagor considerable time, at the discretion of the court, to pay-off their arrears. The case finally illustrates what Chadwick LJ had been saying in 2000 – that there is a curious anomaly in the law. It is unfortunate, however, that since 2000 the legislature has not done anything to reconcile, correct or clarify the law. On one hand, the law says that mortgagees have an unfettered right to exercise their prerogative to sell the property in issue when the conditions set by law are met and on the other, the law says that it is extending special treatment to certain types of properties in the interest of public welfare. The drawback is that the other law can be totally evaded if and when a party chooses to exercise his right under the first. References: Administration of Justice Act 1970 Birmingham Citizens Permanent Building Society v Caunt [1962] Ch 883, ChD. Centrax Trustees v Ross [1979] 2 All ER 952 Cheltenham & Gloucester Building Society v Norgan [1996] 2 FLR 257 Horsham Properties Ltd v Clark & Another [2008] EWHC 2327 Human Rights Act of 1998 Law of Property Act 1925. Ropaigealach v Barclays Bank Plc [2000] QB 263, [1999] 3 WLR Weatherill, S. & Ciacchi, A.C. (2010). Regulating Unfair Banking Practices in Europe: The Case of Personal Suretyships. Oxford University Press, 2010 Western Bank v Schindler [1977] Ch 1, [1976] 2 All ER 393. Wood, P. (2007). Comparative law of security interests and title finance. 2nd Edn. Sweet & Maxwell. Read More