Property – Mortgage – Arrears – Defendant proprietors falling into arrears with mortgage payments – Mortgagee exercising power of sale – Claimant as new registered proprietor seeking possession of premises – Sale overreaching defendants’ rights – Whether statutory power of sale without court order compatible with human rights under European Convention on Human Rights – Claim allowed
The defendants, as registered proprietors of premises in Kent, charged the property to a third party (GMAC) by a deed of mortgage as security for a loan in 2004. The defendants fell into arrears with mortgage payments and, in April 2006, GMAC appointed joint receivers over the property, pursuant to a power contained both in section 101(1)(iii) of the Law of Property Act 1925 and clause 12 of the Mortgage Conditions to which the mortgage was subject.
In September 2006, the receivers contracted to sell the property to a purchaser, C, at auction, relying upon their power under clause 12, given the lack of equivalent power in the 1925 Act. The purchase price was £123,000, which was sufficient to pay the entire debt secured by the mortgage.
Completion took place later that month. The property was transferred by the receivers as agents for GMAC, pursuant to its powers of sale conferred both by the mortgage and section 101 of the 1925 Act. On the same day, C transferred the property to the claimant, which became the registered proprietor of the property in succession to the defendants. The claimant issued proceedings for possession of the property, claiming that the defendants were trespassing, on the basis that all their rights in relation to the property had been overreached by the receivers’ sale to C.
The second defendant accepted that: (i) she and the first defendant were in arrears with their mortgage payments; (ii) the mortgage money had become due within section 101(1)(iii) of the 1925 Act; (iii) the mortgage contained the requisite power, in addition to section 101, for GMAC to appoint receivers; and (iv) the mortgage contained the requisite power for the receivers to sell the property free from the rights of the defendants as mortgagors.
A question arose as to whether the traditional (pre-Human Rights Act 1998) understanding of the relationship between section 101 of the 1925 Act and section 36 of the Administration of Justice Act 1970, enabling a mortgagee to sell without seeking permission from a court order, was compatible with the rights of residential mortgagors, under the European Convention of Human Rights.
Held: The claim was allowed.
The exercise of a statutory power of sale, under section 101 of the 1925 Act, after a default by the mortgagor, was not a deprivation of possessions within the meaning of Article 1 of the First Protocol to the Convention. Section 101 served to implement rather than override the private bargain between mortgagor and mortgagee: Wilson v First County Trust Ltd (No 2) [2003] UKHL 40; [2004] 1 AC 816 considered. It supplied a convenient power of sale out of court to mortgagees in substitution for the parties having to set out such a power in every legal mortgage. It was, 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.
Furthermore, all the statutory powers in section 101 were expressed to be subject to contrary intention. That was as far removed as it could be from the concept of state intervention into private rights through overriding legislation, which lay behind Article 1 of the First Protocol. It was not rigid, arbitrary or discriminatory and, therefore, had none of the relevant features that would characterise the relevant statutory provisions as giving rise to a deprivation of possessions within Article 1; a fortiori, the exercise by receivers appointed and acting under purely contractual powers in overriding a mortgagor’s equity of redemption by contracting to sell the property was not a deprivation of possessions either: Ropaigealach v Barclays Bank plc [2000] QB 263 and Pennycook v Shaws (EAL) Ltd [2004] EWCA Civ 100; [2004] 2 EGLR 55; [2004] 18 EG 102 considered.
Tom Poole (instructed by the legal department of Horsham Properties Group Ltd) for the claimant; Victoria Williams (instructed by Neves Scott, of Dartford) for the second defendant; Samuel Grodzinski (instructed by the Treasury Solicitor) for the Secretary of State for Justice, as intervener.
Eileen O’Grady, barrister
