Mortgage – Suspended possession order made in favour of respondent mortgagee – Order requiring appellant mortgagor to pay arrears and current instalments – Subsequent arrangement to consolidate arrears with outstanding loan balance – Further default – Whether respondent entitled to execute warrant of possession – Whether possession order extinguished when arrears cleared on consolidation – Appeal dismissed
The appellant charged his house to the respondent bank by way of mortgage to secure a loan of £133,000 and any further advances. When he fell into arrears on the repayments, the respondent obtained a suspended possession order in the county court. The order, in the standard form N31, provided that the appellant was to give possession to the respondent on or before a given date but that the order was not to be enforced so long as the appellant made specified monthly payments in reduction of the arrears, in addition to the current instalments.
In 2008, the respondent agreed to consolidate the appellant’s remaining arrears with the outstanding loan balance, resulting in a new mortgage balance of just under £169,000 with a revised monthly payment. The appellant again fell into arrears. In 2009, he applied to suspend enforcement of the possession order. Three days later, the respondent applied for a warrant of possession. The appellant thereupon made a further application for execution of the warrant to be suspended.
In support of his applications, the appellant contended that the 2008 arrangement consolidating his debts had effectively discharged the arrears that existed at the time of the suspended possession order and brought them into a new, larger loan on which a new interest rate had been agreed. He submitted that this had had the effect of clearing all the arrears under the possession order, which had consequently been extinguished.
The appellant’s applications were dismissed both by a district judge and by a judge on appeal; the latter held that the possession order was unambiguous in its terms and continued until it was discharged. The appellant appealed.
Held: The appeal was dismissed.
In the absence of a contractual fetter, a mortgagee was entitled to take possession of the mortgaged property whether or not the mortgagor had defaulted. The appellant’s mortgage was the typical type of bank or building society mortgage, which provided that the mortgagee would not seek possession so long as the mortgagor paid the monthly instalments, but that if he fell into arrears the full amount of the secured indebtedness would become payable and the mortgagee would be entitled to take possession. At common law, the court had only a very limited power to grant the mortgagor any relief where the mortgagee had become entitled to possession. Although, by section 36 of Administration of Justice Act 1970 and section 8 of the Administration of Justice Act 1973, the court had a power to suspend the possession order, the power of suspension was conditional on it appearing to the court that the mortgagor was likely to be able to pay the sums in question within a “reasonable period”: see section 36(1) of the 1970 Act. In the absence of proof of that matter, the court had no jurisdiction to stay or suspend the order for possession: Royal Trust Co of Canada v Markham [1975] 1 WLR 1416 applied. Assuming that the mortgagor surmounted that hurdle, the court had a wide discretion to attach such conditions as it thought fit to the suspension with regard to the payment of any sum secured by the mortgage: see section 36(3). That power was not confined to the arrears of instalments due to date or to the future instalments accruing during the reasonable period referred to in section 36(1), but could include the totality of the future instalments accruing throughout the remaining life of the mortgage. Whereas the existence of the court’s jurisdiction was focused on an examination of what was likely to happen before the end of the reasonable period referred to in section 36(1), the exercise of that jurisdiction, once established, was not so limited.
When the appellant first fell into arrears, the immediate consequence was that, in accordance with his contract with the bank, the full amount of the secured indebtedness became immediately repayable and the bank became contractually entitled to take possession. In exercising its jurisdiction to suspend the possession order, the court had attached a valid condition regarding payment by the mortgagor of sums secured by the mortgage within the meaning of section 36(3) of the 1970 Act. The condition comprised two limbs: first, the appellant had to pay off the arrears by specified monthly instalments and, second, he had also to pay “the current instalments” under the mortgage.
On the consolidation of the appellant’s indebtedness in 2008, the original mortgage deed had been neither replaced nor discharged. The mortgage, in the sense of the legal charge on the property created by the mortgage deed in 2003, had remained in force. The effect of the consolidation had simply been to clear the arrears, so that for a short period, until he defaulted again, the appellant was not in arrears. That did not have the effect of extinguishing the possession order. It had resulted in compliance with only the first limb of the condition of suspension, as to the discharge of all arrears. That was insufficient if there was a failure to comply with the second limb as to the payment of the “current instalments”, which properly construed, meant the future instalments payable under the mortgage until such time as the mortgage has been redeemed. There was nothing in the statutory scheme that might, by implication, have the effect of cutting down the otherwise unrestricted words used in the order. All the condition required the appellant to do was to perform his existing contractual obligations. The appellant had not complied with that limb of the condition and his applications had properly been dismissed.
The appellant appeared in person; Thomas Grant (instructed by Walker Morris) appeared for the respondent.
Sally Dobson, barrister
