Mortgage – Sale by mortgagee – Appointment of receivers – Mortgagors appealing against order of county court granting possession of property in favour of fixed charge receivers – Whether receiver appointed under mortgage of property owned by individuals entitled to claim possession of property occupied by mortgagors by suing in own name as receiver – Whether court having discretion to postpone possession on terms under section 36 of the Administration of Justice Act 1970 – Appeal allowed in part
The appellants were the registered proprietors of a property known as 43 Porchester Terrace, London W2. They guaranteed a bank loan made to a company and charged the property as security for repayment of the monies advanced. The borrower defaulted on the repayments and the sums advanced fell due. Pursuant to the terms of the charge, the lender appointed fixed charge receivers (the respondents) “for all purposes”.
The respondents applied to the county court seeking possession of the property. At first the proceedings were issued erroneously in the name of the company. The respondent amended the proceedings, so they were brought in the name of the appellant mortgagors, acting by the respondents.
The appellants argued that: (i) the respondents could not bring valid possession proceedings in the name of the appellants themselves as they were their agents and it was illogical for agents to sue their own principal for possession of a property which the principal owned and was prima facie in possession of; and (ii) the court’s discretion to postpone possession on terms under section 36 of the Administration of Justice Act 1970 applied to proceedings where a receiver sought possession of a property occupied by the mortgagor. The county court rejected both arguments and made a possession order.
The appellants appealed. The respondents acknowledged that they could not succeed on the appeal where it appeared that the appellants were suing themselves. Therefore, they amended their proceedings, with the consent of the appellants and permission of the court, to bring the appeal in their own names.
Held: The appeal was allowed in part.
(1) Despite the shortcomings apparently presented by their status as agents “for all purposes”, the respondents had a separate right which they could utilise as against the appellants, their principal, as a result of the special nature of the agency relationship. The agency was one where the principal mortgagor had no say in the appointment or identity of the receiver and was not entitled to give any instructions to, or dismiss, the receiver. There was no contractual relationship or duty owed in tort by the receiver to the mortgagor: the relationship and duties were equitable only and the equitable duty was owed to the mortgagee as well as the mortgagor. The duty of the receiver to the mortgagor was owed as a person interested in the equity of redemption. A receiver’s primary duty in exercising his powers of management was to try and ensure repayment of the secured debt. The receiver was managing the mortgagor’s property as the security for the benefit of the mortgagee. The agency of the receivers had to encompass the powers to enforce the security which the receivers were empowered to exercise: Gaskell v Gosling [1896] 1 QB 669, Sowman v David Samuel Trust [1978] 1 WLR 22, Silven Properties Ltd v Royal Bank of Scotland [2003] 3 EGLR 49 and McDonald v McDonald [2014] 3 EGLR 30; [2014] EGILR 48 considered.
In the present case, the respondents had a power of sale, and the parties would have expected such a sale to be with vacant possession. It made no business sense if the respondents were not able to claim possession of the property against the appellants; the person in possession would be the only person against whom the respondents would not be able to get possession.
(2) On its true construction, the power to take possession could be asserted against the appellants by the respondents notwithstanding the agency. As receivers, they had power to demand that possession be given up; if it was not, they had to have power to take proceedings in their own names. That was the only solution which made business sense. The receivers clearly had the right to retain possession as against the mortgagors were they to go into possession and be sued by the mortgagors. That demonstrated that they had a better right of possession than the mortgagors (if they insisted on it), and it was consistent with that that they be able to claim possession as against mortgagors in possession and, if necessary, sue. Since the receivers could not sue in the name of the mortgagors, they would have to sue in their own names. That was an ancillary power impliedly given to them by the mortgage.
(3) In the alternative, the court would have arrived at the same conclusion by implying a term that the appellants would give up possession to the respondents were they required to do so, in order to make the contract work as a matter of business efficacy so far as the appointment and acts of a receiver were concerned. Such a term filled in a gap left by the express terms. Once the respondents had gained possession, they retained possession as agents of the appellants; they could exercise other powers as agents and were entitled to the benefit of, and enforce, the implied term under the Contracts (Rights of Third Parties) Act 1999.
(4) In a traditional sense, the respondents did not derive title under the original mortgagee as defined in section 39 of the 1970 Act. Bearing in mind the nature and source of the receivers’ rights, how they came to be appointed and what their fundamental purpose was, they were technically agents of the appellants. However, they were appointed by the mortgagee to enforce its security in the event of a default. It would not reflect reality to treat them as agents as regards the enforcement of possession rights against resident mortgagors. In the circumstances, it was right, and not an improper strain on the language of section 39, to say they derived title from the mortgagee for the purposes of section 36. As a matter of principle, the appellants should have the same opportunities of resisting possession under section 36 as they would have had had the bank been a claimant. The question whether section 36 applied on the facts had to be dealt with separately.
Michael Walsh (instructed by RadcliffesLeBrasseur) appeared for the appellants; Francis Moraes (instructed by Mishcon de Reya LLP) appeared for the respondents.
Eileen O’Grady, barrister
Click here to read a transcript of Menon and another v Pask and another (joint fixed charge receivers)
