Legal mortgagee’s right to possession — Restatement of the law by Nourse J, following Birmingham Citizens Permanent Building Society v Caunt — Passages in Fisher and Lightwood and Halsbury’s Laws disapproved — Mortgagor in arrear with payments due under a legal charge, but seeking to counterclaim and set off against arrears certain liquidated and unliquidated sums — Master made an order for possession, but subject to a proviso that it was not to be enforced if the mortgagor should within a time-limit lodge a sum (representing a balance of indebtedness) into court — Master’s order wrong — Even if the debtor’s cross-claims exceeded the amount of the mortgage debt (as to which he cannot make a unilateral appropriation) the master should have made an unconditional order for possession, unless satisfied that there was a reasonable prospect of the mortgagor’s paying the arrears in full, in which case an adjournment for a short time could have been granted — Practice as to adjournment of matter by master to judge after order has been perfected — Master’s order varied by deletion of proviso
Motion to set
aside or vary master’s order on summons by mortgagees for possession. The
motion was necessary as the mortgagees had not asked the master to adjourn the
matter to the judge before the order was perfected. The notice of motion sought
the deletion of part of the master’s order.
E A Davidson
(instructed by Metson, Cross & Co) appeared on behalf of the plaintiffs; H
A P Picarda (instructed by Pardoe, David & Shaw, of Bridgwater) represented
the defendant.
Giving
judgment, NOURSE J said: This case raises in new guise the old question
whether, contract and statute apart, the court has any but the most limited
power to deny a legal mortgagee possession of the mortgaged property.
The defendant,
Mr K A F Rawlinson, is the owner of the equity of redemption in the Heathfield
Garage, North Petherton, near Bridgwater in Somerset. That property is subject
to a legal charge made on September 25 1975 between a company then controlled
by Mr Rawlinson as mortgagor of the one part and the plaintiffs, Mobil Oil Co
Ltd, as mortgagees of the other part. Mr Rawlinson took a conveyance of the
equity of redemption in 1977 and he is now in possession of the property. It is
unnecessary for me to go into the provisions of the legal charge in detail. It
is enough to say that it is in a form commonly used in cases where the
mortgagor owns a filling station and the mortgagee is a petrol company
supplying petroleum products for sale on the premises. There were also supply
and equipment loan agreements in force between Mobil and Mr Rawlinson. In
addition to principal and interest the legal charge secured payment of all
moneys for the time being due from and payable by Mr Rawlinson to Mobil under
the supply and equipment loan agreements.
In
circumstances into which I need not go Mr Rawlinson fell into arrears under the
legal charge. They are agreed to have amounted to £26,936.89 as at April 30
1981. But he seeks to counterclaim and set off against those arrears certain
other liquidated and unliquidated sums being expenses and losses incurred by
him as a result of alleged breaches of contract by Mobil. I need not go into
the nature of those cross-claims at this stage.
In due course
Mobil issued an originating summons against Mr Rawlinson claiming various
familiar forms of relief, including possession of the mortgaged property. That
summons came before the master on May 14, when Mobil asked for an order for
possession. The parties were not represented by counsel and the master evidently
did not have the benefit of a full argument on the matter. In the event he made
an order for possession, but subject to a proviso that it was not to be
enforced if Mr Rawlinson should on or before May 28 (or subsequently within
four days after service of the order) lodge the sum of £8,000 in court. It
appears that that sum was the master’s estimate of the difference between the
admitted amount of the arrears under the legal charge and the aggregate amount
of the expenses and losses which Mr Rawlinson seeks to counterclaim and set off
against them. The aggregate amount of the liquidated cross-claims is £16,846 or
something over £10,000 less than the agreed arrears. That means that the master
credited Mr Rawlinson with something over £2,000 in respect of his cross-claims
of unliquidated amount. The master then gave directions under Order 28, rule 8,
for the further conduct of the proceedings, including an order that Mobil’s
affidavit in support of the summons should stand as the statement of claim and
Mr Rawlinson’s as the defence and counterclaim. Mobil did not ask the master to
adjourn the summons to the judge and the order was perfected on May 22. The
£8,000 was duly lodged in court within the stipulated period.
In due course
Mobil’s solicitors instructed counsel to settle a draft reply and defence to
counterclaim. They had not realised that there might in law be ground for
submitting that the master ought not to have included in his order any
provision to the effect of the proviso which he did include. Accordingly, they
did not instruct counsel to consider that point. And that was why no
adjournment to the judge had been sought and the order had been perfected in
the meantime. However, on July 7 counsel communicated with Mobil’s solicitors
and indicated that in his opinion there was ground for submitting that the
proviso should not have been included in the order. Accordingly, on July 10
Mobil issued a notice of motion seeking in effect to delete the proviso from
the master’s order. That application came before me last week.
Contract and
statute apart, a legal mortgagee has, as an incident of his estate in the land,
an unqualified right to possession of the mortgaged property. He may, as Harman
J put it, go into possession before the ink is dry on the mortgage and without
default on the part of the mortgagor. If he does so, he is liable to account on
the footing of wilful default and that will often deter him from taking
possession himself. But during the present century it has become usual for
mortgagees to seek an order for possession as a preliminary to realising the
security by means of a sale with vacant possession out of court under the
statutory power. In a normal case the court is not asked to grant any other
relief.
Before 1936 a
mortgagee who was only asking for possession had to commence his proceedings in
the Queen’s Bench Division. That was because possession alone could not be
sought by summons in the Chancery Division. But in 1936, Order 55, rule 5A, of
the then Rules of the Supreme Court was amended so as to make that possible.
The Chancery judges of the time issued a practice direction which said, among
other things, that when possession was sought and the defendant was in arrear
with any instalments due
defendant ought to be given an opportunity to pay off the arrears, the master
might adjourn the summons on such terms as he thought fit. That direction
caused confusion. It led to a general view among the Chancery masters, no doubt
assisted by the benevolent attitude which the legislature had by then assumed
towards tenants faced with eviction by their landlords, that they had a
discretion to adjourn a legal mortgagee’s application for possession, at any
rate in instalment cases, against the wishes of the mortgagee in order to
enable the mortgagor to catch up on instalment arrears; and (inferentially) a
right if he did so to continue to deny the mortgagee possession notwithstanding
that on the default the whole of the mortgage money had become and thereafter
remained repayable. By the end of the 1950s it had become necessary for the
Chancery judges of a later generation to reassert the legal mortgagee’s right
to possession. In the van of that movement was Harman J, although even he
subscribed to the view that the practice direction had qualified the right in
the case of an instalment mortgage; see Fourmaids Ltd v Dudley
Marshall (Properties) Ltd [1957] Ch 317 at 321.
In 1961 the
whole question was fully argued and considered in the case of Birmingham
Citizens Permanent Building Society v Caunt [1962] Ch 883 and it is
on Russell J’s judgment in that case that the foregoing summary of the earlier
history is based. I well remember that decision and the general view of the
profession that it had settled once and for all the limited extent of the
court’s power to adjourn a legal mortgagee’s application for possession. The
rule in regard to instalment mortgages (and a fortiori in regard to
ordinary mortgages) was stated by Russell J at the end of his judgment at p
912, 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.
The reason for
the exception is that the court has never allowed a mortgagee to enforce his
rights under the mortgage in the face of a concrete offer by the mortgagor to
redeem.
Since then the
court has twice been given additional powers of adjournment in cases where the
mortgaged property consists of or includes a dwelling-house; see section 36 of
the Administration of Justice Act 1970 and section 8 of the Administration of
Justice Act 1973. But the general rule continues to apply to other types of
property, for example commercial premises of the kind with which the present
case is concerned. Moreover, in Western Bank Ltd v Schindler
[1977] Ch 1 the Court of Appeal reaffirmed the prima facie unqualified
right of a legal mortgagee to possession in unequivocal terms. And the judgment
of Buckley LJ demonstrates that there may well be occasions in the conditions
of modern society when a mortgagee will be wise to go into possession in spite
of his liability to account on the footing of wilful default; see ibid
at pp 9H-10B.
It is accepted
that the legal charge in the present case in no way restricts Mobil’s right to
possession as a matter of contract. Apart from an argument based on the
particular circumstance that no adjournment to the judge was sought before the
order was perfected (I will deal with that point later), Mr Picarda, who appears
for Mr Rawlinson, bases himself on the following passage in Fisher and
Lightwood’s Law of Mortgage, 9th ed at p 325 where, having referred to the
general rule established in Birmingham Citizens Permanent Building Society
v Caunt, the learned editor proceeds as follows:
However, if
there is a bona fide defence, such as that the plaintiff is a
moneylender and the requirements of the Moneylenders Acts have not been
satisfied, or any default has been waived or there be some estoppel which can
be raised against the mortgagee or counterclaim or set-off arising out of the
mortgage, the master or registrar will adjourn the matter into court.
In reference
to the possibility of a counterclaim or a set-off arising out of the mortgage
there appears this footnote:
Even an
admitted liquidated claim which exceeds the mortgage does not per se
discharge the mortgage and is no reason for adjourning the application: Samuel
Keller (Holdings) Ltd v Martins Bank Ltd . . . See also Inglis
v Commonwealth Trading Bank of Australia . . . But where the amount due
under the mortgage is determined by some other transaction between the parties,
eg where the mortgage is to secure the amount owing from time to time for goods
supplied by the mortgagee to the mortgagor, the possession claim may be
adjourned, if the mortgagor has a cross-claim for goods supplied to the
mortgagee.
Mr Picarda
relies strongly on the proposition embodied in the second part of that
footnote. He accepts that is is not supported by any authority, but he says
that it is consistent with principle and ought to govern this case. The essence
of Mr Picarda’s argument is that the set-off claimed by Mr Rawlinson goes to
the root of his secured floating indebtedness to Mobil, and enables him to
claim that there is in truth no such debt in existence. It is on that ground
that Mr Picarda seeks to distinguish Samuel Keller (Holdings) Ltd v Martins
Bank Ltd [1971] 1 WLR 43 and Inglis v Commonwealth Trading Bank
of Australia [1972] 126 CLR 161, which are the two cases referred to in the
first part of the footnote.
I am prepared
to assume in Mr Rawlinson’s favour that the amount of his cross-claims exceeds
the amount of the mortgage debt. I say at once that I regard that as an
assumption of extremely doubtful validity — on the master’s estimate there is a
shortfall of about £8,000 — but I will make it none the less. However, I find
it impossible to make any distinction between this case and Samuel Keller
(Holdings) Ltd v Martins Bank [1971] 1 WLR 43. Megarry J’s statement
of the principle at pp 47H-48B, which was expressly approved by the Court of
Appeal, is in entirely general terms. The principle is that a mortgagor cannot
unilaterally appropriate the amount of a cross-claim, even if it is both
liquidated and admitted (and a fortiori if it is unliquidated or not
admitted), in discharge of the mortgage debt. On that footing the origin and
nature of the cross-claim and its relationship to the mortgage debt are wholly
irrelevant.
In the
circumstances this case must be approached on the footing that when the matter
came before the master there were substantial arrears outstanding. Consistently
with the general rule established in Birmingham Citizens Permanent Building
Society v Caunt he ought then to have made an unconditional order
for possession, unless of course he was satisfied that there was a reasonable
prospect of Mr Rawlinson’s paying the arrears in full, not into court but to
Mobil, or otherwise satisfying Mobil, in which case he should have adjourned
the application for a short time.
It follows
that I must disapprove the proposition embodied in the second part of the
footnote in Fisher and Lightwood and also in one in almost identical
terms in Halsbury’s Laws of England, 4th ed vol 32, at para 834. I
should add that even without the authority of Samuel Keller (Holdings) Ltd
v Martins Bank Ltd (which was not concerned with a claim for possession)
I would regard the proposition as being unsound. If the general rule is that
the mortgagee is entitled to possession unless there is a reasonable prospect
of the mortgagor’s paying him off in full or otherwise satisfying him within a
short time I do not see how payment into court, even in full, or anything else
for that matter, can be a compliance with the rule. Any other view would only serve
to perpetuate the former confusion between the unqualified right to possession
and the state of the account between the mortgagor and the mortgagee.
I do not
intend to suggest that there may not be other circumstances in which the court
will refuse a mortgagee possession on terms that the mortgagor pays the full
amount of the mortgage debt into court. A number of other possibilities are
mentioned in the passage in Fisher and Lightwood which I have already
read. Without attempting to decide any point which does not arise for decision
in the present case, I will only say that it seems to me that that course could
be adopted only in a case where there was a substantial
example where it was claimed that the mortgage was void for illegality or that
the mortgagee was in some way estopped from asserting his right. It appears
probable that Lidco Investments Ltd v Hale [1971] Estates Gazette
Digest 669 is a case which falls within the former category.
That leaves
only the question whether Mobil’s position has been prejudiced by its not
having asked for the matter to be adjourned by the master to the judge before
the order was perfected. This has meant that it has had to come to the court by
way of motion to set aside or vary the master’s order. The practice of the
court is stated by Templeman J in Whiteoaks Clifton Property Services Ltd
v Jackson [1975] 1 WLR 658 at p 660H in the following terms:
Of course the
jurisdiction to set aside an order made by a master will be sparingly exercised
where the aggrieved litigant does not ask for the matter to be adjourned to the
judge before the order is perfected. The jurisdiction will be exercised even
more sparingly if a considerable time elapses between the date of the order and
the date of the motion to set aside.
That shows that
the jurisdiction will be sparingly exercised where, as in this case, no
adjournment to the judge is requested before the order is perfected. However,
Mr Picarda very properly accepted that he would be in some difficulty in
resisting this application if I came, as I have, to the conclusion that the
master had no jurisdiction to impose the proviso. Further, Mobil did act with
great expedition once the point had been drawn to its attention by counsel. In
the circumstances, it seems to me that I should certainly accede to Mobil’s
application and that the proviso should be deleted.
The master’s
order for possession was varied by deletion of proviso that it should not be
enforced if the defendant lodged a sum in court within a time-limit. A stay of
28 days was granted in view of prospect that the mortgage debt might be repaid
in full.
