Receivers wished to obtain possession against a residential property owned by the mortgagors, who were individuals. Could the receivers claim possession in their own name and would that deprive the court of its statutory discretion to postpone the order? These were the issues that were considered in Menon and Menon v Pask and Goods (As Joint Fixed Charge Receivers) [2019] EWHC 2611.
Section 36 of the Administration of Justice Act 1970 (“the 1970 Act”) gives the courts a discretion as to the granting of possession in mortgage possession actions brought by a mortgagee. Section 39 of the 1970 Act defines mortgagee so as to include any person deriving title under the original mortgagee.
In this case Mr and Mrs Menon (“the mortgagors”) charged a residential property to the Bank of Singapore. The charge secured payment on demand of the liabilities of Silky Way Investments Limited (“the company”) to the bank. The company was also party to the charge as borrower. Following the company’s default, a demand was made of the mortgagors and receivers were appointed. The receivers commenced proceedings to obtain possession of the property. Initially, they did so in the name of the company, they then amended to claim in the name of the mortgagors. HHJ Dight decided (in substance) to grant possession in favour of the receivers and found that section 36 of the 1970 Act did not apply.
The decision was appealed. In order to ensure that the appeal dealt with the issues that the parties needed resolved, the mortgagors agreed not to oppose an application by the receivers to substitute their own names for the mortgagors and the receivers did not oppose an application to amend the appellants’ notice. The appeal then raised two significant questions. Firstly, can a receiver appointed under a mortgage of property owned not by a company but by individuals claim possession of the property occupied by the mortgagors by suing in his or her own name as receiver (or at all)? Secondly, if a receiver can claim possession in such a manner, does the court have the usual discretion to postpone possession on terms under section 36 of the 1970 Act.
In answering the question of whether a fixed-charge receiver with the benefit of a power to take possession under the usual form of mortgage providing for receivership and for receivers to be agents of the mortgagor is entitled to obtain possession as against an individual (non-corporate) mortgagor-occupier, Mr Justice Mann considered the nature of the receivers’ agency. After a review of authorities, he concluded that as a result of the special nature of the agency relationship of receivers, the receivers had a separate right which they may utilise against the mortgagors, their principal. He also considered the following facts and matters to be significant: the receivership would be known to be carried out in the interests of the mortgagee, not the mortgagor; the property in this case would be known to be a dwelling house occupied by the mortgagor, so the most likely person against whom possession would be needed, in the event of enforcement, would be the mortgagor; the receiver has a power of sale, and the parties would have expected such a sale to be with vacant possession (so the receiver would need possession against the most likely possessor) and other powers given to the receivers only make business sense if they have possession of the property.
The appeal judge found that a secondary argument could also secure the result of the receivers being entitled to claim possession in their own name. This argument was that the mortgage document would contain an implied term that the mortgagors would give up possession if required to do so. Such a term would be necessary for business efficacy so far as the appointment and acts of a receiver are concerned. The right could then be enforced as the receivers would be entitled to the benefit of that term under the Contracts (Rights of Third Parties) Act 1999.
As to the discretion under the 1970 Act, Mr Justice Mann found that it could be exercised by the court even in cases brought by receivers. He observed “while it would in most cases be technically right to say that in the exercise of their powers they act as agents of the mortgagor, it would not reflect reality (legal and literal) to treat them as such, particularly so far [as] concerns the enforcement of possession rights against a resident mortgagor. They are appointed by the mortgagee to enforce the mortgagee’s security. Were it not for the appointment they would never exist as receivers. In all those circumstances it seems to me to be right, and not an improper strain on the language of s39, to say they derive title from the mortgagee for the purposes of section 36”.
Mr Justice Mann noted that one reason why these issues had not previously come before the courts may be that since 2008 the Council of Mortgage Lenders have voluntarily agreed not to appoint a receiver to sell residential owner-occupied property without first getting a possession order or the borrower’s consent.
Finally, the practical approach that the parties and judge took in the appeal is worth noting. By the parties agreeing not to oppose amendments proposed by the other they were able to ensure that the appeal could deal more fully with the issues.
Elizabeth Haggerty is a barrister at Lamb Chambers
