Cases - Horsham Properties v Clark & Beech

Record details

Name

Horsham Properties v Clark & Beech

Date

(2008)

Citation

EWHC 2327 (Ch)

Legislation

• Law of Property Act 1925
• Human Rights Act 1998

Keywords

The High Court held that a mortgagee can exercise its power of sale without first getting a court order, and that such action is not incompatible with the mortgagor's human rights.

Summary

The wide-ranging implications of this decision led to the intervention in the case by the Secretary of State for Justice, and its transfer from the county court to the High Court.

The decision was welcomed by lenders as confirming the traditional understanding of their rights of sale. However, the government has said it is urgently considering the implications of the decision which it has described as revealing ‘a potential gap in the legal protection given to homeowners’ at a time when the government has committed to making repossession a last resort.

The court left open the question of whether the position would be the same in the case of a sale in breach of mortgage terms, for example, if there was no relevant default.

Facts

The defendants were in possession of a property that they had charged by deed of mortgage as security for a loan. The defendants fell into mortgage arrears and, purporting to use powers contained in the mortgage deed and section 101 of the Law of Property Act 1925, the mortgagee appointed receivers over the property.

The receivers subsequently sold the property using powers in the mortgage deed. The property was transferred by the receivers as agents for the mortgagee using powers of sale in the mortgage deed and section 101. The claimant subsequently became the registered proprietor and brought an action for possession against the defendants.

The defendants argued that section 101 infringed their rights under the European Convention on Human Rights by allowing a mortgagee to overreach a mortgagor's rights in respect of property (particularly residential mortgagors) and permitting a sale to take place without a court order for possession or an order for sale.

The defendants' case was that the Human Rights Act 1998 now required the mortgagee to first obtain a court order and that, when the matter was before the court, the court had power to adjourn or suspend the making of the possession order.

Decision

The defendants' argument failed as the receivers' power to sell the property was derived from the mortgage contract. The defendants lost their interest in the property (their 'equity of redemption') by virtue of the exercise of powers conferred by contract.

Section 101 provides an express statutory power of sale that becomes exercisable when the mortgage money has become due, subject to any contrary intention in the mortgage deed.

It is still common for modern legal mortgages to contain express powers of sale and to appoint receivers (which overlap with the statutory powers) and an express power for the receiver to sell on behalf of the mortgagee (receivers enjoy no such statutory power). The mortgage in this case contained such powers and, therefore, by the express terms of the mortgage, the defendant mortgagors' rights were all subject to being overridden by a sale by the mortgagee or receivers at any time after a default.

Although it was therefore not necessary to consider the effect of the Human Rights Act on section 101 (as the defendants' interest was lost by contract not by state intervention), the importance of the issue meant the court went on to confirm that, even if the defendants' interest had been lost by reason of statutory powers, there was no human rights infringement.

The allegation of infringement was based on rights in article 1 of the First Protocol of the Convention which provides:

‘Every natural or legal person is entitled to the peaceful enjoyment of his possessions. No one shall be deprived of his possessions except in the public interest and subject to the conditions provided for by law…’

While the equity of redemption was a possession, and state intervention could be by legislation, the court found there was no relevant deprivation under the convention.

The court held that section 101 implemented rather than overrode the private bargain between mortgagor and mortgagee: it provided a convenient power of sale to mortgagees and was designed to implement the ordinary expectations of the parties while reducing cost and delay. Further, section 101 was expressed to be subject to contrary intention and was far removed from the concept of state intervention into private rights: it was not rigid, arbitrary or discriminatory and its effect was not only apparent on its face but, in this case, was spelt out in the terms of the mortgage itself.

There was not therefore any deprivation of possessions and, in addition, any supposed deprivation of possessions by the exercise of section 101 powers after a relevant default was justified in the public interest and required no case-by-case exercise of a proportionality discretion by the court. It reflected the bargain drawn between mortgagors and mortgagees in which the ability of a mortgagee to sell the property offered as a security, without having to go to court, was identified as an essential aspect of the security necessarily to be provided if substantial property-based secured lending was to be available at affordable rates of interest.

Powers to stay or adjourn residential possession proceedings applied only where action was taken in court: it would be for parliament to consider whether there should be expansion to other situations.