Tuesday, 5th December 1995
LORD JUSTICE WAITE: The rights of mortgagees to take possession of a dwelling house, whether by virtue of their legal estate in the land or in fulfilment of some express term of the mortgage operating in the event of default or arrears, have for many years been moderated by statutory powers giving the court discretion to suspend possession orders on appropriate terms. The mortgage to which this appeal relates is a term mortgage - that is to say a charge under which no instalments of capital are repayable and the whole principal debt remains outstanding until a specified date in the future, with the mortgagor being liable in the meantime for instalments of interest only. The appellant mortgagor fell into arrear with her interest payments. Thereupon, under the terms of the mortgage, the whole mortgage debt became immediately repayable. The mortgagee sought and obtained a possession order, execution of which was suspended by a series of orders on terms as to payment of current interest instalments and payment-off of arrears with which the mortgagor made strenuous efforts to comply, but without complete success, so that she remained in default, both under the terms of the mortgage and the terms of the suspension. A final application for a renewed suspension was dismissed by the District Judge on 28 September 1993. His order was upheld on appeal by His Honour Judge O'Malley in the Shaftesbury County Court on 27 June 1994. The mortgagor now appeals from that order by leave of this court.
Since the case is said by both sides to involve considerations of principle which would be relevant to all home mortgages - whether term or instalment - it will be as well to begin with a brief account of the statute and case law.
THE LEGAL BACKGROUND
The position at common law was that the court had only a very limited jurisdiction to grant relief to a mortgagor in default under the payment terms in the mortgage against the mortgagee's consequent claim to possession. It could do no more than to adjourn the application "for a short time to afford 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" - Birmingham Citizens Permanent Building Society v Caunt [1962] Ch 883 per Russell J at p 912. The rigour of this restriction was first mitigated by Section 36 of the Administration of Justice Act 1970 which provides:
36 (1) Where the mortgagee under a mortgage of land which consists of or includes a dwelling house brings an action in which he claims possession of the mortgaged property..... the court may exercise any of the powers conferred on it by subsection (2) below if it appears to the court that in the event of it exercising the power the mortgagor is likely to be able within a reasonable period to pay any sums due under the mortgage or to remedy a default consisting of a breach of any other obligation arising under or by virtue of the mortgage.
(2) The court -
(a) may adjourn the proceedings, or
(b) on giving judgment, or making an order, for delivery of possession of the mortgaged property, or at any time before the execution of such judgment or order, may
(i) stay or suspend execution of the judgment or order, or
(ii) postpone the date for delivery of possession,
for any such period or periods as the court thinks reasonable
(3) Any such adjournment, stay, suspension or postponement as is referred to in subsection (2) may be made subject to such conditions with regard to payment by the mortgagor of any sum secured by the mortgage or the remedying of any default as the court thinks fit.
(4) The court may from time to time vary or revoke any condition imposed by virtue of this section
The reference in sub-section (1) to "any sums due under the mortgage" was restrictively interpreted in case law (Halifax Building Society v Clark [1973] Ch 307 per Sir John Pennycuick V-C at page 313) as referring to the entire mortgage debt. The effect was to restrict S 36 relief in practice to a very limited range of cases - "for, if the mortgagor was already in difficulties with his instalments, the chances of his being able to pay off the whole principal as well in a reasonable time must be considered fairly slim" (Habib Bank Ltd v Tailor [1982] 1 WLR 1218 per Oliver LJ at p 1222). That led to the enactment of S 8 of the Administration of Justice Act 1973, which provides:
8 (1) Where by a mortgage of land which consists of or includes a dwelling-house, or by any agreement between the mortgagee under such mortgage and the mortgagor, the mortgagor is entitled or is to be permitted to pay the principal sum secured by instalments or otherwise to defer payment of it in whole or in part, but provision is also made for earlier payment in the event of any default by the mortgagor or of a demand by the mortgagee or otherwise, then for purposes of section 36 of [ the 1970 Act] (under which a court has power to delay giving a mortgagee possession of the mortgaged property so as to allow the mortgagor a reasonable time to pay any sums due under the mortgage) a court may treat as due under the mortgage on account of the principal sum secured and of interest on it only such amounts as the mortgagor would have expected to be required to pay if there had been no such provision for earlier payment.
(2) A court shall not exercise by virtue of sub-section (1) above the powers conferred by section 36 of [the 1970 Act] unless it appears to the court not only that the mortgagor is likely to be able within a reasonable period to pay any amounts regarded (in accordance with subsection (1) above) as due on account of the principal sum secured, together with the interest on those amounts, but also that he is likely to be able by the end of that period to pay any further amounts that he would have expected to be required to pay by then on account of that sum and of interest on it if there had been no such provision as is referred to in subsection (1) above for earlier payment.
The side note at 88/5/9 of the Supreme Court Practice succinctly summarises the effect of those two sections, in the common situation (also applicable in this case) where the whole mortgage debt becomes repayable on default, in this way:
"In such a case the Court may, in exercising its discretion under S 36, treat the sum due under the mortgage as being only the arrears of instalments or interest. It may exercise its jurisdiction under the section if it appears that the borrower is likely to be able within a reasonable period to bring his payments up-to-date by paying off all arrears at the date of the order and the payments falling due after the date of the order."
The editors later comment in the same passage that the question as to what exactly is a "reasonable period" for bringing the payments up to date is one on which there is little guidance. It is the question which lies at the heart of this appeal.
Dicta in two authorities have been particularly relevant to the debate. They are:
(1) First Middlesbrough Trading and Mortgage Co Ltd v Cunningham [1974] 28 P & C R 69.
This was a case of default under an instalment mortgage. The original mortgage principal was £850 repayable by instalments of capital and interest at the rate of £3 per week. By the date of the hearing before the judge the amount of the instalments in arrear was £142 and the total balance then owing on the mortgage was £514. The judge had made an order for possession in favour of the mortgagee but suspended it for so long as the instalments due under the mortgage plus a further specific amount off the arrears were paid weekly. Although S 8 had by then been enacted, the case had to be decided, because of the date of the hearing at first instance, under S 36 as interpreted under the previous law without reference to S 8. Scarman LJ made it plain that he did not share the interpretation put upon S 36 in the Halifax v Clark decision but proceeded on the basis that it was right - i.e. that the "sums due" were the whole of the mortgage debt. In determining what would be a reasonable period for repayment of "any sums due under the mortgage" for the purposes of S 36 (2) he asked that question independently under the separate heads of repayment of the outstanding principal and future interest on the one hand and the repayment of arrears on the other.
As to the former he said (at page 75):
"Since the object of the instalment mortgage was, with the consent of the mortgagee, to give the mortgagor the period of the mortgage to repay the capital sum and interest, one begins with a powerful presumption of fact in favour of the period of the mortgage being the "reasonable period."
As to the latter he said (continuing in the same passage):
"Arrears had however arisen. The judge, considering all the circumstances, took the view that the mortgagor would be able to maintain her agreed instalments and to pay a specified sum per week off the arrears on the basis (and I need not go into the detail of it) of the order he in fact made. Those arrears will be paid, under the judge's order, if it be complied with, well within the stipulated period for the repayment of the mortgage by the agreed instalments."
(2) Western Bank v Schindler [1977] Ch 1
That was an instance of a more unusual case, where the mortgagee was seeking possession as of right - that is to say in the absence of any default in payment by the mortgagor - in simple reliance on the legal estate conferred on it under a charge carrying a right to possession as soon (in the vivid phrase) as the ink was dry on it. The Court of Appeal held by a majority (Buckley and Scarman LJJ) that a distinction must be drawn between cases where the mortgagor is in default and those where he is not. In the former (default) case a reasonable period for the purposes of S 36 (2) must be measured "by what is reasonable for the purposes indicated in the conditional clause in subsection (1)" (Buckley LJ at page 14B); in other words it must be a reasonable period for the mortgagor to "find the necessary money or remedy the default" (Scarman LJ at 19C). In the latter (no default) case, Buckley LJ said (14 F-G):
"in a suitable case the specified period might even be the whole remaining prospective life of the mortgage."
Goff LJ dissented from the majority on the issue as to whether S 36 had any application at all to cases where the mortgagor was not in default, but on the issue (as to which he was in agreement with the other members of the court) as to the application of that section to default cases he said that it was:
"clear the purpose of the section is to enable the court in any of the ways specified in sub-section (2) to grant a limited time, which may of course in a proper case be extended by a further exercise of the statutory powers, within which the mortgagor may put the matter right".
THE FACTUAL BACKGROUND
The appellant Christina Norgan has lived with her husband and their family (now consisting of five sons aged from 6 to 18) since 1974 in a period farmhouse in Wiltshire with some 8 acres of land said now to be worth about £225,000. In November 1986 her husband required business finance and he accordingly arranged to realise his half share of the property by selling it to his wife and thus constituting her the sole owner. On 28 November 1986 he conveyed the property into her sole name in consideration of a payment of £90,000 which was financed by means of a mortgage with the Guardian Building Society ("Guardian") executed on the same date by the wife under which the property was charged with repayment to Guardian of a sum of £90,000. The terms of that charge ("the mortgage") were that the principal sum should be repaid at the expiration of a term of 22 years with interest at 11.25% payable in monthly instalments. The mortgage was pension-linked and guaranteed by the husband. It was subject to Guardian's Standard Mortgage Conditions, which included a power to vary interest by charging Guardian's standard rate currently in force, and also a provision that if at any time any monthly instalment should be in arrear and unpaid for one month after becoming due, Guardian would be entitled to take possession of the property.
Mr Norgan suffered misfortune in his business activities, as a result of which the appellant, his wife, ran into difficulty in keeping up the interest payments under the mortgage which began to fall into arrear. In April 1990 Guardian was taken over by the plaintiffs who were formerly the Cheltenham and Gloucester Building Society and are now Cheltenham and Gloucester PLC. I will refer to them simply as "Cheltenham". By the date of the Cheltenham takeover the arrears of interest due under the mortgage were in the region of £7000.
Cheltenham is a member of the Council of Mortgage Lenders, which publishes a statement ("the CML Statement") of current practice of mortgage lenders when dealing with mortgage arrears and possession cases. The current (February 1995) CML Statement contains the following in a section headed "Alleviating Arrears Problems":
" 7. Lenders have the following measures which they can use to help some borrowers in arrears difficulties
(a) In the case of a repayment loan the term of the loan can be lengthened, although in most cases this does not make a significant difference to the monthly payments
(b) An endowment mortgage can be changed to a repayment, or interest only, mortgage with a subsequent reduction in monthly outgoings.....
(c) Part of the interest can be deferred for a period. This is particularly appropriate where there is a temporary shortfall of income (for example, because of an industrial dispute or a temporary illness), or where there has been a rapid increase in interest rates. Lenders would generally be willing to accept, for a reasonable period of time, the most the borrower could reasonably afford. However this is not a solution where, because of a permanent reduction in income, a borrower is unable to afford anywhere near the full mortgage repayments and there is no prospect of a change in the situation in the future.
(d) Linked to (c) is the possibility of capitalising interest. This is appropriate where arrears have built up but full monthly repayments can be resumed. The arrears can be added to the capital sum owed and repaid over the life of the loan.
......
8. In addition, lenders try to ensure that the borrower is aware of any income support or other social security benefits that may be available, and, in appropriate cases, many advise the borrower to consider letting the property or taking in a lodger......"
On 14 May 1990 Cheltenham applied to the county court for a possession order. The claimed arrears of interest instalments then stood at £7216. By the date of the hearing on 12 November of that year this figure had increased to £14,744. The then current rate for the interest instalments was £1251 per month. The District Judge, being told that Mrs Norgan was proposing to re-finance the mortgage, made a possession order, but suspended it in the first instance for 28 days, directing that if the arrears were not cleared the mortgagor wold be at liberty to apply for a further suspension on terms as to payment of current instalments and a proportion off the arrears. The mortgage was not re-financed, and Mrs Norgan applied for such a suspension, which was granted by the District Judge on 17 December 1990, when she varied the suspension terms to provide for payment by Mrs Norgan of the current instalments of interest plus £445 per month off the arrears. Had those conditions been fully complied with, the claimed arrears (amounting by then to £16,023) would have been paid off within about three years.
No payments off the arrears were made, however, and Cheltenham obtained a warrant for possession. On 22 April 1991 the District Judge suspended the warrant on the ground that a sum of £11,000 would be paid very shortly, and such a sum was indeed paid by Mrs Norgan in May 1991. There were no further payments, however, during the summer and Cheltenham again applied to issue the warrant. Mrs Norgan obtained a further suspension on terms as to payment of the current instalments of interest and £551 per month off the arrears. There was then a period of substantial improvement in the payment record, but only a slight inroad was made on the claimed arrears. By the autumn of 1992 they stood at £15,000. Nearly a year later (after an interval occupied by exploration of Mrs Norgan's eligibility for payment of Housing Benefit) the Benefits Agency on 9 September 1993 began payments (back-dated to June of that year) to the credit of Mrs Norgan's mortgage account with Cheltenham. The claimed arrears remained substantial, and Cheltenham applied once again to issue the warrant.
That application, together with the mortgagor's cross-application for a further suspension, was heard by the District Judge on 28 September 1993. He refused any further suspension and gave leave to issue the warrant, but granted a stay pending the mortgagor's appeal to the judge.
The hearing of that appeal before Judge O'Malley occupied three days, fragmented between dates in November 1993 and February and May 1994. Mrs Norgan appeared in person, with her husband acting as spokesman. Cheltenham was represented by counsel. The judge (as appears from the careful and detailed judgment which he later handed down) was taken through the authorities. He was confronted with the difficulty that the figures could not be agreed. There were disputes as to the extent (if any) to which the claimed arrears of interest fell to be reduced to take account of the impact of MIRAS, as to whether the buildings insurance premium (which the mortgagor was liable to reimburse to the mortgagee) was excessive because of the high rate of cover insisted upon by Cheltenham, and as to whether Cheltenham were entitled - when adding to their security the legal costs which they had incurred in the various antecedent proceedings - to treat them as augmenting the amount on which the interest payments were calculated. The judge, in the interests of keeping an already long hearing within bounds, did not attempt to adjudicate all these matters (to which I shall refer as "the disputed items"). Instead he followed the course of taking a figure which took some account of the disputed items by reducing the claimed arrears as at the date of the hearing before him from £23,000 to £20,000 and proceeding on that as an approximate basis for the exercise of his discretion.
He then proceeded to announce his conclusion on the case in the following terms:
What, then, is a reasonable time within which to require the repayment of this sum? There is scant assistance to be derived from the decided cases. The experience of this court in appeals of this kind suggests that a period of two to four years is the maximum that will ordinarily be allowed. It is noteworthy too that District Judge Parmiter, whose article is written to assist mortgagors, refers to a Judicial Studies Board "recommendation" of two years, with many judges apparently thinking "in much longer terms". He makes no reference to the dictum of Scarman LJ, although it is relatively well known to judges exercising this jurisdiction. I am persuaded by Mr Nesbitt that Lord Justice Scarman's starting point, in First Middlesbrough Trading and Mortgage Co Ltd. v. Cunningham (1974) 28 P & C P 74, of the whole of the rest of the term must be viewed in the context which existed before the passing of the 1973 Act. In the result I consider that a reasonable time for the defendant to get up to date with the mortgage payments should be a far shorter period than that contended for by Mr. Norgan. I would specify a period of the order of four years. In reaching this conclusion I take account of the fact that there is at present and there will for a considerable time be ample security for the plaintiff's loan. The Statement of Practice of the Council of Mortgage Lenders does not bind the plaintiffs to a particular course of action. It could be a factor in determining the length of the period regarded as reasonable for payment of arrears. However the difficulty for the defendant in the present case is the magnitude of the arrears, and I am not persuaded that the plaintiffs in any way contributed to the size of those arrears.
The defendant's case for the suspension of the warrant depends very largely on the whole of the rest of the term being held to be the reasonable period for payment of the arrears. My rejection of this submission and my finding that only a far shorter period would be reasonable, makes it impossible for the court's power under section 36 to be exercised in the defendant's favour. There is a prospect that, given time, the finances of the Norgan family may improve sufficiently to discharge the liabilities under the mortgage. Mr. Norgan is an able and resourceful man, but I am not satisfied that on the balance of probabilities the family finances will so improve. Whether the family is allowed the chance must be left to the plaintiffs to decide. They have established their claim to possession in law and have obtained an order for possession. They are entitled to enforcement of that order unless the defendant can establish the contrary. In this, as I find with much regret, she has failed. The appeal is dismissed."
When Mrs Norgan's application for leave to appeal came to be considered by this court (Simon Brown and Roch LJJ) on 12 October 1994, leave was granted (and a further stay on possession pending hearing of this appeal) on the basis that, as Lord Justice Simon Brown expressed it:
"it seems to me that the time has come when this court should give some further and fuller consideration to the whole question of what is envisaged in the concept of "a reasonable period" within section 36 (1); and what may be its touchstones and perhaps its parameters ..... To my mind, this represents in many ways an ideal case for clarification of these important questions on appeal, not least because of the continuing security represented by the property and the excellence of the judgment below."
As to the disputed items, he said:
"efforts should be made to crystallise in money terms the differences between the parties, and thereby to clarify the consequences respectively of success or failure on the various arguments....."
Unfortunately that last request has not been complied with. At this appeal hearing, at which both parties have been represented by counsel (neither of whom appeared below), a mass of new material has been laid before the court on the disputed items, but no figures are agreed. Mr Waters, counsel for Cheltenham, has told us that on his clients' calculations the claimed arrears, on the footing that all the disputed items were to be resolved in Cheltenham's favour, amount at present to £29,000. The opposite figure, if Mrs Norgan should win on all those items, is £14,500. Faced with a disparity of that order, it would clearly be impossible for this court to embark upon the exercise of considering the practicability of Mrs Norgan (who has put in evidence detailed particulars of her budget and income) being able to pay off the relevant arrears within any and if so what period of time. We have been compelled to confine our consideration to the issue of principle to which this appeal gives rise.
THE ISSUE OF PRINCIPLE
The judge's statement that in the experience of his court "a period of two to four years is the maximum that will normally be allowed" as reasonable for the purposes of S 36 (2) accords with the comment in the Supreme Court Practice, where the passage from which I have already quoted continues:
"The exercise of the discretion under S 36 is by far the commonest matter which arises for decision in disputed mortgage actions. What is a "reasonable period" for bringing the payments up-to-date is a question on which there is little guidance. In practice, in any ordinary case a period of at least two years will be allowed to the borrower if it appears that he is likely to be able to clear off the arrears in that time and he may be allowed a much longer time."
The opposing arguments which Mr Croally and Mr Waters have developed in their helpful written and oral submissions are as follows. Mr Croally contends that there is a primary assumption that a reasonable period is the term of the mortgage, and for that he relies on the dicta already cited from Cunningham and Schindler. That assumption is reinforced, he says, in the present case by the fact that there is sufficient equity to protect the mortgagee's eventual entitlement to repayment of the principal debt in full in 2008, that the mortgagor has deposed on affidavit to budgeting proposals under which (with the help she now receives from the DSS) there is a reasonable prospect of her being able to pay off the arrears in full by the expiry of the mortgage term, and that such a proposal would accord with the policy declared on the face of the CML statement. Mr Waters contends that such an approach takes too narrow a view of the court's discretion. The delaying powers under S 36 represent a substantial interference with the contractual right which the parties have themselves freely negotiated, namely the right of the mortgagee to repayment in full of the whole mortgage debt as soon as a default occurs. In the exercise of its discretion, therefore, the court is bound to be even-handed in its approach to the claims of each side, matching a concern on the one hand that the mortgagor should be allowed a proper opportunity of making good his default with a concern that a mortgagee who has contracted for a steady flow of interest punctually paid by instalments as they fall due should not be compelled to wait for payment through an enforced capitalisation of interest. Given the number of these cases which comes before the courts every day, it would lead, so Mr Waters submits, to unnecessary cost and delay if in every case the court was required to undertake the sort of detailed inquiry which would be necessary if one is to weigh to a nicety the effect on the one hand upon the lender of having to submit to a phasing of repayment of arrears over the whole remaining term of the mortgage and the ability on the other hand of the mortgagor to maintain such payments. It would be sufficient for the purposes of a just and fair exercise of the discretion if the courts were to be encouraged to adopt, as the judge did in this case and as many other judges (with encouragement from the White Book) regularly do, a period of years (be it two, four or six - Mr Waters leaves us to say which should be chosen) that can, without being applied blindly or rigidly, be adapted by the courts to the demands of each case.
CONCLUSION
There is no doubt that Mr Waters' argument has strong pragmatic advantages. In the present plight of the housing market possession cases play a major part in the case-load for the county courts. That is particularly true of the District Judges, who deal with those cases in such numbers that they develop a "feel" for them and have achieved an excellent disposal record. It is not surprising that they have found it convenient to adopt a relatively short period of years as the rough rule of thumb which aids a just determination of the "reasonable period" for the purposes of Sections 36 and 8. Nevertheless although I would not go quite so far with Mr Croally as to say it should be an "assumption", it does seem to me that the logic and spirit of the legislation require, especially in cases where the parties are proceeding under arrangements such as those reflected in the CML statement, that the court should take as its starting point the full term of the mortgage and pose at the outset the question: would it be possible for the mortgagor to maintain payment-off of the arrears by instalments over that period?
I accept all the grounds urged on us by Mr Waters for saying that the dicta relied on in Cunningham and Schindler were directed to situations different from the circumstances of this case and most other cases of it kind, but they nevertheless in my judgment provide confirmation of the view that such is the right approach. I would acknowledge, also, that this approach will be liable to demand a more detailed analysis of present figures and future projections than it may have been customary for the courts to undertake until now. There is likely to be a greater need to require of mortgagors that they should furnish the court with a detailed "budget" of the kind that has been supplied by the mortgagor in her affidavit in the present case. But analysis of such budgets is part of the expertise in which the District Judges have already become adept in their family jurisdiction and I would not expect that to present too great a difficulty. There will be instances, too, in which preliminary adjudication will be necessary to determine, when calculating the amount of arrears and assessing the future instalments for their payment-off, which items are to be attributed to the mortgagor's current payment obligations and which to his ultimate liability on capital account. The present case has shown - through the disparity introduced by the disputed items - how problematic that may sometimes prove to be. They are nevertheless disputes that it will be essential to resolve - in this case and others where they arise - before the court can undertake an accurate estimate of the amount which the mortgagor would be required to meet if the arrears were to be made repayable over the full remainder of the mortgage term. There may also be cases, as Mr Waters points out, in which it is less obvious than in this case that the mortgagee is adequately secured - and detailed evidence, if necessary by experts, may be required to see if and when the lender's security will become liable to be put at risk as a result of imposing postponement of payments in arrear. Problems such as these - which I suspect will arise only rarely in practice although they will undeniably be daunting when they do arise - should not however be allowed, in my judgment, to stand in the way of giving effect to the clearly intended scheme of the legislation.
There is another factor which, to my mind, weighs strongly in favour of adopting the full term of the mortgage as the starting point for calculating a "reasonable period" for payment of arrears. It is prompted by experience in this very case. The parties have been before the court with depressing frequency over the years on applications to enforce, or further to suspend, the warrant of possession, while Mrs Norgan and her husband have struggled, sometimes with success and sometimes without, to meet whatever commitment was currently approved by the court. Cheltenham has (in exercise of its power to do so under the terms of the mortgage) added to its security the costs it has incurred in connection with all these attendances. One of the disputed items turns upon the question whether such costs fall to be allocated to capital or to interest account. What is not in dispute, however, is that one day, be it sooner or later, those costs will have to be born by the mortgagor, and if the day comes when she decides - or is compelled by circumstances - to move to more readily affordable accommodation, her resources for re-housing will be correspondingly reduced. It is an experience which brings home the disadvantages which both lender and borrower are liable to suffer if frequent attendance before the court becomes necessary as a result of multiple applications under S 36 - to say nothing of the heavy inroads made upon court hearing time. One advantage of taking the period most favourable to the mortgagor at the outset is that if his or her hopes of repayment prove to be ill-founded and the new instalments initially ordered as a condition of suspension are not maintained but themselves fall into arrear, the mortgagee can be heard with justice to say that the mortgagor has had his chance, and that the S 36 powers (although of course capable in theory of being exercised again and again) should not be employed repeatedly to compel a lending institution which has already suffered interruption of the regular flow of interest to which it was entitled under the express terms of the mortgage to accept assurances of future payment from a borrower in whom it has lost confidence.
It follows, for all these reasons, that in adopting for this case a period of repayment (four years) unrelated to the remaining term of the mortgage (thirteen years) the judge in my view fell into error. The fault was not his. He applied to a case which he examined with outstanding care and clarity a practice of convenience which has been developed to deal with a widely framed statutory discretion in respect of which guidance from authority has been limited.
In view of the long history of this litigation, and the anxiety it has involved, in particular for Mrs Norgan and her family, it would have been the wish of this court to determine all outstanding issues for ourselves, so that each side might have left this court knowing exactly where they stood. But, as Lord Justice Evans made clear to the parties at the hearing, there are too many matters unresolved, on evidence which is still not wholly complete, to enable us to do so. I would therefore allow the appeal and remit the case to the county court for:
1. A determination of the disputed items and a finding as to what precisely is now, or (as they case may be) will at the expiry of the mortgage term be, due from the mortgagor on capital and interest instalment account respectively - including in the latter account a precise figure for the current interest in arrear.
2. A calculation of:
(a) the instalments which the mortgagor would be required to pay if the arrears so found were to be made payable by instalments over the whole of the remaining period of the mortgage term.
(b) the instalments of interest currently due under the mortgage
3. A determination of the question whether, in the light of the court's findings as to the current and prospective ability of the mortgagor to discharge the instalments under 2 (a) and (b), there are any unusual circumstances justifying a departure from the remaining term of the mortgage as the period that is prima facie "reasonable" for the purposes of Sections 36 and 8.
4. A determination of the question whether, in the light of its conclusions under 1, 2 and 3, this would be a suitable case in which to exercise the court's discretion to suspend the warrant of possession for any and if so what period.
SIR JOHN MAY: I entirely agree with the judgments of Lord Justice Waite and Lord Justice Evans in this appeal. I also agree with their remarks about the care and thoroughness with which this case was heard below. I found the learned Judge's judgment of great help on the hearing of this appeal. However, although we are differing from the latter for the reasons to which my lords have referred, I do not think it necessary to add any comments of my own except to say that I also agree with the Order proposed.
LORD JUSTICE EVANS: I entirely agree with the judgment of Lord Justice Waite and that this appeal should be allowed and the case remitted to the County Court on the terms proposed by him.
I especially agree with his remarks as to the care with which the case was heard by H.H. Judge Stephen O'Malley and his thorough judgment was prepared. It is only because this appeal has provided an opportunity to reconsider the basic principles on which the statutory power to defer possession for a "reasonable period" should be exercised that it has become necessary to set aside his order, which was in conformity with authoritative descriptions of practice in the past.
The question posed by the statute is whether "the mortgagor is likely to be able within a reasonable period to pay any sums due under the mortgage", where the relevant default consists of a failure to pay sums as they fall due (Administration of Justice Act, 1970, section 36). When Sir John Pennycuick V-C held in Halifax B.S. v. Clark [1973] Ch. 307 that "any sums due" could refer to the entire mortgage debt, when that had become due by reason of the previous failure to pay instalments of interest, Parliament moved rapidly to enact that in such circumstances "a Court may treat as due under the mortgage .... only such amounts as the mortgager would have expected to be required to pay if there had been no such provision for earlier payment" : section 8(1) of the Administration of Justice Act 1973.
It may be noted that this section might have said, but it did not, that regard should be had to such amounts as the mortgager would have been liable to pay, etc., rather than the broader concept of amounts which he "would have expected to be required to pay". This suggests that it is relevant, indeed necessary, to have regard to published statements of the lender's policies in case of default. These include the Statement of the Council of Mortgage Lenders which Lord Justice Waite has quoted.
The Guardian Building Society, whose successors the respondents are, advanced £90,000 to the appellant on terms that it would be repaid after the expiry of 22 years with payments of monthly instalments of interest throughout that period.
Because this is a term mortgage rather than a repayment mortgage, it is axiomatic that, acceleration provisions apart, the lender has budgeted for the principal sum to remain outstanding until the expiry of the term.
Suppose then that interest payments become overdue. Putting the accelerated payment provisions to one side, as the Court is empowered to do, the lender is disadvantaged because he is not receiving interest on the capital sum outstanding, and it becomes necessary to consider whether a "reasonable period" for the borrower to make good the default could extend to cover the whole of the remaining part of the original term, or whether the starting point for fixing that period should be a shorter and perhaps even a conventional number of years. I am unable myself to see why two years rather than one, or four rather than five, should be regarded as the correct starting point, nor how it is possible to establish any period without taking into account how long the original period was.
For this reason alone, I would respectfully agree with the observation of Scarman L.J. in First Middlesborough Trading and Mortgage Co. Ltd. v. Cunningham (1974) 28 P & CR 69 that "one begins with a powerful presumption of fact in favour of the period of the mortgage being the "reasonable period" (page 75), even in a repayment mortgage, as that one was. Certainly, that consideration applies with even greater force to a term mortgage, as we have here.
It is at this stage that the published policy of the lenders, as set out in the CML Statement, to which the respondents subscribe, becomes directly relevant. A "reasonable period" implies that the interests of both parties have to be taken into account. When the borrower is likely to be able to make regular payments, of whatever amount, then in general it can be said that the longer the period then the more "reasonable" it will be for him. Although it may not often be reasonable to expect the lender to wait longer than the original term, the question of principle raised by this appeal is whether he can reasonably be required to wait until then.
The property in question must by definition be a dwelling house which in the present case is occupied as it has been for many years by the appellant and her family. For the respondents, this is one of very many transactions where their interests are financial only. There can be cases, no doubt, where the lender has some other direct interest, for example, where the value of the security may be threatened if the period allowed is unduly long, but this is not such a case. The respondents claim protection for their reasonable financial interests only.
The CML Statement shows that mortgage lenders such as the respondents have a number of options available to them, when payments are in arrears. They include even extending the term of the loan (paragraph 7(a)) as well as deferring payments of interest (paragraph 7(c)) and, of direct relevance in circumstances such as these, capitalising the interest payments which are in arrears (paragraph 7(d)). The Statement continues:-
"Possession
10. Lenders seek to take possession only as a last resort. They are in business to help people to buy homes, not to take their homes away from them. In some cases, however, .... ".
Given these statements of policy, I do not see how the respondents can properly say that it is not appropriate to take account of the whole of the remaining part of the original term when assessing a "reasonable period" for the payment of arrears. If the case is one where the interest might reasonably be capitalised, depending no doubt on the borrower's likely ability to pay the increased amount of interest instalments, then the principal sum will be increased, and the arrears extinguished accordingly. If that is one possibility which ought reasonably to be considered, then it cannot be wrong or unreasonable to consider what the prospects are of the borrower paying the arrears of interest in full by the end of the term, including interest on interest where that is what the terms of the mortgage require in addition to the contractual instalments of interest. In all cases, the value or likely future value of the security will also be relevant.
For these reasons, as well as those given by Lord Justice Waite, I would answer the question of principle as indicated by him.
It is unfortunate, to say the least, that despite the clear indication given by Lord Justice Simon Brown, when granting leave to appeal, the parties came to the hearing without agreement as to the arrears. Instead, they produced a considerable volume of evidence which appears to be directed to the various differences that have arisen between them. The respondents' representatives in Court were unable to produce even a statement of what they say the figures are. So these issues have to be determined at a yet further hearing before the County Court, unless in the light of the judgment of this Court the figures, and perhaps even the terms of a possession order, can be agreed.
One of these issues may be relevant in deciding what a reasonable period is in the circumstances of this case. Since taking over the Guardian in 1990, the respondents have maintained the differential between the rates which they charge their own borrowers and those, which were .25% higher, which were charged by the Guardian before the merger. As Mr Croally for the appellant deftly observed, if the respondents are entitled to do this, which he disputes, then they cannot claim that they are losing interest by reason of their inability to recover the amount of their loan to the appellant and then re-lend it, at a lower rate, to a customer of their own.
In conclusion, a practical summary of our judgments may be helpful in future cases. Drawing on the above and on the judgment of Lord Justice Waite, the following considerations are likely to be relevant when a `reasonable period' has to be established for the purposes of section 36 of the 1970 Act : -
(a)How much can the borrower reasonably afford to pay, both now and in the future?
(b)If the borrower has a temporary difficulty in meeting his obligations, how long is the difficulty likely to last?
(c)What was the reason for the arrears which have accumulated?
(d) How much remains of the original term?
(e) What are relevant contractual terms, and what type of mortgage is it i.e. when is the principal due to be repaid?
(f)Is it a case where the Court should exercise its power to disregard accelerated payment provisions (section 8 of the 1973 Act) ?
(g)Is it reasonable to expect the lender, in the circumstances of the particular case, to recoup the arrears of interest (1) over the whole of the original term, or (2) within a shorter period, or even (3) within a longer period, i.e. by extending the repayment period? Is it reasonable to expect the lender to capitalise the interest, or not?
(h)Are there any reasons affecting the security which should influence the length of the period for payment?
In the light of the answers to the above, the Court can proceed to exercise its overall discretion, taking account also of any further factors which may arise in the particular case.
Order:appeal allowed with costs here and below (without prejudice to any question that may arise as to whether the respondents can seek to recoup those costs and their own costs); liberty to apply in relation to costs; case remitted to the county court (if possible to Judge O'Malley) on the terms set out at pages 22 and 23 of this judgment; legal aid taxation for the appellant; leave to appeal to the House of Lords refused; costs of the application to adduce further evidence reserved to the county court.
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