Michael Walsh successful in significant decision on mortgages and receivership
7th October 2019
Michael Walsh has appeared for the mortgagor in an important decision of the High Court on the powers of fixed charge receivers. Michael successfully argued:
- Receivers cannot sue a mortgagor occupying the mortgaged property in the mortgagor’s own name, acting as their deemed agent; proceedings must be titled in the name of the receivers; and
- Section 36 of the Administration of Justice Act 1970 applies where a receiver is recovering possession from a mortgagor in occupation of the mortgaged property.
The Court decided that receivers can sue a mortgagor in occupation for possession in the receivers’ own name and that their right to possession is derived from the special nature of the agency between receiver and mortgagor.
The practical effect of this decision means if receivers bring possession proceedings against mortgagors, they can ask the Court to exercise its discretion under section 36 of the AJA 1970, as they can if the mortgagee commences proceedings. This is a significant departure from the settled understanding of the law and extends the rights of mortgagors where receivers are appointed.
A copy of the judgment can be read by clicking here.
Michael was instructed by Jane Emberton of RadcliffesLeBrasseur.
The Menons, who were the Defendant mortgagors (the “Mortgagors”), guaranteed a loan made to a company (the “Company”) by the Bank of Singapore (“BOS”) by giving a mortgage over their home (the “Property”). At the expiry of the term of the loan facility BOS demanded repayment and appointed fixed charge receivers (the “Receivers”) over the Property to recover possession.
The Receivers issued possession proceedings in the County Court. At first, erroneously in the name of the Company, but they then amended the proceedings, so they were brought in the name of the Mortgagors acting by the Receivers, which is the usual form when receivers seek possession against third parties of mortgaged property. The proceedings were titled:
Menon & Menon By Nathan Pask and Rosalind Goode (As Joint Fixed Charge Receivers) v Menon & Menon
The Mortgagors argued two main points in the County Court before HHJ Dight CBE:
First, it was not possible for the Receivers to bring proceedings in the name of the Mortgagors, with the Receivers acting as deemed agent for the mortgagor, where the Mortgagors were also Defendants. The effect of this was that the Mortgagors were suing themselves for possession.
Second, section 36 of the Administration of Justice applied to proceedings where a receiver sought possession of a property occupied by the mortgagor.
There were procedural arguments before the County Court that are recited in the judgment of the High Court but these are not directly relevant to the decided issues.
HHJ Dight CBE dismissed both arguments and made an order for possession.
Arguments on Appeal
In the High Court before Mann J, the Mortgagors appealed against the judge’s decision on both points.
Can the Mortgagor sue themselves for possession by their Receiver as deemed agent?
The Mortgagors argued the Receivers’ right to possession of the Property must be derived from an estate in the land. For example, when a receiver sues a third party (such as an AST tenant) for possession, he will do so in the name of the mortgagor, who is either the freeholder or the leaseholder of the property. The title of the mortgagor is therefore used by the receiver acting as agent for the mortgagor. In this situation the receiver is in no better position than the mortgagor against the tenant and can only bring the tenancy to an end as the mortgagor would. Conversely, if the tenancy does not bind the mortgagee (lender) then the mortgagee would be able to defeat the tenancy and obtain possession.
The Mortgagors argued it was this analysis that applied to this case. The Receivers could not defeat the title of the Mortgagors by bringing proceedings in the Mortgagors’ names and accordingly the proceedings ought to have been struck out or amended. The Mortgagors argued the only proper way to seek possession against them was by using a delegated power to take possession from BOS, which had a registered legal charge that operated as a deemed 3000-year term in the Property by virtue of section 87 of the Law of Property Act 1925, which had priority over the Mortgagor’s estate in their home.
After the lunch adjournment on the day of the appeal, the Receivers acknowledged they could not succeed on the appeal with the proceedings titled as Menon & Menon (By their Fixed Charge Receivers) v Menon & Menon. They therefore amended with the consent of the Mortgagors and permission of the Court to bring the proceedings in their own names: Pask & Goode v Menon & Menon.
Following the amendment they argued the Receivers had a freestanding right to possession that was independent of the BOS’s estate and that the right arose out of the mortgage as a matter of contract (see paragraph 23 of the judgment). They expressly did not rely on the delegated powers of the BOS in seeking possession.
Does section 36 of the Administration of Justice Act 1970 apply to receivers?
Section 36 of the AJA 1970 gives the Court a wide discretion in mortgage possession proceedings to adjourn the proceedings or stay or suspend the execution of the order for possession or postpone the date for possession. The Mortgagors argued they could invoke this section in these proceedings because the Receivers came within the definition of ‘mortgagee’ in section 36. This is because they derived their title from the mortgage within the meaning of the definition in section 39. The receivers derive their title and right to possession from the BOS as mortgagees under the deed creating the mortgage.
The Judge found that that the Receivers could not have obtained possession as the proceedings were originally titled. Receivers cannot sue mortgagors in possession in the name of the mortgagors. They must sue for possession in the name of the receivers.
He then went on to find that the Receivers did have a right to possession by virtue of the charge and he rejected the Mortgagors’ analysis that the route to securing possession was by using the delegated power of BOS. The Court found that the answer was in the special nature of the agency relationship between the Receivers and the Mortgagor (see paragraph 20 of the judgment). The Judge placed reliance on part of the dissenting judgment of Rigby LJ in Gaskell v Gosling  1 QB 669 at 691ff:
“For valuable consideration he has committed the management of his property to an attorney whose appointment he cannot interfere with. The appointment so made will stand good against himself and all persons claiming through him, except incumbrancers having priority to the mortgagee who appoints the receiver.”
Relying also on Silven Properties Ltd v Royal Bank of Scotland  1 WLR 997 and McDonald v McDonald  Ch 357, the Judge concluded at paragraph 27 that:
“the answer is that the power to take possession, on its true construction, is one that can be asserted against the mortgagor by the receivers notwithstanding the agency. The receivers have power to demand that possession be given up, and if it is not given up then the receivers must have power to take proceedings, and those proceedings would have to be in their own names. That seems to me to be the only solution which makes business sense.”
The Judge also decided that he could have arrived at the same conclusion by implying a term into the mortgage that the Mortgagors would give up possession to the Receivers (see paragraph 28). He held this implied term could then be enforced using the Contracts (Rights of Third Parties) Act 1999 (see paragraphs 28-34).
The Court held that section 36 of the AJA 1970 does apply to receivers when suing for possession against a mortgagor in occupation of the mortgaged property. The Court decided that the definition of mortgagee in section 39 because the Receivers derived title from the mortgagee (BOS). The Judge gave 10 reasons why this was so in paragraph 41 of the judgment.
In paragraph 42 the Court held as follows:
“In the light of those striking features of the receivership, 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 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 section 39, to say they derive title from the mortgagee for the purposes of section 36. “Title” for these purposes means their right to possession. Such a conclusion would coincide with the obvious Parliamentary intention in enacting section 36. It plainly applies where a mortgagee is enforcing a mortgage, via proceedings, so as to give the mortgagor an opportunity to pay or to remedy defaults. Where the receivers sue for possession, they are making the same claim for the benefit of the mortgagee. Bearing in mind the close identity of purpose, and who it is who appoints them, it would be right to say that they derive title from the mortgagee for the purposes of sections 39 and 36, and not be a strain on the language of the section so to find. It may be the case that receivers are appointed so that the mortgagee is not itself involved, but that does not determine the question. The appointment is in fact in the nature of a permissible device to distance the mortgagee, but so as to enable the mortgagee’s rights to be enforced. That is a reason for leaning towards an interpretation of section 36 which brings receivers in, not for leaning away from it.”
This is a significant development of the law because it was always assumed that section 36 does not apply to receivers seeking possession against a mortgagor in possession. Mortgagors can now invoke the Court’s wide discretion to adjourn proceedings and stay, suspend or postpone the date for possession where receivers claim possession.