LORD JUSTICE CUMMING-BRUCE: I will ask Lord Justice Oliver to deliver the first judgment.
LORD JUSTICE OLIVER: This is an appeal from the decision of Judge Aron-Owen at the Willesden County Court on 16th December last year, by which he reversed a decision of the Deputy Registrar ordering the defendant to give up possession of a property known as 142 Walton Avenue, Harrow, which was the defendant's dwelling-house.
The defendant, Mr Tailor, is a customer of the plaintiffs, Habib Bank Limited, which maintains a branch at 334 Kilburn High Road.
In 1978 the bank appeared to have arranged with Mr Tailor to allow him an overdraft facility of up to £6,000. I say "appears" because there is no specific finding of fact about this, but it emerges from the particulars of claim which have been verified by an affidavit. That overdraft was secured by a charge on the dwelling-house that I have referred to, and which has a rateable value of only some £207. The charge which is dated 25th October 1978 is what 1 take to be the bank's ordinary form for an "all accounts" charge. Clause 1 is a covenant for payment in the usual bankers' form, under which the mortgagor covenants, on demand in writing, to pay to the hank the balance due in respect of ail moneys which may become owing to the hank from the mortgagor. By clause 2, the mortgagor, as beneficial owner, charges the property which I have mentioned with payment of all moneys covenanted to be paid. There is nothing out of the ordinary, I think, in any of the other provisions of the charge to which I need refer.
Mr Tailor availed himself fully of his facility with the bank, but by July 1930 he seems to have trespassed a little too far on the bank's goodwill by exceeding the limit of £6,000 which he had been set, and he failed or refused to reduce his indebtedness. Accordingly, on 8th July 1931 the bank, pursuant to the charge, made a written demand for payment of the whole sum owing, which then amounted to £6,570.37. That was made up of £6,000 principal, £12 bank charges and £553.37 interest outstanding up to the date of demand. That demand was not complied with and on 16th October 1981 the bank commenced proceedings for obtaining possession. By that time the indebtedness had risen to some £6,871; and by the time the matter came before the deputy registrar it had further increased to some £7.212. We are told that it is now something of the order of £7.737.
The deputy registrar ordered possession within eight weeks, but the defendant appealed to the judge who reversed his decision. Mr Cutting, who has appeared for the defendant before us, tells us that the matter was fairly perfunctorily dealt with by the deputy registrar, because he took the view, and indeed Mr Cutting does not really quarrel with this, that it was fairly obvious that the defendant could not pay off the whole overdraft within a reasonable time. The deputy registrar took the view that in those circumstances he ought not to exercise his discretion to postpone possession under section 36 of the Administration of Justice Act 1970.
The ground of appeal to the learned judge was that the deputy registrar had misdirected himself in thinking that this was not a case for the application of his discretion under section 36 of the 1970 Act, because it was said that section 8 of the Administration of Justice Act 1973 applied to this charge and brought that discretion into operation. I think it would be desirable at this stage that I should refer to these sections because they are crucial to the appeal which is before us.
First of all, section 3b provides this: subsection (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, not being an action for foreclosure in which a claim for possession of the mortgaged property is also made, the court may exercise any of the powers conferred on it by subsection (2) ..... if it appears to the court that in the event of its 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."
Subsection (2) provides:
"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 - (1) stay or suspend execution of the judgment or order, or (ii) postpone the date for delivery of possession, for such period or periods as the court thinks reasonable."
There is then a provision in subsection (3):
"Any such adjournment, stay, suspension or postponement as is referred to in subsection (2) above 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."
As originally framed that section suffered from certain defects. It suffered in the first place from a defect that it did not apply to proceedings for foreclosure where possession was also sought, and it became the practice, I think, for quite a number of mortgagees to seek foreclosure and add a claim for possession when their real object was to obtain possession. That was a matter which was dealt with by the subsequent legislation to which I shall refer in a moment. That does not matter for present purposes, but the other defect was this: the idea of section 36 was to mitigate the severity of the legal rule that a mortgagee, as the owner of an estate in land, is entitled as against the mortgagor to possession of the property, and it was to give some protection to mortgagors who had had the misfortune to fall into difficulties with paying their instalments and to allow them a reasonable time to make good their default.
By definition, the cases in which it was likely to be invoked were cases where the whole principal sum had become due by default, because most mortgages contain a provision making the whole principal sum due in the case of default. The reference in the section to "a reasonable period to pay any sums due under the mortgage" had therefore the effect of confining the operation of the section to relatively few 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 as in a reasonable time must be considered fairly slim. That difficulty came to light in the case of Halifax Building Society v. Clark. 1973, Chancery, page 307. Following that case a further provision was made in the Act of 1973? in section 8 of the Administration of Justice Act 1973. It is in these terms so far as is material for the purpose of this case:
"(1) Where by a mortgage of land which consists of or includes a dwelling-house, or by any agreement between the mortgagee under such a 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 Administration of Justice Act 1970 (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."
Subsection (2) provides that
"A court shall not exercise by virtue of subsection (1) above the powers conferred by section 36 of the Administration of Justice Act 1970 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."
So that, without seeking to construe the section at this stage, one can see that the intent of it was, in the case of instalment mortgages, to enable the court to defer possession if it was satisfied that there was a reasonable prospect of the mortgagor paying off, within a reasonable period, not the whole of the principal sum, but the outstanding instalments.
It is this section which is the only one which helps the defendant in this case. Section 36, of course, applies to any mortgage of a dwelling-house, and no doubt if the defendant could satisfy the court that he was able, within a reasonable time, to pay off the whole of his overdraft, that section would have enabled the court to postpone the date for delivery of possession, but Mr Cutting agrees that there is no serious question of that. If therefore the powers conferred by section 36? subsection (2), are to be exercisable in this case, it can only be because section 8 of the 1973 Act applies to the mortgage which is in question here.
When the matter came before the learned judge, he considered himself bound to apply section 8 to this mortgage, and he accordingly reversed the decision of the deputy registrar and he remitted the matter to him for consideration of a period which the defendant should be given to allow him to catch up, not with the whole of the overdraft, but simply with the amount of the outstanding interest. It was clear, as I say, that if the principal had not been paid the defendant could not in any event do it, but it was probable that if, as the learned judge held, all that he had to repay for the purposes of this section, or what had to be taken into account for the purposes of section 36? was the outstanding interest, there was a reasonable prospect of his being able to do so, and the actual period was a matter which, quite rightly, the learned judge held ought to be determined by the registrar.
The reasoning by which the learned judge arrived at his conclusion that the section applied was that he was referred to a decision of Mr Justice Goulding in the case of Centrax Trustees Ltd v. Ross, reported in 1979, [1979] 2 All ER 952 , page 952. It was a case in which there was a mortgage with a fixed date for repayment six months ahead of the date of the mortgage, the classic case in effect of the old type of fixed mortgage where the legal date for redemption is fixed at six months after the date of the execution of the mortgage, but there was a clear intention from other provisions in the mortgage, notably the provision for the payment of interest (which was clearly envisaged as extending beyond the period of six months limited for the repayment of the principal) which indicated that the common intention of the parties was that the mortgage would "be allowed to stay out indefinitely and that the mortgagor would be entitled to defer payment of the principal sum beyond the date fixed so long as he paid interest on that principal sum.
Mr Justice Goulding, in the course of his judgment, read section 8, and at page 955 he said this:
"Given a mortgage of a dwelling-house, there are two provisions which, as counsel for the plaintiffs pointed out, must be present if s 8 is to apply. One is a provision that the mortgagor is entitled or is to be permitted to pay the principal by instalments or otherwise to defer payment thereof. The second is a provision for earlier payment in the event of any default by the mortgagor or of a demand by the mortgagee or otherwise. Both provisions must be terms of the contract between the parties, for they must be made either by the mortgage or by an agreement between mortgagee and mortgagor. In the present case, in my judgment, the provisions can be found only in the mortgage itself."
Then he deals with an exchange of letters. "Section 8", he then goes on to say,
"is not drawn in formal conveyancer's language. I do not find it easy to see exactly what is meant by the phrase 'is to be permitted to pay' as an alternative to 'is entitled to pay'; nor is the term 'earlier payment' altogether apt in relation to an indefinite and merely permissive deferment of payment. However, it is clear from the words 'or otherwise', twice repeated, that Parliament has attempted to give legislative shelter to a wide class of owner-occupiers, and it is unlikely that in what may be called social legislation of this sort Parliament intended an occupier's situation to depend on distinctions in conveyancing. Therefore, in my opinion, notwithstanding that the Acts restrict the rights of lenders without giving compensation, the language used must receive a reasonably liberal interpretation."
He goes on to hold that the section applied in that case.
That of course was a very different case from the instant case. It was a case where there was a fixed date for repayment of the principal sum and it was a case where it was quite clearly intended that the actual payment of the principal sum should be deferred beyond that fixed date. And it was a case also where, if default was made in payment of interest, the mortgage contained a provision for calling in the whole sum.
Mr Wilmers, who appears for the appellant bank in this case, has forcibly submitted that the reasoning of that case cannot apply here. In my judgment he is right in making that submission. I say nothing about the correctness of the decision in the Centrax Trustees case on the construction of the section. It is indeed difficult, I think, to escape from the conclusion that the section did apply to that case, even though I, for myself, rather question whether it was intended by the legislature to do so. But the instant case is really quite a different case. As Mr Wilmers pointed out, and indeed as was pointed out by Mr Justice Goulding in the Centrax case, there are two necessary conditions for the application of the section: first, either the mortgage itself or some agreement made under it must have the effect that - I will quote only the relevant words - "the mortgagor..... is to be permitted..... otherwise to defer payment of" the principal sum "in whole or in part; secondly, provision must be made in the mortgage or agreement "for earlier payment in the event of any default by the mortgagor or of a demand by the mortgagee or otherwise." Mr Wilmers' first submission is that there is no permission to defer payment. As he points out, this is a simple case of a bank mortgage to secure an overdraft. It is quite clear on the authority that in these circumstances the money is not capable of being sued for by the bank until demand has been made. Indeed, the mortgage itself so provides, because it is to secure the moneys covenanted to be paid and the moneys are covenanted to be paid on demand having been made in writing. This nowhere more clearly appears than from the case of Lloyds Bank Ld. v. Maraolis. which is reported in 1954, 1 WLR 644 at page 644. I think it is only necessary to read briefly from the judgment of Mr Justice Upjohn, as he then was, at page 649: "In my judgment, at all events where there is the relationship of banker and customer and the banker permits his customer to overdraw on the terms of entering into a legal charge, which provides that the money then due or thereafter to become due is to be paid on demand, that means what it says. As between the customer and banker, who are dealing on a running account, it seems to me impossible to assume that the bank were to be entitled to sue on the deed the very day after it was executed without making a demand and giving the customer a reasonable time to pay. It is indeed a nearly correlative case to that decided in Joachimson v. Swiss Bank Corporation, where the head-note is: 'Where money is standing to the credit of a customer on current account with a banker, in the absence of a special agreement a demand by the customer is necessary ingredient in the cause of action against the banker for money lent.' In this case the agreement has provided quite clearly what is to be done before the bank can sue: they must demand the money."
When one looks at the charge in the instant case, one asks immediately: "Where is the agreement to be found that the mortgagor is to be permitted otherwise to defer payment of the principal?" because, by definition, the principal does not become due, and cannot be sued for by the bank, until a written demand has been made. Deferment, I think, involves the deferment of payment after it has become due, and quite clearly in this case there appears to me to he no provision, either in the agreement between the parties or in the mortgage itself, by which, on any realistic construction, it can be said that payment by the customer was to be "deferred", or that the customer was permitted to "defer" payment. Mr Cutting has in fact submitted that every case where the principal money does not become payable immediately the mortgage is executed is a case where the mortgagor is entitled to defer payment. That is a submission which I find is impossible to accept.
It seems to me that the defendant's case on the application of section 8 fails at that point, but it also fails, I think, on the other condition, too, because, as Mr Wilmers pointed out, the section requires that provision must be made for earlier payment, and one has to ask oneself: "Earlier than what?" In the instant case the payment was not due until the demand was made, and there is no provision for any payment earlier than that. It is the demand itself which makes the payment due.
For both those reasons, it seems to me that this is clearly a case where section 8 cannot apply to this mortgage, and that really concludes the case. I think it unnecessary to elaborate the matter further. If there had been some reasonable prospect of the defendant repaying the whole of the principal sum, then no doubt it would have been appropriate for the learned judge to have remitted the matter back to the registrar for a determination of whether he should exercise his power under subsection 2 to adjourn the proceedings or to postpone the date for the delivery of possession, but that, as Mr Cutting accepts, does not arise. Section 8 does not apply. There is then no further room for the operation of the discretion under section 36, and accordingly in my judgment the decision of the learned judge must be reversed and the decision of the deputy registrar restored. I would therefore allow the appeal.
LORD JUSTICE DUNN: I entirely' agree and only add a few words of my own because we are disagreeing with the learned judge.
It seems to me that the judge overlooked the fact that the relationship between the plaintiff and the defendant was that of banker and customer. He also overlooked the express terms of the covenant itself. Unlike a borrower under a simple loan, who borrows money payable on demand - in which case the loan is repayable as soon as it is made without the necessity of a formal demand - the customer of a bank who borrows money on current account is not liable to repay that money unless and until the bank makes demand. That proposition is nowhere more clearly stated than in the passage of Mr Justice Upjohn's judgment which my Lord has cited in Lloyds Bank Ld. v. Margolis at page 649. This relationship of banker and customer is reflected in this case in the covenant -r in the mortgage deed - which is the subject of the charge, because the covenant by the mortgagor is that he will, on demand in writing, pay to the bank the balance for the time being due or owing to the bank. So there is nothing payable under that covenant until demand is made, and I find it to be straining the language of section 8(1) of the Administration of Justice Act 1973 to say that a mortgagor in the situation of this defendant is, and I quote from the material words of this section, "to be permitted ..... otherwise to defer payment." Those words seem to me to presuppose an existing legal liability to pay which is deferred by the terms of the mortgage or the covenant. That is not the situation here. The situation here is that there is no liability to pay at all until demand is made, and therefore in my view it is impossible to say that payment is deferred by the demand which is itself a pre-condition of any liability.
For those reasons, and for the reasons given by my Lord, I, too, would allow this appeal.
LORD JUSTICE CUMMING-BRUCE: I agree. If the learned deputy judge had been right, the unexpected effect of the language of section 8(1) of the Administration of Justice Act 1973 would have been to deprive bankers who use the usual charge for security for overdraft of any efficacy, by way of enforcement, as long as the debtor continued to pay the interest on the capital lent.
Experience has shown that from time to time the language selected by the draftsmen has unexpected effects, but for my part it is with some relief that we find that, on a scrutiny of this very ordinary form of charge, taken in conjunction with the language of section 8, that unexpected but necessary revolution in banking practice is not called for. I agree that the appeal should be allowed.
Order: Appeal allowed; order below reversed; order for possession within 28 days; no order as to costs.
