England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM CAMBRIDGE COUNTY COURT
(His Honour Judge O'Brien)

		Royal Courts of Justice Strand London WC2 Friday, 17th May 2002

1. LORD JUSTICE CHADWICK: This is a renewed application for permission to appeal from an order made on 11th March 2002 by Hart J in possession proceedings bought by Barclays Bank Plc as mortgagee of property known as Northfields, Stansted, Essex. The applicant is the wife of Mr William Henry Alcorn who was co-defendant to the bank's proceedings with her. Mr. Alcorn was adjudged bankrupt in November 1998. He took no part in the hearing before the judge and has taken no part in this application.
2. The matter came before Hart J on an appeal from an order made on 19th September by His Honour Judge O'Brien sitting in the Cambridge County Court. The application before His Honour Judge O'Brien on 19th September 2001 was to stay execution of a possession order which he had made on 29th October 1999. That was an order that both defendants yield up possession of the whole property on or before 30th December 1999. The mortgaged property comprises a main house and a cottage. The bank has already entered into possession of the main house but the applicant and her husband continue to reside in the cottage. The issue whether or not the cottage was comprised in the bank's security has been resolved in favour of the bank and there has been no appeal against that.
3. The proceedings had been commenced by the issue of a summons as long ago as 9th September 1996 - that is to say, now some five and a half years ago - but there had been a considerable litigation history before that which Hart J described and which it is unnecessary to rehearse again in this judgment. It is sufficient to say that there has been a long battle between the bank seeking to realise its security and the Alcorns seeking to preserve their home.
4. At first sight, therefore, this is an appeal to which section 55 of the Access to Justice Act 1999 applies. It is an appeal from an order made in the High Court on an appeal to that court. In such circumstances permission to appeal cannot be granted by this court unless it is shown that the appeal would raise some important point of principle or practice or that there is some other compelling reason why this court should entertain a second appeal. In the skeleton argument prepared for use in this application, it is submitted on behalf of the applicant that the appeal does raise important points of principle or practice. Those points are identified in these terms:

"(i) the interaction of the rights conferred by Article 8 of the European Convention on Human Rights and/or Article 1 of the First Protocol to the Convention with the common law rules as to a mortgagee's right to possession of residential premises and/or section 36 of the Administration of Justice Act 1970.

(ii) the existence and extent of the obligation on a mortgagee in possession to repair the mortgaged property in order to comply with its duty to take reasonable care to obtain the true market value and/or to maximize its return from the property.

(iii) whether section 36 [of the 1970 Act] can be invoked in a case where the possession order has already been executed in part and, if not whether considerations under the European Convention require that the common law allow more flexibility than was held to exist in Birmingham Citizens Permanent Building Society v Caunt [1962] Ch 883."

5. Those points have been pursued at this oral application as well as others.
6. Section 36 of the Administration of Justice Act 1970 provides that, where a mortgagee under a mortgage of land which includes a dwelling house brings an action in which he claims possession of the mortgaged property, the court may exercise the powers conferred by subsection (2) if it appears that, in the event of exercising those powers, the mortgagor is likely to be able within a reasonable period to pay any sum due under the mortgage or to remedy a default. The powers which can be exercised are to adjourn the proceedings on giving judgment, or at any time before the execution of judgment to stay or suspend execution of the judgment, or to postpone the date for delivery of possession. In the present case, the relevant power is power to stay or suspend execution of an order for possession which has already been made and which is not the subject of any appeal.
7. As is well known, section 36 of the 1970 Act was enacted, and subsequently amended by section 8 of the Administration of Justice Act 1973, to mitigate the common law rule that a mortgagee was entitled to immediate possession by virtue of his estate in the land (see Birmingham Citizens Permanent Building Society v Caunt and more recently Ropaigealach v Barclays Bank Plc [2000] 1 QB 363). The mortgagee's right to possession under English law stems from the estate granted to him by the mortgagor. It does not, absent any contractual restriction, depend on failure to pay the mortgage debt. Section 36 of the 1970 Act mitigates that by providing that a court will not give effect to the mortgagee's common law right if it appears to the court likely that the debt will be paid within a reasonable time. This is not a case in which it is suggested that there will be a remedy of default by paying arrears within a reasonable time. The issue in this case is whether the debt will be paid from the sale of the main house. The difficulty which has arisen is that the bank takes the view that the debt will not be repaid if only the main house is sold. The proceeds of the main house alone will not be sufficient. The debt will only be repaid if the main house and the cottage are sold. Mrs Alcorn takes the view that the debt can be repaid by the sale of the main house alone without the sale of the cottage.
8. Article 8 of the European Convention on Human Rights, which is incorporated into domestic law by Schedule 1 to the Human Rights Act 1998, provides that everyone has the right to respect for his private and family life, his home and his correspondence. Article 8.2 provides that there shall be no interference by a public authority - which includes, of course, the court - with the exercise of the Article 8.1 right, except such as is in accordance with the law and is necessary in a democratic society in the interests of, among other things, the economic well-being of the country and the protection of the rights and freedoms of others. Article 1 of the First Protocol is in these terms:

"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 and by the general principles of international law."

9. A mortgagee, who is proceeding by action to obtain the possession of a dwelling house to which he is entitled by virtue of the estate in the land granted to him by the mortgagor, is, plainly, proceeding in accordance with the law. A fortiori, where he has already obtained a possession order and is seeking to enforce it by the usual process of execution. The question whether it is necessary that he should be given possession so that he can sell the property with vacant possession and repay the mortgage debt is addressed directly by section 36 of the 1970 Act and section 8 of the 1973 Act. The court must ask itself whether it is likely that, if possession is postponed, the mortgagor will, within a reasonable period, pay off the debt or the arrears, as the case may be. That is the balance struck between the right of the mortgagor to remain in his or her home and the right of the mortgagee to have his debt repaid within a reasonable time.
10. It is plainly necessary, in the context of the wider economic well-being of a country, that home owners should be able to borrow - and banks and lending institutions should be willing to lend - on the basis that loans will be repaid. If loans are not to be repaid - and security is not to be enforced for that purpose - then the domestic mortgage market is likely to be seriously affected; and, with it, the economic well-being of the country. There is, therefore, a balance to be struck. Section 36 and its amending section strikes that balance. I can see nothing in the common law, as mitigated by section 36 of the 1970 Act and section 8 of the 1973 Act, which is inconsistent with the convention rights to which I have referred. I can see no important point of principle raised under (i) of the passages which I have set out which this court needs to address.
11. Point (iii) can be taken next - namely whether section 36 can be invoked in a case where the possession order has already been executed in part. The judge thought that probably it could not be invoked in such a case; but he did not base his judgment on that ground. He based his decision on the conclusion that the evidence did not establish a likelihood that a sale of the main dwelling house would result in the amount due under the mortgage being paid off. Accordingly, it was unnecessary to go on to consider whether there was jurisdiction under section 36 to stay a possession order over part of the mortgaged property. That point, therefore, would not be raised by an appeal unless the appellant were able successfully to challenge the judge's exercise of discretion under section 36 of the 1970 Act.
12. That leads into the second of the three points identified - whether there is an obligation on a mortgagee in possession to repair the mortgaged property in order to comply with its duty to take reasonable care. I accept, of course, that a mortgagee who goes into possession must effect reasonable repairs - in particular, where he is proposing to sell the property in circumstances in which (i) the price to be realised will be affected by the property being out of repair and the cost of effecting repairs would not exceed the diminution in the value of the property by reason of it being out of repair. I do not accept that there is any obligation on a mortgagee to repair in circumstances in which the cost of effecting repair would exceed the increase in the value of the property which would result from repairs being effected. Indeed, it seems to me that a mortgagee who effected repairs in circumstances in which the cost will not be recovered by an increase in the price obtainable on a sale of the property would be acting irresponsibly.
13. The bank has taken the view, in the present case, that the cost of effecting repairs to water damage resulting from a burst pipe in January 2001 - at a time when it was in possession of the main house - would not be recovered by a commensurate increase in the price that would be obtained for the property on sale. Mrs Alcorn takes a different view. The judge dealt with the point in this way:

"It seems to me, on the very limited evidence which I do have, that the court is simply not in a position to take a view one way or the other as to whether the proper course for the bank to take is to pursue the insurance claim and apply the proceeds in repairing the property before undertaking any sale of it, or whether the stance of the bank currently being adopted is in fact justified."

14. The judge went on say that there was no application before him - and that there had been no application before Judge O'Brien - for any form of mandatory order requiring the bank to effect repairs. In the absence of such an application, there was no reason to assume that the bank would lay out monies in effecting repairs which (as it thought) would not be fully reflected in an increase in sale price. The position, therefore, before the judge was that the bank was asserting that the effecting of repairs was not a sensible course; and the judge had no evidence which suggested that the bank could be required to carry out repairs in those circumstances.
15. The applicant seeks to place reliance on the existence of an insurance policy. The difficulty for this court - and, I suspect, for the judge - is that the evidence in relation to the insurance policy is in a very unsatisfactory state. There are, in principle at least, two policies of insurance which might be relevant. First there may be an insurance policy effected by the mortgagors over the property which they own. Such a policy would be likely to note the bank's interest. Under clause 8 of the charge I would expect moneys payable under such a policy to be paid to the bank as mortgagee. Clause 8 - as appears from the judge's judgment - gives to the bank the choice either to apply the proceeds of any such policy in repairing the property; or to apply those proceeds in the reduction of the amount outstanding under the mortgage. Plainly, it cannot keep those proceeds for itself. If it applies those proceeds to the repair of the property, that will or may have the effect that the mortgagor will benefit by the increased value obtainable on sale. On the other hand, if the bank applies those proceeds in reduction of the amount outstanding under the mortgage, there will be a smaller debt to be satisfied on the sale of the property.
16. It is said on this application that the judge was not concerned with any policy of insurance effected by the mortgagors. The policy which he was asked to consider (it is said) was some general policy effected by the bank for its own protection in relation to all property mortgaged to it. Under such a policy the bank would have a claim against its own insurers in respect of any damage to property for which it was responsible while it was in possession. If there is, indeed, a policy which has that effect, it has not been put before the court. More pertinently, I can see no reason why the existence of an insurance policy of the nature that I have described should impose on the bank any obligation to repair that would not already arise under the general law. Under the general law the question is, as I have indicated, whether the cost of doing the repairs would outweigh the increase in value. There is no point of principle involved in that question. The point turned on valuation evidence on the facts of the particular case.
17. I turn, therefore, to the question whether there is some other compelling reason for the Court of Appeal to hear the appeal. The applicant submits that the appeal has strong prospects of success. I am content to assume that, in a case where the court is satisfied that the order from which permission to appeal is sought is so obviously wrong as to give rise to injustice, there is a compelling reason for the court to entertain a second appeal so that that injustice can be remedied. But I do not think it necessary to consider whether, in this case, the applicant could surmount that hurdle. As I indicated, when refusing permission to appeal on paper, I think that the true analysis in this case is that Hart J exercised his own discretion under section 36 of the Administration of Justice Act 1970 on the basis of facts which had changed since the matter had been before His Honour Judge O'Brien, some six months earlier. The particular change to which the judge referred was that, in the intervening period, the planning status of the cottage had been resolved in favour of the applicant. The judge exercised his discretion, therefore, on the basis that it was possible to sell the house and the cottage separately, there being no planning impediment to that course.
18. In those circumstances, I would have been willing to grant permission to appeal in this case if I were satisfied that there was a real prospect that the court would interfere with the discretion exercised by Hart J; that is to say, I would apply the more general test for permission to appeal set out under CPR 52.3 in relation to that question of discretion. The difficulty for the applicant is that she cannot surmount even that threshold. What the judge had to consider was whether he was satisfied that it was likely that the mortgage debt would be repaid within a reasonable time. He was asked to take the view that that was likely because the main house, if sold separately, would realise sufficient to discharge the mortgage debt. He was not persuaded on the evidence before him that that was likely. He addressed the matter correctly, evaluated the evidence that was before him, and reached the conclusion that there was simply not sufficient value in the main house to discharge the debt owed to the bank. I can see no real prospect that the Court of Appeal would interfere with the judge's evaluation of the evidence.
19. In those circumstances, this is an application which must be refused.
Order: Application refused