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Fixed charge receivers can now obtain possession against individual mortgagors

  • United Kingdom
  • Financial services disputes and investigations
  • Litigation and dispute management

19-11-2019

Kavesseri Menon and Beena Menon –v- Nathan Pask and Rosalind Goode (as joint fixed charge Receivers) [2019] EWHC 2611(ch)

Summary:

The High Court recently provided much needed clarity on the previously unanswered question of whether Receivers appointed over an individual mortgagor’s property can obtain a possession order against the mortgagor in respect of that property. 

Background:

On 14 March 2014, Mr and Mrs Menon (the “Menons”) entered into a legal charge (the “Charge”) with Bank of Singapore Limited (the “Bank”) to secure the debts of a third party company, Silky Way Investments Limited (“Silky Way”).  The Charge was secured against 43 Porchester Terrace, London (the “Property”) and provided that the Bank could appoint receivers in the event of default.

Silky Way defaulted and the Bank demanded the repayment of the debt, following which it appointed Nathan Pask and Rosalind Goode of GVA Grimley as Law of Property Act 1925 Receivers (the “Receivers”) over the Property.

Thereafter the Receivers commenced possession proceedings against the Menons.  The Menons defended the Claim on the basis that the Receivers, as agents for the mortgagors, could not bring a claim for possession as an agent cannot sue their principal for possession of a property the principal owns.  In addition, they also sought relief under section 36 of the Administration of Justice Act 1970 (“Administration of Justice Act”). 

At the initial possession hearing the County Court dismissed the Menons’ arguments and granted the Receivers possession of the Property. 

The Menons subsequently appealed to the High Court.  After considering the Appeal Mr Justice Mann granted the appeal in part.

The High Court’s decision:

In considering the appeal, the court concluded that two issues needed to be determined:-

  • Were the Receivers, who had the benefit of a power to take possession of the Property under the mortgage terms and conditions referred to in the Charge, entitled to possession of the Property if the Property was occupied by the Menons as individuals (non-corporate)?
  • If the Receivers were entitled to possession of the Property, could the Menons seek relief pursuant to section 36 of the Administration of Justice Act to allow further time for payment?

The Receivers’ entitlement to Possession

The court concluded that the Receivers were entitled to possession of the Property provided that they sought possession in their own right rather than as agents of the mortgagors.  This was because the mortgage terms and conditions referred to in the Charge gave the Receivers power to demand that possession of the Property be given up to them and, if it was not, the Receivers could then issue possession proceedings.

The Court also concluded that in order to make the contract work as a matter of ‘business efficacy’ the Receivers’ right to bring possession proceedings may also arise via an implied term in the Charge which required the Menons to give up possession of the Property should the Receivers require they do so.  The Receivers could enforce the implied term (even though they were not a party to the Charge) because the term purported to confer a benefit on them, pursuant to the Contracts (Rights of Third Parties) Act 1999.

Section 36 of the Administration of Justice Act    

The court concluded that the Menons should have the opportunity to seek to suspend any possession order pursuant to section 36 of the Administration of Justice Act.  This is because in bringing a claim for possession against the Menons the Receivers were making the same claim as the Bank could and therefore derived title from the Bank for the purposes of section 36 and 39 of the Administration of Justice Act.

Comment:

Mr Justice Mann’s Judgment provides welcome clarity around whether receivers can bring possession proceedings against individual mortgagors.  Indeed following this judgment a receiver can bring a claim on this basis with confidence, providing the receivers bring the claim in their own name and the legal charge and mortgage conditions under which they were appointed allow them to seek possession of a property.

However as with lender claims, a court may be persuaded to exercise its discretion pursuant to section 36 of the Administration of Justice Act to postpone a possession order to allow mortgagees time to remedy their default.  If it does then the implication for the receivers could be significant because the receivers will continue to be responsible for the property during any period the possession order is suspended.    

 

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