Ropaigealach distinguished in repossession ruling

Self-help enforcement of mortgage renders the relationship with the mortgagor unfair, writes Stephen Boyd. In Ropaigealach v Barclays Bank plc [2000] 1 QB 263, the question was whether section 36 of the Administration of Justice Act 1970 could apply when a mortgagee had taken possession of the mortgaged property by peaceable re-entry and without first obtaining a court order. The Court of Appeal held, reluctantly, that it did not, and that, if a mortgagee exercised its common law right to take possession without the assistance of the court, the mortgagor could not avail himself of the protection of section 36, which applies only if the mortgagee sought possession through the courts. Key points ■ Bridging loan secured on an investment property ■ Mortgagee obtained an order for possession when the loan was not repaid ■ Court suspended warrant for possession when mortgagor produced evidence of having exchanged contracts ■ Mortgagee took possession in any event, relying on its common law rights ■ Whether such action rendered the relationship unfair under the Consumer Credit Act The facts In Goldhill Finance Ltd v Berry (County Court at Central London, unreported, 26 October 2018), Goldhill Finance Limited (GFC) sought to rely on Ropaigealach in support of its contention that a mortgagee could still exercise its common law right despite having sought possession through the courts. In February 2015, GFC lent Cynthia Berry (CB) £146,379.88 (the first loan), repayable on 25 May 2015. It was secured against CB’s flat, which was an investment property.  When CB was unable to repay the loan in May 2015 GFC made a second loan to CB of £170,827.03, of which there was a net advance of £146,379.88. This would repay the first loan in full. The second loan was repayable in full by 25 September 2015. Neither loan was regulated. CB failed to repay the second loan by 25 September 2015. On 10 November 2015, GFC issued proceedings for possession of the flat and repayment of the total outstanding amount. On 3 February 2016, GFC obtained an order for possession of the flat on or before 3 March 2016, with the money claim being adjourned. It was later reinstated. A warrant for possession was due to be executed on 23 August 2016. On 19 August, CB applied under section 36 for the warrant to be suspended in reliance on evidence that contracts had been exchanged for the sale of the flat at £520,000, with completion due on 16 September. In court, CB produced a letter from her solicitors, indicating that exchange had taken place that day. GFC opposed the application primarily because a sale at £520,000 did not reflect the true market price and would not pay off the mortgage, but also because it was suspicious of CB and thought the proposed sale was a delaying tactic. On 22 August the court suspended the warrant until 19 September to allow the sale to complete. Notwithstanding, and dissatisfied with the suspension order, without CB’s knowledge or consent, by the exercise of what was said to be its common law rights, GFC took possession of the flat (which was vacant) the next day, 23 August, with the result that CB’s opportunity to sell the property and reduce her debt to GFC was lost. On 26 August CB made an application seeking an order to be put back into possession given GFC’s failure to comply with the order made on 22 August. On 13 September a different judge dismissed that application, being persuaded, on the authority of Ropaigealach, that GFC was permitted to take possession in the exercise of its common law rights. Having initially marketed the flat at £585,000, on 19 January 2017 GFC sold the property for £525,000 and applied the net proceeds of sale to the loan. On GFC’s application dated 13 February 2017, the court reinstated its money claim. The sum claimed by GFC on that date, after £245,227.43 was credited to CB’s loan account, was £140,833.73. The arguments GFC applied for summary judgment and an interim payment. CB applied for permission to amend her defence and add a counterclaim, pleading for the first time an unfair relationship based on the exorbitant nature of the default rate and the circumstances in which GFC retook possession. The district judge dismissed GFC’s application and gave permission to CB to amend her defence and add a counterclaim. Two weeks before trial, CB told GFC that she would not be relying at the hearing on the default interest point. The issue at trial was whether the taking of possession of the flat by GFC on 23 August 2016, notwithstanding the suspension order, rendered the relationship between GFC and CB unfair.  Section 140A provides, in so far as material: “The court may make an order under section 140B in connection with a credit agreement if it determines that the relationship between the creditor and the debtor arising out of the agreement (or the agreement taken with any related agreement) is unfair to the debtor because of one or more of the following — … (b) the way in which the creditor has exercised or enforced any of his rights under the agreement or any related agreement…” The ambit of the new law is further widened by section 140A(2), which enables the court to have regard to “all matters it thinks relevant”. Under section 140B, if a court is satisfied that a relationship between a debtor and creditor is unfair, it can in essence do anything it wants to remedy the unfairness.  Since CB had raised the issue of the fairness of the relationship between herself and GFC, the burden of proof was on GFC, as creditor, to establish that the relationship was not unfair: section 140B(9). GFC had concerns about the failure of the proposed sale to achieve what it believed to be the true market price, the genuineness of the sale, whether it could have been completed, the representations made by CB to the court and the correctness of the decision in law. But CB maintained that any such matters should have been raised by way of appeal (which belatedly they were, albeit not pursued) or by going back to court before 19 September 2016, armed with any further evidence, to seek a variation of the order. GFC argued that the court order of 22 August 2016 simply suspended the curial process and the assistance of the court and the court bailiffs in obtaining possession, but that its common law right to take possession peaceably without a court order was unaffected. CB argued that Ropaigealach had no application to the present case. Once a mortgagee had decided to seek possession in the courts, and once section 36 was not only engaged on the application by the mortgagor but also an order pursuant to section 36 had been made, it was not open to a mortgagee to proceed along the self-help route. The curial route and the self-help route are two separate tracks. Once the curial route is fully engaged, the mortgagee cannot pick and choose just because it does not like the court order, and instead pursue what would otherwise be the common law right to take peaceable possession without a court order. The findings The judge, HHJ Simon Monty QC, acceded to CB’s submission, and distinguished Ropaigealach, finding: “It cannot be right… for a mortgagee to be able to say ‘whatever the court order says, I do not agree with it and therefore I’m going to exercise my common law right, ignoring the effect of the order and take possession in any event’.” [69]. Whether the district judge’s decision was right or wrong in law was immaterial. The judge’s order was based on the premise that the sale proposed by the defendant would have gone ahead on 16 September 2016 and that the proceeds should be credited to her loan account. However, he gave judgment for GFC for the shortfall of £40,100.52 plus interest at the default rate to date, making a total of £123,169.71. It follows that, as soon as mortgagees have issued possession proceedings and the court’s discretion has been engaged under section 36, they are not entitled to take possession other than by court order. It seems likely that the same result should follow even if no application has been made under section 36. Main image © Photofusion Rex Shutterstock Stephen Boyd is a barrister at Selborne Chambers and was counsel for Cynthia Berry