Section 36 of the AJA Act 1970
Introduction
This paper assesses the way section 36 of the Administration of Justice Act 1970 (as amended) has been applied by the courts. This essay will discuss the critically asses the balance struck by English land law between the promotion of land’s financial value and the protection of non-financial interests in its use in relation to s.36 Administration of Justice Act 1970 as amended by the in s.8 Administration of Justice Act 1973.
Mortgages
A mortgage is a disposition of some interest in land or other property as security for payment of a debt or discharge of some other obligation for which it is given OR a loan secured on (usually) land. If the loan is not repaid according to the contractual terms, the lender may realise their security through forced sale of the land. However, public policy demands that lenders should not be interfered with too much in case (it is feared) they cease to make money available for land acquisition and investment. There is a constant tension in mortgage law between protection of lenders and protection of borrowers.
Possession Proceedings
Where, on the mortgagor’s default, the mortgagee seeks possession by court order (instead of simply going for a sale, which does not require a court order), the mortgagor may seek to defend the proceedings. Prior to 1970, the court had an inherent equitable jurisdiction to stay possession. Until the early 1960s, this was liberally used. A more restrictive approach appeared in Birmingham Citizens Permanent Building Society v Caunt [1962] Ch 883 where Russell J held that the inherent jurisdiction merely empowered the court to adjourn a hearing ‘for a short time’ (unlikely to be more than 28 days) in order to ‘afford the mortgagor a limited opportunity’ to propose a workable plan for repayment of arrears.
This led to the passing of s.36 Administration of Justice Act 1970, under which the court had the power, in respect of a ‘dwelling-house, to (1) ...exercise any of the powers conferred on it... if it appears to the court that in the event of the court exercising the power the mortgagor is likely to be able within a reasonable period to pay any sums due...’
Section 36 AJA 1970 contained a drafting error in the use of the words ‘any sums due’, as became clear in Halifax Building Society v Clark [1973] Ch 307 where the mortgage deed contained a clause stating that the entire debt became due on default. This meant that the mortgagor had to be able to show means to repay the whole loan, rather than simply the arrears, to for s.36 to apply. So an amendment was passed in s.8 Administration of Justice Act 1973, which stated that, in considering whether to defer possession to allow the mortgagor time to pay, the court may treat as due ‘only such amounts as the mortgagee would have expected to be required to pay if there had been no such provision for an earlier payment’.
What is ‘a reasonable period’ has become more liberally interpreted to offer more protection to non-financial interests holders i.e. the people occupying the home which may well serve as a family home. The mortgagor must provide realistic evidence of some ability to pay off all arrears. However the courts may reschedule the arrears across the entire remaining period of the mortgage. This is what happened in Cheltenham & Gloucester BS v Norgan [1996] 1 WLR 343. Here the mortgagor Mrs N mortgaged family home in 1986. House was in her sole name & mortgage was to Guardian BS but they were taken over by C&G. The loan was for £90,000 to provide funds for her husband’s business. The mortgage was for 22 years with interest at 11.4325% payable in monthly instalments. (It was an interest only mortgage). Mrs N had difficulty in keeping up payments & by 1990 owed £7k arrears. Under terms of the mortgage, whole amount of loan + interest became immediately repayable in the event of default. C&G applied for possession & got an order. Execution of the order was suspended on terms as to payment of current interest instalments plus arrears. Mrs N tried but could not comply & the arrears increased.
In 1993 the district judge granted an application by the mortgagor for a renewed suspension of the warrant. On appeal, order was upheld & Mrs N’s contention that the reasonable period for repayment should be the whole remaining term of the mortgage was rejected. CoA reversed the decision that a 2 – 4 year period was suitable under the Act & said that the reasonable period was the whole remaining period of the mortgage.
What is a reasonable period?
The CoA held that When assessing a ‘reasonable period’ for the purposes of s.36 AJA 1970 & s.8 AJA 1973 for the payment of arrears by a defaulting mortgagor, it was appropriate for the court to take into account of the whole of the remaining part of the original term of the mortgage and, accordingly, the existing practice of imposing a shorter fixed period of two or more years should no longer be followed. In the circumstances the judge had erred in adopting a period of repayment (4 years) unrelated to the term of the mortgage when exercising his discretion under s.36.
Waite LJ said at p.458… “it does seem to me that the logic and spirit of the legislation require, especially in cases where the parties are proceeding under arrangements such as those reflected in the CML statement, that the court should take as its starting point the full term of the mortgage and pose at the outset the question: would it be possible for the mortgagor to maintain payment-off of the arrears by instalments over that period?"
factors taken into account
New approach of full term of mortgage will be liable to demand a more detailed analysis of present figures & future projections than it may have been customary for the courts to undertake until now. Likely to be greater need to require of mortgagors that they should furnish the court with a detailed budget. In some instances, preliminary adjudication will be necessary to determine, when calculating the amount of arrears & assessing the future instalments for their payment-off, which items are to be attributed the mortgagor’s current payment obligations and which to his ultimate liability on capital account.
They may need detailed evidence, if necessary by experts, to see if and when the ender’s security will become liable to be put at risk as a result of imposing postponement of payments in arrear. One advantage of taking the period from the mortgagor’s favour is that it will avoid repeated litigation.
Evans LJ at p.461
Said court should have regard to published statements of the lender’s policies in case of default. These include the CML. (At p.463)
How much can the borrower reasonably afford to pay, both now and in the future?
If the borrower has a temporary difficulty in meeting his obligations, how long is the difficulty likely to last?
What was the reason for the arrears which have accumulated?
How much remains of the original term?
What are the relevant contractual terms, and what type of mortgage is it?
Is it a case where the court should exercise its power to disregard accelerated payment provision (s.8)?
Is it reasonable to expect the lender, in the circumstances of the particular case, to recoup the arrears of interest (1) over the whole of the original term, or (2) within a shorter period, or even (3) within a longer period i.e. by extending the repayment period? Is it reasonable to expect the lender to capitalise the interest or not?
Are there any reasons affecting the security which should influence the length of the period for payment?
