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	England and Wales Court of Appeal (Civil Division) Decisions
You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> Bristol and West Building Society v Ellis & Anor [1996] EWCA Civ 1294 (24 April 1996) URL: http://www.bailii.org/ew/cases/EWCA/Civ/1996/1294.html Cite as: (1996) 73 P & CR 158, [1996] EWCA Civ 1294

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IN THE SUPREME COURT OF JUDICATURE
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE BRISTOL COUNTY COURT
(HIS HONOUR JUDGE McNAUGHT)

		Royal Courts of Justice Strand London WC2
		Wednesday 24th April 1996

LORD JUSTICE AULD: The Appellant, Bristol & West Building Society, was the mortgagee of the matrimonial home of the Respondents, Mr and Mrs Ellis and their two children. The mortgage loan, which was made in 1987, was £40,000 repayable in one sum at the end of 25 years on the maturity of an endowment assurance policy for that sum. The monthly interest-only payments were £432.40. Subsequently the mortgage loan was increased to £60,000 and with it the monthly interest payments.

In 1990 Mr Ellis left Mrs Ellis and the two children. By then they had fallen into substantial arrears with their interest payments. In August 1990 Bristol & West sought in the Bristol County Court possession and an order for payment of the arrears, then amounting to £8,449.30. On 19th October 1990 Mr Registrar Keogh made a suspended order for possession on terms that Mrs Ellis paid in reduction of the arrears £5,000 immediately and thereafter £200 per month in addition to the normal monthly payments of interest.

Mrs Ellis did not comply with that order, and by early January 1995 the arrears of interest amounted to over £16,000 which, with the mortgage debt of £60,000, left her owing Bristol & West over £76,000. The building society applied to the County Court for a warrant for possession, which the Court granted. On 10th April 1995 Mrs Ellis applied to District Judge Bolton in the County Court for suspension of execution of the warrant. In her affidavit evidence in support of that application, she deposed that she was dependent on social security benefits and assistance from her family, but could meet the interest payments as they fell due from both those sources. She indicated that she could make an immediate lump-sum payment in the region of £5,000 but that thereafter she could only pay a token sum of about £10 per month in further reduction of the arrears of interest. She said that her intention was to discharge the entire debt by selling the house after her children had completed their university education, a period which she "anticipate[d was] ... likely to be in approximately three to five years". Relying on two estate agents' estimates of likely sale price for the house she suggested that it was worth between £80,000 and £85,000, a range of valuation which, she maintained, was sufficient to cover the then redemption figure of over £77,000 plus costs. Those estimates were higher than previous ones advanced by Mrs Ellis before the slump in property values in the late 1980s, and were challenged by Bristol & West.

District Judge Bolton ordered suspension of the execution of the warrant, but on terms that Mrs Ellis should pay the arrears, then amounting to £16,805.16, by payment of a lump sum of nearly £5,000 within a month and the balance at the rate of £10 per month in addition to the monthly instalments of interest. At that rate it would take Mrs Ellis 98 years to pay off the arrears. The District Judge imposed no term as to sale of the house.

Bristol & West appealed that order to His Honour Judge McNaught, arguing that neither 98 years nor a period of 3 to 5 years was a reasonable period for suspension of the execution of the warrant within section 36 of the Administration of Justice Act 1970, as extended by section 8 of the Administration of Justice Act 1973. Those provisions enable a court to suspend execution of a possession order for such period as it thinks reasonable

"...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..."

The Judge took as his starting point that he should only interfere with what he called the District Judge's exercise of discretion if it was plainly wrong. He then considered, not the period of 98 years which it would take Mrs Ellis to extinguish the arrears in accordance with the District Judge's order, but the 3 to 5 years' period until sale of the house which appears to have been the reason for it, though not reflected in its terms:

" The evidence which I have got ... suggests that, at the moment, there is a small equity in the property and Mrs. Ellis's intention, which I accept, is that, in maybe three years' time, she agrees the house will be sold, but in the important period when she has a son who is getting on his feet with a degree and a daughter who is doing A-levels, now is not the right time to sell the house. I think it was a merciful thing that District Judge Bolton did. Not everyone would have done it. Some people might have hardened their hearts ... The law says a reasonable time, and it will take a very long time, many years, before arrears of over £10,000 can be met. But I think the formula that he came to was one that a reasonable district judge operating locally could come to, and I am not inclined to interfere with it.

Mr Michael Duggan, on behalf of Bristol & West, submitted that whether the order upheld by the Judge is looked at solely on its terms, so as to envisage a period of 98 years for payment of the arrears, or on its unexpressed basis, that Mrs Ellis would discharge her entire mortgage debt on sale of the house within 3 to 5 years, it did not satisfy the requirement of section 36 that the period of repayment should be "reasonable". Mr Duggan submitted that, in making such an order, the District Judge had acted outside the bounds of the discretion given to him by the provision and that the Judge should have recognised that and should have ordered the issue of the warrant. Mr Duggan's point was that the periods of repayment provided for or contemplated by the order were so long that they were unlawful, not simply discretionary periods with which the Judge could decide he need not interfere.

Mr Jan Luba, on behalf of Mrs Ellis, acknowledged that a period extending many decades after the end of the mortgage period could not be a reasonable period for repayment within section 36, but submitted that a period of 3 to 5 years until sale of the house was reasonable in the circumstances. The difficulty about that argument is that District Judge Bolton, whatever his expectation, did not express the order so as to suspend it for a period within which Mrs Ellis was required to sell the property. He suspended it only on terms that she pay £10 a month towards the arrears, in addition to payment of an initial sum, for a period over six times the length of the outstanding term of the mortgage. Similarly, Judge McNaught, in his short judgment, while clearly of the view that the order as expressed was for an unreasonably long period, did not vary it to reflect the District Judge's apparent expectation. It is difficult to see how, on the face of the order, Bristol & West could rely on that expectation to obtain immediate possession if, after 5 or more years, Mrs Ellis refused to sell the property while continuing to pay the interest and monthly instalments of £10 in reduction of the arrears. It seems to me that, subject only to the possibility of variation provided by section 36(4), it would be stuck with the order in that form until the end of the mortgage period in 16 years' time, and with the prospect of substantial arrears of interest still unpaid at that time. The existence of a power of variation in the County Court is no basis for this Court, on appeal from it, to uphold an invalid order. I am, therefore, of the view that the order under appeal cannot stand.

Having regard to this Court's power in RSC O. 59, r. 10(3) to make its own order in the matter, I consider also the issue of reasonableness of the 3 to 5 years' period apparently underlying the District Judge's order.

In the absence of unusual circumstances and where discharge of all arrears by periodic payments is proposed, the outstanding period of the mortgage, whether term or repayment, is the starting point in determining the reasonableness of the period for payment of sums due under a mortgage. See Cheltenham & Gloucester Building Society v. Norgan [1996] 1 All ER 449, CA.

However, that convenient starting point is not available to a mortgagee who cannot discharge the arrears by periodic payments and whose only prospect of repaying the entire mortgage loan and accrued and accruing interest is from the sale of the property. In such a case the only general guidance is that the reasonableness of the period is a matter for the Court in the circumstances of the case. See Royal Canada Trust Co. of Canada v. Markham [1975] 1 W.L.R. 1416, CA and National & Provincial Building Society v. Lloyd [1996] 1 All ER 630, CA.

The prospect of settling the mortgage debt, including arrears of principal and/or interest, by sale of the property raises a number of questions on the reasonableness of any period which a court may consider allowing for the purpose.

The critical matters are, of course, the adequacy of the property as a security for the debt and the length of the period necessary to achieve a sale. There should be evidence, or at least some informal material (see Cheltenham & Gloucester Building Society v. Grant (1994) 26 H.L.R. 703, CA), before the Court of the likelihood of a sale the proceeds of which will discharge the debt and of the period within which such a sale is likely to be achieved. If the Court is satisfied on both counts and that the necessary period for sale is reasonable, it should, if it decides to suspend the order for possession, identify the period in its order.

The instinct of the courts in determining a reasonable period for this purpose seems to have been to adopt the common law approach before the 1970 Act - see Birmingham Citizens Permanent Building Society v. Caunt [1962] Ch. 883, at 182 G-H, per Russell J. - of fixing on a "short" period. See Markham and Target Home Loans Ltd v. Clothier [1994] 1 All ER 439, CA. However, in Markham neither the County Court Judge nor the Court of Appeal considered what, in the circumstances of that case, might have been a reasonable period. The defendants had called no evidence and the Judge had not fixed any period in his order. The Court of Appeal contented itself with ruling that he should have fixed a period, but only after hearing evidence on the matter. In Clothier the Court of Appeal, on the strength of evidence before it, but not before the County Court Judge, made an order for possession, suspending it for 3 months.

In Lloyd Neill LJ, with whom Bennett J agreed, after reviewing the above authorities, held that the word "reasonable" in the statute should not necessarily be equated with "short"; what was a reasonable period was "a question for the court in the individual case". He said at 638a-b:

"... if there were, in a hypothetical case, clear evidence that the completion of the sale of a property, perhaps by piecemeal disposal, could take place in six or nine months or even a year, I see no reason why a court could not come to the conclusion in the exercise of its discretion under the two sections that, to use the words of the section 'the mortgagor [was] likely to be able within a reasonable period to pay any sums due under the mortgage'. The question of a 'reasonable period' would be a question for the court in the individual case."

Mr Duggan, on behalf of the building society sought to extract from the that passage a principle that a year is about the maximum period that a court could consider reasonable for this purpose. Whilst that may be a likely maximum in many cases, I do not read Neill LJ's words as establishing it as a rule of law or as a matter of general guidance. It all depends on the individual circumstances of each case, though the important factors in most are likely to be the extent to which the mortgage debt and arrears are secured by the value of the property and the effect of time on that security.

Where the property is already on the market and there is some indication of delay on the part of the mortgagor, it may be that a short period of suspension of only a few months would be reasonable (see e.g. Clothier). Where there is likely to be considerable delay in selling the property and/or its value is close to the total of the mortgage debt and arrears so that the mortgagee is at risk as to the adequacy of the security, immediate possession or only a short period of suspension may be reasonable. Where there has already been considerable delay in realising a sale of the property and/or the likely sale proceeds are unlikely to cover the mortgage debt and arrears or there is simply no sufficient evidence as to sale value, the normal order would be for immediate possession. See e.g. Abbey National Mortgages PLC v. Rochelle Bernard, unreported, 4th July 1995, CA and Lloyd.

Mr Duggan submitted that, here, the material, formal or informal (see Grant, per Nourse LJ at 705), before the District Judge and Judge was insufficient to satisfy them that Mrs Ellis would or could sell the property within 3 to 5 years or that its sale proceeds when sold would be sufficient to discharge the mortgage debt and arrears. As to the time of sale, all that the District Judge had was her statement in her affidavit that she anticipated selling within 3 to 5 years when her children completed their education. As to value, the evidence was not compelling: two estate agents' estimates of between £80,000 and £85,000 as against the redemption figure at the time of just over £77,000 plus costs. As a result of Mrs Ellis's payment of the lump sum ordered by the District Judge and subsequent payments, the total figure of indebtedness is now about £70,000, including about £10,000 arrears of interest. Given the inevitable uncertainty as to the movement of property values over the next few years and the reserve with which the courts should approach estate agents' estimates of sale prices (see Clothier, per Nolan LJ at 445), no court could be sanguine about the adequacy, now or continuing over that period, of the property as a security for the mortgage debt and arrears. In my view, the evidence was simply insufficient to entitle the District Judge to contemplate, behind the order he made, a likelihood that the house would or could be sold at a price sufficient to discharge Mrs Ellis's overall debt to Bristol & West within any reasonable period, and certainly not one of up to 3 to 5 years.

It follows that, even if the District Judge had made an order, defining a specific period - either 3 or 5 years - for the sale of the property, I would not have regarded the evidence before him or the Judge as sufficient to enable him to fix on it as a reasonable period for the purpose of section 36 of the 1970 Act; If I am right about that, it is not a case in which this Court should be deterred from interfering with the decisions below because of its traditional reluctance to interfere with their exercise of discretion. It is a case in which the Court should interfere because the courts below lacked the material to enable them properly to exercise their discretion in the way they did.

I do not consider that the material available below, or to this Court, would justify any order other than one of immediate possession. I would, therefore, allow the appeal with an order for the costs of the appeal and before the Judge in favour of Bristol & West.

LORD JUSTICE HIRST: I agree.

Order: Appeal allowed with costs here and below;

order for immediate possession of property;

costs to be paid from proceeds of sale;

if insufficient to cover costs, balance of

costs not to be enforced without leave of

the court; counsel to submit draft minute

covering above points.