Mortgage—Sale—Exercise of power of sale by mortgagee

Chancery Division, Mr Justice Briggs, 8 October 2008

The exercise of a statutory power of sale under s 101 of the Law of Property Act 1925 (LPA 1925), after a relevant default by the mortgagor, is not a deprivation of possessions within the meaning of Art 1 of the First Protocol to the European Convention on Human Rights (the Convention).

Tom Poole (instructed by SJ Newman, Harrow) for the claimant. Victoria Williams (instructed by Neves Scott, Dartford) for the second defendant. Sam Grodzinski (instructed by the Treasury Solicitor) for the secretary of state for justice.

The claimant brought an action for possession of a property against the defendant. The defendant subsequently argued that s 101 of LPA 1925, providing for the statutory power of sale after a relevant default by the mortgagor, infringed her right to property under art 1 of the First Protocol to the Convention. The alleged breach arose out of the fact that the section permitted mortgagees to overreach the mortgagor’s rights in relation to the mortgaged property by selling it out of court, without first obtaining a court order for possession, or an order for sale.

Briggs J:
Article 1 of the First Protocol to the Convention provided: “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....”

Section 101 of the LPA 1925, so far as material, provided: “(1) A mortgagee, where the mortgage is made by deed, shall, by virtue of this Act, have the following powers, to the like extent as if they had been in terms conferred by the mortgage deed, but not further (namely):— (i) A power, when the mortgage money has become due, to sell, or to concur with any other person in selling, the mortgaged property, or any part thereof...(iii) A power, when the mortgage money has become due, to appoint a receiver of the income of the mortgaged property, or any part thereof...(3) The provisions of this Act relating to the foregoing powers, comprised either in this section, or in any other section regulating the exercise of those powers, may be varied or extended by the mortgage deed, and, as so varied or extended, shall, as far as may be, operate in the like manner and with all the like incidents, effects, and consequences, as if such variations or extensions were contained in this Act. (4) This section applies only if and as far as a contrary intention is not expressed in the mortgage deed, and has effect subject to the terms of the mortgage deed and to the provisions therein contained...”

His lordship held that s 101 served to implement rather than override the private bargain between mortgagor and mortgagee. Its history, going back to 1860, was that it supplied a convenient power of sale out of court to mortgagees in substitution for the parties having (as they routinely did before 1860) to spell out such a power in every legal mortgage. It was in substance a form of conveyancing shorthand designed to implement the ordinary expectations of mortgagors and mortgagees while reducing the costs and delays of conveyancing. Far from overriding the parties’ private bargain, it implemented and gave effect to it. It was in that respect nothing to the point that the modern facilities of photocopiers and word processors enabled the parties to modern mortgages to spell out private powers which overlapped or replaced the convenient statutory powers in s 101.

Furthermore, all the statutory powers in s 101 were expressed to be subject to contrary intention. Section 101(4) provided that: “This section applies only if and as far as a contrary intention is not expressed in the mortgage deed, and has effect subject to the terms of the mortgage deed and to the provisions therein contained.”

That sub-section on its own demonstrated that s 101 served rather than overrode the parties’ bargain. It was as far removed from the concept of state intervention into private rights through overriding legislation, which lay behind Art 1 of the First Protocol, as it was possible for legislation to get. It was neither rigid, arbitrary or discriminatory, and its effect was apparent on the face of s 101.

Fallen argument
It followed that the defendant’s argument under Art 1 of the First Protocol fell at the first hurdle. The exercise of a statutory power of sale under s 101 after a relevant default by the mortgagor was not a deprivation of possessions within the meaning of Art 1 of the First Protocol and, a fortiori, the exercise by receivers appointed and acting under purely contractual powers in overriding the defendant’s equity of redemption by contracting to sell the property could not be either.

His lordship left for another occasion the more difficult question of whether or not a sale in breach of the terms of a mortgage (for example in the absence of any default by the mortgagor), relied upon by the purchaser under s 104(2)(a) might engage Art 1 of the First Protocol. In such a case the sale would overreach the mortgagor’s equity of redemption without any justification, as between the parties to the mortgage, and leave the mortgagor to a remedy in damages against the mortgagee.