Habib Bank Ltd v Tailor

Section 8(1) of the Administration of Justice Act 1973 extends the court’s section 36 jurisdiction only where a mortgage or agreement both permits deferment of payment of principal and provides for payment earlier than the deferred date on default or demand.

A bank customer’s liability under a current-account overdraft secured by a charge and payable on written demand does not satisfy either condition. The debt is not payable before demand, so there is no accrued payment obligation capable of deferment. The demand makes the debt due; it does not accelerate an earlier date for payment.

Accordingly, unless the mortgagor can repay the whole sum due within a reasonable period, the court cannot postpone possession under section 36.

The bank held an all-accounts charge over the defendant’s dwelling-house as security for a current-account overdraft. The charge required payment of the debit balance only on written demand. After the defendant exceeded his overdraft limit, the bank made written demand and commenced possession proceedings.

The Deputy Registrar ordered possession. On the defendant’s appeal, the Willesden County Court judge held that section 8 of the Administration of Justice Act 1973 applied and remitted the matter so that the defendant could be allowed time to pay arrears of interest rather than the whole overdraft.

The bank appealed. The central issue was whether an overdraft secured by a demand charge fell within section 8(1), so as to permit the section 36 discretion to be exercised on the basis of sums that would otherwise have fallen due.

Appeal allowed unanimously. Lord Justice Oliver gave the principal judgment. Lords Justices Dunn and Cumming-Bruce agreed. The County Court judge’s order was reversed and the Deputy Registrar’s decision restored.

1. Section 8(1) of the Administration of Justice Act 1973 required two contractual features. The mortgagor had to be entitled or permitted to defer payment of principal. The mortgage or agreement also had to provide for payment earlier than the time otherwise contemplated, on default, demand or otherwise. The provision was designed principally to prevent an instalment mortgagor from losing section 36 protection merely because default accelerated the entire principal debt.

2. Neither feature existed in this ordinary bank overdraft charge. In the banker-customer relationship, a current-account overdraft payable on demand does not become payable, and cannot be sued upon, before demand. The court applied the reasoning in Lloyds Bank Ld v Maraolis [1954] 1 WLR 644. A demand therefore does not defer an existing liability and does not require payment earlier than an otherwise applicable payment date. It is the event that first makes the debt payable.

3. Centrax Trustees Ltd v Ross [1979] 2 All ER 952 did not assist the defendant. That case concerned a mortgage with a fixed redemption date but a clear contractual intention that payment of principal could continue to be deferred while interest was paid. The present charge contained no comparable provision. The court expressed no concluded view on the correctness or intended legislative reach of Centrax.

4. Section 8 was consequently unavailable. The defendant accepted that he could not pay the whole overdraft within a reasonable period. There was therefore no basis for the section 36 discretion to postpone possession. Possession was ordered within 28 days, with no order as to costs.

• Court of Appeal: Allowed the bank’s appeal, reversed the County Court order, restored the possession decision, and ordered possession within 28 days.
• Willesden County Court: Judge Aron-Owen allowed the defendant’s appeal from the Deputy Registrar and remitted the matter for consideration of a period in which the defendant might pay arrears of interest.
• Deputy Registrar: Ordered possession within eight weeks.