Cheltenham and Gloucester Building Society v Norgan

When determining a reasonable period for curing mortgage arrears under section 36 of the Administration of Justice Act 1970, the court should start with the whole remaining mortgage term. That period is prima facie reasonable, although the circumstances may justify a shorter or, exceptionally, longer period.

The court must assess the borrower’s present and prospective ability to pay, the cause and likely duration of the difficulty, the mortgage terms and type, the remaining term, the lender’s security and reasonable financial interests, and whether arrears could be capitalised. It must resolve material disputes about the arrears before making a realistic assessment. A conventional two-to-four-year period is not an appropriate starting point.

The appellant mortgagor charged her dwelling house under a 22-year interest-only term mortgage. After interest arrears accrued, the mortgagee obtained a possession order. Its execution was repeatedly suspended on payment conditions, but the mortgagor did not achieve complete compliance.

A district judge refused a further suspension. His Honour Judge O’Malley dismissed the mortgagor’s appeal, holding that about four years, rather than the remaining mortgage term, was a reasonable period for clearing the arrears. Material disputes remained about the amount and classification of arrears, costs, insurance and interest.

The central issue before the Court of Appeal was how a court should determine the “reasonable period” specified by section 36 of the Administration of Justice Act 1970, read with section 8 of the Administration of Justice Act 1973.

1. Appeal allowed unanimously. Waite LJ delivered the leading judgment. Evans LJ and Sir John May agreed. The county court had erred by selecting a four-year repayment period which was unrelated to the 13 years remaining under the mortgage.

2. The logic and purpose of sections 36 and 8 require the court to begin with the whole remaining mortgage term. The initial question is whether the mortgagor could maintain the current contractual payments while paying the arrears by instalments throughout that period. The remaining term is a starting point, not an inflexible assumption. Unusual circumstances may justify departure from it.

3. A conventional period of two, four or six years cannot properly serve as the general starting point. The reasonable period depends on the particular mortgage and the interests of both parties. Relevant matters include affordability, the cause and likely duration of the default, the remaining term, the contractual terms and mortgage type, the possible disregard of acceleration provisions, the possibility of capitalising arrears, and any risk to the lender’s security.

4. Evans LJ added that published lender policies may be relevant to what the mortgagor would have expected to be required to pay and to the reasonableness of capitalisation or extended repayment. The Council of Mortgage Lenders’ statement did not bind the mortgagee, but its stated practices were directly relevant to the exercise.

5. The court must resolve material disputes about the amount and classification of arrears before assessing affordability. Detailed budgets, financial projections and, where necessary, evidence concerning the adequacy of the security may be required. If a generous suspension arrangement later fails, the court may fairly give substantial weight to the fact that the borrower has already had an opportunity to cure the default.

6. The case was remitted to the county court to determine the disputed amounts, calculate the current payments and the instalments required over the remaining term, decide whether unusual circumstances justified another period, and determine whether the warrant of possession should be suspended. Costs were awarded to the appellant here and below, and leave to appeal to the House of Lords was refused.

1. Court of Appeal: The appeal was allowed unanimously. The order below was set aside and the case was remitted for determination of the disputed sums and reconsideration of suspension under sections 36 and 8.

2. Shaftesbury County Court: His Honour Judge O’Malley dismissed the mortgagor’s appeal from the district judge. He treated approximately four years as a reasonable period for clearing the arrears and upheld the refusal of further suspension.

3. District Judge: The mortgagor’s final application for renewed suspension was dismissed on 28 September 1993, and leave was given to issue the warrant of possession, subject to a stay pending appeal.