Cheltenham and Gloucester Plc v Krausz

Section 36 of the Administration of Justice Act 1970, as amended, provides the relevant statutory power to delay possession of a mortgaged dwelling-house. It may allow time to pay arrears from sources other than a sale. Where sale is intended to provide the payment, the proceeds must be sufficient to discharge the mortgage debt, unless other funds cover the shortfall. The provision does not give a County Court jurisdiction to suspend a possession warrant merely to enable a mortgagor to apply under section 91(2) of the Law of Property Act 1925 for a sale in circumstances of negative equity. Any relief capable of displacing the mortgagee’s possession must be sought from the court hearing the sale application.

The mortgagees had obtained a possession order after the mortgagors defaulted on a mortgage secured on their home. Following several earlier arrangements and discharged warrants, the mortgagors sought a stay of a fifth warrant. They wished to apply under section 91(2) of the Law of Property Act 1925 for an order permitting a charitable trust to purchase the property, although the proposed price was less than the mortgage debt.

A District Judge dismissed the application. Judge Green QC allowed an appeal and stayed execution pending the promised High Court application. The mortgagees appealed. The central issues were whether the County Court had jurisdiction to suspend the warrant, and, if so, whether that jurisdiction should have been exercised.

The Court of Appeal allowed the appeal unanimously. The application to adduce further valuation evidence was refused, and leave to appeal to the House of Lords was refused.

1. The common-law position was strict. A legal mortgagee entitled to possession could not ordinarily be denied or delayed in obtaining it. The recognised exception was a short adjournment where there was a reasonable prospect of payment in full or of satisfying the mortgagee. This approach was stated in Birmingham Citizens Permanent Building Society v Caunt [1962] 1 Ch 883 and endorsed in Royal Trust Co. of Canada v Markham [1975] 1 WLR 1416.
2. Section 36 of the Administration of Justice Act 1970, as amended by section 8 of the Administration of Justice Act 1973, created a defined statutory power to adjourn proceedings or stay, suspend or postpone possession. It could assist payment of instalment arrears within a reasonable period. Where a sale was the intended source of payment, the court had to be satisfied that the proceeds would discharge the whole mortgage debt, unless another source covered the deficit.
3. Palk v Mortgage Services Funding Plc [1993] Ch 330 established that section 91(2) could support a mortgagor’s application for sale even where the proceeds would not clear the debt, but the mortgagee in that case was not seeking to realise its security. Palk did not decide the jurisdiction to suspend possession. It did not justify suspension where the mortgagee was actively seeking possession and sale.
4. The court recognised the general principle of inherent jurisdiction stated in Connelly v DPP [1964] AC 1254. However, the specific statutory limits governing mortgage possession prevented the County Court from using inherent jurisdiction to suspend a warrant so that the mortgagor could make a section 91 application. Even assuming that the court hearing the sale application could grant relief affecting possession, the mortgagor had to seek that relief there before execution of the warrant.
5. The order staying execution was therefore made without jurisdiction. The mortgagees could not introduce a valuation on appeal after declining the lower court’s offer of a short adjournment to obtain such evidence.

• Court of Appeal (Civil Division). The mortgagees appealed against Judge Green QC’s order staying execution of the possession warrant. The appeal was allowed.
• Shoreditch County Court. A District Judge dismissed the mortgagors’ application to suspend the warrant. On appeal, Judge Green QC stayed execution pending an application under section 91(2) of the Law of Property Act 1925.