We referred to the case of Horsham Properties Group Ltd v Clark  1 WLR 1255 in connection with orders for sale and the Ministry of Justice Consultation on changes in the law which will require lenders to obtain the court's permission to sell, which will in turn engage similar statutory protections to those involved in obtaining orders for possession under s 36 Administration of Justice Act 1970.
The case also raised a significant Human Rights challenge under Article 1 of the First Protocol. We repeat the facts and findings here:
B and C mortgaged their property to a lender, L. B and C fell into arrears and L appointed LPA receivers pursuant to a contractual power in the mortgage deed (as well as s 101(1)(iii) LPA 1925). The receivers contracted to sell the property to Company X following a sale by auction. The purchase price was sufficient to pay off the mortgage debt. Upon completion Company X transferred the property to Company Y (Horsham Properties Group Ltd) and they were registered as proprietors. They subsequently issued proceedings for possession against B and C claiming that they were trespassing on the property, and asserting that their rights as borrowers had been overreached by the receivers’ sale to Company X.
It was common ground that the effect of a contract for sale entered into by a mortgagee, or a receiver appointed by a mortgagee, is such as to destroy the mortgagor’s equity of redemption – the right to discharge the mortgage and take back the property free of the charge.
It was also common ground that applying the law prior to the Human Rights Act, a lender could exercise the statutory power of sale under s 101 LPA 1925 and thereby obtain possession without engaging s 36 Administration of Justice Act 1970: Ropaigealach v Barclays Bank Plc  QB 263, but it was argued that this is no longer compatible with the Convention rights of residential mortgagors. It was argued that it would only become compatible if either (1) s 101 was construed as requiring a mortgagee first to obtain a court order for possession or to make an application for an order permitting sale, and giving the court on such application a discretion similar to that conferred by s 36; or (2) s 36 was construed so as to confer upon the court the discretionary powers to adjourn or suspend the making of a possession order where the application was made, not by the mortgagee, but by the mortgagee’s purchaser. Otherwise, the borrowers sought a declaration of incompatibility in relation to s 101, on the basis that the section amounted to State intervention by legislation which deprived the borrower of his equity of redemption and which in turn amounted to a deprivation of the peaceful enjoyment of his possessions in accordance with Article 1 of the First Protocol, and that this applies irrespective of any separate contractual power of sale in the mortgage.
According to Briggs J, the correct analysis is as follows:
(1) The borrowers lost their equity of redemption by virtue of the contract of sale entered into by the receivers. S 101 did not confer on the receivers a statutory power of sale free of the mortgage. Their powers were purely contractual and did not involve any State intervention.
(2) However, even if the lender had sold purely in exercise of its statutory powers, there would still have been no relevant deprivation of possessions within the meaning of Article 1 FP. S 101 serves merely to implement rather than to override the parties’ private bargain. It is far removed from the concept of State intervention into private rights through overriding legislation. In any event, the continued occupation of the mortgaged property by the mortgagor after the ink is dry on the mortgage is subject only to statutory intervention or contractual restraint. The liability of the mortgagor to lose possession through default is fully spelt out in the mortgage conditions.
(3) Furthermore, any deprivation of possessions as a result of a sale out of court, without first obtaining a court order, is justified in the public interest, and did not require a case-by-case exercise of a proportionality discretion by the court.
(4) Ultimately, the question of whether any wider public policy ought to be implemented wherever steps taken by a mortgagee to realise its security are likely to lead to the obtaining of possession is a matter for Parliament.
(5) Accordingly the effect of the sale in the present case was to discharge the equity of redemption and discharge the mortgage. By the time Company Y applied for possession, there was no subsisting mortgage and nothing upon which the court could exercise a discretion to stay or suspend under s 36.
(6) Company Y was therefore entitled to possession.
In the context of Human Rights issues, the significance of the case is the risk that lenders might opt to appoint receivers with a view to selling standard residential home-loan mortgaged property on the basis that the contract for sale destroys the equity of redemption and deprives the borrowers of any statutory protection. Hence the Ministry of Justice Consultation. Note also the contents of the Secured Lending Reform Bill 2011 (summarised in the March 2011 Update)