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November 2018

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Leon v HM Attorney-General [2018] EWHC 3026 (Ch) Insolvency - dissolution of company – entitlement of individual co-mortgagor to vesting order Goldhill Finance Company Ltd v Berry (Unrep) Central London County Court, 26 Oct 2018 Stay of warrant under s 36 Administration of Justice Act 1970 – entitlement to peaceable re-entry in the meantime – whether an unfair relationship – appropriate order to make UBS AG v Rose Capital Ventures Limited [2018] EWHC 3137 (Ch) Mortgage conditions – early termination on 3 months’ notice – implication of Braganza term – susceptibility to strike out Alexander v Willow Court Management Co Ltd [2018] EWCA Civ 2325 Adjournment on medical grounds – adequacy of medical evidence required
Case name Neutral citation Legal points Case summary Facts Held Comment Leon v HM Attorney-General [2018] EWHC 3026 (Ch) Insolvency - dissolution of company – entitlement of individual co-mortgagor to vesting order A co-mortgagor of a mortgage secured on leasehold property held by a company did not have a sufficient interest in the property in order to obtain a vesting order following the dissolution of the company and the disclaimer of the lease by the Crown. In 1993 a local authority W granted a 125-year lease of a flat which was subsequently assigned to a company F. In 2002 a mortgage lender granted a mortgage to F as mortgagor, and L as co-mortgagor, which was subsequently secured on the leasehold property. The mortgage was subsequently assigned to K. In 2009 F was dissolved, with the effect that all property and rights including the lease vested in the company were deemed to be bona vacantia. However, L continued to pay the mortgage from rental income from the property. In 2016 W discovered that F had been dissolved and notified the Treasury Solicitor who served a notice of disclaimer of the lease. In 2017 L applied for a vesting order in respect of the lease. HM Attorney-General did not actively oppose the application. W defended the claim on the basis that a vesting order should be made in favour of K, the mortgagee. K filed an acknowledgement of service indicating it would remain neutral on L’s claim but would seek its own vesting order in the event that L’s claim failed. The Chief Master made an order vesting the lease in L pursuant to s 1017(2) Companies Act 2006 on terms that L remained subject to the same liabilities in respect of the lease, on two grounds, namely that as a co-mortgagor: (1) L had an interest in the disclaimed property for the purposes of s 1017(1)(a), and (2) L was under a liability which was not discharged by the disclaimer for the purposes of s 1017(1)(b) (and it would be just to make the order under s 1017(3) for the purpose of compensating L). W appealed on the basis that the Chief Master was wrong in law in (1), and that his exercise of discretion in (2) was flawed because he failed to explain how the s 1017(3) test was satisfied. At the time of the appeal hearing, the leasehold property was worth £800,000 - £1M, subject to a mortgage of £427,600. The correct question in (1) is not whether the applicant “has an interest” in the disclaimed property but whether he is “entitled to it” ie. whether the interest claimed by the applicant entitles him to the property? The interest would have to be a proprietary one in order to entitle the applicant to the property. Here the only proprietary interest which it was suggested that L had was in the equity of redemption, but that was vested in K as mortgagor, and then the Crown on dissolution until disclaimer. Accordingly, L did not have a sufficient interest in the lease and thus no order could be made under s 1017(2)(a). As to (2) it was common ground that L was under a liability in respect of the Lease because of the mortgage. The issue was whether it was just to make the order for the purpose of compensating L in respect of the disclaimer. Although the Chief Master listed 8 reasons why L was deserving of an order they did not contain any analysis of the effect of the disclaimer upon L or whether it would be just to compensate him, as required by s 1017(3). Upon reconsidering the matter, the starting point was that L’s liability under the mortgage was unaffected by the disclaimer of the lease: he remained liable to pay the mortgage. The effect of a vesting order would not compensate him for the loss of the lease because that was not his property before the disclaimer. Nor would L be compensated for his liability under the mortgage since this was unaffected by the disclaimer. Accordingly, an order under s 1017(2)(b) would not satisfy the requirements in s 1017(3). Appeal allowed. Vesting order in favour of K. This is a complicated and difficult analysis but which might be explained on the basis that the court preferred the competing interest of a mortgagee to security which had been lost on disclaimer, rather than a co-mortgagor, who remained throughout in the same financial predicament.
Case name Neutral citation Legal points Case summary Facts Held Comment Goldhill Finance Company Ltd v Berry (Unrep) Central London County Court, 26 Oct 2018 Stay of warrant under s 36 Administration of Justice Act 1970 – entitlement to peaceable entry in the meantime – whether an unfair relationship – appropriate order to make Once a mortgagee elects to take court proceedings for possession, and the court has made an order, which it subsequently stays, it is not open to the mortgagee to elect to take possession by peaceable re-entry in the meantime, even if the property is unoccupied. This creates an unfair relationship for the purposes of s 140A Consumer Credit Act 1974. In 2015 D obtained a short-term loan of £171,000 from C, a finance company, secured on D’s flat. D defaulted in repayment and in February 2016 C obtained an order for possession (money claim adjourned) and applied for a warrant. D applied to stay the warrant on the basis she had accepted an offer of £520,000 for the sale of the flat. In August 2016 a deputy district judge granted a 28-day stay to enable the sale to complete, during which C took possession, apparently relying on its common law right to peaceable re-entry of empty property. D applied to re-enter, but her application was dismissed. C subsequently marketed and sold the flat in January 2017 for £525,000. C then applied to reinstate its money claim. D successfully amended her defence to add a counterclaim alleging an unfair relationship as a result of the way in which C obtained possession. At trial, D owed £340,192.63 (it is not clear why C was unable to recover sufficient out of the net proceeds of sale). The issue was whether there was an unfair relationship for the purposes of s 140A Consumer Credit Act 1974, and if so, what order to make. In particular, the court had to decide whether C was entitled to opt for self-help in an appropriate case notwithstanding that an order for possession had been stayed. C relied on Ropaigealach v Barclays Bank Plc [2000] 1 QB 263, on the basis that the court’s powers to stay or suspend in s 36 Administration of Justice Act 1970 had no application where a mortgagee had taken possession by peaceable re-entry. C argued that the court process exists to provide assistance in taking possession of property which is occupied, but that if it is unoccupied, such assistance is not necessary and a mortgagee can lawfully take possession by peaceable re-entry. D argued that Ropaigealach had no application, and that once a mortgagee had elected to seek possession through the court, and orders have been made, it is not open to the mortgagee to proceed along the ‘self-help’ route. Once a mortgagee has started court proceedings, the court may regulate the existence of the right to possession under s 36, and whilst the common law right is not extinguished, it cannot be enforced. It is this not open to the mortgagee to ignore the orders and exercise its common law right to possession. The fact that the property is unoccupied makes no difference. The present case is distinguishable from Ropaigealach. Although as a general rule, where the loan agreement itself is fair for the purposes of s 140A, enforcing any rights under the agreement is usually also fair, this was not a general case. Having regard to the wide discretion of the court under s 140A in accordance Plevin v Paragon Personal Finance Ltd [2014] UKSC 61, the court had no doubt that the taking of possession created an unfair relationship. It deprived D of the opportunity of completing a sale at a higher price. Even if the court was wrong on that, the taking of possession in the face of a court order suspending the warrant created an unfair relationship. Having regard to the factors in s 140A(2), the appropriate order should assume that a sale had been completed by D in September 2016 so the court gave judgment for C in the sum of £40,100.52 representing the shortfall then due from D (with some adjustments in respect of a payment made and interest). After further argument, in a post-script to his judgment, the judge allowed contractual interest on that sum to run until trial (taking the total to £123,169.71). It is not clear what the unfair relationship cause of action adds to this, since the court was presumably able to enforce the order staying the warrant for possession, and to make consequential orders in support of this. Arguably, it only goes to assist in reducing the judgment debt. The court can of course make a determination about an unfair relationship even after the relationship has ended (s 140A(4)). Whilst this is not the usual type of case in which a party needs to rely on the unfair relationship cause of action, the court had no difficulty in accepting it in the particular circumstances, buoyed no doubt by Lord Sumption’s comments in Plevin at para [10] that s 140A is deliberately framed in wide terms with very little in the way of guidance about the criteria for its application, and that s 140A(1)(b) says that the relationship can be unfair because of the way in which the creditor has exercised or enforced any of its rights under the agreement. The short point to emerge for lenders is that it is important to make an election about how to proceed to obtain possession of empty property and stick with it, because once a lender elects to go to court, and the court ‘manages’ the possession process, it is not open to the lender to change its mind and ignore the orders.
Case name Neutral citation Legal points Case summary Comment Alexander v Willow Court Management Co Ltd [2018] EWCA Civ 2325 Adjournment on medical grounds – adequacy of medical evidence required In dismissing an appeal against a Circuit Judge’s refusal to adjourn a hearing principally on medical grounds, the Court of Appeal provided guidance about the adequacy of the medical evidence required to secure an adjournment: A GP’s letter addressed ‘to whom it may concern’ which provided: “[the appellant] very recently presented to me with symptoms of depression which included suicidal ideation. I have grave concerns for her health and would urge that all professionals involved reduce any burden be it emotional or physical or financial strain on [the appellant]” comes nowhere near providing evidence which identifies the relevant medical condition with particularity and sets out features of it which preclude participation in the [appeal] process. Nor does it give the court confidence that the opinion expressed is independent expert evidence. The court also emphasised the high threshold in challenging case management decisions involving the exercise of discretion. This is not a mortgage case, but it raises an issue which occasionally arises in mortgage litigation, where a defendant borrower fails to attend court on ‘medical’ grounds. The court will expect to see, in good time before the hearing, an application supported by relevant medical evidence which identifies a particular medical condition which prevents the patient from participating in the court process. A generalised opinion from a GP that a patient should avoid stress will not do. The Court of Appeal also dismissed another ground of appeal, that the judge had failed to accede to a [late] application to adjourn to enable the hearing to be conducted at another venue (London or Watford instead of Oxford).