Section 36 Administration of Justice Act 1970

WHAT IS THIS SECTION AND WHAT DOES IT DO?

Section 36 Administration of Justice Act 1970 is one of the most important and frequently used statutory provisions. It is in daily use by District Judges in County Courts up and down the country.

In short, it gives the court a range of statutory powers, including the power to suspend orders for possession and stay execution of warrants of possession.

Section 36 (as currently drafted) provides as follows:

 (1) Where the mortgagee under a mortgage of land which consists of or includes a dwelling-house brings an action in which he claims possession of the mortgaged property…the court may exercise any of the powers conferred on it by subsection (2) below if it appears to the court that in the event of its exercising the power the mortgagor is likely to be able within a reasonable period to pay any sums due under the mortgage or to remedy a default consisting of a breach of any other obligation arising under or by virtue of the mortgage.

(2) The court –

(a) may adjourn the proceedings, or

(b) on giving judgment, or making an order, for delivery of possession of the mortgaged property, or at any time before the execution of such judgment or order, may-

(i) stay or suspend execution of the judgment or order, or

(ii) postpone the date for delivery of possession,

for such period or periods as the court thinks reasonable.

(3) Any such adjournment, stay, suspension or postponement as is referred to in subsection (2) above may be made subject to such conditions with regard to payment by the mortgagor of any sum secured by the mortgage or the remedying of any default as the court thinks fit.

(4) The court may from time to time vary or revoke any condition imposed by virtue of this section

(5)/(6)…

Note that s 36 was amended by s 8 Administration of Justice Act 1973 to clarify that “any sums due” in s 36(1) meant only those instalments which had fallen due, and not the whole balance of the mortgage. Section 8 applies where the borrower is entitled or permitted to pay the principal sum by instalments or to defer payment of it, but provision is also made for earlier payment in the event of default by the borrower or of a demand by the lender. Thus, a bank all-monies charge securing say an overdraft payable on demand will not, in the absence of a demand having been made, fall within the section (there can be no agreement to defer a payment until it has become due – see Western Bank Ltd v Schindler [1977] Ch 1; Habib Bank Ltd v Tailor [1982] 3 All ER 561; Rees Investments Ltd v Groves (2002) 1 P & CR DG9.

HOW DOES IT WORK IN PRACTICE?

Section 36 is most frequently relied upon by borrowers who may be in arrears with their mortgage instalments but who can offer to pay the arrears off over a period of time and invite the court to suspend any order for possession on terms rather than suffer an immediate order for possession.

The qualifying criteria are that it must appear to the court, based on reliable evidence, that if it suspends the order on terms, the borrower is likely, within a reasonable period, to pay any sums due (or to remedy any other breach).

If the court is satisfied that it is appropriate to suspend an order, it will typically make an order for possession in 28 days, suspended upon payment of (1) the arrears, by a specified sum per month AND (2) the current monthly instalment.

In practice, the court will often (although not necessarily) gauge a reasonable period for payment of arrears over the balance of the mortgage term (Cheltenham & Gloucester Building Society v Norgan [1996] 1 All ER 449).

However, the power to stay or suspend enforcement of an order for possession under section 36 will be cautiously exercised. Take a couple of examples:

In Halifax Plc v Okin [2007] EWCA Civ 567 the Court of Appeal held that the prospect of employment for the borrower is not necessarily to be equated with the prospect of payment of the mortgage instalments. She had a bad track record even when in employment and the court was not satisfied that there was a reasonable prospect that she could service the mortgage.

In Cheval Bridging Finance Ltd v Bhasin [2008] EWCA Civ 1613 the Court of Appeal emphasised that the financial information available must demonstrate that the borrower was liklely to be able within a reasonable period to pay any sums due under the mortgage.

It occasionally happens that a borrower may be expecting to receive sufficient sums to actually pay off the whole mortgage - for example by arranging to re-finance the existing borrowing, or receiving a sum in damages, or even managing to sell off the property in the meantime. In principle, there is no reason why this cannot be relied upon by the borrower in an application for an adjournment or postponement, or possibly to suspend an order for possession, but it will require clear and compelling evidence.

Note that apart from the statutory power to adjourn on terms, the court only has a very limited inherent power to adjourn the hearing, for example because of non-attendance, or missing documents etc.

Finally, if there is any issue about the borrower's ability to comply with the terms for suspension, the court will often list the matter for a further review in X months time in order to check on compliance.

WHAT HAPPENS IF THE COURT MAKES A SUSPENDED POSSESSION ORDER, THE ARREARS ARE CLEARED AND THEN THE BORROWER DEFAULTS AGAIN. CAN THE LENDER ENFORCE THE ORDER OR DOES IT HAVE TO START FRESH PROCEEDINGS?

Once the borrower falls into arrears, the lender's right to possession usually crystallises and remains exercisable notwithstanding the subsequent repayment of the arrears: Greyhound Guarantee v Caulfield [1981] CLY 1808; Halifax plc v Taffs [1999] EWCA Civ 698; Bradford & Bingley plc v Harris, Leeds County Court 6th November 2003.

Thus, where proceedings have been started and the court has made the usual order - possession in 28 days suspended on payment of (a) current monthly instalments and (b) £X per month off the arrears, then if the arrears are cleared but there is subsequent default, the mortgagor will be in breach of part (a) of the suspended order, and the mortgagee should be able to proceed straight to enforcement in the normal way.

Further, where mortgage possession proceedings have been started, but the arrears paid before the court makes an order, the proper course is to request the court to adjourn the proceedings generally, with liberty to restore on subsequent default (although in practice the court may control this by ordering that the claim be dismissed if no application is made within say 12 months).