Legal
Mortgage
co.uk

Chess Pieces
wig and book pic
Changes
Archive

Section 36 Administration of Justice Act 1970

WHAT IS SECTION 36 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 when dealing with the enforcement of mortgages, including the power to suspend orders for possession and stay execution of warrants of possession.

Section 36 (as currently drafted) provides as follows:

Administration of Justice Act 1970

36 Additional powers of court in action by mortgagee for possession of dwelling-house

(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)…

Section 36 - some obvious points

  • It can only be used in a claim by a mortgagee for possession of land which consists of or includes a dwelling-house

      • It cannot be used where the lender is exercising a power of sale only - Ropaigealach v Barclays Bank Plc [2000] QB 263; Horsham Properties

        • Group Ltd v Clark [2009] 1 WLR 1255
          • It cannot be used in a claim which only involves business premises

              • There is no requirement that the mortgagor has to be in occupation, so it can apply to buy-to-let mortgages (note that neither MCOB or the Pre-Action Protocol apply to buy to let mortgages). Unauthorised tenants are afforded separate statutory protection under the Mortgage Repossessions (Protection of Tenants etc) Act 2010

                  • It is not limited to suspending an order for possession or staying execution of an order for possession on terms as to payment. The court can impose conditions to remedy other defaults. This can often be quite useful and should not be overlooked

                      • Where the court is considering exercising its powers, it has to be satisfied that the mortgagor will pay or remedy a default, not someone else

                          • In addition to the statutory power to adjourn (which is rarely used, unless it is pending a specific event) the court has an inherent power to adjourn the proceedings, but this will usually be for case management reasons only

Administration of Justice Act 1973

8 Extension of powers of court in action by mortgagee of dwelling-house

(1) Where by a mortgage of land which consists of or includes a dwelling-house, or by any agreement between the mortgagee under such a mortgage and the mortgagor, the mortgagor is entitled or is to be permitted to pay the principal sum by instalments or otherwise to defer payment of it in whole or in part, but provision is also made for earlier payment in the event of any default by the mortgagor or of a demand by the mortgagee or otherwise, then for the purposes of section 36 of the Administration of Justice Act 1970 (under which a court has power to delay giving a mortgagor a reasonable time to pay any sums due under the mortgage) a court may treat as due under the mortgage on account of the principal sum secured and of interest on it only such amounts as the mortgagor would have expected to be required to pay if there had been no such provision for earlier payment.

(2) A court shall not exercise by virtue of subsection (1) above the powers conferred by section 36 of the Administration of Justice Act 1970 unless it appears to the court not only that the mortgagor is likely to be able within a reasonable period to pay any amounts regarded (in accordance with subsection (1) above) as due on account of the principal sum secured, together with interest on those amounts, but also that he is likely to be able by the end of that period to pay any further amounts that he would have expected to be required to pay by then on account of that sum and of interest on it if there had been no provision as is referred to in subsection (1) above for earlier payment.

Section 36 and Section 8 explained

  • Section 36 was enacted to give a mortgagor of a dwelling-house who had fallen into temporary arrears with instalments a reasonable time to catch up. But since most mortgages had the effect of rendering the whole sum due on default, as enacted, the expression ‘any sums due under the mortgage’ in s 36(1) had the effect of confining the operation of s 36 to relatively few cases in which the mortgagor was reasonably likely to pay off the whole of the sums due under the mortgage (Halifax Building Society v Clark [1973] 1 Ch 307)
  • The problem was remedied by s 8 AJA 1973 so that the court may treat as the ‘sums due under the mortgage’ only those sums which the mortgagor would have expected to be required to pay if there had been no provision for earlier payment.
  • In order to achieve this, s 8 applies where:
  • (a) the mortgagor is entitled or permitted either (i) to pay the principal sum by instalments or (ii) to defer payment of it in whole or part
  • (b) provision is made for earlier payment in the event of default by the mortgagor or demand by the mortgagee or otherwise
  • Whether or not the mortgagor is entitled or permitted to pay by instalments or defer payment etc is a question of construction of the mortgage (loan agreement, mortgage deed and mortgage conditions)
  • A typical residential term loan payable by monthly instalments is clearly within the section, so s 36 applies.
  • Deferment means to defer payment after it has become due. In other words s 8 applies where there is an existing liability to pay which is deferred by the mortgage (eg. Bank of Scotland v Grimes [1985] QB 1179). It does not apply where the mortgage secures a facility which is repayable on demand (eg. an overdraft) because there can be no agreement to defer payment until it has become due, and it only becomes due following demand (Habib Bank v Tailor [1982] 1 WLR 1218). The distinction is helpfully reviewed in Royal Bank of Scotland v Miller [2002] QB 255
  • A common misconception is that s 8/s 36 do not apply to an all-monies charge. The type of security is irrelevant. They can apply to an all-monies charge provided that what is being enforced is an agreement under which the principal is payable by instalments or is otherwise deferred, hence the need to check the particular facility being enforced. If the charge simply secures a facility which only becomes repayable on demand, such as an overdraft, s 8 will not apply with the consequence that all monies under the particular facility become due and s 36 can only be utilised if the mortgagor can pay off the whole amount

HOW DOES IT WORK IN PRACTICE?

  • In the vast majority of cases, it is used either to suspend an order for possession, or to stay execution of a warrant of possession, on terms as to payment
  • The court should start by considering whether the mortgagor is likely to be able within a reasonable period to pay any sums due under the mortgage (ie. the arrears together with the current monthly instalments). This has been called a ‘jurisdictional gateway’ (Bank of Scotland Plc v Zinda [2012] 1 WLR 728 at para 23 per Munby LJ). Absent proof of this, the court cannot go any further.
  • As to what the borrower is likely to be able to pay within a reasonable period:
  • Likelihood is a question of fact based on the evidence available, and the court will pay particular attention to the mortgagor’s previous payment record (Halifax Plc v Okin [2007] EWCA Civ 567). The nature and extent of the evidence is a matter for the court. The Court of Appeal has sanctioned a relaxed approach to this (see Cheltenham & Gloucester Building Society v Grant (1994) 26 HLR 703)
  • While the court will take as its starting point for a reasonable period the remaining term of the mortgage (Cheltenham & Gloucester Plc v Norgan [1996] 1 WLR 343) this is not fixed. See the list of relevant considerations in Norgan at p 357H
    • As to selling the property:

      • Where it is only going to be possible to pay any monies due by a sale of the property the court can exercise its power under s 36, but it will still need to consider the likelihood of a sale being achieved within a reasonable period. The court will need to weigh (1) the evidence relating the sale and sale price achievable; (2) how long it is likely to take; and (3) any risk of negative equity by then. Reliable evidence from the estate agents and conveyancers explaining the position reached is helpful
      • As a general rule the court is unlikely to exercise its powers unless it is satisfied that the net proceeds of sale are going to be sufficient to pay off the mortgage, but note there is a separate statutory jurisdiction under s 91(2) Law of Property Act 1925 which might permit a borrower to force an order for sale even if there is a risk of negative equity (Palk v Mortgage Services Funding Plc [1993] Ch 330; Polonski v Lloyds Bank Mortgages [1988] FLR 896). However, in those circumstances, the court is unlikely to stay possession pending an application by the borrower under s 91(2) (Cheltenham & Gloucester Plc v Krausz [1997] 1 All ER 21)
      • Note also MCOB 13.3.2A(5), that where no reasonable payment arrangement can be made, the lender should allow the borrower to remain in possession for a reasonable period to effect a sale, and para 6.2 of the Pre-action Protocol (where borrower can demonstrate reasonable steps have been or will be taken to market the property at an appropriate price in accordance with reasonable professional advice the lender must consider postponing starting a possession claim).
      • What about a counterclaim? A counterclaim is not a defence to the making of an order for possession (National Westminster Bank Plc v Skelton [1993] 1 WLR 72) even if the counterclaim relates to non-compliance with MCOB (Thakker v Northern Rock Asset Management Plc [2014] EWHC 2107 (QB)), but the court may, depending on the nature of the claim, consider exercising its powers to suspend an order or stay execution pending the outcome of the claim, although this will usually require clear evidence.
      • If the borrower can get over the ‘jurisdictional gateway’ the court should then consider whether and on what terms to exercise its discretion
      • If the court is being asked to suspend an order or stay execution on terms as to payment, it will be looking to make an order that is both realistic and manageable.
      • As to adjournments, the court might adjourn in the first place (usually under its inherent case management powers) where it requires further evidence (or a longer appointment), but it will usually only adjourn under s 36 on terms where for eg. a sale is pending (although the court could suspend or even postpone an order based around a sale)
      • All orders must be for a defined period. The court is unlikely to leave matters outstanding on terms that the parties may apply back


            • Managing repeat applications: Courts should be astute to spot vexatious/unmeritorious repeat applications and should do something about it. Lenders can ask that further applications only issue on the permission of a nominated District Judge (or Designated Civil Judge), but in most cases, repeat application based on new evidence will probably have to be entertained, and lenders may have to adopt an aggressive approach in pursuing bailiff’s appointments. In an exceptional case with a prolonged history, it may be necessary to resort to civil restraint orders.

SECTION 36 PRACTICE POINTS

  • Lenders, remember:
    • MCOB 13 (arrears and repossessions)
      CPR 55
      Pre-Action Protocol
      N123 Checklist

      • Prior to the first hearing, lenders should have provided financial information and discussed repayment proposals. In default of agreement, there is no reason why the lender/its solicitors should not ask the borrower to explain what repayment arrangements he is going to ask the court to make, enabling the lender to go prepared
      • Whilst lenders will look to assess affordability in accordance with usual lending criteria, remember that the issue for the court is whether the borrower is likely to be able within a reasonable period to pay (a) the arrears, and (b) the current monthly instalment
      • Borrowers: Evidence, evidence, evidence! Although the court may allow some latitude, a well prepared borrower will go to court with reliable information about income and expenditure. If the borrower is dependent on a sale, he ought to try and produce evidence from his estate agents/conveyancers about (a) selling price, (b) timetable
      • First hearings are likely to be block-listed and short. Never underestimate the practical difficulties faced by a DDJ/DJ in dealing with file after file in quick succession. Take the lead, produce a short chronology and options on repayment proposals. Borrowers - if you wish to defend, identify your defence succintly
      • If the parties are aware that the issues are likely to take longer than the time allowed for the appointment, notify the court in advance
      • If there are repeat applications for suspended orders or stays on execution, following a history of default, bear in mind that the court is likely to scrutinise the financial information more carefully. Since past performance is often taken as a guide to future performance, a borrower may have to come up with fresh evidence showing a change in circumstances
      • Last-minute applications for stays are to be avoided if at all possible. Apart from the practical problem of listing and getting an adequate hearing, it is likely to cause real practical problems for the borrower if the stay is refused

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?