In Menon v Pask  EWHC 2611 (Ch), the first High Court case of its kind, the Court has confirmed that (contrary to prior belief) receivers do have the right to bring possession proceedings in their own name in respect of a property owned by individuals. The Court also held that it is empowered to grant the defendant property owners in such proceedings the same opportunity to remedy any default under the mortgage as would otherwise apply in proceedings commenced by a mortgage lender.
Mr & Mrs Menon (the “Defendants”) granted a mortgage in favour of the Bank of Singapore (the “Bank”) over their residential property in London as security for a loan granted to a company known as Silkway Investments Ltd (the “Company”). The Company defaulted, following which the Bank demanded repayment of the loan and subsequently appointed receivers (the “Receivers”).
The Receivers sought vacant possession of the property and, when it was not provided, brought proceedings against the Defendants for possession of the property. Prior to this case, possession proceedings brought by receivers in respect of properties owned by individuals had not been considered, however it was established practice that a receiver appointed over a property owned by a company (acting as agent for the company) could not seek possession of the property against the company, as that would be tantamount to seeking an order for possession against himself.
The First Instance Decision
In the County Court, the Defendants argued that the Receivers could not bring possession proceedings against them, on the basis that the Receivers were acting as agents of the Defendants. They also sought to argue that they should be permitted an opportunity to remedy the default under the mortgage as permitted under section 36 of the Administration of Justice Act 1970 (“AJA 1970”).
The County Court Judge dismissed both arguments and made an order for possession. The Defendants appealed to the High Court.
The Appeal Decision
Question 1: Could the Receivers bring the claim against the Defendants?
The Court considered the powers of a receiver to assert rights of possession against an individual property owner, and found that:
- receivers have the right to demand vacant possession and, if it is not provided, then the receivers must have power to start proceedings, and those proceedings would have to be in their own names;
- a receiver’s right to demand possession does not arise as a result of the receiver exercising the mortgagee’s right of possession, that is a separate right. Instead, the receiver’s right to demand possession is an ancillary right impliedly given to the receiver by the mortgage, which they can utilise against the individual property owner by virtue of the special nature of their agency relationship; and
- in the alternative, the same conclusion could be reached by implying a term into the mortgage that the individual property owner would give up possession to the Receivers. This implied term could be enforced by the Receivers using the Contracts (Rights of Third Parties) Act 1999.
The Court therefore found that the Receivers were entitled to seek an order for possession against the Defendants.
Question 2: Does section 36 apply to the proceedings?
With respect to the application of section 36 AJA 1970, the Court found that the key question was whether receivers derived title from the mortgagee (in this case, the Bank).
In this respect, the Court held that:
- although the Receivers act as agent of the Defendants, in reality they are appointed by the Bank (as mortgagee) to enforce its security;
- it is possible to construe the language of AJA 1970 such that the Receivers could be said to derive title from the Bank for the purpose of section 36. Such a conclusion would coincide with Parliamentary intention in enacting section 36; and
- section 36 AJA 1970 usually applies where a mortgagee is enforcing a mortgage via proceedings, so as to give a borrower an opportunity to pay or to remedy defaults. Where receivers sue for possession, they are making the same claim for the benefit of a mortgagee. Therefore, as a matter of principle, individual property owners should have the same opportunities of resisting possession under section 36 as they would have had if the mortgagee had been the applicant.
Consequently, the High Court found that the Defendants did have the benefit of section 36 AJA 1970 and could be afforded an opportunity to remedy the default in the mortgage before possession was granted.
This judgement provides welcome clarity in relation to the power of receivers to seek possession against individual property owners.
David Steinberg, partner and co-head of the restructuring & insolvency team comments:
“This case is a significant development in terms of the powers granted to receivers to realise property owned by individuals for the benefit of mortgage lenders. Historically, the lender itself would have been required to seek possession if not provided voluntarily by an occupant, before the receiver could seek to exercise its power of sale. Whilst this is only a High Court decision, it will streamline the enforcement of mortgages over properties owned by individuals which are in default and will be welcomed by mortgage lenders across the market. Watch this space for further developments.”