Out-Law Legal Update | 17 Oct 2019 | 11:37 am | 2 min. read
It also said that a borrower can invoke the court's discretion to suspend the possession action under section 36 of the Administration of Justice Act 1970. This is the first case to rule on these issues.
Kaveseri Veetil Pradeep Menon and Beena Menon took a mortgage out on their London home with the Bank of Singapore but defaulted on the mortgage. The bank appointed receivers over the property under the Law of Property Act 1925 (LPA).
The receivers sought possession of the property from the Menons. They were successful at the first hearing and the Menons appealed to the High Court.
The High Court had to decide whether receivers appointed under a mortgage of property owned and occupied by individuals can bring possession proceedings in their own names as receivers, there being no previous authority on this point.
Receivers, although appointed by the lender, act as agents of the borrower for the purposes of realising the security to repay the bank. The receivers in this case had initially started proceedings for possession in the name of the Menons, acting by the receivers, as they would have done if they had been initiating possession proceedings against a third party. However, as the Menons were in occupation this meant the Menons acting by the receivers were suing the Menons for possession of the property. The court said that this was wrong and the receivers were substituted as claimants in their own right. The Menons challenged the receivers' right to bring possession proceedings on this basis.
The High Court said that in this situation, despite the agency status of the receiver, receivers could bring possession proceedings against a borrower in their own name, otherwise it would make no business sense. The judge said that it would be strange if "the person in possession of the property would be the one person in the world against whom the receivers would not be able to get possession."
As an alternative, the judge said that a term could be implied into the mortgage that the borrower would give up possession to any appointed receivers if required to do so. The receivers, the court said, could enforce that term under the Contract (Rights of Third Parties) Act 1999.
After concluding that the receivers could bring proceedings in their own names, the court then had to conclude whether, in these circumstances, it had discretion to postpone possession under section 36 of the Administration of Justice Act 1970. Section 36 applies to possession proceedings in relation to dwelling houses brought by lenders - receivers are not specifically included.
Again, the court considered the commercial purpose of section 36 and ruled that, although the receivers were technically agents of the Menons, in reality they were appointed by the bank to enforce its rights to recover a debt. Without this appointment they would not exist as receivers and would have no involvement with the case. The court, therefore, said that the section 36 discretion was available. Whether the Menons could successfully invoke section 36 is to be decided at a subsequent hearing on the facts.
This is the first court ruling on these issues and will serve as guidance for receivers when considering the nature of their relationship with lenders and borrowers for whom they are acting as agent. The judgment is likely to simplify possession proceedings by allowing receivers to sue in their own name, but will also bring some comfort to borrowers in confirming that section 36 discretion to postpone possession will be available in such circumstances.
Molly Dyas is a restructuring expert at Pinsent Masons, the law firm behind Out-Law