Close Invoice Finance Ltd v Pile & Anor

This is an application by Close Invoice Finance Ltd which is a judgment creditor of the Defendants to enforce a charging order in respect of the property known as 544 Church Road, Yardley, Birmingham. That property is the family home of the Defendants who live there as husband and wife with an elderly mother and two children, one of whom is a girl, Nicole, in full time education, aged seventeen, I think, and an older boy, Alexander, who is now working for Cancer Research. The judgment upon which the charging order is based is a judgment for £319,000-odd in September 2006 and the final charging order was granted in November 2006.

As of today, the amount outstanding under the judgment is a sum slightly in excess of £125,000 to which I am invited to add the costs of the proceedings, which I am told are £25,000 and which the Claimant perceives to be entitled to add on to its security. So, in round figures, the amount owing is £150,000. There is an up to date valuation on the property, as at 13^th February, of £390,000, though that valuation report itself refers to difficult market conditions and it is common knowledge, of which I take notice, that conditions have not improved since that date and may get worse.

The application for an order for sale is made under CPR 73.10, or, alternatively, under section 14 of the Trusts of Land and Appointment of Trustees Act 1996 (which I shall call TOLATA). CPR 73.10(1) provides that, subject to the provisions of any enactment, the court may, upon a claim by a person who has obtained a charging order over an interest in property, order the sale of the property to enforce the charging order.

It is clear that the Claimant is entitled, irrespective of TOLATA, to apply under that provision. The judgment debtors are the two legal and beneficial owners of the property. The other family members claim no interest in it. This is not a case where it is necessary for the Claimant to seek an order for sale of the share of a co-owner. They are co-owners but they both owe the same debt and have the same judgment against them. Nonetheless, Mr. Lidington, who appeared for the Claimant, submitted (correctly) that he could, if necessary, rely upon section 14 of TOLATA because, under that section, any person who is a trustee of land or has an interest in property - and I interpose to say that, as equitable chargee, the Claimant clearly does have an interest in the property – subject to a trust of land may make an application to the court for an order under that section. As the Defendants hold the property upon trust for themselves, the terms of that section are engaged, if they need to be, but I accept Mr. Lidington’s submission that he does not need to rely on the section.

The only significance of relying upon CPR 73.10 to the exclusion of section 14 of TOLATA is that, under section 15 of TOLATA, where an order is sought under section 14, then the court has a number of wide ranging factors that it is required to take into account, including, so far as material to the present case, the interests of all those living in the property; that is to say, not just the Defendants.

I was referred to the decision of David Oliver, Q.C., sitting as a deputy judge of the Chancery Division in Pickering v Wells [2002] 2 FLR 798. That was a decision under the predecessor to CPR 73, namely, the Rules of the Supreme Court 1965 Order 88. Mr. Oliver, Q.C. founding himself upon Rule 5(a)(2)(f), concluded that, when exercising its discretion whether to enforce a charging order, the court did not take into effect the welfare or needs of those in occupation. He reached that conclusion because Rule 5(a)(2)(f) required the particulars of every person in possession of the property to be given and required the Applicant to state whether any interests had been noted, such as a Class F land charge or a notice of caution pursuant to the Matrimonial Homes Act 1967 and the like. Mr. Oliver, Q.C. concluded that the rationale behind subparagraph (f) was that the court was concerned to protect all competing proprietary interests in the property so that it could take those into account but did not extend to consideration of the welfare or needs of those in occupation. That subparagraph is not reproduced in CPR 73 as such, though similar provisions are reproduced in the Practice Direction to CPR 73, and, in my judgment, the position is not changed under the new provisions of the CPR.

However, I have to say that I differ from the conclusion that Mr. Oliver, Q.C. reached. It seems to me to be somewhat capricious that, if Mr. Oliver, Q.C. is correct, the court would in the present case be required to take into account the interests of the elderly mother and 2 children if the judgment debt was against only one of the parents (in which case section 15 of TOLATA would be engaged) but not where the judgment debt is against both parents.

I can well understand that, when the only other occupier is the other co-owner, it is a very material factor that that other co-owner is also a judgment debtor. But here the other occupiers are the two children and their grandmother and it seems to me quite senseless that, whether or not their interests are taken into account should depend upon the accident of whether or not the debt is owed jointly by their parents, or only by one of them.

The notes to the White Book, the current edition of the White Book being the 2008 edition, at page 1787 state that section 14 (that is to say, section 14 of TOLATA) is not relevant where the land itself is charged as it will be in a case where the judgment debtor is the sole owner and cites Pickering v Wells. I agree that, strictly speaking, section 14 is not relevant in that situation but, to my mind, the same considerations effectively have to be taken into account in the exercise of the undoubted discretion that the court has under Part 73.10(1). Reliance was also placed on the provisions of the European Convention on Human Rights.

I was pressed with a number of authorities. The first was Barclays Bank PLC v Alcorn [2002] EWCA (Civ) 817, a decision of the Court of Appeal. In that case the issue that arose was whether or not the rights of a mortgagee – and by that I mean a legal mortgagee – to possession was incompatible with Article 8 of the European Convention on Human Rights and Article 1 of the First Protocol. Chadwick LJ, between paragraphs 8 to 10 inclusive, said this:

“8.

Article 8 of the European Convention on Human Rights, which is incorporated into domestic law by Schedule 1 to the Human Rights Act 1998, provides that everyone has the right to respect for his private and family life, his home and his correspondence. Article 8.2 provides that there shall be no interference by a public authority - which includes, of course, the court - with the exercise of the Article 8.1 right, except such as is in accordance with the law and is necessary in a democratic society in the interests of, among other things, the economic well-being of the country and the protection of the rights and freedoms of others. Article 1 of the First Protocol is in these terms:

‘Every natural or legal person is entitled to the peaceful enjoyment of his possessions. No-one shall be deprived of his possessions, except in the public interest and subject to the conditions provided for by law and by the general principles of international law.’

9.

A mortgagee, who is proceeding by action to obtain the possession of a dwelling house to which he is entitled by virtue of the estate in the land granted to him by the mortgagor, is, plainly, proceeding in accordance with the law. A fortiori, where he has already obtained a possession order and is seeking to enforce it by the usual process of execution. The question whether it is necessary that he should be given possession so that he can sell the property with vacant possession and repay the mortgage debt is addressed directly by section 36 of the 1970 Act and section 8 of the 1973 Act. The court must ask itself whether it is likely that, if possession is postponed, the mortgagor will, within a reasonable period, pay off the debt or the arrears, as the case may be. That is the balance struck between the right of the mortgagor to remain in his or her home and the right of the mortgagee to have his debt repaid within a reasonable time.

10.

It is plainly necessary, in the context of the wider economic well-being of a country, that home owners should be able to borrow - and banks and lending institutions should be willing to lend - on the basis that loans will be repaid. If loans are not to be repaid – and security is not to be enforced for that purpose - then the domestic mortgage market is likely to be seriously affected; and, with it, the economic well-being of the country. There is, therefore, a balance to be struck. Section 36 and its amending section strikes that balance. I can see nothing in the common law, as mitigated by section 36 of the 1970 Act and section 8 of the 1973 Act, which is inconsistent with the Convention rights to which I have referred.”

That, of course, was a case on the statutory provisions contained in the Administration of Justice Act 1970, as amended, insofar as it affected the rights of a mortgagee to possession. The present case is different because we are not concerned with a mortgage which was given by a borrower who freely gave the security in question, which ordinarily (if under seal) would also confer a power of sale. We are concerned with a charging order which was imposed by the Court and which creates only an equitable mortgage, with no power of sale annexed, where the Court has a discretion to order a sale.

It does seem to me quite plain that, in the exercise of the discretion under CPR 73.10, the provisions of the European Convention on Human Rights have to be taken into account and the court’s discretion must be applied compatibly with the Convention rights. The Convention right in question is the respect for private and family life and home and the enjoyment of possessions. It is of course in accordance with the law that a charging order has been made and, to the extent that it is now enforced, that will be in accordance with the law also. It will also be in the public interest to enforce charging orders generally because of the economic importance of ensuring that there is an efficient machinery for the enforcement of debt obligations, even though, unlike in the case of a legal mortgagee, this is not a debt obligation which was voluntarily provided as a secured obligation.

In those circumstances, I am quite satisfied that the power to enforce a charging order is compatible with the Convention. Indeed, the contrary is not argued. I am also satisfied, however, that, in applying the court’s discretion, it must be applied in a way which gives due respect to the right of all those living in the property, not just the debtors, to have respect for their family life and their home. Against that must be weighed the rights of the chargee under the equitable charge, that is, to say the Claimant, not to have to wait indefinitely for payment or to have no means of enforcing its security.

When this matter came before me initially today the concept of an order for sale was resisted root and branch. However, after I had refused an adjournment this morning, for reasons which I then stated, Mr. Cottle, for the Defendants, asked for a much shorter adjournment of ten minutes, which he was granted, and at the end of that time came back into court and said he was now no longer resisting an order for sale. The only issue between the parties was the date at which it should take effect. He was asking that it be postponed until next summer for reasons which I shall come to consider. This is not, therefore, a case, as is often the position in cases before the court, where it is said that the Claimant should not have a sale at all.

I was referred by Mr. Lidington to the decision of the Court of Appeal in First National Bank v Achampong [2004] 1 FCR 18. That was a case where Judge Coughlin in the Shoreditch County Court had dismissed the bank’s claim for possession in respect of a charge where the signature of the wife appears to have been procured by undue influence. The question arose in the Court of Appeal as to whether an order for sale should be made in respect of the husband’s share and the Court of Appeal made the order, observing in paragraph 65 in the judgment of Blackburne J that it was plain that an order for sale should be made. The most significant consideration to his mind was that the bank would be kept waiting indefinitely for any payment in respect of what was, for all practical purposes, its own share of the property. He did take into account the various interests of infant grandchildren in occupation but did not consider that the evidence went far enough to deflect him from that conclusion, observing:

“It is for the person who resists an order for sale in reliance on section 15(1)(c) to adduce the relevant evidence.”

I do not think that case is directly applicable because, as I have said, in this case Mr. Cottle is not resisting an order for sale. He is consenting to one. The argument is as to the appropriate terms. Mr. Cottle says that, on the evidence I have heard, a longer period should be afforded to his clients for a number of reasons.

Firstly, Mr Pile, who has been unemployed and is currently living on benefits, and who has no savings and no repayment proposals, is, nonetheless, hopeful of obtaining in the imminent future a position as manager with United Carpets with a view to taking on a franchise from that company. He believes, and he gave evidence to this effect, that the possibility of getting the position he is seeking is strong. Indeed, he told me that he was supposed to have a meeting this afternoon. However, a franchise would cost money and he does not have the funds to acquire a franchise, any more than he has the funds to pay off the Claimant’s debt. Nevertheless, he expressed the strong hope and confidence that there was light at the end of the tunnel and that, within the foreseeable future, he would be able in his changed circumstances to obtain a further mortgage advance to repay the present indebtedness, or, at all events, to put forward realistic proposals for repayment. I am bound to say that I do not regard that evidence as very strong and if it stood alone it would not persuade me to defer the sale for the period of time that is now sought.

I should mention what the Claimant’s position is. The Claimant seeks an order which will require possession to be given in 120 days. No sale under the order would take place until possession is given. That is in accordance with the form which appears in the White Book at the end of CPR 73, the first paragraph of which provides that the remainder of the order (including the order for possession and sale) shall not take effect if by the given date the judgment sum and interest is paid.

Were I focussing, therefore, solely on the second Defendant’s position, it seems to me that the evidence as to his current prospects is so slender that it would do him no great injustice to direct that the 120 day period sought by the Claimant should apply. There would be permission to apply to vary the order so that, if the light at the end of the tunnel were to glow more strongly in three months time, he would be able to make the necessary application. On the present evidence as to the Second Defendant’s circumstances, there is no justification for a longer period of suspension.

However, there are other matters on which Mr. Cottle relies. The first is the position of Mrs Pile. She contracted breast cancer in 2005. She has had two surgical operations, chemotherapy and radiotherapy and continuous monitoring which continues to date at two hospitals. She is under a regular course of assessment and that included, I think, an attendance at a hospital today. She suffers from extreme tiredness and from stress and depression, as anyone might who had been through that experience. A longer period of undisturbed possession would, it is said, assist her in her treatment.

I was referred by Mr. Cottle to a decision of Harman J in Judd v Brown [1998] 2 FLR 360 where he regarded what was described as “the sudden onset of cancer” as an exceptional circumstance for the purpose of section 335(a) of the Insolvency Act 1986, as introduced by TOLATA. That section is not directly applicable here. What it provides, in effect, is that, in a case where a bankruptcy intervenes, then, if the application for a sale is made twelve months or more after the vesting of the property in the Trustee, the order will only be refused in exceptional circumstances. That was regarded as an exceptional circumstance by Harman J. I think it is fair to say that the circumstances were somewhat different because the person who had been afflicted by the disease in that case was not one of the judgment debtors. That is plainly a highly relevant but not, in my judgment, a conclusive factor. I do therefore consider the circumstances of Mrs Pile to be a relevant factor. The fact that she is also one of the judgment debtors does not nullify that factor, though it is another matter to be weighed in the scales.

The next matter to which Mr. Cottle refers is the position of the other family members. Very little is said about the son, or the mother (now aged seventy six) other than that they live at the family home. Nonetheless, there would inevitably be disruption to the family unit if a sale is ordered.

The last member of the family to whom I need to refer is the young daughter, aged seventeen, who is dyslexic and was until her GCSEs at a specialist school which I was told was the only school in the area that was able to deal with her and, indeed, her brother’s condition because he, likewise, I am told, suffered from dyslexia. Nonetheless, she did, as did her brother, successfully pass her GCSEs and is now at a technical college at which she wishes to continue. She has to travel by public transport and would have to travel by public transport were there a move. The fear was expressed by the second Defendant that any disturbance to her family life could have a critical impact on her education and, indeed, so, I think, it might. Her period at the technical college is due to end in the summer of 2009.

As I have said, it is not disputed that a sale ought to be ordered. It is said that a longer period of time ought to be given and, in that respect, when considering the totality of the evidence, I think I am entitled to take into account the fact that Mr. Pile’s own employment position and financial prospects (though not enough on their own to justify a lengthy suspension) may be very different in a year’s time to what they are now. I cannot put it higher than that and they may be exactly the same. They cannot be any worse, that we do know.

As things stand, on the property which is valued at £390,000, there is a mortgage in favour of the National Westminster Bank which is in the sum of £113,000. (All these figures are rounded for ease of exposition). The interest is being paid by the Social Services so that is not, as things stand, a constant drain on the resources of the Defendants, though, paradoxically, it might become one if the second Defendant should, in fact, gain employment. When one adds to that £113,000 the amount owed to the Claimant including costs that comes to roughly £263,000. If one puts back any sale eighteen months, which would be the practical effect of Mr. Cottle’s suggestion, further interest at eight per cent will have accrued, (though probably not on the costs, strictly speaking). Even assuming that a further £18,000 interest will have accrued (being 18 months’ interest at 8% on the whole of the £150,000) the amount owing will still be under £300,000, including the Nat West mortgage which will be payable out of a property now worth, it is said, £390,000. The market may well go down. It has to go down over twenty five per cent from the February 2008 valuation for the Claimant to be left unsecured. That relative lack of prejudice to the Claimant - and I do not rule out the fact that, even on those assumptions, it is possible that I may be being over-optimistic - is, nonetheless, something which I have to weigh in the scales against the prejudices to the Defendants’ family.

I step back and I consider all those factors and I have to confess that my mind has wavered considerably during the course of argument. I was particularly pressed by Mr. Cottle with the decision of the House of Lords in Huey v Secretary of State [2007] 2 WLR 581 which emphasised the need for proportionality in my approach. Given that an order for sale is not ultimately resisted and given also that I have to take into account, as I do, and put into the scales the interests of the Defendants and the other family members who reside in the property, as well as the interests of the Claimant, I am prepared to accede to Mr. Cottle’s suggestion that an order should be made for the sale but that possession need not be given up until the summer of next year. If the Defendants are able to pay off the balance of the debt and interest before then, the order for sale will not take effect. I so rule.