B3/2000/5911/6412
Neutral Citation Number: [2001] EWCA Civ 344
IN THE SUPREME COURT OF JUDICATURE            
IN THE COURT OF APPEAL (CIVIL DIVISION)
SITTING IN THE MANCHESTER DISTRICT REGISTRY
ON APPEAL FROM THE ACCRINGTON COUNTY COURT
(HIS HONOUR JUDGE APPLETON)
							Crown Square,
							Manchester M3

							Tuesday 27 February 2001

B e f o r e:

LORD JUSTICE KENNEDY
LORD JUSTICE DYSON

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THE ROYAL BANK OF SCOTLAND
Claimant/Respondent

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ANNE CATHERINE MILLER
Defendant/Applicant

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(Computer Aided Transcript of the Palantype Notes of
Smith Bernal Reporting Limited, 190 Fleet Street,
London EC4A 2AG
Tel: 020 7421 4040 Fax: 020 7831 8838
Official Shorthand Writers to the Court)
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The Applicant appeared in person.

MR S COGLEY (Instructed by Messrs Cobbetts, Manchester M2 4WB) appeared on behalf of the Respondent

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J U D G M E N T
1.	LORD JUSTICE KENNEDY: Lord Justice Dyson will give the first judgment.
2.	LORD JUSTICE DYSON: This is an application for permission to appeal against the decision of His Honour Judge Appleton, made on 14 July 1999 in the Preston County Court, whereby he dismissed the applicant's appeal from a possession order made by District Judge Geddes on 15 March 1999 in respect of premises at 98a Blackburn Road, Accrington. The notice of appeal was issued on 28 March 2000. Accordingly the applicant not only needs permission to appeal but an extension of time for appealing. 
3.	It seems to me that this is a case in which permission should be granted since issues of some importance have been raised. Moreover, although the applicant requires a considerable extension of time, she has at all material times been acting in person and has given an explanation for the delay in issuing her notice of appeal, sufficient, in my judgment, to entitle her to the appropriate extension of time. 
4.	The applicant is the freehold owner of the premises which consist of a night club now known as Afrikas. There is substantial living accommodation above the night club which comprise a 3‑bedroom flat. It seems that the bank does not dispute that the upper part of that accommodation has at all material times been a flat and has been in occupation, certainly since 1993; in occupation sometimes by the appellant herself and sometimes by a manager or manageress of the night club pursuant to that person's employment. 
5.	A legal charge was granted over the property by the applicant on 6 October 1993 to the respondent bank to secure her obligations to the bank. Those obligations were stated in the legal charge as being:
“All the Mortgagor's liabilities to the Bank of any kind (whether present or future actual or contingent and whether incurred alone or jointly with another) including banking charges and commission.” 
6.	At that time the applicant had two accounts with the respondent. The first was a loan account in respect of a loan of £115,000 which was made at the same time as the legal charge for the purposes of refurbishing the night club. Clause 5(c) of that loan agreement provided that the loan would be repayable:
“From the maturity proceeds of personal equity plans in 10 years time.” 
7.	Clause 5(b) provided that interest would be charged quarterly. Clause 15 provided that:
“If the Bank so decides, the Loan shall become immediately due and payable by the Customer with interest in so far as then remaining unpaid, if any of the following events occurs:-
(a) non-payment of any of the Payments within 14 days from the date on which it is due to be paid;
....
(f) a default arises under any other liability of the Customer to the Bank.”
8.	The second account was an existing business current account which at that time had an overdraft facility of up to £2,500. This was to be used to pay the interest on the loan. 
9.	All seemed to go according to plan until 1997 when no funds were transferred into the current account to meet the June and September quarterly interest on the loan. The bank wrote to the applicant asking for proposals. She made certain offers which were unacceptable, and eventually the bank brought proceedings. On 12 February 1998, after a formal demand had been made in respect of the current account, which at that time was overdrawn by more than £9,000, the bank also made a formal demand for repayment of the whole of the loan. Possession proceedings were commenced on 19 May 1998. The bank claimed that arrears amounting to some £119,000 odd and £10,000 odd respectively were owing on the two accounts. 
10.	The appellant was unrepresented at that time. She served a defence. She did not deny any of the facts alleged by the bank, but she made a proposal for the consideration of the court that she be allowed 12 months grace to sell the club as a going concern. Meanwhile she offered to pay £300 per week to the bank. She mentioned in her defence that she had a “live in flat” above the premises and “I am a one parent family with two children”. In March 1999 the appellant served two affidavits in which she made a number of complaints about the way in which the bank had behaved. I do not find it necessary to examine those complaints. 
11.	The case was adjourned by the district judge several times in 1998 but it eventually came on for hearing on 15 March 1999. The district judge made an order granting possession on 26 April 1999. He adjourned the claim for a money judgment generally. 
12.	Ms Miller appealed and the appeal was heard by Judge Appleton on 14 July. He took the view that this was an all monies charge and therefore the legal charge over the property secured not only the loan account but also the current account. He held that, in those circumstances, he had no power to postpone possession. He referred to Birmingham Citizens Permanent Building Society v Caunt [1962] 2 WLR 233. He rejected the appellant's argument that the property included a dwelling on the grounds that, when she executed the legal charge, she was living at a different address which was her then matrimonial home. 
13.	The judge took the view that the long delay during the proceedings meant that the arrears had built up to a position where there was no chance that they, together with the principal sum, could be repaid in a short time. He said: 
“The sad fact is that the business climate which Mrs Miller took a business view on, the market went into reverse and she was unable to sustain trading that would have sustained the loan.”
14.	In her grounds of appeal Ms Miller seeks to raise a number of points. The principal ground is that the bank had wrongly asserted that the premises were not a dwelling. 
15.	The facts relating to the occupation of the upper part of the premises are to some extent shrouded in mystery. This is because, having decided that the relevant date for determining whether the land consisted of or included a dwellinghouse was the date of the grant of the charge, the judge did not go on to determine whether the premises consisted of or included a dwelling at any later date. 
16.	We have been told by Ms Miller that she occupied the flat herself from time to time during the currency of the mortgage. As to the state of affairs in May 1998 when proceedings were started, she was unable to say whether she was in occupation of the flat, or whether Mrs Heather Steele, her then manageress, was in occupation. She does say, however, that at that time the premises were occupied. 
17.	The first question that arises turns on the true construction of section 36(1) of the Administration of Justice Act 1970, which provides: 
“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, not being an action for foreclosure in which a claim for possession of the mortgaged property is also made, the court may exercise any of 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.”
18.	Subsection (2) provides:
“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.”
19.	Section 39(1) provides that a dwellinghouse “includes any building or part thereof which is used as a dwelling”. 
20.	The question therefore arises as to what is the relevant time for determining whether the land consists of or includes a dwellinghouse within the meaning of section 36(1). Is it the time when the charge is granted; or is it the time when the mortgagee “brings an action in which he claims possession of the mortgaged property”; or is it the date of the order belonging to the mortgagee? There appears to be no authority on this point. 
21.	On behalf of the bank, Mr Cogley submits that the relevant date is the date when the legal charge is entered into. He has an alternative submission, which appears in his skeleton argument but which was not developed in oral argument. This is that the question is not answered by reference to any finite time, but rather by reference to the contemplation of the parties at the time the charge was entered into, accompanied by actual use as a dwellinghouse by a permissible party at the time of the hearing. 
22.	There is no doubt that section 36 was enacted in response to the decision in Birmingham Citizens Permanent Building Society v Caunt. In that case it was held that, where a mortgagee had the right to take possession of mortgaged property by virtue of his estate, the court had no power to refuse or suspend an order for possession sought by a mortgagee. At most there arose the limited power to adjourn the application for possession for a short time to give the mortgagor a chance to pay off the mortgage in full or otherwise to satisfy the mortgagee. In essence, the statutory purpose was to afford a degree of protection to a limited class of individuals who were at risk of losing dwellinghouses because of default of their obligations under mortgages. 
23.	Mr Cogley submits that in the present case the purpose of the loan was not to enable the mortgagor to acquire a home or dwellinghouse. The purpose of the charge was to secure all her liabilities to the bank of any kind and, in particular, the obligations in relation to the business loan of £115,000 which had been advanced for the purpose of refurbishing the night club. He further submits that there is nothing in the legal charge or the loan agreement that contemplates the property being used as or consisting of a dwellinghouse. 
24.	To construe section 36 in any other way than that for which he contends, Mr Cogley submits, would be to rewrite the bargain made between the parties: the purpose of the loan and the overdraft secured by the charge was purely of a business nature; the loan was not advanced in order to acquire domestic property. Accordingly, any apparent offending against the social purpose that underpins section 36 in this case, would arise solely by reason of the fact that Ms Miller subsequently sought to occupy the premises. 
25.	I cannot accept these submissions. In my judgment the true interpretation of section 36(1) is that the time at which the land is required to consist of or include a dwellinghouse so as to attract the benefits of the subsection, is the time when the mortgagee brings an action in which he claims possession of the mortgaged property. It seems to me that, as a matter of construction, this is the most natural interpretation of the subsection. It is not a condition of the subsection coming into play that the mortgage is of land which, at the time which the mortgage was granted, consisted of or included (in the past) a dwellinghouse. The present tense is intended to indicate what condition is required to be met at the very time when the mortgagee starts proceedings for possession. 
26.	In my view this interpretation is supported by the plain purpose of the subsection, which is to afford protection to mortgagors of dwellinghouses from the full rigours of the law as explained in Caunt. The court should have the power to adjourn proceedings, stay or suspend execution of a judgment for delivery of possession, or postpone the date for delivery of possession where it is satisfied that the mortgagor of a dwellinghouse is likely to be able, within a reasonable period, to pay any sums due under the mortgage or remedy a default consisting of a breach of any other obligation. 
27.	Mortgagors of dwelling houses are therefore given more favourable treatment than other mortgagors, no doubt because Parliament thought that it was socially desirable that mortgagors of dwellinghouses should have some degree of protection from being evicted from their homes. On the primary construction advanced by Mr Cogley, the relevant date is the date upon which the mortgage was granted. This would mean that, if the land consisted of or included a dwellinghouse when the mortgage was granted, the mortgagor would enjoy the protection afforded by section 36(1) even if he or she subsequently moved out and started to use the land exclusively for business purposes. That would be a very odd result and would be inconsistent with the obvious purpose of the subsection. 
28.	It follows that I must also reject Mrs Cogley's alternative construction of section 36(1). It seems to me, as a matter of ordinary language, that the words “which consists of or includes a dwellinghouse” clearly have a temporal connotation. 
29.	I have already referred to the definition of dwellinghouse in section 39(1). The statute therefore recognises that land may consist of or include a dwellinghouse at one point in time and cease to do so at another. The use of the present tense in section 36(1) makes it clear that the subsection is concerned with mortgaged land which, at a particular point in time, consists of or includes a dwellinghouse, ie is used as a dwelling house. I would therefore hold that the relevant time for determining whether land consists of or includes a dwellinghouse is the time when the mortgagee claims possession of the mortgaged property. 
30.	There was some argument before us by Mr Cogley as to what the position would be if it transpired that at that date the flat in these premises was physically occupied by Heather Steele, the manageress, rather than by Ms Miller herself. Mr Cogley draws attention to the fact that the legal charge contains at clause 4 certain restrictions on the parting with possession of the charged property. Clause 4.1 provides that: 
“The Mortgagor will not without the Bank's prior written consent...
4.1.3 Dispose of or part with or share possession or occupation of the Property the Charged Assets the Goodwill or the Licences.” 
31.	Our attention was also drawn to the decision of this court in Britannia Building Society v Earl & Anor [1990] 1 WLR 422. Mr Cogley submits that, if it transpired that on 19 May 1998 the premises were occupied by Heather Steele without the consent of the bank, then that would, ipso facto, preclude the application of section 36. I do not agree. It seems to me that for the purposes of section 36(1) the relevant question to be determined is whether at the material time (which I have now identified), the land did, as a matter of fact, consist of or include a dwellinghouse as defined in section 39(1). If the answer to that question is “yes”, then section 36(1) is engaged. If, however, the occupation of that dwellinghouse was one which involved a breach of a condition of the mortgage deed, then that would amount to a default within the meaning of section 36(1). 
32.	I have difficulty in seeing how such a default could prevent the premises from being a dwelling house, as defined in section 39(1). The existence of a default is relevant in that the powers given by section 36(2) may only be exercised if it appears to the court that the mortgagor is likely to be able to remedy the default within a reasonable period. It seems that the default in the Britannia case (mortgagor's unlawful creation of statutory subtenancy) was held to be incapable of remedy. The factual situation in the present case has never been determined. 
33.	There has been no finding by the court below as to (a) whether on the 19 May 1998 the subject premises consisted of or included a dwellinghouse; or (b) whether there was a default likely to be remedied in a reasonable period. In my view the appeal must be allowed. I would refer this matter back to the district judge for his reconsideration in the light of this judgment. 
34.	There remains one other issue with which I should deal. It would apparently be raised by the bank on the rehearing before the district judge. It arises from section 8(1) of the Administration of Justice Act 1973, which provides:
“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 secured 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 .... 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.”
35.	Mr Cogley submits that section 8(1) does not apply in this case since under the loan agreement Ms Miller was not entitled or permitted to pay the principal sum secured by instalments, nor was she otherwise entitled or permitted to defer payment of the principal sum in whole or in part. I agree that it is clear that she was not entitled or permitted to pay the principal sum by instalments, since the loan agreement provided for payment of the principal sum after 10 years out of the proceeds of certain personal equity plans. 
36.	Mr Cogley submits that the agreement to pay the principal sum in 10 years' time did not entitle Ms Miller to defer payment of that sum for 10 years. He contends that the reference in section 8(1) to an entitlement or permission to defer payment is a reference to what is sometimes called a “classic” mortgage: that is to say, a mortgage which provides for a fixed repayment date, usually 6 months, but on the footing that it is contemplated that this date will pass without the balance being called in. In that event, the six months' repayment date is deferred. I agree that this would be an example of an entitlement or permission to defer payment within the meaning of section 8(1). The question for this court is whether the arrangement for repayment of the loan of £115,000 in the circumstances of this case also falls within that section. 
37.	Mr Cogley submits that there was no entitlement to defer in this case. The obligation was to repay the £115,000 loan in 10 years' time and no earlier. There was no provision for deferment of that obligation. He relies on the decision in Habib Bank Limited v Tailor [1982] 1 WLR 1218, where this court had to consider whether an overdraft secured by a legal charge attracted the provisions of section 8(1). It held that it did not. In giving the leading judgment, Oliver LJ said at page 1225C:
“Deferment, I think, involves the deferment of payment after it has become due, and quite clearly in this case there appears to me to be no provision, either in the agreement between the parties or in the mortgage itself, by which, on any realistic construction, it can be said that payment by the customer was to be 'deferred', or that the customer was permitted to 'defer' payment. Mr Cutting has in fact submitted that every case where the principal money does not become payable immediately the mortgage is executed is a case where the mortgagor is entitled to defer payment. That is a submission which I find is impossible to accept.”
38.	That decision was considered by this court in the subsequent case of Governor and Company of the Bank of Scotland v Grimes [1985] 1 QB 1179. In that case there was a 25 year loan secured by the grant of a legal charge to the bank on the property. The loan was also secured by the defendants taking out an endowment policy for the sum of the loan. During the currency of the loan there was to be repayment of interest but not the principal sum. The policy was to mature on the date when, under the terms of the mortgage, the capital was to be repaid. It was held at first instance that section 8 of the 1973 Act did not apply because payment of the capital sum was not deferred. The Court of Appeal allowed the appeal. Sir John Arnold, President, referred to the passage in the judgment of Oliver LJ, which I have just quoted, and then said at page 1189E:
“Habib Bank Ltd v Tailor was a case in which what was before the court was a charge to secure an ordinary banking overdraft so that the subject matter of the debt was one which was due immediately upon the making of an unconditional demand. That is a rather different case, at least socially, in regard to the purpose of this legislation, from the present case where what is primarily in question is a mortgage of a fixed sum for a fixed term. I do not find anything in Habib Bank Ltd v Tailor which prevents this court giving to the conception of 'deferred payment' a definition which includes any case in which there is a stated period before the end of which payment does not require to be made which extends into a defined future, and it seems to me that that condition is satisfied by the language of the agreement which, in its extended interpretation, which is not in dispute, is imported by the language 'period of loan 25 years'. It seems to be, therefore, that it can without doing violence to the language of the section and by way of giving effect and purpose to this section, be construed in that way so that there is, thus looked at, a provision here for deferred payment to be found in the agreement. There is no question but that there is also a provision for earlier payment in the event of any default, because that is to be found in clause 4 of the agreement. It seems to me, therefore, that this is a case in which section 8 of the Administration of Justice Act 1973 applies to modify and control the language of section 36 of the Administration of Justice Act 1970 and for that reason I would allow the appeal.”
39.	Griffiths LJ agreed. He noted that;
“There are broadly two conventional methods by which people buy houses. The first is the instalment type mortgage taken out with the building society; the other method is to borrow the money from the bank and at the same time take out an endowment policy which, when it matures, will provide sufficient money to pay off the mortgage.”
40.	He then considered the 1970 Act and the relief which that Act was intended to provide. At page 1190F he said:
“It seems to me that it would be highly improbable that Parliament would intend such relief to apply only to instalment mortgages taken out with a building society and not to apply to the alternative and increasingly popular form of finance by loan from a bank, backed by an endowment policy. I am satisfied, for the reasons given by Sir John Arnold P. that the wording 'or otherwise to defer payment of it in whole or in part' are deliberately inserted to cover this second type of mortgage transaction where there is no obligation to repay the capital until the end of the term of the loan.
Like my Lord, I do not think that this court is driven by Habib Bank Ltd v Tailor in which the court was never considering the problem currently before us, to hold that any different and more literal construction should be applied. It is very difficult to give a literal construction to this section for the reasons that have already been elaborated by Sir John Arnold P; it must be given a purposive construction, and, giving it that construction, I am quite satisfied that it covers the present transaction and that for these reasons, and those given by Sir John Arnold P., this appeal should be allowed.”
41.	Mr Cogley did faintly seek to distinguish Grimes from the present case. But they share in common the crucial fact that in each case the contractual obligation to repay the capital sum is deferred, and there is no further deferral of the obligation to repay the capital sum beyond that date. In reality, Mr Cogley was driven to submit that Grimes was wrongly decided, is inconsistent with Habib and that this court should follow Habib. 
42.	In my judgment, it would be wrong for this court not to follow Grimes. If Habib had not been considered in Grimes, the position might well have been different. It is plain, however, that in Grimes the Court of Appeal did consider Habib most carefully and, applying a purposive construction to section 8(1), felt able to hold that the requirement of a payment of capital being deferred was satisfied in that case. 
43.	In my judgment, it is impossible to distinguish Grimes, and Grimes should be followed in this case. On that basis section 8(1) of the 1973 Act does apply to this case if the provisions of section 36(1) of the 1970 Act are satisfied. 
44.	For the reasons mentioned earlier, I would allow this appeal and remit the matter for rehearing before the district judge. 
45.	LORD JUSTICE KENNEDY: I agree. I agree with my Lord's interpretation of section 36(1) of the 1970 Act for the reasons he has given. I also agree with what he said about section 8 of the 1973 Act as considered by this court in the case of Grimes. It may be worth adding that that was a decision of this court in 1985 and, consequently, it is decision on which, as I understand the position, other courts have been relying for a period now of 16 years. 
Order: Extension of time granted. Permission to appeal allowed. Appeal allowed with costs of appeal assessed in the sum of 12 hours at £9.50 per hour plus out of pocket expenses. Order for possession to be set aside and the action be remitted to the District Judge. Leave to appeal to the House of Lords refused.
(Order does not form part of approved judgment)