This case considered whether the statutory power of sale of a mortgagee without a court order infringed the European Convention for the protection of Human Rights and Fundamental Freedoms (the Convention).
The defendants charged a property as security for a loan in 2004, but they fell into arrears. In 2006, the mortgagee appointed joint receivers over the property pursuant to the powers contained in Section 101 of the Law of Property Act 1925 and a separate condition contained within the provisions of the mortgage deed.
The receivers sold the property at auction. The property was sub-sold and the eventual purchaser then issued proceedings for possession of the property, claiming that the defendants were trespassing.
The defendants contended that the sale mechanism in s101 was not compatible with the Convention. Article 1 of the First Protocol to the Convention provides:
"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. The preceding provisions shall not, however, in any way impair the right of a State to enforce such laws as it deems necessary to control the use of property in accordance with the general interest or to secure the payment of taxes or other contributions or penalties".
The court decided that the exercise of a statutory power of sale under s101 following default by the mortgagor was not a deprivation of possessions within the meaning of Article 1 of the First Protocol to the Convention.
The court held that s101 was as far removed from the concept of state intervention into private rights through overriding legislation, which lies behind Article 1, as it is possible for legislation to get. It was neither rigid, arbitrary or discriminatory, and its effect was not only apparent on the face of s101, but (in the present case) spelt out in the terms in the mortgage itself.
In any event, even if Article 1 was engaged, the court thought that any supposed deprivation of possessions was justified in the public interest.
Where a property is sold by a mortgagee under its power of sale in s101, the Convention will not provide a defence to a claim for possession against the mortgagors. The sale in this case was by receivers appointed by the mortgagee. S101 does not award the power of sale to receivers but they had been given this power contractually in the mortgage deed. The principle decided by this case applies equally to sales by mortgagees under s101 and receivers lawfully appointed to act for them.
This decision should aid the marketability of properties which are being sold where the mortgagor is still in occupation.
Horsham Properties Group Limited – v – Clark and Another