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Citation: 18 Legal Stud. 279 1998

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Combating the mortgagee's right to
possession: new hope for the mortgagor
in chains?
Martin Dixon
University Lecturer in Law, Robinson College, Cambridge

The need for certainty about the scope of the court's jurisdiction to interfere with
a mortgagee's right to possession of a dwelling house following default by the
mortgagor needs little emphasis. Much is at stake, and unless the mortgagor can
plead some substantive defence such as undue influence,2 the mortgagor faces
losing what is usually the family home. Until relatively recently, this certainty
has existed and the extent of the court's jurisdiction to control or deny a
mortgagee's possessory rights has not been in issue, the focus being instead on
the narrower question of how the court's recognised powers should be exercised.3
However, a number of recent decisions, including Cheltenham and Gloucester
plc v Krausz,4 Cheltenham and Gloucesterplc v Booker5 and Bristol & West
BuildingSociety v Ellis and Ellis,6 have prompted more fundamental questions.
They raise the possibility, first suggested but not explored in Palk v Mortgage
Services Fundingplc,7 that the extent of the court's jurisdiction to suspend or
otherwise deny a mortgagee's right to possession is not as narrow as is commonly
maintained, at least where the mortgagorproposesto sell the mortgaged property.
It is the purpose of this article to re-examine the old certainties in the light of a
number of recent cases and to assess whether there is a new jurisdiction, or a new
use for an old jurisdiction, on which the mortgagor can rely when combating the
mortgagee's possessory rights.
The possibility of new hope for the defaulting mortgagor cast a first shadow
in Palkwhere the jointly-owned house was mortgaged for a sum in excess of its
subsequent market value: so-called 'negative equity'. Following repayment
arrears and the bankruptcy of one of the mortgagors, the mortgagee obtained an
order for possession, not in order to sell with vacant possession but to let the
property pending an anticipated increase in house prices. However, during the
intended forced lease of their home, the Palks' total debt would continue to rise
because the prospective rental income would be less than the accumulating
interest. Mrs Palk therefore applied for an order for sale under s 91(2) of the
Law of Property Act 1925 (LPA) knowing that this would terminate the mortgage

1. My thanks go to a number of my colleagues who have reviewed earlier drafts, in

particular Richard Castle and Stuart Bridge of the University of Cambridge.
2. The relationship between claims of undue influence and possession proceedings is
illustrated by Albany Home Loans v Massey [1997] 2 All ER 609 and below n 50.
3. See now Cheltenham and GloucesterBuilding Society v Norgan [1996] 1 WLR 343.
4. [1997] 1 All ER 21.
5. [1996] TLR 656.
6. (1997) 73 P & CR 158.
7. [1993] Ch 330.
280 Legal Studies

and stop the interest clock. The possession order was suspended pending the
outcome of this application. In fact, the Court of Appeal had no hesitation in
ordering a sale. Noting that the mortgagee wished to keep the mortgage alive in
order to gamble on rising house prices while at the same time loading Mrs Palk
with all the risk,' Nicholls V-C9told the mortgagee that, if it wished to speculate,
it should buy the property for its open market value. In his view, s 91(2) gave
the court an unfettered jurisdiction to order sale of mortgaged property which
could be exercised contrary to the wishes and strict rights of the mortgagee. In
short, he would exercise ajurisdiction to deny the mortgagee's right to possession
through a forced sale of the property (with consequential termination of the
mortgage) even though this would not realise enough money to discharge the
capital debt. Clearly, this is the assertion of a powerful jurisdiction, for it leaves
the mortgagee with only personal remedies.
There is no doubt that s 91(2) of the LPA is cast in wide terms. It provides
that:
'In any action, whether for foreclosure, or for redemption, or for sale, or for the
raising and payment in any manner of mortgage money, the court, on the request
of the mortgagee, or of any person interested either in the mortgage money or in
the right of redemption, and, notwithstanding that-(a) any other person dissents;
or (b) the mortgagee or any person so interested does not appear in the action;
and without allowing any time for redemption or for payment of any mortgaged
money, may direct a sale of the mortgaged property, on such terms as it thinks
fit, including the deposit in court of a reasonable sum fixed by the court to meet
the expenses of sale and to secure performance of the terms.'
As noted above, this ability to direct a sale 'on such terms as [the court] thinks
fit' gives a wide discretion with no apparent concern for the mortgagee's
possessory rights.' 0 Certainly, this was the view in the later case of Barrett v
Halifax Building Society," where the mortgagee resisted the mortgagors'
application for sale under s 91(2) (after its possession order had been suspended)

8. See Mrs Palk's standard personal covenant to repay all outstanding sums. The point
raised by E L G Tyler and R Oughton in Fisher& Lightwood's The Law of Mortgages
Supplement to the 10th edn (London: Butterworths, 1994) p A88 that Mrs Palk could
have crystallised her liability by presenting her own petition in bankruptcy fails to meet
the point: viz that her liability prior to such a petition would continue to rise under the
scheme proposed by the mortgagee.
9. With whom Butler-Sloss LJ and Sir Michael Kerr agreed.
1O.The forerunner of s 91(2) is s 48 of the Chancery Amendment Act 1852, which gave
the court power to order sale in foreclosure actions. This was replaced by s 25(2) of the
Conveyancing and Law of Property Act 1881 (which became s 91(2)) in order that the
court could order sale '[i]n any action'. At first blush then, s 91(2) would seem to comprise
a discretion to order sale where other proceedings already are afoot (eg Woolley v Colman
(1882) 21 ChD 169). However, a jurisdiction to order sale in an action commenced de
novo for that purpose is found in s 91(1), which provides that 'any person entitled to
redeem mortgaged property may have a[n] ... order for sale instead of redemption in an
action brought by him either for redemption alone, or for sale alone or for sale or
redemption in the alternative'. So, in strict terms, a mortgagor's application for sale alone
flows from s 91(1) and is regulated by s 91(2). It is a wide-ranging jurisdiction to order
sale whether or not the mortgagee is taking steps concurrently to enforce its security.
11.(1995) 28 HLR 634.
 Combating the mortgagee's right to possession 281

on the ground that it was its policy not to permit borrowers in negative equity to
conduct a sale, even if a 'repossession sale' would realise a lower price. The
judge decided that this policy was not a weighty factor in the scales of his
statutory discretion and granted the sale. Again, in the recent Polonski v Lloyds
BankMortgagesLtd, 2 an application for sale under s 91(2) was granted, despite
the mortgagee's opposition, this time because the court felt that the social
advantages of a sale for the mortgagor outweighed the commercial disadvantages
to the mortgagee. '3
Understandably, perhaps, the use of the power to direct sale in destruction of
the mortgagee's right to possession generated much concern among commercial
lenders, not least because termination of the security by sale in 'negative equity'
cases forces reliance on the mortgagor's personal covenant to repay. 14 This
concern was heightened by the fact that the judgments in Palk or Barrettdo not
explain the source of the court's jurisdiction to suspend the mortgagee's right
to possessionjust becausethe mortgagor had applied for sale. Given the practical
importance of the suspensory jurisdiction, this omission was certain to be
challenged. In Cheltenham and Gloucesterplc v Krausz15 the mortgagee had
obtained an order and warrant for possession but the mortgagors negotiated a
sale for some 18,000 less than the outstanding debt and applied for suspension
of the order and warrant prior to pursuing an application under s 91(2). Counsel
for the mortgagee opposed the suspension by pleading simply that the court had
no jurisdiction to suspend on these facts. For its part, the Court of Appeal accepted
that a legal mortgagee has a right to possession of mortgaged premises
independent of any default and subject only to contractual self-limitation 6 and
therefore concluded that possession could be denied only if the court enjoyed,
and was prepared to exercise, a specific jurisdiction to suspend. On the facts of
Krausz, the court found it had no such jurisdiction, although consideration was
given only to the possibility of suspension under s 36 of the Administration of
Justice Act 1970 (as amended by s 8 of the Administration of Justice Act 1973).
Necessarily, this meant that the application for sale under s 91(2) could not be
successful.
The Krausz analysis does not sit well with Palk and Barrett.The court does
not explain why suspension of possession and a sale were possible in the two
earlier cases but outside the court's jurisdiction in this instance. Of course, it is
accepted that a mortgagee in such cases is relying on its right to possession and
that a court may deny or moderate such right only when employing some specific
jurisdiction. Yet the decision in Krausz generates uncertainty about this specific

12.(1997) Times 6 May.

13.The mortgagee was not seeking possession but had refused consent to the discharge
of the mortgage through sale on the reasonable ground that the proceeds would not meet
the debt and that the mortgagor had no other moneys.
14.An action on the mortgagor's personal covenant to repay is not attractive to a
mortgagee seeking quick settlement of the debt. Further, it might lead only to bankruptcy.
The prospects are brighter if the mortgagee has the benefit of mortgage indemnity cover.
15.[1997] 1 All ER 21. This post-dated Palk and Barrettbut preceded Polonski.
16.Most mortgages of a dwelling house contain a mortgagee's covenant not to seek
possession unless specified events occur, usually relating to the mortgagor's default: see
Midland Bankplc vMcGrath [1996] EGCS 61. Such a term can be implied in instalment
mortgages: Esso Petroleum v Alstonbridge Properties[1975] 1 WLR 1474.
282 Legal Studies

jurisdiction in negative equity situations and, given the vagaries of the housing
market, it is an uncertainty with substantial practical implications. More
particularly, is Krausz correct to assume that the only wide-ranging jurisdiction
to suspend possession is that found in s 36 of the AJA 1970 and, even then, how
are Palkand Krausz to be reconciled? In fact, a closer look at these cases suggests
that there are three alternative general jurisdictions to suspend a mortgagee's
possessory rights7 and that at least one is of particular use to a mortgagor in
negative equity.'

I SECTION 36 ADMINISTRATION OF JUSTICE ACT 1970

The view taken in Krausz is that possession cannot be denied unless the
mortgagors can bring themselves within the jurisdiction conferred by s 36 of
the AJA 1970 (as amended). The history of this section is well known and needs
only brief repetition.'" Prior to s 36, it was generally assumed that there was no
power to suspend a mortgagee's right to possession save in the exceptional
circumstances of the court's inherent jurisdiction. An attempt to introduce a wide-
ranging jurisdiction was made by Practice Directions in 1936 and 1937 and
confirmed by Rules of the Supreme Court, 9 but in Birmingham Citizens
PermanentBuilding Society v Caunt Russell J decided that these had had only
procedural effect and could not confer a discretion which did not otherwise
exist.2' So, in that case, when instalments were in arrear, the court found it had
no power to suspend possession pending an inquiry as to whether the mortgagor
could catch up with the repayments, even though the mortgagee could very
reasonably be said to have expected the mortgage to last for its contractual term
provided only that such instalments were in fact paid. The result of Cauntand
the deliberations of the Payne Committee 2 was the enactment of s 36 of the AJA
1970, which granted the court ajurisdiction to suspend possession of a dwelling
house '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...' It is clear, of course, that this jurisdiction is not at large
but exists only if the conditions of the section are made out and, further, that the
power is discretionary and may be refused even if they are met. The question of
what is a 'reasonable period' for the payment of 'any sums due' is imprecise

17.Other statutory restrictions on the mortgagee's right to possession exist in particular

circumstances and are outside the scope of the present article, for example, Limitation
Act 1980, Consumer Credit Act 1974, Rent Act 1977 and the insolvency legislation. See
generally P Brimelow and N Clayton MortgagePossessionActions (London: Longman,
1994).
18.See the Report of the Committee on the Enforcement of JudgmentDebts (the Payne
Committee) 1969 (Cmnd 3909) Part IX, particularly pp 352-364; R J Smith 'The
Mortgagee's Right to Possession - The Modem Law' (1979) 43 Cony 266.
19.RSC Ord 55, r 5(a), as was.
20.[1962] 1 Ch 883.
21.As a result, the discretionary element of Ord 55, r 5(a) was omitted in the 1965 rules.
See generally M Haley 'Mortgage default: possession, relief and judicial discretion' (1997)
17 LS 483, particularly p 485 et seq.
22.Above n 18.
 Combating the mortgagee's right to possession 283

and has caused its own difficulties,23 as has determination of whether the
mortgagor 'is likely to be ably to pay' such sums within the 'reasonable' time. 24
Even so, s 36 is unambiguous in that if there is no 'likelihood' of payment,
possession cannot be suspended, whatever the court thinks of the merits of the
mortgagee's action. What this means in relation to a mortgagor's application
for sale under s 91(2), as a response to a mortgagee's application for possession,
is that absent any other jurisdiction the request for sale cannot be granted -
because possession cannot be suspended - unless the sale will trigger payment
of the entire sum owed (including costs). The practical effects of this in different
situations are considered below.'

1. Mortgagee's possession or mortgagor's sale: positive equity

The simplest case is where the sum owed under the mortgage is less than the
expected value of the property on the open market: that is, where there is a
'positive' equity of redemption. In such cases, provided that a sale is a real
prospect and not some flight of fancy or delaying tactic of the mortgagor, a sale
is 'likely' to release sufficient funds to enable the mortgagor to be able to pay
within a reasonable period any sums due under the mortgage. Consequently, the
court's jurisdiction to suspend possession under s 36 exists and can be exercised
to supplement a mortgagor's application for sale under s 91(2).26 So, in Bristol
& West BuildingSociety v Ellis and Ellis,2 Auld LJ said that the exercise of the
power to suspend required that there 'should be some evidence, or at least some
informal material.., before the court of the likelihood of a sale the proceeds of
which will discharge the debt' .28 Although one can never be certain in matters
of discretion and judgment, this appears to rule out mere promises to sell or
attempts to remain
29
in possession under cover of a promised, but wholly unrealistic
attempt to sell.

23.The analysis in Cheltenhamand GloucesterBuildingSociety vNorgan [1996] 1WLR

343 is now reflected in The Supreme Court Practice1997 vol 1, para 88/5/9, noted in
All ER Rev 1996, p 61.
24. "'Likelihood" is a question of fact to be determined by the judge on the evidence before
him', per Sir John Pennycuick in Royal Trust Co v Markham [1975] 1WLR 1416 at 1422.
25.The following section discusses the circumstances in which the s 36 jurisdiction exists.
For an analysis of the difficulties facing the courts in exercising the discretion given by
that jurisdiction see Haley, above n 21.
26.Royal Trust Co vMarkham [1975] 1WLR 1416. In such cases the mortgagee usually
will not oppose sale (and will not be seeking possession) unless there are other outstanding
areas of default, see below n 60.
27.(1997) 73 P & CR 158.
28.Tbid at 162. See also Mortgage Service Fundingplcv Steele (1996) 72 P & CR D40,
where a mortgagor's request was rejected as being based on 'utterly flimsy' evidence as
to the prospects of a sale. Contrast with the generosity shown the mortgagor in National
andProvincialBuilding Society v Lloyd [1996] 1All ER 630 and see Haley, aboven 21,
at pp 494-495.
29.For example, where the mortgagor deliberately overvalues the property or seeks to
delay completion for an unjustified period. In Ellis,Auld LJ also was of the view that the
terms of a suspension should be less generous if the sum owed was close to the market
value of the property.
284 Legal Studies

2. Mortgagee's possession or mortgagor's sale: negative equity

As a result of Krausz, it is also clear that in cases of negative equity where the
mortgagee is seeking possession with a view to a 'repossession sale', there may
be no jurisdiction to suspend under s 36 of the AJA prior to an application for
sale under s 91(2) of the LPA. This is simply because the court's jurisdiction
under s 36 requires a likelihood that the entire debt be repaid as a consequence
of the sale. In short, when acting under s 36, the court has no power to suspend
possession in the absence of evidence that the mortgagor is able to meet the 30
shortfall between the proceeds of sale and the total debt from other sources.
As Phillips LJ says in Krausz, 'the very specific delimitation of the power given
by s 36 makes it clear that the legislature did not intend that the court should
have any widerjurisdiction to curtail the mortgagee's right to possession'. 3' In
the absence of evidence of the availability of additional funds, Krausz decides
that possession must be granted and the mortgagor's application for sale under
s 91(2) denied. On the assumption that all rests 3on
2
s 36, the result is that Barrett,
at least, must be regarded as wrongly decided.

3. Mortgagee's possession for retention or mortgagor's sale:

negative equity
The above two scenarios might be thought to exhaust all possibilities, for either
the sale of mortgaged property will, or will not, result in the payment of 'any
sums due' as required by s 36. There remains, however, the decision in Palk,
like Krausz in the Court of Appeal. As noted above, the facts of Palk were
materially different from Krausz in that the mortgagee had sought possession
not as a prelude to sale but in order to let the house and speculate without risk
on rising house prices.33 Moreover, in Krausz neither Phillips LJ or Millett LJ3 4
directly address the correctness of Palk, although Phillips LJ is prepared to
distinguish the case on the simple ground that no challenge appears to have been
made then to the court's assumption that it enjoyed the.jurisdiction to suspend
3
the right to possessionY. Millett LJ decides that Palk is no authority for the
suspension of possession where the mortgagee is 'taking active steps to obtain
possession and enforce its security by sale', especially in cases of negative

30.The relevant condition in s 36 is that 'as a consequence' of suspension of possession

the mortgagor must be likely to be able to pay any sums due. So, as long as the suspension
permits a sale, which then permits the mortgagor to discharge their liability, it matters
not that the balance is furnished from other funds.
31.[19971 1 All ER 21 at 30.
32.In Krausz, Phillips LJ notes that 'the procedure followed and the decision reached in
Barrett'scase tend fundamentally to undermine the value of the mortgagee's entitlement
to possession' [1997] 1 All ER 21 at 27. Millett LJ was more direct, noting that he had
'serious doubt whether that case was rightly decided' (ibid at 31).
33. In Krausz the mortgagee also had obtained a warrant for possession which had fallen
due for execution. The court makes little of this, preferring to distinguish Palk because
no challenge was made to the jurisdiction, not because the mortgagee in that case had
travelled a shorter distance on the path to possession. See also below nn 38, 56.
34.Butler Sloss LJ agreed with both judgments. In Palkher Ladyship had agreed with
Nicholls V-C.
35.[1997] 1 All ER 21 at 25.
 Combating the mortgagee's right to possession 285

equity.16 In fact, the tone of Krausz is that, believing s 36 to be the relevant source
of the suspensory jurisdiction, Palk is also wrongly decided and possibly per
incuriam.3 7 Indeed, given that a mortgagee does have an immediate right to
possession subject only to the terms of the mortgage, there seems little that can
be done under s 36 for a mortgagor in negative equity. It is difficult to see how
the decision under s 36 in Palk-type cases could be any different from that of
Krauszjust because the mortgagee wants possession for purposes other than an
immediate sale and just because the mortgagor applied initially for sale rather
than suspension of possession. Phillips and Millett LJJ's attempt to distinguish
Palkiswell made but, it is submitted, without substance. In all cases, s 36 focuses
on the mortgagor's prospects, not the mortgagee's intentions. The all important
question remains the same: as a consequence of suspension of possession, is the
mortgagor likely to be able to pay any sums due under the mortgage? If there is
negative equity, and no other funds to meet the debt, suspension under s 36 is
not possible. So, if the suspension in Palk really does rest on s 36 (as amended),38
the factual differences between it and Krausz do not justify a difference of result.
The conclusion that Palk is wrong and should be confined to its peculiar facts is
not a particularly welcome one. Nicholls V-C's judgment in Palk explores fully
the reasons why the mortgagee's course of action is repugnant to the court and
his reasons for intervention cannot be dismissed lightly. 39 The search for a
jurisdiction to suspend possession when a mortgagor applies for sale must go
beyond the limited scope of s 36 if the court is to be able to deal effectively with
the issues raised by Palk,Barrett and Polonski.

36.Ibid at 31. He does not explain why there should be a difference between enforcing
the security by possession leading to a sale (Krausz) and possession not leading to an
immediate sale (Palk).
37.For example, Royal Trust Co of Canadav Markham [1975] 1WLR 1416 was neither
discussed, nor apparently cited, to the court in Palk.
38.The fact that a warrantfor possession had been issued in Krausz but only an order
for possession granted in Palk is not material for a s 36 application. Although the need
for suspension necessarily was more urgent in Krausz, in both cases the heart of the matter
is the existence- if any- of ajurisdiction to suspend. Unless the jurisdictional statute is
so limited, the fact that a mortgagee with a warrant is closer to obtaining possession (even
if the warrant has fallen due) does not defeat the jurisdiction. If the mortgagor could have
paid any sums due in Krausz after the warrant had fallen due (eg the mortgagor had won
the lottery), s 36 would have been available.
39.In Fisher&Lightwood (above n 8) atp A88, the view is expressed that the mortgagee's
action in Palk was 'a commercial decision taken in good faith' vindicated by the
subsequent fall in interest rates that would have reduced the gap between Mrs Palk's
continuing liability and the anticipated rental income. That the mortgagee acted in good
faith to obtain the maximum advantage from the mortgage does not make its action any
more palatable or indicate that it should tip the scales ofjudicial discretion. That its action
is given a rosy glow by later events is irrelevant.
286 Legal Studies

II THE INHERENT JURISDICTION TO SUSPEND POSSESSION

That the court has a residual power stemming from its inherent jurisdiction to
control a mortgagee in the vindication of its right of possession is not contested.
However, while no case disputes the existence of the jurisdiction, most echo the
court in Cheltenham and Gloucesterplc v Booker1 that it is 'a strictly limited
residual jurisdiction to postpone the giving of possession to the lender for a short
period in order to enable the property to be sold by the borrower' .41 It is not
suggested here that the inherent jurisdiction is a broader, hitherto undiscovered,
shield that can be deployed at large to defer possession while a mortgagor pursues
a sale of the property. Yet it is important to appreciate the true limits of the
inherent jurisdiction so that the opportunity to use it in appropriate circumstances
is not overlooked. The classic statement of the extent of the court's inherent
jurisdiction is found in the judgment of Russell J in Birmingham Citizens
PermanentBuilding Society v Caunt.43 As he decides, the court has no jurisdiction
to resist a claim for possession by a mortgagee under an instalment mortgage
where the whole moneys have become payable, save for the (then) 'sole
exception' to adjourn for a short period to give the mortgagor a chance of paying
off the mortgage in full. Notice, however, that Russell J is careful in his
description of the court's powers. He does not say that the only inherent
jurisdiction is that which he identifies, but that it is the 'sole exception' to the
principle he states. What then does the inherent jurisdiction as whole comprise
when seen in a broader context?

1. The minimum inherent jurisdiction

For all mortgages, the court's minimum power is to postpone possession contrary
to the wishes of the mortgagee while the mortgagor pursues payment of all the
sums owed - in essence, it is suspension so that the mortgagor can redeem in
full." The postponement may be 'for a short time', but it must be so that the
mortgagor can settle the debt. So, if the mortgagor proposes to settle by a sale,
there must be clear evidence that a sale is going to happen. The jurisdiction does
not exist to enable the mortgagor to seek a sale, nor make payments of any
instalments in arrear: its purpose is to enable the mortgagor to bring the mortgage
to an end swiftly, not to perpetuate it. However, if these circumstances exist,
the jurisdiction exists independently of s 36 of the AJA 1970, so that, for example,
the power is not confined to mortgages of dwelling houses and the court is not
interested in the 'reasonableness' of the duration of the postponement. Nor is
the court bound by s 36 authority on the meaning of 'likelihood' of payment/
redemption, although in all probability the burden on the mortgagor to prove
redemption 'in a short time' under the inherent jurisdiction is greater than that
for proof of 'likelihood' under s 36. So tying the inherentjurisdiction to questions

40.The jurisdiction is that of the High Court, available in proceedings in the county court
by virtue of s 76 of the County Courts Act 1984.
41.[1996] TLR 656.
42.Ibid at 656.
43.[1962] 1 Ch 883.
44.Eg by finding another willing mortgagee.
 Combating the mortgagee's right to possession 287

of sale in cases where the proposed sale will not result in payment of the entire
sum owed (ie where s 36 of the AJA is not applicable), there must be a near
certainty of a sale and evidence that the mortgagee can be satisfied by 'top-up'
payments or by some other compromise. However, if full redemption is possible,
it also appears that the mortgagor would not in any event have to make an
application under s 91(2) for sale unless the mortgagee was objecting on some
other ground: 4 it would be the exercise by the mortgagor of his or her ultimate
rights over the land.

2. The full scope of the inherent jurisdiction

Russell 's starting point in Caunt was that the narrow, minimum jurisdiction
just described was all that existed in respect of mortgages 'in the ordinary form',
meaning non-instalment mortgages of a kind rarely seen today over dwelling
houses where the total amount is repayable on the due date or thereafter subject
to accumulating interest. He then applies this reasoning to instalment (or 'term')
mortgages, whereby the parties agree that repayment of capital may be spread
over a term of years but where default of instalments triggers a liability to repay
'the whole money' .46 This is entirely consistent with the limited nature of the
inherent jurisdiction as an 'escape hatch' that can be opened only by bringing
the mortgage to an end through redemption. However, reverting to the judgment
in Caunt, these types of mortgage represent the 'norm' in respect of which the
'sole exception' to the mortgagee's right of possession applies. Consequently,
although it is rarely commented on in later cases, there is nothing in the judgment
of Russell J that limits the scope of the inherent jurisdiction in respect of an
instalment mortgage where default does not trigger liability for the whole sum
- that is, where the default is confined practically and legally only to the
instalment outstanding and the mortgage is silent as to the wider consequences.
The nature of the court's inherent jurisdiction in such cases is left expressly
undecided and could encompass suspension of possession to allow payment of
only those instalments owed if formally these are all that are due under the
contract. Unfortunately, even if this is a fair description of the true extent of the
inherent jurisdiction, it is likely to be of little practical use. It is doubtful if there
is an instalment or endowment mortgage in existence whereby default of
instalments does not trigger liability for the whole debt. The fact that s 8 of the
AJA 1973 was required to amend s 36 so as to allow the court to treat 'any sums
due' as being only the instalments in arrear says enough. Consequently, in cases
where the mortgagor wishes to sell, this extended inherent jurisdiction - if it
exists - is likely to be of no practical use.

45. Such as non-performance of related covenants.

46.This reasoning applies, mutatis mutandis, to endowment mortgages where the
borrower pays back interest in instalments and repayment of capital is secured by an
endowment policy maturing at the due date. For both 'term' and 'endowment' mortgages,
default of instalments usually triggers liability to repay the whole capital sum.
288 Legal Studies

3. A yet wider inherent jurisdiction?

Given the court's view of the mortgagee's proposed course of action in Palk,it
is surprising that no reliance was placed on Lord Denning's dictum in Quennell
v Maltby.47 As is well known, in Quennell,his Lordship claimed a wider inherent
jurisdiction to intervene to restrain the getting of possession by mortgagees
'contrary to the justice of the case' or, more specifically, except 'when it is sought
bona fide and reasonably for the purpose of enforcing the security and then only
subject to such conditions as the court thinks fit to impose' .4 So, while the
mortgagee in Palk might claim that it was attempting to enforce its security, it
may be thought that its conduct fell within Lord Denning's injunction to refuse
possession 'contrary to the justice of the case'. However, the opportunity
presented by Palk to clarify the Quennell theory was not taken and the existence
of a wider inherent jurisdiction gains no support from that case, not even by
inference. Indeed, the assertion of the jurisdiction has found little support
elsewhere, although the Court of Appeal in Albany Home Loans v Massey4 9 did
use the dicta to explain why a possession order should not be made against only
one of two joint mortgagors. 0 Consequently, although on a generous view of the
authorities there is nothing to stop the House of Lords asserting a wide inherent
jurisdiction along the lines suggested by Lord Denning in Quennell,neither is there
anything in cases since to suggest that they willW ' As far as Palk-type cases are
concerned, the assertion of an inherentjurisdiction to suspend possession pending
an application for sale would have been appropriate but was not made.

4. A new example of the use of the inherent jurisdiction

Finally in this review of the inherentjurisdiction, it is important to note that there
are other less obvious circumstances where it might be employed to the benefit
of both mortgagor and mortgagee. In Cheltenhamand Gloucesterplc v Booke5 2
the county court judge had suspended the mortgagee's possession order under
the inherent jurisdiction on condition that the sale of the property be entrusted

47.[1979] 1WLR 318.

48.Ibid at p 322.
49.[1997] 2 All ER 609.
50.In Albany the existence of a joint mortgagor not bound by the mortgage and against
whom no possession order could be made is such a powerful factor that it offers little
support for application of the Quennell theory to cases where all mortgagors are bound.
Note also Ashley Guaranteeplc v Zacaria[1993] 1WLR 62 and Sadiq v Hussain [1997]
NPC 19, where the courts, inferentially and without discussion, appear to have accepted
that Lord Denning's view of the inherent jurisdiction might defeat a claim for possession,
although not on the facts of those cases.
51.Lord Denning justified a wider jurisdiction on the ground that equity will intervene
to mitigate the rigour of the law, especially in the law of mortgages, but he does not explain
why the judges in Cauntand cases thereafter had not utilised it. Quennellitself is explicable
on the ground that possession would have been contrary to the Rent Acts: viz that the
plaintiff mortgagee was in all respects an agent of the landlord seeking to avoid Rent Act
restrictions. Similar reliance on statutory protection of tenants was used to defeat a
mortgagee in Woolwich Building Society v Dickman [1996] 3 All ER 204. See also
BarclaysBank plc v Zaroovabli [1997] 2 All ER 19 at 24.
52.[1996] TLR 656.
 Combating the mortgagee's right to possession 289

not the mortgagor, but to the mortgagee.53 This unusual order appears to have
been motivated by a desire to maximise the sale price by generating the illusion
that there was no repossession sale and to provide a roof for the mortgagors
pending sale. It also preserved the mortgagee's control over its security. The
Court of Appeal allowed the mortgagee's appeal and directed that the warrant
for possession be executed, but not before it confirmed that the inherent
jurisdiction did, in theory, permit suspension of possession so that the mortgagee
could sell with the mortgagor in occupation. Again, the circumstances in which
this will aid a mortgagor will be rare, 4 but Booker highlights that suspension of
possession in consequence of a proposed sale of mortgaged property is not
exclusively the preserve of s 36. So, in such a rare case, possession might be
suspended under the inherent jurisdiction so that a mortgagee can sell, even
though the entire debt will not thereby be repaid. Mortgagees faced with
mortgagors in negative equity and who have no other funds would do well to
consider an agreement with the mortgagor to utilise Booker and thereby secure
a marginally better capital return.

Em THE LAW OF PROPERTY ACT 1925, S 91(2)

Although the point seems not to have been argued, the decision in Krausz rests on
the assumption that s 91(2) itself confers no jurisdiction to suspend a mortgagee's
right to possession pending sale by the mortgagor where the sale will not discharge
the entire debt. This is why Krausz doubts the correctness of Barrett and why Palk
was distinguished on the ground that no challenge to the existence of the s 91
jurisdiction was made. However, it is contended below that Krauszmay not reflect
the true position and that s 91 may comprise just such a power. 55

53.The mortgagors could claim no relief under s 36 AJA 1970 being unable to pay sums
due in a reasonable time.
54.According to the court, such an order would be justified if: the mortgagee did not
require possession but was content that theproperty be surrendered direct to the purchaser
on completion; the physical occupation by the mortgagor would enhance (or not diminish)
the sale price; and the mortgagor would co-operate in the sale and surrender possession
on completion. Clearly, this is a consent order and the inherent jurisdiction is simply the
method by which an agreement is carried out. In Booker itself the mortgagors would not
co-operate.
55.As noted, the differences between Krausz and Palk (andBarrett)cannot be explained
by the existence in Krausz of a warrant for possession that had fallen due as opposed to
'only' an order for possession. First, no clear distinction of the kind is drawn in Krausz
itself. Palk and Barrettare distinguished on other grounds. Secondly, in any event, as
with s 36 AJA (see above n 38), ifs 91 encompasses a suspensory jurisdiction there is no
reason why it should be available only in those cases where possession has been ordered
but not when possession is more imminent. There is no such restriction in s 91. In practical
terms, if the court has the power to suspend possessory rights pending sale of the property,
the crucial question is whether the mortgagee actually is in possession, not how many
steps it has taken or how far it has gone to secure it. Even then, as we know from the law
of forfeiture, a plaintiff claiming possession of land as of right but contrary to the rights
of an estate-holder in occupation is not in the strongest position: Bilison v Residential
Apartments Ltd [1992] 2 WLR 152. Hence, the real issue remains: does s 91 contain a
suspensory power?
290 Legal Studies

To date, with the exception of the decisions in Palk and Barrett, the view
taken in Krausz has not been challenged nor tested. There seems to be an
acceptance that no power to suspend a mortgagee's right to possession exists
under s 91(2) alone. It is not hard to understand why. The courts have revered
the mortgagee's possessory rights - rights exercisable without default and subject
only to self-limitation. It is certainly arguable, therefore, that although s 91 was
enacted to extend the court's jurisdiction to order sale of mortgaged property,
that does not mean that it encompassed an implied ancillary power to suspend
possession pending such sale. Possession is not a remedy to be applied for, like
an action 'whether for foreclosure, or for redemption, or for sale, or for the raising
and payment in any manner of mortgage money' within s 91(2). It is a right,
albeit one controlled by the courts and the argument might be that s 91(2) in
terms does not encompass a discretion to suspend possession because possession
does not depend for its legal root on 'any action' by the mortgagee. Similarly,
the history of s 91(2) and its precursors cannot be ignored. As noted above,
previous statute comprised a power of sale in foreclosure actions alone and
s 91(2) might be thought of as a mere extension of this limited power to other
types of actions.56 So, in Caunt, Russell J examined at length the court's
jurisdiction to suspend possession in the days before s 36 of the AJA 1970 and
came to the conclusion that 'the sole exception' was the inherent jurisdiction
described above. There was no mention of s 91(2), although this is not surprising,
given that the case concerned the mortgagor's attempt to keep the mortgage alive
by repaying instalments rather than an attempt to terminate it through sale 7Even
so, there is no mention of a s 91(2) jurisdiction in either the Payne Committee
Report, standard texts or academic comment. Of course, this is not conclusive,
but the fact that there is no precedent for the assertion of ajurisdiction to suspend
under s 91(2) alone, and that it was not discussed when the whole matter was
reviewed by the Payne Committee in 1967, might be thought to raise
insurmountable obstacles.
These are powerful arguments, but they are not in fact insurmountable. As
Sir Michael Kerr said of s 91(2) in Palk, 'it is of the greatest significance that
the subsection not only places no restriction on the exercise of the court's powers,
but that it confers this expressly even when "any other person dissents"' ." With
this in mind, it is important to appreciate that there is nothing special about a
mortgagor selling land over which there is a mortgage: it is an everyday
occurrence, with the mortgage being redeemed via the proceeds of sale. The
mortgagor makes no application to the court to sanction this sale. It takes place
by virtue of the mortgagor's ultimate title to the land and the concurrence of the
mortgagee. Indeed, even if the sale price does not cover the mortgage debt, the
court is not called on to intervene - the mortgagor merely makes up the difference
from other funds. Why, then, simply because the mortgagor is in default prior
to the sale, should the order of the court under s 91(2) be necessary to authorise
the sale at all? The answer is that it is not: rather, s 91(2) is available to a
mortgagor when faced with action by the mortgagee which would otherwise

56.Section 48 of the Chancery Amendment Act 1852, then s 25(2) of the Conveyancing
and Law of Property Act 1881.
57.Strictly, Caunt is not authority that no such jurisdiction exists.
58.[1993] Ch 330 at 341.
 Combating the mortgagee's right to possession 291

prevent a mortgagor's sale, usually by bringing possession proceedings. 9 When

used by a mortgagor, s 91(2) is protective and permissive legislation. It protects
the mortgagor from destructive action by the mortgagee by authorising the
mortgagor to exercise his or her rights as ultimate estate owner in defiance of
the mortgagee's prior claim to pursue such rights as exist or such remedies as
have arisen under the mortgage contract or by virtue of its estate in the land.
Seen in this context, it is perfectly sensible that the power to order sale under
s 91(2) should carry with it an ancillary power to suspend the mortgagee's
possession (or interfere with 'any other action' of the mortgagee) independent
of any other jurisdiction, particularly as the powers of s 91 are exercisable
expressly when 'any other person dissents'.
To make the same point slightly differently, if it is true that a court dealing
with a request for sale by the mortgagor consequent upon default may only
suspend possession under s 36 of the AJA 1970 (as amended) or the limited
inherent jurisdiction - that is, when the sale will pay off the entire sum owed -
what is the purpose of s 91(2) for the mortgagor? If the sale will pay off the entire
sum owed, s 91(2) is not needed to sanction the sale: sale takes place by virtue
of the mortgagor's rights as holder of the ultimate title and, if the mortgagee's
possessory rights need to be suspended,60other powers are available. As before,
the function of s 91(2) is to resolve a conflict between the possessory or other
rights of the mortgagee and the sale rights of the mortgagor - that is, when a
sale will not pay off the entire sum owed and the mortgagee is opposing sale or
pursuing possession. This is well illustrated by Polonski,where the mortgagee's
objection to sale on the grounds of deficiency of security with no chance of full
repayment was overridden because of the social needs of the mortgagor.61 In
short, s 91(2) and its suspensory power is needed precisely because the security
is deficient. It is submitted, therefore, that the essence of the court's unfettered
discretion under s 91(2) is a discretion to determine whose rights shall prevail,
even if the security will not thereby be discharged in its entirety. In a suitable
case, possession can be suspended in order that the mortgagor's right to sell might
prevail.
As a matter of history and interpretation, this conclusion is quite defensible.
It is accepted that the section is remedial one. It was first a mitigator against the
powerful remedy of foreclosure and then an option in all actions concerning the
mortgaged premises. In fact, the history of the section may have generated merely
an assumption that there was no power to suspend possession under s 91(2) and
thereby contributed to its lack of use. Specialist texts refer to the power of sale
under s 91(2) in the context of foreclosure actions, and even today the section is
classified by some as a 'judicial sale' in response to a foreclosure action.6 2

59. Or by refusing to agree to the discharge of the mortgage on account that the debt will
not be repaid, as in Polonski.
60.As where the mortgagee objects to the sale for reasons unrelated to repayment of the
capital, such as non-fulfilment of contractual terms giving valid collateral advantages.
61.The mortgagor was penniless and the mortgagee bound to suffer a shortfall, but a sale
was granted despite objections in order to permit the mortgagor to escape a hostile
neighbourhood for the good of her small children.
62.Fisher & Lightivood's The Law of Mortgages (above n 8) ch 21. For the accepted
wisdom just after the 1925 reforms, see R L Ramsbotham Coote on Mortgages(London:
Stevens, 9th edn, 1927), p 751.
292 Legal Studies

Certainly, the purpose of the precursors of s 91 was to release the court from the
strictures of the foreclosure action, but the court's jurisdiction now comprises a
power to authorise sale 'in any action' on 'such terms as the court thinks fit'.
Likewise, it is entirely consistent with the changes made in 1925 to the way
mortgages could be created that the court should also6 have
3
been invested with a
power to suspend a mortgagee's right of possession.
Apart from making the assumption that it does not comprise a power to
suspend, the court has not interpreted s 91 or its forbears narrowly, merely
recognising that a balancing process must take place.64 As Sir Michael Kerr
stresses in Palk, a simple reading of the section reveals the discretion granted
the court is unfettered, explicitly exercisable contrary to the wishes of 'any
person'.65 No reason is given in Krausz why the section should not be interpreted
according to the plain meaning of these wide words. Granted, it might be rare
for a court to suspend possession pending sale in the certain knowledge that the
mortgagee will suffer a shortfall, but Palkshows that it may be desirable. Neither
is the fact that s 91(2) had not been employed in this way prior to Palkdestructive
of the argument. Instalment mortgages, 'negative equity' and mortgagor's
applications for sale are relatively recent phenomena. It is hardly surprising that
it was not discussed in Cauntor a matter of moment for the Payne Committee:
it was factually irrelevant. Again, as said in Palk, 'It]here can be no relevant
rule of practice when its existence [the power to order sale at the mortgagor's
request with a deficient security] appears never to have arisen for consideration,
let alone be tested'.66 With the exception of Krausz, the cases which seem to
deny categorically the existence of any other general jurisdiction to suspend
possession other than the limited inherent powers and s 36 simply are not
concerned with the s 91 power of sale - they are cases where the mortgagor is
seeking to keep the mortgage alive by deferring possession, or where the
mortgagor has accepted the need for a sale but is arguing about the time he/she
should be given to pursue it under s 36. They do not concern cases where the
mortgagor is seeking to terminate the mortgage by sale contrary to the wishes
of the mortgagee: this is the role of s 91(2).
It is submitted, then, that there is ample justification for utilising s 91 of the
LPA 1925 in the way described: it can encompass a power to suspend a
mortgagee's right to possession pending a sale by the mortgagor, both when the
sale will pay off the debt or, more usefully, when it will not. This latter power
was disregarded by Krausz,67 although it is exactly that which can be used to

63.Although it would be going too far to suggest that s 91 was a direct response to the
changes in the method of creating mortgages after 1 January 1926, it should not be
forgotten that the overwhelming regard for the mortgagee's right to possession originated
at a time when mortgages were created by a complete transfer of all the mortgagor's
interest in the land to the mortgagee. Now that the mortgagor retains the ultimate title, it
is certainly possible that his or her own right of sale should be given equal importance
with the contractual rights of the mortgagee.
64. Woolley v Co/man (1882) 21 Ch D 169; MerchantBanking Co of London v London
and HanseaticBank (1886) 55 LJ Ch 479.
65.[1993] Ch 330 at 341, repeated at 343. See, in the same vein, Nicholls V-C at 340.
66.[1993] Ch 330 at 343, per Sir Michael Kerr.
67.As the matter was not argued, Krausz is open to the charge that material matters of
jurisdiction were not fully explored, just like Palk and Barrett.
 Combating the mortgagee's right to possession 293

explain Palk and Barrett.Its use outside possession proceedings is illustrated

by Polonski. Of course, the immediate response of the mortgagee is to highlight
the 'unfairness' of a mortgagor's sale that does not discharge the debt,68but there
is nothing sacred about a mortgage that requires the mortgagee always to be able
to secure repayment of capital from sale of the land - why else is there a personal
covenant to repay? It is not always unreasonable to require a mortgagee to rely
on this personal covenant - even if the court suspects that a mortgagor's
bankruptcy is the likely result - and it is not the mortgagor's responsibility if
the mortgagee failed to check the personal creditworthiness of its debtor or to
assess correctly the value of its security. Admittedly, the circumstances in which
a court might be prepared to suspend possession and authorise sale by the
mortgagor under s 91 will be unusual. 69 As emphasised already, the power is of
particular use when a sale will not discharge the entire debt, but that does not
mean that it should always be used: Palk is a good example of a proper use of
the power, Barrettpossibly not. Again, the power could be used in those cases
where the sale would pay off the entire debt, but for one reason or another s 36
is not available: if there is no dwelling house, or if the merits lie with the
mortgagor, even though the payment of any sums due is not 'likely' within a
'reasonable time'. Finally, it should not be thought that this new jurisdiction
makes s 36 redundant. It is argued here for a power to suspend possession when
a sale is requested: that is, when the mortgagor wishes to terminate the mortgage.
Section 36 does overlap with this, but encompasses much more not within s 91.
In particular, s 36 encompasses suspension of possession in order to secure
payments of instalments so that the mortgage may be kept alive. For this, s 36 is
crucial.

68.Apparently, a sale by the mortgagee, after obtaining possession, usually at a lower

price and which does not discharge the debt is perfectly acceptable.
69.'I accept, of course, that it must be only in exceptional circumstances that the power
will be exercised against the mortgagee's wishes when a substantial part of the mortgage
debt will nevertheless remain outstanding' [1993] Ch 330 at 343, per Sir Michael Kerr.
In Pearnv Mortgage Business plc (19 January 1998, unreported) Rimer J decided that
an order under s 91 should not be made, on application by the mortgagor, where the
proceeds would fall substantially short of the outstanding debt.