LAW REPORT: Arrears can be paid over full mortgage term

14 December Cheltenham & Gloucester plc v Norgan; Court of Appeal (Lord Justice Evans, Lord Justice Waite and Sir John May); 5 December 1995

In deciding what was a "reasonable period" in which to allow a defaulting mortgagor to repay arrears of interest, and pending which to suspend the grant of possession to the mortgagee, the court should take as its starting-point the full length of the remaining term of the mortgage and calculate the instalments accordingly. The existing practice of imposing a shorter fixed period of two or more years should no longer be followed.

The Court of Appeal allowed an appeal by the mortgagor, Mrs Christina Norgan, against the ruling by Judge O'Mally, sitting in Shaftesbury County Court on 27 June 1994, that she should be allowed no more than four years to repay to the mortgagee, Cheltenham & Gloucester plc (formerly Cheltenham & Gloucester Building Society), arrears of interest then amounting to pounds 20,000 under a term mortgage that was to have lasted until 2008, and that she should thereafter be granted no further stay of a possession order obtained by the mortgagee in 1990. The case was remitted to the judge for reconsideration.

Miles Croally (Clement Jones, Bognor) for the mortgagor; Malcolm Waters (S.J. Crawshaw, Gloucester) for the mortgagee.

Lord Justice Waite said that under under section 36 of the Administration of Justice Act 1970 the court could adjourn possession proceedings or stay, suspend or postpone any possession order granted to a mortgagee, "for such period . . . as the court thinks reasonable" and subject to any conditions it thought fit, where the mortgaged land consisted of or included a dwelling house, "if it appears to the court that . . . the mortgagor is likely to be able within a reasonable period to pay any sums due under the mortgage or to remedy the default . . ."

The words "any sums due" were initially interpreted as referring to the entire mortgage debt but section 8 of the Administration of Justice Act 1973 provided that "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 repayment of the whole sum in the event of default.

Thus in the common situation where, as in this case, the whole mortgage debt became repayable upon any default in the payment of instalments, the court in exercising its discretion under section 36 of the 1970 Act could now treat the "sum due" as being only the arrears of instalments or interest.

The question then arose as to what was a "reasonable period" to allow the mortgagor to bring the repayments up to date. The judge said that in his experience "a period of two to four years is the maximum that will ordinarily be allowed".

But Mr Croally, relying on dicta in First Middlesborough Trading & Mortgage Co Ltd v Cunningham [1974] P & C R 69 at 75 and Western Bank v Schindler [1977] Ch 1 at 14, contended there was a primary assumption that a reasonable period was the term of the morgage, which in this case had 13 years left to run.

Although his Lordship would not go so far as to make it an "assumption", it did seem that the logic and spirit of the legislation required the court to take as its starting-point the full term of the mortgage and to pose at the outset the question: would it be possible for the mortgagor to maintain payment-off of the arrears by instalments over that period?

Such an approach would demand a more detailed analysis of present figures and future projections than had hitherto been customary. Borrowers might need to provide a detailed budget. The court would also have to resolve disputes over how much of the outstanding debt should be attributed to interest and how much to principal. But such problems should not be allowed to stand in the way of giving effect to the clearly intended scheme of the legislation.

Lord Justice Evans and Sir John May concurred.

Paul Magrath, Barrister