Surely receivers can obtain possession against an individual borrower....can’t they?

The above is a simple enough question, but it turns out to be one that the court has not previously determined in a reported decision.

Receivers were appointed by lenders over the borrowers’ property. As the borrowers were individuals, the receivers, as agents, were effectively seeking possession against their principals without express authority to do so.

The Judge’s solution to this problem was to construe the receivers’ power to take possession as one that can be asserted against individual mortgagors, notwithstanding the agency issue and, if he was wrong on that point, he implied a term to the mortgage in favour of the receivers that the borrowers should give up possession if required to do so.

However, the receivers were not parties to the mortgage so the Judge also weaved a way through the provisions of the Contracts (Rights of Third Parties) Act 1999.

The Judge then had to consider whether the borrowers could seek the Court’s discretion in making a possession order pursuant to section 36 of the Administration of Justice Act when that Act, on the face of it, did not apply as the possession action was taken by the receivers, not the lender.

However, the Judge found that the borrowers could request the court to exercise its discretion as the receivers derived title from the lender for the purpose of the section and therefore the receivers fell under that section’s ambit.

Whilst the Judge has stretched some legal principles, this has been done in the name of commercial common sense. The decision, subject to any appeal, may resolve the issue, but, notwithstanding that receivers will not be party to a mortgage granted by individuals, lenders may want to bolster their terms with individual borrowers. 

The issue does not arise for corporate borrowers as the receiver can act as agents of the borrower against those third parties asserting possession, whether on behalf of the company or otherwise.

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