Southern Pacific Mortgage Ltd v V [2015] EW Misc B42 (CC) (19 November 2015)

This is  county court case, but a very interesting one on the issue of disability discrimination in mortgage possession proceedings.

Ms V had a £96,000 repayment mortgage from Southern Pacific by a remortgage in 2004 with a 20 year term. The property was then valued at £185,000.

In early 2007 Ms V became unemployed and was then diagnosed with depression in about April 2008. Her insurance paid the mortgage between February 2007 and November 2008, when it ran out. By mid 2008, Ms V had informed Southern Pacific that she was sick, signed off work and getting insurance payments.  Ms V applied for DWP SMI payments after the insurance ended. In March 2009, Southern Pacific began mortgage possession proceedings. In April 2009, DWP began to pay £79 per week.

From this, it was clear that Southern Pacific “was aware of the Defendant’s disability by the time proceedings were issued and had chosen to proceed to Court nevertheless”. There was nonetheless, no reference to Ms V’s position as  disabled person in any of the Claimant’s file notes, and it was found “that the Claimant gave no thought at all to the Defendant’s position as a disabled person and whether that should have given them pause for thought”.

By April 2009, Ms V’s CAB advisors had requested that Southern Pacific change the mortgage to an interest only  one, which the DWP payments would indeed have covered. After initially saying they would consider this, Southern Pacific wrote saying simply “whilst we endeavour to assist our customers where possible, we are not obliged to alter the terms of the mortgage”, and that transfer to interest only ‘as not available’. In a further letter, they just said “you do not meet our assessment criteria”.

Ms V defended the possession claim on human rights and disability discrimination grounds. She also counterclaimed for disability discrimination.

Southern Pacific maintained up until trial that Ms V was not disabled, despite expert evidence. This position was dropped at the door of trial. Further, the Financial Services Ombudsman had made a recommendation in December 2011 for a 9 month interest only period (not on disability grounds), which Southern Pacific had accepted, but, it appears, failed to implement because it did not show in the accounts provided.

As of the date of hearing, Southern Pacific were claiming £181,703.37 in arrears and legal costs, but they had failed to provide a breakdown of legal costs, in breach of two court orders.

The defence and counterclaim were as follows:

1. Had the mortgage been converted, the amount now owing would be less;
2. The failure to convert was unlawful because it amounts to unlawful discrimination within section 19(1)(b) and section 20(2) of the Disability Discrimination Act 1995 and sections 15, 19 and 21 of the Equality Act 2010;
3. The Court’s powers should be read down to avoid a breach of the Defendant’s article 8 and article 1 protocol 1 rights under the European Convention on Human Rights;
4. Any possession order should be suspended (especially in light of the fact that any sums awarded under the counterclaim may be set off against the arrears).

The court first held that the Human Rights defence could not stand against a private body, given McDonald v McDonald [2014] EWCA Civ 1049.In any event, possession would be proportionate, given the general legitimacy of being able to enforce security. On an A1 P1 defence:

In Manchester City Council v Pinnock [2010] UKSC 45 the House of Lords held that a local authority’s right to possession could be taken as read without any need to plead particular facts; I think that the same applies to mortgage companies. The need for a properly regulated, but at the same time widely available, mortgage market, needs no spelling out. To accede to this defence would be to re-write the contract between the parties and would be, in my view, an unacceptable interference in the business.

On disability discrimination:

i) This was an issue of an ongoing act, not just the date of the issue of proceedings, it being “incumbent on the lender to consider the appropriateness of proceedings at every stage”.

in R (JL) v Secretary of State for Defence [2013] EWCA Civ 449 the Court of Appeal confirmed that it is open to a Defendant to raise issues of human rights even at the stage of enforcement. I cannot see why it should be artificial to break down the procedure in the case of disability discrimination but not when considering human rights. I consider that the question of discrimination must be considered at every stage from pre-action compliance with protocols to the decision to pursue the case to trial, and thence to possession. The disability issues are unlikely to be the same at every stage. Proportionality is a fluid concept. In this case, the legislation has changed over time.

ii) Any steps before 1 October 2010 fell to be considered under the Disability Discrimination Act 1995, as per Lewisham v London Borough of Malcolm [2008] UKHL 43, and thereafter under Equality Act 2010.

iii) Causation – the Court held that Ms V was prevented from working by her disability and it was this that led to the arrears.

iv) Commencing possession proceedings – under Malcolm v Lewisham and DDA 1995,  this was not for a reason related to Ms V’s disability as the Claimant would have brought proceedings for arrears against anyone, so no ‘less favourable treatment’ and no discrimination at that stage.

v) Refusal to transfer to ‘interest only’. This was an issue of ‘reasonable adjustments’.

Under the old Act, the issue was whether “the practice, policy or procedure – the refusal to change to interest only – makes it impossible or unreasonably difficult for disabled persons to make use of the service – the mortgage service”.

The Court found that ‘the service’ was the mortgage over the whole of its life. The switch to interest only would have no effect on Ms V’s ability to redeem the mortgage at the end of its life. While it may make it easier for her to satisfy payments in the meantime, Ms V had not put forward clear evidence of her inability to afford at least some payments towards the mortgage capital while the interest (and some capital element) was covered by the DWP payments. Indeed her income figures suggested some payment may have been possible, but had not been made. So it was not clear that the refusal made it impossible to make use of the service.

But in any event, if this was wrong, the switch to an interest only payment was not a step that the lender should have to take. Following Edwards v Flamingoland Ltd [2013] EWCA Civ 801, an interest only mortgage was a fundamentally different thing to a repayment mortgage.

It is something that would not normally be provided by this lender, just as the Coach House at Flamingoland did not normally provide take-away meals. It would mean imposing on the lender a riskier, more unsatisfactory repayment vehicle.

And then, under s.20 Equality Act:

Again, it is clear that there was a practice: the refusal to change to interest only. I am prepared to accept for these purposes that the obligation to make monthly payments under the mortgage is a relevant matter for these purposes, and that the practice put the Defendant at a substantial disadvantage in relation to paying the mortgage as she was unable to work due to her disability. But then the Act only requires such steps as are reasonable to be taken. For the reasons I have already set out, I do not think that there was ever a time when it was a reasonable step for the lender to forgo its security, having regard to the Defendant’s disability. The security was too speculative. Although it is standard thinking to assume that the value of property will go up, that has not always been the case and the days of negative equity are not far away. 

I would also add this. Even for the Defendant this is not a good solution. She runs the risk of being homeless and heavily indebted in 10 years’ time even if I grant her this relief. She would, in my view, be better off biting the bullet now, moving to a smaller property or a rented property, and having security in that new home, than living on the edge for the next ten years.

For these reasons, the failure to make reasonable adjustments defence failed.

vi) On direct and indirect discrimination – the issue was whether the blanket policy (for so it was) of refusing to transfer to interest only caused particular disadvantage to the disabled, and if so, whether it lacked objective justification.

Assuming that it did cause particular disadvantage, the policy would have objective justification, for the reasons set out above:

It is a legitimate aim to want to protect one’s security; the mortgage market could not survive without that aim being realised. In light of all the circumstances of this case, I consider that it was proportionate to refuse the switch. I agree that in retrospect, it would have been the sensible thing to do, but I have to put myself in the shoes of the lender in 2007-8 and look forward. At that time, there was no certainty that DWP payments would continue, that they would continue at the same rate, and that the house would have a value at the end of the term of the mortgage that would ensure repayment. It is too big a gamble for the Court to compel the lender to take it on, when it is clear that they would not lend in the first place on such terms to anyone. The Defendant argues that as long as the interest is paid, what real impact does it have on the Claimant? But one has to look at the mortgage as a whole, including redemption and whether that can be certain. It was not, in my view, disproportionate for the lender, looking 15-18 years ahead, to think that they would be taking too big a risk. It would not be responsible lending, having regard to the Codes set out above, and the Court should not enforce irresponsible conduct even if that is for a benign purpose as far as the Defendant is concerned.

vii) Can the Defendant rely on section 36 of the Administration of Justice Act 1970?

Applying Bristol & West Building Society v Ellis (1997) 29 H.L.R. 282, there was no evidence that a sale was contemplated, rather the proposal was that Ms V remain for the remainder of the term. Ms V had not made up the shortfall on DWP payments since June 2015 and would struggle to meet even interest only payments currently. It was not right to exercise the s.36 powers to set up the Defendant to fail.

The counterclaim failed, given the discrimination findings above.

Possession ordered. Enforcement and costs to be dealt with at a further hearing.

However, it is worth noting the Court’s displeasure at Southern Pacific’s approach to the proceedings and the hearing.

A striking feature of the case presented by the Claimant is a lack of any evidence as to the reasons for refusing the Defendant’s request to change to interest only. I have summarised above the evidence from the documents. The correspondence at the time demonstrates a lack of reasoning, and rather an automatic refusal. The closest one comes to a proper explanation is the letter to the Defendant prompted by the Ombudsman complaint which is set out at paragraph 28above. I did not hear evidence from the actual decision maker. I have never been told what was in the mind of those writing the letters of 3 July or 10 August 2007. 

What I have had is a series of after the event attempts to rationalise the refusal. These have been unpicked by the Defendant’s advisers one after another. There was a suggestion that it would have been giving the Defendant an advantage that could not be offered to other clients of the Claimant because of the way the mortgage was underwritten; there was a suggestion that she did not meet the criteria, whatever criteria those may have been, and there was the pleaded case that the Claimant had stopped lending and that this would have been fresh lending. None of those cases has stood up in court and I do not propose to waste more time on them in this judgment. It is clear that at all material times the Claimant had the power, had it so wished, to convert the mortgage.

That these explanations were ever advanced at all is poor conduct on behalf of the Claimant. That the Claimant put up two witnesses who continued to try to justify on this ex post facto basis the decision that was made was also poor conduct. That the Claimant has no written policy to deal with issues such as those raised by this case, far from unusual, is very poor indeed. 

It seems to me to be very clear that the Claimant did not give any proper consideration to the request. It was an automatic refusal. They gave no consideration at all to the request that was informed by the fact that the Defendant was under a disability. They therefore gave no consideration to the impact that such disability might have on their decision making process. Possession proceedings were seen as “due course” and there was nothing that could turn them from that course.